Zevra Therapeutics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited. Zevra is a rare-disease company with partnered commercial revenue, early-access sales of arimoclomol, and clinical programs including KP1077. The proposed acquisition of Acer Therapeutics was pending at the filing date.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenue | $2.9 million | $2.9 million | $14.2 million | $8.1 million |
| Research and development | $12.3 million | $5.4 million | $28.6 million | $13.3 million |
| Selling, general and administrative | $5.8 million | $4.0 million | $19.7 million | $10.3 million |
| Operating loss | $15.4 million | $6.6 million | $34.9 million | $33.3 million |
| Net loss | $14.0 million | $6.6 million | $30.9 million | $32.5 million |
| Basic and diluted loss per share | $0.40 | $0.19 | $0.90 | $0.94 |
- Nine-month revenue included a $5.0 million AZSTARYS sales milestone, $2.0 million of AZSTARYS royalties, and $6.8 million of arimoclomol French early-access revenue. Q3 revenue was principally $0.9 million of AZSTARYS royalties and $2.0 million from the French program.
- Nine-month operating cash use was $17.4 million, versus $14.3 million in 2022. Investing cash use was $28.0 million and financing provided $23.5 million. Cash and cash equivalents declined $22.2 million to $43.3 million.
- At September 30, cash, cash equivalents and securities at fair value totaled about $82.9 million; management reported cash, cash equivalents and investments of $83.4 million. Separately, secured corporate notes were $42.0 million. Current assets were $137.0 million and current liabilities $21.7 million.
- Debt included $38.8 million outstanding under a Wells Fargo margin account and a $5.0 million secured promissory note (reported net at $5.1 million). The margin account had approximately $12.8 million of remaining borrowing capacity. The former $20 million Ameris line of credit was repaid and closed in January 2023.
- Discount and rebate liabilities were $12.9 million at September 30, including the estimated French-program clawback reserve. Stockholders’ equity was $67.5 million.
Changes versus comparable periods
- Q3 revenue was essentially flat year over year, while net loss increased $7.4 million, primarily because operating loss widened by $8.7 million; higher other income partly offset the increase.
- Nine-month revenue rose $6.1 million, mainly from the AZSTARYS milestone and royalties. Net loss improved $1.6 million, although operating loss increased $1.7 million; 2022 included a one-time $17.7 million acquired in-process R&D charge for arimoclomol.
- R&D spending rose substantially in both comparisons, driven by the KP1077 Phase 2 trial and preparation of the arimoclomol NDA resubmission. SG&A also increased, primarily from personnel costs and professional fees.
- Cash and cash equivalents fell from $65.5 million at December 31, 2022, to $43.3 million at September 30, 2023. The company also held $39.7 million of securities at fair value and had increased borrowing under the margin account.
Outlook, transactions and risks
- Management expected existing cash, cash equivalents and investments to fund operations into 2026, based on its operating forecast. That estimate assumes continued French early-access reimbursements and excludes arimoclomol revenue after potential FDA approval, a possible priority review voucher sale, and costs of a KP1077 narcolepsy Phase 3 trial. Management cautioned that forecasts may prove wrong and additional funding could be needed.
- The company planned to resubmit the arimoclomol NDA in Q4 2023 following an FDA pre-submission meeting. The FDA had issued a complete response letter on the prior application. KP1077 IH Phase 2 topline data were expected in the first half of 2024; a potential pivotal IH trial was contemplated thereafter.
- The proposed Acer merger, announced August 30, 2023, was expected to close in Q4 2023, subject to customary conditions including Acer stockholder approval and regulatory requirements. Acer holders were to receive Zevra shares and contingent value rights tied to milestones, with potential payments of up to $76 million for OLPRUVA and EDSIVO milestones. Zevra had provided Acer loans and acquired Acer debt; the filing reports $42.0 million of assets related to its Acer investment and a maximum exposure to loss equal to that investment.
- Three purported Acer stockholders filed complaints alleging omissions in the merger proxy and seeking an injunction unless supplemental disclosures were made. The merger also carried completion, integration, financing, litigation, and contingent-value-right execution risks.
- Leadership changed repeatedly during 2023. Neil McFarlane became CEO on October 10, after quarter-end; the company identified executive retention and transition as risks. The filing also highlights uncertainty in French rebate estimates, reliance on milestone and royalty revenue, potential dilution or debt financing needs, and uninsured bank-deposit exposure.
- Unusual expenses included $1.9 million of merger-related costs in the nine months and a $0.9 million KVK settlement recorded in R&D, paid in October. Management reported disclosure controls effective as of September 30, 2023.
Key facts for investors to verify
- Whether the Acer merger closed, its final consideration and financing needs, and any impact of the Acer stockholder litigation.
- Progress and FDA feedback on the arimoclomol NDA resubmission, including timing and regulatory outcome.
- KP1077 Phase 2 topline results, the potential Phase 3 plan, and the associated cost and funding requirements.
- Whether AZSTARYS sales support further milestones and royalties, and the sustainability of French early-access revenue and the $12.9 million clawback estimate.
- Cash runway assumptions, operating cash burn, margin-account borrowing and collateral, and the potential need for additional capital.