ZEVRA THERAPEUTICS, INC. (ZVRA) FY 2024 MD&A

Overview

We are a commercial-stage company focused on addressing unmet needs for the treatment of rare diseases. Our mission is to bring life-changing therapeutics to people living with rare diseases. With unique, data-driven development and commercialization strategies, we are overcoming complex drug development challenges to make new therapies available to the rare disease community. We have a diverse portfolio of products and product candidates, which includes a clinical stage pipeline and commercial stage assets. Our team has 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"), we determined to focus our 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 ("Orphazyme") 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 clawback liability of $5.2 million related to revenue generated from Orphazyme’s Expanded Access Program in France (the "EAP").

On November 17, 2023, we completed the acquisition of Acer Therapeutics, Inc. ("Acer"). Pursuant to the Merger Agreement, Acer continues as a wholly-owned subsidiary of Zevra (the “Merger"). The Merger included the acquisition of OLPRUVA® (sodium phenylbutyrate) for oral suspension, which was approved by the FDA on December 27, 2022, for the treatment of certain urea cycle disorders ("UCDs"). Acer also had a pipeline of investigational product candidates, including celiprolol for the treatment of Vascular Ehlers-Danlos syndrome ("VEDS") in patients with 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 outstanding immediately prior to the Effective 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 common stock of Zevra, par value $0.0001 per share, and (ii) one non-transferable contingent value right (“CVR”) issued by Zevra, which represents the right to receive one or more contingent payments up to an additional $76.0 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).

On September 20, 2024, the FDA approved the New Drug Application (“NDA") for MIPLYFFA™ (arimoclomol), an orally-delivered treatment for Niemann-Pick disease type C (“NPC"), which is an ultra-rare and progressive neurodegenerative disease. MIPLYFFA, the first FDA-approved treatment for NPC, is indicated for use in combination with miglustat for the treatment of neurological manifestations of NPC in adult and pediatric patients two years of age and older. In addition, we received a transferable rare pediatric disease PRV in conjunction with the approval. On February 26, 2025, we and Zevra Denmark A/S entered into an asset purchase agreement (the “PRV Transfer Agreement”), pursuant to which we agreed to sell the PRV to the buyer. Pursuant to the PRV Transfer Agreement, the buyer agreed to pay us $150.0 million, payable in cash, upon the closing of the sale. The PRV Transfer Agreement contains customary representations, warranties, covenants, and indemnification provisions subject to certain limitations. The transaction remains subject to customary closing conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. MIPLYFFA has also been granted orphan medical product designation for the treatment of NPC by the European Commission. In November 2024, MIPLYFFA became commercially available.

Now focused on late-stage clinical development and commercial opportunities, we discontinued our in-house drug discovery activities and closed our laboratory facilities in Iowa and Virginia at the end of the third quarter of 2025. We anticipate that any future early research and development activities will be outsourced.

To accomplish our mission, we are seeking to further 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 built to help mitigate risk and enhance our probability of success. In addition, we may consider external opportunities within neurology and neurodegenerative diseases, psychiatric disorders, and other rare diseases, along with adjacent or related therapeutic categories. If we are successful, expanding our pipeline could be accretive to our value proposition and has the potential to create incremental long-term value for stockholders.

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We have historically had minimal positive net cash flows from operations. Our cash flows used in operations for the years ended December 31, 2024, and 2023, were $69.7 million and $33.5 million, respectively. We expect to continue to incur significant expenses and minimal positive net cash flows from operations or negative net cash flows from operations for the near future, and those expenses and losses may fluctuate significantly from quarter-to-quarter and year-to-year. We anticipate that our expenses will fluctuate substantially as we:

Third-Party Agreements

AZSTARYS License Agreement

See Part I, Item 1. "Business—AZSTARYS” of this Annual Report on Form 10-K for information regarding the AZSTARYS License Agreement.

Components of our Results of Operations

Revenue

Our commercial revenue is, and will be, primarily derived from sales of our approved products or any of our product candidates for which we obtain regulatory approval, and sales of arimoclomol under the EAP. We expect that our other sources of revenues will be through payments arising from our license agreements with Corium, and through any other future arrangements related to one of our product candidates. To date, we have generated revenue from sales of our approved products, MIPLYFFA and OLPRUVA, to our specialty pharmacy, royalty, milestone and other reimbursement payments under the AZSTARYS License Agreement, sale of arimoclomol under the EAP, reimbursement of out-of-pocket third-party costs, and the performance of consulting services. We cannot guarantee that we will be able to successfully commercialize either MIPLYFFA or OLPRUVA, or that Corium will be able to successfully commercialize AZSTARYS or our product candidates covered under the AZSTARYS License Agreement, in addition, we cannot guarantee that we will continue to generate revenues from the sales of arimoclomol under the EAP. We also do not know when, if ever, any other product candidate will be commercially available.

Cost of Product Revenue

The components of our cost of product revenue are royalties and expenses directly attributable to revenue. To date, we have generated revenue from product sales of MIPLYFFA and OLPRUVA to our specialty pharmacy, sales of arimoclomol under the EAP, royalties, milestones and other reimbursements under the AZSTARYS License Agreement, reimbursement of out-of-pocket third-party costs, and the performance of consulting services. In connection with the AZSTARYS License Agreement, we paid Aquestive a royalty equal to 10% of the upfront license payment and all regulatory milestone and royalty payments. In addition, we paid a $6 million regulatory milestone payment earned by XOMA upon the approval of MIPLYFFA on September 20, 2024. Under the XOMA License Agreement, XOMA is also entitled to a mid-single digit royalty on net sales of MIPLYFFA, as well as certain net sales and regulatory milestone payments. We also owe an additional royalty in the low-single digit to KU/UCLB on net sales of MIPLYFFA and a 10% royalty on net sales of OLPRUVA under the Relief Termination Agreement. Other components of cost of product revenue include $6.2 million of non-cash intangible asset amortization related to the MIPLYFFA and OLPRUVA capitalized assets and $5.7 million in inventory obsolescence reserve expense related to OLPRUVA inventory during the year.

Operating Expenses

We classify our operating expenses into two categories: research and development expenses and selling general and administrative expenses. Salaries and personnel-related costs, including benefits, bonuses and stock-based compensation expense, comprise a significant component of each of these expense categories. We allocate expenses associated with our facilities, information technology costs and depreciation and amortization between research and development expenses and general and administrative expenses based on employee headcount and the nature of work performed by each employee.

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Research and Development Expense

Research and development expense consists of expenses incurred while performing research and development activities to discover and develop potential product candidates. This includes conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for product candidates. We recognize research and development expenses as they are incurred. Our research and development expense primarily consists of:

We typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs, other internal costs or external consultant costs to specific product candidates or development programs.

The following table summarizes our research and development costs for the years ended December 31, 2024 and 2023 (in thousands):

We anticipate that our research and development expenses will fluctuate in accordance with our strategic plan as we continue our efforts to advance the development of our product candidates.

The successful development of our product candidates is highly uncertain. At this time, we cannot be certain regarding the nature, timing or costs required to complete the remaining development of any product candidates. This is due to the numerous risks and uncertainties associated with the development of our products and product candidates.

Selling, General and Administrative Expense

We anticipate that selling expenses will vary from quarter to quarter in accordance with our strategic plan as we continue our efforts to commercialize MIPLYFFA and OLPRUVA. The successful commercialization of AZSTARYS, MIPLYFFA, OLPRUVA, or any of our other product candidates that may be approved is highly uncertain. At this time, we cannot be certain regarding the nature, timing or costs required to commercialize MIPLYFFA, OLPRUVA, or any of our product candidates that may be approved in the future, due to the numerous risks and uncertainties associated with commercialization activities.

General and administrative expenses primarily consist of salaries and personnel-related costs, including employee benefits and any stock-based compensation, for employees performing functions other than research and development. This includes personnel in executive, finance, human resources and administrative support functions. Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expense, professional fees for auditing, tax and legal services, expenses associated with obtaining and maintaining patents, consulting costs and costs of our information systems.

We expect that our general and administrative expenses will fluctuate as we continue to operate as a public reporting company and continue to develop our product candidates. We believe that these fluctuations will likely include costs related to the hiring of additional personnel and fees for outside consultants, lawyers and accountants. We also expect to continue to incur costs to comply with corporate governance, internal control, investor relations, disclosure and similar requirements applicable to public reporting companies.

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Other (Expense) Income

Other (expense) income consists primarily of non-cash costs associated with fair value adjustments to our derivative and warrant liability and amortization of debt issuance costs and debt discount to interest expense. Other (expense) income also includes interest expense incurred on our outstanding borrowings as well as interest and other income consisting primarily of interest earned on investments. These items are unrelated to our core business and thus are recognized as other (expense) income in our consolidated statements of operations.

Results of Operations

The results of operations and changes in stockholders' equity for Acer were included in the Company's consolidated financial statements beginning November 18, 2023. Acer had total operating revenue of $42,000 and a net loss of $6.8 million for the period from November 18, 2023, through December 31, 2023.

Comparison of the Years Ended December 31, 2024, and 2023 (in thousands):

Net Loss

Net loss for the year ended December 31, 2024, was $105.5 million compared to net loss of $46.0 million for the year ended December 31, 2023. The change was attributable to an increase in loss from operations of $37.4 million, a change in fair value adjustment related to investments of $0.6 million, an increase in interest expense of $5.9 million, a decrease in net interest income and other income of $2.4 million, and an increase in income tax expense of $15.4 million, partially offset by an increase in the change in fair value adjustment related to derivative and warrant liability and CVR liability of $2.2 million.

Revenue

Revenue for the year ended December 31, 2024, was $23.6 million, a decrease of approximately $3.8 million compared to revenue of $27.5 million for the year ended December 31, 2023. The decrease was primarily attributable to a decrease in sales under the AZSTARYS License Agreement of $14.2 million and a decrease in consulting revenue of $0.2 million, partially offset by an increase of $10.1 million in MIPLYFFA product sales, an increase in sales under the EAP of approximately $0.4 million, and an increase of $0.1 million in OLPRUVA product sales.

Cost of Product revenue

Cost of product revenue for the year ended December 31, 2024, was $7.4 million, an increase of $5.2 million compared to cost of product revenue of $2.2 million for the year ended December 31, 2023, primarily due to recognition of $5.7 million of inventory obsolescence related to OLPRUVA, an increase of $0.8 million in cost of MIPLYFFA product sales and royalties, and an increase of $0.2 million related to OLPRUVA product sales and royalties, partially offset by a decrease in royalty payments related to the AZSTARYS License Agreement of approximately $1.5 million.

Intangible asset amortization

Intangible asset amortization for the year ended December 31, 2024, was $6.2 million an increase of approximately $5.5 million compared to intangible asset amortization of $0.8 million for the year ended December 31, 2023. The increase was due to an increase of $5.5 million in amortization expense related to definite-lived intangible assets.

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Research and Development

Research and development expenses increased by $2.3 million, from $39.8 million for the year ended December 31, 2023, to $42.1 million for the year ended December 31, 2024. This increase was attributable to increases in personnel-related costs and share-based compensation expenses of $6.3 million and $0.9 million, respectively, partially offset by decreases in third-party research and development costs of $3.6 million and other research and development costs of $1.3 million.

General and Administrative

General and administrative expenses increased by $20.6 million, from $34.3 million for the year-ended December 31, 2023, to $54.9 million for the year ended December 31, 2024. This increase was attributable to increases in marketing costs of $10.1 million, share-based compensation expenses of $7.2 million, personnel-related costs of $1.6 million, and other expenses of $2.2 million, primarily made up of expenses related to facilities, insurance, and travel. These increases were partially offset by a decrease in professional fees of $0.5 million. Acer transaction costs were $2.2 million and are included in general and administrative expenses for the year-ended December 31, 2023.

Other (Expense) Income

Other (expense) income changed from $3.6 million of income for the year ended December 31, 2023, to $3.1 million of expense for the year ended December 31, 2024. This period-to-period change in other (expense) income was primarily attributable to an increase in interest expense of $5.9 million, a decrease in the change in fair value related to investments of $0.6 million, and a decrease in net interest and other income of $2.4 million, partially offset by a decrease in the fair value adjustment related to derivative and warrant liability and CVR liability of $2.2 million.

Income Tax Expense

Income tax expense for the year ended December 31, 2024, was $15.4 million as a result of a periodic evaluation of our tax positions. There was no income tax expense for the year ended December 31, 2023.

Liquidity and Capital Resources

Sources of Liquidity

Through December 31, 2024, we have funded our research and development and operating activities primarily through the issuance of debt and equity and from revenue received from the EAP, AZSTARYS License Agreement, OLPRUVA product sales, MIPLYFFA product sales and consulting arrangements. As of December 31, 2024, we had cash, cash equivalents and investments of $75.5 million.

To date, we have generated revenue from product sales of OLPRUVA and MIPLYFFA, product reimbursements from the EAP, proceeds from the AZSTARYS License Agreement, reimbursement of out-of-pocket third-party costs and the performance of consulting services.

On February 26, 2025, we entered into the PRV Transfer Agreement, pursuant to which we agreed to sell the PRV to the buyer, subject to customary closing conditions. Pursuant to the PRV Transfer Agreement, the buyer agreed to pay the Company $150.0 million, payable in cash, upon the closing of the sale.

We have had recurring negative net operating cash flows throughout our operating history, and we cannot guarantee or predict when we may begin to consistently generate positive net cash flows from operations, or if at all. We expect that our sources of revenue will be from product sales of OLPRUVA and MIPLYFFA, product reimbursements from the EAP, proceeds from our license agreement with Commave, and any other future arrangements related to one of our product candidates.

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.

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Registration Statements on Form S-3

In connection with the Merger, we and Nantahala Capital Management, LLC (“Nantahala”) concurrently entered into a registration rights agreement, pursuant to which we agreed to file a resale registration statement with respect to the resale of our common stock issuable to Nantahala. On February 5, 2024, we filed a registration statement on Form S-3 (File No. 333-276856) registering an aggregate of 2,269,721 shares of our common stock. On April 5, 2024, we filed an amendment to such registration statement, which was declared effective on April 8, 2024.

On June 4, 2024, we filed a registration statement on Form S-3 (File No. 333-279941) (the "June 2024 Registration Statement") under which we sell securities, including as may be issuable upon conversion, redemption, repurchase, exchange or exercise of securities, in one or more offerings up to a total aggregate offering price of $350.0 million, $75.0 million of which was allocated to the sale of the shares of common stock issuable under the 2024 ATM Agreement. The registration statement was declared effective on June 13, 2024.

August 2024 Offering

On August 8, 2024, we entered into an underwriting agreement (the “Underwriting Agreement”) with Cantor Fitzgerald & Co. and William Blair & Company, L.L.C., as representatives of the several underwriters named therein (collectively, the “Underwriters”), in connection with the offering, issuance and sale by us of 9,230,770 shares of our common stock at a public offering price of $6.50 per share, pursuant to the June 2024 Registration Statement and a related prospectus supplement dated August 8, 2024 filed with the SEC (the "August 2024 Offering"). Under the terms of the Underwriting Agreement, we also granted the Underwriters an option exercisable for 30 days to purchase up to an additional 1,384,615 shares of our common stock at the public offering price, less underwriting discounts and commissions, which the Underwriters exercised in full on August 9, 2024. The August 2024 Offering closed on August 12, 2024. Total shares issued were 10,615,385. Net proceeds from the offering were approximately $64.5 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds of the offering to support the commercial launch activities for MIPLYFFA, continued commercial support for OLPRUVA and the continued development of celiprolol and KP1077 through potential NDA filings and other general corporate purposes.

Entry into 2024 ATM Agreement

On July 12, 2024, we entered into an equity distribution agreement (the "2024 ATM Agreement") with Citizens JMP Securities LLC ("Citizens JMP") under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $75.0 million through Citizens JMP as its sales agent. The issuance and sale, if any, of common stock by us under the 2024 ATM Agreement will be made pursuant to the June 2024 Registration Statement, the accompanying prospectus, and the related prospectus supplement dated July 12, 2024. Citizens JMP 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. Citizens JMP will use commercially reasonable efforts to sell the common stock from time to time, based upon instructions from us (including any price, time or size limits or other customary parameters or conditions we may impose). We will pay Citizens JMP a commission equal to 3.0% in the aggregate of the gross sales proceeds of any common stock sold through Citizens JMP under the 2024 ATM Agreement. As of December 31, 2024, no shares have been issued or sold under the 2024 ATM Agreement.

Termination of 2021 ATM Agreement

On July 2, 2021, we entered into an equity distribution agreement (the "2021 ATM Agreement") with JMP Securities LLC ("JMP") and RBC Capital Markets, LLC ("RBCCM") under which we may offer and sell, from time to time at our sole discretion, shares of our 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 us under the 2021 ATM Agreement was to be made pursuant to the registration statement on Form S-3 (File No. 333-257661) which was declared effective on July 12, 2021, the accompanying prospectus, and the related prospectus supplement dated July 12, 2021. The 2021 ATM Agreement terminated on July 11, 2024, and no shares had been issued or sold under the 2021 ATM Agreement as of the termination date.

Merger Transactions and Documents

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

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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 CVR to be issued by Zevra, which will represent the right to receive one or more contingent payments up to an additional $76.0 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).

Stockholders Agreement

In connection with the Merger, a certain stockholder of Acer entered into, and Acer agreed to use its reasonable best efforts to cause certain other stockholders to enter into joinders to, a stockholders agreement with Zevra (the “Stockholders Agreement”). Pursuant to the Stockholders Agreement, the stockholders party thereto agreed to, or would agree to, among other things, vote all of their shares in Zevra that they own in favor of each nominee included in the Zevra board of director’s slate of nominees for each election of directors and in favor of each matter approved by the Zevra board of directors and submitted to stockholders of Zevra for the approval of stockholders following the closing of the Merger and until the second anniversary of the closing date of the Merger (the “Trigger Date”). In addition, the stockholders party to the Stockholders Agreement will be subject to customary standstill provisions, subject to certain exceptions, until the Trigger Date.

Cancellation of Acer Warrant

On November 22, 2023, we sold an aggregate of 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 $6.0 million and an aggregate of 917,934 shares of our common stock to cancel a warrant held by the 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.

Margin Account

On January 26, 2023, the Company and Wells Fargo, as lender, entered into a margin account agreement. The margin account bears interest at the Prime Rate minus 225 basis points. 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. As of December 31, 2023, $37.7 million was outstanding under the margin account. The margin loan was included in current liabilities as of December 31, 2023, as the Company expected the outstanding balance to be due and payable in 2024 based on the anticipated level of investment balance expected to be available over the course of fiscal year 2024 to meet the Collateral Requirement. 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.

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Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2024 and 2023 (in thousands):

Operating Activities

For the year ended December 31, 2024, net cash used in operating activities of $69.7 million consisted of a net loss of $105.5 million and $6.6 million in changes in working capital, partially offset by $42.5 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 from MIPLYFFA and OLPRUVA product sales, royalties under the AZSTARYS License Agreement, and reimbursements from the EAP. The changes in working capital consisted of $3.6 million related to a change in accounts payable and accrued expenses, $8.9 million related to a change in inventories, $2.2 million related to a change in prepaids and other assets, and $0.6 million related to operating lease liabilities, partially offset by $0.4 million related to a change in discount and rebate liabilities, $0.6 million related to a change in operating lease right of use assets, $0.8 million related to a change in other liabilities, and $6.9 million increase in accounts and other receivables. The adjustments for non-cash items primarily consisted of income tax expense of $15.4 million, stock-based compensation expense of $14.9 million, consulting fees paid in stock of$0.5 million, interest expense of $2.1 million, inventory obsolescence of $5.7 million and $5.7 million related to depreciation, amortization and other items, and a loss on disposal of $0.2 million, partially offset by a change in fair value adjustment of warrants and CVR of $2.1 million.

For the year ended December 31, 2023, net cash used in operating activities of $33.5 million consisted of a net loss of $46.0 million, partially offset by $6.0 million in changes in working capital and $6.5 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, EAP and the Corium Consulting Agreement. The changes in working capital consisted of $11.1 million related to a change in accounts payable and accrued expenses, $3.2 million related to a change in discount and rebate liabilities, $0.2 million related to a change in inventories, $0.3 million related to a change in operating lease right of use assets, $0.4 million related to a change in other liabilities, and $0.2 million related to a change in prepaids and other assets, partially offset by a $9.1 million increase in accounts and other receivables, and $0.3 million related to operating lease liabilities. The adjustments for non-cash items primarily consisted of stock-based compensation expense of $5.9 million, consulting fees paid in stock of $0.2 million, and $1.0 million related to depreciation, amortization and other items, partially offset by a change in the fair value adjustment related to investments of $0.6 million.

Investing Activities

For the year ended December 31, 2024, net cash used in investing activities was $22.1 million, which was attributable to purchases of investments of $41.1 million and a $6.0 million regulatory milestone payment to XOMA, partially offset by maturities of investments of $25.0 million.

For the year ended December 31, 2023, net cash used in investing activities was $17.4 million, which was attributable to $30.4 million attributable to the acquisition of Acer, purchases of investments of $45.8 million, and $0.3 million in purchases of property and equipment, partially offset by maturities of investments of $59.1 million.

Financing Activities

For the year ended December 31, 2024, net cash provided by financing activities was $82.1 million, which was primarily attributable to proceeds from the issuance of debt of $58.9 million, proceeds from insurance financing arrangements of $1.0 million and proceeds from sales of common stock under the Employee Stock Purchase Plan, or the ESPP, of$1.1 million, proceeds from issuance of common stock of $66.2 million, partially offset by repayments of debt of $42.7 million, payments of principal on insurance financing arrangements of $0.4 million, and payments of deferred offering costs of $2.0 million.

For the year ended December 31, 2023, net cash provided by financing activities was $28.5 million, which was primarily attributable to proceeds from the issuance of debt of $42.4 million, proceeds from insurance financing arrangements of $1.3 million and proceeds from sales of common stock under the Employee Stock Purchase Plan, or the ESPP, of $0.2 million, proceeds from issuance of common stock of $6.0 million, partially offset by repayments of debt of $17.5 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.

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Future Funding Requirements

We believe that our existing cash, cash equivalents and investments will be sufficient to fund our operations into 2029, subject to continuing compliance with our debt covenants. This estimate includes anticipated revenue from net sales of OLPRUVA and MIPLYFFA, net reimbursements from the EAP, royalties under the AZSTARYS License Agreement, and accounts for continued investments into our development pipeline programs. This estimate does not include proceeds from the PRV sale, which was announced on February 26, 2025.

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:

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:

To date, we have generated revenue from OLPRUVA and MIPLYFFA product sales, the AZSTARYS License Agreement, reimbursements of out-of-pocket third-party costs, the performance of consulting services, and product reimbursements under the EAP. We expect that, for the foreseeable future, our only sources of revenues will be through product sales of OLPRUVA and MIPLYFFA, payments arising from the AZSTARYS License Agreement, and any other future arrangements related to one of our product candidates and product sales under the EAP. We cannot guarantee that our current commercialization strategies, 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 receive reimbursements under the EAP or successfully commercialize OLPRUVA or MIPLYFFA. We also expect to continue to incur significant 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 product sales of OLPRUVA and MIPLYFFA, the AZSTARYS License Agreement, product reimbursements under the EAP, 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.

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 and/or commercialization efforts.

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Critical Accounting Estimates

This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of our 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 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.

While our significant accounting policies are more fully described in Note B to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are critical to the process of making significant estimates in the preparation of our financial statements and understanding and evaluating our reported financial results.

Acquisition of Intangible Assets

We record all assets and liabilities acquired in business acquisitions at fair value, including goodwill and other intangible assets. The initial recognition of goodwill and other intangible assets requires management to make subjective judgments concerning estimates of how the acquired assets will perform in the future using valuation methods including discounted cash flow analysis. Inherent in the determination of fair value of the reporting units are certain estimates and judgments, including the interpretation of current economic indicators and market valuations, as well as management’s strategic plans with regard to its operations. When utilizing a quantitative assessment, we determine fair value at the reporting unit level based on a combination of an income approach and market approach. The income approach is based on estimated future cash flows, discounted at a rate that approximates the cost of capital of a market participant, while the market approach is based on sales and/or earnings multiples of similar companies. These approaches use significant estimates and assumptions, including projected future cash flows and the timing of those cash flows, discount rates reflecting risks inherent in future cash flows, perpetual growth rates, and determination of appropriate market comparables.

Goodwill and Definite-Lived Intangible Assets

Goodwill represents the excess of the purchase price of an acquired business over the fair value assigned to the assets purchased and liabilities assumed. Goodwill is not amortized but is evaluated for impairment within our single reporting unit on an annual basis, during the fourth quarter, or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of our reporting unit below its carrying amount. Our estimates associated with the annual test of goodwill for impairment, as well as the as-needed assessment of the recoverability of definite-lived intangible assets, are considered critical due to the amount of these assets recorded on our consolidated balance sheets and the judgment required.

With respect to definite-lived intangible assets, we periodically evaluate whether events and circumstances have occurred that may affect the estimated useful life or the recoverability of the remaining balance of such assets. If such events or circumstances indicate that the carrying amount of these assets may not be recoverable, management would estimate the future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) were less than the carrying amount of the assets, we would recognize an impairment charge to reduce such assets to their fair value.

Revenue Recognition

The Company recognizes revenue in accordance with 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 the performance obligations; and 5) recognizing revenue when the performance obligations have been fulfilled.

Net revenues from product sales are recognized at the transaction price when the customer obtains control of the Company's product, which occurs at a point in time, typically upon receipt of the product by the customer. The Company's current single customer is a specialty pharmacy provider.

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.

Accrued Expenses

We enter into contractual agreements with third-party vendors who provide research and development, manufacturing, and other services in the ordinary course of business. Some of these contracts are subject to milestone-based invoicing and services are completed over an extended period of time. We record liabilities under these contractual commitments when an obligation has been incurred. This accrual process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed and estimating the level of service performed and the associated cost when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date based on the facts and circumstances known to us. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued expenses include:

We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we will adjust the accrual accordingly. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of these costs, our actual expenses could differ from our estimates.

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Stock-Based Compensation

We record the fair value of stock options issued as of the grant date as compensation expense. We recognize compensation expense over the requisite service period, which is equal to the vesting period. Stock-based compensation expense has been reported in our statements of operations as follows (in thousands):

Determination of the Fair Value of Stock-Based Compensation Grants

We calculate the fair value of stock-based compensation arrangements using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of subjective assumptions, including the expected volatility of our common stock, the assumed dividend yield, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and the fair value of the underlying common stock on the date of grant. In applying these assumptions, we considered the following factors:

We account for stock-based compensation arrangements with directors and consultants that contain only service conditions for vesting using a fair value approach. The grant date fair value of these options is measured using the Black-Scholes option pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option.

The following summarizes the assumptions used for estimating the fair value of stock options granted to employees for the periods indicated:

Utilization of Net Operating Loss Carryforwards and Research and Development Credits

As of December 31, 2024, we had federal net operating loss, or NOL, carryforwards of approximately $381.3 million, $118.5 million of which, if not utilized, will begin to expire in 2027 and $262.8 million of which have no expiration date. We also have certain state net operating loss carryforwards totaling $428.6 million, which, if not utilized, will begin to expire in 2027. We also have Denmark net operating loss carryforwards totaling $7.7 million which have an indefinite carryforward period in Denmark. The Company recorded refundable research and development tax credit as other income and not income tax under ASC 740 in the consolidated statement of operations for the year ended December 31, 2024. These refundable tax credits are a result of increased qualified research and development spending in certain jurisdictions which allow for a refundable credit even when the Company has no current period income tax expense.

In accordance with Section 382 of the Code, a change in equity ownership of greater than 50% within a three-year period results in an annual limitation on a company’s ability to utilize its NOL carryforwards created during the tax periods prior to the change in ownership. We performed a Section 382 ownership change analysis in 2017 and determined that we experienced an ownership change in 2010, which resulted in a portion of our net operating loss carryforwards being subject to an annual limitation under Section 382 through 2012. No other ownership changes or limitations on our historical net operating loss carryforwards were noted through the year ended December 31, 2017. In addition, we may have already experienced an ownership change, or may experience an ownership changes in the future, as a result of shifts in our stock ownership. If we determine that an ownership change has occurred and our ability to use our historical net operating loss carryforwards is materially limited, it would harm our future operating results by increasing our future tax obligations.

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Warrants

We account 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 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 consolidated statement of operations. The fair value of the warrants was estimated using the Black-Scholes option pricing model.

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