| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
March 31, 2023
| ☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
801 1250
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulationand post such files). Yes ☒ No ☐Act (Check one):Act:Large accelerated filer ☐ Accelerated Filer ☒ ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging growth company ☐
CATALYST PHARMACEUTICALS, INC.
INDEX
PART I. FINANCIAL INFORMATION
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Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |||||
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| SIGNATURES | 44 | |||||
2
Current Assets: Cash and cash equivalents Short-term investments Prepaid expenses and other current assets Total current assets Property and equipment, net Deposits Total assets Current Liabilities: Accounts payable Accrued expenses and other liabilities Total current liabilities Accrued expenses and other liabilities,non-current Warrants liability, at fair value Total liabilities Commitments and contingencies Stockholders’ equity: Preferred stock, $0.001 par value, 5,000,000 shares authorized: none issued and outstanding at September 30, 2017 and December 31, 2016 Common stock, $0.001 par value, 150,000,000 shares authorized; 85,234,979 shares and 82,972,316 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively Additionalpaid-in capital Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity Operating costs and expenses: Research and development General and administrative Total operating costs and expenses Loss from operations Other income, net Change in fair value of warrants liability Loss before income taxes Provision for income taxes Net loss Net loss per share – basic and diluted Weighted average shares outstanding – basic and diluted Balance at December 31, 2016 Issuance of common stock, net Issuance of stock options for services Amortization of restricted stock for services Exercise of warrants for common stock Net loss Balance at September 30, 2017 March 31, 2023 and 2022 Operating Activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation Stock-based compensation Change in fair value of warrants liability (Increase) decrease in: Prepaid expenses and other current assets and deposits Increase (decrease) in: Accounts payable Accrued expenses and other liabilities Net cash used in operating activities Investing Activities: Capital expenditures Purchase of short-term investments Proceeds (purchase) of certificates of deposit Net cash provided by (used in) investing activities Financing Activities: Payment of employee withholding tax related to stock-based compensation Proceeds from exercise of warrants Proceeds from exercise of stock options Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents – beginning of period Cash and cash equivalents – end of period Supplemental disclosures ofnon-cash investing and financing activity Exercise of liability classified warrants for common stock with other medicines to treat primary generalized tonic-clonic seizures in people with epilepsy aged 12 and older. The Company closed the acquisition of FYCOMPA 15 (Stockholders’ Equity). months from the issuance date of this report. Money market funds Short-term investments Money market funds Short-term investments Warrants liability Research and development General and administrative Total stock-based compensation Options to purchase common stock Warrants to purchase common stock Unvested restricted stock Potential equivalent common stock excluded Fair value, beginning of period Issuance of warrants Exercise of warrants Change in fair value Fair value, end of period Prepaid research fees Prepaid insurance Prepaidpre-commercialization fees Prepaid subscription fees Prepaid rent Other Total prepaid expenses and other current assets Computer equipment Furniture and equipment Leasehold improvements Less: Accumulated depreciation Total property and equipment, net following (in thousands): Accruedpre-clinical and clinical trial expenses Accrued professional fees Accrued compensation and benefits Accrued license fees Deferred rent and lease incentive Other Current accrued expenses and other liabilities Deferred rent and leaseincentive—non-current Non-current accrued expenses and other liabilities Total accrued expenses and other liabilities manufacture of RUZURGI September 30,
2017 December 31,
2016 (unaudited) ASSETS $ 7,328,984 $ 13,893,064 26,577,501 26,512,753 510,492 1,047,944 34,416,977 41,453,761 205,450 244,204 8,888 8,888 $ 34,631,315 $ 41,706,853 LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,081,608 $ 933,176 1,655,986 1,161,359 2,737,594 2,094,535 164,516 181,162 — 122,226 2,902,110 2,397,923 — — 85,235 82,972 152,816,719 147,374,028 (121,172,749 ) (108,148,070 ) 31,729,205 39,308,930 $ 34,631,315 $ 41,706,853
2023
2022 (unaudited) Cash and cash equivalents $ 148,247 $ 298,395 Accounts receivable, net 33,402 10,439 Inventory 10,328 6,805 Prepaid expenses and other current assets 6,934 5,167 Total current assets 198,911 320,806 2,706 2,770 Property and equipment, net 1,285 847 License and acquired intangibles, net 184,083 32,471 Deferred tax assets, net 20,242 18,736 Total assets $ 407,227 $ 375,630 Current Liabilities: Accounts payable $ 3,391 $ 3,975 Accrued expenses and other liabilities 53,318 53,613 Total current liabilities 56,709 57,588 Operating lease liability, net of current portion 3,468 3,557 13,389 14,064 Total liabilities 73,566 75,209 Commitments and contingencies (Note 12) Stockholders’ equity: Preferred stock, $0.001 par value, 5,000,000 shares authorized: none issued and outstanding at March 31, 2023 and December 31, 2022 — — Common stock, $0.001 par value, 200,000,000 shares authorized; 105,938,292 shares and 105,263,031 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively 106 105 254,114 250,430 Retained earnings 79,430 49,862 Accumulated other comprehensive income 11 24 Total stockholders’ equity 333,661 300,421 Total liabilities and stockholders’ equity $ 407,227 $ 375,630 For the Three Months Ended
September 30, For the Nine Months Ended
September 30, 2017 2016 2017 2016 $ 2,704,923 $ 2,493,999 $ 7,970,603 $ 8,549,287 1,601,785 1,420,015 5,197,247 6,416,715 4,306,708 3,914,014 13,167,850 14,966,002 (4,306,708 ) (3,914,014 ) (13,167,850 ) (14,966,002 ) 129,059 66,981 330,075 277,679 — (106,948 ) (186,904 ) 779,191 (4,177,649 ) (3,953,981 ) (13,024,679 ) (13,909,132 ) — — — — $ (4,177,649 ) $ (3,953,981 ) $ (13,024,679 ) $ (13,909,132 ) $ (0.05 ) $ (0.05 ) $ (0.16 ) $ (0.17 ) 84,797,969 82,870,649 83,898,724 82,867,140
Months Ended March 31, Revenues: Product revenue, net $ 85,304 $ 43,033 License and other revenue 62 56 Total revenues 85,366 43,089 Operating costs and expenses: Cost of sales (a) 9,946 5,890 Research and development 3,562 3,403 Selling, general and administrative (a) 29,718 16,430 Amortization of intangible assets 6,531 — Total operating costs and expenses 49,757 25,723 Operating income 35,609 17,366 Other income, net 1,704 93 Net income before income taxes 37,313 17,459 Income tax provision 7,745 4,218 Net income $ 29,568 $ 13,241 Net income per share: Basic $ 0.28 $ 0.13 Diluted $ 0.26 $ 0.12 Weighted average shares outstanding: Basic 105,561,229 102,781,771 Diluted 113,986,129 109,041,096 Net income $ 29,568 $ 13,241 Other comprehensive income: (13 ) (305 ) Comprehensive income $ 29,555 $ 12,936 (a) exclusive of amortization of intangible assets STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)ninethree months ended September 30, 2017 Preferred
Stock Common
Stock Additional
Paid-in
Capital Accumulated
Deficit Total $ — $ 82,972 $ 147,374,028 $ (108,148,070 ) $ 39,308,930 — 5 3,945 — 3,950 — — 1,866,005 — 1,866,005 — — 56,446 — 56,446 — 2,258 3,516,295 — 3,518,553 — — — (13,024,679 ) (13,024,679 ) $ — $ 85,235 $ 152,816,719 $ (121,172,749 ) $ 31,729,205 $ — 105,263 $ 105 $ 250,430 $ 49,862 $ 24 $ 300,421 Issuance of stock options for services — — — 2,177 — — 2,177 Exercise of stock options for common stock — 548 1 1,269 — — 1,270 Amortization of restricted stock for services — — — 715 — — 715 Issuance of common stock upon vesting of restricted stock units, net — 127 — (477 ) — — (477 ) Other comprehensive gain (loss) — — — — — (13 ) (13 ) Net income — — — — 29,568 — 29,568 $ — 105,938 $ 106 $ 254,114 $ 79,430 $ 11 $ 333,661 $ — 102,993 $ 103 $ 233,186 $ (26,310 ) $ (148 ) $ 206,831 Issuance of stock options for services — — — 1,623 — — 1,623 Exercise of stock options for common stock — 364 — 1,102 — — 1,102 Amortization of restricted stock for services — — — 280 — — 280 Repurchase of common stock — (400 ) — — (2,551 ) — (2,551 ) Other comprehensive gain (loss) — — — — — (305 ) (305 ) Net income — — — — 13,241 — 13,241 $ — 102,957 $ 103 $ 236,191 $ (15,620 ) $ (453 ) $ 220,221 For the Nine Months Ended
September 30, 2017 2016 $ (13,024,679 ) $ (13,909,132 ) 38,754 31,442 1,922,451 1,347,440 186,904 (779,191 ) 537,452 1,193,883 148,432 (738,803 ) 477,981 (697,403 ) (9,712,705 ) (13,551,764 ) — (88,931 ) (64,748 ) (94,154 ) — 3,149,198 (64,748 ) 2,966,113 — (11,265 ) 3,209,423 — 3,950 — 3,213,373 (11,265 ) (6,564,080 ) (10,596,916 ) 13,893,064 28,235,016 $ 7,328,984 $ 17,638,100 $ 309,130 $ —
Months Ended March 31, Net income $ 29,568 $ 13,241 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 69 34 Stock-based compensation 2,892 1,903 Amortization of intangible assets 6,531 — Deferred taxes (1,519 ) 1,901 Change in accrued interest and accretion of discount on investments — (2 ) 64 60 Acquired inventory samples expensed from asset acquisition 130 — (Increase) decrease in: Accounts receivable, net (22,963 ) (3,933 ) Inventory 577 43 Prepaid expenses and other current assets (191 ) (563 ) Increase (decrease) in: Accounts payable (584 ) 2,371 Accrued expenses and other liabilities (2,422 ) (6,504 ) Operating lease liability (82 ) (73 ) Net cash provided by (used in) operating activities 12,070 8,478 Purchases of property and equipment (74 ) — Payment in connection with asset acquisition (162,293 ) — Net cash provided by (used in) investing activities (162,367 ) — Payment of employee withholding tax related to stock-based compensation (477 ) — Proceeds from exercise of stock options 1,270 1,000 Repurchase of common stock — (2,551 ) Payment of liabilities arising from asset acquisition (644 ) — Net cash provided by (used in) financing activities 149 (1,551 ) Net increase (decrease) in cash and cash equivalents (150,148 ) 6,927 Cash and cash equivalents – beginning of period 298,395 171,445 Cash and cash equivalents – end of period $ 148,247 $ 178,372 Cash paid for income taxes $ — $ 41 Proceeds from exercise of stock options not yet settled at end of period $ — $ 102 Liabilities arising from asset acquisition $ 1,915 $ — (theand subsidiary (collectively, the Company) is a development-stagecommercial-stage biopharmaceutical company focused oninnovating therapiesnovel medicines for patients living with rare diseases and diseases that are difficult to treat. With exceptional patient focus, is committed to developing and commercializing innovativerare debilitating, chronic neuromuscularepilepsy aged four and neurological diseases, including Lambert-Eaton Myasthenic Syndrome (LEMS), Congenital Myasthenic Syndromes (CMS), MuSK antibody positive myasthenia gravis,older and infantile spasms. of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets, raising capital, and raising capital. The Company’s primary focus is on the development and commercialization ofselling its drug candidates.products. The Company has incurred operating losses in each period from inception through September 30, 2017.and started reporting operating income during the year ended December 31, 2019. The Company has been able to fund its cash needs to date through several public and private offerings of its common stocksecurities and warrants, through government grants, and through an investment by a strategic purchaser.from revenues from sales of its products. See Note 9.months.required funds in the future through public or private equity offerings, debt financings, corporate collaborations, governmental research grants or other means. The Company may also seek to raise new capital to fund additional productbusiness development efforts,activities, even if it has sufficient funds for its planned operations. Any sale by the Company of additional equity or convertible debt securities could result in dilution to the Company’s current stockholders. There can be no assurance that any such required additional funding will be available to the Company at all or available on terms acceptable to the Company. Further, to the extent that the Company raises additional funds through collaborative arrangements, it may be necessary to relinquish some rights to the Company’s drug candidates or grant sublicenses on terms that are not favorable to the Company. If the Company is not able to secure additional funding when needed, the Company may have to delay, reduce the scope of, or eliminate one or more research and development programs, which could have an adverse effect on the Company’s business. 20162022 included in this Form20162022 included in the 20162022 Annual Report onand nine months ended September 30, 2017March 31, 2023 are not necessarily indicative of the results to be expected for any future period or for the full 20172023 fiscal year.2.Basis of Presentation and Significant Accounting Policies (continued). CONSOLIDATION.CONSOLIDATION.(“Catalyst Ireland”)(Catalyst Ireland). All intercompany accounts and transactions have been eliminated in consolidation. Catalyst Ireland was organized in August 2017. funds.funds and U.S. Treasuries. The Company has substantially all of its cash and cash equivalents deposited with one financial institution. These amounts at times may exceed federally insured limits. SHORT-TERM short-term investments in high credit-quality fundsinstruments in order to obtain higher yields on its cash available for investments. As of September 30, 2017,At March 31, 2023 and December 31, 2016, short-term2022, investments consisted of a short-term bond fund.U.S. Treasuries. Such investments are not insured by the Federal Deposit Insurance Corporation. Short-term investments at September 30, 20172016 are considered trading securities. Trading securities are recorded at fair value based on the closing market price of the security. For trading securities,2022, the Company recognizes realized gainsdetermined that an allowance for expected credit losses was not required. No accounts were written off during the periods presented.losses and unrealized gains and losses to earnings. Unrealized gain for the three and nine months ended September 30, 2017 were $29,431 and $58,861, respectively. Unrealized gain for the three and nine months ended September 30, 2016 were $0 and $88,291, respectively, and are included in other income, net in the accompanying consolidated statements of operations.Significant Accounting Policies (continued). f.ASSETS.ASSETS.pre-commercialization commercialization expenses, prepaid insuranceamounts due from collaborative and license arrangements and prepaid subscription fees.conference and travel expenses. Prepaid research fees consist of advances for the Company’s product development activities, including drug manufacturing, contracts for g.short-term investments, accounts payables,receivable, accounts payable, and accrued expenses and other liabilities, and warrants liability.liabilities. At September 30, 2017March 31, 2023 and December 31, 2016,2022, the fair value of these instruments approximated their carrying value. h.2.Basis of Presentation and Significant Accounting Policies (continued). Fair Value Measurements at Reporting Date Using Balances as of
September 30,
2017 Quoted Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) $ 6,646,164 $ 6,646,164 $ — $ — $ 26,577,501 $ 26,577,501 $ — $ — Fair Value Measurements at Reporting Date Using Balances as of
December 31,
2016 Quoted Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) $ 13,395,759 $ 13,395,759 $ — $ — $ 26,512,753 $ 26,512,753 $ — $ — $ 122,226 $ — $ — $ 122,226
March 31,
2023
Active Markets for
Identical
Assets/Liabilities
(Level 1)
Observable Inputs
(Level 2)
Unobservable Inputs
(Level 3) Money market funds $ 12,373 $ 12,373 $ — $ — U.S. Treasuries $ 115,785 $ 115,785 $ — $ —
December 31,
2022
Active Markets for
Identical
Assets/Liabilities
(Level 1)
Observable Inputs
(Level 2)
Unobservable Inputs
(Level 3) Money market funds $ 168,853 $ 168,853 $ — $ — U.S. Treasuries $ 105,442 $ 105,442 $ — $ — i.WARRANTS LIABILITY. In October 2011, the Company issued 1,523,370 warrants (the 2011 warrants) to purchase shares of the Company’s common stock in connection with a registered direct offering. The Company accounted for these warrants as a liability measured at fair value due to a provision included in the warrants agreement that provided the warrants holders with an option to require the Company (or its successor) to purchase their warrants for cash in an amount equal to their Black-Scholes Option Pricing Model (the Black-Scholes Model) value, in the event that certain fundamental transactions, as defined, occurred. The fair value of the warrants liability was estimated using the Black-Scholes Model which required inputs such as the expected term of the warrants, share price volatility and risk-free interest rate. These assumptions were reviewed on a quarterly basis and changes in the estimated fair value of the outstanding warrants were recognized each reporting period in the “Change in fair value of warrants liability” line in the consolidated statement of operations. At September 30, 2017, none of the 2011 warrants remained outstanding and at December 31, 2016, 763,913 of the 2011 warrants remained outstanding.2. j.
March 31, $ 57,526 $ 43,033 27,778 — $ 85,304 $ 43,033 statementstatements of operations for the grant date fair value of all stock-based payments to employees, directors scientific advisors and consultants, including grants of stock options and other share-based awards. For stock options, the Company uses the Black-Scholes option valuation model, the single-option award approach, and the straight-line attribution method. Using this approach, compensation cost is amortized on a straight-line basis over the vesting period of each respective stock option, generally one to three years. Forfeitures are recognized as a reduction of share-basedstock-based compensation expense as they occur.As of September 30, 2017, there were outstanding stock options to purchase 6,085,000 shares of common stock, of which stock options to purchase 3,501,664 shares of common stock were exercisable as of September 30, 2017.For the three and nine-month periods ended September 30, 2017 and 2016, the Company recorded stock-based compensation expense as follows: Three months ended
September 30, Nine months ended
September 30, 2017 2016 2017 2016 $ 192,796 $ 185,122 $ 622,700 $ 443,297 336,942 347,080 1,299,751 904,143 $ 529,738 $ 532,202 $ 1,922,451 $ 1,347,440 k.INCOME (LOSS).INCOME.requirerequires that all components of comprehensive income (loss) be reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is net income, (loss), plus certain other items that are recorded directly into stockholders’ equity. For all periods presented, theThe Company’s net loss equals comprehensive loss, since the Company has no items which are considered other comprehensive income (loss).is shown on the consolidated statements of operations and comprehensive income for the three months ended March 31, 2023 and 2022, and is comprised of net unrealized gains (losses) on the Company’s l.LOSSINCOME PER COMMON SHARE.lossnet income per share is computed by dividing net lossincome for the period by the weighted average number of common shares outstanding during the period. The calculation of basic and diluted net loss per share is the same for all periods presented, as the effect of potentialWith regard to common stock equivalents is anti-dilutive duesubject to vesting requirements, the Company’s net loss position for all periods presented. The potential shares, which are excluded fromcalculation includes only the determinationvested portion of basicsuch stock and diluted net loss per share as their effect is anti-dilutive, are as follows:units. September 30, 2017 2016 6,085,000 5,150,000 — 2,407,663 26,667 53,334 6,111,667 7,610,997 Potentiallyoptions to purchasesecurities during the period.
March 31, Basic weighted average common shares outstanding 105,561,229 102,781,771 Effect of dilutive securities 8,424,900 6,259,325 Diluted weighted average common shares outstanding 113,986,129 109,041,096 of both September 30, 2017 and 2016 have exercise prices ranging from $0.47 to $4.64. Potentially dilutive warrants to purchase common stock as of September 30, 2016 had exercise prices ranging from $1.04 to $2.08.
their effect would be anti-dilutive.2.Basis of Presentation and Significant Accounting Policies (continued). m. In February 2016, the FASB issued ASUNo. 2016-02,Leases (Topic 842), which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. is currently evaluatingdid not adopt any accounting standards during the impact this accounting standard will have on its consolidated financial statements.three-month period ending March 31, 2023.On March 30, 2016, the FASB issued ASUNo. 2016-09,Compensation—Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements,well as classification in the statement of cash flows. For public companies, the changes are effective for reporting periods (annual and interim) beginning after December 15, 2016. The Company adopted this standard in the first quarter of 2017. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.In May 2017, the FASB issued ASUNo. 2017-09,Compensation – Stock Compensation (Topic 718)follows (in thousands): Scope of Modification Accounting to clarify when to account for a change to the terms
Fair Value
Unrealized
Gains
Unrealized
Losses
Cost U.S. Treasuries - Cash equivalents $ 115,785 $ 14 $ — $ 115,771 Total $ 115,785 $ 14 $ — $ 115,771 U.S. Treasuries - Cash equivalents $ 105,442 $ 32 $ — $ 105,410 Total $ 105,442 $ 32 $ — $ 105,410 conditions of a share-based payment award as a modification. Under this new guidance, modification accounting is required if the fair value, vesting conditions, or classification of the award changes as a result of the change in terms or conditions. ASU2017-09 is effective for all entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period, applied prospectively on or after the effective date. The Company is currently evaluating the impact this accounting standard will have on its consolidated financial statements; however, the Company does not expect that the adoption of this standard will have a material impact on the Company’s consolidated financial statements.3.Warrants Liability, at Fair Value.2011 WarrantsThe Company allocated approximately $1.3 million of proceedslosses from its October 2011 registered direct offering to the fair value of common stock purchase warrants issued in connection with the offering that were classified as a liability (the 2011 warrants). The 2011 warrants were classified as a liability because of provisions in such warrants that allowednet cash settlementthree months ended March 31, 2023 or 2022. such warrants in the event
2023 Due in one year or less $ 115,785 3.Warrants Liability, at Fair Value (continued).The calculated value of the 2011 warrants liability was determined using the Black-Scholes Model with the following assumptions:December 31,2016Risk free interest rate0.85% Expected term0.33 yearsExpected volatility100% Expected dividend yield0% Expected forfeiture rate0% rolls forwardsummarizes the fair valuechanges in accumulated other comprehensive income, net of tax from unrealized gains (losses) onwarrants liability activityonly component of accumulated other comprehensive income for the three and nine-month periods ended September 30, 2017 and 2016: Three months ended
September 30, Nine months ended
September 30, 2017 2016 2017 2016 $ — $ 122,224 $ 122,226 �� $ 1,008,363 — — — — — — (309,130 ) — — 106,948 186,904 (779,191 ) $ — $ 229,172 $ — $ 229,172 On May 2, 2017, the outstanding and unexercised 2011 warrants expired. During the nine months ended September 30, 2017, 613,913March 31, 2023 and 2022.
Other Comprehensive
Income (Loss) $ 24 Other comprehensive gain (loss) before reclassifications (13 ) Amount reclassified from accumulated other comprehensive income — Net current period other comprehensive gain (loss) (13 ) $ 11 2011 warrants were exercised, with proceeds of $798,087 to the Company. During the three and nine months ended September 30, 2016, none of the 2011 warrants were exercised.following (in thousands): Raw materials $ — $ — 5,642 5,543 Finished goods 4,686 1,262 Total inventory $ 10,328 $ 6,805 4.following: September 30,
2017 December 31,
2016 $ 310,331 $ 334,565 91,514 598,909 — 35,500 37,816 22,770 20,550 19,756 50,281 36,444 $ 510,492 $ 1,047,944 Prepaid manufacturing costs $ 1,147 $ 1,147 Prepaid tax 44 44 Prepaid insurance 871 1,224 Prepaid subscriptions fees 1,057 808 Prepaid research fees 157 178 Prepaid commercialization expenses 2,585 592 Due from collaborative and licensing arrangements 213 354 Prepaid conference and travel expenses 525 234 Other 335 586 Total prepaid expenses and other current assets $ 6,934 $ 5,167 5.
March 31, Operating lease cost $ 108 $ 108
March 31, Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows $ 125 $ 121 Operating lease $ 22 $ 22 $ 2,706 $ 2,770 $ 345 $ 337 Operating lease liabilities, net of current portion 3,468 3,557 Total operating lease liabilities $ 3,813 $ 3,894 2023 (remaining nine months) $ 382 2024 522 2025 537 2026 553 2027 570 Thereafter 2,027 Total lease payments 4,591 Less: imputed interest (778 ) Total $ 3,813 net.Net.following: September 30,
2017 December 31,
2016 $ 27,915 $ 27,915 177,061 177,061 152,708 152,708 357,684 357,684 (152,234 ) (113,480 ) $ 205,450 $ 244,204 Computer equipment $ 51 $ 51 Furniture and equipment 296 222 Leasehold improvements 980 980 Software 433 — Less: Accumulated depreciation (475 ) (406 ) Total property and equipment, net $ 1,285 $ 847 5.PropertyEquipment, net (continued).Acquired Intangibles, Net.Depreciation
Amortization $ 33,569 $ 1,678 $ 31,891 158,143 5,951 152,192 Total $ 191,712 $ 7,629 $ 184,083
Amortization $ 33,569 $ 1,098 $ 32,471 $ 33,569 $ 1,098 $ 32,471 was $12,839related to the licensed and $38,754, respectively,acquired intangibles for RUZURGI $ 25,462 33,949 33,949 33,949 33,949 22,825 $ 184,083 and nine-month periodsmonths ended September 30, 2017 and $9,482 and $31,442 for the three and nine-month periods ended September 30, 2016, respectively.March 31, 2023 or 2022.6.following: September 30, 2017 December 31, 2016 $ 1,143,942 $ 623,855 110,812 102,673 139,999 264,237 226,250 152,500 22,424 18,094 12,559 — 1,655,986 1,161,359 164,516 181,162 164,516 181,162 $ 1,820,502 $ 1,342,521 Accrued preclinical and clinical trial expenses $ 290 $ 479 Accrued professional fees 5,626 1,619 Accrued compensation and benefits 2,043 5,132 Accrued license fees 7,614 20,444 Accrued purchases 146 154 Operating lease liability 345 337 Accrued variable consideration 4,748 3,381 Accrued contributions 1,350 — Accrued income tax 17,949 8,702 Due to licensor 12,928 13,127 Other 279 238 Current accrued expenses and other liabilities 53,318 53,613 3,468 3,557 13,389 14,064 16,857 17,621 Total accrued expenses and other liabilities $ 70,175 $ 71,234 7.CommitmentsContingencies.Licensing Arrangements.a.LICENSE AGREEMENT WITH NORTHWESTERN UNIVERSITY. On August 27, 2009, the Company entered into a license agreement with Northwestern University (Northwestern), under which it acquired worldwide rights to commercialize new GABA aminotransferase inhibitors and derivatives of vigabatrin that have been discovered by Northwestern. Under the terms of the license agreement, Northwestern granted the Company an exclusive worldwide license to certain composition of matter patents related to the new class of inhibitors and a patent application relating to derivatives of vigabatrin. The Company has identified and designated the lead compound under this license asCPP-115.license agreement with Northwestern,Collaboration, Endo assumes all development, manufacturing, clinical, regulatory, sales and marketing costs under the collaboration, while the Company is responsible for continued research andexercising commercially reasonable efforts to develop, or cause the development of, any resulting product candidates. Asa final finished, stable dosage form of September 30, 2017,generic Sabrilpaid $416,590received anaccruedconcluded that this collaborative arrangement will be accounted for pursuant to Topic 606.feesfee that was recognized upon transfer of $226,250the license based on a determination that the right is provided as the intellectual property exists at the point in time in which the license is granted.September 30, 2017 consolidated balance sheetstatements of operations and comprehensive income. Expenses incurred, net have been included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income.expenses, maintenance feesthe development and milestones. In addition,commercialization of FIRDAPSEobligatedresponsible for clinical and commercial supply based on purchase orders, as well as providing support to pay certainDyDo in its efforts to obtain regulatory approval for the product from the Japanese regulatory authorities.future years relating to clinical development activities with respect toCPP-115,time which is generally at time of shipment.royalties on any products resulting$0 in revenue from the license agreement, ifarrangement with DyDo for the three months ended March 31, 2023 and 2022, respectively, which is included in product revenue, net in the accompanying consolidated statements of operations and comprehensive income. As of March 31, 2023, no milestone payments have been earned.does not cancelfiled suit against the license agreement.FDA and several related parties challenging this approval and related drug labeling. Jacobus later intervened in the case. The next milestone paymentCompany’s complaint, which was filed in the federal district court for the Southern District of $300,000 is due onFlorida, alleged that the earlierFDA’s approval of successful completionRUZURGIfirst Phase 3 clinical trialFederal Food, Drug, and Cosmetic Act (FDCA); violated the Company’s statutory rights to Orphan Drug Exclusivity and New Chemical Entity Exclusivity under the FDCA; and was in multiple other respects arbitrary, capricious, and contrary to law, in violation of the Administrative Procedure Act. Among other remedies, the suit sought an order vacating the FDA’s approval of RUZURGICPP-115 summary judgment and deny the Company’s motion for summary judgment. On September 29, 2020, the District Judge adopted the Report and Recommendation of the Magistrate Judge, granted the FDA’s and Jacobus’ motions for summary judgment, and dismissed the Company’s case. The Company appealed the District Court’s decision to the U.S. Court of Appeals for the 11August 27, 2018.(ii) December 31, 2034, Jacobus and its affiliates, will not, directly or indirectly, research, develop, manufacture, commercialize, distribute, use or otherwise exploit any product competitive to FIRDAPSEb.LICENSE AGREEMENT WITH NEW YORK UNIVERSITY AND THE FEINSTEIN INSTITUTE FOR MEDICAL RESEARCH.On December 13, 2011, the Company entered into a license agreement with New York University (NYU) and the Feinstein Institute for Medical Research (FIMR) under which it acquired worldwide rights to commercialize GABA aminotransferase inhibitors in the treatment for Tourette’s Disorder. The Company is obligated to pay certain milestone payments in future years relating to clinical development activities and royalties on any products resulting from the license agreement.7. c.WITH BIOMARINFOR FIRDAPSEstrategic collaborationlicense agreement with BioMarin Pharmaceutical, Inc. (BioMarin) for Firdapse® under which: (i) the Company licensed the exclusive North American rights to FirdapseFIRDAPSE pursuant to a License Agreement, dated as of October 26, 2012 (the License Agreement) between(ii) BioMarin madethe third-party licensor) in any calendar year for the duration of any regulatory exclusivity within a $5,000,000 investmentterritory andthe Company to further the development of Firdapse®.any calendar year in territories without regulatory exclusivity.As part ofLicense Agreement,Company and BioMarin entered into an amendment to the Company’s license agreement for FIRDAPSEagreedexpanded its commercial territory for FIRDAPSEpay: (i)include Japan. Additionally, the Company has an option to further expand its territory under the license agreement to include most of Asia, as well as Central and South America, upon the achievement of certain milestones in Japan. Under the amendment, the Company will pay royalties to our licensor on net sales in Japan of a similar percentage to the royalties that the Company is currently paying under its original license agreement for North America.for seven years fromhas transferred certain rights under the license agreement to SERB S.A.commercial saleannual anniversary of Firdapse® equal to 7%the Effective Date (July 11, 2023), another $10 million on the second annual anniversary of the Effective Date (July 11, 2024) and tiered royalty payments on net sales (as defined in the license agreement) of all of the Company’s products in North Americathe United States that range from 1.25% to 2.5% based on whether there is a competing product or generic version of FIRDAPSEanycalendar years from the Effective Date through 2025 of $3 million, provided that such minimum annual royalty payment shall be prorated in the first calendar year for sales up to $100 million,of the agreement. As these minimum payments are both probable and 10%estimable, they are included in the purchase price of net sales in North America inthe agreement and any calendar yearroyalties in excess of $100 million; and (ii) royaltiesthis amount will be charged to cost of sales as revenue from product sales is recognized. A minimum royalty payment exists annually for calendar years from 2026 through the expiration of the royalty term (which ends when there is no valid claim under the Company’s FIRDAPSEthird-party licensorvalue of the rights sublicensedintangible asset acquired. Any royalties in excess of this amount will be charged to cost of sales as revenue from product sales is recognized. Royalties over the Company for seven years fromminimum, if any, will be paid based on the first commercial saleagreement terms on a quarterly basis. net sales (as defined in the license agreement between BioMarin include among other intellectual property rights, Jacobus’ U.S. patents related to RUZURGIthird-party licensor) in any calendar year.agreed to pay certain milestone paymentsdetermined that BioMarin is obligated to pay to both the third-party licensor and toscreen test was not met. However, the former stockholders of Huxley Pharmaceuticals (“Huxley”) under an earlier stock purchase agreement between BioMarin andCompany determined that the former Huxley stockholders. These milestones aggregate (i) up to approximately $2.6 million due upon acceptance byacquisition did not meet the U.S. Food & Drug Administration (FDA)definition of a filing of a new drug application (NDA) for Firdapse® for the treatment of LEMS or CMS, and (ii) up to approximately $7.2 million due on the unconditional approval by the FDA of an NDA for Firdapse® for the treatment of LEMS;provided, howeverbusiness under ASC 805, Business Combination. The Company believes that the total milestone paymentslicensing agreement and other assets acquired from Jacobus are similar and considered them all to be intangible assets with the exception of the inventory acquired. As the screen test was not met, further determination was required to determine that the Company willhad not acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business, and therefore, determined that this was an asset acquisition. The Company accounted for the Jacobus license agreement as an asset acquisition under ASCLicense and acquired intangibles $ 33,569 4,130 Total purchase price $ 37,699 if it meets milestone (i) and/or milestone (ii) above will be reducedcertain royalties to Eisai on net sales of FYCOMPA®. As the Transaction is accounted for as an aggregate of $150,000 and $3.0 million, respectively, if either of these respective milestones are satisfied after April 20, 2018 (the date on which BioMarin’s obligationsasset acquisition under U.S. GAAP, the Company opted to pay milestonerecognize the royalty payments to the former stockholders of Huxley expires).The Company also agreed to share in the cost of certain post-marketing studies being conductedsales as revenue from product sales is recognized.BioMarin, and, as of September 30, 2017, the Company had paid BioMarin $3.8 million related to expenses in connection with Firdapsethe acquisition of FYCOMPA studiesBase cash payment 160,000 1,576 (3,238 ) 5,870 Total purchase consideration $ 164,208 (i) Recorded in prepaid expenses and other current assets in the accompanying consolidated balance sheet as of March 31, 2023 (ii) trials.trademarks,Inventory 4,100 Prepaid expenses and other current assets (samples) 130 Prepaid commercialization expenses 1,576 Property and equipment, net 433 158,143 Accrued preclinical and clinical trial expenses (174 ) Total purchase consideration $ 164,208 PRE-CLINICAL PRECLINICAL AND CLINICAL STUDIES. STUDIES.8.is subject to income taxes in the U.S. federal jurisdiction and various states jurisdictions. Tax regulations within each jurisdiction are subject to the interpretationhad no uncertain tax positions as of the related tax laws and regulations and require significant judgment to apply. The Company is not subject to U.S. federal, state and local tax examinations by tax authorities for any years before 2014. If the Company were to subsequently record an unrecognized tax benefit, associated penalties and tax related interest expense would be reported as a component of income tax expense.The Company’s net deferred tax asset has a 100% valuation allowance at September 30, 2017March 31, 2023 and December 31, 2016 as2022.Company believesCompany’s Board of Directors approved a share repurchase program that it is more likely than not thatauthorizes the deferred tax asset will not be realized.9.Stockholders’ Equity.2014repurchase of up to $40 million of the Company’s common stock, pursuant to a repurchase plan under RuleJanuary 31, 2014,July 23, 2020, the Company filed a shelf Registration Statement on FormS-3 (the 2014 Shelf Registration Statement)registration statement with the SEC to sell up to $100 million of common stock. This registration statement (fileNo. 333-193699) was declared effective by the SEC on March 19, 2014 and expired on March 19, 2017. The Company conducted the following sales under the 2014 Shelf Registration Statement:(a)On April 3, 2014, the Company filed a prospectus supplement and offered for sale 13,023,750 shares of its common stock at a price of $2.21 per share in an underwritten public offering. The Company received gross proceeds in the public offering of approximately $28.8 million before underwriting commission and incurred expenses of approximately $2.1 million.(b)On February 4, 2015, the Company filed a prospectus supplement and offered for sale 11,500,000 shares of its common stock at a price of $3.25 per share in an underwritten public offering. The Company received gross proceeds in the public offering of approximately $37.4 million before underwriting commission and incurred expenses of approximately $2.5 million.2016 Shelf Registration StatementOn December 23, 2016, the Company filed a shelf Registration Statement on FormS-3 (the 2016 Shelf Registration Statement) with the SEC to sell up to approximately $33.8 million of common stock. The 2016 Shelf Registration Statement (fileNo. 333-215315) was declared effective by the SEC on January 9, 2017. No sales have been conducted to date under the 2016 Shelf Registration Statement.2017 Shelf Registration StatementOn July 12, 2017, the Company filed a universal shelf Registration Statement on FormS-3 (the 2017 Shelf Registration Statement) with the SEC to sell up to $150$200 million of common stock, preferred stock, warrants to purchase common stock, or debt securities (including debtand units consisting of one or more of such securities that may be convertible or exchangeable for common stock or other securities), which securities may be offered separately or together in units or multiple series.20172020 Shelf Registration Statement (file No. 333-219259)no. 333-240052) was declared effective by the SEC on July 26, 2017. No sales31, 2020. As of the date of this report, no offerings have been conducted to datecompleted under the 2017Company’s 2020 Shelf Registration Statement.Warrant Exercises Research and development $ 339 $ 432 Selling, general and administrative 2,553 1,471 Total stock-based compensation $ 2,892 $ 1,903 and nine months ended September 30, 2017, the Company issued an aggregate of 675,000March 31, 2023 and 2,257,663 shares, respectively, of its authorized but unissued common stock upon the exercise of previously issued common stock purchase warrants, with net proceeds to the Company of $1,403,986 and $3,209,423, respectively. No warrants were exercised during the three and nine months ended September 30, 2016.10.Stock Compensation.Stock OptionsDuring the three and nine-month periods ended September 30, 2017,2022, the Company granted seven-year term options to purchase an aggregate of 0340,500 and 1,535,000410,000 shares, respectively, of the Company’s common stock to employees and directors.employees. The Company recorded stock-based compensation related to stock options totaling $510,715$2.2 million and $1,866,005$1.6 million, respectively, during the three months ended March 31, 2023 and nine-month periods ended September 30, 2017. 2022.nine-month periods ended September 30, 2017, respectively, 261,668 and 1,138,335 options vested.During the three and nine-month periods ended September 30, 2016, the Company granted seven-year2022, options to purchase an aggregate of 15,000547,957 shares and 1,260,000363,772 shares, respectively, of the Company’s common stock to employees and directors. The Company recorded stock-based compensation related to stock options totaling $513,231 and $1,290,943 respectively, during the three and nine-month periods ended September 30, 2016. During the three and nine-month periods ended September 30, 2016, respectively, 256,668 and 488,333 options vested.10.Stock Compensation (continued).During the three and nine months ended September 30, 2017, options to purchase 5,000 shares of the Company’s common stock were exercised, with proceeds of $3,950$1.3 million and $1.1 million respectively, to the Company.No options were exercised during the three months ended September 30, 2016. During the nine months ended September 30, 2016, options to purchase 50,000 shares of the Company’s common stock were exercised on a “cashless” basis, resulting in the issuance of an aggregate 20,030 shares of the Company’s common stock.September 30, 2017,March 31, 2023, there was approximately $1,767,000$18.0 million of unrecognized compensation expense related to20062014 and 20142018 Stock Incentive Plans. The cost is expected to be recognized over a weighted average period of approximately 1.482.4 years.Nowere grantedand 474,500 restricted stock units during the three and nine months ended September 30, 2017March 31, 2023 and 2016. The2022, respectively. During the three months ended March 31, 2023 and 2022, the Company recorded$19,023$0.7 million and $56,446, respectively, during the three and nine-month periods ended September 30, 2017. The Company recorded stock-based compensation related to restricted stock units totaling $18,971 and $56,497, respectively, during the three and nine-month periods ended September 30, 2016. $0.3 million, respectively.September 30, 2017,March 31, 2023, there was approximately $9,000$6.8 million of total restricted stock unitunrecognized compensation expense related to awards not yet recognized, which0.12approximately 2.5 years.
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Introduction
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide an understanding of our financial condition, changes in financial condition and results of operations. The discussion and analysis is organized as follows:
| • | Overview. This section provides a general description of our business and information about our business that we believe is important in understanding our financial condition and results of operations. |
| • | Basis of |
| • | Critical Accounting Policies and Estimates. This section discusses those accounting policies that are both considered important to our financial condition and results of operations and require significant judgment and estimates on the part of management in their application. All of our significant accounting policies, including |
| • | Results of Operations. This section provides an analysis of our results of operations for the three |
| • | Liquidity and Capital Resources. This section provides an analysis of our cash flows, capital resources,off-balance sheet arrangements and our outstanding commitments, if any. |
| • | Caution Concerning Forward-Looking Statements. This section discusses how certain forward-looking statements made throughout this MD&A and in other sections of this report are based on management’s present expectations about future events and are inherently susceptible to uncertainty and changes in circumstance. |
OverviewOVERVIEW
We are a commercial-stage patient centric biopharmaceutical company focused on in-licensing,developing and commercializing innovative therapiesnovel high-quality medicines for peoplepatients living with rare debilitating, chronic neuromusculardiseases and neurologicaldiseases that are difficult to treat. With exceptional patient focus, we are committed to developing a robust pipeline of cutting-edge, best-in-class medicines for treating rare and difficult to treat diseases. We currently have three drug candidatesare dedicated to making a meaningful impact on the lives of those suffering from rare and difficult to treat diseases, and we believe in development:putting patients first in everything we do.
In October 2012, we licensed the North American rights to FirdapseOur flagship U.S. commercial product is FIRDAPSE®, a proprietary form of amifampridine phosphate, or chemically known as3,4-diaminopyridine phosphate, from BioMarin Pharmaceutical Inc. (BioMarin). In August 2013, we were granted “breakthrough therapy designation” by the U.S. Food & Drug Administration (FDA) for Firdapse® (amifampridine) Tablets 10 mg. approved for the treatment of patients with Lambert-Eaton Myasthenic Syndrome,myasthenic syndrome, or LEMS, a rarefor adults and sometimes fatal autoimmune disease characterized by muscle weakness. Further,for children ages six and up. On December 17, 2022, we entered into an asset purchase agreement with Eisai Co., Ltd. (Eisai) for the FDA has previously granted Orphan Drug Designation for Firdapseacquisition of the United States rights to FYCOMPA® for(perampanel) CIII, a prescription medication used alone or with other medicines to treat focal onset seizures with or without secondarily generalized seizures in people with epilepsy aged four and older and with other medicines to treat primary generalized tonic-clonic seizures in people with epilepsy aged 12 and older. We closed our acquisition of FYCOMPA® on January 24, 2023 and we are marketing FYCOMPA® in the treatmentUnited States.
Impact of patients with LEMS, Congenital Myasthenic Syndromes,the COVID-19 pandemic on our business
The COVID-19 pandemic affected our business operations in numerous ways. At various times during the pandemic, we had to make modifications to our normal operations, including allowing our employees to work remotely. Further, during the pandemic, national, state and local governments in affected regions implemented varying safety precautions, such as quarantines, border closures, increased border controls, travel restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings, mask mandates, and other measures. While most of these measures have since been relaxed or CMS, and Myasthenia Gravis (MG).
The chemical entity, amifampridine(3,4-diaminopyridine,removed, a resurgence in cases as a result of one or3,4-DAP), has never been approved by the FDA for any indication. Because amifampridine phosphate (Firdapse®) has been granted Orphan Drug designation for the treatment of LEMS, CMS and MG by the FDA, the product is also eligible more new variants could lead to receive seven years of marketing exclusivity for eithersome or all of these indications. Further, if we are the first pharmaceutical companyprecautions being put back into place. At present, our operations have returned to obtain approval for an amifampridine product, of whichmostly being in-person, with some contact with physicians by our commercial sales force still being done remotely. However, there can be no assurance wethat the COVID-19 pandemic will be eligible to receive five years of marketing exclusivity with respect tonot in the use of this product for any indication, running concurrently with the seven years of orphan marketing exclusivity described above (if both exclusivities are granted).
We previously sponsored a multi-center, randomized, placebo-controlled Phase 3 trial evaluating Firdapse30
FIRDAPSE®
On November 28, 2018, we received approval from the United States Food and Drug Administration (FDA) of our new drug application (NDA) for FIRDAPSE® Tablets 10 mg for the treatment of LEMS. This Phase 3 trial, which involved 38 subjects, was designed as a randomized “withdrawal” trial in which alladult patients were treated with Firdapse® during a 7 to91-dayrun-in-period followed by treatment with either Firdapse® or placebo over atwo-week randomization period. Theco-primary endpoints for this Phase 3 trial were the comparison of changes in patients randomized to continue Firdapse® versus those who transitioned to placebo that occurred in both the Quantitative Myasthenia Gravis Score (QMG), which measures muscle strength,(ages 17 and subject global impression score (SGI), on which the subjects rate their global impression of the effects of a study treatment during thetwo-week randomization period. In September 2014, we reported positivetop-line results from this Phase 3 trial.
During 2014, we established an expanded access program (EAP) to make Firdapse® available to any patients diagnosedabove) with LEMS, CMS, or Downbeat Nystagmus in the United States, who meet the inclusion and exclusion criteria, with Firdapse® being provided to patients for free until sometime after new drug application (NDA) approval, should we receive such approval (of which there can be no assurance). We continue to inform neuromuscular physicians on the availability of the Firdapse® EAP and also to work with various rare disease advocacy organizations to inform patients and other physicians about the program.
On December 17, 2015, we announced completion of the submission of an NDA for Firdapse® for the treatment of LEMS and CMS. However, on February 17, 2016, we announced that we had received a “refusal-to-file” (RTF) letter from the FDA regarding our NDA submission. In early April 2016, we met with the FDA to obtain greater clarity regarding what will be required by the FDA to accept the Firdapse® NDA for filing. Following the receipt of the formal minutes of that meeting, on April 26, 2016, we issued a press release reporting that the FDA has advised us that in addition to the results of our previously submitted multi-center, randomized, placebo-controlled Phase 3 trial, we will need to submit positive results from a second adequate and well-controlled study in patients with LEMS. Additionally, there was a requirement for us to perform several abuse liability studies for Firdapse®.
In October 2016, we announced that we had reached an agreement with the FDA under a Special Protocol Assessment (SPA) for the protocol design, clinical endpoints, and statistical analysis approach to be taken in our second Phase 3 study evaluating Firdapse® (amifampridine phosphate) for the symptomatic treatment of LEMS. A SPA is a process by which sponsors ask the FDA to evaluate the protocol of a proposed clinical trial to determine whether it adequately addresses scientific and regulatory requirements for the purpose identified by the sponsor. A SPA agreement indicates FDA concurrence with the adequacy and acceptability of specific critical elements of protocol design, endpoints and analysis. Additionally, it provides a binding agreement with FDA’s review division that a pivotal trial design, conduct, and planned analysis adequately addresses the scientific and regulatory objectives in support of a regulatory submission for drug approval. However, the FDA may rescind a SPA agreement when the division director determines that a substantial scientific issue essential to determining the safety or efficacy of the product has been identified after the trial has begun.
We are conducting our second Phase 3 trial evaluating Firdapse® for the treatment of LEMS (designated asLMS-003) at sites in Miami, Florida and Los Angeles, California. This double-blind, placebo-controlled withdrawal trial has the sameco-primary endpoints as our first Phase 3 trial evaluating Firdapse® for the treatment of LEMS. Further, the FDA allowed us to enroll patients from our expanded access program as study subjects in this second trial. Details of the Phase 3 clinical trial are available onwww.clinicaltrials.gov (NCT02970162). Enrollment in this trial, which included 26 subjects, was completed in October 2017, and we expect to reporttop-line results from this trial in early December 2017.
We were also required to conduct threepre-clinical abuse liability studies under the FDA guidance for “Assessment of Abuse Potential of Drugs” that was finalized in January 2017 (Self-Administration, Physical Dependence and Drug Discrimination). All three studies have now been completed, andtop-line results indicate that amifampridine phosphate does not exhibit abuse potential in these assessment models.
As soon as2019, we have thetop-line results from theLMS-003 trial, we intend to submit a request to the FDA seeking a confirmatorypre-NDA meeting to discuss our proposed NDA filing package. If our request for a meeting is granted, we expect to hold that meeting in January 2018.
Assuming the results of ourLMS-003 trial are successful, we expect to resubmit an NDA for Firdapse® for the treatment of LEMS during the first quarter of 2018. There can be no assurance whether this trial, along with the results of our first Phase 3 trial, will be sufficient for the FDA to accept for filing any NDA that we might resubmit in the future for Firdapse®, or whether Firdapse® will ever be approved for commercialization.
Our original NDA submission for Firdapse® included data and information (including data from a currently ongoing investigator treatment IND) providing evidence supporting the benefits of Firdapse® for treating certain types of CMS, and requested that CMS be included in our initial label for Firdapse®. To provide additional support for our submission of an NDA for Firdapse® for the treatment of CMS, in October 2015 we initiated a small blinded clinical trial at four academic centers of up to 10 subjects in the pediatric CMS population, ages 2 to 17. However, after considering comments from the FDA, we determined to enroll both adult and pediatric subjects with CMS in this trial and to expand the number of subjects to be evaluated in the trial to an aggregate of approximately 20 subjects. We are currently conducting this study at six sites around the United States, and we are currently working to add several additional sites outside the United States. Details of this trial are available onwww.clinicaltrials.gov (NCT02562066).
Based on currently available information, we expect to report top line results from this trial in the first half of 2018 and, if the results of the study are successful, we hope to add the CMS indication to our labeling for Firdapse®. We also intend to include in our initial filing for LEMS those limited types of CMS that are generally considered mechanistically similar to LEMS, subject to confirming at anypre-NDA meeting that we may be granted that inclusion will not slow down the FDAs review of a resubmitted NDA for Firdapse® for LEMS.
There can be no assurance that any trial we perform for Firdapse® for the treatment of CMS will be successful or whether any NDA that we may submit for Firdapse® for the treatment of CMS will be filed by the FDA for review and approved.
In February 2016, we announced the initiation of an investigator-sponsored, randomized, double-blind, placebo-controlled, crossover Phase 2/3 clinical trial evaluating the safety, tolerability and potential efficacy of Firdapse® as a symptomatic treatment for patients with MuSK antibody positive myasthenia gravis(MuSK-MG). MuSK-MG is a particularly severe form of myasthenia gravis that affects about 3,000 to 4,800 patients in the U.S., for which there are no approved effective therapies (and therefore it is an unmet medical need). Seven patients participated in thisproof-of-concept trial. We provided study drug, placebo, and financial support for this study.
On March 15, 2017, we reportedtop-line results from this trial. Both of theco-primary efficacy endpoints of change from baseline (CFB) in total Quantitative Myasthenia Gravis (QMG) score (p=0.0003) and CFB in total Myasthenia Gravis Activities of Daily Living(MG-ADL) score (p=0.0006) were statistically and clinically significant in this trial. Several secondary efficacy measures also achieved statistical significance. Amifampridine phosphate was well tolerated in this population of patients.
On August 30, 2017, we announced that we had reached an agreement with the FDA on a SPA for the protocol design, clinical endpoints, and statistical analysis approach to be taken in our proposed Phase 3 registration trial evaluating the safety and efficacy of amifampridine phosphate treatment in patients with MuSK-MG. The protocol that the FDA has reviewed is for a multi-site, international (U.S. and Italy), double-blind, placebo-controlled, clinical trial that is targeted to enroll approximately 60 subjects diagnosed withMuSK-MG. The trial will employ a primary endpoint of Myasthenia Gravis Activities of Daily Living(MG-ADL) and a secondary endpoint of Quantitative Myasthenia Gravis Score (QMG). At the FDA’s request, the trial will also enroll up to 10 generalized myasthenia gravis patients who will be assessed with the same clinical endpoints, but achieving statistical significance in this subgroup of patients is not required and only summary statistics will be provided. Catalyst anticipates that enrollment in this trial will commence in the first quarter of 2018, and that it will take about 12 months to complete the enrollment for the trial. Details of this trial are available onwww.clinicaltrials.gov (NCT03304054).
There can be no assurance that any trial that we initiate to evaluate Firdapse® for this indication will be successful, or whether we have sufficient resources available to fund such registration trial. Further, there can also be no assurance that the FDA will ever approve Firdapse® for this indication.
Finally, we may seek to evaluate Firdapse® for the treatment of other treatment-refractory types of MG or other rare, similar neuromuscular diseases, although we have not yet begun to develop clinical programs for these indications and all such programs are subject to the availability of funding. There can be no assurance that Firdapse® will be an effective treatment for other treatment-refractory types of MG or for any other rare, similar neuromuscular diseases.
Prior to the receipt of the RTF letter, we had actively been taking steps to prepare for the commercialization of Firdapselaunched FIRDAPSE® in the United States. However,Further, on September 29, 2022, the FDA approved our supplemental NDA (sNDA) to expand the indicated age range for FIRDAPSE® Tablets 10 mg to include pediatric patients, six years of age and older for the treatment of LEMS.
We sell FIRDAPSE® through a field force experienced in lightneurologic, central nervous system or rare disease products consisting at this time of approximately 29 field personnel, including sales (Regional Account Managers), thought-leader liaisons, patient assistance and insurance navigation support (Patient Access Liaisons), and payor reimbursement (National Account Managers). We also have a field-based force of six medical science liaisons who are helping educate the receipt ofmedical communities and patients about LEMS and our programs supporting patients and access to FIRDAPSE®.
Additionally, we have contracted with an experienced inside sales agency that works to generate leads through telemarketing to targeted physicians. This inside sales agency allows our sales efforts to not only reach the RTF letter, inneuromuscular specialists who regularly treat LEMS patients, but also the first quarter of 2016 we put most of our commercialization activities on hold in order to conserve cash. During the fourth quarter of 2017, we restarted the development of our commercialization plans for Firdapseroughly 9,000 neurology and neuromuscular healthcare providers that may be treating a LEMS patient who can benefit from FIRDAPSE®. We also use non-personal promotion to reach the 20,000 neurologists who are alsopotential LEMS treaters and the 16,000 oncologists who might be treating a LEMS patient with small cell lung cancer. Further, we continue to make available at no-cost a LEMS voltage gated calcium channel antibody testing program for use by physicians who suspect that one of their patients may have LEMS and wish to reach a definitive diagnosis.
Finally, we are continuing to expand our digital and social media activities to introduce our product and services to potential patients and their healthcare providers. We also work with several rare disease advocacy organizations (including Global Genes and the National Organization for Rare Disorders) to help increase awareness and level of support for patients living with LEMS CMS andMuSK-MG and to provide awareness and outreach supporteducation for the physicians who treat these rare diseases and the patients they treat.
We are developingCPP-115,supporting the distribution of FIRDAPSE® through Catalyst Pathways®, our personalized treatment support program for patients who enroll in it. Catalyst Pathways® is a GABA aminotransferase inhibitorsingle source for personalized treatment support, education and guidance through the challenging dosing and titration regimen required to reach an effective therapeutic dose. It also includes distributing the drug through a very small group of exclusive specialty pharmacies (primarily AnovoRx), which is consistent with the way that basedmost drug products for ultra-orphan diseases are distributed and dispensed to patients. We believe that by using specialty pharmacies in this way, the difficult task of navigating the health care system is far better for the patient needing treatment for their rare disease and the health care community in general.
In order to help patients with LEMS afford their medication, we, like other pharmaceutical companies which are marketing drugs for ultra-orphan conditions, have developed an array of financial assistance programs that are available to reduce patient co-pays and deductibles to a nominal affordable amount. A co-pay assistance program designed to keep out-of-pocket costs to not more than $10.00 per month (currently less than $2.00 per month) is available for all LEMS patients with commercial coverage who are prescribed FIRDAPSE®. Our FIRDAPSE® co-pay assistance program is not available to patients enrolled in state or federal healthcare programs, including Medicare, Medicaid, VA, DoD, or TRICARE. However, we are donating, and committed to continuing to donate, money to qualified, independent charitable foundations dedicated to providing assistance to any U.S. LEMS patients in financial need. Subject to compliance with regulatory requirements, our goal is that no LEMS patient is ever denied access to their medication for financial reasons.
In January 2023, we received Paragraph IV Certification Notice Letters from three generic drug manufacturers advising us that they had each submitted an Abbreviated New Drug Application (ANDA) to the FDA seeking authorization from the FDA to manufacture, use or sell a generic version of FIRDAPSE® in the United States. The notice letters each alleged that our six patents listed in the FDA Orange Book covering FIRDAPSE® are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of the proposed product described in these ANDA submissions. Under the Federal Food, Drug, and Cosmetic Act (FDCA), as amended by the Drug Price Competition and Patent Term Restoration Act of 1984, as amended, we had 45 days from receipt of the notice letters to commence patent infringement lawsuits against these generic drug manufacturers in a federal district court to trigger a stay precluding the FDA from approving any ANDA until May 2026 or entry of judgment holding the patents invalid, unenforceable, or not infringed, whichever occurs first. In that regard, after conducting the necessary due diligence, we filed lawsuits on March 1, 2023 in the U.S. District Court for the District of New Jersey against each of the three generic drug manufacturers who notified us of their ANDA submissions, thus triggering the stay.
We intend to vigorously protect and defend our preclinical studies to date,intellectual property for FIRDAPSE®and, although there can be no assurance, we believe is a more potent form of vigabatrin, and may have fewer side effects (e.g., visual field defects) than those associated with vigabatrin. We are hoping to developCPP-115that our patent estate will protect FIRDAPSE® from generic competition for the treatment of refractory infantile spasms and possibly for the treatment of adult refractory patients with Tourette’s Disorder.CPP-115 has been granted Orphan Drug Designation by the FDA for the treatment of infantile spasms and Orphan Medicinal Product Designation in the European Union, or E.U., for West syndrome (a form of infantile spasms).
We are currently refining our development plans for this product. Once the refinementlife of our development plans is completed, and subject to the then availability of funding, we plan to take the steps to complete the work required to make our drug candidate Phase 2 ready. patents.
We are also working to prepare for the filing of an sNDA to increase the indicated maximum dose of FIRDAPSE® from 80 mg per day to 100 mg per day. In that regard, we recently sought guidance from the FDA on our proposed strategy for this supplementary NDA, and, based on the guidance received, we plan to file a sNDA early in the third quarter of 2023. There can be no assurance that any sNDA that we file to increase the indicated maximum dose of FIRDAPSE® from 80 mg per day to 100 mg per day will be approved.
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FYCOMPA®
On December 17, 2022, we entered into an asset purchase agreement with oneEisai for the acquisition of the U.S. rights to FYCOMPA® (perampanel) CIII. FYCOMPA® is a selective non-competitive antagonist of AMPA receptors, the major subtype of ionotropic glutamate receptors. It was the first, and still the only, drug of its class to be approved for epilepsy. Studies suggest that AMPA receptor antagonism can lead to reduced overstimulation and anticonvulsant effects, as well as inhibiting seizure generation and spread. FYCOMPA® is a controlled substance and is approved with a box warning label.
FYCOMPA® is used to treat partial onset seizures with or more potential investigatorswithout secondarily generalized seizures in adults and children 4 years of age and older. It is also used in combination with other medications to treat primary generalized tonic-clonic seizures (also known as a “grand mal” seizure, a seizure that involves the entire body) in adults and children 12 years of age or older. Perampanel is in a class of medications called anticonvulsants. It works by decreasing abnormal electrical activity in the brain.
On January 24, 2023 we closed our acquisition of the U.S. rights to FYCOMPA®. In connection with the acquisition, we purchased Eisai’s regulatory approvals and documentation, product records, intellectual property, inventory, and other matters relating to the U.S. rights for FYCOMPA®, in exchange for a cash upfront payment of $160 million, plus $1.6 million for reimbursement of certain prepayments. We also agreed to pay Eisai an additional cash payment of $25 million if a requested patent extension for FYCOMPA® is approved by the U.S. Patent and Trademark Office (USPTO). Finally, we agreed to pay Eisai royalty payments after patent protection for FYCOMPA® expires, which royalty payments will be reduced upon generic equivalents to FYCOMPA® entering the market.
In conjunction with the closing of our acquisition of FYCOMPA®, we entered into two additional agreements with Eisai; a Transition Services Agreement and a Supply Agreement. Under the Transition Services Agreement, a U.S. subsidiary of Eisai is providing us with certain transitional services, and under the Supply Agreement, Eisai has agreed to manufacture FYCOMPA® for us for at least seven years at prices listed in the Supply Agreement (to be updated on a yearly basis). Initially, following the closing of the acquisition, we began marketing FYCOMPA® in the U.S. through Eisai under the Transition Services Agreement as we built our FYCOMPA® marketing and sales team, and on May 1, 2023, we took over the marketing program for FYCOMPA®. In that regard, we have hired approximately 34 sales and marketing personnel to support FYCOMPA®, most of whom previously worked in Eisai’s U.S. sales division marketing FYCOMPA®. We also are working to hire up to six medical science liaisons to help us educate the medical community who treat epilepsy and the patients who have expressedepilepsy about their disease and the benefits of FYCOMPA®.
Catalyst is supporting patients using FYCOMPA® through an interestInstant Savings Card Program. Through the program, eligible commercially insured patients could pay as little as $10 for their FYCOMPA® co-pay (with a maximum savings of $1,300 per year). Eligible cash-paying patients receive up to $60 towards each prescription, up to a maximum of $720 per year. The FYCOMPA® instant savings card program is not available to patients enrolled in evaluatingstate or federal healthcare programs, including Medicare, Medicaid, VA, DoD, or TRICARE.
Patent protection for FYCOMPA® is primarily from two patents listed in the Orange Book. The first, U.S. Patent No. 6,949,571 (the ‘571 patent), will expire no earlier than May 23, 2025, which is the current expiration date for the ‘571 patent that includes the USPTO’s current patent term extension calculation. A request for reconsideration of the agency’s patent term extension calculation is currently pending. If successful, we would be entitled to patent term extension that would extend the ‘571 patent until June 8, 2026. There can be no assurance that our productrequest for particular indications (particularly infantile spasms)reconsideration of the ‘571 patent term extension will be granted by the U.S. Patent and Trademark Office. The second FYCOMPA® patent in the Orange Book is U.S Patent No. 8,772,497 (the ‘497 patent) that expires on July 1, 2026. The ‘497 patent is the one that has been the subject of previous Paragraph IV certifications from three ANDA filers.
On February 20, 2023, Catalyst received a Paragraph IV Certification Notice Letter from a company that appears to have filed the first ANDA for the oral suspension formulation for FYCOMPA®. The same company sent a similar letter to the Company later in February with a similar certification for the tablet formulation for FYCOMPA®, the fourth such certification for this formulation. Both of these letters were paragraph IV certifications of non-infringement, non-validity, and unenforceability to the ‘497 patent for FYCOMPA® but each application, like the previous Paragraph IV notices from ANDA filers, for FYCOMPA® tablets does not challenge the ‘571 patent. Similar to our actions with the FIRDAPSE® Paragraph IV Certifications described above, after due diligence Catalyst filed lawsuits on April 5, 2023 in the U.S. District Court for the District of New Jersey against the drug manufacturer who notified Catalyst of their ANDA submissions for both FYCOMPA® formulations, thus triggering the 30 month stay for each application.
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Business Development
We are also continuing our efforts to seekbroaden and diversify our drug portfolio through acquisitions of early and/or late-stage products or companies or technology platforms in rare disease and CNS therapeutic categories. To accomplish these priorities, we are employing a partnerdisciplined approach to workevaluating assets, and we believe that this strategic expansion will better position our company long term to build out a broader more diversified portfolio of drug candidates (which should add greater value to our company over the near and long-term). In that regard, we are currently exploring several additional opportunities to acquire companies with uscommercial drug products and/or drug products in furthering the development ofCPP-115.or to in-license or acquire commercialized drug products or drug products in development. However, no additional definitive agreements have been entered into to date.
Theredate, and there can be no assurance that we will ever successfully commercializeCPP-115.
During September 2015, we announced the initiation of a project to develop generic versions of Sabril® (vigabatrin) in both dosage forms: tablets and powder sachets. Sabril® is marketed by Lundbeck Inc. in the United States in both dosage forms for the treatment of infantile spasms and complex partial seizures. There can be no assurance that we will be successful in these efforts or that any abbreviated new drug applications (ANDAs) that we submit for vigabatrin will be accepted for review or approved.
We are also continuing our efforts to seek a partnercontinue to work with us in furthering the developmentbroaden and diversify our product portfolio will be successful.
Capital Resources
At March 31, 2023, we had cash and cash equivalents of generic Sabril®. However, no agreements have been entered into to date.
There can be no assurance that we will ever successfully commercialize a generic version of Sabril®.
Risks Associated with Product Development
The successful development ofapproximately $148 million. Based on our current drug candidates or any other drug candidate we may acquire, develop or license in the future is highly uncertain. We cannot reasonably estimate or know the nature, timing, or estimated expenses of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence due to the numerous risksfinancial condition and uncertainties associated with developing such products, including the uncertainty of:
Available Capital Resources
Based on forecasts of available cash, we currently believe that we have sufficient resourcesfunds to fundsupport our operations for at least the next 12 months. However, we will require additional funding to support our operations beyond that time. There can be no assurance that we will obtain the additional fundingcontinue to be successful in commercializing FIRDAPSE®, that our commercialization of FYCOMPA® will be successful, or that we will evercontinue to be profitable and cash flow positive. Further, there can be no assurance that if we need additional funding in a positionthe future, whether such funding will be available to commercialize any of our drug candidates.us on acceptable terms. See “Liquidity and Capital Resources” below for further information on our liquidity and cash flow.
Basis of presentationPresentation
Revenues.
We are a development stage company and have had noDuring the fiscal quarter ended March 31, 2023, we generated revenues from product sales of FIRDAPSE® primarily in the U.S. and FYCOMPA® in the U.S. We expect these revenues to date.fluctuate in future periods based on our sales of FIRDAPSE® and FYCOMPA®. We will not havereceived approval from Health Canada on July 31, 2020, for FIRDAPSE® for the symptomatic treatment of LEMS and as of December 31, 2020, we had launched FIRDAPSE® in Canada. During the three months ended March 31, 2023, revenues generated under our collaboration agreement with KYE Pharmaceuticals were immaterial. We expect our revenues from productthe KYE collaboration agreement to fluctuate in future periods based on our collaborator’s ability to sell FIRDAPSE® in Canada.
For the fiscal quarter ended March 31, 2023, we did not generate revenues under our collaborative agreement with Endo. We expect our revenues from the Endo collaborative agreement to fluctuate in future periods based on our collaborator’s ability to meet various regulatory milestones set forth in such agreement.
For the fiscal quarter ended March 31, 2023, we generated $0.2 million in revenues from our collaborative agreement with DyDo Pharma. We expect our revenue from the DyDo license agreement to fluctuate in future periods based on DyDo’s ability to meet various regulatory milestones set forth in such agreement.
Cost of Sales.
Cost of sales until such time as we receive approvalconsists of third-party manufacturing costs, freight, royalties, and indirect overhead costs associated with sales of our drug candidates, successfully commercialize our products or enter into a licensing agreement whichproducts. Cost of sales may also includeup-front licensing fees, period costs related to certain inventory manufacturing services, inventory adjustments charges, unabsorbed manufacturing and overhead costs, manufacturing variances and the amortization of which there can be no assurance.FYCOMPA® product rights.
Research and development expenses.Development Expenses.
Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as support for selected investigator-sponsored research. The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials, and allocations of various overhead costs related to our product development efforts. To date,Prior to January 2023, all of our research and development resources have been devoted to the development of FIRDAPSE®, CPP-109 (our version of vigabatrin),CPP-115, and Firdapseformerly CPP-115, and until we acquire or license new products we currently expect that our future development costs will be attributable principally to the continued development of FIRDAPSE®, and we expect this to continue for the foreseeable future.FYCOMPA®.
Our cost accruals for clinical studies and trials are based on estimates of the services received and efforts expended pursuant to contracts with numerous clinical study and trial sites and clinical research organizations (CROs). In the normal course of our business we contract with third parties to perform various clinical study and trial activities in theon-going development of potential
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products. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions. The objective of our accrual policy is to match the recording of expenses in our consolidated financial statements to the actual services received and efforts expended. As such, expense accruals related to preclinical and clinical studies or trials are recognized based on our estimate of the degree of completion of the event or events specified in the specific study or trial contract. We monitor service provider activities to the extent possible; however, if we underestimate activity levels associated with various studies or trials at a given point in time, we could be required to record significant additional research and development expenses in future periods. Preclinical and clinical study and trial activities require significantup-front expenditures. We anticipate paying significant portions of a study or trial’s cost before such begins,they begin and incurring additional expenditures as the study or trial progresses and reaches certain milestones.
Selling, General and marketing expenses.Administrative Expenses.
We do not currently have any selling or marketing expenses. We had been incurring costs tiedDuring 2019, we actively committed funds to our future sales and marketing efforts for Firdapse��. However, during the first quarter of 2016, following the receipt of the RTF letter, we put most of these activities on hold in order to conserve cash. We have recently recommenced the developing of our commercialization plansprogram for FirdapseFIRDAPSE® and we have continued to incur substantial commercialization expenses, including sales, marketing, patient services, patient advocacy and other commercialization related expenses as we move closer to the submission of an NDAhave continued our sales program for FirdapseFIRDAPSE®.Pre-commercialization costs We are included in general and administrative expenses.
General and administrative expenses.also now incurring substantial commercialization expenses for FYCOMPA®.
Our general and administrative expenses consist primarily of salaries and personnel expenses for accounting, corporate, compliance, and administrative functions. Other costs include administrative facility costs, regulatory fees, insurance,pre-commercialization costs, and professional fees for legal including litigation cost, information technology, amortization of the RUZURGI® product rights, accounting, and consulting services.
Stock-based compensation.Amortization of Intangible Assets.
Amortization of intangible assets consists of the amortization of the FYCOMPA® product rights, which are amortized using the straight-line method over its estimated useful life of 5 years, and the RUZURGI® product rights, which are amortized using the straight-line method over its estimated useful life of 14.5 years.
Stock-Based Compensation.
We recognize expense for the fair value of all stock-based awards to employees, directors, scientific advisors and consultants in accordance with accounting principles generally accepted in the U.S. GAAP.(U.S. GAAP). For stock options, we use the Black-Scholes option valuation model in calculating the fair value of the awards.
Warrants Liability.Income Taxes.
We issued warrants to purchase shares of our common stock as part of an equity financing that we completed in October 2011. In accordance with U.S. GAAP, we recorded the fair value of those warrants as a liability in the accompanying consolidated balance sheet at December 31, 2016 using a Black-Scholes option-pricing model. We have remeasured the fair value of this warrants liability at each reporting date until the warrants were exercised or until the unexercised warrants expired on May 2, 2017. Changes in the fair value of the warrants liability was reported in the consolidated statements of operations asOur effective income or expense. The fair value of the warrants liability was subject to significant fluctuation based on changes in the inputs to the Black-Scholes option-pricing model, including our common stock price, expected volatility, expected term, the risk-free interesttax rate and dividend yield.
Income taxes.
We have incurred operating losses since inception. Our net deferred tax asset has a 100% valuation allowance as of September 30, 2017 and December 31, 2016, as we believe it is more likely than not that the deferred tax asset will not be realized. If an ownership change, as defined under Internal Revenue Code Section 382, occurs, the use of any of our carry-forward tax losses may be subject to limitation.
As required by ASC 740,Income Taxes, we would recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting themore-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihoodratio of being realized upon ultimate settlement with the relevantincome tax authority.expense (benefit) over our income before income taxes.
Recently Issued Accounting Standards.
For discussion of recently issued accounting standards, please see Note 2, “Basis of Presentation and Significant Accounting Policies,” in the interim consolidated financial statements included in this report.
Non-GAAP Financial Measures.
We prepare our consolidated financial statements and footnotes thereto which accompany this report in accordance with U.S. GAAP (GAAP). To supplement our financial results presented on a GAAP basis, we may usenon-GAAP financial measures in our reports filed with the Commission and/or in our communications with investors.Non-GAAP measures are provided as additional information and not as an alternative to our consolidated financial statements presented in accordance with GAAP. Ournon-GAAP financial measures are intended to enhance an overall understanding of our current financial performance. We believe that thenon-GAAP financial measures that we present provide investors and prospective investors with an alternative method for assessing our operating results in a manner that we believe is focused on the performance of ongoing operations and provide a more consistent basis for comparison between periods.
Thenon-GAAP financial measure that we have historically presented excludes from the calculation of net loss the expense (or the income) associated with the change in fair value of the liability-classified warrants. Further, we have historically reportednon-GAAP net loss per share, which is calculated by dividingnon-GAAP net loss by the weighted average common shares outstanding.
Anynon-GAAP financial measures that we report should not be considered in isolation or as a substitute for comparable GAAP accounting, and investors should read them in conjunction with our consolidated financial statements and notes thereto prepared in accordance with GAAP. Finally, thenon-GAAP measures of net loss that we may use may be different from, and not directly comparable to, similarly titled measures used by other companies.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities revenues, expenses and disclosuresthe disclosure of contingent assets and liabilities.liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. For a full discussion of our accounting policies, please refer to Note 2 on the Financial Statements included in our 20162022 Annual Report on Form10-K that we filed with the SEC.SEC on March 15, 2023. Our most critical accounting policies and estimates include: accounting for research and development expenses andrevenue recognition, valuation of intangible assets, stock-based compensation measurement of fair value, fair value of warrants liability, income taxes and reserves.valuation allowance for deferred tax assets. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, our expected course of development, historical experience and other factors that we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 20162022 Annual Report on Form10-K.
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Results of Operations
Revenues.
We had no revenuesFor the three months ended March 31, 2023, we recognized $85.3 million in net revenue from product sales primarily in the U.S. compared to $43.0 million for the three months ended March 31, 2022. FIRDAPSE® sales were approximately $57.5 million for the 2023 period and nine-monthFYCOMPA® sales were approximately $27.8 million for the period between January 24, 2023 (date of acquisition) and March 31, 2023. All net revenue for product sales of the 2022 first quarter were from sales of FIRDAPSE®.
The increase of approximately $42.3 million in net revenues between the first quarter of 2023 compared to 2022 was due to the acquisition of FYCOMPA® and related product sales and increases in sales volumes of approximately 21% (which included patients who were transferred to FIRDAPSE® in the first and second quarter of 2022 when RUZURGI® was removed from the market) and net price increases.
For the three months ended March 31, 2023 and 2022, we also recognized $0.1 million in license and other revenue.
Cost of Sales.
Cost of sales was approximately $9.9 million for the three months ended March 31, 2023, compared to $5.9 million for the three months ended March 31, 2022. Cost of sales in both periods consisted principally of royalty payments, which are based on net revenue as defined in the applicable license agreement. For FIRDAPSE®, royalties are payable on the terms set forth below in Liquidity and Capital Resources -Contractual Obligations and Arrangements, and increase by 3% when net sales (as defined in the applicable license agreement) exceed $100 million in any calendar year. Cost of sales for FYCOMPA® for the first quarter of 2023 consisted of product costs and excludes the amortization of the FYCOMPA® intangible assets. See Note 9 of the Notes to Unaudited Consolidated Financial Statements included elsewhere in this report.
Amortization of Intangible Assets.
Amortization of intangible assets was approximately $6.5 million for the three months ended September 30, 2017March 31, 2023, compared to $0 million for the three months ended March 31, 2022. Amortization of intangible assets consists of the amortization of the FYCOMPA® rights, which are amortized using the straight-line method over its estimated useful life of 5 years, and 2016.the RUZURGI® rights, which are amortized using the straight-line method over its estimated useful life of 14.5 years.
Research and Development Expenses.
Research and development expenses for the three months ended March 31, 2023 and nine-month periods ended September 30, 20172022 were $2,704,923approximately $3.6 million and $7,970,603,$3.4 million, respectively, including stock-based compensation expense in eachand represented approximately 7% and 13% of the threetotal operating costs and nine-month periods of $192,796 and $622,700,expenses, respectively. Research and development expenses for the three months ended March 31, 2023 and nine-month periods ended September 30, 20162022 were $2,493,999 and $8,549,287 respectively, including stock-based compensation expense in each of the three and nine-month periods of $185,122 and $443,297, respectively. Researchas follows (in thousands):
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Research and development expenses | $ | 3,223 | $ | 2,971 | 252 | 8.5 | ||||||||||
Employee stock-based compensation | 339 | 432 | (93 | ) | (21.5 | ) | ||||||||||
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Total research and development expenses | $ | 3,562 | $ | 3,403 | 159 | 4.7 | ||||||||||
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For FIRDAPSE®, research and development expenses remained relatively consistent for the three months ended March 31, 2023, when compared to the same period in 2022. For the aggregate,three months ended March 31, 2023 and 2022, research and development expenses included costs relating to closing out sites for both our MuSK-MG clinical trial and our previously operated expanded access program.
We expect that research and development expenses will continue to be substantial in 2023 and beyond as we execute on our strategic initiative to acquire or in-license innovative technology platforms and/or earlier stage programs in rare disease and difficult to treat categories.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses for the three months ended March 31, 2023 and 2022 were approximately $29.7 million and $16.4 million, respectively, and represented approximately 63%60% and 61%64% of total operating costs and expenses for the three and nine-month periods ended September 30, 2017, and 64% and 57% for the three and nine-month periods ended September 30, 2016, respectively. The stock-based compensation isnon-cash and relates to the expense of stock options awards to certain employees.
Expenses for research and development for the nine months ended September 30, 2017, excluding stock-based compensation, decreased compared to amounts expended in the same period in 2016. Research
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March 31, 2023 and development expenses in the nine months ended September 30, 2016 primarily included, among other items, (i) regulatory affairs and legal costs associated with the receipt of therefusal-to-file letter in February 2016, (ii) costs relating to theclose-out of our first Phase 3 trial evaluating Firdapse® for the treatment of LEMS, and (iii) costs incurred to build up inventory to launch Firdapse® in the summer of 2016 (which did not occur as anticipated). Research and development expenses in the nine months ended September 30, 2017 primarily included, among other items, costs associated with our ongoing second Phase 3 trial evaluating Firdapse® for the treatment of LEMS, our ongoing clinical trial evaluating Firdapse® for the treatment of CMS, and our Expanded Access Program for Firdapse®. We expect that research and development costs will continue to be substantial during the balance of 2017 and into 2018 as we complete our second Phase 3 trial evaluating Firdapse® for the treatment of LEMS and our clinical trial evaluating Firdapse® for the treatment of CMS; continue our Expanded Access Program for Firdapse®, commence our clinical trial evaluating Firdapse® for the treatment ofMuSK-MG, and prepare for the submission of an NDA for Firdapse®.
2022, respectively. Selling, and Marketing Expenses.
We had no selling expenses for the nine-month periods ended September 30, 2017 and 2016. In 2016, we had been incurring costs tied to our future sales and marketing efforts for Firdapse®. However, during the first quarter of 2016, following the receipt of the RTF letter, we put most of these activities on hold in order to conserve cash. During the fourth quarter of 2017, we restarted the development of our commercialization plans for Firdapse®.Pre-commercialization costs are included in general and administrative expenses.
General and Administrative Expenses.
General and administrative expenses for the three and nine months ended September 30, 2017March 31, 2023 and 2022 were $1,601,785 and $5,197,247, respectively, including stock-based compensation expense in each ofas follows (in thousands):
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Selling | $ | 17,764 | $ | 6,790 | 10,974 | 161.6 | ||||||||||
General and administrative | 9,401 | 8,169 | 1,232 | 15.1 | ||||||||||||
Employee stock-based compensation | 2,553 | 1,471 | 1,082 | 73.6 | ||||||||||||
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Total selling, general and administrative expenses | $ | 29,718 | $ | 16,430 | 13,288 | 80.9 | ||||||||||
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For the three and nine-month periods ending September 30, 2017 of $336,942 and $1,299,751, respectively. General and administrative expenses for the three and nine months ended September 30, 2016 were $1,420,015 and $6,416,715, respectively, including stock-based compensation expense in each of the three and nine-month periods ending September 30, 2016 of $347,080 and $904,143, respectively. General and administrative expenses represented 37% and 39% of total operating costs and expenses for the three and nine months ended September 30, 2017, and 36% and 43% for the three and nine months ended September 30, 2016, respectively. The decrease inMarch 31, 2023, selling, general and administrative expenses for the nine months ended September 30, 2017 whenincreased approximately $13.3 million, compared to the same period in 2016 is2022, primarily dueattributable to decreasedthe direct fees payable under the transition services agreement associated with the net product sales of FYCOMPA® of approximately $8.5 million, to the timing of our commitments to make contributions to 501(c)(3) organizations supporting LEMS patients of approximately $0.3 million, and an approximately $1.5 million increase in employee costs duecompensation related to areduction-in-force during May 2016,annual merit increases and decreasesan increase in recruiting expenses and consulting costs forpre-commercialization expenses. headcount resulting from the acquisition of FYCOMPA®.
We expect that selling, general and administrative costs, excludingpre-commercialization costs,expenses will remain consistent for the balance of 2017 with the amount incurredcontinue to be substantial in the third quarter of 2017.future periods as we continue our efforts to increase our revenues from FIRDAPSE®, continue our efforts to market FYCOMPA®, and take steps to continue to expand our business.
Stock-Based Compensation.
Total stock-based compensation for the three months ended March 31, 2023 and nine-month periods ended September 30, 2017 were $529,7382022 was $2.9 million and $1,922,451 and for the three and nine-month periods ended September 30, 2016 were $532,202 and $1,347,440,$1.9 million, respectively. The increase in stock-based compensation for the nine-month period ended September 30, 2017 when compared to the same period in 2016, is primarily due to the expense of options granted to employees and directors duringIn the first halfquarter of 2017.2023 and 2022, grants were principally for stock options relating to year-end bonus awards and grants to new employees.
Change in fair value of warrants liability.
In connection with our October 2011 equity offering, we issued warrants to purchase an aggregate of 1,523,370 shares of common stock. As of June 30, 2017, all of the 2011 warrants were either exercised or had expired. The fair value of the portion of these warrants which remain outstanding is recorded in the liability section of the consolidated balance sheet and was estimated at $0 and $122,226 at September 30, 2017 and December 31, 2016, respectively. The fair value of the warrants liability is determined at the end of each reporting period with the resulting gains or losses recorded as the change in fair value of warrants liability in the consolidated statements of operations.
No gain or loss was recognized for the three months ended September 30, 2017, as all 2011 warrants were either exercised or had expired as of June 30, 2017. For the nine months ended September 30, 2017, we recognized a loss of $186,904, due to the change in the fair value of the warrants liability through the date that all warrants were either exercised or expired. For the three and nine months ended September 30, 2016, we recognized a loss of $106,948 and a gain of $779,191, respectively, due to the change in the fair value of warrants liability. The loss during the nine months ended September 30, 2017 was principally a result of the increase of our stock price between December 31, 2016 and the warrants liability expiration date on May 2, 2017. The loss during the three months ended September 30, 2016 was principally a result of the increase of our stock price between June 30, 2016 and September 30, 2016. The gain during the nine months ended September 30, 2016 was principally a result of the decrease of our stock price between December 31, 2015 and September 30, 2016.
Other Income, Net.
We reported other income, net in all periods, primarily relating to our investment of funds received from offeringsour cash and cash equivalents and investments of our securities.$1.7 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively. The increase in other income, net for the ninethree months ended September 30, 2017March 31, 2023 of approximately $1.6 million when compared to the same period in 20162022 is primarily due to higher yields on investments.investments as well as higher invested balances. Other income, net, consists primarily of interest and dividend income.
Income Taxes.
Our effective income dividendtax rate was 20.8% and 24.2% for the three months ended March 31, 2023 and 2022, respectively. Differences in the effective tax and the statutory federal income tax rate of 21% are driven by state income taxes and unrealizedanticipated annual permanent differences, and realized gain (loss) on trading securities. These proceeds are used to fund ouroffset by the orphan drug development activitiescredit claimed. The effective tax rate is affected by many factors, including the number of stock options exercised in any period, and our operations. Substantially all such funds were investedeffective tax rate is likely to fluctuate in short-term interest-bearing obligations and short-term bond funds.
Income taxes.future periods (and may be higher in future periods than it was in the first quarter of 2023).
We have incurred net operating losses since inception. For the threehad no uncertain tax positions as of March 31, 2023 and nine-month periods ended September 30, 2017 and 2016, we have applied a 100% valuation allowance against our deferred tax asset as we currently believe that it is more likely than not that the deferred tax asset will not be realized.December 31, 2022.
Net Loss.Income.
Our net lossincome was $4,177,649 and $13,024,679, respectively,$29.6 million for the three and nine months ended September 30, 2017March 31, 2023 ($0.05 and $0.16, respectively,0.28 per basic and $0.26 per diluted share) as compared to a net lossincome of $3,953,981 and $13,909,132, respectively,$13.2 million for the three and nine months ended September 30, 2016March 31, 2022 ($0.05 and $0.17, respectively,0.13 per basic and diluted share).
Non-GAAP Net Loss.
Ournon-GAAP net loss, which excludes for the three and nine months ended September 30, 2017 $0 and a loss of $186,904, respectively, associated with the change in the fair value of liability classified warrants, was $4,177,649 and $12,837,775 for the three and nine months ended September 30, 2017 ($0.05 and $0.15 respectively,$0.12 per basic and diluted share). Ournon-GAAP net loss, which excludes for the three and nine months ended September 30, 2016 a loss of $106,948 and a gain of $779,191, respectively, associated with the change in the fair value of liability classified warrants, was $3,847,033 and $14,688,323 for the three and nine months ended September 30, 2016 ($0.05 and $0.18, respectively, per basic and diluted share).
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through equity issuances, government grants, multiple offerings of our securities, since January 2019, from revenues from product sales of FIRDAPSE®and an investment by a strategic purchaser.since January 2023, from revenues from product sales of FYCOMPA®. At September 30, 2017,March 31, 2023 we had cash and cash equivalents and short-term investments aggregating $33.9$148.2 million and working capital of $31.7$142.2 million. At December 31, 2016,2022, we had cash and cash equivalents and short-term investments aggregating $40.4$298.4 million and working capital of $39.4$263.2 million. On January 24, 2023, we used approximately $162 million of our cash to acquire the U.S. rights to FYCOMPA®. At September 30, 2017,March 31, 2023, substantially all of our cash and cash equivalents were deposited with one financial institution, and such balances were in excess of federally insured limits. Further, as of such date, substantially all such funds were invested in money market accounts and U.S. Treasuries.
We have to date incurred operating losses, and we expect these losses to be substantial in the future as we continue our drug development programs and prepare for the commercialization of our drug candidates. We anticipate using current cash on hand to finance these activities. It will likely be some time before we obtain the necessary regulatory approvals to commercialize one or more of our product candidates in the United States.
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Based on forecasts of available cash, we currently believe that we have sufficient resources to fundsupport our currently anticipated operations for at least the next 12 months. These expectations are based on current information availablemonths from the date of this report. There can be no assurance that we will remain profitable or that we will be able to us. We will alsoobtain any additional funding that we may require in the future.
In the future, we may require additional working capital to support our operations beyonddepending on our future success with FIRDAPSE® and FYCOMPA®sales, or the products we acquire and continue to develop and whether our results continue to be profitable and cash flow positive. There can be no assurance as to the amount of any such funding that time.will be required for these purposes or whether any such funding will be available to us when it is required.
In that regard, our future funding requirements will depend on many factors, including:
the cost of diligence in seeking a potential acquisition and of the completion of such acquisition, if an acquisition so occurs;
future clinical trial results;
the scope, rate of progress and cost of our clinical trials and other product development activities;
the cost and timing of regulatory approvals;
| • | the level of revenues that we report from sales of FIRDAPSE® and FYCOMPA®; |
the effect of competition and market developments;
the cost of filing and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
the extent to which we acquire or invest in other products.
We plan tomay raise additional funds to support our product development activities and working capital requirements, through public or private equity offerings, debt financings, corporate collaborations or other means. We also may seek governmental grants for a portion of the required funding for our clinical trials and preclinical trials. We may alsofurther seek to raise capital to fund additional productbusiness development efforts or product acquisitions,activities, even if we have sufficient funds for our planned operations. Any sale by us of additional equity or convertible debt securities could result in dilution to our stockholders. There can be no assurance that any such required additional funding will be available to us at all or available on terms acceptable to us. Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more research and development programs, which could have an adverse effect on our business.
On July 12, 2017,23, 2020, we filed a universal shelf Registration Statement on FormS-3 (the 2017 Shelf Registration Statement)registration statement with the SEC to sell up to $150$200 million of common stock, preferred stock, warrants to purchase common stock, or debt securities (including debtand units consisting of one or more of such securities that may be convertible or exchangeable for common stock or other securities), which securities may be offered separately or together in units or multiple series.(the 2020 Shelf Registration Statement). The 20172020 Shelf Registration Statement (file No. 333-219259)no. 333-240052) was declared effective by the SEC on July 26, 2017. No sales have been conducted to date under the 2017 Shelf Registration Statement.
On December 23, 2016, we filed a Shelf Registration Statement on FormS-3 (the 2016 Shelf Registration Statement) with the SEC to sell up to approximately $33.8 million of common stock. The 2016 Shelf Registration Statement (fileNo. 333-215315) was declared effective by the SEC on January 9, 2017. No sales have been conducted to date under the 2016 Shelf Registration Statement.
31, 2020. As of the date of this Form10-Q,report, no offerings have been completed under the full amount of our 20162020 Shelf Registration Statement and the full amount of our 2017 Shelf Registration Statement remain available for future sales. However, if our public float (the market value of our common stock held bynon-affiliate stockholders) were to fall below $75 million, we would be subject to a further limitation under which we could sell no more thanone-third (1/3) of our public float during any12-month period. Further, the number of shares that we can sell at any one time may be limited under certain circumstances to 20% of the outstanding common stock under applicable NASDAQ marketplace rules.Statement.
On March 19, 2017, the shelf registration statement that we filed with the SEC in 2014 (fileNo. 333-193699) expired.
Cash FlowsFlows.
Net cash used inprovided by operating activities was $9,712,705$12.1 million and $13,551,764,$8.5 million, respectively, for the nine-month periodsthree months ended September 30, 2017March 31, 2023 and 2016.2022. During the ninethree months ended September 30, 2017,March 31, 2023, net cash used inprovided by operating activities was primarily attributable to our net lossincome of $13,024,679.$29.6 million, a decrease of $0.6 million in inventory and $9.7 million of non-cash expenses. This was partially offset by a $537,452 decreaseincreases of $23.0 million in accounts receivable, net, $0.2 million in prepaid expenses and other current assets and deposits, a $148,432 increasedecreases of $0.6 million in accounts payable, a $477,981 increase$2.4 million in accrued expenses and other liabilities $186,904 ofnon-cash changeand $0.1 million in fair value of warrantsoperating lease liability and $1,961,205$1.5 million in deferred taxes. The increase in accounts receivable, net, primarily relates to sales of othernon-cash expenses.FYCOMPA®, which has a longer cash collection cycle than FIRDAPSE®. During the ninethree months ended September 30, 2016,March 31, 2022, net cash used inprovided by operating activities was primarily attributable to our net lossincome of $13,909,132, decreases$13.2 million, an increase of $738,803$2.4 million in accounts payable, $1.9 million in deferred taxes and $697,403 in accrued expenses and other liabilities and $779,191$2.0 million ofnon-cash change in fair value of warrants liability. expenses. This was partially offset by $1,193,883 decreaseincreases of $3.9 million in accounts receivable, net and $0.6 million in prepaid expenses and other current assets and depositsdecreases of $6.5 million in accrued expenses and $1,378,882 of othernon-cash expenses. Othernon-cash expenses include depreciation liabilities and stock-based compensation expense.
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Net cash used in investing activities duringwas $162.4 million for the nine-month periodthree months ended September 30, 2017 was $64,748, consisting of the purchase of short-term investments. Net cash provided by investing activities during the nine-month period ended September 30, 2016 was $2,966,113,March 31, 2023, consisting primarily of proceeds of certificates of deposit.payment in connection with the FYCOMPA® asset acquisition. There were no cash flows from investing activities for the three months ended March 31, 2022.
Net cash provided by financing activities during the nine-month periodthree months ended September 30, 2017March 31, 2023 was $3,213,373,$0.1 million, consisting of $3,209,423primarily of proceeds from the exercise of warrantsstock options, partially offset by the payment of liabilities arising from asset acquisition and payment of employee withholding tax related to purchase common stock and $3,950 of proceeds from the exercise of options to purchase common stock.stock-based compensation. Net cash used in financing activities during the nine-month periodthree months ended September 30, 2016March 31, 2022 was $11,265, for payment$1.6 million, consisting primarily of employee withholding tax related torepurchases of common stock, based compensation.partially offset by proceeds from the exercise of stock options.
Contractual Obligations and Arrangements.
We have entered into the following contractual arrangements:arrangements with respect to sales of FIRDAPSE®:
| • | Payments |
| • | Royalties to |
| • | Royalties to the third-party licensor of the rights sublicensed to us |
For the three months ended March 31, 2023, we recognized an aggregate of approximately $7.6 million of royalties payable under these license agreements, which is included in cost of sales in the accompanying consolidated statements of operations and comprehensive income.
Further, if DyDo is successful in obtaining the right to commercialize FIRDAPSE® in Japan, we will pay royalties to our licensor on net sales in Japan equal to a similar percentage to the royalties that we are currently paying under our original license agreement for North America.
| • | Payments due to Jacobus. In connection with our July 2022 settlement with Jacobus, we agreed to pay the following consideration to Jacobus: |
$30 million of cash, of which $10 million was paid at the closing of the settlement on July 11, 2022 and the balance of which will be paid over the next two years, on the first and second anniversary of closing;
| • | An annual royalty on Catalyst’s net sales (as defined in the License and Asset Purchase Agreement between Catalyst and Jacobus) of amifampridine products in the United States equal to: (a) for calendar years 2022 through 2025, 1.5% (with a minimum annual royalty of $3.0 million per year), and (b) for calendar years 2026 through the expiration of the last to expire of Catalyst’s FIRDAPSE® patents in the United States, 2.5% (with a minimum annual royalty of $5 million per year); provided, however, that the royalty rate may be reduced and the minimum annual royalty may be eliminated under certain circumstances; and |
| • | If Catalyst were to |
Royalties will be trued up at the end of the year to the extent that royalties on net sales are below the minimum royalty.
For the three months ended March 31, 2023, we recognized an aggregate of approximately $0.8 million of royalties payable to Jacobus.
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We have entered into the following contractual arrangements with respect to sales of FYCOMPA®:
| • | Payments due under our asset purchase agreement for FYCOMPA®. In connection with |
$160 million upfront cash payment plus $1.6 million for reimbursement of certain prepayments. Eisai is also eligible to receive a contingent payment of $25 million if a certain patent related milestone is met;
Royalties commencing on loss of exclusivity for each calendar year during the royalty term equal to 12% on net sales greater than $10 million and less than $100 million, 17% on net sales of greater than $100 million and less than $125 million and 22% on net sales greater than $125 million prior to the date of generic entry. Royalties equal to 6% on net sales greater than $10 million and less than $100 million, 8.5% on net sales of greater than $100 million and less than $125 million and 11% on net sales greater than $125 million after the date of generic entry.
| • | Concurrently with the acquisition, the parties entered into two related agreements: (i) a short-term Transition Services Agreement for commercial and manufacturing services and (ii) a long-term Supply Agreement for the manufacturing of FYCOMPA®. Under |
We also have entered into the following contractual arrangements:
| • | Employment |
| • | Purchase commitment. We have entered into a purchase commitment with a contract manufacturing organization for approximately $0.5 million per year. The agreement expires in December 2023. |
| • | Lease for office |
Off-Balance Sheet Arrangements.
We currently have no debt or capital leases. We have operating leases for our office facilities. We do not have anyoff-balance sheet arrangements as such term is defined in rules promulgated by the SEC.
Caution Concerning Forward-Looking Statements
This Current Report on Form10-Qreport contains “forward-looking statements”, as that term is defined in the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, plans or objectives for future operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, “believes”, “anticipates”, “proposes”, “plans”, “expects”, “intends”, “may”, and other similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or other achievements to be materially different from any future results, performanceperformances or achievements expressed or implied by such forward lookingforward-looking statements. The forward-looking statements madeFactors that might cause such differences include, but are not limited to, those discussed in this report are based on current expectations that involve numerous risks and uncertainties.the section entitled “Item 1A – Risk Factors.”
The continued successful development and commercialization of our current drug candidates isFIRDAPSE® and FYCOMPA® are highly uncertain. We cannot reasonably estimate or know the nature, timing, or estimated expenses of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence due to the numerous risks and uncertainties associated with developing such products, includingFactors that will affect our success include the uncertainty of:
| • | The impact of the |
| • |
Whether we will be able to |
| • | Whether our estimates of the size of the market for FIRDAPSE® for the treatment of |
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Whether we will be determinedable to be safe for humans;
| • | Whether patients will discontinue from the use of |
| • | Whether the daily dose of FIRDAPSE® taken by patients changes over time and affects our results of operations; |
| • | Whether new FIRDAPSE® patients and FYCOMPA® patients can be successfully titrated to stable therapy; |
| • | Whether we can continue to market FIRDAPSE® and now market FYCOMPA® on a profitable and cash flow positive basis; |
| • | Whether we can successfully integrate the team that we |
| • | Whether the acquisition of |
Whether any revenue or earnings guidance that we provide to the public market will turn out to be accurate;
Whether payors will reimburse for our products at the price that we charge for our products;
The ability of our third-party suppliers and contract manufacturers to maintain compliance with current Good Manufacturing Practices (cGMP);
The ability of those third parties that distribute our products to maintain compliance with applicable law;
| • | Our ability to maintain compliance with applicable rules relating to our patient assistance programs for FIRDAPSE® and FYCOMPA®; |
Our ability to maintain compliance with the applicable rules that relate to our contributions to 501(c)(3) organizations that support LEMS patients;
| • | The scope of our intellectual property and the outcome of any challenges to our intellectual property, and, conversely, whether any third-party intellectual property presents unanticipated obstacles for FIRDAPSE® or FYCOMPA®; |
| • | Our ability to obtain a favorable decision on our pending request for reconsideration for an extension of the expiration date of patent protection for one of our patents listed in the Orange Book for FYCOMPA®; |
Whether there will be a post-closing review by antitrust regulators of our previous acquisition transactions, and the outcome of any such reviews if they occur;
Whether we will be able to acquire additional drug products under development, complete the research and development required to commercialize such products, and thereafter, if such products are approved for commercialization, successfully market such products;
| • | Whether our patents will be sufficient to prevent generic competition for FIRDAPSE®after our orphan drug exclusivity for FIRDAPSE® expires; |
| • | Whether we will be successful in our litigation to enforce our patents against the Paragraph IV challengers who have filed relating to FIRDAPSE® or FYCOMPA®; |
The impact on our profits and cash flow of adverse changes in reimbursement and coverage policies from government and private payors such as Medicare, Medicaid, insurance companies, health maintenance organizations and other plan administrators, or the impact of pricing pressures enacted by industry organizations, the federal government or the government of any state, including as a result of increased scrutiny over pharmaceutical pricing or otherwise;
Changes in the healthcare industry and the effect of political pressure from and actions by the President, Congress and/or medical professionals seeking to reduce prescription drug costs, and changes to the healthcare industry occasioned by any future changes in laws relating to the pricing of drug products, including changes made in the Inflation Reduction Act of 2022, or changes in the healthcare industry generally;
The state of the economy generally and its impact on our business;
The potential impact of future healthcare reform in the United States, including the Inflation Reduction Act of 2022, and measures being taken worldwide designed to reduce healthcare costs and limit the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our product;
| • | The scope, rate of progress and expense of our clinical trials and studies, pre-clinical studies, proof-of-concept studies, and our other drug development activities, and whether our trials and studies will be successful; |
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Our ability to complete any clinical trials and studiespre-clinical studies,proof-of-concept studies, and our other drug development activities, and whether our trials and studies will be successful;
| • | Whether FIRDAPSE® can be successfully commercialized in Canada on a profitable basis through KYE Pharmaceuticals, our collaboration partner in Canada; |
| • | The impact on sales of FIRDAPSE® in the United States if an amifampridine product is purchased in Canada for use in the United States; |
| • | Whether our collaboration partner in Japan, DyDo, will successfully complete the clinical trial in Japan that will be required to seek approval to commercialize FIRDAPSE® in Japan; |
| • | Whether DyDo will be able to obtain approval to commercialize FIRDAPSE® in Japan; and |
Whether our version of vigabatrin tablets will ever be approved by the scope, rate of progressFDA and expensesuccessfully marketed by Endo, whether we will earn milestone payments or royalties on sales of our clinical trialsversion of generic vigabatrin tablets, and studies,pre-clinical studies,proof-of-concept studies, and our other development activities;
impact these issues.
Our current plans and objectives are based on assumptions relating to the developmentcontinued commercialization of FIRDAPSE® and FYCOMPA® and on our current drug candidates.plans to seek to acquire or in-license additional products. Although we believe that our assumptions are reasonable, any of our assumptions could prove inaccurate. In light ofConsidering the significant uncertainties inherent in the forward-looking statements we have made herein, which reflect our views only as of the date of this report, you should not place undue reliance upon such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKMarket risk represents the risk of changes in the value of market risk-sensitive instruments caused by fluctuations in interest rates, foreign exchange rates and commodity prices. Changes in these factors could cause fluctuations in our results of operations and cash flows.
Our exposure to interest rate risk is currently confined to our cash and cash equivalents that are from time to time invested in highly liquid money market risks during the threefunds and nine months ended September 30, 2017 have not materially changed from those discussed in Item 7AU.S. Treasuries. The primary objective of our Annual Report on Form10-K for the year ended December 31, 2016.investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. We do not use derivative financial instruments in our investment portfolio. Our cash and investments policy emphasizes liquidity and preservation of principal over other portfolio considerations.
| ITEM 4. |
| a. | We have carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, |
| b. | During the three months ended |
| ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1. LEGAL PROCEEDINGSParagraph IV Patent Litigation
In January 2023, we received Paragraph IV Certification Notice Letters from three generic drug manufacturers advising us that they had each submitted an Abbreviated New Drug Application (ANDA) to the FDA seeking authorization from the FDA to manufacture, use or sell a generic version of FIRDAPSE® in the United States. The notice letters each allege that our six patents listed
41
in the FDA Orange Book covering FIRDAPSE® are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of the proposed product described in these ANDA submissions. Under the Federal Food, Drug, and Cosmetic Act, as amended by the Drug Price Competition and Patent Term Restoration Act of 1984, as amended, we had 45 days from receipt of the notice letters to commence patent infringement lawsuits against these generic drug manufacturers in a federal district court to trigger a stay precluding FDA from approving any ANDA until May 2026 or entry of judgment holding the patents invalid, unenforceable, or not infringed, whichever occurs first. In that regard, after conducting the necessary due diligence, we filed lawsuits on March 1, 2023 in the U.S. Federal District Court for the District of New Jersey against each of the three generic drug manufacturers who notified us of their ANDA filings.
We intend to vigorously protect and defend our intellectual property for FIRDAPSE® and, although there can be no assurance, we believe that our patents will protect FIRDAPSE® from generic competition for the life of our patents.
On February 20, 2023, Catalyst received a Paragraph IV Certification Notice Letter from a company that appears to have filed the first ANDA for the oral suspension formulation for FYCOMPA®. The same company sent a similar letter to the Company later in February with a similar certification for the tablet formulation for FYCOMPA®, the fourth such certification for this formulation. Both of these letters were paragraph IV certifications of non-infringement, non-validity, and unenforceability to the ‘497 patent for FYCOMPA® but each application, like the previous Paragraph IV notices from ANDA filers, for FYCOMPA® tablets does not challenge the ‘571 patent. Similar to our actions with the FIRDAPSE® Paragraph IV Certifications described above, after due diligence Catalyst filed lawsuits on April 5, 2023 in the U.S. District Court for the District of New Jersey against the drug manufacturer who notified Catalyst of their ANDA submissions for both FYCOMPA® formulations, thus triggering the 30 month stay for each application.
Canadian Litigation
On March 11, 2022, we announced that we had received a favorable decision from the Canadian court setting aside, for the second time, the decision of Health Canada approving RUZURGI® for the treatment of LEMS patients. In its ruling, the court determined that the Minister of Health’s approach to evaluating whether FIRDAPSE®’s data deserved protection based on FIRDAPSE®’s status as an innovative drug, which protects by regulation the use of such data as part of a submission seeking an NOC for eight years from approval of the innovative drug, was legally flawed and not supported by the evidence. The Minister of Health appealed that decision, and, in January 2023, the Canadian Appellate Court overturned the trial court’s decision. Thereafter, the Minister of Health reissued an NOC for RUZURGI® in Canada and, as a result, RUZURGI®is once again available for sale in Canada.
While there can be no assurance, we do not believe that the reissuance of an NOC for RUZURGI® in Canada will have a partymaterial adverse effect on our results of operations.
Other Litigation
From time to anytime we may become involved in legal proceedings arising in the ordinary course of business. Other than as set forth above, we believe that there is no litigation pending at this time that could have, individually or in the aggregate, a material legal proceedings.adverse effect on our results of operations, financial condition or cash flows.
| ITEM 1A. |
There are many factors that affect our business, our financial condition, and the results of our operations. In addition to the information set forth in this quarterly report, you should carefully read and consider “Item 1A. Risk Factors” in Part I, and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, of our 20162022 Annual Report on Form10-K filed with the SEC, which contain a description of significant factors that might cause our actual results of operations in future periods to differ materially from those currently expected or desired.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSIssuer Purchases of Equity Securities
NoneIn March 2021, our Board of Directors approved a share repurchase program that authorizes the repurchase of up to $40 million of our common stock, pursuant to a repurchase program under Rule 10b-18 of the Securities Act (the Share Repurchase Program). The Share Repurchase Program commenced on March 22, 2021.
At present, we are not purchasing shares under our share repurchase program, but rather we are retaining cash for use in our business development activities.
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The following table presents information regarding repurchases by us of our common stock under the Share Repurchase Program during the three months ended March 31, 2023:
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Dollar Value of Shares that May Yet Be Purchased (in thousands) | ||||||||||||
January 1, 2023 – January 31, 2023 | — | $ | — | — | $ | 21,003 | ||||||||||
February 1, 2023 – February 28, 2023 | — | $ | — | — | $ | 21,003 | ||||||||||
March 1, 2023 – March 31, 2023 | — | $ | — | — | $ | 21,003 | ||||||||||
| ITEM 3. |
None
| ITEM 4. |
Not applicable
| ITEM 5. |
None
| ITEM 6. |
31.1 | Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Principal Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
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SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Catalyst Pharmaceuticals, Inc. | ||
| By: | /s/ Alicia Grande | |
| Alicia Grande | ||
| Vice President, Treasurer and Chief Financial Officer | ||
Date: November 8, 2017
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