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Kempharm: The Ad Comm Numbers Are Not The Real Story

Summary

Today, Kempharm had an advisory committee meeting regarding its current main drug, Apadaz.

The advisory committee voted 16-4 towards approval of Apadaz, but in a last-minute modification to voting questions, also voted 18-2 against inclusion of abuse deterrent labeling.

The numbers don't tell the story of what transpired. It is important to understand that story in order to evaluate the company.

Thursday, Kempharm (NASDAQ:KMPH) had an advisory committee meeting regarding its current main drug, Apadaz. The advisory committee voted 16-4 towards approval of Apadaz, but in a last-minute modification to voting questions, also voted 18-2 against inclusion of abuse deterrent labeling.

There is a potential that trading rules at large institutional firms holding Kempharm will force a sell-off tomorrow (May 6, 2016), despite the likely fact that none of these firms have any real knowledge of what transpired in the full-day advisory committee meeting.

To help investors understand the situation that Kempharm finds itself in, first I will summarize the company, and then the meeting, ending with potential paths the company can take going forward.

Kempharm is a company that has been for many years developing an abuse-deterrent platform that combines commonly-prescribed opioids with ligands -- see www.kempharm.com/pages/technology/. This combination is designed to make sure that a drug is only active when dissolved in the stomach, where the ligand separates from the drug and the effect is realized. Currently, multiple formulations are in development, including the current formulation of hydrocodone with acetaminophen (i.e.: tylenol), and one without.

At this point, I invite readers to view Kempharm's presentation. I will be referring to several slides along the way:

Hydrocodone/acetaminophen is an immediate-release drug designed for pain management. By the nature of the drug, recreational and/or psychological abuse and misuse (i.e.: stolen drug) is fairly high, because unlike an extended-release formulation, the very purpose of hydrocodone/acetaminophen is to provide a near-instant pain relief solution. Although declining in popularity in recent years, in 2015, 40 million patients (5.9b tablets -- see page 25 of slides) were prescribed this drug, which is sold under a variety of generic names such as Vicodin, Xodol, and Norco.

The main value proposition of the company (and its currently pending-approval hydrocodone/acetaminophen drug, "Apadaz") rests on the fact that [A] the ligand does not allow intranasal abuse, since it does not become effective unless it goes into the stomach, and [B] that it is very difficult to extract pure hydrocodone from Apadaz. Intranasal abuse is not a common route of abuse, but it does allow a much more rapid high than oral abuse, as seen on page 20.

Adcomm
The FDA set up an ad comm on May 5, 2016, to determine whether the intra-nasal route of administration was a relevant form of abuse, and to vote on whether the drug should be approved for the proposed indication (i.e.: pain medication). Unfortunately at the very last minute some of the panel members requested a vote on whether the current...


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