What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-10 compared with 2021-08-13 · 75 added, 88 removed, 401 unchanged (29% of the section changed)

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Food and Drug Administration, or FDA, as well as to generate prodrug versions of existing compounds that may have applications for new disease indications.

Our product candidate pipeline is focused on the high need areas of attention deficit hyperactivity disorder, or ADHD, and stimulant use disorder, or SUD, and idiopathic hypersomnia, or IH.

Our product candidate pipeline is focused on the high need areas of attention deficit hyperactivity disorder, or ADHD, stimulant use disorder, or SUD, and central nervous system, or CNS, rare diseases, including idiopathic hypersomnia, or IH.

Our newly approved product, AZSTARYS, formerly referred to as KP415, and KP484, are both based on a prodrug of d-methylphenidate, or d-MPH, but with differing extended-release, or ER, effect profiles, and are intended for the treatment of ADHD.

Our lead clinical development product candidate, KP879, is also based on a prodrug of d-MPH and is intended for the treatment of stimulant use disorder, or SUD. Our preclinical prodrug product candidate for the treatment of ideopathic hypersomnia, or IH, is KP1077.

Our lead clinical development product candidate, KP879, is also based on a prodrug of d-MPH and is intended for the treatment of SUD. Our preclinical prodrug product candidate for the treatment of IH, is KP1077.

We have entered into a collaboration and license agreement with Commave Therapeutics SA (formerly known as Boston Pharmaceuticals S.A.), an affiliate of Gurnet Point Capital, or Commave, for the development, manufacture and commercialization of AZSTARYS, and any other of our product candidates containing serdexmethylphenidate, or SDX, and d-MPH. 

In addition, we have entered into a commercial partnership with KVK-Tech, Inc., or KVK, for APADAZ ®

, an FDA approved immediate-release, or IR, combination product of benzhydrocodone, our prodrug of hydrocodone, and acetaminophen, or APAP, for the short-term (no more than 14 days) management of acute pain severe enough to require an opioid analgesic and for which alternative treatments are inadequate.

In addition, we have entered into a commercial partnership with KVK-Tech, Inc., or KVK, for APADAZ, an FDA approved immediate-release, or IR, combination product of benzhydrocodone, our prodrug of hydrocodone, and acetaminophen, or APAP, for the short-term (no more than 14 days) management of acute pain severe enough to require an opioid analgesic and for which alternative treatments are inadequate.

We expect that our sources of revenues will be through payments arising from our license agreements with Commave and KVK, our consulting agreement with Corium and through other consulting arrangements and any other future arrangements we might enter into related to one of our other product candidates.

To date, we have generated revenue from the KP415 License Agreement in the form of the non-refundable upfront payment of $10.0 million, of which we paid Aquestive $1.0 million as a royalty payment, a regulatory milestone payment of $5.0 million following the FDA’s acceptance of the AZSTARYS NDA, of which we paid Aquestive $0.5 million as a royalty payment, a regulatory milestone payment of $10.0 million following the FDA's approval of the AZSTARYS NDA, of which we paid Aquestive $1.0 million, a regulatory milestone payment of $10.0 million following the U.S.

Drug Enforcement Administration's, or DEA, scheduling determination of SDX, of which we paid Aquestive $1.0 million, reimbursement of out-of-pocket third-party research and development costs and payments related to the performance of consulting services.

Drug Enforcement Administration's, or DEA, scheduling determination of SDX, of which we paid Aquestive $1.0 million, royalties on product sales, reimbursement of out-of-pocket third-party research and development costs and payments related to the performance of consulting services.

In addition, we have generated revenue under the Corium Consulting Agreement and other consulting arrangements for the performance of consulting services as well as reimbursement of out-of-pocket third-party costs associated with those services.

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Corium will lead the commercialization of AZSTARYS per the KP415 License Agreement.

Corium expects to make AZSTARYS commercially available in the U.S.

as early as the second half of 2021.

Corium commercially launched AZSTARYS in the U.S.

during the third quarter of 2021.

In May 2021, we announced that SDX, our proprietary prodrug of d-MPH and the primary active pharmaceutical ingredient, or API, in AZSTARYS, was classified as a Schedule IV controlled substance by the DEA.

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We have historically had negative cash flows from operations.

Our cash flows provided by operations for the six months ended June 30, 2021 and 2020 were $14.0 million and $0.2 million, respectively.

Our cash flows provided by (used in) operations for the nine months ended September 30, 2021, and 2020 were $11.3 million and ($0.9) million, respectively.

We expect to continue to incur significant expenses and minimal positive net cash flows from operations or negative net cash flows from operations for the foreseeable future, and those expenses and losses may fluctuate significantly from quarter-to-quarter and year-to-year. We anticipate that our expenses will fluctuate substantially as we:

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Our common stock began trading on The Nasdaq Capital Market on January 8, 2021, under the ticker symbol “KMPH”.

On October 19, 2021, our common stock was approved for listing on The Nasdaq Global Select Market.

Our common stock began trading on The Nasdaq Global Select Market on that date, under the ticker symbol “KMPH”.

Debt Restructuring

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Public Offering

On January 8, 2021, we  issued and sold 6,765,463 shares of 

our common stock, pre-funded warrants to purchase 926,844 shares of our common stock and warrants to purchase 7,692,307 shares of our common stock at an exercise price per share of $6.50 in the Public Offering. In addition, we granted the underwriter for the Public Offering an option to purchase, for a period of 45 days, up to an additional 1,153,846 shares of our common stock and/or warrants to purchase up to an additional 1,153,846 shares of our common stock.

On January 8, 2021, we issued and sold 6,765,463 shares of our common stock, pre-funded warrants to purchase 926,844 shares of our common stock and warrants to purchase 7,692,307 shares of our common stock at an exercise price per share of $6.50 in the Public Offering. In addition, we granted the underwriter for the Public Offering an option to purchase, for a period of 45 days, up to an additional 1,153,846 shares of our common stock and/or warrants to purchase up to an additional 1,153,846 shares of our common stock.

On January 8, 2021, the underwriter exercised its over-allotment option, in part, for warrants to purchase 754,035 shares of our common stock.

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We filed a registration statement on Form S-3 covering the sale of the shares of our common stock up to $350.0 million, $75.0 million of which was allocated to the sales of the shares of common stock issuable under the Equity Distribution Agreement, the Form S-3 was declared effective on July 12, 2021.

As of September 30, 2021, no shares have been issued or sold under the Equity Distribution Agreement.

Our Product Candidates and Approved Products

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Methylphenidate (ER)

Initiation of Clinical Program - H2 2021

Pre-IND Meeting - H2 2021

Report Proof-of-Concept Study Data - Q4 2021

Pre-IND Meeting - Q4 2021

Methylphenidate (ER)

Initiation of Pivotal Efficacy Trial -

To Be Determined by Partner

Initiation of Pivotal Efficacy Trial - To Be Determined by Partner

Methylphenidate (ER)

AZSTARYS (Partnered)

Tracking Payor Contracts and TRx's

Hydrocodone/APAP (IR)

APADAZ (Partnered)

Tracking Payor Contracts and TRx's

* This product candidate is subject to an right of first negotiation upon completion of a Phase 1 proof-of-concept study in favor of Commave under the terms of the KP415 License Agreement, but is not currently licensed to Commave, thereunder.

* This product candidate is subject to a right of first negotiation upon completion of a Phase 1 proof-of-concept study in favor of Commave under the terms of the KP415 License Agreement, but is not currently licensed to Commave, thereunder.

These anticipated milestones are based on information currently available to us and our current plans and expectations are subject to a number of uncertainties and risks that could significantly affect current plans, including plans and expectations which are not solely within our control.

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We also granted Commave a right of first negotiation and a right of first refusal, subject to specified exceptions, for any assignment of our rights under the KP415 License Agreement.

Pursuant to the KP415 License Agreement, Commave paid us an upfront payment of $10.0 million and agreed to pay up to $63.0 million in milestone payments upon the occurrence of specified regulatory milestones related to AZSTARYS, including FDA approval and specified conditions with respect to the final approval label, and KP484. As a result of the FDA’s approval of the AZSTARYS NDA, we received a $10.0 million milestone payment as provided under the KP415 License Agreement, as amended.

In addition, Commave agreed to make additional payments upon the achievement of specified U.S.

sales milestones of up to $420.0 million in the aggregate, depending, among other things, on timing of approval for AZSTARYS and its final approved label, if any.

Pursuant to the KP415 License Agreement, Commave paid us an upfront payment of $10.0 million and agreed to pay up to $63.0 million in milestone payments upon the occurrence of specified regulatory milestones related to AZSTARYS, including FDA approval and specified conditions with respect to the final approval label, and KP484. In addition, Commave agreed to make additional payments upon the achievement of specified U.S.

sales milestones of up to $420.0 million in the aggregate.

In May 2020, the FDA accepted our NDA for AZSTARYS.

Per the KP415 License Agreement, we received a regulatory milestone payment of $5.0 million following the FDA’s acceptance of the AZSTARYS NDA.

Per the KP415 License Agreement, we received a regulatory milestone payment of $5.0 million following the FDA’s acceptance of the AZSTARYS NDA. As a result of the FDA’s approval of the AZSTARYS NDA, we received a $10.0 million milestone payment as provided under the KP415 License Agreement, as amended.

In addition, per the KP415 License Agreement, as amended, we received a $10.0 million milestone payment upon the scheduling determination of SDX by the DEA in May 2021.

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Pursuant to the KP415 Amendment, we agreed to modify the compensation terms of the KP415 License Agreement.

Pursuant to the KP415 Amendment, Commave paid us $10.0 million in connection with the entry into the KP415 Amendment as a result of the regulatory approval of AZSTARYS in the United States.

Commave also paid us $10.0 million following the receipt of the scheduling determination of the compound SDX by the DEA, which occurred in May 2021.

SDX is the prodrug component of AZSTARYS.

In addition, the KP415 Amendment increases the total remaining future regulatory and sales milestone payments related to AZSTARYS to up to an aggregate of $590.0 million in payments upon the occurrence of specified regulatory milestones related to AZSTARYS and upon the achievement of specified U.S.

In addition, the KP415 Amendment increased the total remaining future regulatory and sales milestone payments related to AZSTARYS to up to an aggregate of $590.0 million in payments upon the occurrence of specified regulatory milestones related to AZSTARYS and upon the achievement of specified U.S.

net sales milestones.

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KVK may terminate the APADAZ License Agreement upon 90 days written notice if a regulatory authority in the United States orders KVK to stop sales of APADAZ due to a safety concern.

In addition, after the third anniversary of the APADAZ License Agreement, KVK may terminate the APADAZ License Agreement without cause upon 18 months prior written notice.

In addition, KVK may terminate the APADAZ License Agreement without cause upon 18 months prior written notice.

We may terminate the APADAZ License Agreement if KVK stops conducting regulatory activities for or commercializing APADAZ in the United States for a period of six months, subject to specified exceptions, or if KVK or its affiliates challenge the validity, enforceability or scope of any licensed patent under the APADAZ License Agreement.

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Under our March 2012 termination agreement with Aquestive, Aquestive has the right to receive a royalty amount equal to 10% of any value generated by AZSTARYS, KP484, KP879 or KP1077, and any product candidates containing SDX, including royalty payments on any license of AZSTARYS, KP484, KP879 or KP1077, the sale of AZSTARYS, KP484, KP879 or KP1077 to a third party, the commercialization of AZSTARYS, KP484, KP879 or KP1077 and the portion of any consideration that is attributable to the value of AZSTARYS, KP484, KP879 or KP1077 and paid to us or our stockholders in a change of control transaction.

In connection with the KP415 License Agreement, we paid Aquestive a royalty equal to 10% of the upfront license payment we received in the third quarter of 2019, the regulatory milestone payment we received in the second quarter of 2020 and the regulatory milestone payments we received in the second quarter of 2021.

In July 2020, we entered into the Corium Consulting Agreement under which Corium engaged us to guide the product development and regulatory activities for certain current and potential future products in their portfolio, as well as continue supporting preparation for the potential commercial launch of AZSTARYS.

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Comparison of the three months ended  

June 30, 2021 and 2020 (in thousands):

Three months ended June 30,

September 30, 2021 and 2020 (in thousands):

Three months ended September 30,

Period Change

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Total operating expenses

Income from operations

Loss from operations

Other income (expense):

Gain on extinguishment of debt

Interest expense related to amortization of debt issuance costs and discount

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Fair value adjustment related to derivative and warrant liability

Interest and other (expense) income, net

Interest and other income, net

Total other income (expense)

Income before income taxes

Income tax benefit (expense)

Net income for the three months ended June 30, 2021 was $6.2 million, compared to net income for the three months ended June 30, 2020 of $0.9 million.

The change was primarily attributable to an increase in income from operations of $3.2 million, a gain on extinguishment of debt of $0.8 million and a decrease in net interest expense and other items of $1.7 million, partially offset by an increase in fair value adjustment expense related to derivative and warrant liability of $0.4 million.

In accordance with the June 2021 Inducement Transaction we recognized a deemed dividend of $16.9 million which is the difference between the grant date fair value of the June 2021 Inducement Warrants and the purchase price of the June 2021 Inducement Warrants.

This deemed dividend is deducted from net income to arrive at net loss attributable to common stockholders on the unaudited condensed statements of operations. 

Revenue for the three months ended June 30, 2021 was $12.0 million, an increase of $5.1 million compared to revenue for the three months ended June 30, 2020 of $6.9 million.

The increase was primarily attributable to a regulatory milestone payment on the KP415 License Agreement of $10.0 million that was earned following the DEA scheduling determination of SDX in May 2021;

partially offset by a regulatory milestone payment on the KP415 License Agreement of $5.0 million that was earned following the acceptance of the NDA for KP415 by the FDA in the second quarter of 2020.

Royalty and Direct Contract Acquisition Costs

Royalties and direct contract acquisition costs for the three months ended June 30, 2021 was $1.0 million, an increase of $0.4 million compared to royalty and direct contract acquisition costs for the three months ended June 30, 2020 of $0.6 million.

The increase was primarily attributable to a royalty payment of $1.0 million due to Aquestive related to the regulatory milestone payment on the KP415 License Agreement that was earned in the second quarter of 2021;

partially offset by a royalty payment of $0.5 million due to Aquestive related to the regulatory milestone payment on the KP415 License Agreement that was earned in the the second quarter of 2020 as well as the recognition of previously capitalized direct contract acquisition costs related to entering into the KP415 License Agreement that were recognized pro-rata along with the revenue from the agreement during the second quarter of 2020.

Loss before income taxes

Income tax benefit

Net loss for the three months ended September 30, 2021, was $1.8 million, compared to net loss for the three months ended September 30, 2020, of $3.0 million.

The change was primarily attributable to a decrease in net interest expense and other items of $1.8 million and a change in non-cash fair value adjustment related to derivative and warrant liability of $0.5 million, partially offset by an increase in loss from operations of $1.0 million. 

Revenue for the three months ended September 30, 2021, was $2.0 million, compared to revenue for the three months ended September 30, 2020, of $1.9 million.

The decrease was primarily attributable to normal fluctuation in reimbursements revenue related to the Corium Consulting Agreement.

Research and Development

Research and development expenses increased by $0.9 million, from $2.0 million for the three months ended June 30, 2020, to $2.8 million for the three months ended June 30, 2021.

This increase was primarily attributable to an increase third-party research and development costs of $0.8 million and an increase in other research and development costs of $0.1 million.

Research and development expenses increased by $0.5 million, from $1.7 million for the three months ended September 30, 2020, to $2.2 million for the three months ended September 30, 2021.

This increase was primarily attributable to an increase third-party research and development costs of $0.1 million, an increase in personnel-related costs of $0.3 million and an increase in other research and development costs of $0.1 million.

General and Administrative

General and administrative expenses increased by $0.6 million, from $1.7 million for the three months ended June 30, 2020, to $2.3 million for the three months ended June 30, 2021.

This increase was primarily attributable to an increase in professional fees of $0.6 million.

General and administrative expenses increased by $0.5 million, from $1.4 million for the three months ended September 30, 2020, to $1.9 million for the three months ended September 30, 2021.

This increase was primarily attributable to an increase in professional fees of $0.3 million and an increase in personnel-related costs of $0.2 million.

Other Income (Expense)

Other income (expense) changed by $2.1 million, from expense of $1.7 million for the three months ended June 30, 2020, to income of $0.4 million for the three months ended June 30, 2021. This period-to-period change was primarily attributable to a gain on extinguishment of debt of $0.8 million during the second quarter of 2021 and a decrease in net interest expense and other items of $1.7 million, partially offset by a change in non-cash fair value adjustment related to derivative and warrant liability of $0.4 million.

Comparison of the six months ended  

June 30, 2021 and 2020 (in thousands):

Six months ended June 30,

Other income (expense) changed by $2.3 million, from expense of $1.8 million for the three months ended September 30, 2020, to income of $0.5 million for the three months ended September 30, 2021. This period-to-period change was primarily attributable to a decrease in net interest expense and other items of $1.8 million and a change in non-cash fair value adjustment related to derivative and warrant liability of $0.5 million.

Comparison of the nine months ended  

September 30, 2021 and 2020 (in thousands):

Nine months ended September 30,

Period Change

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Loss before income taxes

Income tax benefit (expense)

Net loss for the six months ended June 30, 2021 was $4.1 million, compared to net loss for the six months ended June 30, 2020 of $4.9 million.

The change was primarily attributable to a loss on extinguishment of debt of $16.1 million and change in the fair value adjustment related to derivative and warrant liability of $0.5 million, partially offset by a change in income (loss) from operations of $14.0 million and a decrease in net interest expense and other items of $3.4 million.

Income tax benefit

Net loss for the nine months ended September 30, 2021, was $5.9 million, compared to net loss for the nine months ended September 30, 2020, of $7.9 million.

The change was primarily attributable to a loss on extinguishment of debt of $16.1 million, partially offset by a change in income (loss) from operations of $13.0 million and a decrease in net interest expense and other items of $5.2 million.

In accordance with the January 2021 and June 2021 Inducement Transactions we recognized deemed dividends of $37.4 million and $16.9 million, respectively. These deemed dividends represent the difference between the grant date fair value of the respective inducement warrants and the purchase price of the respective inducement warrants.

These deemed dividends are added to net loss to arrive at net loss attributable to common stockholders on the unaudited condensed statements of operations. 

Revenue for the six months ended June 30, 2021 was $24.1 million, an increase of $15.1 million compared to revenue for the six months ended June 30, 2020 of $9.0 million.

Revenue for the nine months ended September 30, 2021, was $26.1 million, an increase of $15.1 million compared to revenue for the nine months ended September 30, 2020, of $10.9 million.

The increase was primarily attributable to two regulatory milestone payments on the KP415 License Agreement of $10.0 million each that were earned when the FDA approved the NDA for AZSTARYS in March 2021 and upon the scheduling of SDX by the DEA in May 2021, partially offset by a regulatory milestone payment on the KP415 License Agreement of $5.0 million that was earned when the FDA accepted the NDA for KP415 in the second quarter of 2020.

Royalty and Direct Contract Acquisition Costs

Royalties and direct contract acquisition costs for the six months ended June 30, 2021 was $2.0 million, an increase of $0.7 million compared to royalty and direct contract acquisition costs for the six months ended June 30, 2020 of $1.3 million.

Royalties and direct contract acquisition costs for the nine months ended September 30, 2021, was $2.0 million, an increase of $0.7 million compared to royalty and direct contract acquisition costs for the nine months ended September 30, 2020, of $1.3 million.

The increase was primarily attributable to two royalty payments of $1.0 million each due to Aquestive related to the regulatory milestone payments on the KP415 License Agreement that were earned in the first and second quarter of 2021, partially offset by a royalty payment of $0.5 million due to Aquestive related to the regulator milestone payment on the KP415 License Agreement that was recognized in the second quarter of 2020 and the recognition of previously capitalized direct contract acquisition costs related to entering into the KP415 License Agreement that were recognized pro-rata along with the revenue from the agreement during 2020.

Research and Development

Research and development expenses increased by $1.0 million, from $4.1 million for the six months ended June 30, 2020, to $5.1 million for the three months ended June 30, 2021.

This increase was primarily attributable to an increase in third-party research and development costs of $0.8 million and an increase in personnel-related costs of $0.2 million.

Research and development expenses increased by $1.6 million, from $5.8 million for the nine months ended September 30, 2020, to $7.4 million for the nine months ended September 30, 2021.

This increase was primarily attributable to an increase in third-party research and development costs of $0.8 million and an increase in personnel-related costs of $0.6 million, partially offset by a decrease in other research and development costs of $0.2 million.

General and Administrative

General and administrative expenses increased by $0.2 million, from $4.0 million for the six months ended June 30, 2020, to $4.2 million for the three months ended June 30, 2021.

This increase was primarily attributable to an increase in professional fees of $0.2 million and an increase in personnel-related costs of $0.1 million, partially offset by a decrease in other general and administrative costs of $0.1 million.

General and administrative expenses increased by $0.8 million, from $5.4 million for the nine months ended September 30, 2020, to $6.1 million for the nine months ended September 30, 2021.

This increase was primarily attributable to an increase in professional fees of $0.5 million and an increase in personnel-related costs of $0.3 million.

Severance Expense

Severance expense of $0.8 million was recognized for the six months ended June 30, 2020 due to the termination of our chief business officer in February 2020.

Severance expense of $0.8 million was recognized for the nine months ended September 30, 2020, due to the termination of our chief business officer in February 2020.

Severance expense was comprised of $0.4 million of personnel and other related charges and $0.4 million of stock compensation expense related to the acceleration of vesting on certain stock options upon employee termination.

We had no severance expense for the six months ended June 30, 2021.

We had no severance expense for the nine months ended September 30, 2021.

Other Expense

Other expenses increased by $13.2 million, from $3.7 million for the six months ended June 30, 2020, to $16.9 million for the six months ended June 30, 2021. This period-to-period increase in expense was primarily attributable to a loss on extinguishment of debt of $16.1 million during the first quarter of 2021 and a change in non-cash fair value adjustment related to derivative and warrant liability of $0.5 million, partially offset by a decrease in net interest expense and other items of $3.4 million.

Other expenses increased by $10.9 million, from $5.5 million for the nine months ended September 30, 2020, to $16.4 million for the nine months ended September 30, 2021. This period-to-period increase in expense was primarily attributable to a loss on extinguishment of debt of $16.1 million during the first quarter of 2021, partially offset by a decrease in net interest expense and other items of $5.2 million.

Liquidity and Capital Resources

Sources of Liquidity

Through June 30, 2021, we have funded our research and development and operating activities primarily through the issuance of debt, private placements of redeemable convertible preferred stock and the sale of common stock in our initial public offering, at-the-market offering, underwritten public offerings, through our purchase agreements with Lincoln Park Capital LLC, or Lincoln Park, and from revenue received under the KP415 License Agreement, the Corium Consulting Agreement and other consulting arrangements.

As of June 30, 2021, we had cash and cash equivalents of $132.3 million.

Through September 30, 2021, we have funded our research and development and operating activities primarily through the issuance of debt, private placements of redeemable convertible preferred stock and the sale of common stock in our initial public offering, at-the-market offering, underwritten public offerings, through our purchase agreements with Lincoln Park Capital LLC, or Lincoln Park, and from revenue received under the KP415 License Agreement, the Corium Consulting Agreement and other consulting arrangements.

As of September 30, 2021, we had cash and cash equivalents of $131.5 million.

In September 2019, we entered into the KP415 License Agreement with Commave and Commave paid us a non-refundable upfront payment of $10.0 million.

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In April 2020, we received proceeds of $0.8 million from a loan, or the PPP Loan, under the Paycheck Protection Program, or the PPP, of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which we used to retain current employees, maintain payroll and make lease and utility payments.

The PPP Loan matured on April 23, 2022 and bore annual interest at a rate of 1.0%.

Payments of principal and interest on the PPP Loan were deferred for the first 16 months of the PPP Loan term.

In May 2021, we received notice from the U.S.

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Convertible Debt

As of June 30, 2021, we had no convertible notes outstanding.

As of September 30, 2021, we had no convertible notes outstanding.

During the first quarter of 2021 we repaid in full the convertible notes and terminated the Deerfield Facility Agreement.

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Each share of Series B-2 Preferred Stock had an aggregate stated value of $1,000 and was convertible into shares of our common stock at a per share price equal to $6.4999 (subject to adjustment to reflect stock splits and similar events).

As of June 30, 2021, all shares of Series B-2 Preferred Stock had been converted into common stock. 

In March 2021, all shares of Series B-2 Preferred Stock converted into common stock. 

In June 2021, we filed with the Secretary of State of the State of Delaware a Certificate of Elimination of Series B-2 Convertible Preferred Stock, eliminating from our Certificate of Incorporation the 31,480 shares designated as Series B-2 Convertible Preferred Stock.

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The Facility Agreement Note Holders will retain the warrants previously issued to them. 

The following table summarizes our cash flows for the six months ended June 30, 2021 and 2020 (in thousands) :

Six months ended June 30,

Net cash provided by operating activities

The following table summarizes our cash flows for the nine months ended September 30, 2021 and 2020 (in thousands) :

Nine months ended September 30,

Net cash provided by (used in) operating activities

Net cash used in investing activities

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For the 

six months ended June 30, 2021 , net cash provided by operating activities of $14.0 million consisted of $18.0 million in adjustments for non-cash items and $0.1 million in changes in working capital, partially offset by a net loss of $4.1 million.

The adjustments for non-cash items primarily consisted of a loss on extinguishment of debt of $16.1 million, stock-based compensation expense of $1.0 million, amortization of debt issuance costs and debt discount of $0.2 million, a change in the fair value adjustment related to derivative and warrant liabilities of $0.4 million and $0.4 million related to depreciation, amortization and other items.

The changes in working capital consisted of $0.7 million related to a change in accounts and other receivables, $0.1 million related to a change in operating lease right-of-use assets and $2.5 million related to a change in other liabilities, partially offset by $1.7 million related to a change in accounts payable and accrued expenses, $0.2 million related to a change in operating lease liabilities and $1.3 million related to a change in prepaid expenses and other assets. Net loss was primarily attributable to a loss on extinguishment of debt and our spending on research and development programs and operating costs, partially offset by revenue received under the KP415 License Agreement and the Corium Consulting Agreement. 

nine months ended September 30, 2021 , net cash provided by operating activities of $11.3 million consisted of $18.5 million in adjustments for non-cash items, partially offset by a net loss of $5.9 million and $1.3 million in changes in working capital.

The adjustments for non-cash items primarily consisted of a loss on extinguishment of debt of $16.1 million, stock-based compensation expense of $1.6 million, amortization of debt issuance costs and debt discount of $0.2 million, a change in the fair value adjustment related to derivative and warrant liabilities of $0.1 million and $0.5 million related to depreciation, amortization and other items.

Net loss was primarily attributable to a loss on extinguishment of debt and our spending on research and development programs and operating costs, partially offset by revenue received under the KP415 License Agreement and the Corium Consulting Agreement. The changes in working capital consisted of $1.9 million related to a change in accounts payable and accrued expenses, $0.2 million related to a change in operating lease liabilities and $1.4 million related to a change in prepaid expenses and other assets, partially offset by $1.0 million related to a change in accounts and other receivables, $0.1 million related to a change in operating lease right-of-use assets and $1.1 million related to a change in other liabilities. 

For the 

six months ended June 30, 2020 , net cash provided by operating activities of $0.2 million consisted of $5.8 million in adjustments for non-cash items partially offset by a net loss of $4.9 million and $0.7 million in changes in working capital.

The adjustments for non-cash items primarily consisted of stock-based compensation expense of $1.6 million, non-cash interest expense of $2.4 million, amortization of debt issuance costs and debt discount of $1.1 million, loss on sublease and disposal of property and equipment of $0.3 million and $0.4 million related to depreciation, amortization and other items partially offset by non-cash income related to the change in the fair value of our derivative and warrant liabilities of $0.1 million.

nine months ended September 30, 2020 , net cash used in operating activities of $0.9 million consisted of a net loss of $7.9 million and $1.1 million in changes in working capital, partially offset by $8.1 million in adjustments for non-cash items.

Net loss was primarily attributable to our spending on research and development programs and operating costs, partially offset by revenue received under the KP415 License Agreement and the Corium Consulting Agreement. The changes in working capital consisted of $1.3 million related to a change in accounts payable and accrued expenses, $0.3 million related to a change in accounts and other receivables and $0.2 million related to operating lease liabilities, partially offset by $0.5 million related to a change in prepaid expenses and other assets and $0.2 million related to operating lease right-of-use assets and other liabilities. The adjustments for non-cash items primarily consisted of stock-based compensation expense of $2.0 million, non-cash interest expense of $3.6 million, amortization of debt issuance costs and debt discount of $1.7 million, loss on sublease and disposal of property and equipment of $0.3 million, a change in the fair value adjustment related to derivative and warrant liabilities of $0.1 million and $0.5 million related to depreciation, amortization and other items.

Investing Activities

For the six months ended June 30, 2021 , net cash used in investing activities was $81,000, which was attributable to purchases of property and equipment.

For the nine months ended September 30, 2021 , net cash used in investing activities was $85,000, which was attributable to purchases of property and equipment.

For the 

six months ended June 30, 2020 , net cash used in investing activities was $7,000, which was attributable to purchases of property and equipment.

nine months ended September 30, 2020 , net cash used in investing activities was $7,000, which was attributable to purchases of property and equipment.

Financing Activities

For the 

six months ended June 30, 2021 , net cash provided by financing activities was $114.0 million, which was primarily attributable to net proceeds from sales of our common stock under the Public Offering of $49.3 million, net proceeds from the January 2021 Inducement Transaction of $41.4 million, net proceeds from the June 2021 Inducement Transaction of $35.6 million and net proceeds from the exercise of common stock warrants of $29.8 million, partially offset by payment of offering costs of $1.1 million, repayment of principal on finance lease liabilities of $0.1 million, payment of debt issuance costs of $2.9 million and repayment of principal on convertible notes of $37.9 million.

nine months ended September 30, 2021 , net cash provided by financing activities was $116.0 million, which was primarily attributable to net proceeds from sales of our common stock under the Public Offering of $49.3 million, net proceeds from the January 2021 Inducement Transaction of $41.4 million, net proceeds from the June 2021 Inducement Transaction of $36.8 million and net proceeds from the exercise of common stock warrants of $30.8 million, partially offset by payment of offering costs of $1.3 million, repayment of principal on finance lease liabilities of $0.2 million, payment of debt issuance costs of $2.9 million and repayment of principal on convertible notes of $37.9 million.

For the 

six months ended June 30, 2020 , net cash provided by financing activities was $2.8 million, which was primarily attributable to proceeds from sales of our common stock under the 2020 ELOC Agreement of $2.3 million and proceeds from the PPP loan of $0.8 million, partially offset by repayment of principal on finance lease liabilities of $0.1 million and payment of debt issuance and deferred offerings costs of $0.1 million.

nine months ended September 30, 2020 , net cash provided by financing activities was $2.8 million, which was primarily attributable to proceeds from sales of our common stock under the 2020 ELOC Agreement of $2.3 million and proceeds from the PPP loan of $0.8 million, partially offset by repayment of principal on finance lease liabilities of $0.2 million and payment of debt issuance and deferred offerings costs of $0.1 million.

Future Funding Requirements

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We cannot guarantee that we will be able to generate sufficient proceeds from any of these potential sources to fund our operating expenses.

To date, we have generated revenue from the non-refundable upfront payment, regulatory milestone payments, reimbursements of out-of-pocket third-party research and development costs and consulting services under the KP415 License Agreement, consulting services, and associated out-of-pocket third-party costs, under the Corium Consulting Agreement and consulting services under other consulting arrangements. We expect that our only sources of revenues will be through payments arising from the KP415 License Agreement, the APADAZ License Agreement, the Corium Consulting Agreement, or through other potential consulting arrangements and any other future arrangements related to one of our product candidates. While we have entered into the APADAZ License Agreement to commercialize APADAZ in the United States, and entered into the KP415 License Agreement to develop, manufacture and commercialize AZSTARYS and KP484, we cannot guarantee that this, or any strategy we adopt in the future, will be successful.

To date, we have generated revenue from the non-refundable upfront payment, regulatory milestone payments, reimbursements of out-of-pocket third-party research and development costs, consulting services and royalties on product sales under the KP415 License Agreement, consulting services, and associated out-of-pocket third-party costs, under the Corium Consulting Agreement and consulting services under other consulting arrangements. We expect that our only sources of revenues will be through payments arising from the KP415 License Agreement, the APADAZ License Agreement, the Corium Consulting Agreement, or through other potential consulting arrangements and any other future arrangements related to one of our product candidates. While we have entered into the APADAZ License Agreement to commercialize APADAZ in the United States, and entered into the KP415 License Agreement to develop, manufacture and commercialize AZSTARYS and KP484, we cannot guarantee that this, or any strategy we adopt in the future, will be successful.

For instance, we received milestone payments under the KP415 License Agreement, but we cannot guarantee that we will earn any additional milestone or royalty payments under this agreement in the future.

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In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic.

This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads.

This pandemic is causing major disruptions to businesses and markets worldwide as the virus spreads.

We cannot predict what the long-term effects of this pandemic and the resulting economic disruptions may have on our liquidity and results of operations.

The extent of the effect of the COVID-19 pandemic on our liquidity and results of operations will depend on a number future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict.

The extent of the effect of the COVID-19 pandemic on our liquidity and results of operations will depend on a number of future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict.

The COVID-19 pandemic may make it more difficult for us to enroll patients in any future clinical trials or cause delays in the regulatory approval of our product candidates.

22 unchanged sentences

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021.

Based on the evaluation of our disclosure controls and procedures as of June 30, 2021, our chief executive officer and our chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021.

Based on the evaluation of our disclosure controls and procedures as of September 30, 2021, our chief executive officer and our chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during our fiscal quarter ended June 30, 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during our fiscal quarter ended September 30, 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis