UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 20232024

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period From                       to

 

Commission File No.Number: 001-36913

 


Zevra Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 


 

Delaware

 

20-5894398

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

1180 Celebration Boulevard, Suite 103, Celebration, FL

 

34747

(Address of Principal Executive Offices)

 

(Zip Code)

 

(321) 939-3416

(Registrant’s Telephone Number, Including Area Code)
 
 
(Former Name, Former Address, and Former Fiscal Year if Changed Since Last Report)
 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.0001 par value per shareZVRA

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

Accelerated filer     

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

      

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes       No  

 

As oof Mayf May 8, 2 3023,, 2024, the registrant hadha 33,881,804 shared 41,853,494 sshares of common stock outstanding.



 

 

 

 

INDEX

 

ZEVRA THERAPEUTICS, INC.

FORM 10-Q

 

  Page
   

 

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

unaudited CondeNSed CONSOLIDaTED Financial Statements

 

 

UNAUDITED Condensed CONSOLIDATED Balance Sheets as of MARCH 31, 2023,2024, and December 31, 20222023

4

 

UNAUDITED Condensed CONSOLIDATED Statements of Operations for the three Months ended MARCH 31, 2023,2024, and 20222023

5

 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS FOR THE THREE MONTHS ENDED MARCH 31, 2024, AND 2023 and 20226
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE Three THREE MONTHS ENDED MARCH 31, 2023,2024, AND 202220237

 

Unaudited condensed CONSOLIDATED Statements of Cash Flows for the THREE months ended MARCH 31, 2023,2024, and 20222023

9

 

Notes to unaudited Condensed CONSOLIDATED Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2627

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3440

Item 4.

Controls and Procedures

3440

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

3541

Item 1A.

Risk Factors

3541

Item 2.

Unregistered Sales of Equity Securities andAND Use of Proceeds

3642

Item 3.

Defaults Upon Senior Securities

3642

Item 4.

Mine Safety Disclosures

3642

Item 5.

Other Information

3642

Item 6.

Exhibits

3743

 

 

 

 

Signatures

3844

 

 

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, including the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as may, will, would, should, expects, plans, anticipates, could, intends, target, projects, contemplates, believes, estimates, predicts, assume, intend, potential, continue or other similar words or the negative of these terms. We have based these forward-looking statements largely on our current expectations about future events and financial trends that we believe may affect our business, financial condition and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in Part II, Item 1A. "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022,2023, filed with the SEC on March 7, 2023.April 1, 2024. Accordingly, you should not place undue reliance upon these forward-looking statements. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur, the timing of events and circumstances and actual results could differ materially from those anticipated in the forward-looking statements. Forward-looking statements contained in this report include, but are not limited to, statements about:

 

 our ability to integrate Acer (as defined below) into our business successfully or realize the anticipated synergies and related benefits of the Merger (as defined below);

the progress of, outcome or and timing of any regulatory approval for any of our product candidates and the expected amount or timing of any payment related thereto under any of our collaboration agreements;

our ability to remediate the material weakness we have identified and the timing thereof;
our ability to continue as a going concern;
   
 

the progress of, timing of and expected amount of expenses associated with our research, development and commercialization activities;

   
 

our ability to raise additional funds on commercially reasonable terms, or at all, in order to support our continued operations;

   
 

the sufficiency of our cash resources to fund our operating expenses and capital investment requirements for any period;

   
 

the expected timing of our clinical trials for our product candidates and the availability of data and results of those trials;

   
 

our expectations regarding federal, state and foreign regulatory requirements;

   
 

the potential therapeutic benefits and effectiveness of our products and product candidates;

   
 

the size and characteristics of the markets that may be addressed by our products and product candidates;

   
 

our intention to seek to establish, and the potential benefits to us from, any strategic collaborations or partnerships for the development or sale of our products and product candidates; if approved;

   
 

our expectations as to future financial performance, expense levels and liquidity sources;

   
 

the timing of commercializing our products and product candidates, if approved;

   
 senior leadership and board member transitions and refreshments; and
   
 

other factors discussed elsewhere in this report.

 

The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We have included or made reference to important factors in the cautionary statements included in this report, particularly in the section entitled "Risk Factors" where we make reference to Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022,2023, filed with the SEC on March 7, 2023,April 1, 2024, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. Except as required by law, we do not assume any intent to update any forward-looking statements after the date on which the statement is made, whether as a result of new information, future events or circumstances or otherwise.

 

Note Regarding Company Reference

 

Unless the context otherwise requires, we use the terms Zevra,, Company, we, us and our in this Quarterly Report on Form 10-Q to refer to Zevra Therapeutics, Inc., formerly known as KemPharm, Inc. prior to February 21, 2023. We have proprietary rights to a number of trademarks used in this Quarterly Report on Form 10-Q that are important to our business, including LAT® and the Zevra logo. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Quarterly Report on Form 10-Q are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

 

On August 30, 2023, the Company and Aspen Z Merger Sub, Inc., an indirect wholly-owned subsidiary of Zevra (Merger Sub) entered into an Agreement and Plan of Merger (the Merger Agreement) with Acer TherapeuticsInc. ("Acer"). On November 17, 2023 (the "Closing Date"), we completed the acquisition of Acer. Pursuant to the Merger Agreement, on the Closing Date, Merger Sub was merged with and into Acer (the "Merger"), with Acer continuing as the surviving entity and as a wholly-owned subsidiary of Zevra.

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1.

unaudited condensed CONSOLIDATED Financial Statements

 

ZEVRA THERAPEUTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value amounts)

 

 

March 31,

 

December 31,

  

March 31,

 

December 31,

 
 

2023

  

2022

  

2024

  

2023

 

Assets

        

Current assets:

  

Cash and cash equivalents

 $40,181 $65,466  $42,849 $43,049 

Securities at fair value

 34,403 16,900  9,868 24,688 

Short-term investments - other

 20,700 481 

Accounts and other receivables

 7,822 8,299  8,305 17,377 

Prepaid expenses and other current assets

  1,174   1,877   1,868   1,824 

Total current assets

 104,280  93,023  62,890  86,938 

Inventories

 620 671  12,426 9,841 

Property and equipment, net

 744 794  695 736 

Operating lease right-of-use assets

 898 988  1,086 790 

Long-term investments - other

  20,000 

Goodwill

 4,701 4,701 

Intangible assets, net

 67,699 69,227 

Other long-term assets

  53   53   1,786   94 

Total assets

 $106,595  $115,529  $151,283  $172,327 
  

Liabilities and stockholders' equity

        

Current liabilities:

  

Accounts payable and accrued expenses

 $10,098 $6,169  $22,785 $28,403 

Line of credit payable

  37,700 

Current portion of operating lease liabilities

 470 480  583 543 

Current portion of discount and rebate liabilities

 4,746 4,655  4,452 4,550 

Other current liabilities

  302   422   2,089   2,524 

Total current liabilities

 15,616  11,726  29,909  73,720 

Secured promissory note

 5,059 5,066 

Line of credit payable

 12,914 12,800  37,939  

Derivative and warrant liability

 3 1 

Warrant liability

 11,535 16,100 

Operating lease liabilities, less current portion

 736 843  705 456 

Discount and rebate liabilities, less current portion

 5,764 4,327  8,781 7,663 

Other long-term liabilities

  158   25   8,537   7,458 

Total liabilities

  35,191   29,722   102,465   110,463 
  

Commitments and contingencies (Note D)

              
  

Stockholders’ equity:

  

Preferred stock:

  

Undesignated preferred stock, $0.0001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of March 31, 2023 or December 31, 2022

    

Common stock, $0.0001 par value, 250,000,000 shares authorized, 35,457,496 shares issued and 33,881,804 shares outstanding as of March 31, 2023; 35,450,257 shares issued and 34,540,304 shares outstanding as of December 31, 2022

 3 3 

Undesignated preferred stock, $0.0001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of March 31, 2024 or December 31, 2023

    

Common stock, $0.0001 par value, 250,000,000 shares authorized, 43,426,186 shares issued and 41,850,494 shares outstanding as of March 31, 2024; 43,110,360 shares issued and 41,534,668 shares outstanding as of December 31, 2023

 4 4 

Additional paid-in capital

 402,786 401,799  476,056 472,664 

Treasury stock, at cost

 (10,983) (7,536) (10,983) (10,983)

Accumulated deficit

 (320,339) (308,572) (416,400) (399,778)

Accumulated other comprehensive (loss) income

  (63)  113 

Accumulated other comprehensive income (loss)

  141   (43)

Total stockholders' equity

  71,404   85,807   48,818   61,864 

Total liabilities and stockholders' equity

 $106,595  $115,529  $151,283  $172,327 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

4

 

 ZEVRA THERAPEUTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

 

  

Three months ended March 31,

 
  

2023

  

2022

 

Revenue, net

 $2,879  $3,965 

Operating expenses:

        

Cost of revenue

  125   8 

Research and development

  8,844   3,082 

Selling, general and administrative

  6,834   2,734 

Total operating expenses

  15,803   5,824 

Loss from operations

  (12,924)  (1,859)

Other (expense) income:

        

Interest expense

  (182)  (5)

Fair value adjustment related to derivative and warrant liability

  (2)  241 

Fair value adjustment related to investments

  196   (352)

Interest and other income, net

  1,042   107 

Total other (expense) income

  1,054   (9)

Loss before income taxes

  (11,870)  (1,868)

Income tax benefit

  103   4 

Net loss

 $(11,767) $(1,864)

Net loss attributable to common stockholders

 $(11,767) $(1,864)
         

Basic and diluted net loss per share of common stock:

        

Net loss attributable to common stockholders

 $(0.34) $(0.05)
         

Weighted average number of shares of common stock outstanding:

        

Basic and diluted

  34,466,542   34,506,597 

  

Three months ended March 31,

 
  

2024

  

2023

 

Revenue, net

 $3,425  $3,176 

Cost of product revenue (excluding $1,528 in intangible asset amortization for the three months ended March 31, 2024, shown separately below)

  175   125 

Intangible asset amortization

  1,528    

Operating expenses:

        

Research and development

  12,277   8,655 

Selling, general and administrative

  9,931   7,227 

Total operating expenses

  22,208   15,882 

Loss from operations

  (20,486)  (12,831)

Other income (expense):

        

Interest expense

  (735)  (182)

Fair value adjustment related to warrant and CVR liability

  3,627   (1,545)

Fair value adjustment related to investments

  (27)  196 

Interest and other income, net

  929   1,042 

Total other income (expense)

  3,794   (489)

Loss before income taxes

  (16,692)  (13,320)

Income tax benefit

  70   103 

Net loss

 $(16,622) $(13,217)
         

Basic and diluted net loss per share of common stock:

        

Net loss

 $(0.40) $(0.38)

Weighted average number of shares of common stock outstanding:

        

Basic and diluted

  41,778,774   34,466,542 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5

 

ZEVRA THERAPEUTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS

(in thousands, except share and per share amounts)thousands)

 

  

Three months ended March 31,

 
  

2023

  

2022

 

Net loss attributable to common stockholders

 $(11,767) $(1,864)

Other comprehensive (loss) income:

        

Foreign currency translation adjustment

  (176)   

Other comprehensive (loss) income

  (176)   

Comprehensive loss

 $(11,943) $(1,864)

  

Three months ended March 31,

 
  

2024

  

2023

 

Net loss

 $(16,622) $(13,217)

Other comprehensive loss:

        

Foreign currency translation adjustment

  184   (176)

Other comprehensive loss:

  184  $(176)

Comprehensive loss

 $(16,438) $(13,393)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6

 

 

ZEVRA THERAPEUTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

 

    

Additional

 

Treasury

    

Other

 

Total

     

Additional

 

Treasury

    

Other

 

Total

 
 

Common

 

Paid-in

 

Stock,

 

Accumulated

 

Comprehensive

 

Stockholders'

  

Common

 

Paid-in

 

Stock,

 

Accumulated

 

Comprehensive

 

Stockholders'

 
 

Stock

  

Capital

  

at cost

  

Deficit

  

Income (Loss)

  

Equity

  

Stock

  

Capital

  

at cost

  

Deficit

  

Income (loss)

  

Equity

 

Balance as of January 1, 2023

 $3  $401,799  $(7,536) $(308,572) $113  $85,807 

Balance as of January 1, 2024

 $4  $472,664  $(10,983) $(399,778) $(43) $61,864 

Net loss

    (11,767)  (11,767)       (16,622)   (16,622)

Stock-based compensation expense

  591    591    2,119        2,119 

Shares repurchased as part of the Share Repurchase Program

   (3,447)   (3,447)

Issuance of common stock in exchange for consulting services

  42    42    56        56 

Severance expense

  354    354 

Issuance of common stock as part of the Employee Stock Purchase Plan

  71    71 

Issuance of common stock for options exercised

  1,146    1,146 

Other comprehensive loss

              (176)  (176)              184   184 

Balance as of March 31, 2023

 $3  $402,786  $(10,983) $(320,339) $(63) $71,404 

Balance as of March 31, 2024

 $4  $476,056  $(10,983) $(416,400) $141  $48,818 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

7

 

ZEVRA THERAPEUTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY, CONTINUED

(in thousands)

 

     

Additional

         

Total

     

Additional

       

Other

 

Total

 
 

Common

 

Paid-in

 

Treasury

 

Accumulated

 

Stockholders'

  

Common

 

Paid-in

 

Treasury

 

Accumulated

 

Comprehensive

 

Stockholders'

 
 

Stock

  

Capital

  

Stock, at cost

  

Deficit

  

Equity

  

Stock

  

Capital

  

Stock, at cost

  

Deficit

  

Income

  

Equity

 

Balance as of January 1, 2022

 $4  $396,957  $(2,814) $(267,029) $127,118 

Balance as of January 1, 2023

 $3  $436,269  $(7,536) $(353,729) $113  $75,120 

Net loss

       (1,864) (1,864)       (13,217)   (13,217)

Stock-based compensation expense

   918      918    945        945 

Shares repurchased as part of the Share Repurchase Program

 (1)   (4,722)   (4,723)     (3,447)     (3,447)

Issuance of common stock in exchange for consulting services

     50         50      42            42 

Balance as of March 31, 2022

 $3  $397,925  $(7,536) $(268,893) $121,499 

Other comprehensive loss

              (176)  (176)

Balance as of March 31, 2023

 $3  $437,256  $(10,983) $(366,946) $(63) $59,267 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

8

 

 

ZEVRA THERAPEUTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

Three months ended March 31,

  

Three months ended March 31,

 
 

2023

  

2022

  

2024

  

2023

 

Cash flows from operating activities:

        

Net loss

 $(11,767) $(1,864) $(16,622) $(13,217)

Adjustments to reconcile net loss to net cash used in operating activities:

      

Stock-based compensation expense

 591  918  2,119  945 

Non-cash severance expense

 354  

Non-cash interest expense

 239  

Depreciation and amortization expense

 79  65  1,562  79 

Fair value adjustment related to derivative and warrant liability

 2  (241)

Fair value adjustment related to warrant and CVR liability

 (3,627) 1,545 

Fair value adjustment related to investments

 (196) 352  27  (196)

Consulting fees paid in common stock

 42  50  56  42 

Gain on foreign currency exchange

 (240)  

Loss (gain) on foreign currency exchange

 229  (240)

Change in assets and liabilities:

  

Accounts and other receivables

 477  (1,792) 9,072  477 

Prepaid expenses and other assets

 703  303  (44) 703 

Inventories

 51    (2,585) 51 

Operating lease right-of-use assets

 80  51  123  80 

Accounts payable and accrued expenses

 3,929  (486) (7,306) 3,836 

Discount and rebate liability

 1,528    1,020  1,528 

Operating lease liabilities

 (107) (88) (130) (107)

Other liabilities

  429   (821)  (298)  429 

Net cash used in operating activities

  (4,045)  (3,553)  (16,165)  (4,045)
  

Cash flows from investing activities:

        

Purchases of property and equipment

 (29) (16)   (29)

Purchases of investments

  (17,526)  (3,832)

Net cash used in investing activities

  (17,555)  (3,848)

Maturities (purchases) of investments

  14,793   (17,526)

Net cash provided by (used in) investing activities

  14,793   (17,555)
  

Cash flows from financing activities:

        

Proceeds from issuance of debt

 12,914      12,914 

Repayment of debt

 (12,800)     (12,800)

Payments of principal on insurance financing arrangements

 (415)  

Payment to repurchase shares as part of the share repurchase program

 (3,447) (4,723)

Payments to repurchase shares as part of the Share Repurchase Program

   (3,447)

Proceeds from issuance of stock

 1,217  

Payment of principal on insurance financing arrangements

  (415)

Repayment of principal on finance lease liabilities

  (2)  (10)     (2)

Net cash used in financing activities

  (3,750)  (4,733)

Net cash provided by (used in) financing activities

  1,217   (3,750)

Effect of exchange rate changes on cash and cash equivalents

 65    (45) 65 

Net decrease in cash and cash equivalents

 (25,285) (12,134) (200) (25,285)

Cash and cash equivalents, beginning of period

  65,466   112,346   43,049   65,466 

Cash and cash equivalents, end of period

 $40,181  $100,212  $42,849  $40,181 
  

Supplemental cash flow information:

        

Cash paid for interest

 $68  $5  $140  $68 

Supplemental disclosure of noncash financing activities:

 

Cost accrued in connection with the Credit Agreement (Note D)

 1,726  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

9

 

ZEVRA THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 
A.Description of Business, Basis of Presentation, and Significant Transactions

 

Organization

 

Zevra Therapeutics, Inc. (the "Company") is a rare disease company meldingcombining science, data and patient needneeds to create transformational therapies for diseases with limited or no treatment options. The Company has a diverse portfolio of products and product candidates, which includes a combination of both apreclinical development programs, clinical stage pipeline and commercial stage assets. The Company'sCompany’s pipeline includes arimoclomol, an orally-delivered, first-in-class investigational product candidate being developed for Niemann-Pick disease type C ("NPC"(“NPC”), which has been granted orphan drug designation, Fast-track designation, Breakthrough Therapy designation and rare pediatric disease designation for the treatment of NPC by the U.S. Food and Drug Administration ("FDA") and orphan medical product designation for the treatment of NPC by the European Medicines Agency ("EMA"). The arimoclomol NDA for NPC was resubmitted to the FDA on December 21, 2023, and has been assigned a PDUFA date of September 21, 2024. KP1077 is the Company's lead clinical development product candidate which is beingbeing developed as a treatment for idiopathic hypersomnia ("IH"), a rare neurological sleep disorder, and narcolepsy. KP1077 is comprised solely of serdexmethylphenidate ("SDX"(“SDX”), the Company's proprietary prodrug of d-methylphenidate (“d-MPH”("d-MPH"). The FDA has granted KP1077 orphan drug designation for the treatment of IH. OLPRUVA® (sodium phenylbutyrate) for oral suspension is approved by the FDA for the treatment of urea cycle disorders ("UCDs"). The Company also has a pipeline of investigational product candidates, including celiprolol for the treatment of vascular Ehlers-Danlos syndrome in patients with a confirmed type III collagen mutation.

The Company changed its name from KemPharm, Inc. to Zevra Therapeutics, Inc. effective as of February 21, 2023.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and related notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included in the accompanying consolidated financial statements. Operating results for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023.

This interim information should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the United States Securities and Exchange Commission (“SEC”) on March 7, 2023.

Basis of Presentation

The Company prepared the consolidated financial statements in accordance with U.S. GAAP and the rules and regulations of the SEC and, in the Company's opinion, reflect all adjustments, including normal recurring items that are necessary.

Arimoclomol Acquisition

On May 15, 2022, the Company and Zevra Denmark A/S (formerly known as KemPharm Denmark A/S prior to February 21, 2023) (“Zevra DK”), a newly formed Danish company and wholly-owned subsidiary of the Company, entered into an asset purchase agreement (the “Arimoclomol Purchase Agreement”) with Orphazyme A/S in restructuring, a Danish public limited liability company (“Orphazyme”). The Arimoclomol Purchase Agreement closed on May 31, 2022. Under the terms of the Arimoclomol Purchase Agreement, Zevra DK purchased all of the assets and operations of Orphazyme related to arimoclomol and settled all of Orphazyme’s actual outstanding liabilities to its creditors with a cash payment of $12.8 million. In addition, Zevra DK agreed to assume an estimated reserve liability of $5.2 million related to revenue generated from Orphazyme’s Early Access Program in France.

The Company accounted for the arimoclomol acquisition as an asset acquisition as the majority of the value of the assets acquired related to the arimoclomol acquired in-process research and development (“IPR&D”) asset. The intangible asset associated with IPR&D relates to arimoclomol. The estimated fair value of $17.7 million was determined using the excess earnings valuation method, a variation of the income valuation approach. The excess earnings valuation method estimates the value of an intangible asset equal to the present value of the incremental after-tax cash flows attributable to that intangible asset over its remaining economic life. Some of the more significant assumptions utilized in the Company's asset valuations included projected revenues, probability of commercial success, and the discount rate. The fair value using the excess earnings valuation method was determined using an estimated weighted average cost of capital of 42%, which reflects the risks inherent in future cash flow projections and represents a rate of return that a market participant would expect for this asset. This fair value measurement was based on significant inputs not observable in the market and thus represent Level 3 fair value measurement.

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In accordance with Accounting Standards Codification ("ASC"), Subtopic 730-10-25,Accounting for Research and Development Costs, the up-front payments to acquire a new drug compound, as well as future milestone payments when paid or payable, are immediately expensed as acquired IPR&D in transactions other than a business combination provided that the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use. Therefore, the portion of the purchase price that was allocated to the IPR&D assets acquired was immediately expensed. Other assets acquired and liabilities assumed, were recorded at fair value. The Company also recorded a $0.8 million income tax benefit for the year ended December 31,2022, related to research and development credits that are expected to be realized from the local jurisdiction in Denmark. 

The following represents the consideration paid and purchase price allocation for the acquisition of arimoclomol (in thousands):

Cash

 $12,800 

Assumed reserve liability

  5,200 

Total consideration

 $18,000 
     

Total consideration

 $18,000 
Direct transaction costs associated with the acquisition (1)  1,290 

Total purchase price to be allocated

 $19,290 
     

Property and equipment, inventory and assembled workforce acquired

 $1,627 

IPR&D (2)

  17,663 

Total allocated purchase price

 $19,290 

(1) As a result of the asset acquisition accounting, the transaction costs associated with the acquisition should be included in the costs of the assets acquired and allocated amongst qualifying assets using the relative fair value basis. The transaction costs primarily included financial advisor fees and legal expenses.

(2) The primary asset acquired, the IPR&D asset, was expensed and the allocated transaction related costs were included with and expensed with this asset.

Amendment to Registration Statement on Form S-3

On January 25, 2022, the Company filed an amendment to the registration statement on Form S-1 (File No.333-250945) on Form S-3 covering the issuance of the shares of the Company's common stock issuable upon the exercise of the warrants issued in the Company's January 2021 underwritten public offering (the "Public Offering") and remaining unexercised as of the date of the amendment, which was declared effective on February 1, 2022.

On March 1, 2023, following its name change, the Company's common stock began trading on the Nasdaq Global Select Market under the ticker symbol "ZVRA".

 

Going Concern

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the three months ended March 31,2024, and 2023, the Company incurred a net loss of $16.6 million and $13.2 million, respectively, and as of March 31,2024, has an accumulated deficit of $416.4 million. The Company has sustained operating losses for the majority of its corporate history and expects to continue to incur operating losses and negative operating cash flows until revenues reach a level sufficient to support ongoing operations.

The Company’s ability to continue operating as a going concern is contingent upon its ability to generate revenue from approved products or obtain product candidate regulatory approvals, which would generate revenue, milestones, and cash flow sufficient to support ongoing operations and the satisfaction of financial covenants. These factors raise substantial doubt as to the Company’s ability to continue as a going concern for at least one year from the date the unaudited condensed consolidated financial statements are being issued. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

The Company's liquidity needs will be largely determined by the success of operations through the progression of its products and product candidates in the future. The Company also may consider other sources to fund operations including: (1) out-licensing rights to certain of its technologies and product candidates, pursuant to which the Company would receive cash royalties and milestones; (2) raising additional capital through equity or debt financings or from other sources; (3) obtaining product candidate regulatory approvals, which would generate revenue, milestones and cash flow; (4) reducing spending on one or more research and development programs, including by discontinuing development; and/or (5) restructuring operations to change its overhead structure. The Company is in the early stages of its commercialization effort for OLPRUVA and does not yet have a substantial basis to project future earnings, and its other sources of revenue are not sufficient to sustain its present activities on their own. Accordingly, the Company's ability to continue as a going concern may require it to obtain additional financing to fund its operations.

Basis of Presentation

The Company prepared the unaudited condensed consolidated financial statements in accordance with U.S. GAAP and the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the Company's opinion, reflect all adjustments, including normal recurring items that are necessary.

Merger

On August 30, 2023, the Company and Aspen Z Merger Sub, Inc., a wholly-owned subsidiary of Zevra (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Acer Therapeutics Inc. (“Acer”), a pharmaceutical company focused on development and commercialization of therapies for rare and life-threatening diseases. On November 17, 2023 (the "Closing Date"), the Company completed the acquisition of Acer. Pursuant to the Merger Agreement, on the Closing Date, Merger Sub was merged with and into Acer (the "Merger"), with Acer continuing as the surviving entity and as a wholly-owned subsidiary of Zevra. In connection therewith, Zevra also purchased Acer’s secured debt from Nantahala Capital Management, LLC ("NCM”), certain of its affiliates and certain other parties (collectively with NCM, “Nantahala”) through a series of transactions and Zevra agreed to provide Acer with a bridge loan facility for up to $18.0 million ("Bridge Loan"), subject to certain terms and conditions. The Merger expanded Zevra's rare disease portfolio, as well as increased and diversified its revenues with the addition of a U.S. commercial asset, OLPRUVA, indicated for the treatment of UCDs. See Note L for further discussion related to the Merger.

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Amendment to Registration Statement on Form S-3

In connection with the Merger, Zevra and Nantahala concurrently entered into a registration rights agreement, pursuant to which Zevra agreed to file a resale registration statement with respect to the resale of the Zevra common stock issuable to Nantahala. On February 5, 2024, Zevra filed a registration statement on Form S-3 (File No.333-276856) registering an aggregate of 2,269,721 shares of Zevra’s common stock.

On April 5, 2024, we filed an amendment to the registration statement on Form S-3 (File No.333-250945) covering the issuance of the shares of our common stock issuable upon the exercise of warrants issued in connection with the Merger (Note L) and remaining unexercised as of the date of the amendment, which was declared effective on April 8, 2024.

Entry into 2021 ATM Agreement

 

On July 2, 2021, the Company entered into an equity distribution agreement (the "2021 ATM Agreement") with JMP Securities LLC ("JMP") and RBC Capital Markets, LLC ("RBCCM") under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $75.0 million through JMP and RBCCM as its sales agents. The issuance and sale, if any, of common stock by the Company under the 2021 ATM Agreement will be made pursuant to a registration statement on Form S-3. JMP and RBCCM may sell the common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended. JMP and RBCCM will use commercially reasonable efforts to sell the common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company will pay JMP and RBCCM a commission equal to 3.0% in the aggregate of the gross sales proceeds of any common stock sold through JMP and RBCCM under the 2021 ATM Agreement. The Company filed a registration statement on Form S-3 covering the sale of the shares of its 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 2021 ATM Agreement, which was declared effective on July 12, 2021. As of March 31, 2023,2024, no shares have been issued or sold under the 2021 ATM Agreement.

 

Share Repurchase Program

 

On December 20, 2021, the Company initiated a share repurchase program (the "Share Repurchase Program") pursuant to which the Company may was able to repurchase up to $50 million of shares of its common stock through December 31, 2023. Capital allocation to On December 31, 2023, the Share Repurchase Program will be based on a variety of factors, including the Company's business results, the receipt of royaltiesended, and sales milestones under the AZSTARYS License Agreement (refer to Note B), and potentially other sources of non-dilutive capital that may become available to the Company. Repurchases will be made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to a variety of factors, including the market price of the Company’s common stock, general market and economic conditions and applicable legal requirements. The exact number of shares to be repurchased by the Company is not guaranteed and the program may be suspended, modified, or discontinued at any time without prior notice. As of March 31, 2023, the Company had repurchasedrepurchased 1,575,692 shares of its common stock for approximately $11.0 million under the Share Repurchase Program.

Reclassifications

Certain reclassifications were made to the 2022 unaudited condensed consolidated financial statements to conform to the classifications used in 2023. These reclassifications had no impact on the consolidated net loss, changes in stockholder's equity, or cash flows previously reported.million.

 

 
B.Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, the useful lives of property and equipment, the recoverability of long-lived assets, the incremental borrowing rate for leases, and assumptions used for purposes of determining stock-based compensation, income taxes, the fair value of investments and the fair value of the derivative and warrant liability and discount and rebate liabilities, among others. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable, the results of which form the basis for making judgments about the carrying value of assets and liabilities.

 

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Investments

 

The Company maintains investment securities that are classified as available-for-sale securities for which the Company has elected the fair value option under ASC 825, Financial Instruments("ASC 825"). As such, these securities are carried at fair value with unrealized gains and losses included in fair value adjustment related to investments on the unaudited condensed consolidated statements of operations. The securities primarily consist of U.S.U.S. Treasury securities and U.S. government-sponsored agency securities and are included in securities at fair value in the unaudited condensed consolidated balance sheets. As of March 31, 2024, 31,2023,and December 31, 2022,2023, the Company held securities with an aggregate fair value of $34.4 million$9.9 million and $16.9 $24.7million, respectively, that contained aggregate unrealized losses of(losses) gainsof approximately $0.4($0.1) million and $0.6$0.2 million, respectively. Applying fair value accounting to these debt securities more accurately represents the Company's investment strategy due to the fact that excess cash is currently being invested for the purpose of funding future operations. In addition, the Company holds certificates of deposit totaling $20.7 million as of March 31,2023, and December 31, 2022, and are included in short-term investments - other in the unaudited condensed consolidated balance sheets. Interest income is recognized as earned using an effective yield method giving effect to the amortization of premium and accretion of discount and is based on thethe economic life of the securities. Interest income is included in Interestinterest and other income, net in the unaudited condensed consolidated statements of operations.

 

Variable Interest Entities

The primary beneficiary of a variable interest entity ("VIE") is required to consolidate the assets and liabilities of the VIE. When the Company obtains a variable interest in another entity, it assesses at the inception of the relationship and upon occurrence of certain significant events whether the entity is a VIE, and if so, whether the Company is the primary beneficiary of the VIE based on its power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the Company's obligation to absorb losses or the rights to receive benefits from the VIE that could potentially be significant to the VIE.

To assess whether the Company has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, the Company considers all the facts and circumstances, including the Company's role in establishing the VIE and the Company's ongoing rights and responsibilities. The assessment includes identifying the activities that most significantly impact the VIE's economic performance and identifying which party, if any, has the power to direct those activities. In general, the parties that make the most significant decisions affecting the VIE (management and representation on the Board of Directors) are deemed to have the power to direct the activities of a VIE.

To assess whether the Company has the obligation to absorb losses of the VIE or the rights to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers all of its economic interests that are deemed to be variable interests in the VIE.

This assessment requires judgement in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. As of March 31, 2024, and December 31, 2023, the Company identified Acer to be the Company's sole interest in a VIE (Note L). As Zevra is the final decision maker for all of Acer's research, development, and commercialization of drug candidates that it is producing, the Company directs the activities of Acer that most significantly impact its performance. Therefore, the Company is the primary beneficiary of this VIE for accounting purposes. 

Revenue Recognition

 

The Company recognizes revenue in accordance with the provisions of ASC 606, Revenue from Contracts with Customers (“ASC 606”) and, as a result, follows the five-step model when recognizing revenue: 1) identifying a contract; 2) identifying the performance obligations; 3) determining the transaction price; 4) allocating the price to performance obligations; and 5) recognizing revenue when the performance obligations have been fulfilled.

 

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Arimoclomol Early Access Program

Net revenue includes revenue from the sale of arimoclomol for the treatment of NPC under the remunerated early access compassionate use program in France (“French nATU”). An early access compassionate use program is a program giving specific patients access to a drug, which is not yet approved for commercial sale. Only drugs targeting serious or rare indications and for which there is currently no appropriate treatment are considered for early access compassionate use programs. Further, to be considered for the early access compassionate use program, the drug must have proven efficacy and safety and must either be undergoing price negotiations or seeking marketing approval. In accordance with ASC 606, the Company recognizes revenue when fulfilling its performance obligation under the Arimoclomol Early Access Program ("Arimoclomol EAP") by transferring control of promised goods or services to its customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In determining when the customer obtains control of the product, the Company considers certain indicators, including whether the Company has a present right to payment from the customer, whether title and/or significant risks and rewards of ownership have transferred to the customer and whether the customer acceptance has been received. Revenue is recognized net of sales deductions, including discounts, rebates, applicable distributor fees, and revenue-based taxes. Under the French nATU, the manufacturer can set its own price for the drug products until a price agreement with the authorities is in place. Any excess in the price charged the manufacturer compared to the price agreed with the health authorities once the drug product is approved in France must be repaid. The repayment is considered in the clawback liability (rebate). An estimate of net revenue and clawback liability are recognized using the ‘expected value’ method. Accounting for net revenue and clawback liability requires determination of the most appropriate method for the expected final transaction price, which depends on the terms and conditions in the contracts with the French Health Authorities and is subject to price negotiations with the French Health Authorities, following marketing approval. This estimate also requires assumptions with respect to inputs into the method, including current pricing of comparable marketed products within the rare disease area in France. Management has considered the expected final sales price as well as the price of similar drug products. The Company is operating within a rare disease therapeutic area where there is unmet treatment need and hence a limited number of comparable commercialized drugs products. The limited available relevant market information for directly comparable commercialized drugs within rare disease increases the uncertainty in management's estimate. For the three months ended March 31, 2023, the Company recognized revenue related to the Arimoclomol EAP in France of $2.0million, which is net of a clawback liability of $1.3 million and other gross to net adjustments. As part of the Arimoclomol Purchase Agreement the Company assumed an estimated reserve liability of $5.2 million related to revenue generated from the Arimoclomol EAP in France. The total estimate reserve liability as of March 31,2023, including the additional clawback liability for the three months ended March 31,2023, was $10.5million. The total reserve liability as of December 31, 2022, was $9.0 million. As of March 31, 2023, and December 31, 2022, this estimated reserve liability is recorded as discount and rebate liabilities in the unaudited condensed consolidated balance sheets and is separated into current and long-term based upon the timing of the expected payment to the French regulators.

Licensing Agreements

The Company enters into licensing agreements with licensees that fall under the scope of ASC 606.

 

The terms of the Company’s licensing agreements typically include one or more of the following: (i) upfront fees; (ii) milestone payments related to the achievement of development, regulatory, or commercial goals; and (iii) royalties on net sales of licensed products. Each of these payments may result in licensing revenues.

 

As part of the accounting for these agreements, the Company must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligations. Generally, the estimation of the stand-alone selling price may include such estimates as independent evidence of market price, forecasted revenues or costs, development timelines, discount rates, and probability of regulatory success. The Company evaluates each performance obligation to determine if they can be satisfied at a point in time or over time, and it measures the services delivered to the licensee which are periodically reviewed based on the progress of the related program. The effect of any change made to an estimated input component and, therefore revenue or expense recognized, would be recorded as a change in estimate. In addition, variable consideration (e.g., milestone payments) must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

 

Up-front Fees: If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time.

 

Milestone Payments: At the inception of each arrangement that includes milestone payments (variable consideration), the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s or the licensee’s control, such as non-operational developmental and regulatory approvals, are generally not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of milestones that are within its or the licensee’s control, such as operational developmental milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment. Revisions to the Company’s estimate of the transaction price may also result in negative licensing revenues and earnings in the period of adjustment.

 

Product Revenues, Net

Net revenues from product sales is recognized at the transaction price when the customer obtains control of the Company's products, which occurs at a point in time, typically upon receipt of the product by the customer.

The Company's net revenues represent total revenues adjusted for discounts and allowances, including estimated cash discounts, chargebacks, rebates, returns, copay assistance, data fees and wholesaler fees for services. These adjustments represent variable consideration under ASC 606 and are recorded as a reduction of revenue. These adjustments are established by management as its best estimate based on available information and will be adjusted to reflect known changes in the factors that impact such allowances. Adjustments for variable consideration are determined based on the contractual terms with customers, historical trends, communications with customers and the levels of inventory remining in the distribution channel, as well as expectations about the market for the product and anticipated introduction of competitive products.

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AZSTARYS License AgreementInventories

 

In September 2019, The value of inventory is recorded at its net realizable value. The Company determines the Company entered into a Collaboration and License Agreement (the “AZSTARYS License Agreement”) with Commave Therapeutics SA ("Commave"), an affiliatecost of Gurnet Point Capital ("GPC"). Under the AZSTARYS License Agreement, the Company granted to Commave an exclusive, worldwide license to develop, manufacture and commercialize the Company’s product candidates containing SDX and d-MPH, including AZSTARYS, or anyits other product candidates containing SDX and developed to treat ADHD or any other central nervous system ("CNS") disease. Corium, Inc. ("Corium") was tasked by Commave, to lead all commercialization activities for AZSTARYS under the AZSTARYS License Agreement. Pursuant to the AZSTARYS License Agreement, Commave agreed to pay milestone payments upon the occurrence of specified regulatory milestonesinventories, which includes amounts related to AZSTARYS, additional fixed payments upon the achievement of specified U.S. sales milestones,materials and quarterly, tiered royalty payments basedmanufacturing overhead, on a range of percentages of net sales. Commave is obligated to make such royalty payments on a product-by-product basis until expiration of the royalty term for the applicable product.

In April 2021, firstthe Company entered into Amendment-in, No.first1 to the AZSTARYS License Agreement (the "AZSTARYS Amendment"). Pursuant to the AZSTARYS Amendment, the Company and Commave agreed to modify the compensation terms of the AZSTARYS License Agreement. The AZSTARYS 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.

Commave also agreed to be responsible for and reimburse the Company for all of the development, commercialization and regulatory expenses incurred on the licensed products, subject to certain limitations as set forth in the AZSTARYS License Agreement. As part of this agreement, the Company is obligated to perform consulting services on behalf of Commave related to the licensed products. For these consulting services, Commave has agreed to pay the Company a set rate per hour on any consulting services performed on behalf of Commave for the benefit of the licensed products.

In accordance with the terms of the Company’s March 20,2012 Termination Agreement with Aquestive Therapeutics, Aquestive Therapeutics has the right to receive an amount equal to 10% of any royalty or milestone payments made to the Company related to AZSTARYS, KP879 or KP1077 under the AZSTARYS License Agreement.-out basis.

 

The AZSTARYS License Agreement is withinCompany may scale-up and make commercial quantities of its product candidates prior to the scopedate it anticipates that such product will receive final regulatory approval. The scale-up and commercial production of ASCpre-launch inventory involves the risk that such products 606,may  as the transaction represents a contract with a customer where the participants function in a customer / vendor relationship and are not exposed equallybe approved for marketing on a timely basis, or ever. This risk notwithstanding, the Company may scale-up and build pre-launch inventory of product that have not received final regulatory approval when the Company believes such action is appropriate in relation to the risks and rewardscommercial value of the activities contemplated underproduct launch opportunity. Inventory manufactured prior to regulatory approval is recorded as research and development expense until regulatory approval for the AZSTARYS License Agreement. Usingproduct is obtained. Inventory used in clinical trials is also expensed as research and development expense, when selected for such use. Inventory that can be used in either the conceptsproduction of ASC 606, the Company identified the grant of the exclusive, worldwide license and the performance of consulting services, which includes the reimbursement of out-of-pocket third-partyclinical or commercial products is expensed as research and development costs as its onlywhen identified for use in a clinical manufacturing campaign. The cost of finished goods inventory that is shipped to a customer to support the Company’s patient assistance programs is expensed when those shipments take place. As of twoMarch 31, 2024,  performance obligations at inception. Theand December 31, 2023, the Company further determineddid not have pre-launch inventory that the transaction price, at inception, under the agreement was $10.0 million upfront payment plus the fair value of the Development Costs (as defined in the AZSTARYS License Agreement) which was allocated among the performance obligations based on their respective related stand-alone selling price.qualified for capitalization.

 

The Company is entitled to additional payments from Commave conditioned uponperforms an assessment of the achievementrecoverability of specified regulatory milestones related to AZSTARYS and the achievement of certain U.S. sales milestones. Further, Commave will pay the Company quarterly, tiered royalty payments based on a range of percentage of Net Sales (as defined in the AZSTARYS License Agreement). The Company concluded that these regulatory milestones, sales milestones and royalty payments each contain a significant uncertainty associated with a future event. As such, these milestone and royalty payments are constrained at contract inception and are not included in the transaction price as the Company could not conclude that it is probable a significant reversal in the amount of cumulative revenue recognized will not occur surrounding these milestone payments. At the end ofcapitalized inventory during each reporting period and writes down any excess and obsolete inventory to its net realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded as a component of cost of product sales in the statements of operations and comprehensive loss. The determination of whether inventory costs will be realizable requires the use of estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required. Additionally, the Company’s product is subject to strict quality control and monitoring that it performs throughout the manufacturing process. In the event that certain batches or units of product do not meet quality specifications, the Company updateswill record a charge to cost of product sales, to write-down any unmarketable inventory to its assessment of whether the milestone and royalty payments are constrained by considering both the likelihood and magnitude of the potential revenue reversal. For the three months ended March 31, 2023 and 2022, the Company recognized $0.6 million and $0.1 million of revenue under the AZSTARYS License Agreement, respectively. There was no deferred revenue related to this agreement as of March 31, 2023, or December 31, 2022.

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Consulting Arrangements

The Company enters into consulting arrangements with third parties that fall under the scope of ASC 606.  These arrangements may require the Company to deliver various rights, services, including research and development services, regulatory services and/or commercialization support services. The underlying terms of these arrangements generally provide for consideration to the Company in the form of consulting fees and reimbursements of out-of-pocket third-party research and development, regulatory and commercial costs.

Corium Consulting Agreement

In July 2020, the Company entered into a consultation services arrangement (the “Corium Consulting Agreement”) with Corium under which Corium engaged the Company to guide the product development and regulatory activities for certain current and potential future products in Corium’s portfolio, as well as continue supporting preparation for the potential commercial launch of AZSTARYS (together, “Corium Consulting Services”). Corium is a portfolio company of GPC and was tasked by Commave to lead all commercialization activities for AZSTARYS under the AZSTARYS License Agreement, as discussed above.

Under the Corium Consulting Agreement, the Company was entitled to receive payments from Corium of up to $15.6 million, $13.6 million of which was paid in quarterly installments through March 31,2022. The remaining $2.0 million was conditioned upon the approval by the FDA of the NDA for Corium's product candidate, ADLARITY. This $2.0 million was earned in the first quarter of 2022. Corium also agreed to be responsible for and reimburse the Company for all development, commercialization and regulatory expenses incurred as part of the performance of the Corium Consulting Services. The Corium Consulting Agreement is within the scope of ASC 606, as the transaction represents a contract with a customer where the participants function in a customer / vendor relationship and are not exposed equally to the risks and rewards of the activities contemplated under the Corium Consulting Agreement. The Company identified the performance of consulting services, which includes the reimbursement to the Company of third-party pass-through costs, as its only performance obligation at inception. The Company further determined that the transaction price, at inception, under the agreement was $13.6 million which is the fair value of the consulting services, including the reimbursement of third-party pass-through costs. The Company concluded that the regulatory milestone contains a significant uncertainty associated with a future event. As such, this milestone is constrained at contract inception and is not included in the transaction price as the Company could not conclude that it is probable a significant reversal in the amount of cumulative revenue recognized will not occur surrounding these milestone payments. 

The Company determined that the performance of consulting services, including reimbursement of third-party pass-through costs, is a performance obligation that is satisfied over time as the services are performed and the reimbursable costs are paid. As such, the revenue related to the performance obligation was recognized as the consulting services were performed and the services associated with the reimbursable third-party pass-through costs were incurred and paid by the Company, in accordance with the practical expedient allowed under ASC 606 regarding an entity’s right to consideration from a customer in an amount that corresponds directly to the value to the customer of the entity’s performance completed to date. 

For the three months ended March 31, 2023, and 2022, the Company recognized $0.2 million and $3.5 million of revenue, respectively, under the Corium Consulting Agreement. As of March 31, 2023, and December 31, 2022, the Company had no deferred revenue related to this agreement. The Corium Consulting Agreement expired on March 31, 2023.estimated net realizable value. 

 

Foreign currency

 

Assets and liabilities are translated into the reporting currency using the exchange rates in effect on the unaudited consolidated condensed balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the year, which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in accumulated other comprehensive income/loss in the accompanying unaudited condensed consolidated statements of stockholders’ equity.

 

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC Topic 480, Distinguishing Liabilities from Equity (ASC 480) and FASB ASC Topic 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For warrants that meet all criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital, on the unaudited condensed consolidated statement of stockholders’ deficit at the time of issuance. For warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and on each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss in other expense, net, on the unaudited condensed consolidated statement of operations. The fair value of the warrants was estimated using the Black-Scholes option pricing model.

New Accounting Pronouncements Not Yet Adopted

Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which modifies the disclosure and presentation requirements of reportable segments. The amendments in the update require the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit and loss. The amendments also require disclosure of all other segment items by reportable segment and a description of its composition. Additionally, the amendments require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements and accompanying notes.

Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023- 09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements and accompanying notes.

14

C.

Inventories

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Raw materials

 $4,044  $2,938 

Work in progress

  3,309   1,884 

Finished goods

  5,073   5,019 

Total inventory

 $12,426  $9,841 

D.

Debt Obligations

Secured Promissory Note

In connection with the Merger (Note L), on August 30, 2023, the Company and Nantahala, entered into a secured promissory note payable by Zevra to Nantahala in the original principal amount of $5.0 million (the "Nantahala Note"). The Nantahala Note initially bore interest at 9.0% per annum, payable quarterly in arrears in cash. The interest rate increased to 12.0% per annum effective March 1, 2024, as the Nantahala Note remained unpaid six months from its issue date. The additional 3.0% interest would have been paid in shares of Zevra's common stock based on the volume weighted average trading price ("VWAP") of Zevra's common stock during the twenty consecutive trading days ending on the date before such interest payment date. Beginning on the first interest payment date following the second anniversary of the Nantahala Note, and on each interest payment date thereafter, Zevra was required to make $0.6 million amortization payments on the Nantahala Note until it was paid in full. All principal and unpaid interest on the Nantahala Note would have been due on August 30, 2026, the third anniversary of the Nantahala Note. Zevra was entitled to prepay the Nantahala Note at any time without penalty. The Nantahala Note was secured by Zevra’s interest in (i) the loan assets under the Loan Purchase Agreement described in Note L; (ii) the note assets under the Note Purchase Agreement described in Note L; (iii) the Bridge Loan described in Note L; and (iv) the proceeds therefrom. The Company used the proceeds from the Nantahala Note, along with $12.0 million in cash and 98,683 shares of Zevra's common stock, to acquire Acer's term loans, as more fully described in Note L. In April 2024, the Nantahala Note was repaid in full and terminated. At the time of repayment, Nantahala elected to receive a cash payment in lieu of shares of Zevra's common stock in exchange for the additional 3.0% interest accrued for the period from March 1, 2024, through April 5, 2024. The outstanding balance under the Nantahala Note is included in long-term liabilities as of March 31, 2024, as it was refinanced with long-term debt after the balance sheet date, but prior to issuance of the unaudited condensed consolidated financial statements.

As of March 31, 2024, and December 31, 2023, the Company had a secured promissory note outstanding, in the aggregate principal amount, as follows (in thousands):

  March 31,   December 31, 
  2024   2023 
Secured promissory note  $5,000  $5,000 
Unamortized original issue premium  132   148 
Less: debt issuance costs  (73)  (82)
Secured promissory note, net  $5,059  $5,066 

Future minimum principal payments under the secured promissory note as of March 31, 2024, were as follows (in thousands):

Year Ending December 31,    
2024  $ 
2025  1,200 
2026  3,800 
Total minimum payments  5,000 
Plus: unamortized debt premium and debt issuance costs  59 
Secured promissory note, net  $5,059 

Line of Credit

On January 26, 2023, the Company and Wells Fargo, as lender, entered into a revolving margin account agreement. The Company's investments are used as collateral for the loan and the amount the Company is able to borrow is limited to 80-90% of its outstanding investment balance held with Wells Fargo. The margin account bore interest at the Prime rate minus 225 basis-points. As of March 31, 2024, and December 31, 2023, $37.9 million and $37.7 million was outstanding under the margin account, respectively. In April 2024, the Company repaid the outstanding balance under the margin account with Wells Fargo, and upon such repayment, the margin capabilities were removed from the account. The outstanding balance under the margin account is included in long-term liabilities as of March 31, 2024, as it was refinanced with long-term debt after the balance sheet date, but prior to issuance of the unaudited condensed consolidated financial statements. As of March 31, 2024, the remaining borrowing capacity under the margin account was approximately $3.8 million. 

15

Term Loans

As a subsequent event, on April 5, 2024 (the "Term Loans Closing Date"), the Company entered into a credit agreement (the “Credit Agreement”) with HCR Stafford Fund II, L.P., HCR Potomac Fund II, L.P., and Perceptive Credit Holdings IV, LP (collectively, the “Lenders”), and Alter Domus (US) LLC, as administrative agent (the “Administrative Agent”).

Under the terms of the Credit Agreement, the Lenders provided a senior secured loan facility to the Company in the aggregate principal amount of $100.0 million, which is divided into three tranches as follows: (i) $60.0 million which was funded in full on the Term Loans Closing Date; (ii) $20.0 million which is available to the Company in up to two drawings, each in an amount not to exceed $10.0 million, at the Company’s option until 18 months following the Term Loans Closing Date; and (iii) $20.0 million which is available to the Company upon approval by the FDA of the NDA for arimoclomol for the treatment of NPC, at the Company’s option until December 31, 2024 (collectively, the “Term Loans”). 

The principal amount of the Term Loans outstanding (the “Outstanding Principal Amount”) will bear interest at a rate equal to 3-Month Term SOFR plus 7.00% per annum. If the net product sales for the calendar year ending December 31, 2025, exceed $100.0 million, the Outstanding Principal Amount will bear interest at 3-Month Term SOFR plus 6.00% per annum. If the net product sales for the calendar year ending December 31, 2025, do not exceed $100.0 million, then for any subsequent period of four consecutive fiscal quarters ending on or after March 31, 2026, in which net product sales exceed $125.0 million, the Outstanding Principal Amount will bear interest at 3-Month Term SOFR plus 6.50% per annum. In all cases, the 3-Month Term SOFR rate will be subject to a floor of 4.00% per annum. Interest will be payable quarterly in arrears on the last day of each calendar quarter. The Company has the option to pay up to 25% of the interest in-kind beginning on the Term Loans Closing Date, through and including March 31, 2026. The Term Loans will mature on the fifth anniversary of the Term Loans Closing Date. In connection with the Credit Agreement, the Company incurred approximately $1.7 million of costs, which primarily consisted of underwriting, legal and other professional fees, and is included in other long-term assets in the unaudited condensed consolidated balance sheet as of March 31, 2024.

The Credit Agreement contains customary affirmative and negative covenants by the Company, which among other things, will require the Company to provide certain financial reports to the Lenders, meet certain minimum net product sales amounts, and limit the ability of the Company to incur or guarantee additional indebtedness, engage in certain transactions, and effect a consolidation or merger, without consent. The obligations of the Company under the Credit Agreement may be accelerated upon customary events of default, including non-payment of principal, interest, fees and other amounts, covenant defaults, insolvency, material judgments, or inaccuracy of representations and warranties The Term Loans are secured by a first priority perfected lien on, and security interest in, substantially all current and future assets of the Company. The proceeds of the Term Loans shall be used to refinance certain existing indebtedness of the Company and its subsidiaries. The Company will use the remaining proceeds to pay fees and expenses related to the Debt Financing and fund the development and commercialization of OLPRUVA and arimoclomol.

E.Revenue, net

Licensing Agreements
AZSTARYS License Agreement
The Company entered into a Collaboration and License Agreement (the “AZSTARYS License Agreement”) with Commave Therapeutics SA ("Commave"), an affiliate of GPC. Under the AZSTARYS License Agreement, as amended, the Company granted to Commave an exclusive, worldwide license to develop, manufacture and commercialize the Company’s product candidates containing SDX and d-MPH, including AZSTARYS, or any other product candidates containing SDX and developed to treat ADHD or any other CNS disorder. Corium was tasked by Commave to lead all commercialization activities for AZSTARYS under the AZSTARYS License Agreement. Pursuant to the AZSTARYS License Agreement, Commave agreed to pay milestone payments up to an aggregate of $590.0 million upon the occurrence of specified regulatory milestones related to AZSTARYS, additional fixed payments upon the achievement of specified U.S. sales milestones, and quarterly, tiered royalty payments based on a range of percentages of net sales (as defined in the AZSTARYS License Agreement). Commave is obligated to make such royalty payments on a product-by-product basis until expiration of the royalty term for the applicable product.

The AZSTARYS License Agreement is within the scope of ASC 606, as the transaction represents a contract with a customer where the participants function in a customer / vendor relationship and are not exposed equally to the risks and rewards of the activities contemplated under the AZSTARYS License Agreement.

The Company concluded that these regulatory milestones, sales milestones and royalty payments each contain a significant uncertainty associated with a future event. As such, these milestone and royalty payments are constrained at contract inception and are not included in the transaction price as the Company could not conclude that it is probable a significant reversal in the amount of cumulative revenue recognized will not occur surrounding these milestone payments. At the end of each reporting period, the Company updates its assessment of whether the milestone and royalty payments are constrained by considering both the likelihood and magnitude of the potential revenue reversal. For the three months ended March 31, 2024, and 2023, the Company recognized $1.2 million and $0.6 million of revenue under the AZSTARYS License Agreement., respectively, primarily related to royalties. There was no deferred revenue related to this agreement as of March 31,2024, or December 31, 2023.

In accordance with the terms of the Company’s Termination Agreement with Aquestive Therapeutics dated March 20, 2012, Aquestive Therapeutics ("Aquestive") has the right to receive an amount equal to 10% of any royalty or milestone payments made to the Company related to AZSTARYS or KP1077 under the AZSTARYS License Agreement. 
Relief Exclusive License Agreement

As a condition to entering into the Merger Agreement, Acer and Relief Therapeutics, Inc. ("Relief") entered into an exclusive license agreement on August 30, 2023 (the “Relief License Agreement”). Pursuant to the Relief License Agreement, Relief will hold exclusive development and commercialization rights for OLPRUVA in the European Union, Liechtenstein, San Marino, Vatican City, Norway, Iceland, Principality of Monaco, Andorra, Gibraltar, Switzerland, United Kingdom, Albania, Bosnia, Kosovo, Montenegro, Serbia and North Macedonia ("Geographical Europe"). The Company will have the right to receive a royalty of up to 10.0% of the net sales of OLPRUVA in Geographical Europe. For the three months ended March 31,2024, the Company did not recognize any revenue under the Relief License Agreement. There was no deferred revenue related to this agreement as of March 31, 2024, and December 31, 2023. For further discussion of the Relief License Agreement, see Note L.

16

Product Revenues, Net

Arimoclomol Expanded Access Program

Net revenue includes revenue from the sale of arimoclomol for the treatment of NPC under the remunerated expanded access compassionate use program in France (“French nATU”). An expanded access compassionate use program is a program giving specific patients access to a drug, which is not yet approved for commercial sale. Only drugs targeting serious or rare indications and for which there is currently no appropriate treatment are considered for expanded access compassionate use programs. Further, to be considered for the expanded access compassionate use program, the drug must have proven efficacy and safety and must either be undergoing price negotiations or seeking marketing approval.

In accordance with ASC 606, the Company recognizes revenue when fulfilling its performance obligation under the Arimoclomol Expanded Access Program ("Arimoclomol EAP") by transferring control of promised goods or services to its customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In determining when the customer obtains control of the product, the Company considers certain indicators, including whether the Company has a present right to payment from the customer, whether title and/or significant risks and rewards of ownership have transferred to the customer and whether the customer acceptance has been received. Revenue is recognized net of sales deductions, including discounts, rebates, applicable distributor fees, and revenue-based taxes.

The French Health Authorities and the manufacturer have agreed to a price for sales during the French nATU, but the final transaction price depends on the terms and conditions in the contracts with the French Health Authorities and is subject to price negotiations with the French Health Authorities, following market approval. Any excess in the price charged the manufacturer compared to the price agreed with the health authorities once the drug product is approved in France must be repaid. The repayment is considered in the clawback liability (rebate). An estimate of net revenue and clawback liability are recognized using the ‘expected value’ method. Accounting for net revenue and clawback liability requires determination of the most appropriate method for the expected final transaction price. This estimate also requires assumptions with respect to inputs into the method, including current pricing of comparable marketed products within the rare disease area in France. Management has considered the expected final sales price as well as the price of similar drug products. The Company is operating within a rare disease therapeutic area where there is unmet treatment need and hence a limited number of comparable commercialized drugs products. The limited available relevant market information for directly comparable commercialized drugs within rare disease increases the uncertainty in management's estimate.

For the three months ended March 31, 2024, the Company recognized revenue related to the Arimoclomol EAP in France of $2.2 million, which is net of a clawback liability of $1.3 million, and other gross to net adjustments. For the three months ended March 31, 2023, the Company recognized revenue related to the Arimoclomol EAP in France of $2.0 million, which is net of a clawback liability of $1.3 million, and other gross to net adjustments. The total estimated reserve liability as of March 31, 2024, and December 31, 2023, wa s $13.2 million and $12.2 million, respectively. As of March 31, 2024, and December 31, 2023, this estimated reserve liability is recorded as discount and rebate liabilities in the unaudited condensed consolidated balance sheets and is separated into current and long-term based upon the timing of the expected payment to the French regulators.

OLPRUVA Product Sales

On December 27, 2022, the FDA approved OLPRUVA (sodium phenylbutyrate), a prescription medicine used along with certain therapy, including changes in diet, for the long-term management of adults and children with UCDs weighing 44 pounds (20 kg) or greater and with a body surface area of 1.2m2 or greater. On November 17, 2023, the Company acquired OLPRUVA in connection with the Merger (Note L). To commercialize OLPRUVA for oral suspension in the U.S. the Company is building marketing, sales, medical affairs, distribution, managerial and other non-technical capabilities or making arrangements with third parties to perform these services. The Company's current distributor for sales of OLPRUVA is a single specialty pharmacy provider. However, the Company intends to establish additional distributors such as other retail pharmacies and certain medical centers or hospitals. In addition to distribution agreements, the Company enters into arrangements with health care providers and payors that provide for government mandated and/or privately negotiated rebates with respect to the purchase of its products.

For the three months ended March 31, 2024, and 2023, sales of OLPRUVA were de minimis due to limited shipments to our specialty pharmacy in Q12024.

Accounts and Other Receivables

 

Accounts and other receivables consist of receivables from product sales, receivables under the AZSTARYS License Agreement and Arimoclomol EAP, as well as receivables related to consulting arrangements, income tax receivables and other receivables due to the Company. Receivables under the AZSTARYS License Agreement are recorded for amounts due to the Company related to reimbursable third-party costs and royalties on product sales. Receivables under the Arimoclomol EAP are recorded for product sales under the French nATU. These receivables as well as the receivables related to consulting arrangements, are evaluated to determine if any reserve or allowance should be established at each reporting date. As of March 31, 2023,2024, the Company had receivables related to the Arimoclomol EAP of $5.3 million, $4.8 million, AZSTARYS License Agreement of $0.6 million, consulting arrangements of $0.2 m1.2 miillion,llion, income tax receivables of $1.0 $0.1 million and other receivables of $0.7 million. $2.2 million. As of December 31, 2022,2023, the Company had receivables related to the Arimoclomol EAP of $6.3 million, Corium Consulting Agreement of $4.7$0.2 m miillion,llion, AZSTARYS License Agreement of $0.5 million, income tax receivables of $0.9 million $11.4 million, and other receivables of $0.4$1.3 million. As of March 31, 2023, 2024,and December 31, 2022,2023, no reserve or allowance for doubtful accounts had been established.

 

1517

  
 

C.

Debt Obligations

Line of Credit

On May 31,2022, the Company and Ameris Bank, as lender, entered into a $20.0 million revolving loan agreement (the “Line of Credit”). Proceeds of the revolving facility provided by the Line of Credit are to be used for general corporate purposes. Loans under the Line of Credit bear interest at the Secured Overnight Financing Rate ("SOFR") plus 1.60%, with a SOFR floor of 0.00%.

The revolving facility under the Line of Credit is secured by a perfected security interest in deposit accounts. The revolving facility under the Line of Credit is subject to customary affirmative and negative covenants.

The latest maturity date of the loans under the Line of Credit was May 31,2025. The Line of Credit contained customary events of default that could have led to an acceleration of the loans, including cross-default, bankruptcy and payment defaults. As of December 31, 2022, the Company had drawn $12.8 million from the Line of Credit to finance the transactions under the Arimoclomol Purchase Agreement, and this amount was supported by a $12.8 million certificate of deposit which was shown as long-term investments - others in the unaudited condensed consolidated balance sheet as of December 31, 2022. The remaining $7.2 million under the Line of Credit was in a separate interest-bearing certificate of deposit and is also recorded as long-term investments - other in the unaudited condensed consolidated balance sheets as of December 31, 2022. These certificates of deposit are pledged as collateral against the Line of Credit and could not be redeemed so long as the $20.0 million remained available under the Line of Credit. The total value of the certificates of deposit held with Ameris Bank must meet or exceed the amount available to borrow under the Line of Credit so long as the Line of Credit remains active. On January 31, 2023, the Company repaid the $12.8 million outstanding under the Line of Credit in full and closed the Line of Credit. In conjunction with closing the Line of Credit, the maturity dates of the certificates of deposit were modified to May 2023. As such, the certificates of deposit are classified as short-term investments - other in the unaudited condensed consolidated balance sheet as of March 31, 2023. No amounts are outstanding under the Line of Credit as of March 31, 2023.

On January 26, 2023, the Company and Wells Fargo, as lender, entered into a revolving margin account agreement under which the Company initially borrowed $12.8 million. The Company's investments are used as collateral for the loan and the amount the Company is able to borrow is limited to 80-90% of its outstanding investment balance held with Wells Fargo. The margin account bears interest at the Prime rate minus 225 basis-points. As of March 31, 2023, $12.9 million was outstanding under the margin account.

16

D.F.Commitments and Contingencies

 

From time to time, the Company is involved in various legal proceedings arising in the normal course of business. For some matters, a liability is not probable, or the amount cannot be reasonably estimated and, therefore, an accrual has not been made. However, for such matters when it is probable that the Company has incurred a liability and can reasonably estimate the amount, the Company accrues and discloses such estimates.

 

DuringStockholder Litigation Related to the Merger

On firstOctober 12, 2023, Brodsky & Smith, purporting to act as counsel for Jerry Beavee, who was asserted to be a stockholder of Acer, filed a complaint entitled Jerry Beavee v. Acer Therapeutics Inc., et al., No. quarter1:23-cv-08995 in the United States District Court for the Southern District of New York (the "Action") alleging that defendants violated Section 2023,14 the Company(a) and KVK-Tech, Inc. ("KVK") began discussing a possible termination20(a) of the Collaboration and License Agreement (the “Agreement”)Securities Exchange Act of 1934 by filing the Preliminary Merger Registration Statement which allegedly omitted certain information that the parties entered into onsuch counsel asserts is material to Acer’s required disclosure. On October 25, 2018.30, 2023, UnderAcer filed with the termsSEC a Schedule DEF14A that contained additional information regarding the Merger, which mooted the disclosure claims alleged in the Action. On December 8, 2023, Jerry Beavee filed with the court a notice of dismissal of the Agreement, each party has groundsAction without prejudice.

On October 20, 2023, Long Law, LLC and Acocelli Law, PLLC, purporting to terminate the Agreement. While negotiations are on-going, inact as counsel for Kevin Turner, who was asserted to be a stockholder of Acer, filed a complaint entitled Kevin Turner v. Acer Therapeutics Inc., et al., April 2023, No.the Company determined that is probable that the Agreement will be terminated and accrued an estimated settlement to KVK of $0.9 million, which is included in research and development1:23-cv-01185 in the unaudited condensed consolidated statement of operationsUnited States District Court for the District of Delaware alleging that defendants violated Section three14(a) and 20(a) of the Securities Exchange Act of 1934 months endedas well as SEC Rule 14a-9 by filing the Definitive Proxy Statement which allegedly omitted certain information that such counsel asserts is material to Acer’s required disclosure. The complaint prays that, if asserted omissions are not adequately corrected, then Turner will seek to enjoin Acer from holding a stockholder meeting to approve the Merger and, if the Merger closes, will seek to rescind it and seek an award of damages.

On October 20, 2023, Long Law, LLC, purporting to act as counsel for Matthew Jones, who was asserted to be a stockholder of Acer, filed a complaint entitled Matthew Jones v. Acer Therapeutics Inc., et al., No.1:23-cv-01186 in the United States District Court for the District of Delaware alleging that defendants violated Section 14(a) and 20(a) of the Securities Exchange Act of 1934 as well as SEC Rule 14a-9 by filing the Definitive Proxy Statement which allegedly omitted certain information that such counsel asserts is material to the Acer’s required disclosure. The complaint prays that, if asserted omissions are not adequately corrected, then Jones will seek to enjoin Acer from holding a stockholder meeting to approve the Merger and, if the Merger closes, will seek to rescind it and seek an award of damages.

As of March 31, 2023.2024, As ofand December 31, 20222023, no accruals have been made related to commitments and contingencies. The Company intends to vigorously defend these lawsuits and believes that it has meritorious defenses to each. However, litigation is inherently uncertain, and any judgment or injunctive relief entered against the Company or any adverse settlement could adversely affect the Company’s business, results of operations and financial condition.

 

 
E.G.Stock and Warrants

 

Authorized, Issued, and Outstanding Common Shares

 

As of March 31, 20232024, and December 31, 20222023, the Company had authorized shares of common stock of 250,000,000 shares. Of the authorized shares, 35,457,49643,426,186 and 3543,110,360 share,450,257 sharess of common stock were issued as of March 31, 2023, 2024,and December 31, 2022,2023, respectively, andan 33,881,804 and 34,540,304 respectively shares41,850,494 and 41,534,668 shares of common stock were outstanding as of March 31, 20232024, and December 31, 20222023, respectively.

 

As of March 31, 20232024 and December 31, 20222023, the Company had reserved authorized shares of common stock for future issuance as follows:

 

 March 31, 2023  December 31, 2022  March 31, 2024  December 31, 2023 

Outstanding awards under equity incentive plans

 6,024,889 2,456,407  9,324,407 8,023,142 

Outstanding common stock warrants

 4,252,490 4,252,600  5,603,729 5,603,729 

Possible future issuances under equity incentive plans

 3,731,263 4,421,508  4,366,537 1,728,885 

Possible future issuances under employee stock purchase plans

  1,417,365   1,417,365   1,340,172   1,340,172 

Total common shares reserved for future issuance

  15,426,007   12,547,880   20,634,845   16,695,928 

   

Common Stock Activity

 

The following table summarizes common stock activity for the three months ended March 31, 20232024:

 

  Shares of Common Stock 

Balance as of January 1, 20232024

  34,540,30441,534,668 

Common stock issued as compensation to third-partiesthird parties

  7,1299,000 

Common stock repurchased as a result of the Stock Repurchase Plan

(665,739)

Common stock issued as a result of stock warrantsoptions exercised

  110306,826 

Balance as of March 31, 20232024

  33,881,80441,850,494 

 

Authorized, Issued, and Outstanding Preferred Stock

 

As of March 31, 2023,2024, and December 31, 2022,2023, the Company had 10,000,000 shares of authorized preferred stock, none of which were designated, issued, or outstanding.    

 

1718

 

Warrants to Purchase Common Stock

 

Warrants to Purchase Common Stock

In June 2014, the Company entered into a multi-tranche credit facility (the "Deerfield Facility Agreement") with Deerfield Private Design Fund III, LP (“Deerfield”). The Company has issued to Deerfield a warrantwarrants to purchase 120,192 shares of the Company's common stock to various third parties, of which is exercisable at $38.34 per share until June 2,2024, and Deerfield assigned this warrant to OTA LLC in December 5,603,729 remain outstanding as of 2022March 31, 2024, (the “OTA Warrant”). This warrant qualifiesand are immediately exercisable. These warrants qualify as a participating securitysecurities under ASC Topic 260, Earnings per Share, and isare treated as such in the net loss per share calculation (Note H). If a Major Transaction occurs (as defined in the Deerfield Facility Agreement), OTAThe Company may require the Companybe required to redeem the OTA Warrantthese warrants for a cash amount equal to the Black-Scholes value of the portion of the OTA Warrantwarrants to be redeemed (the “Warrant Put“Put Option”). 

In connection with the Merger (Note L), in November 2023, the Company directly issued to certain investors an aggregate of 1,382,489 shares of its common stock, par value $0.0001 per share, and accompanying warrants to purchase up to 1,382,489 shares of its common stock (the "2023 Warrants") at a combined offering price of $4.34 per share of common stock and the Warrants and an aggregate of 917,934 shares of its common stock in exchange for the cancellation of a warrant to purchase 2,920,306 shares of common stock of Acer. The Warrants are immediately exercisable and expire on November 22, 2028. The Company used the net proceeds of approximately $6.0 million from the offering for general corporate purposes. These warrants are separately exercisable by the warrant holders. While the warrants are outstanding (but unexercised), the warrant holders will participate in any dividend or other distribution of the Company’s assets to its common stockholders by way of return of capital or otherwise. As of March 31, 2024, and December 31, 2023, none of the warrants have been exercised. The warrants have been evaluated to determine the appropriate accounting and classification pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815, Derivatives and Hedging. Generally, freestanding warrants should be classified as (i) liabilities if the warrant terms allow settlement of the warrant exercise in cash and (ii) equity if the warrant terms only allow settlement in shares of common stock. 

The Company determined that its outstanding warrants and the OTA WarrantPut Option should be recorded as a liability and stated at fair value at each reporting period. Changes to the fair value of the warrant liability are recorded through the unaudited condensed consolidated statements of operations as a fair value adjustment (Note G).

The Company issuedrelated to KVK a warrant to purchase up to 31,250 shares of common stock of the Company at an exercise price of $36.80 per share (the “KVK Warrant”). The KVK Warrant is initially not exercisable for any shares of common stock. Upon the achievement of eachand CVR liability. As of fourMarch 31, 2024,  specified milestones under the KVK Warrant, the KVK Warrant will become exercisable. The exercise price and the number and type of shares underlying the KVK Warrant are subject to adjustment in the event of specified events, including a reclassification of the Company’s common stock, a subdivision or combination of the Company’s common stock, or in the event of specified dividend payments. The KVK Warrant is exercisable until OctoberDecember 31, 2023, 24,2023.The Company determined that the KVK Warrant qualifies as a derivative under ASC 815 and should be recorded as a liability and stated at fair value each reporting period. The Company calculates the fair value of the KVK Warrant using a probability-weighted Black-Scholes option pricing model. Changes in fair value resulting from changes inliability associated with these warrants and the inputs to the Black Scholes model are accounted for as changes in the fair value of the derivative under ASC 815Put Option was approximately $11.5 million and are recorded as$16.1 million, respectively. The fair value adjustment related to derivativethese warrants and warrant liability in the unaudited condensed consolidated statementsPut Option was approximately $4.6 million of operations.  

Onincome and $1.5 million of expense for the January 12,three 2021, the Company issued warrants to purchase 12,078,361 shares of the Company’s common stock (collectively, the “Offering Warrants”) in the Public Offering. The Offering Warrants were immediately exercisable and expire on the fifth anniversary of their issuance date, at an exercise price per share of common stock equal to $6.50 per share. The Offering Warrants meet the equity classification requirements and thus are recorded in additional paid-in capital on the unaudited condensed consolidated balance sheets. As ofmonths ended March 31, 2023,2024, 3,461,968 Offering Warrants have been exercised for 3,030,991 shares of common stock and gross proceeds of approximately $16.9 million. 2023, respectively.

 

On January 12,2021, the Company issued a warrant to Roth Capital Partners ("Roth") to purchase 806,932 shares of the Company’s common stock and the exercise price is $8.125 per share. In connection with the closing of the Roth's partial exercise of its over-allotment option, on February 3, 2021, Roth was issued an additional warrant to purchase 18,702 shares of common stock. As of March 31, 2023, 400,000 of these warrants have been exercised for 400,000 shares of common stock and gross proceeds of approximately $3.3 million.

18

January 2021Warrant Exercise Inducement Letters and Issuance of Warrants

On January 26, 2021, the Company entered into warrant exercise inducement offer letters ( “January 2021 Inducement Transaction”) with certain holders of warrants issued in the Public Offering (the “January 2021 Inducement Warrants”) to purchase up to 7,944,430 shares of the Company’s common stock (the "January 2021 Inducement Warrants"). The January 2021 Inducement Warrants were immediately exercisable and expire on the fifth anniversary of their issuance date, at an exercise price per share of common stock equal to $6.36 per share. As of March 31, 2023, 1,676,921 January 2021 Inducement Warrants have been exercised for 1,676,921 shares of common stock and gross proceeds of approximately $10.7 million. 

June 2021Warrant Exercise Inducement Letters and Issuance of Warrants

On June 18, 2021, the Company entered into warrant exercise inducement offer letters ( “June 2021 Inducement Transaction”) with certain holders of warrants issued in the January 2021 Inducement Transaction discussed above (the "January 2021 Inducement Warrants") pursuant to which such holders agreed to exercise for cash their January 2021 Inducement Warrants to purchase 6,117,509 shares of the Company’s common stock in exchange for the Company’s agreement to issue new warrants to purchase up to 1,529,379 shares of the Company's common stock (the “June 2021 Inducement Warrants”) on substantially the same terms as the January 2021 Inducement Warrants. The June 2021 Inducement Warrants were immediately exercisable and expire on December 31, 2026, at an exercise price per share of common stock equal to $16.50 per share. As of March 31, 2023, noJune 2021 Inducement Warrants have been exercised.

 
F.H.Stock-Based Compensation

 

The Company maintains a stock-based compensation plan (the “Incentive Stock Plan”) that governs stock awards made to employees and directors prior to completion of the IPO.  

 

In November 2014, the Board of Directors of the Company ("the Board"), and in April 2015, the Company’s stockholders, approved the Company’s 2014 Equity Incentive Plan (the “2014 Plan”), which became effective in April 2015. The 2014 Plan provides for the grant of stock options, other forms of equity compensation, and performance cash awards. In June 2021, the Company's stockholders approved an Amended and Restated 2014 Equity Incentive Plan (the "A&R 2014 Plan"), following its adoption by the Board in April 2021, which among other things added 4,900,000 shares to the maximum number of shares of common stock to be issued under the plan and extended the annual automatic increases (discussed further below) untiluntil January 1, 2031 and eliminated individual grant limits that applied under the 2014 Plan to awards that were intended to comply with the exemption for "performance-based compensation" under Code Section 162(m). The maximum number of shares of common stock that may be issued under the A&R 2014 Plan is 8,271,4979,932,883 as of March 31, 2023. 2024The number of shares of common stock reserved for issuance under the A&R 2014 Plan will automatically increase on January 1 of each year, beginning on January 1, 2016, and ending onuntil and including January 1, 2031, by 4% of the total number of shares of the Company’s capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Board. Pursuant to the terms of the 2014 Plan, on January 1, 2023,2024, the common stock reserved for issuance under the 2014 Plan automatically increased by 1,381,612 1,661,386 shares.

 

During the three months ended March 31, 2023,2024, and716,875 stock options were exercised. During the 2022,three months ended March 31, 2023, no stock options were exercised.

 

In June 2021, the Company's stockholders approved an Employee Stock Purchase Plan (the "ESPP"), following its adoption by the Board in April 2021. The maximum number of shares of common stock that may be issued under the ESPP is 1,500,000. The first offering period under the ESPP began on October 1, 2021, and the first purchase date occurred on May 31, 2022. As of March 31, 2023,2024, 82,635159,828 shares have been issued under the ESPP.

 

In January 2023, the Board approved the 2023 Employment Inducement Award Plan (the "2023"2023 Plan"). The maximum number of shares of common stock that may be issuedwere initially available for issuance under the 2023 Plan iswas 1,500,000. In February 2024, our Board approved an amendment to the 2023 Plan to increase the aggregate number of shares of common stock available for issuance under the 2023 Plan from 1,500,000 to 4,500,000 shares.

In May 2023, the Board approved the Ninth Amended and Restated Non-Employee Director Compensation Policy (the “Non-Employee Director Compensation Policy”). The equity compensation made pursuant to the Non-Employee Director Compensation Policy will be granted under the A&R 2014 Plan.

 

Stock-based compensation expense recorded under the Incentive Stock Plan, 2014 Plan, A&R 2014 Plan, ESPP and ESPP2023 Plan is included in the following line items in the accompanying unaudited condensed consolidated statements of operations (in thousands):

 

  

Three months ended March 31,

 
  

2024

  

2023

 

Research and development

 $853  $572 

Selling, general and administrative

  1,266   19 

Total stock-based compensation expense

 $2,119  $591 

  

  

Three months ended March 31,

 
  

2023

  

2022

 

Research and development

 $572  $311 

Selling, general and administrative

  19   607 

Total stock-based compensation expense

 $591  $918 

There was no stock-based compensation expense related to performance-based awards recognized during the three months ended March 31, 2023,2024, orand 2022.2023. 

As a result of the modification of certain stock options in connection with the Transition Agreement, as further discussed in Note J, the Company recaptured $0.9 million in stock-compensation expense and recognized $0.4 million in severance expense for the three months ended March 31, 2023. 

 

19

  
 
G.I.Fair Value of Financial Instruments

 

The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.

 

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows:

 

 

Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; 

 

Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and

 

Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

 

The carrying amounts of certain financial instruments, including cash and cash equivalents, investments, and accounts payable and accrued expenses, approximate their respective fair values due to the short-term nature of such instruments.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. The following table summarizes the conclusions reached regarding fair value measurements as of March 31, 2023, 2024,and December 31, 20222023 (in thousands):

 

 Balance as of March 31, 2023  Quoted Prices in Active Markets for Identical Assets (Level 1)  Significant Other Observable Inputs (Level 2)  Significant Unobservable Inputs (Level 3)  Balance as of March 31, 2024  Quoted Prices in Active Markets for Identical Assets (Level 1)  

Significant Other Observable Inputs (Level 2)

  Significant Unobservable Inputs (Level 3) 

OTA Warrant liability

 $3  $  $  $3 

CVR liability (Note L)

 8,200 $ $ $8,200 

Warrant liabilities

  11,535         11,535 

Total liabilities

 $3  $  $  $3  $19,735  $  $  $19,735 
                 

Securities:

          

U.S. government-sponsored agency securities

 $7,290 $ $7,290 $ 

U.S. Treasury securities

  27,113   27,113         9,868   9,868       

Total assets

 $34,403  $27,113  $7,290  $  $9,868  $9,868  $  $ 

 

 Balance as of December 31, 2022  Quoted Prices in Active Markets for Identical Assets (Level 1)  Significant Other Observable Inputs (Level 2)  Significant Unobservable Inputs (Level 3)   Balance as of December 31, 2023   Quoted Prices in Active Markets for Identical Assets (Level 1)   Significant Other Observable Inputs (Level 2)   Significant Unobservable Inputs (Level 3) 

OTA Warrant liability

 $1  $  $  $1 

CVR liability (Note L)

 $7,262  $  $  $7,262 

Warrant liabilities

  16,100         16,100 

Total liabilities

 $1  $  $  $1  $23,362  $  $  $23,362 
                  

Securities:

          

U.S. government-sponsored agency securities

 $7,189  $  $7,189  $ 

U.S. Treasury securities

  9,711   9,711        $24,688  $24,688  $  $ 

Total assets

 $16,900  $9,711  $7,189  $  $24,688  $24,688  $  $ 

The common stock warrant liabilities were recorded at fair value using the Black-Scholes option pricing model. The following assumptions were used in determining the fair value of the warrant liabilities valued using the Black-Scholes option pricing model as of March 31, 2024, and December 31, 2023:

  

March 31, 2024

  

December 31, 2023

 

Risk-free interest rate

  4.14% - 4.57%  3.76% - 4.12%

Volatility

  59.43% - 92.76%  62.01% - 92.42%

Dividend yield

  0%  0%

Expected term (years)

  1.8 - 4.6   2.0 - 4.9 

Weighted average fair value

  2.17   2.94 

 

20

  

The Company’s OTA Warrant liability, embedded Warrant Put Option and securities arefollowing table is a reconciliation for the common stock warrant liabilities measured at fair value on a recurring basis. As ofvalue using Level March 31, 2023, 3and December 31, 2022, the OTA Warrant liability and the embedded Warrant Put Option are reported on the unaudited condensed consolidated balance sheets in derivative and warrant liability. As of March 31, 2023, and December 31, 2022, the securities are reported on the unaudited condensed consolidated balance sheets in securities at fair value. The Company used a Monte Carlo simulation to value the OTA Warrant liability and embedded Warrant Put Option for all periods presented herein. Significant unobservable unobservable inputs used in measuring the fair value of these financial instruments included the Company’s estimated enterprise value, an estimate of the timing of a liquidity or fundamental change event and a present value discount rate. Changes in the fair value of the OTA Warrant liability and embedded Warrant Put Option are reflected in the unaudited condensed consolidated statements of operations for(in thousands):

Balance as of December 31, 2023

 $16,100 

Change in fair value measurement

  (4,565)

Balance as of March 31, 2024

 $11,535 

For the three months ended March 31, 2023,2024, and 2022,2023, as a fair value adjustment related to derivative and warrant liability.

The derivative liability for the OTA Warrant was $3,000 and $1,000 at March 31, 2023, and December 31, 2022, respectively. The derivative liability for the embedded Warrant Put Option was $0 at March 31, 2023, and December 31, 2022. 10% increasechanges in the enterprise value would result in a negligible increase in the estimated fair value of the OTA Warrant liabilitywarrant liabilities primarily resulted from the volatility of the Company's common stock and the estimated fair value of the embedded Warrant Put Option liability. In addition, the Company assumed a weighted-average probability of a liquidity event occurring of approximately 48% with an estimated probability-weighted value of approximately $38.5 million and a weighted-average probability of a fundamental change event occurring of approximately 30% with an estimated probability-weighted value of approximately $463.8 million, respectively, with estimated timing in each scenario of the fourth quarter of 2023.

The Company’s KVK Warrant liability is measured at fair value on a recurring basis. As of March 31, 2023, and December 31, 2022, the KVK Warrant liability is reported on the unaudited condensed consolidated balance sheets in derivative and warrant liability. The Company estimates the fair value of the KVK Warrant using a probability-weighted Black-Scholes option-pricing model, which requires the use of subjective assumptions, including the expected term of the warrant, the expected stock price volatility, expected dividend yield and the risk-free interest rate for the expected term of the warrant. The expected term represents the period of time the warrant is expected to be outstanding. For the KVK Warrant, the Company used an expected term equal to the contractual term of the warrant. Expected volatility is based on the Company's historical volatility since the IPO. The Company assumes no dividend yield because dividends are not expected to be paid in the near future, which is consistent with the Company’s history of not paying dividends. Changes in the fair value of the KVK Warrant liability are reflected in the unaudited condensed consolidated statements of operations for the three months ended March 31, 2023, and 2022, as a fair value adjustment related to derivative and warrant liability.rates.

A reconciliation of the beginning and ending balances for the derivative and warrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows (in thousands):

  

Three months ended March 31,

 
  

2023

  

2022

 

Balance as of beginning of period

 $1  $306 

Adjustment to fair value

  2   (305)

Balance as of end of period

 $3  $1 

21

 
H.J.Net Loss Per Share

 

For all periods presented herein, the Company did not use the two-class method to compute net loss attributable to common stockholders per share of common stock, even though it had issued securities, other than common stock, that contractually entitled the holders to participate in dividends and earnings, because these holders are not obligated to participate in a loss. The two-class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings.

 

Under the two-class method, for periods with net income, attributable to common stockholders, basic net income attributable to common stockholders per share of common stock is computed by dividing the undistributed net income attributable to shares of common stockholders by the weighted average number of shares of common stock outstanding during the period. Undistributed net income attributable to shares of common stockholders is computed by subtracting from net income the portion of current period earnings that participating securities would have been entitled to receive pursuant to their dividend rights had all of the period’s earnings been distributed and subtracting the actual or deemed dividends declared. No such adjustment to earnings is made during periods with a net loss as the holders of the participating securities have no obligation to fund losses. Diluted net income attributable to common stockholders per share of common stock is computed under the two-class method by using the weighted average number of shares of common stock outstanding plus the potential dilutive effects of stock options, warrants and other outstanding convertible securities. In addition to analyzing under the two-class method, the Company analyzes the potential dilutive effect of stock options and warrants, under the treasury-stock method and other outstanding convertible securities under the if-converted method when calculating diluted income (loss) attributable to common stockholders per share of common stock, in which it is assumed that the stock options, warrants and other outstanding convertible securities convert into common stock at the beginning of the period or date of issuance, if the stock option, warrant or other outstanding convertible security was issued during the period. The Company reports the more dilutive of the approaches (two-class or treasury-stock/if-converted) as its diluted net income (loss) attributable to common stockholders per share of common stock during the period.

 

As noted above, for all periods presented herein, the Company did not utilize the two-class approach as the Company was in a net loss position and the holders of the participating securities have no obligation to fund losses. The Company did analyze diluted net loss attributable to common stockholders per share of common stock under the treasury-stock/if-converted method and noted that all outstanding stock options and warrants were anti-dilutive for the periods presented. For all periods presented, basic net loss attributable to common stockholders per share of common stock was the same as diluted net loss attributable to common stockholders per share of common stock. 

 

The following securities, presented on a common stock equivalent basis, have been excluded from the calculation of weighted average number of shares of common stock outstanding because their effect is anti-dilutive:

 

 

Three months ended March 31,

  

Three months ended March 31,

 
 

2023

  

2022

  

2024

  

2023

 

Awards under equity incentive plans

 6,024,889 2,186,769  4,366,537  6,024,889 

Common stock warrants

  4,252,490   4,252,600   5,603,729   4,252,490 

Total securities excluded from the calculation of weighted average number of shares of common stock outstanding

  10,277,379   6,439,369   9,970,266   10,277,379 

 

A reconciliation from net loss to basic and diluted net loss attributable to common stockholders per share of common stock for the three months ended March 31, 2023,2024, and 2022,2023, is as follows (in thousands):

 

  

Three months ended March 31,

 
  

2023

  

2022

 

Net loss per share of common stock:

        
         

Net loss

 $(11,767) $(1,864)

Less: Dividends declared or accumulated

      

Undistributed net loss attributable to shares of common stockholders, basic and diluted

 $(11,767) $(1,864)

Weighted average number of shares of common stock outstanding, basic and diluted

  34,467   34,507 

Basic and diluted net loss attributable to common stockholders per share of common stock

 $(0.34) $(0.05)
  

Three months ended March 31,

 
  

2024

  

2023

 

Basic and diluted net loss per share of common stock:

        
         

Net loss, basic and diluted

 $(16,622) $(13,217)

Weighted average number of shares of common stock outstanding, basic and diluted

  41,779   34,467 

Basic and diluted net loss per share of common stock

 $(0.40) $(0.38)

 

2221

    
 
I.K.Leases

 

The Company has operating and finance leases for office space, laboratory facilities and various laboratory equipment, furniture and office equipment and leasehold improvements. The Company determines if an arrangement is a lease at contract inception. Lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date. The Company does not separate lease and non-lease components. Leases with a term of 12 months or less at commencement are not recorded on the unaudited condensed consolidated balance sheets. Lease expense for these arrangements is recognized on a straight-line bases over the lease term. The Company's leases have remaining lease terms of less than 1 year to approximately 3 years, some of which include options to extend the leases for up to 5 years, and some which include options to terminate the leases within 1 year.

 

Effective June 1, 2021, the Company agreed to sublease office space in Florida, comprised of one of the two contiguous suites, under a non-cancelable operating lease, which expires in February 2026.

 

The components of lease expense were as follows (in thousands): 

 

 

Three months ended March 31,

  

Three months ended March 31,

 

Lease Cost

 

2023

  

2022

  

2024

  

2023

 

Finance lease cost:

  

Amortization of right-of-use assets

 $32  $32  $12 $32 

Interest on lease liabilities

     1       

Total finance lease cost

 32  33  12  32 

Operating lease cost

 113  91  93 113 

Short-term lease cost

 55  50  59 55 

Variable lease cost

 13  13  13 13 

Less: sublease income

  (39)  (39)  (39)  (39)

Total lease costs

 $174  $148  $138  $174 

 

Supplemental cash flow information related to leases was as follows (in thousands):

 

 

Three months ended March 31,

  

Three months ended March 31,

 
 

2023

  

2022

  

2024

  

2023

 

Cash paid for amounts included in the measurement of lease liabilities:

  

Operating cash flows from finance leases

 $ $1 

Financing cash flows from finance leases

 2 10  $ $2 

Operating cash flows from operating leases

 142 117  123 142 

Operating cash flows from short-term leases

 55 50  59 55 

Operating cash flows from variable lease costs

 13 13  13 13 
  

Right-of-use assets obtained in exchange for lease liabilities:

  

Finance leases

 $  $  $  $ 

Operating leases

     419   

 

2322

 

Supplemental balance sheet information related to leases was as follows (in thousands, except weighted average remaining lease term and weighted average discount rate):

 

 

March 31,

 

December 31,

  

March 31,

 

December 31,

 
 

2023

  

2022

  

2024

  

2023

 

Finance Leases

        

Property and equipment, at cost

 $1,031 $1,031  $1,031 $1,031 

less: accumulated depreciation and amortization

  (812)  (780)  (894)  (882)

Property and equipment, net

 $219  $251  $137  $149 
  

Other current liabilities

 $5 $6  $ $ 

Other long-term liabilities

            

Total finance lease liabilities

 $5  $6  $  $ 
  

Operating Leases

        

Operating lease right-of-use assets

 $898  $988  $1,086  $790 

Total operating lease right-of-use assets

 $898  $988  $1,086  $790 
  

Current portion of operating lease liabilities

 $470 $480  $583 $543 

Operating lease liabilities, less current portion

  736   843   705   456 

Total operating lease liabilities

 $1,206  $1,323  $1,288  $999 
  

Weighted Average Remaining Lease Term

        

Finance leases

 1 year 1 year 

Operating leases

 3 years 3 years 

Operating leases (in years)

  3 2 
  

Weighted Average Discount Rate

        

Finance leases

 14.3% 14.3%  0.0% 14.3%

Operating leases

 7.4% 7.3%  9.3% 7.6%

 

Maturities of lease liabilities were as follows (in thousands):

 

 

Finance

 

Operating

  

Finance

 

Operating

 

Year Ending December 31,

 

Leases

  

Leases

  

Leases

  

Leases

 

2023 (excluding the three months ended March 31, 2023)

 $5 $419 

2024

  488 

2024 (excluding the three months ended March 31, 2024)

 $ $531 

2025

  390   511 

2026

  30   142 

2027

           132 

2028

  155 

Thereafter

     40 

Total lease payments

 5  1,327    1,511 

Less: future interest expense

  0   (121)     (223)

Lease liabilities

 $5  $1,206  $  $1,288 

23

L.Merger

On August 30, 2023, in connection with the Merger Agreement with Acer, the following transactions occurred prior to Closing:

Bridge Loan - Zevra and Acer entered into a bridge loan agreement (the “Bridge Loan Agreement”), providing for Zevra to make loans (collectively, the “Bridge Loan”) to Acerup to an aggregate principal amount of $16.5 million. The Bridge Loan was provided to Acer to support its termination agreement with Relief Therapeutics Holding SA (“Relief”) and to provide Acer with working capital, including for payments of accounts payable to support the commercial launch of OLPRUVA and the development of celiprolol pending the Merger’s closure. On October 31, 2023, the Company and Acer entered into an amendment to the Bridge Loan Agreement, which increased the aggregate principal amount available under the loan from $16.5 million to $18.0 million.

Purchase of Acers Term Loans - Zevra purchased certain indebtedness of Acer held by Nantahala Capital Management, LLC ("Nantahala). Under the loan purchase withNantahala, certain of its affiliates and certain other parties (collectively with Nantahala, "Nantahala Holders") Zevra purchased (i) an original senior secured term loan facility made available to Acer in an aggregate amount of $6.5 million and funded on March 14, 2022, and (ii) an additional senior secured term loan made to Acer in an aggregate amount of $7.0 million in a single borrowing which funded on January 31, 2023 for (1) $12.0 million in cash; (2) 98,683 shares of Zevra Common Stock; and (3) a secured Promissory Note payable by Zevra to Nantahala in the original principal amount $5.0 million. These were recorded as receivables form Acer and were treated as a settlement of a preexisting relationship in connection with the closing of the transaction and recorded as a component of purchase consideration.

Purchase of Acers Convertible Notes (“Marathon Convertible Notes”)- Under the Note Purchase Agreement with the Nantahala Holders, Zevra purchased the MarathonConvertible Notes that Nantahala had acquired on June 16, 2023. Zevra acquired the Marathon Convertible Notes in exchange for the issuance of 2,171,038 shares of Zevra Common Stock at $5.0667 per share for a total purchase price of $11.0 million.

Amendment to IP License Agreement and IP Termination Agreement: As a condition to entering into the Merger Agreement, Acer and Relief Therapeutics Holding AG ("Relief")entered into the Exclusive License Agreement and the Termination Agreement terminating the collaboration and license agreement, dated March 19, 2021, by and between Acer and Relief. Pursuant to the Exclusive License Agreement, Relief holds exclusive development and commercialization rights for OLPRUVA in the European Union, Liechtenstein, San Marino, Vatican City, Norway, Iceland, Principality of Monaco, Andorra, Gibraltar, Switzerland, United Kingdom, Albania, Bosnia, Kosovo, Montenegro, Serbia and North Macedonia (Geographical Europe). Acer has the right to receive a royalty of up to 10.0% of the net sales of OLPRUVA in Geographical Europe. In accordance with the terms of the Termination Agreement, Relief received an upfront payment from Acer of $10.0 million (which payment was funded with the Bridge Loan described above) with an additional payment of $1.5 million due on the first-year anniversary of the $10.0 million payment. Acer also agreed to pay a 10.0% royalty on net sales of OLPRUVA worldwide, excluding Geographical Europe, and 20.0% of any value received by Acer from certain third parties relating to OLPRUVA licensing or divestment rights, all of the foregoing which are capped at $45.0 million, for total payments to Relief of up to $56.5 million.

In connection with the closing of the Merger on November 17, 2023, each share of common stock of Acer was converted into the right to receive (i) 0.1210 fully paid and non-assessable shares of common stock of Zevra, par value $0.0001 per share , and (ii) one non-transferable contingent value right (“CVR”) to be issued by Zevra, which will represent the right to receive one or more contingent payments up to an additional $76 million upon the achievement, if any, of certain commercial and regulatory milestones for Acer’s OLPRUVA and celiprolol products within specified time periods. Certain additional cash payments are also possible pursuant to the CVRs with respect to milestones involving Acer’s early-stage program ACER-2820 (emetine).

 

24

 

The assets acquired and liabilities assumed were recorded based on their acquisition date fair values. Consideration for the Merger was $72.6 million and consists of (i) approximately 2.96 million shares of Zevra common stock valued at $12.8 million, (ii) the Bridge Loan advances of $17.8 million, (iii) $12.0 million in cash paid to Nantahala; (iv) 2.27 million shares of Zevra Common Stock issued to Nantahala valued at $11.5 million based on the VWAP of shares of Zevra Common Stock during the 20 consecutive trading days ending on the trading date prior to August 30, 2023; (v) a secured promissory note payable by Zevra to Nantahala in the original principal amount of $5.0 million, as disclosed in Note C, (vi) $8.5 million in the estimated fair value of contingent consideration related to the CVRs, (vii) approximately 0.9 million shares of Zevra Common Stock issued to a former holder of Acer warrants valued at $4.0 million based on Zevra's common stock price on the Effective Date and (viii) $1.0 million in notes payable paid by the Company on Acer's behalf. In addition, effective as of immediately prior to the Effective Time, all of the outstanding and unexercised Acer stock options were automatically cancelled and ceased to exist without any cash or other consideration being paid or provided in respect thereof. The following purchase price allocation reflects the preliminary estimates of and assumptions related to the fair values of assets acquired and liabilities assumed:

Assets

    

Cash

 

$

575

 

Prepaid expenses

  

278

 

Other current assets

  

11

 

Inventory

  

9,376

 

Property, plant, and equipment

  

35

 

Other noncurrent assets

  

209

 

Approved product - OLPRUVA

  

68,000

 

IPR&D - celiprolol

  

2,000

 

Goodwill acquired

  

4,701

 
   

85,185

 
     

Liabilities

    

Accounts payable and accrued expenses

 

$

10,881

 

Deferred collaboration funding

  

1,500

 

Operating lease liabilities

  

175

 
   

12,556

 

Fair Value of Net Assets Acquired

 

$

72,629

 

The preliminary fair values assigned to the tangible and intangible assets acquired and liabilities assumed were determined using an income approach based on management’s estimates and assumptions, as well as other information compiled by management, including third-party valuations that utilize customary valuation procedures and techniques. These preliminary fair values are subject to change within the one-year measurement period. The estimated fair values were developed by discounting future net cash flows to their present value at market-based rates of return. The goodwill acquired represents the excess of the purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of the business acquired. The useful lives of the intangible assets for amortization purposes were determined by considering the period of expected cash flows used to measure the fair values of the intangible assets adjusted as appropriate for entity-specific factors including legal, regulatory, contractual, competitive, economic and other factors that may limit the useful life. The marketed product asset is amortized on a straight-line basis over its estimated useful life. As of March 31,2024, the IPR&D project had not been completed or abandoned and, therefore, the IPR&D intangible asset is not currently subject to amortization.

The results of operations and changes in stockholders' equity for Acer were included in the Company's consolidated financial statements beginning November 18, 2023. 

The following pro forma combined results of operations present the acquisition as if it had occurred on January 1, 2023. The pro forma combined results of operations do not necessarily represent the Company's consolidated results of operations had the acquisition occurred on the date assumed, nor are these results necessarily indicative of the Company's future consolidated results of operations. The Company expects to realize certain benefits from integrating Acer into the Company and to incur certain one-time costs. The pro forma combined results of operations do not reflect these benefits or costs.

J.Significant Events

Three Months Ended

March 31, 2023

Pro forma revenue

 $3,176

Pro forma net loss

(20,652)

 

25

Cancellation of Acer Warrant

On January 6,November 22, 2023, the Board appointed Richard W. PascoeCompany sold an aggregate of 917,934 shares of its common stock to serve asa healthcare focused investment fund (the "Investor") to cancel a warrant held by the Company’s Chief Executive Officer, effective immediately. Concurrently with his appointment as Chief Executive Officer, Mr. Pascoe stepped down asInvestor to purchase 2,920,306 shares of common stock of Acer. The shares of common stock were offered and sold to the Company’s Executive Chairman. Mr. Pascoe continued to serve asInvestor in a member of the Board until April 25, 2023. Mr. Pascoe was designated as the Company’s principal executive officer, succeeding Travis C. Mickle, Ph.D., the Company’s President and former Chief Executive Officer, in such role. On January 6, 2023, Dr. Mickle resigned from his role (i) as Chief Executive Officer, effective immediately, and (ii) as President and as a member of the Board, in each case, effective as of the date of the Company’s 2023 Annual Meeting of Stockholders, which was held on April 25, 2023. Additionally, on January 6, 2023, the Board appointed Matthew R. Plooster, a member of the Board, as the Chairman of the Board.registered direct offering without an underwriter or placement agent.

 

In connection with Mr. Pascoe’s appointment as the Company’s Chief Executive Officer, the Company and Mr. Pascoe entered into an amendment to the employment agreement, dated November 5, 2021, by and between the Company and Mr. Pascoe (the “Amendment”). Pursuant to the Amendment, Mr. Pascoe became entitled to receive an option under the A&R 2014 Plan to purchase 700,000 shares of the Company’s common stock at an exercise price equal to the closing price of the Company’s common stock on January 9, 2023. The option will vest in four equal annual installments, with the first such installment occurring on January 6, 2024 (subject to Mr. Pascoe’s continued service to the Company through the applicable vesting date).Contingent Consideration

 

In

Contingent consideration liabilities relate to our liabilities arising in connection with the management transition, the Company entered into (i)CVRs issued as a transition agreement with Dr. Mickle (the “Transition Agreement”) and (ii) a consulting agreement with Dr. Mickle (the “Consulting Agreement”). Pursuant to the termsresult of the Transition Agreement, subject to his timely delivering a release of claimsMerger. The contingent consideration is classified as Level 3 in the Company’s favor, Dr. Mickle will receive severancefair value hierarchy. The fair value is measured based on a Monte Carlo simulation or a scenario-based method, depending on the earn-out achievement objectives, utilizing projections about future performance. Significant inputs include volatility and projected financial information, including projections representative of a market participant's view of the expected cash payments and benefits consisting of (i) continued payment of his base salary for 18 months following the date on which Dr. Mickle’s employmentassociated with the Company ends (the “Separation Date”), (ii) up to 18 monthsagreed upon regulatory milestones based on probabilities of continued medical, dental and vision coverage pursuant to COBRA and (iii) a one-time, lump sum bonus payment equal to a pro rata amounttechnical success, timing of his annual performance-based target bonusthe potential milestone events for the year in which the Separation Date occurs. In addition, immediately prior to the Separation Date, all outstanding options to purchase the Company’s common stock held by Dr. Mickle will be vested in full,compounds, and such accelerated vested options may be exercised through the later of (i) the 18-month anniversaryestimated discount rates.

The following table provides a reconciliation of the date of the Transition Agreementbeginning and (ii) the date of the termination of the Consulting Agreement. Pursuant to the terms of the Consulting Agreement, Dr. Mickle has agreed to provide consulting services until the first anniversary of the Company’s 2023 Annual Meeting of Stockholders, which was held on April 25, 2023. In exchange for such services, Dr. Mickle will receive consulting fees of $40,000 per month. In addition, Dr. Mickle was granted, under the A&R 2014 Plan, 547,945 performance-based restricted stock units, which will vest in full upon the timely achievement of a clinical and development milestone, subject to forfeiture upon certain disqualifying events. The severance benefits consisted of personnel and other related charges of approximately $1.0 million and stock compensation expense of approximately $0.4 millionending balances related to the accelerationcontingent consideration liabilities for the CVRs (dollars in thousands):

Balance at December 31, 2023

 

$

7,262

 
Change in fair value recognized in earnings  938 
Balance at March 31, 2024 $8,200 

For the three months ended March 31,2024, the Company recorded a $0.9 million loss on the change in fair value of vesting on unvested shares subjectcontingent consideration, primarily due to certain stock options changes in market data and revenue projections.

M.

Goodwill & Intangible Assets

The Company's goodwill balance was $4.7 million as of March 31, 2024, and December 31, 2023. 

As of March 31, 2024, and December 31, 2023, non-amortizable intangible assets include IPR&D of $2.0 million

As of March 31, 2024, and December 31, 2023, the extensionCompany had a definite-lived intangible asset, net related to the acquisition of OLPRUVA as a result of the exercise periodMerger of $65.7 million and $67.2 million, respectively. This is amortized on a straight-line basis over its estimated economic life of eleven years and is reviewed periodically for certain stock options. These severance benefits are presented in selling, general and administrative expensesimpairment. Amortization expense is recorded as a component of cost of revenue in the unaudited condensed consolidated statementstatements of operations and was $1.5 million for the three months ended March 31, 2024. No amortization expense related to definite-lived intangible assets was recognized for the three months ended March 31, 2023. As of

For intangible assets subject to amortization, estimated amortization expense for the five fiscal years subsequent to March 31, 2023, the Company had accrued severance expense recorded within accounts payable and accrued expenses of $1.0 million. 

At the Company's 2023 Annual Meeting of Stockholders (the "Annual Meeting"), which was held on April 25, 2023, each of John B. Bode, Douglas W. Calder, and Corey Watton was elected as a director of the Company and each of Richard W. Pascoe, Christopher A. Posner, and David S. Tierney ceased serving on the Company's Board of Directors. After the Annual Meeting, the Company's Board of Directors accepted the resignation of Richard W. Pascoe from his role as Chief Executive Officer on May 5, 2023, effective June 1, 2023, and appointed Tamara A. Favorito as the Chair of the Board of Directors. In addition, on May 3, 2023, Matthew R. Plooster and Joseph B. Saluri indicated to the Board of Directors that they do not intend to stand for re-election at the Company's 2024, Annual Meeting of Stockholders, and that they intendis expected to step down from the Board of Directors as soon as replacements are found. In May 2023, the Board of Directors appointed Christal M. M. Mickle, Co-Founder and Chief Development Officer, to serve as interim President and Chief Executive Officer effective on June 1, 2023.  The Board also intends to begin a search to identify a new Chief Executive Officer, as well as new Board members to replace Mr. Plooster and Mr. Saluri.be $6.2 million per year. 

 
K.N.Subsequent Events

 

The Company evaluated events and transactions occurring subsequent to March 31, 2023, 2024,through May 9, 2024, 15,2023,the date the accompanying unaudited condensed consolidated financial statements were issued. During this period, other than entering into the contingency discussedCredit Agreement and the repayment of the margin account and the Nantahala Note, as disclosed in Note D, and the significant events disclosed in Note J, there were no subsequent events that required recognition in the accompanying unaudited condensed consolidated financial statements, nor were there any additional non-recognized subsequent events that required disclosure.

 

2526

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in thisQuarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in thisQuarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part II, Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q andPart I, Item 1A. “Risk Factors”Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022,2023, filed with the SEC on March 7, 2023,April 1, 2024, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Overview

 

We are a rare disease company meldingcombining science, data and patient need to create transformational therapies for diseases with limited or no treatment options. Our mission is to bring life changing therapeutics to people living with rare diseases. With unique, data-driven clinical, regulatory,development and commercialization strategies, we are overcoming complex drug development challenges to bring much neededmake new therapies available to patients.the rare disease community. We have a diverse portfolio of products and product candidates, which includes a combination of both apreclinical developmental programs, clinical stage pipeline and commercial stage assets. The Company’s pipeline includes arimoclomol, an orally-delivered, first in-class investigational product candidate being developed for Niemann-Pick disease Type C, or NPC, whichOur team has been granted orphan drug designation, Fast-Track designation, Breakthrough Therapy designation and rare pediatric disease designation for the treatment of NPC by the U.S. Food and Drug Administration, or FDA, and orphan medicinal product designation for the treatment of NPC by the European Medicines Agency, or EMA. KP1077 is our lead clinical development product candidate which is being developed as a treatment for idiopathic hypersomnia, or IH, a rare neurological sleep disorder, and narcolepsy. KP1077 is comprised solely of serdexmethylphenidate, or SDX, our proprietary prodrug of d-methylphenidate, or d-MPH. The FDA has granted KP1077 orphan drug designation for the treatment of IH, and the U.S. Drug Enforcement Agency, or DEA, has classified SDX as a Schedule IV controlled substance based on evidence suggesting SDX has a lower potential for abuse when compared to d-MPH, a Schedule II controlled substance.

We have specialized expertise and a track record of success in advancing promising therapies that face complex clinical and regulatory challenges with an approach that balances science and data with patient need.

Following the U.S. approval of AZSTARYS® (further described below) in March 2021, we undertook a strategic process to evaluate how to leverage and potentially augment the Company’s existing capabilities while also considering where to invest in our pipeline to generate long-term shareholder value. With a track record of drug development success leading to approvals for products which had either difficult pathways to approval or where approvals were won following a complete response letter (“CRL”) from the U.S. Food and Drug Administration (“FDA)”, the Company determined to focus its expertise on rare disease indications, as well as seeking value-creating opportunities by building and directly commercializing product candidates in lieu of an out-licensing model. We are executing on this balanced approach by building a culture that is patient-focused and driven by our commitment to developing and making available therapies which address the myriad unmet needs within the rare disease community.

As part of our commitment to serving the rare disease community, in February 2023, we changed our name to Zevra Therapeutics, Inc. Our name, Zevra, is the Greek word for zebra, which is the internationally recognized symbol for rare disease. This name reflects our intense focus and dedication to developing transformational, patient-focused therapies for rare diseases with limited or no treatment options available, or treatment areas with significant unmet needs.

In May 2022, we purchased all of the assets and operations of Orphazyme A/S related to arimoclomol, settled all of Orphazyme’s actual outstanding liabilities to its creditors with a cash payment of $12.8 million, and agreed to assume an estimated reserve liability of $5.2 million related to revenue generated from Orphazyme’s Expanded Access Program in France (the "Arimoclomol EAP").

On November 17, 2023, Zevra completed the acquisition of Acer. Pursuant to the Merger Agreement, Acer continues as a wholly-owned subsidiary of Zevra. The FDA hasMerger included the acquisition of OLPRUVA® (sodium phenylbutyrate) for oral suspension, which was approved AZSTARYS®,by the U.S. Food and Drug Administration (FDA) on December 27, 2022, for the treatment of urea cycle disorders ("UCDs"). Acer also had a once-dailypipeline of investigational product candidates, including celiprolol for the treatment for attention deficit hyperactivity disorder, or ADHD,of Vascular Ehlers-Danlos syndrome ("VEDS") in, patients age six yearswith a confirmed type III collagen (COL3A1) mutation. At the effective time of the Merger (the "Effective Time"), each share of common stock of Acer, par value $0.0001 per share, issued and older containing our prodrug, SDX, and d-MPH. In September 2019, we entered into a collaboration and license agreement, oroutstanding immediately prior to the AZSTARYS License Agreement, with Commave Therapeutics S.A. (formerly known as Boston Pharmaceutical S.A.), or Commave, an affiliate of Gurnet Point Capital, L.P. Under the AZSTARYS License Agreement, we granted to Commave an exclusive, worldwide license, to develop, manufacture, and commercialize AZSTARYSEffective Time (excluding cancelled shares and any shares held by holders who have exercised their appraisal rights) were converted into the right to receive (i) 0.1210 fully paid and non-assessable shares of our product candidates containing SDXcommon stock of Zevra, par value $0.0001 per share, and used(ii) one non-transferable contingent value right (“CVR”) issued by Zevra, which represents the right to treat ADHDreceive one or more contingent payments up to an additional $76.0 million upon the achievement, if any, other CNS disease. Commave has tasked Corium, Inc., or Corium, an affiliate of Gurnet Point Capital, L.P.,certain commercial and regulatory milestones for Acer’s OLPRUVA and celiprolol products within specified time periods. Certain additional cash payments are also possible pursuant to lead all commercialization activities for AZSTARYS in the U.S. under the AZSTARYS License Agreement. Corium commercially launched AZSTARYS in the U.S. during the third quarter of 2021. In December 2021, Commave sublicensed commercialization rights for AZSTARYS in greater ChinaCVRs with respect to Shanghai Ark Biopharmaceutical Ltd. The FDA has also approved APADAZ®, an immediate-release combination product containing benzhydrocodone, our prodrug of hydrocodone, and acetaminophen, for the short-term (no more than 14 days) management of acute pain severe enough to require opioid analgesic and for which alternative treatments are inadequate. In October 2018, we entered into a collaboration and license agreement, or the APADAZ License Agreement, with KVK-Tech, Inc., or KVK, under which we granted to KVK the exclusive license to manufacture and commercialize APADAZ in the U.S.milestones involving Acer’s early-stage program ACER-2820 (emetine).

 

Our primaryIn order to accomplish our mission, iswe are seeking to deliver life-changing treatments to people with rare conditions, their families, and caregivers who desperately need better options. This mission guides our efforts tofurther expand our pipeline through both internal development and through our business development activities to collaborate, partner, and potentially acquire additional assets. We intend to target assets that will allow us to leverage the expertise and infrastructure that we have successfully built in order to mitigate risk and enhance our probability of success. In addition, we are consideringmay consider external opportunities within neurology and neurodegenerative diseases, psychiatric disorders, and other rare diseases, along with adjacent or related therapeutic categories. We are seeking assets that are undergoing Phase 2 clinical trials or Phase 3 clinical trials, subject to our specific evaluation criteria, that we can in-license or acquire. If we are successful, expanding our development pipeline could be accretive to our value proposition by potentially adding new clinical data catalysts and havehas the potential to create incremental long-term value for stockholders. In addition, we believe that

Our recurring operating losses and negative cash flows from operations raise substantial doubt about our ability to continue as a multi-channel development program with severalgoing concern. The Company’s ability to continue operating as a going concern is contingent upon its ability to generate revenue from approved products or obtain product candidates addressing various rare disease indications will diversify riskcandidate regulatory approvals, which would generate revenue, milestones, and potentially create an impactful portfoliocash flow sufficient to support ongoing operations and the satisfaction of commercial-stage productsfinancial covenants. We are early in our commercialization effort for OLPRUVA and do not yet have a substantial basis to project future earnings, and our other sources of revenue are not sufficient to sustain our present activities on their own. Accordingly, our ability to continue as a going concern may require us to obtain additional financing to fund our operations. The perception of our inability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the future.

For example, in May 2022,loss of confidence by investors, suppliers and employees. Adequate additional financing may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through our newly formed wholly-owned subsidiary, Zevra Denmark A/S (formerly known as KemPharm Denmark A/S prior to February 21, 2023,the sale of equity or Zevra DK), entered into an Asset Purchase Agreement, or the Arimoclomol Purchase Agreement, with Orphazyme A/S in restructuring, a Danish public limited liability company, or Orphazyme. The transactions agreed to under the Arimoclomol Purchase Agreement closed on May 31, 2022. Underdebt, the terms of these securities may restrict our ability to operate. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or altogether cease our research and development programs or future commercialization efforts.

27

Our Product Candidates and Approved Products

We have built a diverse portfolio of products and product candidates through a combination of internal development and strategic investments through acquisition. For example, we have employed our proprietary Ligand Activated Technology ("LAT") platform to develop approved products (e.g., AZSTARYS), and clinical development candidates (KP1077IH and KP1077N). Through our business development efforts, we have added a commercial product (OLPRUVA), and clinical development candidates (arimoclomol, celiprolol). We furthermore have a variety of product candidates and compounds that are early-stage, pre-clinical and clinical-stage designed to address a variety of rare diseases and other indications.

Currently active commercial products and development assets are summarized in the Arimoclomol Purchase Agreement,table below:

Active Zevra DK purchased allCommercial and Development Assets

Parent Drug

Indication

Product / Candidate

Development

Status

Next Milestone(s)

Sodium phenylbutyrate

Urea Cycle

Disorders (UCD)

OLPRUVA

FDA Approved

Tracking Commercial

Progress

Arimoclomol

Niemann Pick

disease type C

(NPC)

Arimoclomol

Pending FDA

Review

PDUFA target date

September 21, 2024

Celiprolol

Vascular Ehlers

Danlos Syndrome

(VEDS)

Celiprolol

Clinical - Phase 1/2

Phase 3 ongoing

Serdexmethylphenidate

Idiopathic

Hypersomnia (IH)

KP1077IH

Clinical - Phase 2

Evaluation of potential

Phase 3 Trial

Serdexmethylphenidate

Narcolepsy

KP1077N

Clinical - Phase 1/2

Evaluation of potential

Phase 3 Trial

Serdexmethylphenidate

and dexmethylphenidate

Attention Deficit

and Hyperactivity

Disorder (ADHD)

AZSTARYS

FDA Approved and

Partnered

Collecting royalties and

milestones

These anticipated milestones are based on information currently available to us. Our current plans and expectations are subject to a number of uncertainties, risks and other important factors that could materially impact our plans, including risks which are not solely within our control. See Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on April 1, 2024, as updated by Part II, Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q.

OLPRUVA

OLPRUVA (sodium phenylbutyrate) for oral suspension is approved in the U.S. as adjunctive therapy to standard of care, which includes dietary management, for the chronic management of UCDs involving deficiencies of carbamylphosphate synthetase (CPS), ornithine transcarbamylase (OTC), orargininosuccinic acid synthetase (AS). OLPRUVA is a proprietary and novel formulation of sodium phenylbutyrate powder, packaged in pre-measured single-dose envelopes, that has shown bioequivalence to existing sodium phenylbutyrate powder but with a pH-sensitive polymer coating that is designed to minimize dissolution of the assetscoating for up to five minutes after preparation.

UCDs are a group of rare, genetic disorders that can cause harmful ammonia to build up in the blood, potentially resulting in brain damage and operationsneurocognitive impairments, if ammonia levels are not controlled. Any increase in ammonia over time is serious. Therefore, it is important to adhere to any dietary protein restrictions and have alternative medication options to help control ammonia levels. Approximately 1 in 100,000 people have UCD, and there are an estimated 800 patients who are actively treated in the U.S. While there are therapies currently approved for the treatment of Orphazyme relatedUCDs - specifically RAVICTI®, marketed by Amgen, Inc. (formerly Horizon Therapeutics) and PHEBURANE®, marketed by Medunik USA - there remain unmet needs for this community of patients. OLPRUVA offers benefits over other UCD treatments by eliminating issues with palatability, offering improved portability with its single-dose envelopes, and it comes in a dosage that personalized to arimoclomolthe patient based on weight.

To commercialize OLPRUVA for oral suspension in the U.S. we are building marketing, sales, medical affairs, distribution, managerial and settled allother non-technical capabilities or making arrangements with third parties to perform these services. During the quarter ended December 31, 2023, we began generating revenue from the sale of Orphazyme’s actual outstanding liabilities to its creditors with a cash paymentOLPRUVA in the U.S. For additional information regarding the Merger, see Note L of $12.8 million.our unaudited consolidated condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q.  In addition, Zevra DK agreedhas a partnership with Relief Therapeutics who has rights to assume an estimated reserve liabilitycommercialize OLPRUVA in various EU countries, if approved. In addition, Zevra pays royalties of $5.2 million related10% of U.S. net sales plus milestones to revenue generated from Orphazyme’s Early Access Program in France, or the Arimoclomol EAP.Relief Therapeutics.

 

Our most advancedDuring the first quarter of 2024, we initiated the fully commercial launch of OLPRUVA in the U.S.  We have concentrated our initial efforts on approximately 40 metabolic treatment centers of excellence across the United States as the first part of our strategy to build awareness with physicians regarding the differentiation that OLPRUVA can bring to people living with UCDs.  In the three months since launch, our team has been able to engage with more than 90% of our customers.  We have seen meaningful growth in reimbursement coverage, which was approximately 55% of U.S. covered lives at the time of acquisition, to now approximately 75%.

OLPRUVA summary:

OLPRUVA is available in the U.S for the treatment of UCD. OLPRUVA is an adjunctive therapy for long-term management of adults and children weighing 20kg or greater with UCD from deficiencies of CPS, OTC, or AS.

OLPRUVA is differentiated from currently available forms of phenylbutyrate. OLPRUVA is formulated to improve palatability while providing patients with a portable and discrete pre-measured dose.

Zevra has assembled a team to support OLPRUVA and additional future commercial products. We have established an efficient commercial team which is designed to fully service the patients and prescribers within the rare disease indications we are pursuing. 

28

Arimoclomol

Arimoclomol is our product candidate arimoclomol, is being developed for the treatment of NPC, aNiemann-Pick disease type C (NPC), an ultra-rare neurodegenerative lysosomal storage disorder (LSD). Arimoclomol is an orally delivered, first in-class investigational product candidate which has been granted orphan drug designation, Fast-Track designation, Breakthrough Therapy designation and rare pediatric disease or LSD.designation for the treatment of NPC by the FDA, and orphan medicinal product designation for the treatment of NPC by the European Commission. The arimoclomol New Drug Application (NDA) was submitted to the FDA on December 21, 2023, and is currently undergoing review by the FDA. The FDA has assigned a PDUFA date of September 21, 2024.  We believe that, if approved by the FDA, arimoclomol will be eligible to receive a Rare Pediatric Disease Priority Review Voucher (PRV), which is transferrable.

As an LSD, NPC is a rare neurodegenerative disease characterized by an inability of the body to transport cholesterol and lipids inside of cells. Symptoms of NPC include a progressive impairment of mobility, cognition, speech, and swallowing, often culminating in premature death. The incidence of NPC is estimated to be one in 100,000 to 130,000 live births. We estimate that there are approximately 1,5001,800 individuals with NPC in the US and Europe, of these, approximately 300 have been diagnosed of which approximately 300 are in the United States and approximately 1,200 are in Europe.U.S. However, diagnostic challenges may affect the number of potential patients, and we believe that the availability of treatment options could increase awareness of the disease and assist in more accurately identifying more cases. Therapiespatients. Effective therapies to treat NPC are desperately needed, and for this reason, arimoclomol is currently being made available to NPC patients in the United States, France, Germany, and other European Union countriesEU member states under various earlyexpanded access programs or EAPs.("EAPs").

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On September 16, 2020, the previous sponsor of the arimoclomol program, Orphazyme, submitted a new drug application, oran NDA to the FDA, seeking approval for arimoclomol to treat NPC. In June 2021, the FDA issued a complete response letter or CRL, which means the FDA("CRL"), meaning it determined that it could not approve the NDA in its present form. Our aim is

Zevra acquired the assets of Orphazyme A/S (Orphazyme) in May 2022, and took over the responsibility for arimoclomol, including the preparation and resubmission of the NDA designed to preparerespond to the FDA’s specific deficiencies identified in the CRL and resubmit an NDAfeedback in subsequent meetings between the FDA and Orphazyme. Since that presentstime, we have worked diligently to characterize the meaningful evidence of safety and efficacy of arimoclomol for its intended use. To that end, we are continuing to work diligently to characterizeuse and the substantial data generated since the CRL, including the recently completed four-year open-label safety trial, an interim analysis of which was recently presented at the 19th WorldSymposiumTM in February 2023. ResultsUpon fulfilling the randomized double-blinded portion of the Phase 2/3 clinical trial, both placebo- and arimoclomol-treated patients were given the option to continue into the four-year (48 month) open-label-extension ("OLE"), phase of the study with arimoclomol treatment provided in addition to their current standard of care. We believe that the results from this analysis, based on up to four years of continuous treatment, suggest that arimoclomol may reduce the long-term progression of NPC. Upon fulfilling the randomized double-blinded portion

In preparation of the phase 2/3 clinical trial, both placebo-arimoclomol NDA resubmission, we completed a meeting with the FDA in August 2023, receiving feedback that was used to finalize the NDA submission. The updated NDA package for arimoclomol was resubmitted to the FDA in December 2023. Zevra believes it has addressed the issues previously raised by the FDA in the 2021 CRL. Zevra has conducted additional studies to support the potential mechanism of action of arimoclomol. Additionally, new data was included in the resubmission as supportive evidence from multiple non-clinical studies, natural history comparisons, real-world data generated from the ongoing early access programs in the U.S. and arimoclomol-treated patients were given the option to continue intoEuropean Union, as well as data from the four-year (48 month) open-label-extension, or OLE, phaseopen-label extension of the study with arimoclomol treatment provided in addition to their current standard of care. Progression of NPC disease through the DB and OLE phases was assessed utilizing the five-domain NPC Clinical Severity Scale (5DNPCCSS) and compared with an estimated progression calculated from the combination of untreated patients from the NPC-001 observational trial and placebo patients from the NPC-002 Phase 2/3 trial. We are also investigating correlations between relevant 5DNPCCSS domains and corresponding Scale for the Assessment and Rating of Ataxia, or SARA, test items to potentially provide further supportive evidence for 5DNPCCSS validity as a tool for evaluating NPC progression. The SARA test evaluates impairment related to cerebellar ataxia, which was a secondary endpoint in the Phase 2/3 clinical trial (NCT02612129).

In January 2024, the FDA acknowledged receipt of the resubmission and, under the Prescription Drug User Fee Act (“PDUFA”), deemed the arimoclomol NDA resubmission to be a Class II complete response which has a six-month review period from the date of resubmission. On March 4, 2024, we announced that the FDA had extended the review period for the NDA for arimoclomol and set a new PDUFA date of September 21, 2024. The FDA also re-affirmed its intent to present the resubmission for discussion at an advisory committee meeting to be scheduled.

In April 2024, the Company presented new long-term, real-world data from the expanded access program (EAP: NCT04316637) for the treatment of NPC at the Society for Inherited Metabolic Disorders.  The study demonstrated that adults treated with arimoclomol, including those with and without miglustat use, generally had a stable disease course with a clinically meaningful slowing of disease progression over two years of treatment and follow-up and the safety profile was consistent with that observed in NPC (NPCthe Phase 2/3 study where no new safety adverse events were identified.

Zevra holds the global rights for arimoclomol. We are evaluating the possibility of seeking regulatory approval and commercialization outside of the US.

Arimoclomol summary:

Currently, no approved treatments for NPC in the U.S. There are no currently approved products in the U.S. to treat the underlying disease of NPC and we believe, if approved, arimoclomol could be considered a foundational therapy for patients in the U.S.

Designed to address disease progression. Arimoclomol is designed to address the symptoms of NPC by slowing the progression of the disease itself, rather than serving as a symptomatic treatment only. The Phase 2/3 trial data for arimoclomol in NPC demonstrated reduced disease progression, and long-term data from the 4-year OLE of the Phase 2/3 trial suggest improved outcomes vs. historical controls.

Ease of flexible administration as an oral treatment. Arimoclomol is administered as an oral capsule that can be swallowed whole, opened and contents mixed with foods or liquids, or delivered through a feeding tube.

Extensive clinical experience with favorable safety data. No significant safety findings have been reported with more than 600 patients treated in various clinical trials and through our expanded access programs.

Advantageous regulatory designations. Arimoclomol has been granted orphan drug designation, Fast Track designation, and Breakthrough Therapy designation for the treatment of NPC. If approved for the treatment of NPC, we believe arimoclomol will be eligible to receive a Pediatric Rare Disease Priority Review Voucher (“PRV”).

29

Celiprolol

The Merger with Acer included the acquisition of celiprolol. We are advancing celiprolol as an investigational product candidate for the treatment of VEDS in patients with a confirmed type III collagen (COL3A1) mutation.  Celiprolol is a selective adrenergic modulator (SAM) and, if we receive the first approval in the U.S. for celiprolol, we believe it would be deemed a new chemical entity (“NCE”) in the U.S. Celiprolol is currently approved in the European Union for the treatment of hypertension and angina.

Ehlers-Danlos Syndrome is an inherited disorder caused by mutations in the genes responsible for the structure, production, or processing of collagen, an important component of the connective tissues in the human body, or proteins that interact with collagen. VEDS causes abnormal fragility in blood vessels, which can give rise to aneurysms, abnormal connections between blood vessels known as arteriovenous fistulas, arterial dissections, and spontaneous vascular ruptures, all of which can be potentially life-threatening. Gastrointestinal and uterine fragility or rupture also commonly occur in VEDS patients. Spontaneous arterial rupture has a peak incidence in the third or fourth decade of life in VEDS patients but may occur earlier and is the most common cause of sudden death in vEDS patients. Arterial rupture or dissection events occur in about 25% of patients before the age of 20 but increase to roughly 90% of patients by the age of 40. The median survival age of VEDS patients in the U.S. is 51 years, with arterial rupture being the most common cause of sudden death. Pregnancy-related complications also occur in women with VEDS and include arterial dissection or rupture, uterine rupture, hemorrhage, premature rupture of membranes, lacerations, and complications during and after surgery. The incidence of VEDS is estimated to be one in 50,000 to 200,000 people.  There are approximately 7,500 diagnosed patients in the U.S.

Currently, there are no approved therapies anywhere in the world for VEDS. However, celiprolol, prescribed off label, has become the standard of care therapy for VEDS in some Europe an countries. Medical intervention for VEDS focuses on surgery, symptomatic treatment, genetic counseling, and prophylactic measures, such as avoiding intense physical activity, scuba diving, and violent sports. Arterial, digestive, or uterine complications in VEDS patients typically require immediate hospitalization, observation in an intensive care unit, and sometimes surgery. Pregnant women with VEDS are considered to be at risk and receive special care. While VEDS patients are encouraged to take steps to minimize the chances of an arterial rupture or dissection, there are no pharmacologic options to reduce the likelihood of such an event, and accordingly current treatments for VEDS focus on the repair of arterial ruptures or dissection. Therefore, patients must adopt a “watch and wait” approach following any confirmed diagnosis. Unfortunately, many of these arterial events have high mortality associated with them, and thus, a pharmacologic intervention that reduces the rate of events would be clinically meaningful.

Celiprolol has not been approved for any indication in the U.S. In the past, an NDA for celiprolol for the treatment for hypertension was submitted to the FDA by Rorer (subsequently acquired by Aventis Pharma SA (Aventis)) in June 1987, but was subsequently withdrawn prior to completion of the FDA review and therefore never approved. We have obtained the exclusive right in North and South America from Aventis to reference the celiprolol data included in the marketing authorization application dossier filed with and approved by the UK Medicines and Healthcare Products Regulatory Agency (“MHRA”). In addition, our wholly-owned subsidiary, Acer Therapeutics, Inc. (“Acer”) has licensed exclusive worldwide rights to the data from the Phase 3 clinical trial known as the BBEST trial which was sponsored by L’Assistance Publique Hôpitaux de Paris (“AP-HP”).

Celiprolol received orphan drug designation from the FDA for the treatment of VEDS in 2015. In October 2018, a new celiprolol NDA was submitted to the FDA by Acer based on data obtained from the BBEST trial and was subsequently accepted by the FDA in October 2018 with priority review status. Following FDA review, Acer received a CRL from the FDA stating that it will be necessary to conduct an adequate and well-controlled trial to determine whether celiprolol reduces the risk of clinical events in patients with VEDS. Subsequently, Acer appealed the FDA decision, and while the FDA denied the appeal, it described possible paths forward toward approval. In a May 2021 Type B meeting with the FDA, Acer discussed the conduct of an U.S.-based prospective, randomized, double-blind, placebo-controlled, decentralized clinical trial in patients with COL3A1 positive VvEDS, and sought the FDA’s opinion on various proposed design features of the study.

Based on FDA's feedback during the Type B meeting, we adopted a decentralized (virtual) event-based clinical trial design and use of an independent centralized adjudication committee with a primary endpoint based on clinical events associated with disease outcome. In April 2022, the FDA granted celiprolol Breakthrough Therapy designation (“BTD”) in the U.S. for the treatment of patients with COL3A1-positive VEDS.

In July 2022, Acer initiated enrollment in a Phase 3 long-term event-driven clinical trial designed based on the 5DNPCCSS wasdiscussions from the primary endpoint). Based on a comparative analysis of both measurements, it was determined that individual 5DNPCCSS domainsMay 2021 Type B meeting with the FDA, also known as the DiSCOVER trial. The DiSCOVER trial intends to enroll 150 VEDS patients, with 100 patients receiving celiprolol and relevant performance-based SARA test items showed strong associations and alignment between the two instruments for all analysis methods used. These results provide further support that the evaluated 5DNPCCSS domains are appropriately standardized to allow for reliable and reproducible scoring of disease severity in NPC.50 patients receiving placebo. We plan to include these data as parthave completed our preliminary evaluation of the updated NDAceliprolol program for arimoclomol, which is expected to be resubmitted to the FDAtreatment of VEDS and we recently restarted recruitment of the ongoing Phase 3 trial.  We believe that celiprolol could address significant unmet needs as early asthere are currently no approved treatments for VEDS in the third quarter of 2023.U.S.

 

We also intend to advance our pipelineCeliprolol summary:

Currently, no approved treatments for VEDS in the U.S. There are currently no approved treatments of VEDS in the U.S. and we believe that celiprolol, if approved, could be a significant innovation in the treatment of VEDS in the U.S. where current treatment options are focused primarily on surgical intervention.

Unique pharmacological profile. Mechanism of action in VEDS patients is thought to be through vascular dilatation and smooth muscle relaxation, the effect of which is to reduce the mechanical stress on collagen fibers in the arterial wall, and thereby potentially less incidence of vascular ruptures.

Evidence of efficacy in the E.U and extensive clinical experience from multiple trials. Celiprolol has become the primary treatment for VEDS patients in several European countries. BBEST Clinical Trial data showed 76% reduction in risk of arterial events observed in COLA3A1+ subpopulation, with additional data from a long-term observational study in France.

Regulatory designations. Celiprolol for VEDS would be considered an NCE in the U.S. and has been granted Orphan Drug designation and Breakthrough Therapy designation.

Solidpatent protection through 2038. Celiprolol is generally protected by U.S. patents that will expire, after utilizing all appropriate patent term adjustments but excluding possible term extensions, in 2038.

30

KP1077

KP1077 is being developed for the treatment of IH and narcolepsy. IH is a rare neurological sleep disorder affecting approximately 37,000 patients in the United States.  The cardinal feature of IH is excessive daytime sleepiness ("EDS"), characterized by daytime lapses into sleep, or an irrepressible need to sleep that persists even with adequate or prolonged nighttime sleep.  Additionally, those with IH have extreme difficulty waking, otherwise known as “sleep inertia,” suffer from severe and debilitating brain fog, and may fall asleep unintentionally or at inappropriate times, also known as narcolepsy.  These symptoms often further lead to reported memory problems, difficulty maintaining focus, and depression.

There is currently only one approved product for the treatment of IH, XYWAV®, developed by Jazz Pharmaceuticals. A second product, WAKIX®, developed by Harmony Biosciences and originally approved for the treatment of EDS or cataplexy in adult patients with narcolepsy, but in October 2023, Harmony announced that the difference in outcome for EDS when comparing WAKIX and placebo in its Phase 3 trial with IH patients did not reach statistical significance.  Prescribers also utilize narcolepsy medications and various stimulant products “off-label” to treat IH symptoms, with methylphenidate, a stimulant which has been classified by the DEA as a Schedule II controlled substance, being one of the most commonly used stimulants for treating IH.  While each of these medications can help to address certain IH symptoms, there are also potential shortcomings, including dosing inconvenience, serious adverse events, such as elevated blood pressure and heart rate, and significant drug-to-drug interactions ("DDIs"), including with medications used to manage contraception and depression.  In addition, patients have indicated that the effectiveness of their current medication was poor.

Narcolepsy is a rare, chronic, debilitating neurologic disorder of sleep-wake state instability that impacts up to 200,000 Americans and is primarily characterized by EDS and cataplexy (sudden loss of muscle tone while a person is awake) along with other CNS/rare diseases,manifestations of rapid eye movement ("REM"), sleep dysregulation, which intrude into wakefulness. In most patients, narcolepsy is caused by the loss of hypocretin, a neuropeptide in the brain that supports sleep-wake state stability. Typical symptom onset occurs in adolescence or young adulthood, but it can take up to a decade to be properly diagnosed. Although there are several approved medications for narcolepsy, we believe a treatment option based on serdexmethylphenidate (“SDX"), our proprietary prodrug of d-methylphenidate (“d-MPH”) which has previously been classified as a Schedule IV controlled substance, with superior exposure/duration characteristics and welow abuse potential may be beneficial.

We reported top-line data from a Phase 1 proof-of-concept study of SDX in the fourth quarter of 2021 and final data for the Phase 1 proof-of-concept study of SDX in the first quarter of 2022. The proof-of-concept study was a dose-escalation study to evaluate the pharmacokinetics, pharmacodynamic stimulant effects, and safety of single oral doses of SDX in subjects with a history of high-dose stimulant use. In the trial, 240 mg and 360 mg doses of SDX were observed to be well-tolerated and produced d-MPH exposure that appeared to increase proportionally with dose. Mean d-MPH plasma concentrations showed a gradual increase after SDX administration, reaching a broad peak from eight to twelve hours post-dose, followed by a shallow decline thereafter. Increased wakefulness, alertness, hypervigilance, and insomnia effects were reported by study participants, which we believe suggests that SDX produced targeted pharmacodynamic effects that have the potential to benefit patients with IH and other sleep disorders. OnIn November 18, 2022, we announced that the FDA has granted the Orphan Drug Designationorphan drug designation to SDX for the treatment of IH.

 

In January 2022, we announced that we havehad selected KP1077 for the treatment of IH and narcolepsy as our lead clinical development candidate. KP1077 utilizes SDX, our prodrug of d-MPH, as its active pharmaceutical ingredient.API. During the first quarter of 2022, we initiated a Phase 1 clinical trial comparing the cardiovascular safety of SDX to immediate-release and long-acting formulations of RITALIN®RITALIN®, a commonly prescribed CNS stimulant. In September 2022, we announced topline data from our exploratory Phase 1 clinical trial, which showed the potential for higher dose formulations of SDX to be safe and well tolerated while avoiding the potential for greater cardiovascular safety risk compared to immediate-release and long-acting formulations of Ritalin.

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Based on the data, we have identified initial dosing strengths for the planned Phase 2 clinical trial of KP1077 which we believe have the potential to be well-tolerated while providing higher overall exposures to d-MPH compared to other methylphenidate products that are often used off-label as a treatment for IH. In addition, onin December 21, 2022, we announced the initiation of a Phase 2 clinical trial evaluating KP1077. The Phase 2 clinical trial is a double-blind, placebo-controlled, randomized-withdrawal, dose-optimizing, multi-center studyPhase 2 clinical trial evaluating the efficacy and safety of KP1077 for the treatment of IH. The trial concluded in March 2024 and provided meaningful information of the optimal dose and dosing regimen to inform Phase 3 trial design.

We expect to enroll approximatelyenrolled 48 adult patients with IH in more than 30 centers in the United States. Part 1 of the trial will consistconsisted of a five-week open-label titration phase during which patients will bewere optimized to one of four doses of SDX (80, 160, 240, or 320 mg/day). Part 2 of the trial will entailentailed a two-week randomized, double-blind, withdrawal phase, during which two-thirds of the trial participants will continue to receive their optimized dose while the remaining one-third will receive placebo. Participants will bewere further assigned into two evenly divided cohorts. The first cohort will receivereceived a single daily dose just before bedtime, and the second cohort will receivereceived half the daily dose shortly after awakening and half the daily dose prior to bedtime. Interim efficacy

Clinically meaningful improvements were observed across all studied endpoints. The trial was not powered for statistical significance, and safety data forthis was not the primary endpoint. The exploratory endpoints of sleep inertia and brain fog performed in-line with expectations and were stable when compared across a variety of other endpoints.  Symptom improvements in patients receiving KP1077 were similar after both once-per-day, and twice-per-day dosing. 

In the Phase 2 trial, is expected as early asKP1077 was observed to be well-tolerated at all dose levels and both dosing regimens, with adverse events that are typical for stimulants and mostly mild in severity.  These results are consistent with data from the third quarter of 2023. In May 2023, we announcedPhase 1 trial with serdexmethylphenidate (SDX) that our Investigational New Drug (IND) application for KP1077indicated no greater cardiovascular safety risk despite higher overall exposure levels when compared to both immediate and long-acting methylphenidate products currently used off-label for the treatment of narcolepsy was accepted byIH.  The trial concluded in March 2024 and provided meaningful information of the FDAoptimal dose and dosing regimen to begininform Phase 3 trial design.

In the second quarter of 2023, we initiated a Phase 1 clinical trial of KP1077in healthy volunteers to assess proposed dosing regimen for the narcolepsy indication. This study was completed in September 2023. By leveraging the data from the IH program, Zevra is evaluating the potential to initiate a Phase 3 trial in narcolepsy. We plan

KP1077 is subject to initiatea right of first negotiation upon completion of a proof-of-concept study in favor of Commave, under the firstterms of several Phase 1 clinical trialsthe AZSTARYS License Agreement, but is not currently licensed to Commave, thereunder.

KP1077 Summary:

Dosing flexibility. Designed to be delivered in either one or two doses daily, which is designed to address the two primary issues associated with IH: (i) nighttime dose would address sleep inertia, and (ii) morning dose would address daytime brain fog.

No drug-to-drug interactions. We have not observed drug-to-drug interactions in clinical drug-drug interaction studies.

Potential for reduced abuse potential as a Schedule IV controlled substance. All other methylphenidate-based products have been designated as Schedule II controlled substances, which indicates stricter control over the prescribing and use of such products.  KP1077 is based on SDX, which has been designated a Schedule IV controlled substance.

No currently approved generic equivalent product. KP1077 contains SDX, our proprietary prodrug of d-methylphenidate, also known as the new chemical name, serdexmethylphenidate, by the U.S. Adopted Names Council of the American Medical Association (“USAN”), which means that there may be no generic equivalent product for KP1077 in most states, making drug-equivalent substitution potentially difficult at the pharmacy.  

Orphan drug designation. Because small size of the IH patient population, the FDA has granted KP1077 orphan drug designation for the treatment of IH. We believe KP1077 may potentially be eligible for fast-track and breakthrough therapy designation, which may provide various regulatory benefits for the development program.

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AZSTARYS (Partnered product)

AZSTARYS contains dexmethylphenidate (d-MPH) and our prodrug of dexmethylphenidate, serdexmethylphenidate (SDX). On March 2, 2021, the FDA approved AZSTARYS as a once-daily treatment for attention deficit hyperactivity disorder (ADHD), in narcolepsypatients age six years and older. AZSTARYS is currently being marketed in the U.S. under our September 2019 collaboration and license agreement, or the AZSTARYS License Agreement, with Commave Therapeutics SA (formerly known as earlyBoston Pharmaceutical S.A.) ("Commave"), an affiliate of Gurnet Point Capital, L.P. Under the AZSTARYS License Agreement, we granted to Commave an exclusive, worldwide license, to develop, manufacture, and commercialize AZSTARYS and any of our product candidates containing SDX and used to treat ADHD or any other central nervous system ("CNS") disease.

Commave has tasked Corium, Inc. ("Corium"), another affiliate of Gurnet Point Capital, L.P., to lead all commercialization activities for AZSTARYS in the U.S.  Corium commercially launched AZSTARYS in the U.S. during the third quarter of 2021. In December 2021, Commave entered into a sublicense of commercialization rights for AZSTARYS in greater China to Shanghai Ark Biopharmaceutical Ltd.

Pursuant to the AZSTARYS License Agreement, Commave agreed to pay up to $63.0 million in milestone payments upon the occurrence of specified regulatory milestones related to the AZSTARYS, including FDA approval and specified conditions with respect to the final approval label. In addition, Corium agreed to make additional payments upon the achievement of specified U.S. sales milestones of up to $420 million in the aggregate. Further, Commave will pay us quarterly, tiered royalty payments based on a percentage of net sales on a product-by-product basis. Corium also agreed to be responsible for and reimburse us for all of development, commercialization and regulatory expenses for any products or product candidates containing SDX, subject to certain limitations as set forth in the endAZSTARYS License Agreement, including consultation fees to be paid to us for services provided to Corium in performing such activities.

In April 2021, we entered into the AZSTARYS Amendment. Pursuant to the AZSTARYS Amendment, we and Commave agreed to modify the compensation terms of 2023. These trials are expectedthe AZSTARYS License Agreement. Commave paid us $10.0 million in connection with the execution of the AZSTARYS Amendment following the FDA approval of AZSTARYS in the United States. Corium also paid us $10.0 million following the SDX scheduling determination by the DEA, which occurred on May 7, 2021. In addition, the AZSTARYS Amendment increased the total remaining future regulatory and sales milestone payments related to support bothAZSTARYS up to an aggregate of $590.0 million. The AZSTARYS License Agreement will continue on a product-by-product basis (i) until expiration of the narcolepsyroyalty term for the applicable product candidate in the United States and IH clinical development programs.(ii) perpetually for all other countries.

 

In May 2021, we announced that SDX, our proprietary prodrug of d-MPH and the primary active pharmaceutical ingredient or API,("API") in AZSTARYS, was classified as a Schedule IV controlled substance by the DEA. AZSTARYS is classified as a Schedule II controlled substance as its formulation includes a 70:30 mixture of SDX (Schedule IV) and d-MPH (Schedule II), respectively.

 

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Our Product Candidates2023, annual net sales of AZSTARYS surpassed $25 million, triggering the first annual net sales milestone payment of $5.0 million under the AZSTARYS License Agreement, which was earned and Approved Products

We have employed our proprietary LAT platform technology to create a portfolio of approved products that we believe will offer, and product candidates that we believe have the potential to offer, significant improvements over currently available FDA-approved drugs. 

A selection of our product candidates and approved products are summarizedrecognized as revenue in the table below:

Selected Zevra Partneredsecond quarter of 2023, and Other Development Assetsreceived after quarter-end. During the second half of 2023, annual net sales of AZSTARYS surpassed $50 million, triggering the second milestone payment of $10.0 million under the AZSTARYS License Agreement, which was earned and recognized in the fourth quarter of 2024.

Parent Drug (Effect Profile) - Indication

Product Candidate 

Development Status

Next Milestone(s)

Arimoclomol (ER) - NPCArimoclomolNDA PreparationNDA resubmission as early as Q3 2023
Methylphenidate (ER) - IHKP1077IH*

Clinical - Phase 2

Pivotal Phase 2 Trial ongoing - interim results as early as Q3 2023

Methylphenidate (ER) - Narcolepsy Types I and IIKP1077N*Clinical - Phase 1/2Phase 1 Trial - initiation prior to year-end
Methylphenidate (ER) - ADHDAZSTARYSFDA Approved/PartneredTracking TRx's
* 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 AZSTARYS License Agreement, but is not currently licensed to Commave, thereunder.
These anticipated milestones are based on information currently available to us. Our current plans and expectations are subject to a number of uncertainties, risks, and other important factors that could materially impact our plans, including risks which are not solely within our control. See Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 7, 2023.

 

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Other Third-Party Agreements

Aquestive Termination Agreement

 

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 and any product candidates containing SDX. In connection with the AZSTARYS License Agreement, we paid Aquestive a royalty equal to 10% of the regulatory milestone and royalty payments we received in 2021 from AZSTARYS.

 

Distributor Agreement

Our current single distributor for sales of our approved product, OLPRUVA is a specialty pharmacy provider, however the Company intends to establish additional distributors such as other retail pharmacies and certain medical centers or hospitals. In July 2020,addition to distribution agreements, we enter into arrangements with health care providers and payors that provide for government mandated and/or privately negotiated rebates with respect to the purchase of our products.

Relief Exclusive License Agreement

As a condition to entering into the Merger Agreement, Acer and Relief Therapeutics, Inc. ("Relief") entered into an exclusive license agreement on August 30, 2023 (the “Relief License Agreement”). Pursuant to the Corium ConsultingRelief License Agreement, under which Corium and Commave, respectively, engaged us to guide the productRelief will hold exclusive development and regulatory activitiescommercialization rights for certain currentOLPRUVA in the European Union, Liechtenstein, San Marino, Vatican City, Norway, Iceland, Principality of Monaco, Andorra, Gibraltar, Switzerland, United Kingdom, Albania, Bosnia, Kosovo, Montenegro, Serbia and potential future products in their portfolio, as well as continue supporting preparation forNorth Macedonia ("Geographical Europe"). The Company will have the potential commercial launch of AZSTARYS. Under the Corium Consulting Agreement, we are entitledright to receive payments from Coriuma royalty of up to $15.6 million, $13.6 million of which was paid in quarterly installments through March 31, 2022. The remaining $2.0 million was conditioned upon the approval by the FDA10.0% of the NDA for Corium's product candidate, ADLARITY. This $2.0 million was earnednet sales of OLPRUVA in the first quarter of 2022. Corium also agreed to be responsible for and reimburse us for all development, commercialization and regulatory expenses incurred as part of the performance of the consulting services.

Geographical Europe. 

 

Results of Operations

 

Comparison of the three months ended March 31, 20232024, and 2022 (in2023(in thousands):

  

Three months ended March 31,

  

Period-to-

 
  

2023

  

2022

  

Period Change

 

Revenue, net

 $2,879  $3,965  $(1,086)

Operating expenses:

            

Cost of revenue

  125   8   117 

Research and development

  8,844   3,082   5,762 

Selling, general and administrative

  6,834   2,734   4,100 

Total operating expenses

  15,803   5,824   9,979 

Loss from operations

  (12,924)  (1,859)  (11,065)

Other (expense) income:

            

Interest expense

  (182)  (5)  (177)

Fair value adjustment related to derivative and warrant liability

  (2)  241   (243)

Fair value adjustment related to investments

  196   (352)  548 

Interest and other income, net

  1,042   107   935 

Total other (expense) income

  1,054   (9)  1,063 

Loss before income taxes

  (11,870)  (1,868)  (10,002)

Income tax benefit

  103   4   99 

Net loss

 $(11,767) $(1,864) $(9,903)

Net loss attributable to common stockholders

 $(11,767) $(1,864) $(9,903)
  

Three months ended March 31,

  

Period-to-

 
  

2024

  

2023

  

Period Change

 

Revenue, net

 $3,425  $3,176  $249 

Cost of product revenue (excluding $1,528 in intangible assets amortization for the three months ended March 31, 2024, shown separately below)

  175   125   50 

Intangible asset amortization

  1,528      1,528 

Operating expenses:

            

Research and development

  12,277   8,655   3,622 

Selling, general and administrative

  9,931   7,227   2,704 

Total operating expenses

  23,911   16,007   7,904 

Loss from operations

  (20,486)  (12,831)  (7,655)

Other income (expense):

            

Interest expense

  (735)  (182)  (553)

Fair value adjustment related to warrant and CVR liability

  3,627   (1,545)  5,172 

Fair value adjustment related to investments

  (27)  196   (223)

Interest and other income, net

  929   1,042   (113)

Total other income (expense)

  3,794   (489)  4,283 

Loss before income taxes

  (16,692)  (13,320)  (3,372)

Income tax benefit

  70   103   (33)

Net loss

 $(16,622) $(13,217) $(3,405)

 

Net Loss Attributable to Common Stockholders

 

Net loss attributable to common stockholders for the three months ended March 31, 2023,2024, was $11.8 $16.6million million, compared to net loss attributable to common stockholders of $1.9$13.2 million for the three months ended March 31, 2022, a change 2023, an increase in net loss of $9.9 $3.4 million. TheThe change was primarily attributable to a changean increase in loss from operations of $11.1$7.7 million;million, partially offset by a changean increase in other (expense) income of $1.1  $3.6 million. 

Revenue

 

Revenue for the three months ended March 31, 2023,2024, was $2.9 $3.4 milmillion, a decrease of $1.1 millionlion, compared to revenue of $4.0$3.2 million for the three months ended March 31, 2022. The decrease was primarily attributable to a decrease in revenue of $3.2 million from the Corium Consulting Agreement, partially offset by2023., an increase in revenue of $2.1 million$0.2 million. Royalties and other reimbursements under the Arimoclomol EAP.

CostAZSTARYS License Agreement of Revenue

Cost$1.2 million and French EAP reimbursements of $2.2 million drove net revenue for the three months ended March 31, 2024. Revenue for the three months ended March 31, 2023, was $0.1 million, an increase of $0.1 million compared to $8,000 costprimarily comprised of revenuearimoclomol sales under the French EAP of $3.0 million.

Cost of products sold

Cost of products sold for the three months ended March 31, 2022. The increase was primarily attributable2024, remained relatively consistent compared to cost of goodsproducts sold underfor the Arimoclomol EAP.three months ended March 31, 2023.

Intangible asset amortization

Intangible asset amortization for the three months ended March 31, 2024, was due to $1.5 million in amortization expense related to definite lived intangible assets acquired in the Merger.

 

 

Research and Development

 

Research and development expenses increased by $5.7$3.6 million, from $3.1$8.7 million for the three months ended March 31, 2022,2023, to $8.8$12.3 mi millionllion for the three months ended March 31, 2023.2024. This increase was primarily attributable todriven by an increase in third-party researchspending for the ongoing Phase 2 clinical study in KP1077 and development costs of $3.7 million, an increase in personnel-related costs, of $1.7 million partially offset by a decrease in third-party costs related to arimoclomol, and an increasea decrease in other researchexpenses incurred during the three months ended March 31, 2023, to terminate the collaboration and development costs of $0.3 million.license agreement with KVK Tech, Inc.  

 

Selling, General and Administrative

 

Selling, general and administrative expenses increased by $4.1 million,by $2.7 million, from $2.7$7.2 million for the three months ended March 31, 2022,2023, to $6.8 million$9.9 million for the three months ended March 31, 2023. This2024. The period-over-period increase was primarily attributablerelated to an increase in personnel-relatedpersonnel costs of $1.2 million, an increase in professionaland fees of $2.8 millionassociated with our commercial and an increase in other selling, general and administrative costs of $0.1 million.business development activities. 

 

Other Income (Expense) Income

 

Other income (expense) income changed by $1.1$4.3 million, from $9,000 offrom $0.5 million of expense for the three months ended March 31, 2022,2023, to $1.1$3.8 million of income for the three months ended March 31, 2023.2024. This period-to-period changeincrease was primarily attributable to a change in netthe fair value adjustment related to warrant and CVR liability of $5.2 million, offset by an increase in interest expense and other items of $0.8$0.6 million, and a changedecrease in fair value adjustment related to investments of $0.5 million; partially offset by a change in fair value adjustment related to derivative and warrant liability of $0.2 million.

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

Through March 31, 2023,2024, 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,equity and from revenue received under the Arimoclomol EAP, AZSTARYS License Agreement, the Corium Consulting AgreementOLPRUVA product sales and other consulting arrangements. As of March 31, 2023,2024, we had cash, cash equivalents and investments of $95.3 million.$52.7 million.

 

To date, we have generated revenue from the Arimoclomol EAP, AZSTARYS License Agreement, reimbursement of out-of-pocket third-party costs, and the performance of consulting services.

In July 2020, we entered into the Corium Consulting Agreement under which Coriumservices, and Commave, respectively, 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 launchsales of AZSTARYS. Under the Corium Consulting Agreement, we are entitled to receive payments from Corium of up to $15.6 million, $13.6 million of which was paid in quarterly installments through March 31, 2022. The remaining $2.0 million was conditioned upon the approval by the FDA of the NDA for Corium's product candidate, ADLARITY. This $2.0 million was earned in the first quarter of 2022. Corium also agreed to be responsible for and reimburse us for all development, commercialization and regulatory expenses incurred as part of the performance of the consulting services.OLPRUVA.

 

We have had recurring negative net operating cash flows and we anticipate that we may continue to incur negativeminimal positive net cash flows from operations or minimal positivenegative net cash flows from operations for at least the next several years. We expect that our sources of revenue will be through payments arising from our license agreementsagreement with Corium, throughCommave, the Arimoclomol EAP, or throughsales of OLPRUVA and other potential consulting arrangements and any other future arrangements related to one of our product candidates.candidates

 

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.Agreement (described below). The Form S-3 was declared effective on July 12, 2021. As of March 31, 2023,2024, no shares have been issued or sold under the Equity Distribution Agreement.

 

We have incurred operating losses since our inception and, as of March 31, 2024, had an accumulated deficit of $416.4 million. Our recurring operating losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. The Company’s ability to continue operating as a going concern is contingent upon its ability to generate revenue from approved products or obtain product candidate regulatory approvals, which would generate revenue, milestones, and cash flow sufficient to support ongoing operations and the satisfaction of financial covenants. We are early in our commercialization effort for OLPRUVA and do not yet have a substantial basis to project future earnings, and our other sources of revenue are not sufficient to sustain our present activities on their own. Accordingly, our ability to continue as a going concern may require us to obtain additional financing to fund our operations. The perception of our inability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, suppliers and employees. Adequate additional financing may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or debt, the terms of these securities may restrict our ability to operate. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or altogether cease our research and development programs or future commercialization efforts.

Share Repurchase ProgramEquity Distribution Agreement

 

On December 20,July 2, 2021, we initiated the Share Repurchase Program, pursuant toentered into an Equity Distribution Agreement with JMP and RBCCM, under which we may repurchase upoffer and sell, from time to $50 million oftime at our sole discretion, shares of our common stock having an aggregate offering price of up to $75.0 million through December 31, 2023. Capital allocation to the Share Repurchase Program will be based on a variety of factors, includingJMP and RBCCM as our business results, the receipt of royaltiessales agents. The issuance and sales milestones under the AZSTARYS License Agreement, and potentially other sources of non-dilutive capital that may become available to us. Repurchases will be made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to a variety of factors, including the market pricesale, if any, of our common stock general marketunder the Equity Distribution Agreement will be made pursuant to a registration statement on Form S-3.

Merger Transactions and economic conditionsDocuments

On August 30, 2023, in connection with the Merger Agreement with Acer, the following transactions occurred prior to Closing: 

Bridge Loan - Zevra and Acer entered into a bridge loan agreement (the “Bridge Loan Agreement”), providing for Zevra to make loans (collectively, the “Bridge Loan”) to Acer up to an aggregate principal amount of $16.5 million. The Bridge Loan was provided to Acer to support its termination agreement with Relief Therapeutics Holding SA (“Relief”) and to provide Acer with working capital, including for payments of accounts payable to support the commercial launch of OLPRUVA and the development of celiprolol pending the Merger’s closure. On October 31, 2023, the Company and Acer entered into an amendment to the Bridge Loan Agreement, which increased the aggregate principal amount available under the loan from $16.5 million to $18.0 million. 

Purchase of Acers Term Loans - Zevra purchased certain indebtedness of Acer held by Nantahala Capital Management, LLC ("Nantahala). Under the loan purchase with Nantahala, certain of its affiliates and certain other parties (collectively with Nantahala, "Nantahala Holders") Zevra purchased (i) an original senior secured term loan facility made available to Acer in an aggregate amount of $6.5 million and funded on March 14, 2022, and (ii) an additional senior secured term loan made to Acer in an aggregate amount of $7.0 million in a single borrowing which funded on January 31, 2023 for (1) $12.0 million in cash; (2) 98,683 shares of Zevra Common Stock; and (3) a secured Promissory Note payable by Zevra to Nantahala in the original principal amount $5.0 million (the "Nantahala Note"). These were recorded as receivables form Acer and were treated as a settlement of a preexisting relationship in connection with the closing of the transaction and recorded as a component of purchase consideration. In April 2024, the Nantahala Note was repaid in full and terminated.

Purchase of Acers Convertible Notes (“Marathon Convertible Notes”)- Under the Note Purchase Agreement with the Nantahala Holders, Zevra purchased the Marathon Convertible Notes that Nantahala had acquired on June 16, 2023. Zevra acquired the Marathon Convertible Notes in exchange for the issuance of 2,171,038 shares of Zevra Common Stock at $5.0667 per share for a total purchase price of $11.0 million.

Amendment to IP License Agreement and IP Termination Agreement: As a condition to entering into the Merger Agreement, Acer and Relief Therapeutics Holding AG ("Relief") entered into the Exclusive License Agreement and the Termination Agreement terminating the collaboration and license agreement, dated March 19, 2021, by and between Acer and Relief. Pursuant to the Exclusive License Agreement, Relief holds exclusive development and commercialization rights for OLPRUVA in the European Union, Liechtenstein, San Marino, Vatican City, Norway, Iceland, Principality of Monaco, Andorra, Gibraltar, Switzerland, United Kingdom, Albania, Bosnia, Kosovo, Montenegro, Serbia and North Macedonia (Geographical Europe). Acer has the right to receive a royalty of up to 10.0% of the net sales of OLPRUVA in Geographical Europe. In accordance with the terms of the Termination Agreement, Relief received an upfront payment from Acer of $10.0 million (which payment was funded with the Bridge Loan described above) with an additional payment of $1.5 million due on the first-year anniversary of the $10.0 million payment. Acer has also agreed to pay a 10.0% royalty on net sales of OLPRUVA worldwide, excluding Geographical Europe, and 20.0% of any value received by Acer from certain third parties relating to OLPRUVA licensing or divestment rights, all of the foregoing which are capped at $45.0 million, for total payments to Relief of up to $56.5 million.

In connection with the closing of the Merger on November 17, 2023, each share of common stock of Acer was converted into the right to receive (i) 0.1210 fully paid and applicable legal requirements. The exact numbernon-assessable shares of sharescommon stock of Zevra, par value $0.0001 per share , and (ii) one non-transferable contingent value right (“CVR”) to be repurchasedissued by us is not guaranteedZevra, which will represent the right to receive one or more contingent payments up to an additional $76 million upon the achievement, if any, of certain commercial and regulatory milestones for Acer’s OLPRUVA and celiprolol products within specified time periods. Certain additional cash payments are also possible pursuant to the CVRs with respect to milestones involving Acer’s early-stage program ACER-2820 (emetine).

Registration Rights Agreement

Zevra and Nantahala concurrently entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which Zevra agreed to file a resale registration statement with respect to the resale of the Zevra common stock issuable under the Loan and Note Purchase Agreements and the program may be suspended, modified, or discontinued at any time without prior notice. DuringNantahala Note. On February 5, 2024, Zevra filed a registration statement on Form S-3 (File No. 333-276856) registering an aggregate of 2,269,721 shares of Zevra’s common stock that were issued pursuant to the three months ended March 31, 2023,Loan and Note Purchase Agreements. On April 5, 2024, we repurchased 665,739filed an amendment to the registration statement on Form S-3 (File No. 333-250945) covering the issuance of the shares of our common stock for approximately $3.4 million underissuable upon the Share Repurchase Program,exercise of warrants issued in connection with the Merger (Note L) and remaining unexercised as of March 31,the date of the amendment, which was declared effective on April 8, 2024.

Cancellation of Acer Warrant

On November 22, 2023, we had repurchasedsold an aggregate of 1,575,692  1,382,489 shares of our common stock and accompanying warrants to purchase up to 1,382,489 shares of our common stock at a price of $4.34 per share to a healthcare focused investment fund (the "Investor") for gross proceeds of approximately $11.0 million under$6.0 million and an aggregate of 917,934 shares of our common stock to cancel a warrant held by the Share Repurchase Program.Investor to purchase 2,920,306 shares of common stock of Acer. The shares of common stock and warrants were offered and sold to the Investor in a registered direct offering without an underwriter or placement agent.

 

Line of Credit

 

On May 31, 2022, we and Ameris Bank, as lender, entered into a $20.0 million revolving loan agreement, or the Line of Credit. Proceeds of the revolving facility provided by the Line of Credit are to be used for general corporate purposes. Loans under the Line of Credit bear interest at the Secured Overnight Financing Rate, or SOFR, plus 1.60%, with a SOFR floor of 0.00%

The revolving facility under the Line of Credit is secured by a perfected security interest in deposit accounts. The revolving facility under the Line of Credit is subject to customary affirmative and negative covenants.

The latest maturity date of the loans under the Line of Credit is May 31, 2025. The Line of Credit contains customary events of default that could lead to an acceleration of the loans, including cross-default, bankruptcy and payment defaults. As of December 31, 2022, we had drawn $12.8 million from the Line of Credit to finance the transactions under the Arimoclomol Purchase Agreement, and this amount was supported by a $12.8 million certificate of deposit which was shown as long-term investments - other in the unaudited condensed consolidated balance sheet as of December 31, 2022. The remaining $7.2 million available under the Line of Credit was secured by a separate interest-bearing certificate of deposit and was also recorded as long-term investments - other in the unaudited condensed consolidated balance sheet as of December 31, 2022. These certificates of deposit were pledged as collateral against the Line of Credit and could not be redeemed so long as the $20.0 million remained available under the Line of Credit. The total value of the certificates of deposit held with Ameris Bank must meet or exceed the amount available to borrow under the Line of Credit so long as the Line of Credit remains active. On January 31, 2023, we repaid the $12.8 million outstanding under the Line of Credit in full, and subsequently closed the Line of Credit during the first quarter of 2023. 

On January 26, 2023, the Companywe and Wells Fargo, as lender, entered into a margin account agreement under whichagreement. Our investments were used as collateral for the Company initially borrowed $12.8 million.loan and the amount we were able to borrow is limited to 80-90% of our outstanding investment balance held with Wells Fargo. The margin account bearsbore interest at the Prime Rate minus 225 basis-points. As of March 31, 2023, $12.92024, $37.9 million waswas outstanding under the margin account. This facility was paid off on April 5, 2024, and the margin capability was removed from the account.

 

 

Cash Flows

 

The following table summarizes our cash flows for the three months ended March 31, 20232024, and 20222023 (in thousands):

 

 

Three months ended March 31,

  

Three months ended March 31,

 
 

2023

  

2022

  

2024

  

2023

 

Net cash used in operating activities

 $(4,045) $(3,553) $(16,165) $(4,045)

Net cash used in investing activities

 (17,555) (3,848)

Net cash used in financing activities

 (3,750) (4,733)

Net cash provided by (used in) investing activities

 14,793 (17,555)

Net cash provided by (used in) financing activities

 1,217 (3,750)

Effect of exchange rates on cash and cash equivalents

  65      (45)  65 

Net decrease in cash and cash equivalents

 $(25,285) $(12,134) $(200) $(25,285)

 

Operating Activities

For the three months ended March 31, 2024, net cash used in operating activities of $16.2 million consisted of a net loss of $16.6 million and $0.2 million in changes in working capital; partially offset by $0.6 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 AZSTARYS License Agreement, the Arimoclomol EAP and product sales of OLPRUVA. The changes in working capital consisted of $7.4 million related to a change in accounts payable and accrued expenses, $0.1 million related to a change in operating lease liabilities, $2.6 million related to a change in inventories, and $0.3 million related to a change in other liabilities; partially offset by $9.1 million related to a change in accounts and other receivables, $1.0 million related to a change in discount and rebate liabilities, and $0.1 million related to a change in operating lease right-of-use assetsThe adjustments for non-cash items primarily consisted of stock-based compensation expense of $2.1 million, interest expense of $0.2 million, and $1.9 million related to depreciation, amortization and other items; partially offset by a change in the fair value of warrant and CVR liability of $3.6 million.

 

For the three months ended March 31, 2023, net cash used in operating activities of $4.0 $4.0 million consisted of a net loss of $11.8 million,$13.2 million, partially offset by $0.6 million in adjustments for non-cash items and $7.1 million million in changes in working capital. Net loss was primarily attributable to our spending on research and development programs and operating costs, partially offset by revenue received under the AZSTARYS License Agreement, Arimoclomol EAP and the Corium Consulting Agreement.consulting agreements The changes in working capital consisted of $0.7 million related to a change in prepaid expenses and other assets, $0.5 million related to a change in accounts and other receivables, $1.5 million related to a change in discount and rebate liabilities, $3.9 million related to a change in accounts payable and accrued expenses, $0.1 million$0.1 million related to a change in operating lease right-of-use assets, $0.1 million related to a change in inventories and $0.4 million related to a change in other liabilities, partially offset by $0.1 million$0.1 million related to a change in operating lease liabilities. The adjustments for non-cash items primarily consisted of stock-based compensation expense of $0.6 million,million, non-cash severance expense of $0.4 million and $0.1 million related to depreciation, amortization and other items, partially offset by a change in the fair value adjustment related to investments ofof $0.2 millionmillion and a gain on foreign currency exchange rates of $0.2 million. 

 

Investing Activities

For the three months ended March 31, 2022,2024, net cash used in operatingprovided by investing activities of $3.6was $14.8 million, consisted of a net loss of $1.9 million and $2.8 million in changes in working capital, partially offset by $1.1 million in adjustments for non-cash items. Net losswhich was primarily attributable to our spending on research and development programs and operating costs, partially offset by revenue received under the AZSTARYS License Agreement and the Corium Consulting Agreement. The changes in working capital consistedmaturities of $1.8 million related to a change in accounts and other receivables, $0.5 million related to a change in accounts payable and accrued expenses, $0.1 million related to a change in operating lease liabilities and $0.8 million related to a change in other liabilities, partially offset by $0.3 million related to a change in prepaid expense and other assets and $0.1 million related to a change in operating lease right-of-use assets. The adjustments for non-cash items primarily consisted of stock-based compensation expense of $0.9 million, a change in the fair value adjustment related to investments of $0.4 million and $0.1 million related to depreciation, amortization and other items, partially offset by a change in the fair value adjustment related to derivative and warrant liabilities of $0.2 million.

Investing Activities.

 

For the three months ended March 31, 2023, net cash used in investing activities waswas $17.6million, which was primarily attributable to purchases of investments.

For the three months ended March 31, 2022, net cash used in investing activities was $3.8 million, which was primarily attributable to purchases of investments.

 

Financing Activities

For the three months ended March 31, 2024, net cash provided by financing activities was $1.2 million, which was primarily attributable to proceeds from the issuance of stock.

 

For the three months ended March 31, 2023, net cash used in financing activities was $3.8 million, which was primarily attributable to proceeds from the issuance of debt of $12.9$12.9 million, partially offset by payments of principal on insurance financing arrangements ofof $0.4 million,million, payments to repurchase shares as part of the Share Repurchase Program of $3.4 million and payments of principal on debt of $12.8 million.

 

For the three months ended March 31, 2022, net cash used in financing activities was $4.7 million, which was primarily attributable to payments to repurchase shares as part

 

Future Funding Requirements

 

BasedWhile under applicable accounting principles factors exist that raise substantial doubt about our ability to continue as a going concern, based on our current operating forecast, we believe that our existing cash, cash equivalents and investments will be sufficient to fund our operations into 2026.2026, subject to continuing compliance with our debt covenants. This estimate includes the ongoing reimbursements from the French expanded access program for arimoclomol, completion of the arimoclomol NDA resubmission, commercial activities to support the launch of arimoclomol, if approved, and completion of the KP1077 development program for IH up to NDA submission. This estimate does not include our projected revenue from arimoclomol after potential FDA approval, or the potential sale of the priority review voucher of arimoclomol, which would be received at that time, as well, or the costs of a portion of which is based on royalties from commercial sales and upon the achievement of milestonesPhase 3 trial for KP1077 in the AZSTARYS License Agreement and the APADAZ License Agreement.narcolepsy. Certain of the milestones are associated with regulatory matters that are outside our control. In addition, we maintain the majority of our cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of a failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.

 

Potential near-term sources of additional funding include:

 

 

any revenues generated under either the AZSTARYS License Agreementroyalties or the APADAZ License Agreement;

any consulting services revenue or short-termnet sales milestone payments generated under the AZSTARYS License Agreement;

   
 any product sales under the Arimoclomol EAP;
any product sales of OLPRUVA;
any product sales of arimoclomol, if approved; and
   
 

any consulting services revenue generated under other potential consulting arrangements.agreements;

 

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

 

 

continue our ongoing preclinical studies, clinical trials and our product development activities for our pipeline of product candidates;

   
 

seek regulatory approvals for any product candidates that successfully complete clinical trials;

   
 continue research and preclinical development and initiate clinical trials of our product candidates;
   
 

seek to discover and develop additional product candidates either internally or in partnership with other pharmaceutical companies;

   
 adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products;
   
 maintain, expand and protect our intellectual property portfolio; and
   
 incur additional legal, accounting and other expenses in operating as a public company.

 

To date, we have generated revenue from the AZSTARYS License Agreement, reimbursements of out-of-pocket third-party costs, the performance of consulting services, OLPRUVA product sales, and product sales under the Arimoclomol EAP. We expect that, for the foreseeable future, our only sources of revenues will be through payments arising from the AZSTARYS License Agreement, the APADAZ License Agreement,product sales of OLPRUVA. through potential consulting arrangements and any other future arrangements related to one of our product candidates and product sales under the Arimoclomol EAP. While we have entered into the APADAZ License Agreement to commercialize APADAZ in the United States, and entered into the AZSTARYS License Agreement to develop, manufacture and commercialize AZSTARYS, we cannot guarantee that this, or any strategy we adopt in the future, will be successful. For instance, we received milestone payments under the AZSTARYS License Agreement, but we cannot guarantee that we will earn any additional milestone or royalty payments under this agreement in the future. We also cannot guarantee that we will continue to generate revenue under the Arimoclomol EAP.EAP or successfully commercialize OLPRUVA. We also expect to continue to incur additional costs associated with operating as a public company.

 

The COVID-19 pandemic has caused major disruptions to businesses and markets worldwide. We cannot predict what the long-term effects of this pandemic or future public health crises 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 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. A future public health crisis 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. A portion of our projected revenue is based upon the achievement of milestones in the AZSTARYS License Agreement associated with regulatory matters that may be impacted by the COVID-19 pandemic. As a result, we cannot predict what, if any, impact that the COVID-19 pandemic or a future public health crisis may have on our ability to achieve these milestones. The economic uncertainty surrounding the COVID-19 pandemic and as a result of rising inflation and interest rates may also dramatically reduce our ability to secure debt or equity financing necessary to support our operations. 

 

 

We have based our estimates of our cash needs and cash runway on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect and we cannot guarantee that we will be able to generate sufficient proceeds from the AZSTARYS License Agreement, the APADAZ License Agreement, product reimbursements under the Arimoclomol EAP, andproduct sales of OLPRUVA, potential consulting arrangements or other funding transactions to fund our operating expenses. To meet any additional cash requirements, we may seek to sell additional equity or convertible securities that may result in dilution to our stockholders, issue additional debt or seek other third-party funding, including potential strategic transactions, such as licensing or collaboration arrangements. Because of the numerous risks and uncertainties associated with the development and commercialization of product candidates and products, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the commercialization and development of our partnered product or product candidates, should they obtain regulatory approval.

 

Critical Accounting Estimates

 

This management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our unaudited condensed consolidated financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

 

Our critical accounting policies have not changed materially from those described in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022,2023, filed with the SEC on March 7, 2023.April 1, 2024.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4.

Controls and Procedures

 

Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Evaluation of Disclosure Controls and Procedures

 

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 March 31, 2023.2024. Based on the evaluation of our disclosure controls and procedures as of March 31, 2023,2024, our chief executive officer and our chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.

 

Material Weakness

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, management identified a material weakness in our internal control over financial reporting related to the accounting for warrants to purchase the Company's common stock. The material weakness in our internal control resulted in the restatement of the Company's consolidated financial statements as of and for the year ended December 31, 2022, and the condensed consolidated financial statements for the interim periods ended March 31, 2022, June 30, 2022, September 30, 2022, March 31, 2023, June 30, 2023, and September 30, 2023, included in our Annual Report on Form 10-K.  The material weakness, which related to internal controls over the application of specific technical accounting guidance, was identified during the performance of our year-end control procedures.

Remediation of Material Weakness

We have implemented certain remedial measures including, but not limited to, a review of all existing accounting for warrants to purchase the Company’ s common stock to confirm compliance with GAAP prior to filing the consolidated financial statements as of and for the year ended December 31, 2023, with our Annual Report on Form 10-K.

In addition, we are in the process of developing enhanced control procedures designed to ensure proper accounting for our warrant related accounts and balances, which will include adding technical resources to perform and oversee technical accounting. However, the material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

 

ThereExcept as disclosed above, 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 March 31, 2023,2024, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business. We believe there is no litigation pending that would reasonably be expected to, individually or in the aggregate, have a material adverse effect on our results of operations or financial condition.

 

Item 1A.

Risk Factors

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider all the risk factors and uncertainties described in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022,2023, filed with the SEC on March 7, 2023,April 1, 2024, before investing in our common stock. Except as discussed below, there have been no material changes to the risk factors described in that report. If any of those risks materialize, our business, financial condition and results of operations could be seriously harmed. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements because of those risk factors and the other factors described in in this Quarterly Report on Form 10-Q.

 

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on the management, research and development, clinical, financial and business development expertise of our senior leadership team, as well as the other members of our scientific and clinical teams. Although we have employment agreements with each of our executive officers, these agreements do not obligate them to continue working for our company and they may terminate their employment with us at any time. Among other recent changes in our senior management team, our Chief Executive Officer has resigned effective as of June 1, 2023. Our future performance will depend, in part, on a successful transition period with our new Chief Executive Officer, including any interim Chief Executive Officer, the successful integration of these and any other new senior level executives into their roles, and the continuity of leadership among the larger workforce. If we do not successfully manage these transitions, it could be viewed negatively by our customers, employees, investors, and other third-party partners, and could have an adverse impact on our business and results of operations.

Recruiting and retaining qualified scientific and clinical personnel and, if we progress the development of our product candidate pipeline toward scaling up for commercialization, manufacturing and sales and marketing personnel, will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize our prodrug product candidates. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited

We could be negatively affected as a result of the actions of activist stockholders, which could be disruptive and costly and may conflict with or disrupt the strategic direction of our business.

In January 2023, our board of directors received notice from a stockholder of his intention to nominate three nominees to stand for election to our board of directors at our 2023 annual meeting of stockholder and to submit a proposal at the annual meeting, which resulted in a contested election at the annual meeting at which such nominees were elected by our stockholders. Similar to the activist stockholder activities initiated in January 2023, activist stockholders may from time to time attempt to effect changes in our strategic direction and seek changes regarding our corporate governance or structure. Our board of directors and management team strive to maintain constructive, ongoing communications with all stockholders who wish to speak with us, including activist stockholders, and welcome their views and opinions with the goal of working together constructively to enhance value for all stockholders. Any future proxy contest with respect to election of our directors, or other activist stockholder activities, could adversely affect our business because: (1) responding to a proxy contest and other actions by activist stockholders can be costly and time-consuming, disruptive to our operations and divert the attention of management and our employees; (2) actual or perceived uncertainties as to our future direction caused by activist activities may cause or appear to cause instability or lack of continuity, resulting in the loss of potential business opportunities, and potentially making it more difficult to attract and retain qualified personnel and business partners; and (3) if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans. Activist stockholder activities may also cause significant fluctuations in our stock price based on temporary or speculative market perceptions, or other factors that do not necessarily reflect the fundamental underlying value of our business.

Concentration of Credit Risk 

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash, cash equivalents, and investments. The Company invests in money market funds, U.S. treasury securities, and U.S. government agency securities. The Company maintains bank deposits in federally insured financial institutions and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash and cash equivalents to the extent recorded on the unaudited condensed consolidated balance sheets. The Company has not experienced any material losses on its deposits of cash, cash equivalents, and investments.

 

Item 2.

Unregistered Sales of Equity Securities andAND Use of Proceeds

 

Recent Sales of Unregistered Securities

 

None.

 

Purchases of Equity Securities By the Issuer and Affiliated Purchasers

 

Issuer Purchases of Equity SecuritiesNone.

Period

 

Total Number of

Shares Purchased

  

Average Price

Paid per Share

  

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)

  

Maximum Number (or

Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs

 
January 1, 2023, through January 31, 2023    $     $42,500,000 
February 1, 2023, through February 28, 2023           42,500,000 
March 1, 2023, through March 31, 2023  665,739   5.09   1,575,692   39,079,815 

Total

  665,739  $5.09   1,575,692  $39,079,815 

(1) On December 20, 2021, the Company announced that it had initiated a share repurchase program, or the Share Repurchase Program, pursuant to which the Company may repurchase up to $50 million of shares of its common stock through December 31, 2023. Repurchases will be made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to a variety of factors, including the market price of the Company’s common stock, general market and economic conditions and applicable legal requirements. The exact number of shares to be repurchased by the Company is not guaranteed and the program may be suspended, modified, or discontinued at any time without prior notice.

 

Item 3.

Defaults Upon Senior Securities

 

Not applicable.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item 5.

Other Information

 

(a) Disclosure in lieu of reporting on a Current Report on Form 8-K.

None.

(b) Material changes to the procedures by which security holders may recommend nominees to the board of directors.

None.

(c) Insider Trading Arrangements and Policies.

During the three months ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

 

3642

Item 6.

Exhibits

 

The following is a list of exhibits filed as part of this Form 10-Q (the SEC file number for all items incorporated by reference herein from reports on Forms 10-K, 10-Q, and 8-K is 001-36913):

 

Exhibit No.

 

Description

3.1

 

Amended and Restated Certificate of Incorporation of Zevra Therapeutics, Inc. (incorporated herein by reference to the Registrant’s Current Report on Form 8-K as filed with the SEC on April 21, 2015).

3.1.1 Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant, effective as of December 23, 2020 (incorporated herein by reference to Registrant's Current Report on Form 8-K as filed with the SEC on December 23, 2020).
3.1.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Zevra Therapeutics, Inc. (incorporated herein by reference to the Registrant's Current Report on Form 8-K as filed with the SEC on February 24, 2023).

3.2

 Amended and Restated Bylaws, as currently in effect, of Zevra Therapeutics, Inc. (incorporated herein by reference to the Registrant's Current Report on Form 8-K as filed with the SEC on February 24, 2023)28, 2024).

4.1

 

Specimen stock certificate evidencing shares of Common Stock (incorporated herein by reference to the Registrant's Annual Report on Form 10-K as filed with the SEC on March 12, 2021).
10.110.1*†+ Amendment to EmploymentCredit Agreement dated as of January 6, 2023, betweenApril 5, 2024, by and among Zevra Therapeutics, Inc. and Richard W. Pascoe (incorporated herein by reference to the Registrant's Current Report on Form 8-K as filed with the SEC on January 9, 2023).
10.2Transition Agreement, dated as of January 4, 2023, as amended, between Zevra Therapeutics, Inc.HCR Stafford Fund II, L.P., HCR Potomac Fund II, L.P., and Travis C. Mickle, Ph.D. (incorporated herein by reference to the Registrant's Current Report on Form 8-K as filed with the SEC on January 9, 2023).Perceptive Credit Holdings IV, LP.
10.3Consulting Agreement, dated as of January 6, 2023, between Zevra Therapeutics, Inc. and Travis C. Mickle, Ph.D. (incorporated herein by reference to the Registrant's Current Report on Form 8-K as filed with the SEC on January 9, 2023).
10.42023 Employment Inducement Award Plan and forms of award agreements thereunder (incorporated herein by reference to the Registrant's Current Report on Form 8-K as filed with the SEC on March 7, 2023).
10.5Transition Agreement, dated as of May 6, 2023, between Zevra Therapeutics, Inc. and Richard W. Pascoe (incorporated herein by reference to the Registrant's Current Report on Form 8-K as filed with the SEC on May 8, 2023).
10.6Agreement Regarding Employment Terms, dated as of May 15, 2023, between Zevra Therapeutics, Inc. and Christal M.M. Mickle (incorporated herein by reference to the Registrant's Current Report on Form 8-K as filed with the SEC on May 15, 2023).

31.1*

 

Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*

 

Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1**

 

Certification of the Principal Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

 

Certification of the Principal Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

 

Inline XBRL Instance Document

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104** Cover page Interactive Data File (embedded within the Inline XBRL and combined in Exhibit 101)

 

*

Filed herewith

**

Furnished herewith

 †Pursuant to Item 601(a)(5) of Regulation S-K, schedules and similar attachments have been omitted. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.
+Certain portions of the exhibit, identified by the mark, “[*]”, have been omitted because such portions contained information that is both (i) not material and (ii) the type that the Registrant treats as private or confidential.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Zevra Therapeutics, Inc.

 

 

Date:      May 15, 29, 2024023

By:

/s/ Richard W. PascoeNeil F. McFarlane

 

 

Richard W. PascoeNeil F. McFarlane

 

 

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

Date:      May 15, 2May 9, 2024023

By:

/s/ R. LaDuane Clifton

 

 

R. LaDuane Clifton, MBA, CPA

 

 

Chief Financial Officer, Secretary and Treasurer

(Principal Financial Officer)

 

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