Zevra Therapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2023

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 this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly 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 and 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, 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 melding science, data and patient need to create transformational therapies for diseases with limited or no treatment options. With unique, data-driven clinical, regulatory, and commercialization strategies, we are overcoming complex drug development challenges to bring much needed therapies to patients. We have a diverse portfolio of products and product candidates, which includes a combination of both a 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, 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, 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. The FDA has approved AZSTARYS®, a once-daily treatment for attention deficit hyperactivity disorder, or ADHD, in patients age six years and older containing our prodrug, SDX, and d-MPH. In September 2019, we entered into a collaboration and license agreement, or 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 AZSTARYS and any of our product candidates containing SDX and used to treat ADHD or any other CNS disease. Commave has tasked Corium, Inc., or Corium, an affiliate of Gurnet Point Capital, L.P., 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 China to Shanghai Ark Biopharmaceutical Ltd. Year-to-date net sales of AZSTARYS surpassed $25 million, triggering the first net sales milestone payment of $5 million, which was earned and recognized in revenue in the second quarter of 2023, and received after quarter-end. Net sales trend supports the potential to earn a second net sales milestone during the fourth quarter of 2023.

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. On May 31, 2023, the Company and KVK terminated the APADAZ License Agreement.

Our primary mission is to deliver life-changing treatments to people with rare conditions, their families, and caregivers who desperately need better options. This mission guides our efforts to 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 considering 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 have the potential to create incremental long-term value for stockholders. In addition, we believe that a multi-channel development program with several product candidates addressing various rare disease indications will diversify risk and potentially create an impactful portfolio of commercial-stage products in the future.

For example, in May 2022, we, through our wholly-owned subsidiary, Zevra Denmark A/S (formerly known as KemPharm Denmark A/S prior to February 21, 2023, 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. 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, or the Arimoclomol EAP.

Our most advanced product candidate, arimoclomol, is being developed for the treatment of NPC, a lysosomal storage disorder, or 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 live births. We estimate that approximately 1,800 individuals have been diagnosed, of which approximately 300 are in the United States and approximately 1,500 are in Europe. 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 identifying more cases. 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 countries under various early access programs, or EAPs.

On September 16, 2020, the previous sponsor of the arimoclomol program, Orphazyme, submitted a new drug application, or NDA, seeking approval for arimoclomol to treat NPC. In June 2021, the FDA issued a complete response letter, or CRL, which means the FDA determined that it could not approve the NDA in its present form. Our aim is to prepare and resubmit an NDA that presents meaningful evidence of safety and efficacy of arimoclomol for its intended use. To that end, we are continuing to work diligently to characterize the substantial data generated since the CRL, including the recently completed four-year open-label safety trial which was presented at the 19th WorldSymposiumTM in February 2023. 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 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, or OLE, phase 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 of arimoclomol in NPC (NPC progression based on the 5DNPCCSS was the primary endpoint). Based on a comparative analysis of both measurements, it was determined that individual 5DNPCCSS domains 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. In preparation of the arimoclomol NDA, we completed a productive and collaborative pre-submission meeting with the FDA in August 2023, receiving important information that will be used to finalize the NDA for resubmission. We plan to include these data as part of the updated NDA package for arimoclomol, which is anticipated to be submitted in the fourth quarter of 2023.

We also intend to advance our pipeline of prodrug product candidates for the treatment of IH and other CNS/rare diseases, and 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. On November 18, 2022, we announced that the FDA has granted the Orphan Drug Designation to SDX for the treatment of IH.

In January 2022, we announced that we have selected KP1077 for the treatment of IH as our lead clinical development candidate. KP1077 utilizes SDX, our prodrug of d-MPH, as its active pharmaceutical ingredient. 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®, 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. Based on the data, we identified initial dosing strengths for the ongoing 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. On December 21, 2022, we announced the initiation of a Phase 2 clinical trial evaluating KP1077. The Phase 2 clinical trial is actively enrolling 48 adult patients at more than 30 sites in the U.S. Part 1 of the trial consists of a five-week open-label titration phase during which patients are optimized to one of four doses of SDX (80, 160, 240, or 320 mg/day). Part 2 of the trial entails 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 are further assigned into two evenly divided cohorts. The first cohort will receive a single daily dose just before bedtime, and the second cohort will receive half the daily dose shortly after awakening and half the daily dose prior to bedtime. In June 2023, we presented the Phase 2 clinical trial design evaluating KP1077 as a treatment for IH at a medical conference. Interim Phase 2 data for the open-label titration phase of the trial were announced in October of 2023. The Interim Phase 2 data provided valuable information on the primary endpoint of the trial, which is the safety and tolerability of KP1077 in patients with IH, as well as insights related to the effective dose range and regimen. Topline Phase 2 data in IH is expected to be reported in the first half of 2024 after all patients have completed the double-blind withdrawal phase. The combined interim and upcoming topline data are expected to also provide information related to a number of secondary and exploratory endpoints, including excessive daytime sleepiness, sleep inertia, and brain fog. In the second quarter of 2023, we initiated a Phase 1 clinical trial in narcolepsy, which since has been completed and will be analyzed alongside the IH data to support both the narcolepsy and IH programs. By leveraging the data from the IH and narcolepsy programs and the existing data set generated as part of the AZSTARYS development program for serdexmethylphenidate (SDX), the sole active pharmaceutical ingredient in KP1077, Zevra can potentially initiate a pivotal Phase 3 trial in IH sometime next year.

In May 2021, we announced that SDX, our proprietary prodrug of d-MPH and the primary active pharmaceutical ingredient, or 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.

Merger Agreement

On August 30, 2023, Zevra 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. (the “Proposed Merger”). At the time the Proposed Merger becomes effective (the "Effective Time"), Merger Sub will merge with and into Acer, with Acer continuing as the surviving entity and as a wholly owned subsidiary of Zevra. The Proposed Merger is subject to certain customary closing conditions, including stockholder approval by Acer’s stockholders. Both companies will continue to operate their businesses independently until the close of the Merger. The Proposed Merger is expected to close in the fourth quarter of 2023. For additional information regarding the Merger, see Note K to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Our Product Candidates 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 summarized in the table below:

Selected Zevra Partnered and Other Development Assets

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Other Third-Party Agreements

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 July 2020, we entered into the Corium Consulting Agreement under which Corium 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 launch of AZSTARYS. Under the Corium Consulting Agreement, we were 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. The Corium Consulting Agreement expired on March 31, 2023.

Results of Operations

Comparison of the three months ended September 30, 2023 and 2022(in thousands):

Net Loss

Net loss for the three months ended September 30, 2023, was $14.0 million, compared to net loss of $6.6 million for the three months ended September 30, 2022, an increase in net loss of $7.4 million. The change was primarily attributable to an increase in loss from operations of $8.7 million and an increase in other income of $1.5 million.

Revenue

Revenue for the three months ended September 30, 2023, was $2.9 million, which was consistent when compared to revenue of $2.9 million for the three months ended September 30, 2022. Royalties from AZSTARYS of $0.9 million, and French EAP reimbursements of $2.0 million drove net revenue for the three months ended September 30, 2023.

Cost of Revenue

Cost of revenue for the three months ended September 30, 2023, remained consistent with the cost of revenue for the three months ended September 30, 2022.

Research and Development

Research and development expenses increased by$6.9 million, from $5.4 million for the three months ended September 30, 2022, to $12.3 million for the three months ended September 30, 2023. This increase was primarily driven by the ongoing Phase 2 clinical trial in KP1077, along with the ongoing work to prepare the arimoclomol NDA for resubmission.

Selling, General and Administrative

Selling, general and administrative expenses increased by $1.8 million, from $4.0 million for the three months ended September 30, 2022, to $5.8 million for the three months ended September 30, 2023. The period-over-period increase was primarily related to an increase in personnel costs and professional fees.

Other Income (Expense)

Other income (expense) changed by $1.5 million, from $23,000 of expense for the three months ended September 30, 2022, to $1.5 million of income for the three months ended September 30, 2023. This increase was primarily attributable to a change in net interest expense and other items of $1.5 million.

Comparison of the nine months ended September 30, 2023, and 2022 (in thousands):

Net Loss

Net loss for the nine months ended September 30, 2023, was $30.9 million compared to net loss of $32.5 million for the nine months ended September 30, 2022, a decrease in net loss of $1.6 million. The change was primarily attributable to an increase in other income of $4.0 million, partially offset by an increase in loss from operations of $1.7 million. The net loss during the nine months ended September 30, 2022, included recognition of $17.7 million of expense related to acquired in-process research and development from the arimoclomol asset acquisition which was immediately expensed.

Revenue

Revenue for the nine months ended September 30, 2023, was $14.2 million, an increase of $6.1 million compared to revenue of $8.1 million for the nine months ended September 30, 2022. AZSTARYS net sales milestone revenues of $5.0 million, royalties from AZSTARYS of $2 .0 million, and French EAP reimbursements of $ 6.8 million primarily drove net revenue for the nine months ended September 30, 2023.

Cost of Revenue

Cost of revenue for the nine months ended September 30, 2023, w as $0.9 million, an increase of $0.7 million compared to $0.2 million cost of revenue for the nine months ended September 30, 2022. The increase was primarily attributable to cost of goods sold under the AZSTARYS License Agreement.

Research and Development

Research and development expenses increased by $15.3 million, from $13.3 million for the nine months ended September 30, 2022, to $28.6 million for the nine months ended September 30, 2023. This increase was primarily driven by the ongoing Phase 2 clincial trial in KP1077, along with the ongoing work to prepare the arimoclomol NDA for resubmission .

Selling, General and Administrative

Selling, general and administrative expenses increased b y $9.4 million, from $10.3 million for the nine months ended September 30, 2022, to $19.7 million for the nine months ended September 30, 2023. The period-over-period increase was primarily related to an increase in personnel costs and professional fees.

Acquired In-Process Research and Development

Acquired in-process research and development expense decreased by $17.7 million, from $17.7 million for the nine months ended September 30, 2022, to none for the nine months ended September 30, 2023. This decrease was due to one-time acquired in-process research and development expense in 2022 as a result of the transactions under Arimoclomol Purchase Agreement.

Other Income (Expense)

Other income (expense) changed by $4.0 million, from $22,000 of expense for the nine months ended September 30, 2022 , to $4.0 million of income for the nine months ended September 30, 2023 . This increase was primarily attributable to a change in interest and other income, net of $3.8 million, a change in fair value adjustment related to investments of $1.1 million; partially offset by a change in net interest expense of $0.6 million and a change in fair value adjustment related to derivative and warrant liability of $0.3 million.

Liquidity and Capital Resources

Sources of Liquidity

Through September 30, 2023, 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, and from revenue received under the Arimoclomol EAP, AZSTARYS License Agreement, the Corium Consulting Agreement and other consulting arrangements. As of September 30, 2023, we had cash, cash equivalents and investments of $83.4 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 Corium 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 launch of AZSTARYS. Under the Corium Consulting Agreement, we were 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. The Corium Consulting Agreement expired on March 31, 2023.

We have had recurring negative net operating cash flows and we anticipate that we may continue to incur negative net cash flows or minimal positive 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 agreements with Corium, through the Arimoclomol EAP or through potential consulting arrangements and any other future arrangements related to one of our product 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. The Form S-3 was declared effective on July 12, 2021. As of September 30, 2023, no shares have been issued or sold under the Equity Distribution Agreement.

Share Repurchase Program

On December 20, 2021, we initiated the Share Repurchase Program, pursuant to which we may repurchase up to $50 million of shares of our common stock through December 31, 2023. Capital allocation to the Share Repurchase Program will be based on a variety of factors, including our business results, the receipt of royalties 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 price of our common stock, general market and economic conditions and applicable legal requirements. The exact number of shares to be repurchased by us is not guaranteed and the program may be suspended, modified, or discontinued at any time without prior notice. We did not repurchase any shares of our common stock during the three months ended September 30, 2023. As of September 30, 2023, we had repurchased an aggregate of 1,575,692 shares of our common stock for approximately $11.0 million under the Share Repurchase Program.

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 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 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. In conjunction with closing the Line of Credit, the maturity dates of the certificates of deposit were modified to May 2023.

On January 26, 2023, we and Wells Fargo, as lender, entered into a margin account agreement. Our investments are used as collateral for the loan and the amount we are able to borrow is limited to 80-90% of our outstanding investment balance held with Wells Fargo. The margin account bears interest at the Prime Rate minus 225 basis-points. As of September 30, 2023, $38.8 million was outstanding under the margin account.

Cash Flows

The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022 (in thousands):

Operating Activities

For the nine months ended September 30, 2023, net cash used in operating activities of $17.4 million consisted of a net loss of $30.9 million; partially offset by $4.5 million in adjustments for non-cash items and $9.0 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. The changes in working capital consisted of $3.9 million related to a change in discount and rebate liabilities, $5.8 million related to a change in accounts payable and accrued expenses, $0.2 million related to a change in operating lease right-of-use assets,$0.2 million related to a change in inventories, and $0.1 million related to a change in prepaid expenses and other assets, $0.7 million related to a change in other liabilities; partially offset by $1.6 million related to a change in accounts and other receivables and $0.3 million related to a change in operating lease liabilities. The adjustments for non-cash items primarily consisted of stock-based compensation expense of $3.1 million, non-cash severance expense of $1.4 million, and $0.5 million related to depreciation, amortization and other items; partially offset by a change in the fair value adjustment related to investments of $0.5 million.

For the nine months ended September 30, 2022, net cash used in operating activities of $14.3 million consisted of a net loss of $32.5 million and $3.9 million in changes in working capital; partially offset by $22.2 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, Arimoclomol EAP and the Corium Consulting Agreement. The changes in working capital consisted of $1.2 million related to a change in prepaid expenses and other assets, $4.6 million related to a change in accounts and other receivables, $0.2 million related to a change in operating lease liabilities and $0.4 million related to a change in other liabilities, partially offset by $1.3 million related to a change in accounts payable and accrued expenses, $0.3 million related to a change in inventories, $0.1 million related to a change in operating lease right-of-use assets and $0.9 million related to a change in discount and rebate liabilities. The adjustments for non-cash items primarily consisted of stock-based compensation expense of $3.3 million, a change in the fair value adjustment related to investments of $0.6 million, $17.7 million related to acquired in-process research and development which was expensed as part of the transactions under the Arimoclomol Purchase Agreement and $0.8 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 $0.3 million.

Investing Activities

For the nine months ended September 30, 2023, net cash used in investing activities was $28.0 million, which was primarily attributable to purchases of investments of $45.8 million, purchases of secured corporate notes of $25.4 million, and purchases of property and equipment of $0.2 million; partially offset by maturities of investments of $43.4 million.

For the nine months ended September 30, 2022, net cash used in investing activities was $36.7 million, which was attributable to net acquisition costs of the transactions under the Arimoclomol Purchase Agreement of $14.1 million and purchases of investments of $23.8 million; partially offset by maturities of investments of $1.3 million.

Financing Activities

For the nine months ended September 30, 2023, net cash provided by financing activities was $23.5 million, which was primarily attributable to proceeds from the issuance of debt of $38.8 million, proceeds from insurance financing programs of $1.3 million and proceeds from the Employee Stock Purchase Plan of $0.1 million; partially offset by repayment of debt of $12.8 million, payments to repurchase shares as part of the Share Repurchase Program of $3.4 million, and payments of principal on insurance financing arrangements of $0.5 million.

For the nine months ended September 30, 2022, net cash provided by financing activities was $8.6 million, which was primarily attributable to proceeds from the issuance of debt of $12.8 million, proceeds from insurance financing arrangements of $1.3 million and proceeds from sales of common stock under the Employee Stock Purchase Plan of $0.2 million; partially offset by payments to repurchase shares as part of the Share Repurchase Program of $4.7 million, payments of principal on insurance financing arrangements of $0.9 million and payment of offering costs of $0.1 million.

Future Funding Requirements

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. This estimate includes the ongoing reimbursements from the French early 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 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 Phase 3 trial for KP1077 in 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 consulting revenue or short-term milestone payments generated under the AZSTARYS License Agreement;
• any product sales under the Arimoclomol EAP; and
• any consulting services revenue generated under other potential consulting arrangements.

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.

In addition, if the Proposed Merger is consummated, we will assume certain of Acer’s contractual obligations, which include $1.5 million owed by Zevra to Relief Therapeutics, Inc. Additionally, in connection with and immediately prior to the execution of the Merger Agreement, we entered into the Bridge Loan Agreement and the Loan and Note Purchase Agreements. For additional information, see Note K to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. To date, we have generated revenue from the AZSTARYS License Agreement, reimbursements of out-of-pocket third-party costs, the performance of consulting services 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, 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 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. We also expect to continue to incur additional costs associated with operating as a public company.

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, product reimbursements under the Arimoclomol EAP and 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, filed with the SEC on March 7, 2023.

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 September 30, 2023. Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, our chief executive officer and our chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

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 September 30, 2023, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

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, filed with the SEC on March 7, 2023, 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 new Chief Executive Officer was appointed effective October 10, 2023. Our future performance will depend, in part, on a successful transition period with our new Chief Executive Officer, the successful integration of 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 stockholders 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.

Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults, or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations.

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. Should events, including limited liquidity, defaults, non-performance or other adverse developments occur with respect to the banks or other financial institutions that hold our funds, or that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, our liquidity may be adversely affected. For example, on March 10, 2023, the Federal Deposit Insurance Corporation (FDIC) announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation. Although we did not have any funds in Silicon Valley Bank or other institutions that have been closed, we cannot guarantee that the banks or other financial institutions that hold our funds will not experience similar issues.

Risks Related to the Proposed Merger

The consummation of the Proposed Merger is subject to a number of conditions, many of which are largely outside of the parties’ control, and, if these conditions are not satisfied or waived on a timely basis, the Proposed Merger Agreement may be terminated and the Proposed Merger may not be completed.

The Proposed Merger is subject to certain customary closing conditions, including: (i) obtaining the required stockholder approval; (ii) the waiting period, if any, applicable to the consummation of the Proposed Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), will have expired or been terminated; and (iii) the absence of any law or order of any governmental authority of competent jurisdiction that enjoins, prohibits or makes illegal the consummation of the Proposed Merger. In addition, each of Zevra’s and Acer’s obligations to complete the Proposed Merger is subject to certain other conditions, such as (a) the accuracy of the representations and warranties of the other party, subject to the standards set forth in the Merger Agreement; (b) compliance by the other party with its covenants in all material respects; and (c) the absence of a material adverse effect on Acer. The failure to satisfy all of the required conditions could delay the completion of the Proposed Merger by a significant period of time or prevent it from occurring. Any delay in completing the Proposed Merger could cause the parties to not realize some or all of the benefits that are expected to be achieved if the Proposed Merger is successfully completed within the expected timeframe. There can be no assurance that the conditions to closing of the Proposed Merger will be satisfied or waived or that the Proposed Merger will be completed.

While the Proposed Merger is pending, Zevra and Acer will be subject to business uncertainties and certain contractual restrictions that could adversely affect the business and operations of Zevra and Acer.

In connection with the Proposed Merger, some tenants, operators, borrowers, managers, vendors or other third parties of each of Zevra and Acer may react unfavorably, delay or defer decisions concerning their business relationships or transactions with Zevra or Acer, which could adversely affect the revenues, earnings, funds from operations, cash flows and expenses of Zevra and Acer, regardless of whether the Proposed Merger is completed.

Zevra and Acer will incur substantial transaction fees and Merger-related costs in connection with the Proposed Merger.

Zevra and Acer expect to incur non-recurring transaction fees, which include legal and advisory fees and substantial Merger-related costs associated with completing the Proposed Merger, combining the operations of the two companies and achieving desired synergies. Additional unanticipated costs may be incurred in the course of the integration of the businesses of Zevra and Acer. The companies cannot be certain that the realization of other benefits related to the integration of the two businesses will offset the transaction and Merger-related costs in the near term, or at all.

Litigation against Acer, Zevra or the members of their respective boards, could prevent or delay the completion of the Proposed Merger or result in the payment of damages following completion of the Proposed Merger.

It is a condition to the Proposed Merger that no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger Agreement or the transactions contemplated thereby shall have been issued by any court of competent jurisdiction or other governmental authority of competent jurisdiction and remain in effect. Zevra or Acer stockholders may file lawsuits challenging the Proposed Merger or the other transactions contemplated by the Merger Agreement, which may name Zevra, members of the Zevra Board, Acer and/or members of the Acer Board as defendants. Following the announcement of the Proposed Merger, three purported stockholders of Acer filed complaints alleging that the definitive proxy statement filed on October 10, 2023, in connection with the Merger omitted material information with respect to the Merger and demanding that the Merger be enjoined unless certain supplemental disclosures are made. For additional information, see Note K to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The outcome of such lawsuits cannot be assured, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Proposed Merger on the agreed-upon terms, such an injunction may delay the consummation of the Proposed Merger in the expected timeframe, or may prevent the Proposed Merger from being consummated at all. Whether or not any plaintiff’s claim is successful, this type of litigation can result in significant costs and divert management’s attention and resources from the Closing and ongoing business activities, which could adversely affect the operation of Zevra’s and Acer’s businesses.

Zevra is required to use “diligent efforts” to achieve the milestones, which allows for consideration of a variety of factors to determine the efforts Zevra is required to take; accordingly, under certain circumstances, Zevra may not be required to take certain actions to achieve the milestones, which would have an adverse effect on the value, if any, of the CVRs.

Zevra has agreed to use “diligent efforts,” as defined in the CVR Agreement, to achieve the milestones. Under the CVR Agreement, the definition of “diligent efforts” requires Zevra to use such efforts and resources normally used by a company in the pharmaceutical business similar in size and resources to Zevra, in the exercise of their reasonable business discretion, relating to development of, seeking regulatory approval of or commercializing, as applicable, a similar product, that is of similar market potential and at a similar development stage, regulatory stage or commercialization stage. The CVR Agreement allows for the consideration of a variety of factors in determining such effort, including without limitation:

• market exclusivity (including patent coverage, regulatory and other exclusivity);
• product profile, including efficacy, safety, tolerability, methods of administration, product labeling (including anticipated product labeling);
• other product candidates;
• the competitiveness of alternative products in the marketplace or under development;
• the regulatory environment and the expected profitability of the applicable product (including direct regulatory required support and medical affairs costs, direct intellectual property defense costs, and direct distribution and logistics costs); and • other relevant commercial, financial, technical, legal, scientific and/or medical factors. As a result, factors and events may come to pass that result in Zevra permissibly devoting less effort to the achievement of the milestone than Acer would have devoted had Acer remained a stand-alone company.

If the Proposed Merger is not consummated by February 29, 2024 (or, under certain circumstances, May 29, 2024), either Acer or Zevra may terminate the Merger Agreement.

Either Acer or Zevra may terminate the Merger Agreement if the Proposed Merger has not been consummated by February 29, 2024, subject to automatic extension to May 29, 2024, if, as of February 29, 2024, all of the closing conditions have been satisfied other than the expiration or earlier termination of any applicable waiting period under the HSR Act. However, this termination right will not be available to a party if that party failed to fulfill its obligations under the Merger Agreement and that failure was the principal cause of, or directly resulted in, the failure to consummate the Proposed Merger on time. In the event the Merger Agreement is terminated by either party due to the failure of the Proposed Merger to close by February 29, 2024 (or, under certain circumstances, May 29, 2024), Acer will have incurred significant costs and will have diverted significant management focus and resources from other strategic opportunities and ongoing business activities without realizing the anticipated benefits of the Proposed Merger.

Risks Related to the Combined Company Following the Proposed Merger

The financial analyses and forecasts considered by Acer and its financial advisor may not be realized, which may adversely affect the market price of Zevra's Common Stock following the completion of the Proposed Merger.

In performing its financial analyses and rendering its opinions related to the Proposed Merger, William Blair & Company, LLC (“William Blair”), who was retained to act as exclusive financial advisor to Acer in connection with a possible business combination, relied on, among other things, internal standalone financial analyses and forecasts as separately provided by Acer. These analyses and forecasts were prepared by, or as directed by, the management of Acer and provided to William Blair on August 24, 2023 and approved by Acer for William Blair’s use. None of these analyses or forecasts were prepared with a view towards public disclosure or compliance with the published guidelines of the SEC, the U.S. generally accepted accounting principles (“GAAP”), or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts. These projections are inherently based on various estimates and assumptions that are subject to the judgment of those preparing them. These projections are also subject to significant economic, competitive, industry and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of Zevra and Acer. There can be no assurance that Acer’s or the combined company’s financial condition or results of operations will be consistent with those set forth in such analyses and forecasts, which could have an adverse impact on the market price of Zevra's common stock or the financial position of the combined company following the Proposed Merger. William Blair expressed no opinion in the opinion as to the price at which Zevra's common stock will trade at any future time or as to the effect of the Proposed Merger on the trading prices of Zevra's common stock.

Following the Proposed Merger, Zevra may be unable to integrate the Acer business successfully or realize the anticipated synergies and related benefits of the Proposed Merger.

Zevra and Acer entered into the Merger Agreement with the expectation that the Proposed Merger will result in various benefits and synergies. However, the Proposed Merger involves the combination of two companies that currently operate as independent public companies. In particular, as discussed above in “—Acer may need additional capital to meet its current obligations and continue to operate its business if the Proposed Merger is not completed in a timely fashion” and “The Merger—Acer Reasons for the Merger,” prior to the signing of the Merger Agreement and the extension of the Bridge Loan, Acer’s assets consisted primarily of approximately $0.6 million in cash or cash equivalents and certain product rights. Moreover, prior to the Merger Agreement, Acer had historically been unable to fund its operations on a standalone basis without substantial additional investment. Even after the Closing, Zevra may be unable to successfully operate Acer’s business or integrate it into its own operations as a combined company.

After the Closing, Zevra will be required to devote significant management attention and resources to integrating the portfolio and operations of Acer. Potential difficulties that Zevra may encounter in the integration process include the following:

• the inability to combine the businesses of Zevra and Acer in a manner that permits Zevra to achieve the cost savings or other synergies anticipated as a result of the Proposed Merger or to achieve such cost savings or other anticipated synergies in a timely manner, which could result in Zevra not realizing some anticipated benefits of the Proposed Merger in the time frame currently anticipated, or at all;
• the inability to realize the anticipated value from various Acer assets;
• the inability to coordinate and integrate research and development teams across technologies and products to enhance product development;
• the inability to integrate and manage personnel from the companies and minimizing the loss of key employees;
• the inability to consolidate the companies’ administrative and information technology infrastructure and financial systems and identify and eliminate redundant and underperforming functions and assets;
• the inability to harmonize the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes;
• the inability to coordinate distribution and marketing efforts;
• potential unknown liabilities and unforeseen increased expenses, delays or unfavorable conditions in connection with the Closing and the subsequent integration; and
• performance shortfalls at one or both of the companies as a result of the diversion of management’s attention from ongoing business activities as a result of completing the Proposed Merger and integrating the companies’ operations.

It is possible that the integration process could result in the distraction of Zevra’s management, the loss of key employees, the disruption of Zevra’s ongoing business or inconsistencies in Zevra’s operations, services, standards, controls, procedures and policies, any of which could adversely affect the ability of Zevra to maintain relationships with third parties and employees or to achieve the anticipated benefits of the Proposed Merger, or could otherwise adversely affect the business and financial results of Zevra.

Zevra’s future results will suffer if it does not effectively manage its expanded operations following the Proposed Merger.

Following the Proposed Merger, the size and scope of operations of the business of the combined company will increase beyond the current size and scope of operations of either Zevra’s or Acer’s current businesses. In addition, Zevra may continue to expand its size and operations through additional acquisitions or other strategic transactions. Zevra’s future success depends, in part, upon its ability to manage its expanded business, which may pose substantial challenges for its management, including challenges related to the management and monitoring of new operations and locations and associated increased costs and complexity. There can be no assurances that Zevra will be successful in managing such expanded business or that it will realize the expected economies of scale, synergies and other benefits currently anticipated from the Proposed Merger or anticipated from any additional acquisitions or strategic transactions.

The market price of Zevra Common Stock may decline as a result of the completion of the Proposed Merger.

The market price of Zevra Common Stock may decline as a result of the completion of the Proposed Merger for a number of reasons, including if Zevra does not achieve the perceived benefits of the Proposed Merger as rapidly or to the degree anticipated by financial and industry analysts, or if the effect of the Proposed Merger on Zevra’s financial results is not consistent with the expectations of financial and industry analysts. In addition, if the Proposed Merger is consummated, Zevra stockholders, including the former Acer Stockholders, will own interests in a company operating an expanded business with a different mix of assets, risks and liabilities. Current stockholders of Zevra and former Acer Stockholders may not wish to continue to invest in Zevra, or for other reasons may wish to dispose of some or all of their shares of Zevra Common Stock. If, following the consummation of the Proposed Merger, there is selling pressure on Zevra Common Stock that exceeds demand at the market price, the price of Zevra Common Stock could decline.

The combined company may not be able to retain suppliers or distributors, or suppliers or distributors may seek to modify contractual relationships with the combined company, which could have an adverse effect on the combined company’s business and operations. Third parties may terminate or alter existing contracts or relationships with Zevra or Acer.

As a result of the Proposed Merger, the combined company may experience impacts on relationships with customers, suppliers and distributors that may harm the combined company’s business and results of operations. Certain suppliers or distributors may seek to terminate or modify contractual obligations following the Proposed Merger whether or not contractual rights are triggered as a result of the Proposed Merger. There can be no guarantee that customers, suppliers and distributors will remain with or continue to have a relationship with the combined company or do so on contractual terms amenable to Zevra following the Proposed Merger. If any suppliers or distributors seek to terminate or modify contractual obligations or discontinue their relationship with the combined company, then the combined company’s business and results of operations may be harmed.

Acer (or certain of its subsidiaries) also has contracts with vendors, landlords and other business partners which may require Acer (or certain of its subsidiaries) to obtain consent from or provide notice to these other parties in connection with the Proposed Merger, or which may otherwise contain limitations applicable to such contracts following the Proposed Merger. If these consents cannot be obtained, the combined company may suffer a loss of potential future revenue, incur costs and lose rights that may be material to the combined company’s business. In addition, third parties with whom Zevra and Acer currently have relationships may terminate or otherwise reduce the scope of their relationship with either party in anticipation of the Proposed Merger. Any such disruptions could limit the combined company’s ability to achieve the anticipated benefits of the Proposed Merger. The adverse effect of any such disruptions could also be exacerbated by a delay in the completion of the Proposed Merger or by a termination of the Merger Agreement