Category Archives: Cloud Computing

Qualcomm files new patent infringement complaints against Apple

(Reuters) – Qualcomm Inc (QCOM.O) said on Thursday it filed three new patent infringement complaints against Apple Inc (AAPL.O), saying there were 16 more of its patents that Apple was using in its iPhones.

A sign on the Qualcomm campus is seen, as chip maker Broadcom Ltd announced an unsolicited bid to buy peer Qualcomm Inc for $103 billion, in San Diego, California, U.S. November 6, 2017. REUTERS/Mike Blake

The new complaints represent the latest development in a long-standing dispute and follows Apple’s countersuit on Wednesday against Qualcomm, which alleged that Qualcomm’s Snapdragon mobile phone chips infringed on Apple patents.

Apple declined to comment on the new cases, referring to its earlier claims in its Wednesday filing that the company has developed its own technology and patents to power its iPhones.

Qualcomm in July accused Apple of infringing several patents related to helping mobile phones get better battery life.

That case accompanied a complaint with the U.S. International Trade Commission seeking to ban the import of Apple iPhones that use competing Intel Corp (INTC.O) chips because of the alleged patent violations.

A woman looks at the screen of her mobile phone in front of an Apple logo outside its store in Shanghai, China July 30, 2017. REUTERS/Aly Song

The three cases filed Thursday were all filed in U.S. District Court for the Southern District of California in San Diego. One of the cases is a companion civil lawsuit to a new complaint also filed Thursday with the ITC that seeks the same remedy of banning iPhones with Intel chips. The other two cases are civil patent infringement lawsuits.

The dispute between Apple and Qualcomm over patents is part of a wide-ranging legal war between the two companies.

In January, Apple sued Qualcomm for nearly $1 billion in patent royalty rebates that Qualcomm allegedly withheld from Apple.

In a related suit, Qualcomm sued the contract manufacturers that make Apple’s phones, but Apple joined in to defend them.

Qualcomm in November sued Apple over an alleged breach of a software agreement between the two companies. Apple emailed Qualcomm to request “highly confidential” information about how its chips work on an unidentified wireless carrier’s network, Qualcomm alleged, but Apple had copied an Intel engineer in the email for information.

Separately, Qualcomm is facing a lawsuit from the U.S. Federal Trade Commission over many of the same pricing practices Apple names in its complaints.

Reporting by Ankit Ajmera in Bengaluru and Stephen Nellis in San Francisco; Editing by Sai Sachin Ravikumar and Chris Reese

Our Standards:The Thomson Reuters Trust Principles.

Infiniti's 2019 QX50 Is the First Car With a Variable Compression Engine

The coolest thing about Infiniti’s newly redesigned QX50 crossover has nothing to do with its looks, its technological goodies, or even its ability to (kinda) drive itself. No, the best thing about this vehicle is sitting under the hood, and it’s got an important message for the drivers of Earth: Reports of the internal combustion engine’s demise might be a tad premature.

That’s because this compact five-seater features the world’s first variable compression engine. We’ve known about this clever system for a few years, but now it’s finally entering the market.

The trick lies in the engine’s ability to change the compression ration, which determines how tightly the pistons squeeze the air and fuel before the spark plug ignites the mixture (that’s the combustion bit). It does that by changing the angle of a center link, which rotates around the crank shaft and separates upper and lower piston links, and thus the distance the piston travels up the cylinder.

If you didn’t catch that, all you need to know is that Nissan, Infiniti’s parent company, has developed an engine that can optimize its behavior for whatever you want in the moment: performance or fuel economy.

INFINITI

The somewhat Rube Golbergian contraption smacks of added complexity, but the company’s engineers have been working on the VC-Turbo, as the call it, for 20 years, and swear it will stand up to hundreds of thousands of miles of use. The automaker plans to eventually distribute the engine to other models across its Nissan and Infiniti lineups. As that happens, it could stave off the advent of electric propulsion, or at least ease the transition.

The QX50 has some other goodies worth mentioning. It’s the first Infiniti to offer Nissan’s ProPilot semi-autonomous system (which was already available on the Leaf and Rogue). Like Tesla’s Autopilot, ProPilot can control braking, acceleration, and steering, tracking road markings to keep in its lane and radar to monitor its proximity to other vehicles.

Like most of these systems, it really only works on the highway, and still requires hands-on participation from the driver (otherwise it beeps aggressively), but it has an easy to understand user interface, a bonus in the too often murky world of semi-autonomy. It also capitalizes on Infiniti’s steer-by-wire technology to generate more precise control of the vehicle’s reactions to obstacles and other vehicles.

If you’re eager to take home the new engine—then let it drive you around—you’ve got until late 2018 to save up $35,000.


Engineering Exploits

A Federal Judge Scolds Uber in Court Amid Its Legal Battle Against Alphabet’s Waymo

A U.S. judge on Tuesday said Uber Technologies had withheld evidence from him and granted a request from Alphabet‘s Waymo self-driving car unit to delay a trade secrets trial that had been scheduled to begin next week.

It would be a “huge injustice” to force Waymo to go to trial now given new evidence that recently surfaced in the case, U.S. District Judge William Alsup said at a hearing in San Francisco federal court.

The trial had been scheduled to begin on Dec. 4. Waymo said it learned of the new evidence last week after the U.S. Department of Justice shared it with Alsup.

The two companies are battling to dominate the fast-growing field of self-driving cars.

An Uber representative on Tuesday referred to an earlier company statement, which said Uber “has been waiting for its day in court for quite some time now” and was keen to have a jury hear the merits of the case.

In a series of orders last week, Alsup disclosed that a former Uber security analyst’s lawyer sent a letter to an Uber in-house lawyer more than six months ago. Waymo then accused Uber of concealing the letter, saying it contained important facts about the case, according to a court filing on Monday.

Alsup ordered the former Uber security analyst, Richard Jacobs, to appear in court.

At the hearing on Tuesday, Jacobs testified that his letter contained allegations that Uber’s markets analytics group “exists expressly for the purpose for acquiring trade secrets, code base and competitive intelligence.”

Jacobs said he learned of this activity through discussions at Uber with his manager and other colleagues.

The court hearing was still ongoing on Tuesday.

Waymo sued Uber in February, claiming that former Waymo executive Anthony Levandowski downloaded more than 14,000 confidential files before leaving to set up a self-driving truck company, called Otto, which Uber acquired soon after.

Uber denied using any of Waymo’s trade secrets. Levandowski has declined to answer questions about the allegations, citing constitutional protections against self-incrimination.

Here’s What WeWork Gets Out of Acquiring Real-Life Social Network Meetup

WeWork is acquiring Meetup in a move that will bring the shared workspace company together with another startup that aims to connect people with common interests in real life.

The two New York-based companies announced the news on Tuesday following an earlier report from The New York Times that said a deal was imminent. WeWork did not disclose how much it is paying to acquire Meetup, which was founded in 2002 and currently has 35 million members who use the service to find other people with similar hobbies and interests—from nature lovers to people looking to form a book club—so they can set up group meetings offline.

In a blog post announcing the deal, WeWork CEO and co-founder Adam Neumann pointed to the two companies’ similar goal of “bringing people together.” WeWork lets small businesses, including startups, rent office space and related services in shared workspaces in 17 countries around the world. “WeWork and Meetup have the opportunity to use technology to create new and innovative ways of bringing people together in person and foster greater community,” Neumann wrote on Tuesday.

“WeWork has space for community, and Meetup needs space for community. Voila!” Meetup said in its own statement.

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WeWork, which is valued at nearly $20 billion following a $4.4 billion investment from Japan’s Softbank Group earlier this year, has been expanding rapidly of late, growing its network to include more than 10 million square feet of office space in 170 locations in 58 cities. WeWork has added shared housing in some of those locations, while the company also recently partnered with Airbnb to offer office amenities to business travelers and bought the Lord & Taylor building in New York City to be its new global headquarters.

By acquiring Meetup, WeWork gets an avenue to reach Meetup’s millions of members (including 300,000 group organizers) while potentially taking advantage of WeWork’s existing real estate to offer those members places to meet after work hours. (The two companies have actually worked together in the past, with WeWork’s Neumann adding that more than 100,000 people have attended a Meetup event in a WeWork space this year alone.) Neumann also indicated that Meetup, which is facing increasing competition from social networking giant Facebook, will continue to operate as a standalone company, with CEO and co-founder Scott Heiferman continuing to lead Meetup.

AT&T: Here Comes The Judge! (But What's An Investor To Do?)

Here Comes The Judge

U.S. District Judge Richard Leon, the same federal judge who previously oversaw and signed off on the Comcast (CMCSA)/NBCUniversal deal, has been assigned to the U.S. Justice Department’s (DoJ) lawsuit to block the AT&T (T)/Time Warner (TWX) merger.

As most readers are undoubtedly already aware, the DoJ filed suit, claiming that the proposed merger in its current structure would result in less choice and higher bills for consumers and, in the words of Makan Delrahim, newly appointed head of the DoJ’s antitrust division, limit the development of “new, emerging innovative options that consumers are beginning to enjoy.”

Deja Vu All Over again

If these concerns sound like deja vu all over again, it’s because they are the same ones used by opponents of the Comcast/NBCUniversal deal when it was reviewed by Judge Leon back in 2011. As a condition of the DoJ’s approval at the time, had Comcast already agreed to a host of conditions and rules that it would abide by to ensure that the merger did not stifle competition in the media industry, but it was not requested by the DoJ to structurally change the makeup of the combined entity.

When presented with the solution agreed to between the DoJ and Comcast/NBCUniversal, Judge Leon, being no proponent of government oversight, expressed his doubts that the agreed upon conditions would be subject to any effective oversight or enforcement and that online video content distributors such as Netflix (NFLX) could be placed at a disadvantage with no effective remedy when he wrote:

“The government’s ability to ‘enforce’ the final judgment, and, frankly, this court’s ability to oversee it, are, to say the least, limited.”

As a result, he imposed a few of his own conditions, primary among them that the merged entity report to the DoJ any arbitration claims brought against it with regard to content disputes. Skeptical as Judge Leon was, however, he was not about to overturn decades of anti-trust precedent regarding vertically integrated mergers, and he ultimately approved the deal.

Comcast/NBCUniversal Merger Hasn’t Hindered Competition

Of course, with the benefit of hindsight, the judge’s 2011 concern for the wellbeing of Netflix seems quaint to say the least. In fact, the success of Netflix and other online video entities that have proliferated and thrived in the six years since the judge approved the Comcast/NBCUniversal deal is likely to be Exhibit A and proof positive that the nearly identically proposed vertical merger of AT&T/Time Warner won’t hamper competition nor limit consumer choice. No doubt an argument could be made that AT&T and Time Warner need to combine forces in order to remain competitive themselves or continue to lose market share to OTT services and content.

AT&T’s Words May Come Back To Haunt It

For his part, Delrahim, who has pushed for a structural solution by insisting AT&T divest itself of its DirecTV holdings, or spin off Time Warner’s Turner Broadcasting division, which includes TNT, Turner Sports, and CNN, is likely to use the merging party’s own words against it. For example, as AT&T and TWX management justified the merger to shareholders, the combined entity was characterized as providing a competitive advantage in the overall media space, resulting in more profit for investors. An excerpt from the DoJ’s filing gives us a hint at its strategy, when on the very first page it cites:

“As AT&T has expressly recognized however, distributors that control popular programming have the incentive and ability to use (and indeed have used whenever and wherever they can) that control as a weapon to hinder competition.”

Plenty Of Drama And Anyone’s Guess On An Outcome

Adding to the drama, especially in light of President Trump’s claim while he was still a candidate that he was not in favor of the merger when it was first announced, and his very public and ongoing feud with CNN over what he deems as “fake news”, is Makan Delrahim – himself a recent Trump appointee – insisting that CNN be carved out of any merger before he would bless it.

No doubt with valid arguments from both sides of the coin and plenty of drama to speculate on, M&A experts and armchair attorneys alike will have more than enough material to discuss the merits of the case and the likelihood of the merger being ultimately approved or not. That question, however, is really moot for our purposes. The real question investors should be asking is not necessarily “How will the court decide”? Rather given that the situation has come down to a binary outcome, the question should be “How will the stock react if/when the merger is approved/not approved and what, if anything, should I be doing about it from an investor standpoint?”

What’s An Investor To Do?

Regardless of the legal precedent, various merits of either position in the case, or jurist disposition, what does this all mean from an investor perspective? How is the stock likely to react when a ruling is eventually made one way versus another? What should current shareholders do, if anything, to hedge their positions against further downside? As shares are trading just off lows for the year, and likewise trading at close to a low on an earnings multiple basis, is this an opportunity to establish a position ahead of a potential upturn or a value trap?

Chart

T data by YCharts

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T PE Ratio (TTM) data by YCharts

If the court ultimately rules against the approval for the merger, it certainly would be a setback for AT&T CEO Randall Stephenson’s strategy of building an integrated network of broadband, content, and distribution. But it would not mean that strategy cannot still be achieved.

Certainly with regard to its sheer size and collection of content, adding Time Warner with a single stroke of the pen is preferable to adding the various pieces on a more ad-hoc basis over time. To be sure, without the content ownership Time Warner brings to the table, AT&T would have less leverage over content costs and distribution rights than it otherwise would have, but regardless, with or without Time Warner, AT&T would still need to acquire additional content rights from third parties. Therefore, its business plan would not be ultimately defeated if the deal doesn’t happen, and the long-term strategy would remain intact with or without the deal.

In the near term, as I had pointed out in a previous article, the actual financial impact of a broken deal would be relatively minor to the company the size of AT&T, as it would be required to pay a $500 million breakup fee. In addition, debt issued to fund the cash part of the deal would be redeemed at 101% of the principal amount plus accrued but unpaid interest – approximately an additional $300 million. As a result of the redemption of the bonds, the balance sheet would immediately be delevered, taking pressure off the company’s credit rating status, which would benefit bondholders, and income focused shareholder could breathe a sigh of relief as speculation over the continuation of the dividend would subside.

In other words, without Time Warner, life goes on for AT&T. While the stock may take an additional hit if this time Judge Leon rules against a vertical merger, such a reaction would likely be short-lived and provide value hunters with an even more attractive entry point.

I think the more uncertain and perhaps more interesting scenario would be if the deal is ultimately approved. Especially if, as often happens in Judge Leon’s courtroom, the case drags on longer than anticipated.

Currently, and as long as the legal review drags on, AT&T’s cash flows will be pressured as it is saddled with servicing the $30 billion of incremental debt of the aforementioned bonds – without the benefit of additional cash flows from Time Warner.

And if/when the deal is finally approved, management has a lot of wood to chop, and quickly, in order to implement synergies and start to reduce and sustain leverage back towards the 2.5x or lower level as it has expressly indicated would be its focus. To do so, my guess is that management’s strategy would be to incrementally raise the price of its broadband access. However, any conditions that Judge Leon may impose, as he did with the Comcast/NBCUniversal case, on the combined entity’s ability to raise prices anywhere along the value chain may throw a wrench into those works.

Therefore, if the merger is ultimately approved and successfully completed, cash flow needs to improve and/or leverage needs to be reduced below 3x EBITDA on a sustained basis, or the company could be further downgraded. If there is one thing management is committed to more than sustaining and growing the dividend, it’s maintaining its investment grade credit status. A downgrade to non-investment grade is NOT an option.

Investors hate uncertainty, and the AT&T/Time Warner merger is definitely in an uncertain territory at this juncture. Long term, an approval and successful integration of the merger is the best scenario for shareholders and bondholders alike. If the deal gets rejected by the courts, expect shares to take a quick dip and be prepared to buy on the news before cooler heads realize that it’s just back to business as usual for AT&T. If the deal is approved, expect the stock to continue to be under pressure as management has a lot of work to do to prove the merger is a profitable one.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Ignore The Pain And Get A (Portfolio) Stimulant With KemPharm

History of KemPharm

KemPharm (KMPH) was founded in 2006 by Travis and Christal Mickle, both formerly of New River Pharmaceuticals. Travis Mickle is a PhD and was the principal inventor of Vyvanse, a prodrug amphetamine stimulant. Vyvanse is the top selling branded stimulant on the market today that is owned and marketed by Shire (SHPG). Shire obtained Vyvanse by purchasing New River Pharmaceuticals for $2.6 billion. Vyvanse had record sales of over $2 billion in 2016 alone. It is the third leading prescribed stimulant overall with ~18% market share in a market where only about 26% of scripts are written for branded medications. The next highest branded stimulant has less than 5% of the market. Why has Vyvanse been so successful? Part of this is due to the marketing power of Shire (and its history with Adderall), but part of it is the fact that Vyvanse is a prodrug. Vyvanse is l-lysine-dextroamphetamine, or lisdexamfetamine for short.

The prodrug properties cause Vyvanse to have three distinct advantages over Adderall XR. The first is that it lasts somewhat longer. Clinically, I observe that it generally lasts about two hours longer than Adderall XR in most of my patients. Second, Vyvanse is “smoother” than Adderall XR and therefore does not have as much of a “kick” in or a “rebound” as it wears off. Third, in part due to the lack of a kick, Vyvanse is not as popular as Adderall or Adderall XR among those who wish to abuse stimulants. Shire has not been able to market this as the FDA has strict rules on labeling and promoting a drug as abuse deterrent (more on this later). However, physicians (including myself) have had several years of science and most can “connect the dots” when the mechanism of action is described.

Travis Mickle wasted no time in moving on from New River to KemPharm. In fact, he actually founded KemPharm before New River was officially sold to Shire. Building on his success with Vyvanse and other prodrugs at New River, Dr. Mickle launched KemPharm as another prodrug company (this time with “Ligand Activated Therapy” prodrugs) emphasizing ADHD. By 2009, Dr. Mickle and KemPharm had already produced Phase 1 data on another amphetamine prodrug, KP-106. KP-106 appeared to be headed down the same road as Vyvanse and would have represented a direct competitor to Vyvanse. The initial data suggested it may have an “improved side effect profile and lower propensity for drug abuse” compared to Vyvanse. Shire took exception to this and sued KemPharm and Dr. Mickle in September 2010 for violating a non-compete clause. KemPharm then counter-sued Shire in March 2011 for unfair competition and antitrust violations. Not long after this, KemPharm announced that it was converting KP-106 to an oral film product. Then, in May 2012, KemPharm announced that it had settled the lawsuit with Shire and would be focusing on its pain medication prodrugs. KP-106 disappeared from its pipeline and has not returned. One could assume that this was part of the settlement although I could not find where this was stated as fact.

According to the Wayback Internet Archive, KemPharm’s website was then fairly dormant for much of 2012 and 2013. The company went public in April 2015 with an IPO price of $11/share. At that time, its lead candidate was what is now called Apadaz and it was planning its initial NDA for it. The rest of its portfolio was all pre-clinical but ADHD had crept back in the list with a new drug called KP415.

From Pain-Focused Back to ADHD-Focused

For much of 2015, KemPharm was on a roll with its pain franchise. It demonstrated the tamper-resistant properties of Apadaz (aka KP201/APAP). It then demonstrated positive results in intranasal human abuse liability studies. This culminated in the submission of its NDA for Apadaz. The stock performed well and topped $20/share during 2015. In early 2016, it secured an $86 million Senior Convertible Note (dropping the stock price back to the IPO of $11/share), but then announced FDA priority review and returned to almost $20/share over the next two months. Then, in early May 2016, the hammer fell with an 18 to 2 vote against including abuse deterrent labeling on Apadaz. The stock plummeted to under $7/share and continued down to $6/share over the following days. KemPharm requested to amend the NDA and the FDA responded with a Complete Response Letter in June. The stock sunk to $4/share and has been between there and a low of about $2.50 per share ever since. Recently, it has been stuck in a narrow range of $3.50 to $4 per share.

A little over a year ago, KemPharm appealed the CRL by initiating a dispute resolution process. Basically, KemPharm argued that the standards for abuse deterrent labeling are too specific and that its data should have been sufficient. It argued for approval of Apadaz as a bioequivalent product with the abuse deterrent labeling. This appeal was denied, but feedback was provided that led to the September resubmission of the Apadaz NDA a PDUFA date of February 23, 2018. On November 21st, the FDA issued updated guidelines regarding abuse-deterrent medications. It is quite possible that KemPharm may have been aware of some of these standards when making its decision to refile its NDA. In addition to Apadaz, KemPharm is also pursuing five other abuse-deterrent prodrug opioids. One of these may be ready for a NDA in 2018 with two additional ones potentially ready in 2019.

Despite still pursuing the abuse-deterrent prodrug opioids, KemPharm has shifted to referring to other drugs as its lead candidates. The “new” lead candidates are now KP415 and the newly identified KP484. KP415 and KP484 are two prodrug versions of d-threo-methylphenidate (aka dexmethylphenidate). Dexmethylphenidate is better known by its brand name Focalin. Essentially, KP415 is to Focalin XR what Vyvanse is to Adderall XR. KP415 is likely longer acting, smoother, and has less of a “kick” than Focalin XR. KP484 is an ultra-long acting version intended for adults. KP484 is intended to be a prodrug like KP415 and Vyvanse while also being the longest acting methylphenidate on the market (and comparable to what Shire’s Mydayis is for amphetamines in terms of duration). By pursuing KP415 and KP484, Dr. Mickle is back to what made him so successful with Vyvanse (this time without Shire legal challenges to this point).

KemPharm’s ADHD Compounds Face Fewer Challenges Than the Pain Prodrugs

KP415 and KP484 should have a much cleaner pathway to approval than the prodrug opioids. While both opioids and stimulants are crowded markets, opioid approval almost requires abuse deterrent criteria to be met at this point. There is rightfully significant concern about new opioids being added to the market due to the high number of deaths caused by opioid overdose in the United States. There are far fewer stimulant overdose deaths (although they still do occur). Therefore, there has not yet been as much pressure for abuse deterrence as a near-requirement for FDA approval. To date there have not been any stimulants labeled for abuse deterrence (although several current ones have some deterrent technologies).

Stimulant studies are also fairly straightforward and easy to do. The high prevalence of ADHD makes finding study participants rather easy and the studies do not generally require long-term treatment. Focalin is already shown to work, so the only real question with KP415 and KP484 will be if the prodrug successfully converts to the active drug at an adequate dose to produce the positive results. Initial studies seem to indicate that KP415 does this and KP484 likely will follow. Assuming that this is consistent and dosing is correct, the pivotal studies for both of these drugs should be resoundingly positive. KemPharm is projecting that it could have these results and file a NDA for KP415 as soon as late 2018. It is projecting a potential NDA in 2019 for KP484. These goals are somewhat ambitious, but definitely reachable.

If approved, KP415 and KP484 would help fill spaces in the methylphenidate stimulant market that have already been filled in the amphetamine side of the stimulant market. KP415 would be the Vyvanse-like methylphenidate while KP484 might combine the best attributes of Vyvanse with the duration of Mydayis in the methylphenidate side. KP415 would compete with the longest acting methylphenidate stimulants, which are currently the generic of Concerta, Quillivant/QuilliChew by Pfizer (NYSE:PFE), and Cotempla by Neos Therapeutics (NASDAQ:NEOS). However, even without the labeling, it could gain the reputation of being the most abuse deterrent of the group similar to the way that Vyvanse did (based off of it being the only prodrug). KP484 would then trump all of them on duration and be equaled by only Mydayis (an amphetamine). Again, KP484 would have the advantage in that it is a prodrug and Mydayis is not. Key disadvantages would be having to go against the preexisting marketing forces of Shire, Pfizer, and Neos. However, just as New River was bought out by Shire, KemPharm would likely also be a buyout consideration at that point.

In my opinion, KP415 and KP484 would be able to get a strong market presence even without the abuse deterrent labeling. I would estimate this at $300-500 million per year in sales. However, if it was able to get the abuse deterrent labeling, then it could potentially get to a top-end of around 10% market share in stimulants (equivalent to ~$1 billion/year in sales). There are very few potential stimulants for which I would say this is possible, but the history of Vyvanse makes me believe that it is. Vyvanse was able to get to almost 1/3 of the amphetamine market. If KP415 + KP484 could get close to 1/3 of the methylphenidate market, then this would be about 10% of the overall stimulant market.

The Valuation of KemPharm is What Makes it an Attractive Buy

KemPharm is currently valued at $3.80 per share, which is a market cap of only $55.7 million. Its current cash position is about $50.2 million. It does have $92.3 million in debt that is at a 5.5% interest rate. The debt is in the form of Senior Convertible Notes which can be converted to stock at the option of the holders. The notes mature in 2021 unless converted prior to that time. So, effectively, this debt is being factored in and makes the enterprise value somewhere around $148 million. KemPharm is losing $10 million/quarter currently, which would mean it has enough cash to get through about the end of 2018. As it is unlikely to have revenues by that time, it will either need to raise cash through dilution or partner one of its drugs before the end of 2018.

If KemPharm is able to get KP415 approved (which would also bode well for the future of KP484), then it alone could justify a market cap around $300 million (comparable to the current market cap of Neos). Of course, this is over a year away and requires a positive study. I believe that the chances of eventual approval here are very good and, therefore, I would consider investing on this fact alone.

However, I always like there to be additional “shots on goal” and KemPharm provides these. The price drop from $15-20 per share down to less than $4 a share is a good indication that the market has given Apadaz little chance of success (assuming approval was “priced in” at $15-20 per share). While unlikely, the Trump FDA could approve Apadaz with the abuse deterrent label in February 2018. This would likely return the share price to the $15-20 range. Approval without the abuse deterrent label could improve the share price to $7/share or more, which is where it was after the panel vote and before the CRL. The worst case scenario is denial by the FDA being able to trigger a debt call by Senior Convertible Note holders. I am not sure of the full terms of the Senior Convertible Notes, but it could mandate significant dilution by KemPharm in order to survive financially. I suspect this would drop the stock price back to the $2.50 range again. However, if the debt was out of the way, I personally would double down if this happened as the future of KP415 is bright.

In addition to Apadaz, KemPharm could find success with one of its other prodrug opiates within the next 1-2 years. However, if the FDA does not approve Apadaz, then it would likely mean that more studies would be needed for these drug candidates than what was done with Apadaz. This would likely slow the process down and the 1-2 year goals would likely be too optimistic.

KemPharm is also in preclinical stages with a prodrug version of quetiapine (Seroquel). Seroquel is an effective atypical antipsychotic that has several side effect issues (especially metabolic syndrome ones). It is also abused on occasion because it has somewhat of a “kick.” A prodrug version of Seroquel would be most interesting if it not only eliminated the “kick,” but also reduced the severity of the metabolic side effects. This compound will likely have a longer pathway than the others that KemPharm is pursuing, but could have significant potential if it met these goals.

Finally, KemPharm recently partnered with Genco Sciences to develop a prodrug amphetamine for the combination of ADHD and Tourette’s. Little is known about this partnership yet other than that it will utilize some Genco technology (likely from this patent) in an amphetamine compound. While this compound is unlikely to be the resurrection of KP-106 itself, it does likely represent KemPharm reentering the direct space of Vyvanse. This compound should provide further depth to the portfolio – although the combo of ADHD and Tourette’s is more of a challenge both from the standpoint of difficulty to treat and population size.

Conclusions

Bullish Factors (Upsides):

  • Travis Mickle has had success before and is now back on a very similar path that led to Vyvanse and the sale of New River Pharmaceuticals to Shire.
  • KP415 and KP484 have a relatively straightforward path to approval that includes studies that are not generally time consuming.
  • Apadaz failure is nearly completely priced in and any positive news with regards to its NDA would likely result in a stock price increase.
  • If a window is left open for prodrug opiates as abuse deterrent compounds, then KemPharm has a deep pipeline for these.
  • The prodrug version of quetiapine (Seroquel) and the partnership with Genco Sciences should add additional “shots on goal” in the future.
  • KemPharm is on a path to make itself an attractive acquisition target much like New River Pharmaceuticals.

Bearish Factors (Risks):

  • The Convertible Note debt is a significant concern and could lead to a significant dilution under some circumstances.
  • While Apadaz failure seems to be largely priced in, denial could trigger a chain of events with the debt that would lead to new all-time lows.
  • Even with success, KemPharm may require cash raised through dilution in mid-late 2018.
  • Failure of the prodrug KP415 to convert to active compound could result in study failure – while unlikely, this would likely sink the company if Apadaz had also been denied.
  • Shire has sued Dr. Mickle and KemPharm before. While this was settled, there could possibly be additional lawsuits in the future that would impact the direction/success of the company.

Based on my findings as above, I decided to initiate a starter long position in KemPharm. In the event that Apadaz failure or a dilution led to a significant pullback, I would likely double or even triple this position. I view KP415 as the key drug moving forward and any positive news out of the opiate drugs would be welcome bonuses.

Author’s Note: Thank you for reading my article. If you find it beneficial, please consider following me and reviewing my other articles. Comments welcome.

Disclosure: I am/we are long KMPH.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have had ~6-7 marketing lunches provided to my office by NEOS in the past year. I have also had ~12 marketing lunches provided by Shire in the past year. KemPharm does not currently market its product, but I anticipate that with approval it would be marketed directly to me in the future.

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BMW eyes possible electric vehicle joint venture in China: sources

SHANGHAI/BEIJING (Reuters) – German luxury automaker BMW is looking to form a joint venture with Great Wall Motor in China, which could focus on electric vehicles, according to two sources familiar with the matter on Wednesday.

A venture with Great Wall, whose Hong-Kong listed shares leapt 20 percent on the news, would be BMW’s second in the world’s largest auto market, where foreign carmakers have to team up with local partners.

“We are in discussions with Great Wall about setting up a joint venture to produce cars in Changshu,” said a BMW executive, who was not authorized to speak on the matter and declined to be identified.

Another person familiar with the matter said the new joint venture in the eastern city of Changshu would not deal with gasoline or diesel powered cars, indicating a focus on electric vehicles was likely.

BMW’s China sales grew 11.3 percent last year. It is the country’s second-largest premium brand after Volkswagen AG’s (VOWG_p.DE) Audi AG. BMW is trying to stay ahead of third-place Daimler’s Mercedes-Benz, which recorded 26.6 percent growth in China sales in 2016 thanks to a fresher model lineup.

Car manufacturers have recently announced a raft of investments and tie-ups in China.

Tesla, Ford Motor Co, Daimler AG, and General Motors are among those that have already announced plans for making electric vehicles in China.

ELECTRIC MINI?

BMW and rival Mercedes are betting they can mass produce new electric cars based on conventional vehicle design, defying skeptics who say they will need more radical plans to head off the threat from Tesla and other start-ups.

Bernstein analysts said they believed that any new venture of BMW and Great Wall would have to sell exclusively electric vehicles (EVs), given China’s moratorium on approvals for new gasoline car businesses.

“If an agreement were to be reached, we’d expect an arrangement like Denza (Mercedes-BYD), or VW-JAC, Ford-Zotye to be the most plausible outcome, whereby a new brand is used to sell EVs,” they said in a note, adding that the vehicles could be sold under the Mini brand.

FILE PHOTO: A Great Wall Motors Haval hybrid vehicle is presented during the Auto China 2016 auto show in Beijing, China, April 29, 2016. REUTERS/Damir Sagolj/File Photo

China wants electric and hybrid cars to make up at least a fifth of the country’s auto sales by 2025 and plans to loosen joint-venture regulations to achieve its aim.

BMW already has a joint venture in China with local carmaker Brilliance China Automotive Holdings and produces cars at two plants in Shenyang. Shares in Brilliance fell on Wednesday.

“Our business development with the joint venture BMW Brilliance Automotive will continue as planned, and we will carry on to invest and develop our joint venture.” a spokesman for BMW said, declining to comment on any new joint venture.

Slideshow (3 Images)

The plans were first reported by Shanghai-based www.iautodaily.com earlier on Wednesday.

“I don’t know how far along we have gone nailing this deal,” or whether the two companies have official central government approval for the venture, the BMW executive said.

A Great Wall official declined to comment.

Great Wall, which in August expressed an interest in the Jeep brand of Italian-American automaker Fiat Chrysler Automobiles NV‘s, is one of China’s largest car makers.

Last month it struck a deal to secure supplies of lithium, a mineral key for developing electric vehicles.

The firm’s shares soared as much as 19.2 percent to their highest level in over two years, before paring some gains to stand up 14 percent in afternoon trade. Its Shanghai-listed shares were suspended from trading, pending an announcement.

Brilliance China Automotive’s shares were down 2.76 percent.

Brokerage Jefferies said in a note that it was “understandable that BMW needs a new partner to defend its market share in a more competitive market”, and expected that the move would hit current partner Brilliance.

Reporting by Adam Jourdan in SHANGHAI and Norihiko Shirouzu in BEIJING; Additional reporting by Irene Preisinger; Editing by Neil Fullick and Elaine Hardcastle

Tech

Self-driving car advocates launch ad campaign to prod Congress

WASHINGTON (Reuters) – A coalition of supporters of self-driving cars said on Tuesday that it will run ads this week in social media and Washington newspapers, in an effort to convince the U.S. Congress to adopt sweeping legislation to boost the nascent industry.

The ads are being placed by the Coalition for Future Mobility, which was formed in July by trade groups representing major automakers, along with other advocates for self-driving cars, as Congress began serious consideration of bills relating to autonomous vehicles.

They want the Senate to pass a bill that would speed up the use of self-driving cars by easing safety regulations, and bar states from blocking such vehicles. The House of Representatives has already unanimously approved a bill.

The Senate is considering a similar draft measure, but is divided over whether to include large commercial trucks, a dispute that could prevent the bill from winning approval this year.

The House measure, which only applies to vehicles under 10,000 pounds (4,536 kg), would allow automakers to obtain exemptions to deploy up to 25,000 vehicles without meeting existing auto safety standards in the first year. The cap would rise over three years to 100,000 vehicles annually.

As part of the campaign, major automakers will be contacting their employees and retirees, asking them to reach out to their members of Congress, a spokeswoman for the Alliance of Automobile Manufacturers said.

The coalition launched a website and will use targeted Facebook advertising, focusing on groups who could benefit from autonomous vehicles, such as disabled veterans.

One of the print ads seen by Reuters features a man dressed in military fatigues sitting in a wheelchair. The ad says: “He fought for our freedom. Let’s give him back his.” That “will only become a reality if Congress acts,” the ad says.

The coalition includes trade groups representing automakers General Motors Co, Toyota Motor Corp and Volkswagen AG (VOWG_p.DE), as well as organizations including ride sharing firm Lyft Inc, the Telecommunications Industry Association, the American Council of the Blind and a drone industry group.

Senate aides have been negotiating in recent days but have not reached agreement. A Senate panel could take up the issue at an Oct. 4 hearing, aides say.

Auto industry leaders say 3 million commercial truck jobs could eventually be at risk if self-driving vehicles replaced human drivers.

Self-driving proponents say 94 percent of U.S. car crashes are the result of human error and argue self-driving cars could dramatically cut the 35,000 annual road deaths.

Reporting by David Shepardson, Editing by Rosalba O’Brien

Our Standards:The Thomson Reuters Trust Principles.

Tech