KMPH - KemPharm Stock Is Too Good to Be True After Its Recent Run-up
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KemPharm, Inc. (NASDAQ:KMPH) has had a really dazzling run-up in the past year. KMPH stock is up 191% over the trailing-12-month period (TTM) as a sort of short-squeeze took effect at the end of last year. Unfortunately, it looks like the stock will not last at these lofty levels.
For example, last July KMPH stock was at just $4.o5 per share. By the end of August 2020, the stock was up over threefold to $13.60, and by mid-December, it was up to $18.72. Then, it took a volatile hit, and by the end of the year, it was at $11.20. So, at today’s opening price of $10.69 per share, KMPH stock was actually down a bit, less than 1%.
Clearly, investors were able to affect a short-squeeze on the many short-sellers of this biotech stock. This was backed up by recent good news about its main drug candidate. KemPharm is a clinical-stage pharmaceutical company whose main potential product is an attention deficit hyperactivity disorder (ADHD) drug.
On March 2, the Food and Drug Administration (FDA) approved the New Drug Application (NDA) for AZSTARYS™ (formerly referred to as KP415). AZSTARYS is a once-daily product for the treatment of ADHD in patients ages six years and older.
Where the Company’s Value Stands Now
On March 11, KemPharm announced its recent 2020 earnings and also its cash balance. As of March 10, it had $77.6 million in cash. The company made $13.3 million in revenue during 2020, including just $2.4 million in revenue in Q4.
The company burnt through $1.9 million during the year, according to its latest 10-K. This was a good deal better than what happened in 2019, which saw a $23.7 million cash burn. But now the company has no debt, after raising $94 million and paying it all off.
However, given that KMPH stock now has a market capitalization of $284 million, it is hard to see how that valuation can be justified. For example, the company will likely have to spend a good deal of the cash it already has on hand to market and manufacture its recently approved ADHD drug. It is also not clear how profitable that drug will be.
For example, at least one analyst has recently written a report indicating that the drug was nothing special. Seeking Alpha published an article that indicates that KMPH stock is likely to fall once the “momentum dies out.”
The article argues that the approval of the ADHD drug “exhausts the company’s largest catalyst” without anything to replace it. It goes on to say that at its present valuation, KMPH stock is a viable short candidate.
What to Do With KMPH Stock
Without further financing, the company is not likely to be able to get its drug off the ground in a meaningful way. Moreover, analysts do not feel that the company’s revenue prospects are strong enough to justify its present high valuation.
Analysts are all over the place when it comes to their valuation of KMPH stock. For example, TipRanks.com has a survey of two analysts who have an average price target of $20 per share. That represents a potential upside of 99.8% from the current price.
However, Marketbeat.com has a report that indicates the consensus price is $12. This implies just a 12.4% upside for the stock.
There are also indications that analysts, although negative on the stock, still have very high price targets. For example, H.C. Wainwright recently downgraded their recommendation on KMPH to neutral and slashed their price target. However, this target is still at $24 per share, or over double the present price.
The brokerage firm cited issues relating to the commercialization costs and royalty rates that KemPharm would receive from the rollout of its ADHD drug.
In any case, expect KMPH stock to tread water until it is clear how they are going to be able to bring their latest FDA-approved drug to market.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
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