UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

[Mark One]

For the Quarterly Period Ended September 30, 2018March 31, 2019

OR

Commission FileNo. 001-33057

CATALYST PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:(305)420-3200

Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Securities registered pursuant to Section 12(b) of the Act:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date 102,739,257102,854,257 shares of common stock, $0.001 par value per share, were outstanding as of November 2, 2018.May 6, 2019.

CATALYST PHARMACEUTICALS, INC.

INDEX

CATALYST PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

CATALYST PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

CATALYST PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

For the ninethree months ended September 30,March 31, 2019 and 2018

The accompanying notes are an integral part of these consolidated financial statements.

CATALYST PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

CATALYST PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Catalyst Pharmaceuticals, Inc. (theand subsidiary (collectively, the Company) is a development-stage biopharmaceutical company focused on developing and commercializing innovating therapies for people with rare debilitating, chronic neuromuscular and neurological diseases, including Lambert-Eaton Myasthenic Syndrome (LEMS), Anti-MuSK antibody positive myasthenia gravis(MuSK-MG),Congenital Myasthenic Syndromes (CMS), and MuSK antibody positive myasthenia gravis(MuSK-MG).Spinal Muscular Atrophy (SMA) Type 3.

On November 28, 2018, the U.S. Food and Drug Administration, or FDA, granted approval of Firdapse® for the treatment of adults with LEMS. On January 15, 2019, the Company launched its first product, Firdapse®, in the United States for the treatment of adults with LEMS.

Since inception, the Company has devoted substantially all 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.product. The Company has incurred operating losses in each period from inception through September 30, 2018.March 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.revenues from its product sales. See Note 10.12.

Capital Resources

While there can be no assurance, based on currently available information, the Company estimates that it has sufficient resources to support its operations for at least the next 12 months.months from the issuance date of this Form10-Q.

The Company may raise additionalrequired funds in the future if required for its business, 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 product development efforts, 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 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.

In the opinion of management, the accompanying unaudited interim consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of the dates and for the periods presented. Accordingly, these consolidated statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 20172018 included in the 20172018 Annual Report on Form10-K filed by the Company with the SEC. The results of operations for the ninethree months ended September 30, 2018March 31, 2019 are not necessarily indicative of the results to be expected for any future period or for the full 20182019 fiscal year.

Short-term bond fundShort-Term Bond Fund

The short-term bond fund is classified in trading securities. Trading securities are recorded at fair value based on the closing market price of the security. For trading securities, the Company recognizes realized gains and losses and unrealized gains and losses to earnings. At September 30, 2018March 31, 2019 and December 31, 2017,2018, the only investment classified as trading securities was the short-term bond fund. Realized losses on trading securities during the three months ended March 31, 2019 were $4,980. There were no sales on trading securities for the three months ended March 31, 2018. Unrealized gain (loss) on trading securities was $0$52,741 and ($29,430)58,861), respectively, for the three and nine months ended September 30,March 31, 2019 and March 31, 2018, and $29,431 and $58,861 for the three and nine months ended September 30, 2017 and is included in other income, net in the accompanying consolidated statements of operations.

U.S. Treasuries

U.S. Treasuries are classified asavailable-for-sale securities. The Company classifiesavailable-for-sale securities with stated maturities of greater than three months and less than one year from the date of purchase as short-term investments.Available-for-sale securities with stated maturities greater than one year are classified asnon-current investments in the accompanying consolidated balance sheets. The Company recordsavailable-for-sale securities at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses are included in other income, net and are derived using the specific identification method for determining the cost of securities sold. Interest income is recognized when earned and is included in other income, net in the consolidated statements of operations. The Company recognizes a charge when the declines in the fair value below the amortized cost basis of itsavailable-for-sale securities are judged to be other-than-temporary. The Company considers various factors in determining whether to recognize an other-than-temporary charge, including whether the Company intends to sell the security or whether it is more likely than not that the Company would be required to sell the security before recovery of the amortized cost basis. The Company has not recorded any other than temporaryother-than-temporary impairment charges on itsavailable-for-sale securities. See Note 4.3.

Products that have been approved by the FDA or other regulatory authorities, such as Firdapse®, are also used in clinical programs to assess the safety and efficacy of the products for usage in treating diseases that have not been approved by the FDA or other regulatory authorities. The form of Firdapse® utilized for both commercial and clinical programs is identical and, as a result, the inventory has an “alternative future use” as defined in authoritative guidance. Raw materials and purchased drug product associated with clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes and, therefore, does not have an “alternative future use”.

The Company evaluates for potential excess inventory by analyzing current and future product demand relative to the remaining product shelf life. The Company builds demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance, and patient usage.

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms do not include options to extend or terminate the lease as it is not reasonably certain that it will exercise these options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease andnon-lease components, which are generally accounted for separately. Refer to Note 2.r. for discussion of adoption method.

To determine revenue recognition for arrangements that are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for product revenue, seeProduct Sales, Net below.

The Company also generates revenues from payments received under a collaborative agreement. Collaborative agreement payments may include nonrefundable fees at the inception of the agreements, milestone and event-based payments for specific achievements designated in the collaborative agreements, and/or royalties on sales of products resulting from a collaborative arrangement. For a complete discussion of accounting for collaborative arrangements, seeRevenues from Collaborative Arrangement below.

Product Sales, Net:The Company sells Firdapse® to a Customer (its exclusive distributor) who subsequently resells Firdapse® to both a small group of exclusive SPs who have exclusive contracts with the Company to distribute the Company’s products to patients and potentially to medical centers or hospitals on an emergency basis. In addition to distribution agreements with its Customer, the Company enters into arrangements with health care providers and payors that provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products.

The Company recognizes revenue on product sales when the Customer obtains control of the Company’s product, which occurs at a point in time (upon delivery). Product revenue is recorded net of applicable reserves for variable consideration, including discounts and allowances. The Company’s payment terms range between 10 and 60 days.

Shipping and handling costs for product shipments occur prior to the customer obtaining control of the goods, and are recorded in cost of sales.

If taxes should be collected from the Customer relating to product sales and remitted to governmental authorities, they will be excluded from revenue. The Company expenses incremental costs of obtaining a contract when incurred, if the expected amortization period of the asset that the Company would have recognized is one year or less. However, no such costs were incurred during the three months ended March 31, 2019.

As of March 31, 2019 all of the Company’s sales are to its distributor.

Reserves for Variable Consideration:Revenue from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between the Company and its Customer, payors, and other indirect customers relating to the Company’s sale of its products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the Customer) or a current liability (if the amount is payable to a party other than a Customer). These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts.

The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. The Company’s analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of March 31, 2019 and, therefore, the transaction price was not reduced further during the three months ended March 31, 2019. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

Trade Discounts and Allowances:The Company provides its Customer with a discount that is explicitly stated in its contract and is recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, the Company receives sales order management, data and distribution services from the Customer. To the extent the services received are distinct from the sale of Firdapse® to the Customer, these payments are classified in selling, general and administrative expenses in the Company’s consolidated statement of operations and comprehensive loss. However, if the Company has determined such services received to date are not distinct from the Company’s sale of products to the Customer, these payments have been recorded as a reduction of revenue within the statement of operations and comprehensive loss through March 31, 2019, as well as a reduction to accounts receivables, net on the consolidated balance sheets.

FundedCo-pay Assistance Program: The Company contracts with a third-party to manage theco-pay assistance program intended to provide financial assistance to qualified insured patients. The calculation of the accrual forco-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with Firdapse® that has been recognized as revenue, but remains in the distribution channel at the end of each reporting period. These payments are considered payable to the customer and the related reserve is recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expense in the consolidated balance sheets.

Product Returns:Consistent with industry practice, the Company offers the SPs and its distributor limited product return rights for damaged and expiring product, provided it is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. The Company estimates the amount of its product sales that may be returned by its Customer and records this estimate as a reduction of revenue in the period the related product revenue is recognized, as well as reductions to trade receivables, net on the condensed consolidated balance sheets. The Company currently estimates product return liabilities using available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel. The Company has an insignificant amount of returns to date and believes that returns of its products will continue to be minimal.

Provider Chargebacks and Discounts:Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to the Customer who directly purchases the product from the Company. The Customer charges the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivables, net. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by the Customer, and the Company generally issues credits for such amounts within a few weeks of the Customer’s notification to the Company of the resale. Reserves for chargebacks consist principally of chargebacks that the Customer has claimed, but for which the Company has not yet issued a credit.

Government Rebates:The Company is subject to discount obligations under state Medicaid programs and Medicare. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities on the consolidated balance sheets. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. The Company’s liability for these rebates consists of invoices received for claims that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.

Bridge and Patient Assistance Programs: The Company provides free Firdapse® to uninsured patients who satisfypre-established criteria for either the Bridge Program or the Patient Assistance Program. Patients who meet the Bridge Program eligibility criteria and are transitioning from investigational product while they are waiting for a coverage determination, or later, for patients whose access is threatened by the complications arising from a change of insurer may receive a temporary supply of free Firdapse® while the Company is determining the patient’s third-party insurance, prescription drug benefit or other third-party coverage for Firdapse®. The Patient Assistance Program provides free Firdapse® for longer periods of time for those who are uninsured or functionally uninsured with respect to Firdapse® because they are unable to obtain coverage from their payer despite having health insurance. The Company does not recognize any revenue related to these free products and the associated costs are classified in selling, general and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss.

Revenues from Collaborative Arrangement:The Company has entered into a collaboration agreement for the further development and commercialization of generic Sabril® (vigabatrin) tablets. Pursuant to the terms of this agreement, collaborators could be required to make various payments to the Company, including upfront license fees, milestone payments based on achievement of regulatory approvals, and royalties on sales of products resulting from collaborative agreement.

Nonrefundable upfront license fees are recognized upon receipt as persuasive evidence of an arrangement exists, the price to the collaborator is fixed or determinable and collectability is reasonably assured. For the three months ended March 31, 2019 and March 31, 2018, no revenue was recognized.

Refer to Note 8, Collaborative Arrangement, for further discussion on the Company’s collaborative arrangement.

The Company currently has a single product with limited commercial sales experience, which makes it difficult to evaluate its current business, predict its future prospects and forecast financial performance and growth. The Company has invested a significant portion of its efforts and financial resources in the development and commercialization of the lead product, Firdapse®, and expects Firdapse® to constitute virtually all of product revenue for the foreseeable future. The Company’s success depends on its ability to effectively commercialize Firdapse®.

The Company relies exclusively on third parties to formulate and manufacture Firdapse® and its drug candidates. The commercialization of Firdapse® and any other drug candidates, if approved, could be stopped, delayed or made less profitable if those third parties fail to provide sufficient quantities of product or fail to do so at acceptable quality levels or prices. The Company does not intend to establish its own manufacturing facilities. The Company is using the same third-party contractors to manufacture, supply, store and distribute drug supplies for clinical trials and the commercialization of Firdapse®. If the Company is unable to continue its relationships with one or more of these third-party contractors, it could experience delays in the development or commercialization efforts as it locates and qualifies new manufacturers. The Company intends to rely on one or more third-party contractors to manufacture the commercial supply of drugs.

As of September 30, 2018, there were outstanding stock options to purchase 8,062,500 shares of common stock, of which stock options to purchase 4,011,663 shares of common stock were exercisable as of September 30, 2018.

For the three and nine-month periods ended September 30, 2018 and 2017, the Company recorded stock-based compensation expense as follows:

In May 2017, the FASB issued ASUNo. 2017-09,Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting to clarify when to account for a change to the terms or 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 adopted this standard in the first quarter of 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASUNo. 2018-07,Compensation –- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting that largely aligns the accounting for share-based payment awards issued to employees and nonemployees. Under this ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. ASU2018-07 is effective for all entities for annual reporting periods beginning after December 15, 2018, including interim reporting periods within each annual reporting period, with early adoption permitted. The Company is currentlyhas adopted this standard as of January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASUNo. 2016-13,Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. Foravailable-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction in carrying value of the asset. Entities will no longer be permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized. The Company plans to adopt the impact this accounting standardnew guidance on January 1, 2020. The Company does not anticipate the adoption will have a material impact on its consolidated financial statements.position or results of operations.

2011 Warrants

The Company allocated approximately $1.3 million of proceeds 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 allowed for the net cash settlement of such warrants in the event of certain fundamental transactions (as defined in the warrant agreement). During the period that the 2011 warrants were outstanding, the valuation of the 2011 warrants was determined using the Black-Scholes Model. This model uses inputs such as the underlying price of the shares issued when the warrant is exercised, volatility, risk free interest rate and expected life of the instrument. The Company had determined that the 2011 warrants liability should be classified within Level 3 of the fair value hierarchy by evaluating each input for the Black-Scholes Model against the fair value hierarchy criteria and using the lowest level of input as the basis for the fair value classification. There are six inputs: closing price of the Company’s common stock on the day of evaluation; the exercise price of the warrants; the remaining term of the warrants; the volatility of the Company’s common stock; annual rate of dividends; and the risk-free rate of return. Of those inputs, the exercise price of the warrants and the remaining term were readily observable in the warrant agreement. The annual rate of dividends was based on the Company’s historical practice of not granting dividends. The closing price of the Company’s common stock would fall under Level 1 of the fair value hierarchy as it is a quoted price in an active market. The risk-free rate of return was a Level 2 input, while the historical volatility was a Level 3 input in accordance with the fair value accounting guidance. Since the lowest level input was a Level 3, the Company determined the 2011 warrants liability were most appropriately classified within Level 3 of the fair value hierarchy. This liability was subject to a fair valuemark-to-market adjustment each reporting period.

The following table rolls forward the fair value of the Company’s warrants liability activity for the three and nine-month periods ended September 30, 2017:

On May 2, 2017, the outstanding and unexercised 2011 warrants expired. During the nine months ended September 30, 2017, 613,913 of the 2011 warrants were exercised, with proceeds of $798,087 to the Company.

Available-for-sale investments by security type were as follows:

At December 31, 2017, the Company did not have anyavailable-for-sale securities.

The Company has operating lease agreements for its corporate office. The leases have free and escalating payment provisions. The leases have remaining lease terms of approximately 3.7 years, and include options to extend the leases for up to 1 year and options to terminate the lease within 1 year. There are no obligations under finance leases.

The components of lease expense were as follows:

Supplemental cash flow information related to leases was as follows:

Supplemental balance sheet information related to leases was as follows:

Payments of lease liabilities as of March 31, 2019 were as follows:

Property and equipment, net consists of the following:

Depreciation expense was $9,294$13,748 and $25,485,$8,015, respectively, for the three and nine-monththree-month periods ended September 30, 2018March 31, 2019 and $12,839 and $38,754, respectively for the three and nine-month periods ended September 30, 2017.

On August 27, 2009, the Company entered into a license agreement with Northwestern University (Northwestern), under which it acquired worldwide rights to CPP-115. As of September 30,In 2018, the Company had paid $424,885 in connection with the license and had accrued license fees of $0 in the accompanying September 30, 2018 consolidated balance sheet for expenses, maintenance fees and milestones.

Recently, the Company became aware that certain patents granted to Northwestern in 2018 (which patents have been licensed by Northwestern to a third-party) for a new GABA aminotransferase inhibitor were derived fromCPP-115. As a result, it isthe Company terminated its license agreement with Northwestern for CPP-115, based on the Company’s position that Northwestern has violated the license agreement based onbecause of its failure to transfer these new patent rights to the Company as part of the existing license agreement. It is also the Company’s position that Northwestern’s publication of information about the new patents in violation of the license agreement has damaged the Company. On October 26, 2018, because good faith efforts to resolve these disputes had not been successful, the Company notified Northwestern that it was terminatingterminated the license agreement and seeking damages for Northwestern’s breach of the license agreement. Further, on the same date, the Company filed a claim for damages in arbitration against Northwestern for Northwestern’s breaches of the license agreement.

On November 5, 2018, Northwestern advised the Company that in its view, Northwestern has a right to terminate the license agreement with the Company because the Company has allegedly breached the license agreement by failing to pay certain milestones and by allegedly failing to use commercially reasonable efforts to develop and commercialize any products. Northwestern has also advised the Company that, in its view, the Company has engaged in wrongful conduct and communications with the third party that licensed the new patents from Northwestern, and that such communications have damaged Northwestern’s relationship with that third party. The Company disputes Northwestern’s allegations and intends tois vigorously defenddefending itself against any claims that Northwestern may bringhas brought against it in the arbitration proceedings relating to these allegations.

This matter is at a very early stage and there can be no assurance as to the outcome of this matter. See Note 12.proceeding.

2016 Shelf Registration Statement

On 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 Statement

On 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 million of common stock, preferred stock, warrants to purchase common stock, or debt securities (including debt 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 2017 Shelf Registration Statement (fileNo. 333-219259) was declared effective by the SEC on July 26, 2017.

On November 28, 2017, the Company filed a prospectus supplement and offered for sale 16,428,572 shares of its common stock at a price of $3.50 per share in an underwritten public offering under the 2017 Shelf Registration. The Company received gross proceeds in the public offering of approximately $57.5 million before underwriting commission and incurred expenses of approximately $3.7 million.

At September 30, 2018,March 31, 2019, there is approximately $92.5 million available for future sale under the 2017 Shelf Registration Statement.

SubsequentThe Company became aware earlier this week from press reports that the FDA has approved an NDA for Jacobus Pharmaceuticals for their version of 3,4-DAP for pediatric LEMS patients. The Company is in the early stages of assessing both the impact of the FDA’s recent action on its business and its available options, and there can be no assurance as to quarter end, the Company commenced an arbitration proceeding against Northwestern in regard toCPP-155. See Note 8.ultimate impact of the FDA’s recent action on the Company’s business and future results of operations.

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

We are a biopharmaceutical company focused on developing and commercializing innovative therapies for people with rare, debilitating, chronic neuromuscular and neurological diseases. We currently haveare dedicated to making a meaningful impact on the following drug candidateslives of those suffering from rare diseases, and we believe in development:putting patients first in everything we do.

Firdapse^®

In October 2012, we licensed the North American rights to Firdapse^®Firdapse®, a proprietary form of amifampridine phosphate, or chemically known as3,4-diaminopyridine phosphate, from BioMarin Pharmaceutical Inc. (BioMarin). In August 2013,When we wereacquired the rights to the product, it had already been granted “breakthrough therapy designation”orphan drug designation by the U.S. Food & Drug Administration (FDA) for Firdapse^®FDA for the treatment of patients with Lambert-Eaton Myasthenic Syndrome or LEMS,(LEMS), a rare and sometimes fatal autoimmune disease characterized by muscle weakness. Additionally, in August 2013, we were granted “breakthrough therapy designation” by the United States Food & Drug Administration (FDA), for Firdapse® for the treatment of LEMS. Further, the FDA has granted Orphan Drug Designation for Firdapse^®Firdapse® for the treatment of patients with LEMS, Congenital Myasthenic Syndromes or CMS(CMS) and Myasthenia Gravis (MG).

On November 28, 2018, we received approval from the FDA for any indication. Because amifampridine phosphate (Firdapse^®) has been granted Orphan Drug designationFirdapse® 10 mg tablets for the treatment of adults with LEMS. In January 2019, we launched Firdapse^® in the United States, selling through a field force experienced in neurologic, central nervous system or rare disease products consisting of approximately 20 field personnel, including sales (Regional Account Managers), patient assistance and insurance navigation support (Patient Access Liaisons), and payer reimbursement (National Account Managers) personnel. We also have a field-based force of six medical science liaisons who are helping educate the medical communities and patients about LEMS and about our ongoing clinical trial activities evaluating Firdapse® for other ultra-orphan, neuromuscular diseases. Finally, we are working with several rare disease advocacy organizations (including Global Genes, the National Organization for Rare Disorders (NORD), and the Myasthenia Gravis Foundation of America) to help increase awareness and level of support for patients living with LEMS, Anti-MuSK antibody positive myasthenia gravis, orMuSK-MG, CMS, and MGSpinal Muscular Atrophy (SMA) Type 3, and to provide education for the physicians who treat these rare diseases and the patients they treat.

We are supporting the distribution of Firdapse^® through “Catalyst Pathways^™,” our personalized treatment support program. “Catalyst Pathways” is a single source for personalized treatment support, education and guidance through the challenging dosing and titration regimen to 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 most pharmaceutical 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 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 patientco-pays and deductibles to a nominal affordable amount. For eligible patients with commercial coverage, aco-pay assistance program designed to keepout-of-pocket costs to $10 or less per month is available for all LEMS patients prescribed Firdapse^®. We are also donating, and committing to continue to donate, money to qualified, independent charitable foundations dedicated to providing assistance to LEMS patients in financial need. Subject to compliance with applicable regulatory requirements, our goal is that no LEMS patient is ever denied access to Firdapse^® for financial reasons.

We became aware earlier this week from press reports that the FDA has approved an NDA for Jacobus Pharmaceuticals for their version of 3,4-DAP for pediatric LEMS patients. We are continuing to focus our attention on our core mission of serving the product is eligible to receive seven yearsneeds of marketing exclusivity for either or allLEMS patients and on educating the medical community about this devastating disease. We are also in the early stages of these indications. Further, if we areassessing both the first pharmaceutical company to obtain approval for an amifampridine product,impact of whichthe FDA’s recent action on our business and our available options, and there can be no assurance we will also be eligible to receive five years of marketing exclusivity with respectas to the useultimate impact of this product for any indication, running concurrently with the seven yearsFDA’s recent action on our business and future results of orphan marketing exclusivity described above (if both exclusivities are granted).

Finally, we are substantially increasing our activities to prepare for the potential marketing of Firdapse^® in the United States as early as the beginning of 2019. During June 2018, we announced the appointment of Daniel J. Brennan as Chief Commercial Officer, and we are currently building our sales and marketing team to prepare for the launch of Firdapse^® (assuming we obtain approval to commercialize the product), which will include our marketing and sales team, our patient education and support programs and our market access/reimbursement operations. We currently expect to launch and sell Firdapse^®, and support Firdapse^® patients and prescribers, through a field force of approximately15-20 employees experienced in neurologic, central nervous system or rare diseases. At launch, the sales force will focus on the approximately 750 neuromuscular specialists who we believe most often treat neuromuscular diseases such as LEMS. We also expect to continue to work with several rare disease advocacy organizations to help increase awareness of LEMS, CMS and MuSK-MG and to provide education for the physicians who treat these rare diseases and the patients they treat, and we expect to have a field-based force of approximately 6 medical science liaisons who will help educate the medical communities and patients about these illnesses.

We currently intend to use a specialty pharmacy model to provide reimbursement, clinical and distribution support for Firdapse^® and to offer cost-sharing and patient assistance programs to support qualified, commercially insured patients, and uninsured or under-insured patients. We may also donate money to independent charitable foundations dedicated to supporting LEMS patients as a means to potentially provide federal and state insured LEMS patients similar assistance. Our ultimate goal is to ensure that no LEMS patient is denied access to Firdapse^® for financial reasons within existing legal restrictions.

Finally, if Firdapse^® is approved for commercialization, we intend to taketaking steps to seek approval for the productFirdapse® in Canada. We also intend as a longer term strategy to seek to develop a sustained release formulation for Firdapse^®. There can be no assurance that we will be successful in these efforts.

stock-based compensation expense, supplies and materials, and allocations of various overhead costs related to our product development efforts. To date, all of our research and development resources have been devoted to the development of Firdapse®,CPP-109 (our version of vigabatrin), and formerlyCPP-115, and Firdapse^®, and we expect thisthat our future development costs will be attributable principally to continue for the foreseeable future.continued development of Firdapse®.