ZEVRA THERAPEUTICS INC
For the period ended Dec 31, 2023. Filed Apr 1, 2024.
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FY2023 · Filed Apr 1, 2024
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Report of EY US LLP
To the Stockholders and the Board of Directors of Zevra Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Zevra Therapeutics, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
Restatement of 2022 Financial Statements
As discussed in Note C to the consolidated financial statements, the financial statements as of and for the year ended December 31, 2022 have been restated to correct misstatements.
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the consolidated financial statements, the Company has sustained recurring losses and negative cash flows from operations, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note A. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
| Valuation of Contingent Consideration and Approved Product | |
| Description of the Matter | As described in Note R to the consolidated financial statements, on November 17, 2023, the Company completed its acquisition of Acer Therapeutics, Inc. in a transaction accounted for as a business combination. The total purchase consideration was approximately $73 million (including $8.5 million of contingent consideration) and the net assets acquired included a $68 million intangible asset related to the approved product (OLPRUVA). Auditing the Company’s valuations of the contingent consideration and OLPRUVA required auditor judgement due to the significant estimation utilized in the Company’s determination of the fair values. The significant estimation was primarily due to the valuation models used by management to measure the fair values of the contingent consideration and the approved product as well as the subjectivity of the significant underlying assumptions. The Company utilized a monte carlo simulation method to estimate the fair value of the contingent consideration and the significant assumptions used in the model were the forecasted revenues, the discount rate and the success probabilities. The Company used a discounted cash flow model to measure the fair value of OLPRUVA and the significant assumptions used in the model included forecasted revenues and the discount rate. |
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| How We Addressed the Matter in Our Audit | To test the fair value estimates of the contingent consideration and the approved product, we performed audit procedures which included, among others, evaluating the prospective financial information (“PFI”) used in the valuation models, testing the completeness and accuracy of the underlying data and evaluating the Company’s use of valuation methodologies. Our procedures to assess the PFI used in the valuation models, included, among others, evaluating the significant assumptions discussed above, by comparing them to industry and economic publications and trends, analyst reports and other objective sources. We involved our valuation specialists to assist in our evaluation of the reasonableness of the significant assumptions used in the fair value estimates as well as to independently calculate fair value estimates for the contingent consideration and OLPRUVA to compare to the Company’s recorded amounts. |
/s/Ernst & Young LLP
We have served as the Company’s auditor since 2022.
Orlando, Florida
April 1, 2024
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