Zevra Therapeutics, Inc. — Q2 2023 Form 10-Q
Business context and period. This unaudited report covers the three and six months ended June 30, 2023. Zevra is a rare-disease company with commercial-stage AZSTARYS royalty and milestone rights, arimoclomol early-access sales, and clinical programs including arimoclomol for Niemann-Pick disease type C (NPC) and KP1077 for idiopathic hypersomnia (IH) and narcolepsy. The company changed its name from KemPharm to Zevra in February 2023.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $8.47 million | $1.30 million | $11.35 million | $5.27 million |
| Operating loss | $6.65 million | $24.77 million | $19.57 million | $26.63 million |
| Net loss | $5.08 million | $24.04 million | $16.85 million | $25.91 million |
| Net loss per share | $0.15 | $0.70 | $0.49 | $0.75 |
- Revenue drivers: Q2 included a $5.0 million AZSTARYS sales milestone, $0.7 million in royalties, and $2.8 million from the French arimoclomol early-access program (EAP). The milestone followed year-to-date AZSTARYS sales exceeding $25 million and was received after quarter-end.
- Costs and margins: Cost of revenue was $0.68 million in Q2 and $0.80 million for the first half, implying approximate gross margins of 92% and 93%, respectively. First-half R&D was $16.28 million and SG&A was $13.84 million.
- Cash flow: First-half operating cash use was $12.75 million, versus $7.66 million in the prior-year period. Investing activities provided $16.48 million, primarily from investment maturities; financing activities used $2.80 million. Cash and cash equivalents increased by $0.73 million to $66.20 million.
- Liquidity and debt: Cash, cash equivalents, and investments totaled $87.4 million at quarter-end, excluding the $5.0 million milestone payment received after quarter-end. Total liabilities were $37.0 million. The company had $12.7 million outstanding under a Wells Fargo margin account, collateralized by investments. It repaid and closed its $12.8 million Ameris Bank line of credit in January 2023.
Material changes versus the prior period
- Q2 revenue rose $7.17 million year over year, primarily from the AZSTARYS milestone and higher EAP revenue. First-half revenue increased $6.08 million.
- Q2 net loss narrowed by $18.96 million, largely because Q2 2022 included a one-time $17.66 million acquired in-process R&D charge for the arimoclomol acquisition. First-half net loss narrowed by $9.06 million for similar reasons, partly offset by higher R&D and SG&A spending.
- First-half R&D increased $8.40 million, mainly from the KP1077 Phase 2 trial and arimoclomol NDA preparation; SG&A increased $7.55 million, mainly from personnel costs and professional fees.
- The estimated French EAP discount and rebate reserve was $12.1 million at June 30, 2023, up from $9.0 million at year-end 2022. The estimate is subject to uncertainty, including future French pricing negotiations.
Outlook, commentary, and risks
- Management expects existing cash, cash equivalents, and investments to fund operations into 2026. This forecast assumes continued French EAP reimbursements and includes arimoclomol NDA resubmission and the KP1077 IH program through NDA submission. It excludes costs of a KP1077 narcolepsy Phase 3 trial and potential arimoclomol revenue or a priority review voucher after approval. Management cautions that forecasts depend on assumptions and that additional funding may be needed.
- Management expected to resubmit the arimoclomol NDA in Q4 2023 following an FDA pre-submission meeting in August 2023. Interim KP1077 IH Phase 2 data were expected by the end of Q3 2023, with topline data expected in the first half of 2024. A Phase 1 narcolepsy trial began in Q2 2023.
- The company terminated its APADAZ license agreement with KVK-Tech on May 31, 2023, and agreed to a $0.9 million settlement, expensed in R&D and payable in October 2023.
- Leadership changed significantly: the CEO resigned effective June 1, 2023, and the company appointed an interim CEO while searching for a permanent CEO. The filing cites executive retention, leadership transition, activist shareholder activity, and financial-institution exposure among its risks.
- Management reported disclosure controls were effective as of June 30, 2023, and no material change in internal control over financial reporting during the quarter. The company reported no litigation expected to have a material adverse effect.
Important facts for investors to verify
- Whether the AZSTARYS sales trend produces the next milestone and continuing royalty revenue; future milestone and royalty payments are not assured.
- Progress and timing of the arimoclomol NDA resubmission, FDA review, and any regulatory or commercial milestones.
- KP1077 trial enrollment, interim and topline data timing, and the potential cost of a narcolepsy Phase 3 program, which is excluded from the stated cash-runway estimate.
- The assumptions behind the cash runway into 2026, including EAP receipts, operating costs, access to uninsured bank deposits, and potential financing needs.
- The French EAP clawback estimate and eventual repayment obligations, as well as the $12.7 million margin-account borrowing and its investment collateral.
- Execution of the CEO transition and the impact of executive severance, board changes, and activist shareholder activity.