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KemPharm Did Not Prove Apadaz to Be Abuse-Deterrent Securities Class Action

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This securities class action alleges that KemPharm should have considered Food and Drug Administration (FDA) guidance when designing studies for its lead product candidate, an opioid painkiller the company hoped would be labeled as abuse-deterrent. Ignoring those guidelines, the complaint says, made it unlikely that the drug would get the approval it needed and made the Registration Statement for its initial public offering (IPO) false or misleading.

The class for this action is all those who bought KemPharm’s common stock pursuant or traceable to the company’s IPO and Registration Statement and who were damaged thereby.

KemPharm takes existing, FDA-indicated drugs and improves them via a “ligand-activated therapy” program, for example, by making them more bio-available or harder to abuse.

KemPharm’s Apadaz is an opioid for moderate to moderately severe pain that was intended to be labeled abuse-deterrent. The drug was designed so that it does not become pharmacologically active until it is processed by the body’s intestinal tract, making crushing or grinding ineffective means of use.

On April 1, 2015, the FDA issued final guidance for companies developing abuse-deterrent opioids. It recommends ways for studies to be performed and evaluated and it suggests which labeling claims may be approved based on the studies.

Two weeks later, on April 16, 2015, KemPharm held its initial public offering (IPO), selling over 5 million shares at $11 per share. However, the complaint claims that the Registration Statement for the IPO contained misleading or untrue statements and did not adequately discuss risks and uncertainties. Specifically, the complaint says, the Registration Statement did not disclose that the company’s studies for Apadaz were not adequate to obtain an abuse-deterrent label from the FDA, making it just another painkiller.

This emerged only on May 5, 2016, when the company announced that the FDA had voted to approve the drug but not allow it abuse-deterrent labeling, stating that “this study has some issue with study design that make it difficult to use in assessing the abuse-deterrent effect” of Apadaz.

At this news, the company’s stock price fell by 56%. The complaint claims that, as of its filing date, the stock price has lost over 76% of its value since the IPO, closing on November 4, 2016 at $3.70.

The complaint alleges that the company and the underwriters of its IPO did not perform due diligence on the company’s business, products, and other aspects. It says that the Registration Statement was thus “negligently prepared” in violation of Sections 11, 12 (a)(2), and 15 of the Securities Act of 1933.

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