SEC Form 10-Q filed by Acer Therapeutics Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number:
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(Exact name of registrant as specified in its charter)
(State or other jurisdiction of |
(I.R.S. Employer |
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Incorporation or organization) |
(Address of principal executive |
Identification No.) |
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offices and zip code) |
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Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: |
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Title of Each Class |
Trading Symbol |
Name of Each Exchange on Which Registered |
None * |
N/A |
N/A |
* On November 9, 2023, the registrant’s common stock was suspended from trading on the Nasdaq Capital Market and began trading on OTC Pink Market under the symbol “ACER”. On November 20, 2023, Nasdaq filed with the SEC a Notification of Removal from Listing and/or Registration on Form 25 to delist and deregister the common stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company will file with the SEC a Certification and Notice of Termination of Registration on Form 15 under the Exchange Act, requesting that the Company’s reporting obligations under Sections 13 and 15(d) of the Exchange Act be suspended.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 16, 2023, there were
ACER THERAPEUTICS INC.
For the nine months ended September 30, 2023
INDEX
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Item 1. |
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Condensed Balance Sheets as of September 30, 2023 and December 31, 2022 |
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Condensed Statements of Operations: For the three and nine months ended September 30, 2023 and 2022 |
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Condensed Statements of Cash Flows: For the nine months ended September 30, 2023 and 2022 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
44 |
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Item 4. |
44 |
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Item 1. |
45 |
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Item 1A. |
45 |
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Item 5. |
45 |
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Item 6. |
46 |
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48 |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ACER THERAPEUTICS INC.
CONDENSED BALANCE SHEETS
(Unaudited)
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September 30, |
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December 31, |
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2023 |
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2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Inventory |
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— |
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Prepaid expenses |
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Deferred financing costs |
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— |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Other assets: |
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Goodwill |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Deficit |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Deferred collaboration funding, current |
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— |
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Accrued payment to collaboration partner |
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— |
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Schelling Promissory Note payable to an officer |
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— |
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Other current liabilities |
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Convertible note payable, current, at fair value |
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— |
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Term Loans payable, current, at fair value |
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Zevra bridge loan payable |
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— |
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Total current liabilities |
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Term Loans payable, non-current, at fair value |
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— |
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Convertible note payable, at fair value |
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— |
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Other non-current liabilities |
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Total liabilities |
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Stockholders’ deficit: |
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Preferred stock, $ |
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— |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ deficit |
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( |
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( |
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Total liabilities and stockholders’ deficit |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
2
ACER THERAPEUTICS INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 and 2022
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenue: |
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$ |
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$ |
— |
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$ |
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$ |
— |
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Operating costs and expenses: |
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Cost of product revenue |
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— |
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— |
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Payments to collaboration partner |
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— |
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— |
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Research and development (net of collaboration funding of $ |
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Selling, general and administrative (net of collaboration funding of $ |
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Total operating costs and expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Other income (expense), net: |
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Costs of debt issuance |
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— |
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( |
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( |
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( |
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Loss on extinguishment of debt |
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— |
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— |
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( |
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— |
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Changes in fair value of debt instruments (loss) gain |
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( |
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( |
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Interest and other (expense) income, net |
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( |
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( |
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( |
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Foreign currency transaction gain (loss) |
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( |
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Total other (expense) income, net |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per share - basic |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding - basic |
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Net loss per share - diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding - diluted |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
3
ACER THERAPEUTICS INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
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Three and Nine Months Ended September 30, 2023 |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Stock-based compensation |
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— |
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— |
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— |
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Issuance of common stock and warrants, net of issuance costs |
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— |
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Proceeds allocated to Third SWK Warrant |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Stock-based compensation |
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— |
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— |
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— |
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Issuance of common stock, net of issuance costs |
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— |
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Issuance of Fourth SWK Warrant |
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— |
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— |
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— |
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Exercise of Pre-Funded Warrants |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, September 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Three and Nine Months Ended September 30, 2022 |
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Common stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Balance, December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Stock-based compensation |
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— |
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— |
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— |
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Proceeds allocated to First SWK Warrant |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Stock-based compensation |
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— |
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— |
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— |
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Issuance of common stock, net of issuance costs |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, June 30, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Issuance of common stock, net of issuance costs |
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— |
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Value of SWK Amendment Warrant |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance, September 30, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
4
ACER THERAPEUTICS INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
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Nine Months Ended September 30, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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Depreciation |
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Non-cash changes in fair value of debt, loss (gain) |
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( |
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Loss on extinguishment of debt |
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— |
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Non cash component of payment to collaboration partner |
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( |
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— |
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Debt issuance costs recognized as expense |
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Amortization of debt issuance costs |
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— |
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Loss on disposal of property and equipment, net |
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Changes in operating assets and liabilities |
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Collaboration receivable |
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- |
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Inventory |
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( |
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— |
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Prepaid expenses |
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Other current and non-current assets |
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Accounts payable |
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Accrued expenses |
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Deferred collaboration funding |
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( |
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( |
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Other current liabilities |
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- |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock and warrants, net of issuance costs |
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Proceeds from Original Term Loan, net of warrant allocation and lender fees |
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— |
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Proceeds from Marathon Convertible Notes, net of lender fees |
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— |
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Proceeds from SWK Second Term Loan, net of warrant allocation and lender fees |
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— |
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Cash proceeds from Zevra Bridge Loan |
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— |
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Proceeds allocated to First SWK Warrant based on valuation |
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— |
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Proceeds allocated to Third SWK Warrant based on valuation |
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— |
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Proceeds from exercise of Pre-Funded Warrants |
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— |
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Proceeds from issuance of Schelling Promissory Note payable to an officer |
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— |
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Payment of debt principal |
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( |
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— |
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Payment of issuance costs for debt and convertible debt |
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( |
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( |
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Net cash provided by financing activities |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental cash flow information: |
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Cash paid for interest |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
5
ACER THERAPEUTICS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Business
Acer Therapeutics Inc., a Delaware corporation (the “Company”), is a pharmaceutical company focused on the acquisition, development, and commercialization of therapies for serious rare and life-threatening diseases with significant unmet medical needs. The Company identifies and develops treatments where science can be applied in new ways for use in diseases with high unmet need.
In the U.S., OLPRUVA® (sodium phenylbutyrate) for oral suspension is approved for the treatment of urea cycle disorders (“UCDs”) involving deficiencies of carbamylphosphate synthetase (“CPS”), ornithine transcarbamylase (“OTC”), or argininosuccinic acid synthetase (“AS”). The Company also has a pipeline of investigational product candidates, including EDSIVO™ (celiprolol) for the treatment of vascular Ehlers-Danlos syndrome (“vEDS”) in patients with a confirmed type III collagen (COL3A1) mutation.
Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”), which contemplate continuation of the Company as a going concern. The Company has incurred recurring losses from operations, negative cash flows from operations, has a net working capital deficiency, and has a net capital deficiency. During the three months ended September 30, 2023 the Company generated its first commercial product revenues, however until such time as revenues increase to a level higher than its ongoing operating costs and expenses, it will continue to be dependent on additional funding. Since inception, the Company has experienced significant losses and incurred negative cash flows from operations. The Company has spent, and expects to continue to spend, a substantial amount of funds in connection with implementing its business strategy, including its planned product development efforts and commercial activities.
As of September 30, 2023, the Company had cash and cash equivalents of $
These factors individually and collectively raise substantial doubt about the Company’s ability to continue as a going concern on a standalone basis (assuming the Merger did not occur, see Note 2, Acquisition by Zevra, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report) for at least 12 months from the date these financial statements are available, or November 20, 2024. Subsequent to the close of the Merger, the Company would need a formal letter of support of its parent to eliminate the substantial doubt about its ability to continue as a going concern for the previously defined period which had not been formalized as of the filing of this 10-Q. The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern.
Basis of Presentation
The accompanying condensed financial statements are unaudited and have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. The unaudited condensed financial statements have been prepared on the same basis as the audited annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial position, results of operations, stockholders’ deficit and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other future annual or interim period. The condensed balance sheet as of December 31, 2022, included herein, was derived from the audited financial statements as of that date but does not include all disclosures required by GAAP. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2022.
6
Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
On August 30, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Zevra Therapeutics, Inc., a Delaware corporation (“Zevra”) and Aspen Z Merger Sub, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Zevra (“Merger Sub”), pursuant to which, subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving the merger as an indirect wholly-owned subsidiary of Zevra (the “Merger”).
Pursuant to the Merger Agreement, and upon the terms and subject to the conditions described therein, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of common stock of the Company (“Acer Common Stock”) (other than (i) shares held in the Company’s treasury or shares owned directly or indirectly by Zevra, Merger Sub or any wholly-owned subsidiary of Acer and (ii) any shares held by any holder who properly demands appraisal of such shares under Delaware law) converted automatically into and represent the right to receive (a)
The stockholders approved and adopted the Merger Agreement at the special meeting of stockholders of the Company held on November 8, 2023, at 11:00 a.m. Eastern Time (the “Special Meeting”). On
The Company’s significant accounting policies are described in Note 2, “Significant Accounting Policies,” in its Annual Report on Form 10-K for the year ended December 31, 2022.
Use of Estimates
The Company’s accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. From time to time, estimates having relatively higher significance include determination of stand-alone selling price and variable consideration estimates for purposes of measuring collaboration funding, inventory, revenue recognition and accounts receivable, deferred collaboration funding, accrued payments to collaboration partner, stock-based compensation, inputs to fair value for debt, contract manufacturing and clinical trial accruals, and income taxes. Actual results could differ from those estimates and changes in estimates may occur.
Revenue Recognition and Accounting for Collaboration Agreements
On December 27, 2022, the U.S. Food and Drug Administration (“FDA”) approved OLPRUVA® (sodium phenylbutyrate), a prescription medicine used along with certain therapy, including changes in diet, for the long-term management of adults and children weighing 44 pounds (20 kg) or greater and with a body surface area (BSA) of 1.2 m2 or greater, with UCDs, involving deficiencies of CPS, OTC or AS.
To commercialize OLPRUVA® for oral suspension in the U.S. we are building marketing, sales, medical affairs, distribution, managerial and other non-technical capabilities or making arrangements with third parties to perform these services. In accordance with ASC Topic 606 - Revenue from Contracts with Customers, or Topic 606, revenue is recognized when the customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services.
To determine revenue recognition for arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step
7
model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the Company will collect the consideration the Company expects to be entitled to in exchange for the goods or services the Company transfers to its customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Product Revenue, Net
The Company sells its approved products to its customers. Our current single customer is a specialty pharmacy provider, however the Company intends to establish additional customers such as other retail pharmacies and certain medical centers or hospitals. In addition to distribution agreements with our customer, the Company enters into arrangements with health care providers and payors that provide for government mandated and/or privately negotiated rebates with respect to the purchase of our products.
The Company recognizes revenue on product sales when the customer obtains control of our product, which occurs at a point in time (upon delivery). Product revenues are recorded net of applicable reserves for variable consideration, which are described below.
If taxes should be collected from customers relating to product sales and remitted to governmental authorities, they will be excluded from revenue. The Company expenses incremental costs of obtaining a contract when incurred if the expected amortization period of the asset that the Company would have recognized is one year or less. However, no such costs were incurred during the three and nine months ended September 30, 2023.
The Company had
Reserves for Variable Consideration
Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, third-party payor rebates, and other allowances that are offered within contracts between the Company, its customers and payors relating to the sale of our products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect in the transaction price the amount of consideration to which the Company expects to be entitled to based on the terms of the respective underlying contracts.
The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Our analyses also contemplated application of the constraint in accordance with the guidance, under which the Company determined a material reversal of revenue was not probable to occur in a future period for the estimates detailed below as of September 30, 2023 and, therefore, the transaction price was not reduced further during the three and nine months ended September 30, 2023. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, the Company will adjust these estimates, which would affect product revenue, net and earnings in the period such variances become known.
Trade Discounts and Allowances
The Company generally provides customers with prompt payment discounts that are explicitly stated in our contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. Payment from customers is typically due within 30 calendar days of the invoice date, without consideration to the prompt payment discounts
Product Returns
Consistent with industry practice, the Company generally offers customers a limited right of return for product that has been purchased from us based on the product’s expiration date, which is set to lapse within a specified period stated in the contract. Additionally, our limited right of return policy allows for eligible returns from customers in circumstances where product was
8
shipped in error or was damaged in shipping, product was returned pursuant to an official drug recall, or product was dispensed to a patient who has passed away or who is no longer able to continue therapy.
The Company estimates the amount of product sales that may be returned by our customers and record this estimate as a reduction of revenue in the period the related product revenue is recognized, as well as reductions to accounts receivable on the condensed consolidated balance sheets. The Company currently estimates returns using quantitative and qualitative information including, but not limited to, expected experience with actual returns, projected demand, levels of inventory in the distribution channel, product dating and expiration period, and whether products have been discontinued, among others. The Company has not received any returns to date and believe that returns of product in future periods will be minimal,
Payor Rebates
The Company contracts with certain government and private payor organizations, primarily government and commercial insurance companies, for the payment of rebates with respect to utilization of our products. The Company estimates these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.
Other Incentives
Other incentives which the Company offers include voluntary patient assistance programs, such as our co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue for each reporting period. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets.
Collaboration Activities
The Company also recognizes revenue and collaboration funding from a single collaboration agreement which included the sale of a license of intellectual property. The Company analyzes its collaboration agreements to assess whether they are within the scope of ASC Topic 808, Collaborative Arrangements, (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. To the extent the arrangement is within the scope of ASC 808, the Company assesses whether aspects of the arrangement between the Company and the collaboration partner are within the scope of other accounting literature. If the Company concludes that some or all aspects of the arrangement represent a transaction with a customer, the Company accounts for those aspects of the arrangement within the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). If the Company concludes that some or all aspects of the arrangement are within the scope of ASC 808 and do not represent a transaction with a customer, the Company recognizes the Company’s share of the allocation of the shared costs incurred with respect to the jointly conducted activities as a component of the related expense in the period incurred. Pursuant to ASC 606, a customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. If the Company concludes a counter-party to a transaction is not a customer or otherwise not within the scope of ASC 606 or ASC 808, the Company considers the guidance in other accounting literature as applicable or by analogy to account for such transaction.
The Company determines the units of account within the collaborative arrangement utilizing the guidance in ASC 606 to determine which promised goods or services are distinct. In order for a promised good or service to be considered “distinct” under ASC 606, the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
For any units of account that fall within the scope of ASC 606, where the other party is a customer, the Company evaluates the separate performance obligation(s) under each contract, determines the transaction price, allocates the transaction price to each performance obligation considering the estimated stand-alone selling prices of the services and recognizes revenue upon the satisfaction of such obligations at a point in time or over time dependent on the satisfaction of one of the following criteria: (1) the customer simultaneously receives and consumes the economic benefits provided by the vendor’s performance; (2) the vendor
9
creates or enhances an asset controlled by the customer; and (3) the vendor’s performance does not create an asset for which the vendor has an alternative use and the vendor has an enforceable right to payment for performance completed to date.
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property is recognized only when (or as) the later of the following events occurs: (i) the subsequent sale or usage occurs; or (ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied).
On January 25, 2021, the Company entered into an Option Agreement with Relief Therapeutics Holding AG (“Relief”) pursuant to which the Company granted Relief an exclusive option to pursue a potential collaboration and license arrangement with the Company for the development, regulatory approval and commercialization of OLPRUVA® for the treatment of various inborn errors of metabolism, including UCDs and MSUD (the “Option Agreement”). The Option Agreement provided a period of time up to June 30, 2021 for the parties to perform additional due diligence and to work toward negotiation and execution of a definitive agreement with respect to the potential collaboration for ACER‑001. In consideration for the grant of the Exclusivity Option, (i) the Company received from Relief an upfront nonrefundable payment of $
The Company assessed these agreements in accordance with the authoritative literature and concluded that they meet the definition of a collaborative arrangement per ASC 808. For certain parts of the Collaboration Agreement, the Company concluded that Relief represented a customer while, for other parts of the Collaboration Agreement, Relief did not represent a customer. The units of account of the Collaboration Agreement where Relief does not represent a customer are outside of the scope of ASC 606. The Company also determined that the development and commercialization services and Relief’s right to
The Company concluded the promised goods and services contained in the Collaboration Agreement, represented two distinct units of account consisting of a license in the Relief Territory, and a combined promise for the development and commercialization of OLPRUVA® in the Acer Territory and the payment of
The Company determined that the transaction price at the outset of the Collaboration Agreement was $
10
Relief receives EU marketing approval, respectively. The contingency associated with the Second Development Payment was resolved in the fourth quarter of 2021.
Since ASC 808 does not provide recognition and measurement guidance for collaborative arrangements, the Company applied the principles of ASC 606 for those units of account where Relief is a customer and ASC 730-20 for the funded research and development activities. The license revenue was recognized at the point where the Company determined control was transferred to the customer. The combined unit of account for the Services associated with the allocation of the initial transaction price will be recognized over the service period through the anticipated date of first commercial sale of the OLPRUVA® approved product in the U.S. The Company also determined that the Services associated with the allocation of the initial transaction price would be satisfied over time as measured using actual costs as incurred by the Company toward the identified development and commercialization services agreed to between the parties up to the point of first commercial sale of the OLPRUVA® product. Research and development expenses and selling, general and administrative expenses, as they relate to activities governed by the Collaboration Agreement, incurred in satisfying the Services unit-of-account will be recognized as contra-expense within their respective categories, consistent with the presentation guidance in ASC Topic 730.
The Company previously recognized a receivable under the Collaboration Agreement when the consideration to be received is deemed unconditional, or when only the passage of time is required before payment of that consideration is due. Amounts previously reported as receivable under the Collaboration Agreement plus payments received from Relief, net of the amounts recorded as license revenue and as offsets to research and development expenses and to selling, general and administrative expenses, were reported as deferred collaboration funding. The Company had recognized up to June 30, 2023, deferred collaboration funding as it incurred expenses associated with performing the Services up to the date of first commercial sale in the Acer Territory which occurred in July 2023.
On August 28, 2023 and as a condition to the Merger Agreement, Acer and Relief entered into a Termination Agreement, pursuant to which Acer and Relief mutually agreed to terminate the Collaboration Agreement (the “Termination Agreement”). In accordance with the terms of the Termination Agreement, Relief received an upfront payment from Acer of $
As a result of the Termination Agreement the Company recognized a loss of $
In connection with the Termination Agreement, the Company and Relief entered into an Exclusive License Agreement ("ELA”), pursuant to which Relief will hold exclusive development and commercialization rights for OLPRUVA® in the European Union, Liechtenstein, San Marino, Vatican City, Norway, Iceland, Principality of Monaco, Andorra, Gibraltar, Switzerland, United Kingdom, Albania, Bosnia, Kosovo, Montenegro, Serbia and North Macedonia (“Geographical Europe”). Acer will have the right to receive a royalty of up to
Cost of Product Revenue
Cost of product revenue consists primarily of costs associated with the manufacturing of OLPRUVA® and certain period costs, which include:
11
As a result of global macroeconomic conditions, the Company may experience some disruption and volatility in its global supply chain network, and the Company may in the future experience disruptions in availability and delays in shipments of raw materials and packaging, as well as related cost inflation, which will have an impact on its cost of product revenue.
Sales and marketing costs
Sales and marketing expenses consist primarily of wages and benefits for sales and marketing personnel, professional and consulting fees, administrative travel expenses, and marketing and advertising costs such as marketing literature, promotional activities, conferences and seminars and branding. The cost of OLPRUVA® product which is shipped to customers specially designated to be utilized for patient support programs is classified as sales and marketing expense. Sales and marketing costs are expensed as incurred and included in selling, general and administrative expenses in the accompanying condensed statements of operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.
Financial instruments consist of cash equivalents, accounts receivable from customers, collaboration receivable, accounts payable, accrued expenses, and certain debt instruments. These financial instruments are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature, except for cash equivalents and the Term Loans and Marathon Convertible Notes debt instruments for which the Company has elected fair value treatment, which were marked to market at the end of each reporting period. See Note 8, Fair Value Measurement, in these Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report, for additional information on the fair value of the debt liabilities.
The Company elected the fair value option for both its Original Term Loan and its Marathon Convertible Notes dated March 14, 2022. The Company also elected the fair value option for the Second Term Loan (see Note See Note 8, Fair Value Measurement, in these Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report). The Company was not required to change its fair value option in connection with the sale of the Term Loans by SWK to Nantahala. The Company adjusts both the Original Term Loan and the Marathon Convertible Notes to fair value through the change in fair value of debt in the accompanying statements of operations. Subsequent unrealized gains and losses on items for which the fair value option is elected are reported in the accompanying statements of operations.
Clinical Trial and Preclinical Study Expenses
No material changes in estimates of clinical trial or preclinical study expenses were recognized in either of the three or nine months ended September 30, 2023 or 2022. Accounts payable and accrued expenses include costs associated with preclinical or clinical studies of $
Stock-Based Compensation
The Company records stock-based payments at fair value. The measurement date for compensation expense related to awards is generally the date of the grant. The fair value of awards is recognized as an expense in the statement of operations over the requisite service period, which is generally the vesting period. The Company utilizes the simplified method to estimate the expected
12
term of options until such time that it has adequate option granting and exercise history to refine this estimate. The fair value of options is calculated using the Black-Scholes option pricing model. This option valuation model requires the use of assumptions including, among others, the volatility of stock price, the expected term of the option, and the risk-free interest rate. A limited number of option grants are periodically made to non-employee contractors.
The following assumptions were used to estimate the fair value of stock options granted during the nine months ended September 30, 2023 and 2022 using the Black-Scholes option pricing model:
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2023 |
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2022 |
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Risk-free interest rate |
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Expected life (years) |
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Expected volatility |
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Dividend rate |
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Due to its limited operating history and a limited trading history of its common stock in relation to the life of its standard option grants, the Company estimates the volatility of its stock in consideration of a number of factors including the Company’s available stock price history and the stock price volatility of comparable public companies. The expected term of a stock option granted to employees and directors (including non-employee directors) is based on the average of the contractual term (generally
Inventory
The Company values its inventories at the lower-of-cost or net realizable value. The Company determines the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. The Company classifies its inventory costs as long term, in other assets in its balance sheets, when it expects to utilize the inventory beyond their normal operating cycle.
Prior to the regulatory approval of a product candidate, the Company incurs expenses for the manufacture of material that could potentially be available to support the commercial launch of its products upon approval. Until the first reporting period when regulatory approval has been received or is otherwise considered probable and the future economic benefit is expected to be realized, the Company records all such costs as research and development expense. Inventory used in clinical trials is also expensed as research and development expense, when selected for such use. Inventory that can be used in either the production of clinical or commercial products is expensed as research and development costs when identified for use in a clinical manufacturing campaign. The cost of finished goods inventory that is shipped to a customer to support the Company’s patient assistance programs is expensed when those shipments take place.
The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and writes down any excess and obsolete inventory to its net realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded as a component of cost of product sales in the statements of operations and comprehensive loss. The determination of whether inventory costs will be realizable requires the use of estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required. Additionally, the Company’s product is subject to strict quality control and monitoring that it performs throughout the manufacturing process. In the event that certain batches or units of product do not meet quality specifications, the Company will record a charge to cost of product sales, to write-down any unmarketable inventory to its estimated net realizable value.
The components of inventory are summarized as follows:
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September 30, 2023 |
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December 31, 2022 |
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Raw materials |
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$ |
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$ |
— |
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Work in process |
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— |
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Finished goods |
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— |
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Overhead |
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— |
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Total inventory |
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$ |
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$ |
— |
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Goodwill
Goodwill represents the excess of the purchase price (consideration paid plus net liabilities assumed) of an acquired business over the fair value of the underlying net tangible and intangible assets. The Company’s goodwill is allocated to the Company’s single reporting unit. The Company evaluates the recoverability of goodwill according to ASC Topic 350, Intangibles – Goodwill and Other annually, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill might be impaired. The Company may opt to perform a qualitative assessment or a quantitative impairment test to determine whether goodwill is impaired. If the Company were to determine based on a qualitative assessment that it was more likely than not that the fair value of the reporting unit was less than its carrying value, a quantitative impairment test would then be performed. The quantitative impairment test compares the fair value of the reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than its carrying amount, a goodwill impairment would be recognized for the difference. The Company performed a qualitative analysis of goodwill as of June 21, 2022 as it considered the Complete Response Letter received from the FDA in June 2022 with respect to the Company’s NDA in respect of OLPRUVA® (sodium phenylbutyrate) for oral suspension for the treatment of patients with UCDs to be a triggering event requiring it to perform that analysis. Management concluded that it was more likely than not that the fair value of the reporting unit was greater than its carrying amount. As of September 30, 2023 and December 31, 2022, the Company's liabilities were in excess of its assets, including goodwill. ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. Accordingly, the Company was not required to perform an evaluation.
Foreign Currency Transaction Gain/(Loss)
Gains and losses arising from transactions and revaluation of balances denominated in currencies other than U.S. dollars are recorded in foreign currency transaction gain/(loss) on the statements of operations.
Income Taxes
The Company recorded
The Company believes that a Section 382 ownership change has occurred as a result of the Merger. This ownership change may limit the amount of NOL carryforwards from periods prior to Section 382 ownership changes that can be utilized annually to offset taxable income in years after the ownership changes, and could also limit utilization of various tax credits. The Company has not completed a Section 382 analysis of the NOL carryforwards impacted by the Merger. Consequently, the Company's NOL carryforwards may be subject to annual limitations under Section 382.
The tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in the current year. There were
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Basic and Diluted Net Loss per Common Share
Basic and diluted net loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period and, in those instances where it would be dilutive, the weighted average number of potential shares of common stock including the assumed exercise of stock options and warrants, the impact of unvested restricted stock, and the potential shares assuming conversion of convertible debt. Basic and diluted shares outstanding are the same for each period presented when all common stock equivalents, including potential shares from convertible debt and warrants, would be antidilutive due to the net losses incurred, except in certain instances as noted below. In certain circumstances the Company includes in both the calculation of basic and diluted net loss per share, the weighted average number of shares associated with a pre-funded warrant because the exercise of such a warrant is virtually assured since the exercise price is nonsubstantive.
The two-class method is an earnings allocation formula that treats a participating security, such as a warrant, as having rights to earnings that otherwise would have been available to common stockholders. However, the two-class method does not impact the net loss per share of common stock as the Company has been in a net loss position and while our warrants are considered a participating security, the terms of the warrant agreement does not obligate them to participate in losses. Diluted net income per share is computed using the more dilutive of (a) the two-class method or (b) the if-converted method or treasury stock method, as applicable, to the potentially dilutive instruments. A contract that may be settled in shares and is reported as an asset or liability for accounting purposes may require an adjustment to the numerator for any changes in income or loss that would result if the contract had been reported as an equity instrument for accounting purposes during the period, and doing so is dilutive to the net loss per share calculation (including as a result of the inclusion of underlying shares in the net loss per share calculation).
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13. Financial Instruments-Credit Losses (Topic 326), which requires a financial asset to be presented at amortized cost basis at the net amount expected to be collected and also that credit losses relating to available-for-sale debt securities be recorded through an allowance for credit losses. In November 2019, the FASB issued an amendment making this ASU effective for annual reporting periods beginning after December 15, 2022 for smaller reporting companies. The Company
Property and equipment consisted of the following at September 30, 2023 and December 31, 2022:
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September 30, |
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December 31, 2022 |
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Computer hardware and software |
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$ |
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$ |
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Leasehold improvements |
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Furniture and fixtures |
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Subtotal property and equipment, gross |
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Less accumulated depreciation |
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( |
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( |
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Property and equipment, net |
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$ |
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$ |
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Accrued expenses consisted of the following at September 30, 2023 and December 31, 2022:
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September 30, |
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December 31, 2022 |
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Accrued employee bonus and vacation |
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$ |
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$ |
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Accrued contract manufacturing |
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Accrued accounting, audit, and tax fees |
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Accrued contract research and regulatory consulting |
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Accrued precommercial and commercial costs |
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Accrued consulting |
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|
|
|
|
|
||
Accrued license fees |
|
|
|
|
|
|
||
Accrued legal fees |
|
|
|
|
|
|
||
Accrued interest |
|
|
- |
|
|
|
|
|
Total accrued expenses |
|
$ |
|
|
$ |
|
||
The Company leases office space in Newton, Massachusetts and Bend, Oregon. The Newton lease was classified as an operating lease until it expired on December 31, 2022, and the Company is currently renting space on a
The following table reconciles the undiscounted lease liabilities to the total lease liabilities recognized on the unaudited condensed balance sheet as of September 30, 2023:
|
|
|
|
|
|
||
|
As of September 30, 2023 |
|
|
As of December 31, 2022 |
|
||
2023 |
|
|
|
|
|
||
2024 |
|
|
|
|
|
||
2025 |
|
|
|
|
|
||
Total undiscounted lease liabilities |
|
|
|
|
|
||
Less effects of discounting |
|
( |
) |
|
|
( |
) |
Total lease liabilities as of September 30, 2023 |
$ |
|
|
$ |
|
||
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
$ |
|
|
$ |
|
|||
|
|
|
|
|
|||
Total lease liabilities |
$ |
|
|
$ |
|
||
16
Bridge Loan Agreement and Security Agreement
In connection with the signing of the Merger Agreement, on August 30, 2023, Acer and Zevra entered into a Bridge Loan Agreement (the “Bridge Loan Agreement”) and related Security Agreement (the “Security Agreement”), pursuant to which Zevra agreed to lend, in tranches, up to $
Additionally, pursuant to agreements negotiated between Zevra and Nantahala Capital Management, LLC, Zevra became the successor party to that certain Credit Agreement (defined below under SWK Credit Agreement) dated March 4, 2022 by and among Acer, as borrower, Zevra (as successor) as the agent, and the lenders party thereto, and that certain Secured Convertible Note Purchase and Security Agreement dated March 4, 2022 by and among Acer, as the issuer, Zevra (as successor) as the agent, and the purchasers party thereto (collectively the “Existing Secured Debt”). In connection therewith, Acer’s obligations in respect of the Existing Secured Debt were subordinated to Acer’s obligations under the Bridge Loan Agreement. Through September 30, 2023, Acer drew $
SWK Credit Agreement
On March 4, 2022, the Company entered into the SWK Credit Agreement with the lenders party thereto and SWK, as the agent, sole lead arranger and sole bookrunner, which provides for a senior secured term loan facility in an aggregate amount of $
The Original Term Loan bore interest at an annual rate of the sum of (i)
17
women). SWK, the lender, agreed per the terms of an amended credit agreement that the minimum cash requirement could be lowered to $
The Original Term Loan is secured by a first priority lien on all assets of the Company and any of its future subsidiaries pursuant to the SWK Security Agreement. The SWK Credit Agreement contains customary representations and warranties and affirmative and negative covenants. The Company paid to SWK $
In connection with the execution of the SWK Credit Agreement, the Company issued a warrant (the “First SWK Warrant”) to purchase
The Company recognized the fair value of the First SWK Warrant for $
The Company evaluated its compliance with all covenants with respect to the SWK Credit Agreement as amended and concluded that it was in compliance as of September 30, 2023.
Further Amendments to Original Term Loan
On January 30, 2023, the Company entered into a Second Amendment (the “Second Amendment”) to the SWK Credit Agreement. In addition to other provisions, the Second Amendment provides for an additional senior secured term loan to be made to the Company in an aggregate amount of $
On May 12, 2023, the Company entered into a Third Amendment (the “Third Amendment”) to the SWK Credit Agreement. In addition to other provisions, the Third Amendment provided for (i) a temporary reduction in the minimum amount of unencumbered liquid assets required to be maintained by the Company (from $
The Term Loans made under the SWK Credit Agreement as amended by and through the Third Amendment (the “Current SWK Credit Agreement”) bear interest at an annual rate of the sum of (i) 3-month SOFR, subject to a
18
payment-in-kind interest amounts. Upon the repayment of the Second Term Loan (whether voluntary or at scheduled maturity), the Company must pay an exit fee so that SWK receives an aggregate amount (inclusive of all principal, interest and origination and other fees paid in cash to SWK under the Current SWK Credit Agreement with respect to the Second Term Loan equal to the outstanding principal amount of the Second Term Loan (inclusive of payment-in-kind interest amounts) multiplied by: (i) if the repayment occurred prior to May 16, 2023,
In connection with the execution of the Second Amendment, the Company issued to SWK an additional warrant (the “Third Warrant”) to purchase
The Company classified the entire fair value of the SWK Original Term Loan, and Second Term Loan which are both due within twelve months from the date of this report, as current in the balance sheet as of September 30, 2023.
In connection with the Second Amendment and the origination of the SWK Second Term Loan, the Company determined that the changes in the cash flows were greater than ten percent, and thus concluded that the modification should be accounted for as an extinguishment. The Company evaluated the change in the fair value of the SWK Second Term loan pre-modification compared to post-modification and concluded that a loss on extinguishment of $
On June 16, 2023, SWK sold the Term Loans to Nantahala. In connection with the sale of the Term Loans there were no changes to any of the contractual provisions of the loans; however, the Company (i) issued to SWK the Fourth SWK Warrant to purchase
Pursuant to agreements negotiated between Zevra and Nantahala in connection with the activities contemplated by the Merger Agreement and the Bridge Loan Agreement, Zevra has become the successor party to Nantahala for purposes of the Term Loans (as lender) and the SWK Loan Agreement. In connection therewith, Acer’s obligations in respect of the Term Loans were subordinated to Acer’s obligations under the Bridge Loan Agreement. The Company concluded that it would continue to utilize the fair value election subsequent to Merger Agreement to account for the Term Loans.
Marathon Convertible Notes
On March 4, 2022, the Company also entered into the Marathon Convertible Note Purchase Agreement with MAM Aardvark, LLC (“Marathon”) and Marathon Healthcare Finance Fund, L.P. (“Marathon Fund” and together with “Marathon” each a “Holder” and collectively the “Holders”) pursuant to which the Company issued and sold to the Holders the Marathon Convertible Notes in
19
an aggregate amount of $
The Marathon Convertible Notes bear interest at an annual rate of
Pursuant to the Marathon Convertible Note Purchase Agreement, the Marathon Convertible Notes are secured by a lien on collateral representing substantially all assets of the Company, although such security interest is subordinated to the Company’s obligations under the SWK Credit Agreement and may also be subordinated to the Company’s obligations under the Marathon Credit Agreement.
On January 30, 2023, the Company entered into an Amendment Agreement (the “Marathon Amendment Agreement”) with Marathon and Marathon Fund (i.e., the Holders) with respect to the Marathon Convertible Notes.
Pursuant to the terms of the Marathon Amendment Agreement, each holder agreed to defer payment by the Company of accrued and unpaid interest on their respective Marathon Convertible Note existing on the date of the Marathon Amendment Agreement through March 31, 2023, with such deferred interest, together with any accrued and unpaid interest on each Marathon Convertible Note incurred after March 31, 2023, to be due and payable in cash by the Company on April 15, 2023. Each Marathon Convertible Note was amended with retroactive effect to delete the concept of a default rate of interest. Each Marathon Convertible Note was amended to obligate the Company to repurchase such Marathon Convertible Note, on or before the fifth (5th) business day (but with five (
The Company evaluated its compliance with all covenants with respect to the Marathon Convertible Note Purchase Agreement and concluded that it was in compliance as of September 30, 2023. The Company has classified the total fair value of the Marathon Convertible Notes which is due within twelve months from the date of this report, as current in the balance sheet as of September 30, 2023.
In connection with the above Marathon Amendment Agreement, the Company determined that the changes in the fair value of the post-modification Marathon Convertible Note compared to the original Marathon Convertible Note were greater than ten percent, and thus concluded that the modification should be accounted for as an extinguishment. The Company evaluated the change in the fair value of the Marathon Convertible Note pre-modification compared to post-modification and concluded that a
20
loss on extinguishment of $
Pursuant to agreements negotiated between Zevra and Nantahala in connection with the activities contemplated by the Merger Agreement and the Bridge Loan Agreement, Zevra has become the successor party to the Holders (as lender) for purposes of the Marathon Convertible Note Purchase Agreement and the Marathon Convertible Notes. In connection therewith, Acer’s obligations in respect of the Marathon Convertible Notes were subordinated to Acer’s obligations under the Bridge Loan Agreement. The Company concluded that it would continue to utilize the fair value election subsequent to Merger Agreement to account for the Marathon Convertible Notes.
Marathon Credit Agreement
On March 4, 2022, the Company also entered into the Marathon Credit Agreement with the lenders party thereto and Marathon, as the agent, sole lead arranger and sole bookrunner, which provides for a senior secured term loan facility in an aggregate amount of up to $
The Marathon Term Loan would have borne interest at an annual rate of
The Marathon Term Loan would have been secured by a first priority lien on all assets of the Company and any of its future subsidiaries pursuant to a Guarantee and Collateral Agreement to be entered into on the Marathon Term Loan Funding Date between the Company and Marathon, as agent (the “Marathon Security Agreement”). The Marathon Credit Agreement contained customary representations and warranties and affirmative and negative covenants. The Company paid $
In connection with the Marathon Credit Agreement, on March 4, 2022, the Company, Marathon and the Marathon Fund also entered into the Royalty Agreement pursuant to which, in the event of the funding of the Marathon Term Loan, the Company will pay Marathon and the Marathon Fund, on a quarterly basis,
21
business to a third party, the Company would pay Marathon and the Marathon Fund the difference between $
As of December 31, 2022, the Company had not requested funding of the Marathon Term Loan, and as such had not triggered the associated Royalty Agreement. On December 30, 2022, the Company and Marathon entered into an Extension Agreement which extended the Marathon Term Loan Commitment Date to January 16, 2023.
With respect to the Credit Agreement, dated as of March 4, 2022, as amended by the Extension Agreement dated as of December 30, 2022 (as so amended, the “Marathon Term Credit Agreement”), among the Company, the Lenders party thereto (the “Lenders”) and Marathon, not individually, but solely in its capacity as administrative and collateral agent for the Lenders (the “Administrative Agent”), which provided for a senior secured Marathon Term Loan facility in an aggregate amount of up to $
Accounting for SWK Original and Second Term Loan and Marathon Convertible Notes
The Company is eligible to elect the fair value option under ASC 815 and bypass analysis of potential embedded derivatives and further analysis of bifurcation of any such financial instruments and has elected such option. The Company recognized the First SWK Warrant at fair value as of the date of the close of the transaction and recorded it in equity. The Original Term Loan and Marathon Convertible Notes met the definition of a “recognized financial liability” which is an acceptable financial instrument eligible for the fair value option under ASC 825-10-15-4 and do not meet the definition of any of the financial instruments found within ASC 825-10-15-5 that are not eligible for the fair value option. Additionally, as noted above in connection with the amendments, the Company performed the same evaluation on the Original Term Loan as amended, the Second Term Loan, and Marathon Convertible Notes, as amended, and concluded that the fair value option was still appropriate. Therefore, the Original Term Loan, Second Term Loan, and Marathon Convertible Notes are recorded at their fair value upon issuance and subsequently re-measured at each reporting period until their maturity, prepayment or conversion. Additionally, all issuance costs incurred in connection with a debt instrument that is measured at fair value pursuant to the election of the fair value option are expensed during the period the debt is acquired. The Original Term Loan was recorded at fair value of $
The Company incurred $
The Company engaged an exclusive financial advisor with respect to the financings contemplated by the SWK Credit Agreement, the Marathon Convertible Note Purchase Agreement and the Marathon Credit Agreement. In connection with the funding of the Original Term Loan and the Convertible Note Financing, the Company paid its financial advisor a fee of $
Promissory note payable to an officer
On June 22, 2023, the Company received $
22
rate of
On August 30, 2023, Acer entered into an amendment (the “Note Amendment”) to the Schelling Promissory Note, which Note Amendment amended
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, the Company reviews the assets and liabilities that are subject to ASC 815-40. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3. The valuation methodologies used for the Company’s financial instruments measured on a recurring basis at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth in the tables below.
The following table presents the Company’s assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of September 30, 2023.
|
|
As of September 30, 2023 |
|
|
Fair Value Measurements |
|
||||||||||||||
|
|
Carrying Amount |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money Market Funds in Cash Equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Marathon Convertible Notes |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Term Loans |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
As of December 31, 2022 |
|
|
Fair Value Measurements |
|
||||||||||||||
|
|
Carrying Amount |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money Market Funds in Cash Equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Marathon Convertible Notes |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Term Loans |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
A lattice-based model was used to estimate the fair value of the Marathon Convertible Notes at September 30, 2023. The lattice model utilizes a “decision tree,” whereby future movement in the Company’s common stock price is estimated based on a volatility factor. Additionally, the Company included in its decision tree, when relevant, a probability assessment of the approval of
23
ACER-001 and the resulting impact of such an event. The Company classified the fair value of the Marathon Convertible Notes as a Level 3 measurement due to the lack of observable market data. The lattice model requires the development and use of assumptions, including the Company’s stock price volatility returns, an appropriate risk-free interest rate, and derived credit spread, default probability rate, and expected recovery rate given default.
The Company updated its estimate of fair value of the Term Loans based on the probability-weighted net present value of future cash flows at September 30, 2023.
The significant unobservable inputs used in calculating the fair value of the Marathon Convertible Notes and Term Loans represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Any significant changes in the inputs described herein may result in significantly higher or lower fair value measurements.
In the nine months ended September 30, 2023 the Company recorded in “Other income (expense), net” as “Changes in fair value of debt instruments gain (loss)” a loss of $
In the nine months ended September 30, 2023, the Company recorded in “Other income (expense), net” as “Changes in fair value of debt instruments gain (loss)” a gain of $
|
|
For the Three Months |
|
|
For the Nine Months |
|
||
Activity recorded as change in fair value gain (loss), Term Loans |
|
|
|
|
|
|
||
Loss from change in fair value from December 31, 2022 to date of modification |
|
$ |
— |
|
|
$ |
( |
) |
Loss from change in fair value from date of modification to September 30, 2023 |
|
|
( |
) |
|
|
( |
) |
Loss from extinguishment of debt related to increase in post-modification cashflows |
|
|
|
|
|
( |
) |
|
Total change in fair value recognized, Term Loans |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Activity recorded as change in fair value gain (loss), Marathon Convertible Note |
|
|
|
|
|
|
||
Gain from change in fair value from December 31, 2022 to date of modification |
|
$ |
— |
|
|
$ |
|
|
Loss from change in fair value from date of modification to September 30, 2023 |
|
|
( |
) |
|
|
( |
) |
Loss from extinguishment of debt related to increase in post-modification cashflows |
|
|
|
|
|
( |
) |
|
Total change in fair value recognized, Marathon Convertible Note |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Total change in fair value recognized during the three and nine months ended September 30, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
24
|
|
December 31, 2022 |
|
|
Loan Received |
|
|
Payments |
|
|
Accretion/ Interest Accrued |
|
|
Adjustment to Fair Value Mark to Market |
|
|
September 30, 2023 |
|
||||||
Marathon Convertible Notes |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
(1) |
$ |
|
|||
Term Loans |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
(2) |
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||
(1) The Adjustment to Fair Value for the Marathon Convertible Notes during the nine months ended September 30, 2023, includes $
(2) The Adjustment to Fair Value for the Term Loans during the nine months ended September 30, 2023, includes $
(3) Balance as of December 31, 2022, includes accrued interest of $
License Agreements
In April 2014, the Company obtained exclusive rights to patents and certain other intellectual property relating to OLPRUVA® for the treatment of inborn errors of branched-chain amino acid metabolism, including MSUD, and preclinical and clinical data, through an exclusive license agreement with Baylor College of Medicine (“BCM”). Under the terms of the agreement, as amended, the Company has worldwide exclusive rights to develop, manufacture, use, sell and import products incorporating the licensed intellectual property. The license agreement requires the Company to make certain upfront and annual payments to BCM, as well as reimburse certain legal costs, make payments upon achievement of defined milestones, and pay royalties in the low single-digit percent range on net sales of any developed product over the royalty term.
In
In
In
25
In December 2018, the Company entered into an exclusive license agreement with Sanofi granting the Company worldwide rights to ACER-801, a clinical-stage, selective, non-peptide tachykinin NK3 receptor antagonist. The agreement required the Company to make a certain upfront payment to Sanofi, make payments upon achievement of defined development and sales milestones and pay royalties on net sales of ACER-801 over the royalty term.
In
Collaboration Agreement
On March 19, 2021, the Company entered into the Collaboration Agreement with Relief providing for the development and commercialization of OLPRUVA® for the treatment of various inborn errors of metabolism, including for the treatment of UCDs and MSUD. The Collaboration Agreement is the culmination of the Option Agreement previously entered into between the Company and Relief on January 25, 2021, which provided Relief with an exclusive period of time up to June 30, 2021 for the parties to enter into a mutually acceptable definitive agreement with respect to the potential collaboration and license arrangements. In consideration for the grant of the exclusivity option, (i) the Company received from Relief an upfront non-refundable payment of $
On August 28, 2023 Acer and Relief entered into the Termination Agreement, pursuant to which Acer and Relief mutually agreed to terminate the Collaboration Agreement. In accordance with the terms of the Termination Agreement, Relief received an upfront payment from Acer of $
Litigation
From time to time, the Company may become involved in litigation or proceedings relating to claims arising out of its operations. To the extent that the Company incurs legal costs associated with any potential loss contingency, those legal costs are expensed as incurred.
The Securities Class Action and Stockholder Derivative Actions
On July 1, 2019, plaintiff Tyler Sell filed a putative class action lawsuit, Sell v. Acer Therapeutics Inc. et al., No. 1:19-cv-06137GHW, against the Company, Chris Schelling and Harry Palmin, in the U.S. District Court for the Southern District of New
26
York. The Complaint alleged that the Company violated federal securities laws by allegedly making material false and misleading statements regarding the likelihood of FDA approval for the EDSIVOTM NDA. With the selection of a lead plaintiff, the case was later captioned Skiadas v. Acer Therapeutics Inc. et al. The parties reached an agreement in principle to settle this action for a payment of $
On August 12, 2019, a stockholder derivative action, Gress v. Aselage et al., No. 1:19-cv-01505-MN, was filed in the U.S. District Court for the District of Delaware against certain of the Company’s present and former officers and directors, asserting damages resulting from the alleged breach of their fiduciary duties, based on the same facts at issue in the Skiadas case. On March 17, 2020, a second stockholder derivative action, Giroux v. Amello et al., No. 1:20-cv-10537-GAO, was filed in the U.S. District Court for the District of Massachusetts against certain of the Company’s present and former officers and directors, asserting claims based on the same facts at issue in the Skiadas and Gress cases. On June 23, 2020, a third stockholder derivative action, King v. Schelling, et al., No. 1:20-cv-04779-GHW, was filed in the U.S. District Court for the Southern District of New York against certain of the Company’s present and former officers and directors that arises from the same facts underlying the Skiadas, Gress, and Giroux cases. On July 6, 2020, a fourth stockholder derivative action, Diaz v. Amello et al., No. 1:20-cv-00909-MN, was filed in the U.S. District Court for the District of Delaware. By Stipulation and Order dated August 7, 2020, the Gress and Diaz cases were consolidated under the caption In re Acer Therapeutics Inc. Derivative Litigation, Lead Case No. 1:19-cv-01505-MN. As disclosed previously, the parties reached an agreement to settle all of the derivative cases. At a hearing held on May 12, 2021 in the District Court of Massachusetts, the Court administering the matter, the settlement was approved. Payment of the settlement amount of $
Commitments Under Clinical Trial Agreements
The Company has entered into agreements with two CROs in connection with the conduct of two separate clinical trials for ACER-801 and EDSIVOTM. As a part of those agreements, the Company has agreed to pay any third-party costs or subcontracts associated with those agreements which are unpaid by the CRO. Such reimbursement would apply only to costs approved in advance by the Company. Those CRO agreements are subject to termination at any time, with or without cause, by the Company, in which case only costs earned or non-cancelable to date of termination would remain subject to reimbursement.
At-the-Market Facility
On November 9, 2018, the Company entered into a sales agreement with Roth Capital Partners, LLC, and on March 18, 2020, the Company entered into an amended and restated sales agreement with JonesTrading Institutional Services LLC and Roth Capital Partners, LLC. The agreement provided a facility for the offer and sale of shares of common stock from time to time having an aggregate offering price of up to $
Common Stock Purchase Agreement
On April 30, 2020, the Company entered into an equity line purchase agreement and a registration rights agreement pursuant to which Lincoln Park committed to purchase up to $
27
Park was obligated to purchase up to $
Under applicable rules of the Nasdaq Capital Market, in no event may the Company have issued or sold to Lincoln Park under the purchase agreement more than
Lincoln Park had no right to require the Company to sell any shares of common stock to Lincoln Park, but Lincoln Park was obligated to make purchases as the Company directed, subject to certain conditions. In all instances, the Company may not have sold shares of its common stock to Lincoln Park under the purchase agreement if doing so would have resulted in Lincoln Park beneficially owning more than
Actual sales of shares of common stock to Lincoln Park under the purchase agreement depended on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. However, there was no assurance that the Company would have been able to receive the entire obligation amount from Lincoln Park because the purchase agreement contained limitations, restrictions, requirements, events of default and other provisions that could have limited the Company’s ability to cause Lincoln Park to buy common stock from the Company.
The proceeds under the purchase agreement to the Company depended on the frequency and prices at which the Company sold shares of its stock to Lincoln Park. The Company issued
During the nine months ended September 30, 2022, the Company sold
Private Placement
On November 29, 2022, the Company entered into a securities purchase agreement for the sale and issuance of an aggregate of
Securities Purchase Agreement
On March 21, 2023, the Company entered into the Purchase Agreement with the Purchaser pursuant to which the Company agreed to issue and sell, (i) in a registered direct offering, an aggregate of
28
million before deducting the placement agent fee (as described in greater detail below) and related offering expenses, resulting in net proceeds of approximately $
The Purchase Agreement contained customary representations and warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties. Pursuant to the terms of the Purchase Agreement and subject to certain exceptions, the Company agreed to certain restrictions on the issuance and sale of its Common Stock or Common Stock Equivalents (as defined in the Purchase Agreement) during the 30-day period following the closing of the March 2023 Offering.
The Shares, the Pre-Funded Warrants and the shares of Common Stock issuable thereunder were offered by the Company pursuant to a registration statement on Form S-3 (File No. 333-261342), which was filed with the Securities and Exchange Commission (the “Commission”) on November 24, 2021 and was declared effective by the Commission on December 7, 2021 (the “Registration Statement”), and a prospectus supplement dated as of March 21, 2023. We suspended our ATM facility in connection with the March 2023 Offering and entered into a related restriction prohibiting us from entering into any agreement to issue or announcing the issuance or proposed issuance of any shares of our common stock or securities convertible or exercisable into our common stock, subject to certain exceptions, until April 24, 2023. We resumed our ATM activity after April 24, 2023 and, during the balance of the second quarter of 2023, we sold
The Common Warrants were offered in a private placement under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and, along with the shares of Common Stock underlying the Common Warrants, were not registered under the Securities Act or applicable state securities laws.
The Pre-Funded Warrants were offered, in lieu of shares of Common Stock, to any Purchaser whose purchase of shares of Common Stock and Common Warrants in the Offering would otherwise result in such Purchaser, together with its affiliates and certain related parties, beneficially owning more than
Each Common Warrant represented the right to purchase shares of Common Stock at an exercise price of $
The Company entered into an engagement letter with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which Wainwright agreed to serve as the exclusive placement agent for the issuance and sale of securities of the Company pursuant to the Purchase Agreement. As compensation for such placement agent services, the Company agreed to pay Wainwright a total cash fee equal to
2018 Stock Incentive Plan
The Company’s 2018 Stock Incentive Plan (the “2018 Plan”), was adopted on May 14, 2018, and provided for the grant of shares of common stock as stock options, restricted stock, stock appreciation rights, restricted stock units, performance-based awards and cash-based awards that may be settled in cash, stock or other property to employees, executive officers, directors, and consultants. The total number of shares reserved for issuance under the 2018 Plan also consists of the sum of the number of shares subject to outstanding awards under the Company’s 2010 Stock Incentive Plan, as amended and restated (the “2010 Plan”), and the 2013 Stock Incentive Plan, as amended (the “2013 Plan”), as of the effective date of the 2018 Plan that are subsequently forfeited or terminated for any reason prior to being exercised or settled, plus the number of shares subject to vesting restrictions under the 2010 Plan and the 2013 Plan on the effective date of the 2018 Plan that are subsequently forfeited, plus the number of shares reserved but not issued or subject to outstanding grants under the 2010 Plan and the 2013 Plan as of the effective date of the 2018 Plan, up to a maximum of
29
day of the immediately preceding fiscal year, or (ii) another amount (including zero) determined by the Company’s Board of Directors. On January 1, 2023 and 2022,
The 2018 Plan is administered by the Company’s Board of Directors, which may in turn delegate authority to administer the plan to a committee such as the Compensation Committee, referred to herein as the 2018 Plan administrator. Subject to the terms of the 2018 Plan, the 2018 Plan administrator will determine recipients, the number of shares or amount of cash subject to awards to be granted, whether an option is to be an incentive stock options or non-incentive stock options and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the 2018 Plan administrator will also determine the exercise price of options granted under the 2018 Plan. The 2018 Plan expressly provides that, without the approval of the stockholders, the 2018 Plan administrator does not have the authority to reduce the exercise price of any outstanding stock options or stock appreciation rights under the 2018 Plan (except in connection with certain corporate transactions, such as stock splits, certain dividends, recapitalizations, reorganizations, mergers, spin-offs and the like), or cancel any outstanding underwater stock options or stock appreciation rights in exchange for cash or new stock awards under the 2018 Plan.
Option awards are generally granted with an exercise price equal to the fair value of the common stock at the date of grant and have contractual terms of
At September 30, 2023,
2013 Stock Incentive Plan
The Company’s 2013 Plan provided for the issuance of shares of common stock as incentive or non-qualified stock options and/or restricted common stock to employees, officers, directors, consultants and advisers. Option awards were generally granted with an exercise price equal to the fair value of the common stock at the date of grant and had contractual terms of
2010 Stock Incentive Plan
The Company’s 2010 Plan, as amended and restated, provided for the grant of shares of common stock as incentive or non-qualified stock options, stock appreciation rights, restricted stock units and/or restricted common stock to employees, officers, directors, consultants and advisers. Option awards were generally granted with an exercise price equal to the fair value of the common stock at the date of grant and had contractual terms of
30
Stock Plan Activity
A summary of option activity under the 2018 Plan, 2013 Plan, and 2010 Plan for the nine months ended September 30, 2023 and 2022, is as follows:
Year-to-Date Activity |
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Number |
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Weighted |
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Weighted |
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Aggregate |
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||||
Options outstanding at December 31, 2022 |
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$ |
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Granted |
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$ |
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Cancelled/forfeited |
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( |
) |
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$ |
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|||
Options outstanding at September 30, 2023 |
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$ |
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$ |
— |
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|||
Options exercisable at September 30, 2023 |
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$ |
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$ |
— |
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Year-to-Date Activity |
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Number |
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Weighted |
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Weighted |
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Aggregate |
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||||
Options outstanding at December 31, 2021 |
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$ |
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Granted |
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$ |
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||||
Cancelled/forfeited |
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( |
) |
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$ |
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|||
Options outstanding at September 30, 2022 |
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$ |
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$ |
— |
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|||
Options exercisable at September 30, 2022 |
|
|
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$ |
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|
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$ |
— |
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|||
At September 30, 2023, there was $
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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||||||||||
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2023 |
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2022 |
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2023 |
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2022 |
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Stock-based compensation |
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Research and development |
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$ |
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$ |
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$ |
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$ |
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Selling, general and administrative |
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Total stock-based compensation expense |
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$ |
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$ |
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$ |
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$ |
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||||
31
Warrants issued to SWK
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Nine Months Ended September 30, |
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2023 |
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2022 |
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Number |
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Weighted Average Exercise Price |
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Number |
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Weighted Average Exercise Price |
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||||
Outstanding at beginning of the period |
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$ |
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— |
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$ |
— |
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||
Granted during the period |
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Outstanding at end of the period |
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$ |
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$ |
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Exercisable at end of the period |
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$ |
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$ |
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Weighted average remaining life |
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Warrants issued in March 2023 Offering
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Nine Months Ended September 30, |
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2023 |
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|||||
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Number |
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Weighted Average Exercise Price |
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||
Outstanding at beginning of the period |
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— |
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$ |
— |
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Granted during the period |
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||
Exercised during the period |
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( |
) |
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Outstanding at end of the period |
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$ |
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||
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Exercisable at end of the period |
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$ |
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Weighted average remaining life |
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Basic net loss per share is computed by dividing the net loss in each period by the weighted-average number of common shares outstanding during such period. Diluted net loss per share is computed similarly to basic net loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. For the periods presented, common stock equivalents, consisting of stock-based awards and the SWK Warrants, were not included in the calculation of the diluted loss per share because to do so would be antidilutive. The exercise prices of the SWK Warrants are subject to a proportionate adjustment in the event of a stock dividend or stock split. The Company concluded that they should be deemed participating securities. However, as the Company is currently operating in a net loss position for the three and nine month periods ended September 30, 2023 and has not declared any dividends, such inclusion of the participating securities related to the SWK Warrants (as common stock equivalents) would be antidilutive and thus would be excluded from the calculation of net loss per share. When calculating diluted net loss per share, the Company includes, only if dilutive, the potential common shares associated with the Marathon Convertible Notes using the “if-converted” method, which adjusts the numerator for any impact to earnings for the period and includes in the denominator the shares assumed to be converted at the beginning of the period.
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per common share for the three and six months ended September 30, 2023 and 2022 is as follows:
32
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For the Three Months |
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For the Three Months Ended September 30, 2022 |
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For the Nine Months |
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For the Nine Months |
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Numerator: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Denominator: |
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Basic: |
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Weighted average shares of common stock outstanding |
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Diluted: |
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Weighted average shares of common stock outstanding |
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Effect of potentially dilutive shares (1) |
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— |
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— |
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— |
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Total weighted average shares of common stock and potentially dilutive shares |
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Net loss per common share: |
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||||
Basic: |
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||||
Net loss applicable to common stockholders |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average shares of stock outstanding, basic |
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|
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|
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|
||||
Basic net loss per common share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
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|
|
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|
||||
Diluted: |
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|
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|
|
|
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|
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|
||||
Net loss applicable to common shareholders, diluted (1) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average shares of stock outstanding, diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted net loss per common share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
(1) In calculating diluted net loss per share for the nine months ended September 30, 2022, we excluded the impact of changes in the fair value of the Secured Convertible Notes of $
The application of the “if-converted” method to the
|
|
September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Options to purchase common stock |
|
|
|
|
|
|
||
Shares associated with Marathon Convertible Note |
|
|
|
|
|
— |
|
|
March 2023 Offering warrants |
|
|
|
|
|
— |
|
|
SWK Warrants |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Acquisition of the Company by Zevra
On August 30, 2023, the Company entered into the Merger Agreement with Zevra and Merger Sub, pursuant to which, subject to the terms and conditions of the Merger Agreement, Merger Sub would merge with and into the Company, with the Company surviving the Merger as an indirect wholly-owned subsidiary of Zevra. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions described therein, at the Effective Time, each issued and outstanding share of common stock of
33
Acer Common Stock (other than (i) shares held in the Company’s treasury or shares owned directly or indirectly by Zevra, Merger Sub or any wholly-owned subsidiary of Acer and (ii) any shares held by any holder who properly demands appraisal of such shares under Delaware law) would convert automatically into and represented the right to receive (a)
Amendment to Zevra Bridge Loan
On October 31, 2023, the Company entered into an amendment to the Bridge Loan Agreement which increased the commitment from $
Delisting from Nasdaq
On October 31, 2023, the Company, received a letter from the staff of the Listing Qualifications Department of The Nasdaq Stock Market LLC stating that The Nasdaq Stock Market LLC would suspend trading in the Company’s common stock effective at the opening of trading on November 9, 2023, due to the Company’s noncompliance with Nasdaq’s minimum market value of listed shares requirement. On November 9, 2023, the Company’s common stock was suspended from trading on the Nasdaq Capital Market and began trading on OTC Pink Market under the symbol “ACER”. On November 20, 2023, Nasdaq filed with the SEC a Notification of Removal from Listing and/or Registration on Form 25 to delist and deregister the common stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company will file with the SEC a Certification and Notice of Termination of Registration on Form 15 under the Exchange Act, requesting that the Company’s reporting obligations under Sections 13 and 15(d) of the Exchange Act be suspended.
Departure of Directors or Certain Officers
In connection with the consummation of the Merger, at the Effective Time, pursuant to the terms of the Merger Agreement, Stephen J. Aselage, Jason Amello, John M. Dunn, Michelle Griffin and Chris Schelling each resigned and ceased serving as directors of Acer. On November 17, 2023, R. LaDuane Clifton and Joshua Schafer became the directors of the surviving corporation. On November 17, 2023, each of Chris Schelling, Acer’s President and Chief Executive Officer, and Harry S. Palmin, Acer’s Chief Financial Officer, ceased to be an executive officer of Acer.
Cancelation of March 2023 Offering Warrants
On November 20, 2023, Zevra Therapeutics, Inc., the Parent Company, entered into an agreement with the holders of the Company’s March 2023 Offering Warrants (the “Investor”), pursuant to which Zevra agreed to issue 917,934 shares of the Zevra’s common stock in exchange for the cancellation of a the March 2023 Offering Warrant held by the Investor to purchase 2,920,306 shares of common stock of Acer.
Severance to Certain Officers and Employees
Each of Acer’s current executive officers and certain key employees has entered into an employment agreement with Acer pursuant to which the executive officer and certain key employees is entitled to severance benefits upon a qualifying termination of employment. In the event an executive officer’s or key employees employment is terminated without Cause (as defined in each executive officer’s employment agreement) or due to a Constructive Termination (as defined in each executive officer’s or key employee’s employment agreement), in each instance during the period commencing one month prior to the Merger and terminating 12 months after the Merger, the executive officer or key employee will be entitled to (i) a payment, less applicable taxes and withholdings, equal to his or her then-current base salary for a period of 6 or 12 months depending on job level plus (ii) either 0.5x or 1x times, depending on job level, of his or her annual discretionary target bonus calculated for such period. The executive officer or key employee would receive any such payment in the form of a lump sum 60 days following such termination of employment. In addition, if the executive officer or key employee elects to continue his or her health insurance coverage under COBRA, then Acer will reimburse the executive officer or key employee for the same portion of the executive officer’s or key employee’s monthly premium over such 6 or 12-month period. In connection with the closing of the merger, these severance benefits were triggered, resulting in approximately up to $3.5 million in severance obligations.
34
Stockholder Litigation Related to the Merger
On October 12, 2023, Brodsky & Smith, purporting to act as counsel for Jerry Beavee, who is asserted to be a stockholder of the Company, filed a complaint entitled Jerry Beavee v. Acer Therapeutics Inc., et al., No. 1:23-cv-08995 in the United States District Court for the Southern District of New York alleging that defendants violated Section 14(a) and 20(a) of the Securities Exchange Act of 1934 by filing the Preliminary Merger Registration Statement which allegedly omitted certain information that such counsel asserts is material to the Company’s required disclosure. The complaint prays that, if asserted omissions are not adequately corrected, then Beavee will seek to enjoin the Company from holding a stockholder meeting to approve the proposed acquisition transaction and, if the transaction closes, will seek to rescind it and seek an award of damages. On October 17, 2023, the court set an initial pretrial conference for December 13, 2023.
On October 20, 2023, Long Law, LLC and Acocelli Law, PLLC, purporting to act as counsel for Kevin Turner, who is asserted to be a stockholder of the Company, filed a complaint entitled Kevin Turner v. Acer Therapeutics Inc., et al., No. 1:23-cv-01185 in the United States District Court for the District of Delaware alleging that defendants violated Section 14(a) and 20(a) of the Securities Exchange Act of 1934 as well as SEC Rule 14a-9 by filing the Definitive Proxy Statement which allegedly omitted certain information that such counsel asserts is material to the Company’s required disclosure. The complaint prays that, if asserted omissions are not adequately corrected, then Turner will seek to enjoin the Company from holding a stockholder meeting to approve the proposed acquisition transaction and, if the transaction closes, will seek to rescind it and seek an award of damages.
On October 20, 2023, Long Law, LLC, purporting to act as counsel for Matthew Jones, who is asserted to be a stockholder of the Company, filed a complaint entitled Matthew Jones v. Acer Therapeutics Inc., et al., No. 1:23-cv-01186 in the United States District Court for the District of Delaware alleging that defendants violated Section 14(a) and 20(a) of the Securities Exchange Act of 1934 as well as SEC Rule 14a-9 by filing the Definitive Proxy Statement which allegedly omitted certain information that such counsel asserts is material to the Company’s required disclosure. The complaint prays that, if asserted omissions are not adequately corrected, then Jones will seek to enjoin the Company from holding a stockholder meeting to approve the proposed acquisition transaction and, if the transaction closes, will seek to rescind it and seek an award of damages.
35
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition is as of September 30, 2023. Our results of operations and cash flows should be read in conjunction with our unaudited condensed financial statements and notes thereto included elsewhere in this report and the audited financial statements and the notes thereto included in our Form 10-K for the year ended December 31, 2022.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements contained in this report, other than statements of historical fact, constitute “forward-looking statements.” The words “expects,” “believes,” “hopes,” “anticipates,” “estimates,” “may,” “could,” “intends,” “exploring,” “evaluating,” “progressing,” “proceeding,” and similar expressions are intended to identify forward-looking statements.
These forward-looking statements do not constitute guarantees of future performance. Investors are cautioned that statements which are not strictly historical statements, including, without limitation, statements regarding revenue, expenses and other financial metrics, including expectations and trends related thereto, current or future financial payments, costs, returns, royalties, performance and position, plans and objectives for future operations, plans and objectives for product development, plans and objectives for present and future clinical trials and results of such trials, plans and objectives for regulatory approval, litigation, intellectual property, information about our product OLPRUVA® (sodium phenylbutyrate) for oral suspension, including statements about our development and future lifecycle opportunities, manufacturing plans and performance, management’s initiatives and strategies, and the development of our product candidates and our expectations related thereto, including EDSIVO™ (celiprolol), ACER-801 (osanetant), and ACER-2820 (emetine), constitute forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could affect our ability to successfully implement our business strategy and cause actual results to differ materially from those anticipated.
You should carefully consider all of the information in this report and the risk factors set forth in our Annual Report on Form 10-K and subsequent filings with the SEC under “Risk Factors,” before deciding whether to invest in us.
Forward-looking statements speak only as of the date made. We assume no obligation or undertaking to update any forward-looking statements to reflect any changes in expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. You should, however, review additional disclosures we make in the reports we file with the Securities and Exchange Commission (“SEC”), including but not limited to the Risk Factors associated with our business.
Overview
We are a pharmaceutical company focused on the acquisition, development, and commercialization of therapies for serious rare and life-threatening diseases with significant unmet medical needs. We identify and develop treatments where science can be applied in new ways for use in diseases with high unmet need.
In the U.S., OLPRUVA® (sodium phenylbutyrate) for oral suspension is approved for the treatment of urea cycle disorders (“UCDs”) involving deficiencies of carbamylphosphate synthetase (“CPS”), ornithine transcarbamylase (“OTC”), or argininosuccinic acid synthetase (“AS”). We also have a pipeline of investigational product candidates, including EDSIVO™ (celiprolol) for the treatment of vascular Ehlers-Danlos syndrome (“vEDS”) patients with a confirmed type III collagen (COL3A1) mutation. During the quarter ended September 30, 2023, we began generating revenue from the sale of OLPRUVA® in the U.S.
Acquisition by Zevra
On August 30, 2023, the Company entered into the Merger Agreement with Zevra and Merger Sub, pursuant to which, subject to the terms and conditions of the Merger Agreement, Merger Sub would merge with and into the Company, with the Company surviving the Merger as an indirect wholly-owned subsidiary of Zevra. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions described therein, at the Effective Time, each issued and outstanding share of common stock of Acer Common Stock (other than (i) shares held in the Company’s treasury or shares owned directly or indirectly by Zevra, Merger Sub or any wholly-owned subsidiary of Acer and (ii) any shares held by any holder who properly demands appraisal of such shares under Delaware law) would convert automatically into and represented the right to receive (a) 0.1210 of a share of Zevra Common Stock and (b) a CVR issued by Zevra, which represented the right to receive one or more contingent payments, if any, upon the
36
achievement of certain milestones, subject to and in accordance with the terms of the CVR Agreement that was entered into prior to the Effective Time and pursuant to (and as contemplated by) the Merger Agreement.
The stockholders approved and adopted the Merger Agreement at the Special Meeting held on November 8, 2023, at 11:00 a.m. Eastern Time. On November 17, 2023, the Merger was completed.
On October 31, 2023, the Company, received a letter from the staff of the Listing Qualifications Department of The Nasdaq Stock Market LLC stating that The Nasdaq Stock Market LLC would suspend trading in the Company’s common stock effective at the opening of trading on November 9, 2023 due to the Company’s noncompliance with Nasdaq’s minimum market value of listed shares requirement. On November 9, 2023, the Company’s common stock was suspended from trading on the Nasdaq Capital Market and began trading on OTC Pink Market under the symbol “ACER”. On November 20, 2023, Nasdaq filed with the SEC a Notification of Removal from Listing and/or Registration on Form 25 to delist and deregister the common stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company will file with the SEC a Certification and Notice of Termination of Registration on Form 15 under the Exchange Act, requesting that the Company’s reporting obligations under Sections 13 and 15(d) of the Exchange Act be suspended.
Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”), which contemplate continuation of the Company as a going concern. We have incurred recurring losses from operations, negative cash flows from operations, have a net working capital deficiency, and have a net capital deficiency. During the three months ended September 30, 2023, we generated our first commercial product revenues, however until such time as revenues increase to a level higher than our ongoing operating costs and expenses, we will continue to be dependent on additional funding. Since inception, we have experienced significant losses and incurred negative cash flows from operations. We have spent, and expect to continue to spend, a substantial amount of funds in connection with implementing our business strategy, including our planned product development efforts and commercial activities.
As of September 30, 2023, we had cash and cash equivalents of $0.6 million and current liabilities of $61.7 million, which include $1.5 million associated with accrued payments to a collaboration partner (see Note 3, Significant Accounting Policies, Revenue Recognition and Accounting for Collaboration Agreements, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report).
These factors individually and collectively raise substantial doubt about our ability to continue as a going concern on a standalone basis (assuming the Merger did not occur, see Note 2, Acquisition by Zevra, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report) for at least 12 months from the date these financial statements are available, or November 20, 2024. Subsequent to the close of the Merger, the Company would need a formal letter of support of its parent to eliminate the substantial doubt about its ability to continue as a going concern for the previously defined period which had not been formalized as of the filing of this 10-Q. The accompanying financial statements do not include any adjustments or classifications that may result from our possible inability to continue as a going concern.
Components of Our Results of Operations
Product revenue, net
In December 2022, the U.S. Food and Drug Administration (“FDA”) approved OLPRUVA® (sodium phenylbutyrate), a prescription medicine used along with certain therapy, including changes in diet, for the long-term management of adults and children weighing 44 pounds (20 kg) or greater and with a body surface area (BSA) of 1.2 m2 or greater, with UCDs, involving deficiencies of CPS, OTC or AS and we launched OLPRUVA® in the U.S. in the third quarter of 2023. All product revenue net, recognized during the period relates to units of OLPRUVA® sold in the U.S.
If our product candidates are not developed in a timely manner, if regulatory approval is not obtained for them, or if such product candidates are not commercialized, our ability to generate future revenue, and our results of operations and financial position, would be adversely affected.
Cost of Product Revenue
37
Cost of product revenue consists primarily of costs associated with the manufacturing of OLPRUVA® and certain period costs, which include:
As a result of global macroeconomic conditions, we may experience some disruption and volatility in our global supply chain network, and we may in the future experience disruptions in availability and delays in shipments of raw materials and packaging, as well as related cost inflation.
Revenue from Collaboration Funding
Our revenue from collaboration funding previously consisted of activities in connection with a collaboration agreement, including a license of intellectual property. See Note 3, Significant Accounting Policies, Revenue Recognition and Accounting for Collaboration Agreements, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report, for further discussion of the termination of our collaboration agreement.
Activities Associated with Collaboration Agreements
From time to time, we have recognized collaboration funding as a reduction to research and development expenses and selling, general and administrative expenses amounts attributed to providing services to our collaboration partner for which we have been reimbursed. During the three months ended September 30, 2023, in connection with the Termination Agreement, we recognized expenses associated with payment made to our collaboration partner. See Note 3, Significant Accounting Policies, Revenue Recognition and Accounting for Collaboration Agreements, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report, for further discussion of the termination of our collaboration agreement
Research and Development Expenses
Research and development expenses consist of costs associated with the development of our product candidates. Our research and development expenses include:
We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses as the service has been performed or as the goods have been received. From time to time, in connection with the Collaboration Agreement with Relief, we had previously recognized “contra-expense” for the research and development activities which were funded by the Collaboration Agreement. These contra-expense amounts are disclosed parenthetically on the face of the financial statements.
At any time, we are working on multiple programs. Our internal resources, employees, and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. Since our inception in December 2013, we have spent a total of $93.2 million in research and development expenses through September 30, 2023. Of that amount, $40.0 million was directly related to EDSIVOTM; $31.3 million was directly related to OLPRUVA®, offset by $15.2 million of collaboration funding; $12.8 million was directly related to ACER-801; $5.4 million was directly related to ACER-2820; and $3.7 million was related to other development activities.
We expect our research and development expenses to be substantial for the foreseeable future as we continue to conduct our ongoing regulatory activities, initiate new preclinical and clinical trials, and build upon our pipeline. The process of conducting
38
clinical trials and preclinical studies necessary to obtain regulatory approval, preparing to seek regulatory approval, and preparing for commercialization in the event of regulatory approval, is costly and time-consuming. While we received approval for OLPRUVA® on December 22, 2022 for oral suspension in the U.S. for the treatment of certain patients with UCDs involving deficiencies of CPS, OTC, or AS, we may never succeed in achieving marketing approval for any of our other product candidates.
Successful development of product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to enter into new strategic alliances with respect to each program or potential product candidate, the scientific and clinical success of each product candidate, the timing and ability to obtain regulatory approval for our product candidates (if any), and ongoing assessments as to each product candidate’s commercial potential. We will need to raise additional capital and may seek to do so through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates, pursue regulatory approvals, and operate our business as planned.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of employee-related expenses, including salaries, benefits, and stock-based compensation; external precommercial and commercial costs; and professional fees for legal, business consulting, auditing, and tax services. We expect that selling, general and administrative expenses will be substantial in the future. From time to time, in connection with the Collaboration Agreement with Relief, we have recognized “contra-expense” for the selling, general and administrative activities which were funded by the Collaboration Agreement. These contra-expense amounts are disclosed parenthetically on the face of the financial statements.
Other Income (Expense), Net
Other income (expense), net consists primarily of changes in the value of liabilities measured at fair value, including losses on extinguishment related to our debt, debt issuance costs on our debt recorded at fair value, interest income and interest expense, and of gains and losses resulting from the revaluation of assets and liabilities denominated in foreign currencies. We earn interest income from interest-bearing accounts and money market funds, which we classify as cash and cash equivalents. We incur interest expense from loans and notes payable. We record as part of other income (expense), net, transaction gains and losses on foreign currency denominated assets and liabilities when they are revalued each period due to changes in underlying exchange rates. We also record gain on extinguishment of debt as part of other income (expense), net.
Critical Accounting Estimates
This management’s discussion and analysis of financial condition and results of operations is based on our unaudited condensed financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates.
Revenue Recognition and Accounting for Collaboration Agreements
With respect to our Critical Accounting Estimates, the disclosure provided in Note 3, Significant Accounting Policies, Revenue Recognition and Accounting for Collaboration Agreements, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report, is incorporated by reference herein.
39
Clinical Trial and Preclinical Study Expenses
We make estimates of prepaid and/or accrued expenses as of each balance sheet date in our financial statements based on certain facts and circumstances at that time. Our accrued expenses for preclinical studies and clinical trials are based on estimates of costs incurred for services provided by CROs, manufacturing organizations, and for other trial- and study-related activities. Payments under our agreements with external service providers depend on a number of factors such as site initiation, patient screening, enrollment, delivery of reports, and other events. In accruing for these activities, we obtain information from various sources and estimate the level of effort or expense allocated to each period. Adjustments to our research and development expenses may be necessary in future periods as our estimates change. As these activities are generally material to our overall financial statements, subsequent changes in estimates may result in a material change in our accruals. No material changes in estimates were recognized in the three and nine months ended September 30, 2023 and 2022. Our accounts payable and accrued expenses include costs associated with preclinical or clinical studies of $1.6 million and $0.9 million at September 30, 2023 and December 31, 2022, respectively.
Results of Operations
Comparison of the three months ended September 30, 2023 and 2022
The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|||
Product revenue, net |
|
$ |
371,790 |
|
|
$ |
— |
|
|
$ |
371,790 |
|
|
* |
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||
Cost of product revenue |
|
|
83,805 |
|
|
|
— |
|
|
|
83,805 |
|
|
* |
Payments to collaboration partner |
|
|
6,952,802 |
|
|
|
— |
|
|
|
6,952,802 |
|
|
* |
Research and development (net of collaboration funding of $0 and $2,178,078 in the three months ended September 30, 2023 and 2022 |
|
$ |
1,522,161 |
|
|
$ |
2,681,680 |
|
|
$ |
(1,159,519 |
) |
|
(43)% |
Selling, general and administrative (net of collaboration funding of $0 and $1,432,889 in the three months ended |
|
|
4,690,960 |
|
|
|
2,557,370 |
|
|
|
2,133,590 |
|
|
83% |
Loss from operations |
|
|
(12,877,938 |
) |
|
|
(5,239,050 |
) |
|
|
(7,638,888 |
) |
|
146% |
Total other (expense) income, net |
|
|
(1,853,329 |
) |
|
|
232,105 |
|
|
|
(2,085,434 |
) |
|
(898)% |
Net loss |
|
$ |
(14,731,267 |
) |
|
$ |
(5,006,945 |
) |
|
$ |
(9,724,322 |
) |
|
194% |
* - Measure not meaningful
Product revenue, net
We began commercially selling OLPRUVA® within U.S. in July 2023, following the approval of the U.S. Food and Drug Administration (“FDA”). For the three months ended September 30, 2023, we recorded approximately $0.4 million of product revenue, net. For further discussion regarding our revenue recognition policy, see Note 3, Summary of Significant Accounting Policies, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report.
Cost of product revenue
Cost of product revenue of $84 thousand for the three months ended September 30, 2023, consisted of costs to procure, manufacture, and distribute our marketed product, OLPRUVA. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval, certain immaterial costs, primarily bulk drug product, related to units recognized as revenue during the three months ended September 30, 2023, were expensed prior to obtaining regulatory approvals and, therefore, are not included in cost of product revenue during this period. We expect cost of product revenue to increase as we deplete these inventories and we expect to use the remaining pre-commercialization inventory for product sales through the third quarter of 2024.
40
Payments to collaboration partner
Payments to collaboration partners is related to the Termination Agreement signed on August 28, 2023, see Note 3, Summary of Significant Accounting Policies, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report.
Research and Development Expenses
Research and development expenses were $1.5 million, net of collaboration funding of $0.0 million, for the three months ended September 30, 2023, as compared to $2.7 million, net of collaboration funding of $2.2 million, for the three months ended September 30, 2022. We did not recognize collaboration funding as contra expense during the three months ended September 30, 2023. This decrease of $1.2 million was primarily due to decreases in collaboration funding contra-expense, offset by decreases in expenses for clinical studies, employee-related expenses, expenses for consulting and professional services, and contract manufacturing expenses. Research and development expenses related to ACER-001 increased in the three months ended September 30, 2023, resulting from a decrease in the recognition of the collaboration funding from the Collaboration Agreement with Relief. Research and development expenses for the three months ended September 30, 2023 were comprised of $0.8 million related to EDSIVOTM; $0.4 million related to ACER-001, offset by no collaboration funding; $0.1 million related to ACER-801; and $0.2 million related to other development activities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $4.7 million, net of collaboration funding of $0.0 million, for the three months ended September 30, 2023, as compared to $2.6 million, net of collaboration funding of $1.4 million, for the three months ended September 30, 2022. We did not recognize collaboration funding as contra expense during the three months ended September 30, 2023. This increase of $2.1 million was primarily due to decreases in collaboration funding contra-expense, offset by decreases in marketing expenses, expenses for consulting and professional services, and employee-related expenses. Selling, general and administrative expenses related to ACER-001 increased in the three months ended September 30, 2023, resulting from a decrease in the recognition of the collaboration funding from the Collaboration Agreement with Relief.
Other Income (Expense), Net
Other income (expense), net for the three months ended September 30, 2023 was primarily attributable to changes in the fair value of debt instruments and interest expense. Other income (expense), net for the three months ended September 30, 2022 was primarily attributable to income from changes in the fair value of debt instruments, partially offset by costs of debt issuance.
Comparison of the nine months ended September 30, 2023 and 2022
The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022:
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|||
Product revenue, net |
|
$ |
371,790 |
|
|
$ |
— |
|
|
$ |
371,790 |
|
|
* |
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||
Cost of product revenue |
|
|
83,805 |
|
|
|
— |
|
|
|
83,805 |
|
|
* |
Payments to collaboration partner |
|
|
6,952,802 |
|
|
|
— |
|
|
|
6,952,802 |
|
|
* |
Research and development (net of collaboration funding of $1,318,482 and $6,826,080 in the nine months ended September 30, 2023 and 2022, respectively) |
|
|
5,383,998 |
|
|
|
9,280,092 |
|
|
|
(3,896,094 |
) |
|
(42)% |
Selling, general and administrative (net of collaboration funding of $2,547,291 and $7,062,766 in the nine months ended September 30, 2023 and |
|
|
10,112,902 |
|
|
|
10,071,044 |
|
|
|
41,858 |
|
|
0% |
Loss from operations |
|
|
(22,161,717 |
) |
|
|
(19,351,136 |
) |
|
|
(2,810,581 |
) |
|
15% |
Total other income (expense), net |
|
|
(16,940,976 |
) |
|
|
2,498,151 |
|
|
|
(19,439,127 |
) |
|
(778)% |
Net loss |
|
$ |
(39,102,693 |
) |
|
$ |
(16,852,985 |
) |
|
$ |
(22,249,708 |
) |
|
132% |
41
* - Measure not meaningful
Product revenue, net
We began commercially selling OLPRUVA® within U.S. in July 2023, following the approval of the U.S. Food and Drug Administration (“FDA”). For the nine months ended September 30, 2023, we recorded approximately $0.4 million of product revenue, net. For further discussion regarding our revenue recognition policy, see Note 3, Summary of Significant Accounting Policies, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report.
Cost of product revenue
Cost of product revenue of $84 thousand for the nine months ended September 30, 2023, consisted of costs to procure, manufacture, and distribute our marketed product, OLPRUVA. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval, certain immaterial costs, primarily bulk drug product, related to units recognized as revenue during the nine months ended September 30, 2023, were expensed prior to obtaining regulatory approvals and, therefore, are not included in cost of product revenue during this period. We expect cost of product revenue to increase as we deplete these inventories and we expect to use the remaining pre-commercialization inventory for product sales through the third quarter of 2024.
Payments to collaboration partner
Payments to collaboration partners is related to the Termination Agreement signed on August 28, 2023, see Note 3, Summary of Significant Accounting Policies, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report.
Research and Development Expenses
Research and development expenses were $5.4 million, net of collaboration funding of $1.3 million, for the nine months ended September 30, 2023, as compared to $9.3 million, net of collaboration funding of $6.8 million for the nine months ended September 30, 2022. This decrease of $3.9 million was primarily due to a decrease in collaboration funding contra-expense recognized during the period, offset by decreases in expenses for contract manufacturing as a result of the Company’s OLPRUVA® product approval at the end of 2022. There were additional decreases in employee-related expenses, and expenses for consulting and professional services. Research and development expenses related to ACER-001 decreased in the nine months ended September 30, 2023, resulting in a decrease in the recognition of the collaboration funding from the Collaboration Agreement with Relief. Research and development expenses for the nine months ended September 30, 2023 were comprised of $2.8 million related to EDSIVOTM; $1.8 million related to ACER-001, offset by $1.3 million of collaboration funding; $1.1 million related to ACER-801; and $1.0 million related to other development activities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $10.1 million, net of collaboration funding of $2.5 million, for the nine months ended September 30, 2023, as compared to $10.1 million, net of collaboration funding of $7.1 million, for the nine months ended September 30, 2022. Though selling, general and administrative expense were relatively flat compared to the prior year, there were decreases in collaboration funding contra-expense recognized during the nine month period compared with the prior year. Underlying the decrease in collaboration funding contra-expense, were decreases in marketing expenses, employee-related expenses, and expenses for consulting and professional services. Selling, general and administrative expenses related to ACER-001 decreased in the nine months ended September 30, 2023, resulting in a decrease in the recognition of the collaboration funding from the Collaboration Agreement with Relief.
Other Income (Expense), Net
Other income (expense), net for the nine months ended September 30, 2023 was primarily attributable to expense from extinguishment of debt, changes in the fair value of debt instruments, interest expense, and costs of debt issuance. The loss on extinguishment of debt totaling $8.2 million recognized in the nine months ended September 30, 2023 was comprised of $5.0 million and $2.7 million of increases in the post-modification cashflows of the Marathon Convertible Notes and Term Loans, respectively, as well as the fair value of the SWK Third Warrant of $0.5 million. Additionally, during the period, we recognized a loss on extinguishment of $0.4 million related to the issuance of the SWK Fourth Warrant. The Company also recognized $1.1 million of interest expense during the nine months ended September 30, 2023. Other income (expense), net for the nine months
42
ended September 30, 2022 was primarily attributable to income from changes in the fair value of debt instruments, partially offset by costs of debt issuance.
Liquidity and Capital Resources
We have never been profitable and have incurred operating losses in each year since inception. From inception to September 30, 2023, we have raised net cash proceeds of $122.8 million, primarily from common stock offerings, private placements of convertible preferred stock, debt instruments, and convertible debt instruments. In addition, from inception to September 30, 2023, we have raised cash proceeds of $35.0 million from collaboration agreements, however during the three months ended September 30, 2023, as noted in connection with the Termination Agreement we agreed to pay our collaboration partner $11.5 million, $10 million upon signing, and an additional $1.5 million approximately on the one year anniversary of the agreement. As of September 30, 2023, we had $0.6 million in cash and cash equivalents, and current liabilities aggregating to $61.7 million, which include $1.5 million of accrued payments to our collaboration partner. Our net loss for the three months ended September 30, 2023 and 2022 was $14.7 million and $5.0 million, respectively. As of September 30, 2023, we had an accumulated deficit of $179.8 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations.
The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net cash (used in) provided by: |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(28,904,984 |
) |
|
$ |
(21,953,658 |
) |
Investing activities |
|
|
(3,066 |
) |
|
|
(35,840 |
) |
Financing activities |
|
|
27,173,491 |
|
|
|
15,656,659 |
|
Net decrease in cash and cash equivalents |
|
$ |
(1,734,559 |
) |
|
$ |
(6,332,839 |
) |
Operating Activities
Net cash used in operating activities was $28.9 million for the nine months ended September 30, 2023, as compared to $22.0 million for the nine months ended September 30, 2022.The increase of $7.0 million was primarily the result of the $10 million payment made to Relief in connection with the Termination Agreement, as well as decreases in deferred collaboration funding in the nine months ended September 30, 2023 as compared to the same period in the prior year, increases in inventory during the current nine month period, partially offset by a lower net loss adjusted for non cash items. Additionally, the prior year included the receipt during the nine month period of the $5.0 million receivable from Relief.
Investing Activities
Net cash used in investing activities during each of the nine months ended September 30, 2023 and 2022 was related to the purchase of property and equipment.
Financing Activities
Net cash provided by financing activities was $27.2 million for the nine months ended September 30, 2023, as compared to $15.7 million for the nine months ended September 30, 2022. Financing activities in the nine months ended September 30, 2023 include receipt of proceeds for the issuance of common stock and warrants, net of fees, of $6.5 million, and proceeds from the issuance of the SWK Second Term loan and SWK Third Warrant, net of fees, of $6.8 million, and proceeds from the promissory note payable to an officer of $1.0 million, partially offset by $0.6 million principal paid on the Original Term Loan. Additionally, the net cash provided by financing activities during the nine months ended September 30, 2023, includes proceeds from the Zevra Bridge Loan of $13.4 million. Net cash provided by financing activities during the nine months ended September 30, 2022 consisted primarily of $6.0 million net proceeds received from the Original Term Loan, $5.5 million net proceeds received from the Secured Convertible Notes, and $0.3 million received from the exercise of the Pre-Funded Warrants, and $4.5 million of proceeds from the sale of common stock through the our ATM and equity line, partially offset by issuance costs of $0.7 million related to these debt and convertible debt instruments.
43
Contractual Commitments
With respect to our contractual commitments, the disclosure provided in Note 9, Commitments and Contingencies, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report, is incorporated by reference herein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
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
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer (to whom we refer in this periodic report as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Certifying Officers, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officers concluded that our disclosure controls and procedures were effective as of September 30, 2023.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2023, we began generating revenue from the sale of OLPRUVA® in the U.S. We consider the accounting for our product revenue, net to be material to our results of operations in future periods, and believe that the additional internal controls and procedures added during the three months ended September 30, 2023, relating to the accounting for product revenue, net, and related commercial inventory, have a material effect on our internal control over financial reporting. There were no other changes in our internal control over financial reporting that occurred during the nine months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
44
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in litigation or proceedings relating to claims arising out of our operations. See Note 9, Commitments and Contingencies, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report, to our unaudited condensed financial statements included in this report for a description of a putative securities class action and stockholder derivative suit complaints filed against us, all of which have now been dismissed. See also Note 12, Subsequent Events, in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report, for a description of the stockholder litigation related to the Merger.
We are not currently a party to any other legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation could have an adverse impact on our business because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
Not applicable
Item 5. Other Information.
(c) Trading Plans
During the three months ended September 30, 2023,
45
Item 6. Exhibits
Exhibit No. |
|
Description |
|
|
|
2.1 |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
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|
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3.3* |
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Certificate of Merger, as filed with the Delaware Secretary of State on November 17, 2023. |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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10.5 |
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10.6 |
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31.1* |
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31.2* |
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32.1** |
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32.2** |
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101.INS* |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101). |
* Filed herewith.
46
** In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934. Such exhibits will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ACER THERAPEUTICS INC. |
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Date: November 20, 2023 |
By: |
/s/ Neil F. McFarlane |
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Neil F. McFarlane President and Chief Executive Officer (Principal Executive Officer) |
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Date: November 20, 2023 |
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/s/ R. LaDuane Clifton |
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R. LaDuane Clifton, MBA, CPA Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer) |
48