UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
[Mark One]
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended SeptemberJune 30, 20182019
OR
| ☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission FileNo. 001-33057
CATALYST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 76-0837053 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
355 Alhambra Circle Suite 1250 Coral Gables, Florida | 33134 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code:(305)420-3200
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Ticker Symbol(s) | Name of Exchange on Which Registered | ||
| Common Stock, par value $0.001 per share | CPRX | NASDAQ Capital Market |
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:
| Large accelerated filer | ☐ | Accelerated Filer | ☒ | |||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||||||
| Emerging growth company | ☐ | |||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards 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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date 102,739,257102,929,257 shares of common stock, $0.001 par value per share, were outstanding as of NovemberAugust 2, 2018.2019.
CATALYST PHARMACEUTICALS, INC.
PART I. FINANCIAL INFORMATION
Item 1. | FINANCIAL STATEMENTS | |||||
Consolidated balance sheets at | ||||||
| 3 | ||||||
| 4 | ||||||
| 5 | ||||||
Consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 (unaudited) | 6 | |||||
| 7 | ||||||
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF | 23 | ||||
Item 3. | ||||||
Item 4. | ||||||
| PART II. OTHER INFORMATION | ||||||
Item 1. | ||||||
Item 1A. | ||||||
Item 2. | ||||||
Item 3. | ||||||
Item 4. | ||||||
Item 5. | ||||||
Item 6. | ||||||
CATALYST PHARMACEUTICALS, INC.
| September 30, | December 31, | |||||||||||||||
| 2018 | 2017 | June 30, 2019 | December 31, 2018 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 10,616,313 | $ | 57,496,702 | $ | 23,417,512 | $ | 16,559,400 | ||||||||
Short-term investments | 51,047,842 | 26,516,711 | 36,503,442 | 36,922,213 | ||||||||||||
Accounts receivable, net | 10,376,427 | — | ||||||||||||||
Inventory | 269,879 | 56,012 | ||||||||||||||
Prepaid expenses and other current assets | 816,820 | 1,173,744 | 1,488,603 | 1,649,781 | ||||||||||||
|
|
|
| |||||||||||||
Total current assets | 62,480,975 | 85,187,157 | 72,055,863 | 55,187,406 | ||||||||||||
Investments | 5,018,857 | — | 5,008,400 | 5,008,243 | ||||||||||||
Operating leaseright-of-use asset | 1,013,590 | — | ||||||||||||||
Property and equipment, net | 201,093 | 191,385 | 147,619 | 245,425 | ||||||||||||
Deposits | 8,888 | 8,888 | 8,888 | 8,888 | ||||||||||||
|
|
|
| |||||||||||||
Total assets | $ | 67,709,813 | $ | 85,387,430 | $ | 78,234,360 | $ | 60,449,962 | ||||||||
|
|
|
| |||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 1,340,984 | $ | 1,945,575 | $ | 3,328,726 | $ | 2,337,367 | ||||||||
Accrued expenses and other liabilities | 2,127,450 | 2,320,587 | 10,822,803 | 7,173,987 | ||||||||||||
|
|
|
| |||||||||||||
Total current liabilities | 3,468,434 | 4,266,162 | 14,151,529 | 9,511,354 | ||||||||||||
Accrued expenses and other liabilities,non-current | 164,781 | 157,456 | — | 154,799 | ||||||||||||
Operating lease liability, net of current portion | 801,264 | — | ||||||||||||||
|
|
|
| |||||||||||||
Total liabilities | 3,633,215 | 4,423,618 | 14,952,793 | 9,666,153 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized: none issued and outstanding at September 30, 2018 and December 31, 2017 | — | — | ||||||||||||||
Common stock, $0.001 par value, 150,000,000 shares authorized; 102,689,257 shares and 102,549,498 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 102,689 | 102,549 | ||||||||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized: none issued and outstanding at June 30, 2019 and December 31, 2018 | — | — | ||||||||||||||
Common stock, $0.001 par value, 150,000,000 shares authorized; 102,929,257 shares and 102,739,257 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively | 102,929 | 102,739 | ||||||||||||||
Additionalpaid-in capital | 210,084,209 | 207,421,710 | 213,405,396 | 211,265,279 | ||||||||||||
Accumulated deficit | (146,064,352 | ) | (126,560,447 | ) | (150,248,516 | ) | (160,563,961 | ) | ||||||||
Accumulated other comprehensive loss | (45,948 | ) | — | |||||||||||||
Accumulated other comprehensive income (loss) | 21,758 | (20,248 | ) | |||||||||||||
|
|
|
| |||||||||||||
Total stockholders’ equity | 64,076,598 | 80,963,812 | 63,281,567 | 50,783,809 | ||||||||||||
|
|
|
| |||||||||||||
Total liabilities and stockholders’ equity | $ | 67,709,813 | $ | 85,387,430 | $ | 78,234,360 | $ | 60,449,962 | ||||||||
|
|
|
| |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CATALYST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS INCOME (LOSS)
(unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
Operating costs and expenses: | ||||||||||||||||
Research and development | $ | 4,538,369 | $ | 2,704,923 | $ | 11,502,235 | $ | 7,970,603 | ||||||||
General and administrative | 3,644,234 | 1,601,785 | 8,949,663 | 5,197,247 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operating costs and expenses | 8,182,603 | 4,306,708 | 20,451,898 | 13,167,850 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Loss from operations | (8,182,603 | ) | (4,306,708 | ) | (20,451,898 | ) | (13,167,850 | ) | ||||||||
Other income, net | 343,730 | 129,059 | 947,993 | 330,075 | ||||||||||||
Change in fair value of warrants liability | — | — | — | (186,904 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Loss before income taxes | (7,838,873 | ) | (4,177,649 | ) | (19,503,905 | ) | (13,024,679 | ) | ||||||||
Provision for income taxes | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net loss | $ | (7,838,873 | ) | $ | (4,177,649 | ) | $ | (19,503,905 | ) | $ | (13,024,679 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Net loss per share – basic and diluted | $ | (0.08 | ) | $ | (0.05 | ) | $ | (0.19 | ) | $ | (0.16 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Weighted average shares outstanding – basic and diluted | 102,641,504 | 84,797,969 | 102,598,740 | 83,898,724 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net loss | $ | (7,838,873 | ) | $ | (4,177,649 | ) | $ | (19,503,905 | ) | $ | (13,024,679 | ) | ||||
Other comprehensive loss: | ||||||||||||||||
Unrealized gain (loss) onavailable-for-sale securities | (9,450 | ) | — | (45,948 | ) | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive loss | $ | (7,848,323 | ) | $ | (4,177,649 | ) | $ | (19,549,853 | ) | $ | (13,024,679 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
Product revenue, net | $ | 28,837,900 | $ | — | $ | 41,286,338 | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Operating costs and expenses: | ||||||||||||||||
Cost of sales | 4,261,625 | — | 5,973,413 | — | ||||||||||||
Research and development | 4,629,364 | 3,704,824 | 7,937,323 | 6,963,866 | ||||||||||||
Selling, general and administrative | 8,987,722 | 2,631,031 | 17,404,182 | 5,305,429 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operating costs and expenses | 17,878,711 | 6,335,855 | 31,314,918 | 12,269,295 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating income (loss) | 10,959,189 | (6,335,855 | ) | 9,971,420 | (12,269,295 | ) | ||||||||||
Other income, net | 450,410 | 370,715 | 793,676 | 604,263 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) before income taxes | 11,409,599 | (5,965,140 | ) | 10,765,096 | (11,665,032 | ) | ||||||||||
Provision for income taxes | 449,651 | — | 449,651 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | $ | 10,959,948 | $ | (5,965,140 | ) | $ | 10,315,445 | $ | (11,665,032 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.11 | $ | (0.06 | ) | $ | 0.10 | $ | (0.11 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Diluted | $ | 0.10 | $ | (0.06 | ) | $ | 0.10 | $ | (0.11 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 102,869,202 | 102,596,446 | 102,808,897 | 102,577,005 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted | 105,928,970 | 102,596,446 | 105,098,930 | 102,577,005 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | $ | 10,959,948 | $ | (5,965,140 | ) | $ | 10,315,445 | $ | (11,665,032 | ) | ||||||
Other comprehensive income (loss): | ||||||||||||||||
Unrealized gain (loss) onavailable-for-sale securities | 28,446 | (14,672 | ) | 42,006 | (36,498 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income (loss) | $ | 10,988,394 | $ | (5,979,812 | ) | $ | 10,357,451 | $ | (11,701,530 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
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 and six months ended SeptemberJune 30, 2019 and 2018
| Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||
Balance at December 31, 2017 | $ | — | $ | 102,549 | $ | 207,421,710 | $ | (126,560,447 | ) | $ | — | $ | 80,963,812 | |||||||||||
Issuance of common stock, net | — | 3 | 10,546 | — | — | 10,549 | ||||||||||||||||||
Issuance of stock options for services | — | — | 2,506,026 | — | — | 2,506,026 | ||||||||||||||||||
Exercise of stock options for common stock | — | 137 | 145,927 | — | — | 146,064 | ||||||||||||||||||
Other comprehensive loss | — | — | — | — | (45,948 | ) | (45,948 | ) | ||||||||||||||||
Net loss | — | — | — | (19,503,905 | ) | — | (19,503,905 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at September 30, 2018 | $ | — | $ | 102,689 | $ | 210,084,209 | $ | (146,064,352 | ) | $ | (45,948 | ) | $ | 64,076,598 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Gain (Loss) | Total | |||||||||||||||||||
Balance at December 31, 2018 | $ | — | $ | 102,739 | $ | 211,265,279 | $ | (160,563,961 | ) | $ | (20,248 | ) | $ | 50,783,809 | ||||||||||
Issuance of stock options for services | — | — | 933,411 | — | — | 933,411 | ||||||||||||||||||
Exercise of stock options for common stock | — | 65 | 89,285 | — | — | 89,350 | ||||||||||||||||||
Other comprehensive gain (loss) | — | — | — | — | 13,560 | 13,560 | ||||||||||||||||||
Net income (loss) | — | — | — | (644,503 | ) | — | (644,503 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at March 31, 2019 | — | 102,804 | $ | 212,287,975 | (161,208,464 | ) | (6,688 | ) | 51,175,627 | |||||||||||||||
Issuance of stock options for services | — | — | 924,996 | — | — | 924,996 | ||||||||||||||||||
Exercise of stock options for common stock | — | 125 | 192,425 | — | — | 192,550 | ||||||||||||||||||
Other comprehensive gain (loss) | — | — | — | — | 28,446 | 28,446 | ||||||||||||||||||
Net income (loss) | — | — | — | 10,959,948 | — | 10,959,948 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at June 30, 2019 | $ | — | $ | 102,929 | $ | 213,405,396 | $ | (150,248,516 | ) | $ | 21,758 | $ | 63,281,567 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Gain (Loss) | Total | |||||||||||||||||||
Balance at December 31, 2017 | $ | — | $ | 102,549 | $ | 207,421,710 | $ | (126,560,447 | ) | $ | — | $ | 80,963,812 | |||||||||||
Issuance of stock options for services | — | — | 971,340 | — | — | 971,340 | ||||||||||||||||||
Exercise of stock options for common stock | — | 37 | 32,995 | — | — | 33,032 | ||||||||||||||||||
Other comprehensive gain (loss) | — | — | — | — | (21,826 | ) | (21,826 | ) | ||||||||||||||||
Net income (loss) | — | — | — | (5,699,892 | ) | — | (5,699,892 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at March 31, 2018 | — | 102,586 | $ | 208,426,045 | (132,260,339 | ) | (21,826 | ) | 76,246,466 | |||||||||||||||
Issuance of common stock, net | — | 3 | 10,546 | — | — | 10,549 | ||||||||||||||||||
Issuance of stock options for services | — | — | 776,510 | — | — | 776,510 | ||||||||||||||||||
Exercise of stock options for common stock | — | 10 | 8,490 | — | — | 8,500 | ||||||||||||||||||
Other comprehensive gain (loss) | — | — | — | — | (14,672 | ) | (14,672 | ) | ||||||||||||||||
Net income (loss) | — | — | — | (5,965,140 | ) | — | (5,965,140 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at June 30, 2018 | $ | — | $ | 102,599 | $ | 209,221,591 | $ | (138,225,479 | ) | $ | (36,498 | ) | $ | 71,062,213 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CATALYST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| For the Nine Months Ended September 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||
Operating Activities: | ||||||||||||||||
Net loss | $ | (19,503,905 | ) | $ | (13,024,679 | ) | ||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Net income (loss) | $ | 10,315,445 | $ | (11,665,032 | ) | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation | 25,485 | 38,754 | 20,186 | 16,191 | ||||||||||||
Non-cash change inright-of-use asset | 120,051 | — | ||||||||||||||
Stock-based compensation | 2,521,023 | 1,922,451 | 1,858,407 | 1,762,847 | ||||||||||||
Change in fair value of warrants liability | — | 186,904 | ||||||||||||||
Change in accrued interest and accretion of discount on investments | (77,547 | ) | (255,210 | ) | ||||||||||||
(Increase) decrease in: | ||||||||||||||||
Accounts receivable, net | (10,376,427 | ) | — | |||||||||||||
Inventory | (213,867 | ) | — | |||||||||||||
Prepaid expenses and other current assets and deposits | 356,924 | 537,452 | 161,178 | 496,403 | ||||||||||||
Increase (decrease) in: | ||||||||||||||||
Accounts payable | (604,591 | ) | 148,432 | 991,359 | (1,022,982 | ) | ||||||||||
Accrued expenses and other liabilities | (185,812 | ) | 477,981 | 3,393,753 | (175,273 | ) | ||||||||||
Operating lease liability | (135,123 | ) | — | |||||||||||||
|
|
|
| |||||||||||||
Net cash used in operating activities | (17,390,876 | ) | (9,712,705 | ) | ||||||||||||
Net cash provided by (used in) operating activities | 6,057,415 | (10,843,056 | ) | |||||||||||||
Investing Activities: | ||||||||||||||||
Purchases of property and equipment | (35,193 | ) | — | (19,370 | ) | (11,937 | ) | |||||||||
Purchases of investments | (37,141,968 | ) | (64,748 | ) | (29,772,428 | ) | (36,790,854 | ) | ||||||||
Proceeds from maturities of investments | 7,546,032 | — | ||||||||||||||
Proceeds from sales/maturities of investments | 30,310,595 | — | ||||||||||||||
|
|
|
| |||||||||||||
Net cash provided by (used in) investing activities | (29,631,129 | ) | (64,748 | ) | 518,797 | (36,802,791 | ) | |||||||||
Financing Activities: | ||||||||||||||||
Payment of employee withholding tax related to stock-based compensation | (4,448 | ) | — | — | (4,448 | ) | ||||||||||
Proceeds from exercise of warrants | — | 3,209,423 | ||||||||||||||
Proceeds from exercise of stock options | 146,064 | 3,950 | 281,900 | 41,532 | ||||||||||||
|
|
|
| |||||||||||||
Net cash provided by (used in) financing activities | 141,616 | 3,213,373 | 281,900 | 37,084 | ||||||||||||
|
|
|
| |||||||||||||
Net increase (decrease) in cash and cash equivalents | (46,880,389 | ) | (6,564,080 | ) | 6,858,112 | (47,608,763 | ) | |||||||||
Cash and cash equivalents – beginning of period | 57,496,702 | 13,893,064 | ||||||||||||||
Cash and cash equivalents - beginning of period | 16,559,400 | 57,496,702 | ||||||||||||||
|
|
|
| |||||||||||||
Cash and cash equivalents – end of period | $ | 10,616,313 | $ | 7,328,984 | ||||||||||||
|
| |||||||||||||||
Cash and cash equivalents - end of period | $ | 23,417,512 | $ | 9,887,939 | ||||||||||||
|
| |||||||||||||||
Non-cash investing and financing activities: | ||||||||||||||||
Unrealized gain (loss) onavailable-for-sale securities | $ | (45,948 | ) | $ | — | $ | 42,006 | $ | (36,498 | ) | ||||||
Exercise of liability classified warrants for common stock | $ | — | $ | 309,130 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CATALYST PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Organization and Description of Business. |
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 SeptemberMarch 31, 2019, and reported operating income in the three and six month periods ended June 30, 2018.2019. 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 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.
| 2. | Basis of Presentation and Significant Accounting Policies. |
| a. | INTERIM FINANCIAL STATEMENTS. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP), and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for reporting of interim financial information. Pursuant to such rules and regulations, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The consolidated balance sheet as of December 31, |
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 ninesix months ended SeptemberJune 30, 20182019 are not necessarily indicative of the results to be expected for any future period or for the full 20182019 fiscal year.
| 2. | Basis of Presentation and Significant Accounting Policies (continued). |
| b. | PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the Company’s accounts and those of its wholly-owned subsidiary Catalyst Pharmaceuticals Ireland, Ltd. (“Catalyst Ireland”). All intercompany accounts and transactions have been eliminated in consolidation. Catalyst Ireland was organized in 2017. |
| c. | USE OF ESTIMATES.The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. |
| d. | CASH AND CASH EQUIVALENTS. The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist mainly of money market funds. 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. |
| e. | INVESTMENTS. The Company invests in high credit-quality funds in order to obtain higher yields on its cash available for investments. At |
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 SeptemberJune 30, 20182019 and December 31, 2017,2018, the only investment classified as trading securities was the short-term bond fund. Realized losses on trading securities were $0 and $4,980, respectively, for the three and six months ended June 30, 2019. There were no sales of trading securities for the three and six months ended June 30, 2018. Unrealized gain (loss) on trading securities was $0$36,664 and ($29,430),$89,405, respectively, for the three and ninesix months ended SeptemberJune 30, 2018,2019, and $29,431 and $58,861($29,430) for the three and ninesix months ended SeptemberJune 30, 20172018 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.
| 2. | Basis of Presentation and Significant Accounting Policies (continued). |
| f. | ACCOUNTS RECEIVABLE, NET. Accounts receivable are recorded net of customer allowance for distribution fees, trade discounts, prompt payment discounts, chargebacks and doubtful accounts. Allowances for distribution fees, prompt payment discounts and chargebacks are based on contractual terms. The Company estimates the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of its Customer and individual Customer circumstances. At June 30, 2019, the Company determined that an allowance for doubtful accounts was not required. No accounts were written off during the periods presented. |
| g. | INVENTORY. Inventories are stated at the lower of cost or net realizable value with cost determined under thefirst-in-first-out (FIFO) cost method. Inventories consist of raw materials and supplies, work in process and finished goods. Costs to be capitalized as inventories include third party manufacturing costs, associated compensation related costs of personnel indirectly involved in the manufacturing process and other overhead costs. The Company began capitalizing inventories post FDA approval of Firdapse® on November 28, 2018 as the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to the FDA approval of Firdapse® had been recorded as research and development expenses in the consolidated statements of operations. If information becomes available that suggests that inventories may not be realizable, the Company may be required to expense a portion or all of the previously capitalized inventories. As of June 30, 2019 and December 31, 2018, inventory consisted mainly of packaging, labeling costs, and indirect costs including compensation cost of personnel and supplies. |
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.
| h. | PREPAID EXPENSES AND OTHER CURRENT |
| i. | FAIR VALUE OF FINANCIAL INSTRUMENTS.The Company’s financial instruments consist of cash and cash equivalents, investments, accounts receivable, accounts payables and accrued expenses and other liabilities. At June 30, 2019 and December 31, 2018, the fair value of these instruments approximated their carrying value. |
| 2. | Basis of Presentation and Significant Accounting Policies (continued). |
|
FAIR VALUE MEASUREMENTS.Current Financial Accounting Standards Board (FASB) fair value guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, current FASB guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions that it believes market participants would use in pricing assets or liabilities (unobservable inputs classified within Level 3 of the hierarchy). |
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.
| Fair Value Measurements at Reporting Date Using | Fair Value Measurements at Reporting Date Using | |||||||||||||||||||||||||||||||
| Balances as of September 30, 2018 | Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balances as of June 30, 2019 | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||||||||||||||||
Money market funds | $ | 10,372,148 | $ | 10,372,148 | $ | — | $ | — | $ | 22,764,183 | $ | 22,764,183 | $ | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||||||
Short-term bond fund | $ | 26,534,352 | $ | 26,534,352 | $ | — | $ | — | $ | 16,607,242 | $ | 16,607,242 | $ | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
U.S. Treasuries | $ | 24,513,490 | $ | — | $ | 24,513,490 | $ | — | $ | 19,896,200 | $ | — | $ | 19,896,200 | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||
U.S. Treasuries | $ | 5,018,857 | $ | — | $ | 5,018,857 | $ | — | $ | 5,008,400 | $ | — | $ | 5,008,400 | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
| Balances as of December 31, 2017 | Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balances as of December 31, 2018 | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||||||||||||||||
Money market funds | $ | 56,820,688 | $ | 56,820,688 | $ | — | $ | — | $ | 14,462,087 | $ | 14,462,087 | $ | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||||||
Short-term bond fund | $ | 26,516,711 | $ | 26,516,711 | $ | — | $ | — | $ | 26,541,349 | $ | 26,541,349 | $ | — | $ | — | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
U.S. Treasuries | $ | 10,380,864 | $ | — | $ | 10,380,864 | $ | — | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||
U.S. Treasuries | $ | 5,008,243 | $ | — | $ | 5,008,243 | $ | — | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
| 2. | Basis of Presentation and Significant Accounting Policies (continued). |
|
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 on adoption method.
| l. | REVENUE RECOGNITION.Prior to |
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 Revenue, 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.
| 2. | Basis of Presentation and |
Product Revenue, Net:The Company sells Firdapse® to a Customer (its exclusive distributor) who subsequently resells Firdapse® to both a small group of 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 the distribution agreement 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 15 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 and six months ended June 30, 2019.
As of June 30, 2019, all of the Company’s sales are to its Customer.
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 June 30, 2019 and, therefore, the transaction price was not reduced further during the three and six months ended June 30, 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.
| 2. | Basis of Presentation and |
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 income (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 income (loss) through June 30, 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 the Company expects 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 expenses and other current liabilities 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 accounts receivable, net on the 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 from prior quarters 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.
| 2. | Basis of Presentation and Significant Accounting Policies (continued). |
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.
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 and six months ended June 30, 2019 and June 30, 2018, no revenue was recognized.
Refer to Note 8, Collaborative Arrangement, for further discussion on the Company’s collaborative arrangement.
| m. | CONCENTRATION OF RISK.The Company sells its product in the |
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.
| 2. | Basis of Presentation and Significant Accounting Policies (continued). |
ROYALTIES. Royalties incurred in connection with the Company’s license agreement with BioMarin, as disclosed in Note 10 – Agreements, are expensed to cost of sales as revenue from product sales is recognized. |
| o. | STOCK-BASED COMPENSATION.The Company recognizes expense in the consolidated statements of operations for the fair value of all stock-based payments to employees, directors |
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:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
Research and development | $ | 240,122 | $ | 192,796 | $ | 820,062 | $ | 622,700 | ||||||||
General and administrative | 518,054 | 336,942 | 1,700,961 | 1,299,751 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total stock-based compensation | $ | 758,176 | $ | 529,738 | $ | 2,521,023 | $ | 1,922,451 | ||||||||
|
|
|
|
|
|
|
| |||||||||
COMPREHENSIVE INCOME (LOSS). U.S. GAAP |
| q. | NET INCOME (LOSS) PER COMMON SHARE. Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. With regard to common stock subject to vesting requirements, the calculation includes only the vested portion of such stock and units. |
Diluted net income per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.
The following table reconciles basic and diluted weighted average common shares:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
Basic weighted average common shares outstanding | 102,869,202 | 102,596,446 | 102,808,897 | 102,577,005 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Common stock issuable upon the exercise of stock options | 3,059,768 | — | 2,290,033 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted weighted average common shares outstanding | 105,928,970 | 102,596,446 | 105,098,930 | 102,577,005 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Outstanding common stock equivalents totaling approximately 3.0 million and 3.6 million, respectively, were excluded from the calculation of diluted net income (loss) per common share for the three and six months ended June 30, 2019 as their effect would be anti-dilutive. For the three and six months ended June 30, 2018, approximately 7.7 million shares of outstanding stock options were excluded from the calculation of diluted net loss per common share because a net loss was reported in each of these periods and therefore their effect was anti-dilutive. Potentially dilutive options to purchase common stock at both June 30, 2019 and 2018, had exercise prices ranging from $0.79 to $4.64.
| 2. | Basis of Presentation and Significant Accounting Policies (continued). |
|
| September 30, | ||||||||
| 2018 | 2017 | |||||||
Options to purchase common stock | 8,062,500 | 6,085,000 | ||||||
Unvested restricted stock | — | 26,667 | ||||||
|
|
|
| |||||
Potential equivalent common stock excluded | 8,062,500 | 6,111,667 | ||||||
|
|
|
| |||||
Potentially dilutive options to purchase common stock as of September 30, 2018 have exercise prices ranging from $0.79 to $4.64. Potentially dilutive options to purchase common stock as of September 30, 2017 had exercise prices ranging from $0.47 to $4.64.
RECENTLY ISSUED ACCOUNTING STANDARDS. 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 |
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 – 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 accountingnew standard 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.
RECLASSIFICATIONS. Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation. |
| 3. |
|
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:
| Three months ended September 30, 2017 | Nine months ended September 30, 2017 | |||||||
Fair value, beginning of period | $ | — | $ | 122,226 | ||||
Issuance of warrants | — | — | ||||||
Exercise of warrants | — | (309,130 | ) | |||||
Change in fair value | — | 186,904 | ||||||
|
|
|
| |||||
Fair value, end of period | $ | — | $ | — | ||||
|
|
|
| |||||
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.
Investments. |
Available-for-sale investments by security type were as follows:
| Amortized cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
At September 30, 2018: | ||||||||||||||||
U.S. Treasuries – ST | $ | 24,524,244 | $ | — | $ | (10,754 | ) | $ | 24,513,490 | |||||||
U.S. Treasuries – LT | 5,054,051 | — | (35,194 | ) | 5,018,857 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 29,578,295 | $ | — | $ | (45,948 | ) | $ | 29,532,347 | |||||||
|
|
|
|
|
|
|
| |||||||||
| Estimated Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | Amortized Cost | |||||||||||||
At June 30, 2019: | ||||||||||||||||
U.S. Treasuries - ST | $ | 19,896,200 | $ | 12,102 | $ | — | $ | 19,884,098 | ||||||||
U.S. Treasuries - LT | 5,008,400 | 9,656 | — | 4,998,744 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 24,904,600 | $ | 21,758 | $ | — | $ | 24,882,842 | ||||||||
|
|
|
|
|
|
|
| |||||||||
At December 31, 2018: | ||||||||||||||||
U.S. Treasuries - ST | $ | 10,380,864 | $ | — | $ | (1,835 | ) | $ | 10,382,699 | |||||||
U.S. Treasuries - LT | 5,008,243 | — | (18,413 | ) | 5,026,656 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 15,389,107 | $ | — | $ | (20,248 | ) | $ | 15,409,355 | |||||||
|
|
|
|
|
|
|
| |||||||||
At December 31, 2017, the Company did not have anyavailable-for-sale securities.
|
In accordance with FASB ASC Topic 320, “Investments – Debt and Equity Securities”, or ASC 320, the Company has classified its U.S. Treasuries asavailable-for-sale securities with secondary or resale markets, and, as such, they are reported at fair value with unrealized gains and losses included in comprehensive loss in stockholders’ equity and realized gain and losses, included in other income, net. There were no realized gains or losses fromavailable-for-sale securities for the three or ninesix months ended SeptemberJune 30, 20182019 or 2017.2018.
Certain U.S. Treasuries at September 30, 2018 had fair values less than their amortized costs and, therefore, contained unrealized losses. Given that the Company has no intent to sell the U.S. Treasuries until a recovery of the fair value, which may be at maturity, and there are no current requirements to sell any of these securities, theThe Company did not consider these investments to be other-than-temporarily impaired as of September 30, 2018. The Company anticipates full recovery of amortized costs with respect to these investments at maturity. The duration of time the U.S. Treasuries have beenhold any securities in a continuousan unrealized loss position for more than 12 months as of SeptemberJune 30, 2018 was less than 9 months.2019.
The estimated fair values ofavailable-for-sale securities at SeptemberJune 30, 2018,2019, by contractual maturity, are summarized as follows:
| September 30, 2018 | June 30, 2019 | |||||||
Due in one year or less | $ | 24,513,490 | $ | 24,904,600 | ||||
Due after one year but within two years | 5,018,857 | |||||||
Due after one year | — | |||||||
|
| |||||||
| $ | 29,532,347 | $ | 24,904,600 | |||||
|
| |||||||
Prepaid Expenses and Other Current Assets. |
Prepaid expenses and other current assets consist of the following:
| September 30, 2018 | December 31, 2017 | June 30, 2019 | December 31, 2018 | |||||||||||||
Prepaid research fees | $ | 301,837 | $ | 388,977 | $ | 371,743 | $ | 358,209 | ||||||||
Prepaid insurance | 116,774 | 638,139 | 399,939 | 800,261 | ||||||||||||
Prepaidpre-commercialization fees | 121,706 | 65,000 | ||||||||||||||
Prepaid commercialization fees | 149,785 | 17,030 | ||||||||||||||
Prepaid subscription fees | 63,288 | 23,347 | 184,851 | 170,552 | ||||||||||||
Prepaid rent | 21,924 | — | ||||||||||||||
Other | 191,291 | 58,281 | 382,285 | 303,729 | ||||||||||||
|
|
|
| |||||||||||||
Total prepaid expenses and other current assets | $ | 816,820 | $ | 1,173,744 | $ | 1,488,603 | $ | 1,649,781 | ||||||||
|
|
|
| |||||||||||||
| 5. | Operating Leases. |
The Company has operating lease agreements for its corporate office. The leases 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:
| For the Three Months Ended June 30, 2019 | For the Six Months Ended June 30, 2019 | |||||||
Operating lease cost | $ | 74,079 | $ | 148,158 | ||||
Supplemental cash flow information related to leases was as follows:
| June 30, 2019 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows | $ | 163,232 | ||
Right-of-use assets obtained in exchange for lease obligations: | ||||
Operating leases | $ | 10,610 | ||
Supplemental balance sheet information related to leases was as follows:
| June 30, 2019 | ||||
Operating leaseright-of-use assets | $ | 1,013,590 | ||
|
| |||
Other current liabilities | $ | 288,470 | ||
Operating lease liabilities | 801,264 | |||
|
| |||
Total operating lease liabilities | $ | 1,089,734 | ||
|
| |||
Weighted Average Remaining Lease Term | 3.4 years | |||
Weighted Average Discount Rate | 4.81 | % |
Payments of lease liabilities as of June 30, 2019 were as follows:
2019 (remaining six months) | $ | 166,492 | ||
2020 | 339,605 | |||
2021 | 349,788 | |||
2022 | 329,662 | |||
|
| |||
Total lease payments | 1,185,547 | |||
Less imputed interest | (95,813 | ) | ||
|
| |||
Total | $ | 1,089,734 | ||
|
|
| 6. | Property and Equipment, Net. |
Property and equipment, net consists of the following:
| September 30, 2018 | December 31, 2017 | June 30, 2019 | December 31, 2018 | |||||||||||||
Computer equipment | $ | 27,915 | $ | 27,915 | $ | 50,904 | $ | 52,704 | ||||||||
Furniture and equipment | 191,835 | 169,931 | 230,741 | 212,451 | ||||||||||||
Leasehold improvements | 165,997 | 152,708 | — | 177,417 | ||||||||||||
|
|
|
| |||||||||||||
| 385,747 | 350,554 | 281,645 | 442,572 | |||||||||||||
Less: Accumulated depreciation | (184,654 | ) | (159,169 | ) | (134,026 | ) | (197,147 | ) | ||||||||
|
|
|
| |||||||||||||
Total property and equipment, net | $ | 201,093 | $ | 191,385 | $ | 147,619 | $ | 245,425 | ||||||||
|
|
|
| |||||||||||||
Depreciation expense was $9,294$6,438 and $25,485,$20,186, respectively, for the three and nine-monthsix-month periods ended SeptemberJune 30, 20182019 and $12,839$8,176 and $38,754,$16,191, respectively for the three and nine-monthsix-month periods ended SeptemberJune 30, 2017.
| 7. | Accrued Expenses and Other Liabilities. |
Accrued expenses and other liabilities consist of the following:
| September 30, 2018 | December 31, 2017 | June 30, 2019 | December 31, 2018 | |||||||||||||
Accrued preclinical and clinical trial expenses | $ | 896,566 | $ | 970,649 | $ | 706,951 | $ | 821,633 | ||||||||
Accrued professional fees | 429,073 | 227,457 | 2,046,433 | 1,311,061 | ||||||||||||
Accrued compensation and benefits | 740,939 | 821,935 | 1,262,446 | 1,941,449 | ||||||||||||
Accrued license fees | — | 252,500 | 4,673,939 | 3,000,000 | ||||||||||||
Lease liability | 288,470 | — | ||||||||||||||
Accrued variable consideration | 1,242,055 | — | ||||||||||||||
Deferred rent and lease incentive | 21,914 | 24,011 | — | 33,408 | ||||||||||||
Accrued income tax | 449,651 | — | ||||||||||||||
Other | 38,958 | 24,035 | 152,858 | 66,436 | ||||||||||||
|
|
|
| |||||||||||||
Current accrued expenses and other liabilities | 2,127,450 | 2,320,587 | 10,822,803 | 7,173,987 | ||||||||||||
Lease liability -non-current | 801,264 | — | ||||||||||||||
Deferred rent and lease incentive –non-current | 164,781 | 157,456 | — | 154,799 | ||||||||||||
|
|
|
| |||||||||||||
Non-current accrued expenses and other liabilities | 164,781 | 157,456 | 801,264 | 154,799 | ||||||||||||
|
|
|
| |||||||||||||
Total accrued expenses and other liabilities | $ | 2,292,231 | $ | 2,478,043 | $ | 11,624,067 | $ | 7,328,786 | ||||||||
|
|
|
| |||||||||||||
| 8. | Collaborative Arrangement. |
In December 2018, the Company entered into a collaboration and license agreement (collaboration) with Endo International plc’s subsidiary, Endo Ventures Limited (Endo), for the further development and commercialization of generic Sabril® (vigabatrin) tablets through Endo’s U.S. Generic Pharmaceuticals segment, doing business as Par Pharmaceutical.
Endo has assumed all development, manufacturing, clinical, regulatory, sales and marketing costs under the collaboration, while the Company is responsible for exercising commercially reasonable efforts to develop, or cause the development of, a final finished, stable dosage form of generic Sabril® tablets.
Under the terms of the Collaboration, the Company has received anup-front payment, and will receive milestone payments based on achievement of regulatory approvals, and a sharing of defined net profits upon commercialization from Endo consisting of amid-double digit percent of net sales of generic Sabril®. Unless terminated earlier in accordance with its terms, the collaboration continues in effect until the date that is ten years following the commercial launch. For the year ended December 31, 2018, a $500,000 upfront license fee was recognized. For the three andsix-month period ending June 30, 2019, no collaborative arrangement revenue has been received or recognized.
| 9. | Commitments and Contingencies. |
|
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 2018University (which patents have been licensed by Northwestern to a third-party)third party) for a new GABA aminotransferase inhibitor were deriveddeveloped from CPP-115.CPP-115, which had previously been licensed to the Company by Northwestern. As a result, it ison October 26, 2018, the Company’s position that Northwestern has violatedCompany terminated the license agreement based on its failure to transfer these new patent rights toforCPP-115 and commenced an arbitration proceeding against Northwestern seeking damages for alleged breaches of the license agreement. Shortly thereafter, Northwestern filed counterclaims against the Company as partin the arbitration action seeking damages for alleged breaches by the Company of the existing license agreement. ItOn May 21, 2019, the Company entered into a settlement agreement with Northwestern that resolved all pending disputes between the parties with no admission of liability by either party, released all claims of liability or wrongdoing between the Company and Northwestern, and dismissed the pending arbitration. Under the settlement agreement, the Company received a $100,000 payment on May 21, 2019, which is reported as income in other income, net in the consolidated statement of operations. The Company is also entitled to receive certain contingent compensation that will be reported when and if received.
In May 2019, the Company’s positionCompany became aware that Northwestern’s publicationthe FDA had approved an NDA for Jacobus Pharmaceuticals for Ruzurgi™, their version of information aboutamifampridine(3,4-DAP) for the new patentstreatment of pediatric LEMS patients (ages 6 to under 17). On June 12, 2019, the Company announced that it had filed suit against the FDA and several related parties challenging this approval and related drug labeling. The complaint, which was filed in the federal district court for the Southern District of Florida, alleges that the FDA’s approval of Ruzurgi™ violated multiple provisions of FDA regulations regarding labeling, resulting in misbranding in violation of the license agreement has damagedFederal Food, Drug and Cosmetic Act (FDCA); violated the Company. On October 26, 2018, because good faith effortsCompany’s statutory rights to resolve these disputes had not been successful,Orphan Drug Exclusivity and New Chemical Entity Exclusivity under the Company notified Northwestern that itFDCA, and was terminating the license agreementin multiple other respects arbitrary, capricious, and seeking damages for Northwestern’s breachcontrary to law, in violation of the license agreement. Further, onAdministrative Procedure Act. Among other remedies, the same date,suit seeks an order vacating the Company filed a claim for damages in arbitration against Northwestern for Northwestern’s breachesFDA’s approval 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 to vigorously defend itself against any claims that Northwestern may bring against it in the arbitration proceedings relating to these allegations.
This matter is at a very early stage and thereRuzurgi™. There can be no assurance as to the outcome of this matter. See Note 12.lawsuit or as to the impact of the approval of Ruzurgi™ on the Company’s business, financial condition or results of operations.
Additionally, from time to time the Company may become involved in legal proceedings arising in the ordinary course of business. Except as set forth above, the Company believes that there is no other litigation pending at this time that could have, individually or in the aggregate, a material adverse effect on its results of operations, financial condition or cash flows.
|
|
LICENSE AGREEMENT WITH BIOMARIN (FIRDAPSE® |
On May 29, 2019, the Company entered into an amendment to its License Agreement with BioMarin with respect to its license for Firdapse®. Under the amendment, the Company has expanded its commercial territory for Firdapse®, which currently is comprised of North America, to 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 has agreed to pay: (i)will pay royalties to BioMarin for seven years from the first commercial sale of Firdapse® equal to 7% of net sales (as defined in the license agreement) in North America for any calendar year for sales up to $100 million, and 10% ofon net sales in North America in any calendar year in excessJapan of $100 million; and (ii) royaltiesa similar percentage to the third-party licensor of the rights sublicensed toroyalties that the Company is currently paying under its original License Agreement for seven years from the first commercial sale of Firdapse® equal to 7% of net sales (as defined in the license agreement between BioMarin and the third-party licensor) in any calendar year.
Additionally, the Company’s license agreement with BioMarin requires the Company to pay certain milestone payments that BioMarin is obligated to pay to both a third-party licensor of the rights that have been sublicensed to the Company and to the former stockholders of Huxley Pharmaceuticals (“Huxley”) under an earlier stock purchase agreement between BioMarin and the former Huxley stockholders.
With respect to the third party licensor of the rights that have been sublicensed to the Company, the Company has agreed to pay: (i) $150,000 upon acceptance by the FDA of a filing of an NDA for Firdapse® for the treatment of LEMS (which amount was paid during the second quarter of 2018 after acceptance by the FDA of the Company’s NDA for Firdapse® for LEMS), and (ii) approximately $3.0 million of which will be due upon the unconditional approval by the FDA of an NDA for Firdapse® for the treatment of LEMS (which milestone payment has not yet been earned).
With respect to the former Huxley stockholders, the Company had agreed that it would pay the following milestone payments if either of the following milestones were satisfied before April 20, 2018: (i) $2,425,000 upon acceptance by the FDA of a filing of an NDA for Firdapse® for the treatment of LEMS, and (ii) approximately $4,200,000 of which was to be paid upon the unconditional approval by the FDA of an NDA for Firdapse® for the treatment of LEMS. Since neither of these milestones were met on or before April 20, 2018, these milestone payments were never earned. However, prior to April 20, 2018, the Company was advised that the former Huxley stockholders intended to take legal action against BioMarin and the Company seeking payment of the milestone payments due to them even if the milestones were achieved after their expiration date (April 20, 2018). While the Company disputed its obligation to pay either of the above described milestone payments if these milestones were achieved after April 20, 2018, in an agreement which was executed and became effective on July 26, 2018, the Company, BioMarin and the former Huxley stockholders agreed to amicably resolve this matter. As part of the settlement, and without admitting any liability, the Company paid the former Huxley stockholders a $1.0 million milestone payment upon execution of the settlement agreement, and agreed to pay a $1.0 million payment upon the unconditional approval by the FDA of an NDA for Firdapse® for the treatment of LEMS (which milestone payment has not yet been earned). Further, as part of the settlement agreement, the Company, BioMarin and the former Huxley stockholders entered into mutual releases regarding these matters.
The Company also agreed to share in the cost of certain post-marketing studies being conducted by BioMarin, and, as of September 30, 2018, the Company had paid BioMarin $3.8 million related to expenses in connection with Firdapse® studies and trials.North America.
|
AGREEMENTS FOR DRUG DEVELOPMENT, |
Income Taxes. |
The CompanyCompany’s effective income tax rate is subject to income taxes in the U.S. federal jurisdiction and various states jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation 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 2015. If the Company were to subsequently record an unrecognized tax benefit, associated penalties and tax related interest expense would be reported as a componentratio of income tax expense.expense (benefit) over its income (loss) before income taxes. The effective income tax rate was 4.21% and 0.00% for the six months ended June 30, 2019 and 2018, respectively. Differences in the effective tax and the statutory Federal income tax rate of 21% is driven by state income taxes and anticipated annual permanent differences, including orphan drug credit expense limitations and other items.
The Company’s net deferredCompany had no uncertain tax assetpositions as of June 30, 2019 and December 31, 2018. The Company has a 100% valuation allowance at SeptemberJune 30, 20182019 and December 31, 2017 as the Company believes that it is more likely than not that the deferred tax asset will not be realized.2018.
Stockholders’ Equity. |
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 SeptemberJune 30, 2018,2019, there is approximately $92.5 million available for future sale under the 2017 Shelf Registration Statement.
Stock Compensation. |
For the three andsix-month periods ended June 30, 2019 and 2018, the Company recorded stock-based compensation expense as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
Research and development | $ | 273,212 | $ | 285,625 | $ | 560,933 | $ | 579,940 | ||||||||
Selling, general and administrative | 651,784 | 505,882 | 1,297,474 | 1,182,907 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total stock-based compensation | $ | 924,996 | $ | 791,507 | $ | 1,858,407 | $ | 1,762,847 | ||||||||
|
|
|
|
|
|
|
| |||||||||
| 13. | Stock Compensation (continued). |
Stock Options
As of June 30, 2019, there were outstanding stock options to purchase 10,427,832 shares of common stock, of which stock options to purchase 5,385,825 shares of common stock were exercisable as of June 30, 2019.
During the three and nine-monthsix-month periods ended SeptemberJune 30, 2019, the Company granted seven-year term options to purchase an aggregate of 105,000 and 312,000 shares, respectively, of the Company’s common stock to employees. The Company recorded stock-based compensation related to stock options totaling $924,996 and $1,858,407, respectively, during the three andsix-month periods ended June 30, 2019. During the three andsix-month periods ended June 30, 2019, respectively, 306,665 and 1,290,829 options vested.
During the three andsix-month periods ended June 30, 2018, the Company granted seven-year term options to purchase an aggregate of 550,000 shares945,000 and 3,267,5002,717,500 shares, respectively, of the Company’s common stock to employees and directors. The Company recorded stock-based compensation related to stock options totaling $758,176$776,510 and $2,506,026$1,747,850, respectively, during the three and nine-monthsix-month periods ended SeptemberJune 30, 2018. During the three and nine-monthsix-month periods ended SeptemberJune 30, 2018, 5,000respectively, 565,000 and 1,309,998 options and 1,314,998 options vested, respectively.vested.
During the three and nine-monthsix-month periods ended SeptemberJune 30, 2017, the Company granted seven-year term2019, options to purchase an aggregate of 0125,000 shares and 1,535,000 shares, respectively, of the Company’s common stock to employees and directors. The Company recorded stock-based compensation related to stock options totaling $510,715 and $1,866,005 respectively, during the three and nine-month periods ended September 30, 2017. During the three and nine-month periods ended September 30, 2017, 261,668 options and 1,138,335 options vested, respectively.
During the three and nine-month periods ended September 30, 2018, options to purchase 89,999 shares and 136,665190,000 shares, respectively, of the Company’s common stock were exercised, with proceeds of $104,532$192,550 and $146,064,$281,900, respectively, to the Company.
During the three and nine monthssix-month periods ended SeptemberJune 30, 2017,2018, options to purchase 5,00010,000 shares and 46,666 shares, respectively, of the Company’s common stock were exercised, with proceeds of $3,950$8,500 and $41,532, respectively, to the Company.
As of SeptemberJune 30, 2018,2019, there was approximately $6,204,000$7,234,145 of unrecognized compensation expense related tonon-vested stock option awards granted under the 2014 and 2018 Stock Incentive Plans. The cost is expected to be recognized over a weighted average period of approximately 2.562.20 years.
Restricted Stock Units
No restricted stock units were granted during the three and nine-month periods ended September 30, 2018 and 2017. No stock-based compensation related to restricted stocks was recorded during the three and nine-months periods ended September 30, 2018. The Company recorded stock-based compensation related to restricted stock units totaling $19,023 and $56,446, respectively, during the three and nine-month periods ended September 30, 2017. All restricted stock units were vested as of December 31, 2017.
Common Stock
No sharesThere were no grants of common stock were grantedto employees during the three-month periodthree andsix-month periods ended SeptemberJune 30, 2018.2019. During both the nine-month periodthree andsix-month periods ended SeptemberJune 30, 2018, the Company granted 3,094 net shares of common stock to employees as compensation. The Company recorded stock-based compensation related to common stock issued to employees totaling $0 and approximately $15,000 respectively, during both the three and nine-monthsix-month periods ended SeptemberJune 30, 2018. There were no grants of common stock to employees during the three and nine-month periods ended September 30, 2017.
|
Subsequent to quarter end, the Company commenced an arbitration proceeding against Northwestern in regard toCPP-155. See Note 8.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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.This section provides a general description of our business and information about the current status of our business that we believe is important in understanding our financial condition and results of operations. |
| • | Basis of Presentation.This section provides information about key accounting estimates and policies that we followed in preparing our consolidated financial statements for the |
| • | 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 our critical accounting policies, are also summarized in the notes to our interim consolidated financial statements that are included in this report. |
| • | Results of Operations. This section provides an analysis of our results of operations for the three and |
| • | 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. |
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®, a proprietary form of amifampridine phosphate, or chemically known as3,4-diaminopyridine phosphate, from BioMarin Pharmaceutical Inc. (BioMarin). InWhen we acquired the rights to the product, it had already been granted orphan drug designation by the United States Food & Drug Administration (FDA) for the treatment of patients with Lambert-Eaton Myasthenic Syndrome (LEMS), a rare and sometimes fatal autoimmune disease characterized by muscle weakness. Additionally, in August 2013, we were granted “breakthrough therapy designation” by the U.S. Food & Drug Administration (FDA)FDA, for Firdapse® for the treatment of patients with Lambert-Eaton Myasthenic Syndrome, or LEMS, a rare and sometimes fatal autoimmune disease characterized by muscle weakness.LEMS. Further, the FDA has granted Orphan Drug Designation for Firdapse® for the treatment of patients with LEMS, Congenital Myasthenic Syndromes or CMS(CMS) and Myasthenia Gravis (MG).
The chemical entity, amifampridine(3,4-diaminopyridine, 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 eligible to receive seven years of marketing exclusivity for either or all of these indications. Further, if we are the first pharmaceutical company to obtain approval for an amifampridine product, of which there can be no assurance, we will also be eligible to receive five years of marketing exclusivity with respect to 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 two multi-center, randomized, placebo-controlled Phase 3 trials evaluating Firdapse® for the treatment of LEMS, both of which were successful. On March 29,November 28, 2018, we reported that we had submitted an NDA toreceived approval from the FDA for Firdapse® 10 mg tablets for the symptomatic treatment of adults with LEMS (age 17 and above). 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 on May 29, 2018, we reported FDA acceptance ofabout our NDA and Priority Review Status forongoing 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 symptomaticNational 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 Spinal 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 adult LEMS 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 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 Firdapse® for financial reasons.
In May 2019, we became aware that the FDA had approved an NDA for Jacobus Pharmaceuticals for Ruzurgi™, their version of amifampridine(3,4-DAP) for the treatment of pediatric LEMS with a Prescriptionpatients (ages 6 to under 17). On June 12, 2019, we announced that we had filed suit against the FDA and several related parties challenging this approval and related drug labeling. The complaint, which was filed in the federal district court for the Southern District of Florida, alleges that the FDA’s approval of Ruzurgi™ violated multiple provisions of FDA regulations regarding labeling, resulting in misbranding in violation of the Federal Food, Drug User Feeand Cosmetic Act (PDUFA) goal date(FDCA); violated our 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 November 28, 2018.the Administrative Procedure Act. Among other remedies, the suit seeks an order vacating the FDA’s approval of Ruzurgi™. There can be no assurance thatas to the outcome of this lawsuit or as to the impact on the approval of Ruzurgi™ on our NDA for Firdapse® for LEMS will be approved by the FDAbusiness, financial condition or the timingresults of any such approval.operations.
We are currently conducting a Phase 3 clinical trial evaluating Firdapse® for the treatment of certain types of CMS. This trial, which will include approximately 23 adult and pediatric subjects, is being conducted at trial sites around the United States and Canada. We are also currently working to add one or more additional sites. Details of this trial are available onwww.clinicaltrials.gov (NCT02562066). Based on currently available information, we expect to reporttop-line results from this trial in the second half of 2019. There can be no assurance that any trial we conduct evaluating Firdapse® for the treatment of CMS will be successful or whether any NDA or NDA supplement that we may submit for Firdapse® for the treatment of CMS in the future will be filed by the FDA for review and approved.
We are currently conducting a Phase 3 clinical trial evaluating Firdapse® for the treatment of MuSK antibody positive myasthenia gravis(MuSK-MG)MuSK-MG under a Special Protocol Assessment (SPA) with the FDA. The trial is a multi-site, international (U.S.(United States and Italy), double-blind, placebo-controlled, clinical trial that is targeted to enroll approximately 60 subjects diagnosedwithMuSK-MG. The 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. We initiated this trial in January 2018 and are currently enrolling subjects. We currently expect to complete enrollment in this trial by the end of 2019 and toreport top-line results from this trial in the first half of 2020. Details of this trial are available onwww.clinicaltrials.gov (NCT03304054).
We are currently conducting a Phase 3 clinical trial evaluating Firdapse® for the treatment of certain types of CMS. Details of this trial are available onwww.clinicaltrials.gov (NCT02562066). Based on currently available information, we expect to reporttop-line results from this trial in the second half of 2019. Details
Because the FDA has granted Orphan Drug Designation for Firdapse® for the treatment of this trialpatients with CMS and Myasthenia Gravis (MG), if we are available onwww.clinicaltrials.gov (NCT03304054).the first to receive approvals in the future for Firdapse® for the treatment of CMS orMuSK-MG, we would be eligible to receive seven years of marketing exclusivity for those indications added to our Firdapse® label. There can be no assurance that we will be the first to receive such approvals.
We have begunare conducting a Phase 3proof-of-concept clinical clinical study evaluating Firdapse® as a symptomatic treatment for patients with Spinal Muscular Atrophy (SMA) Type 3, ambulatory. The study is designed as a randomized (1:1), double-blind,2-period,2-treatment, crossover, outpatientproof-of-concept study to evaluate the safety, tolerability and potential efficacy of amifampridine in ambulatory patients diagnosed with SMA Type 3. The study is planned to include approximately 12 patients, and we currently expect toreporttop-line results results from this study in the first half of 2020. Details of this trial are available onwww.clinicaltrials.gov (NCT03781479).
There can be no assurance that our currently ongoing trialsclinical programs evaluating Firdapse® for the treatment of CMS,MuSK-MG, orCMS, SMA Type 3, or any trials we may undertake in the future to evaluate Firdapse® for the treatment of other rare similar neuromuscular diseases, will be successful. Further, there can also be no assurance that the FDAwe will ever approvebe granted the right to commercialize Firdapse® for any indication.of these additional indications.
Now thatOn May 29, 2019, we entered into an amendment to our NDALicense Agreement with BioMarin for Firdapse®. Under the amendment, we have expanded our commercial territory for the treatment of LEMS has been accepted for filing by the FDA, we are substantially increasing our activities to prepare for the potential marketing of Firdapse®, which currently is comprised of North America, to include Japan. Additionally, we have an option to further expand our 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 United States as early asamendment, we will pay royalties on net sales in Japan of a similar percentage to the beginning of 2019. During June 2018, we announced the appointment of Daniel J. Brennan as Chief Commercial Officer, androyalties that we are currently buildingpaying under our sales and marketing team to prepareoriginal License Agreement 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.North America.
Finally, if Firdapse® is approved for commercialization, we intend to takeare taking steps to seek approval for the productFirdapse® in Canada. We are also intend as a longer term strategy to seekseeking to develop a sustained release formulation for Firdapse®. There can be no assurance that we will be successful in these efforts.
Generic Sabril®
|
We have been developing CPP-115, a GABA aminotransferase inhibitor that we licensed from Northwestern. Recently, we 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 from CPP-115. As a result, it is our position that Northwestern has violated the license agreement based on its failure to transfer these new patent rights to us as part of the existing license agreement. It is also our position that Northwestern’s publication of information about the new patents in violation of the license agreement has damaged us. On October 26, 2018, because good faith efforts to resolve these disputes had not been successful, we notified Northwestern that we were terminating the license agreement and seeking damages for Northwestern’s breach of the license agreement. Further, on the same date, we filed a claim for damages in arbitration against Northwestern for Northwestern’s breaches of the license agreement.
On November 5, 2018, Northwestern advised us that in its view, Northwestern has a right to terminate the license agreement with us because we 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 us that, in its view, we have 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. We dispute Northwestern’s allegations and intend to vigorously defend ourselves against any claims that Northwestern may bring against us 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.
|
In September 2015, we announced the initiation of a project to develop generic versions of Sabril®(vigabatrin). Sabril®is marketed by Lundbeck Inc. in the United States in two dosage forms (powder sachets and tablets) for the treatment of infantile spasms and refractory complex partial seizures. Par Pharmaceutical brought the first generic version of the powder sachet to market, and, to date, several generic versions of the powder sachets have been approved. However, at this time, there is only one approved generic version of the tablets.
On December 18, 2018, we entered into a definitive agreement with Endo International plc’s subsidiary, Endo Ventures Limited (“Endo”), for the further development and commercialization of generic Sabril® tablets through Endo’s United States Generic Pharmaceuticals segment, Par Pharmaceutical. Pursuant to the agreement, we have received anup-front payment of $500,000, and we will receive milestone payments based on achievement of regulatory approvals, and a sharing of defined net profits upon commercialization and certain expenses for development.
There can be no assurance that our collaboration with Endo for the development of generic Sabril® (vigabatrin) tablets will be successful and that if an ANDA is approved for vigabatrin tablets in the future, that it will be profitable to us.
Available Capital Resources
At June 30, 2019, we had cash and investments of approximately $64.9 million. Based on our current financial condition and forecasts of available cash, we believe that we have sufficient funds to support our operations for at least the next 12 months from the date of this report. There can be no assurance that we will be successful in these effortscommercializing Firdapse® or thatremain profitable, or as to whether we will require additional funding in the future (and whether any abbreviated new drug applications (ANDAs) that we submit for vigabatrinsuch required funding will be accepted for review or approved.
We are also continuing our efforts to seek a partner to work with us in furthering the development of generic Sabril®available). 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®.
Available Capital Resources
Based on forecasts of available cash, we believe that we have sufficient resources to support our currently anticipated operations through 2019 (without considering revenues and cash receipts that may be received in 2019 if we are successful in obtaining an approval for Firdapse® and launching the product in 2019, of which there can be no assurance). There can be no assurance that we will ever be in a position to commercialize any of our drug candidates or that we will obtain any additional funding that we may require in the future. See “Liquidity and Capital Resources” below for further information on our liquidity and cash flow.
Basis of Presentation
Revenues.
At June 30, 2019 we have generated revenues from product sales as we began to commercialize Firdapse® in January 2019. We areexpect these revenues to fluctuate in future periods based on our sales of Firdapse®. At June 30, 2018 we were a development stage company, and haveas we had no revenues from product sales.
Cost of Sales.
Cost of sales consists of third-party manufacturing costs, freight, royalties, and indirect overhead costs associated with sales of Firdapse®. Cost of sales may also include period costs related to certain inventory manufacturing services, inventory adjustments charges, unabsorbed manufacturing and overhead costs, and manufacturing variances. Prior to FDA approval in November 2018, the cost of manufacturing Firdapse® was expensed, including ourbuild-up of anticipated launch product. This will cause the cost of sales to date. We will not have revenues fromappear artificially low for product salesmanufactured prior to approval, until we deplete such time as we receive approval of our drug candidates, successfully commercialize our products or enter into a licensing agreement which may includeup-front licensing fees, of which there can be no assurance.product and additional product is manufactured.
Research and 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, 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 we 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..
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 intheon-going development development of potential 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 study or trial begins,they begin, and incurring additional expenditures as the study or trial progresses and reaches certain milestones.
Selling, and Marketing Expenses.
We do not currently have any selling or marketing expenses. We are currently incurring substantial costs to build our commercial team for a potential launch of Firdapse® in the first quarter of 2019. Suchpre-commercialization costs are included in general and administrative expenses.
General and Administrative Expenses.
During the first half of 2019, we have actively committed funds to developing our commercialization program for Firdapse® and have continued to incur commercialization expenses, inclusive of sales, marketing and other commercialization related expenses as we have begun our sales program for Firdapse®. We had no product sales or selling expenses in the first half of 2018.
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, cost for preparation for commercialization, and professional fees for legal, information technology, accounting, and consulting services.
Stock-Based Compensation.
We recognize expense for the fair value of all stock-based awards to employees, directors, and consultants in accordance with U.S. GAAP. For stock options, we use the Black-Scholes option valuation model in calculating the fair value of the awards.
Warrants Liability.
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 consolidated balance sheet using a Black-Scholes option-pricing model. We 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 as income or expense. The fair value of the warrants liability was subject to significant fluctuation over the life of these warrants 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 interest rate and dividend yield.
Income Taxes.
We have incurred operating losses since inception. Our net deferredeffective income tax asset has a 100% valuation allowance as of September 30, 2018 and December 31, 2017, 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
rate 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 (loss) 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, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. For a full discussion of our accounting policies, please refer to Note 2 on the Financial Statements included in our 20172018 Annual Report on Form10-K filed with the SEC. Our most critical accounting policies and estimates include: accounting for research and development expenses and stock-based compensation, measurement of fair value, fair value of warrants liability, income taxes, and reserves. 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 20172018 Annual Report on FormForm 10-K.10-K other than accounting policies for revenue recognition and leases as discussed in Note 2, “Basis of Presentation and Significant Accounting Policies,” in the interim consolidated financial statements included in this report.
Results of Operations
Revenues.
For the three andsix-month periods ended June 30, 2019, we recognized $28.8 million and $41.3 million, respectively, in net revenue from product sales of Firdapse®. We had no revenues for the three and nine-monthsix-month periods ended SeptemberJune 30, 20182018.
Cost of Sales.
Cost of sales was $4.3 million and 2017.$6.0 million for the three andsix-months ended June 30, 2019, respectively, compared to $0 for the three andsix-months ended June 30, 2018. The increase in cost of sales was entirely attributable to the commercial launch of Firdapse® in January 2019. Cost of sales includes royalty payments which are based on net revenue as defined in the applicable license agreement. Further, cost of sales may be artificially low until we fully utilize product manufactured prior to approval.
Research and Development Expenses.
Research and development expenses for the three and nine-monththree-month periods ended SeptemberJune 30, 2019 and 2018 were $4,538,369approximately $4.6 million and $11,502,235,$3.7 million, respectively, including stock-based compensation expense in eachand represented approximately 26% and 58% of total operating costs and expenses for the threethree-month periods ended June 30, 2019, and nine-month periods of $240,122 and $820,062,2018 respectively. Research and development expenses for the threethree-months ended June 30, 2019 and nine-
| Three months ended June 30, | Change | |||||||||||||||
| 2019 | 2018 | $ | % | |||||||||||||
Research and development expenses | $ | 4,356,152 | $ | 3,419,199 | 936,953 | 27.4 | % | |||||||||
Employee stock-based compensation | 273,212 | 285,625 | (12,413 | ) | (4.3 | %) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total research and development expenses | $ | 4,629,364 | $ | 3,704,824 | 924,540 | 25.0 | % | |||||||||
|
|
|
|
|
|
|
| |||||||||
monthResearch and development expenses for thesix-month periods ended SeptemberJune 30, 20172019 and 2018 were $2,704,923approximately $7.9 million and $7,970,603$7.0 million, respectively, including stock-based compensation expense in eachand represented approximately 25% and 57% of the threetotal operating costs and nine-monthexpenses for thesix-month periods of $192,796ended June 30, 2019, and $622,700,2018 respectively. Research and development expenses for thesix-months ended June 30, 2019 and 2018 were as follows:
| Six months ended June 30, | Change | |||||||||||||||
| 2019 | 2018 | $ | % | |||||||||||||
Research and development expenses | $ | 7,376,390 | $ | 6,383,926 | 992,464 | 15.5 | % | |||||||||
Employee stock-based compensation | 560,933 | 579,940 | (19,007 | ) | (3.3 | %) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total research and development expenses | $ | 7,937,323 | $ | 6,963,866 | 973,457 | 14.0 | % | |||||||||
|
|
|
|
|
|
|
| |||||||||
For the three and six months ended June 30, 2019, research and development expenses increased $924,540 and $973,457, respectively, compared to the same period in 2018, primarily attributable to the aggregate,following:
| • | increases in medical and regulatory affairs and quality assurance expenses to support our commercial launch of Firdapse® and ongoing clinical trials evaluating Firdapse® for the treatment of other ultra-orphan, neuromuscular diseases and partially offset by a decrease in product expenses due to expensing cost of manufacturing Firdapse® prior to FDA approval in November 2018; and |
decreases in employee stock-based compensation which is non cash and relates to the expense of stock options awarded to certain employees.
We expect that research and development expenses will be substantial in 2019 as we continue our clinical programs evaluating Firdapse® for the treatment ofMuSK-MG and CMS, continue ourproof-of-concept trial for SMA Type 3, continue our Expanded Access Program, take steps to develop a sustained release formulation of Firdapse®, and potentially prepare an sNDA for Firdapse® for the treatment ofMuSK-MG and/or CMS.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses for the three months ended June 30, 2019 and 2018 were approximately $9.0 million and $2.6 million, respectively, and represented approximately 55%51% and 56%42% of total operating costs and expenses for the three months ended June 30, 2019 and nine-month periods ended September 30, 2018, respectively. Selling, general and 63% and 61%administrative expenses for the three months ended June 30, 2019 and nine-month periods2018 were as follows:
| Three months ended June 30, | Change | |||||||||||||||
| 2019 | 2018 | $ | % | |||||||||||||
Selling | $ | 4,881,137 | $ | 847,351 | 4,033,786 | 476.0 | % | |||||||||
General and administrative | 3,454,801 | 1,277,798 | 2,177,003 | 170.4 | % | |||||||||||
Employee stock-based compensation | 651,784 | 505,882 | 145,902 | 28.8 | % | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total selling, general and administrative expenses | $ | 8,987,722 | $ | 2,631,031 | 6,356,691 | 241.6 | % | |||||||||
|
|
|
|
|
|
|
| |||||||||
Selling, general and administrative expenses for the six months ended SeptemberJune 30, 2017,2019 and 2018 were approximately $17.4 million and $5.3 million, respectively, and represented 56% and 43% of total operating costs and expenses for the six months ended June 30, 2019 and 2018, respectively. TheSelling, general and administrative expenses for the six months ended June 30, 2019 and 2018 were as follows:
| Six months ended June 30, | Change | |||||||||||||||
| 2019 | 2018 | $ | % | |||||||||||||
Selling | $ | 9,985,045 | $ | 1,463,199 | 8,521,846 | 582.4 | % | |||||||||
General and administrative | 6,121,663 | 2,659,323 | 3,462,340 | 130.2 | % | |||||||||||
Employee stock-based compensation | 1,297,474 | 1,182,907 | 114,567 | 9.7 | % | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total selling, general and administrative expenses | $ | 17,404,182 | $ | 5,305,429 | 12,098,753 | 228.0 | % | |||||||||
|
|
|
|
|
|
|
| |||||||||
For the three and six months ended June 30, 2019, selling, general and administrative expenses increased approximately $6.4 million and $12.1 million, respectively, compared to the same period in 2018, primarily attributable to the following:
| • | increases in selling (commercialization) expenses, which consist primarily of commercial systems implementation costs, hiring of the sales force and supporting personnel, product launch costs, and costs of our market access and market research efforts (commercialization expenses in 2018 werepre-commercial expenses before we began preparing our commercial program for Firdapse®); |
| • | increases in general and administrative expenses primarily due to our efforts to expand our operations and headcount in connection with the commercialization of Firdapse® and professional fees associated with our suit against the FDA; and |
increases in employee stock-based compensation which isnon-cash non cash and relates to the expense of stock options awardsawarded to certain employees.
Expenses for researchemployees, officers and development for the nine months ended September 30, 2018, excluding stock-based compensation, increased compared to amounts expended in the same period in 2017. The increase in research and development expenses for the nine months ended September 30, 2018 when compared to the same period in 2017 is primarily due to increases in consulting expenses as we prepared to submit our NDA for Firdapse® during the first quarter of 2018, milestone expenses relating to the acceptance of our NDA submission in May 2018, expenses from our medical affairs program, and compensation and related personnel costs as we expand our headcount to support our currently ongoing trials and programs. directors.
We expect that research and development costs will continue to be substantial during the balance 2018 as we work towards completing trials evaluating Firdapse® for the treatment of CMS,MuSK-MG and SMA Type 3, continue our Expanded Access Program for Firdapse® and our other development programs, and prosecute our NDA submission for Firdapse® for LEMS.
Selling and Marketing Expenses.
We had no selling, expenses for the three and nine-month periods ended September 30, 2018 and 2017.
During the fourth quarter of 2017, as we moved closer to submitting an NDA submission for Firdapse®, were-started the development of our commercialization plans for Firdapse® and following the acceptance of our NDA for Firdapse® for the treatment of LEMS, we accelerated our efforts to build our commercial team for a potential launch of Firdapse® in the first quarter of 2019.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, 2018 were $3,644,234 and $8,949,663, respectively, including stock-based compensation expense in each of the three and nine-month periods ending September 30, 2018 of $518,054 and $1,700,961, respectively. General and administrative expenses for the three and nine months ended September 30, 2017 were $1,601,785 and $5,197,247, respectively, including stock-based compensation expense in each of the three and nine-month periods ending September 30, 2017 of $336,942 and $1,299,751, respectively. General and administrative expenses represented 45% and 44% of total operating costs and expenses for the three and nine months ended September 30, 2018 and 37% and 39% for the three and nine months ended September 30, 2017, respectively. The stock-based compensation isnon-cash and relates to the expense of stock options awards and othernon-cash stock compensation to certain employees. The increase in general and administrative expenses for the nine months ended September 30, 2018 when compared to the same period in 2017 is primarily due to increases inpre-commercialization expenses, headcount and corporate expenses as we build up our infrastructure and commercial programs in preparation for a potential Firdapse® launch in 2019. We expect that general and administrative costs, includingpre-commercialization commercialization costs, will continue to increase in 20182019 compared with the selling, general and administrative costs incurred in 2017,2018, as we continue to expand our operations in preparationsales activities for a potential launch of Firdapse® in early 2019.
As discussed above,pre-commercialization expenses are included in general and administrative expenses, and amounted to $1,458,559 and $2,921,758 respectively, forprosecute our lawsuit against the three and nine-month periods ended September 30, 2018 and $156,219 and $563,508 respectively, for the three and nine-month periods ended September 30, 2017.FDA.
Stock-Based Compensation.
Total stock-based compensation for the three and nine-monthsix-month periods ended SeptemberJune 30, 20182019 were $758,176$924,996 and $2,521,023$1,858,407, respectively, and for the three and nine-monthsix-month periods ended SeptemberJune 30, 20172018 were $529,738$791,507 and $1,922,451,$1,762,847, respectively. The increase in stock-based compensation for the nine-monththree andsix-month periods ended SeptemberJune 30, 2018,2019, when compared to the same period in 2017,2018, is primarily due to the expense of options grantedgrants to new employees and directors during the first quarter of 2018hired in connection with 2017year-end grants and the effect of grants to new
employees as we increase our headcount to build up our infrastructure and commercial programs in preparation for a potential launch of Firdapse® in 2019..
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 May 2, 2017, all of the 2011 warrants were either exercised or had expired. During the period that the 2011 warrants were outstanding, the fair value of the warrants liability was 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 and nine months ended September 30, 2018, as all 2011 warrants that were not exercised expired on May 2, 2017. No gain or loss was recognized for the three months ended September 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. 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.
Other Income, Net.
We reported other income, net in all periods primarily relating to our investment of funds received from offerings of our securities.securities and product sales. The increase in other income, net for the ninethree and six months ended SeptemberJune 30, 20182019 when compared to the same period in 20172018 is primarily due to higher yields on investments and higher invested balances. Other income, net, consists of interest income, dividend income, and unrealized and realized gain (loss) on trading securitiessecurities. For the periods ended June 30, 2019, other income, net also includes $100,000 received as part of a settlement agreement between us and realized gain (loss) onavailable-for-sale securities, if any.Northwestern. These proceeds are used to fund our drug development activities and our operations. Substantially all such funds were invested in short-term interest-bearing obligations, and short-term bond funds.funds and U.S. Treasuries.
Income Taxes.
Our effective income tax rate was 4.21% and 0.00% for the six months ended June 30, 2019 and 2018, respectively. Differences in the effective tax and the statutory federal income tax rate of 21% is driven by state income taxes and anticipated annual permanent differences, including orphan drug credit expense limitations and other items.
We had no uncertain tax positions as of June 30, 2019 and December 31, 2018. We have incurred net operating losses since inception. For the three and nine-month periods ended September 30, 2018 and 2017 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.at June 30, 2019 and December 31, 2018.
Net Loss.Income (Loss).
Our net lossincome was $7,838,873$10,959,948 and $19,503,905,$10,315,445, respectively, for the three and nine monthssix-months ended SeptemberJune 30, 20182019 ($0.080.11 and $0.19,$0.10, respectively, per basic share and $0.10 and $0.10, respectively, per diluted share), as compared to a net loss of $4,177,649($5,965,140) and $13,024,679,($11,665,032), respectively, for the three and ninesix months ended September 30, 2017 ($0.05 and $0.16, respectively, per basic and diluted share).
Non-GAAP Net Loss.
Ournon-GAAP net loss for the three and nine months ended SeptemberJune 30, 2018 was the same as our GAAP net loss, as there were nonon-GAAP adjustments. Ournon-GAAP net loss, which excludes for the three(($0.06) 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, respectively, for the three and nine months ended September 30, 2017 ($0.05 and $0.15,0.11), respectively, per basic and diluted share).
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through equity issuances, government grants,several public and an investment by a strategic purchaser.private offerings of our securities. However, during January 2019, we launched our initial product, Firdapse®, and began to receive funds from product sales. At SeptemberJune 30, 2019, we had cash and cash equivalents and investments aggregating $64.9 million and working capital of $57.9 million. At December 31, 2018, we had cash and cash equivalents and short-term investments aggregating $66.7$58.5 million and working capital of $59.0$45.7 million. At December 31, 2017, we had cash and investments aggregating $84.0 million and working capital of $80.9 million. At SeptemberJune 30, 2018,2019, substantially all of our cash and cash equivalents were deposited with one financial institution, and such balances were in excess of federally insured limits.
We have to date incurred operating losses through the quarter ended March 31, 2019 and wereported operating income for the first time during the three and six month periods ended June 30, 2019. We expect these losses to becontinue to spend substantial in thedollars on our current and 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.programs.
Based on forecasts of available cash, we believe that we have sufficient resources to support our currently anticipated operations through 2019 (without considering revenues and cash receipts that may be received in 2019 if we are successful in obtaining an approval for Firdapse® and launchingat least the product in 2019,next 12 months from the date of which there can be no assurance).this report. There can be no assurance that we will ever be in a position to commercialize any of our drug candidatesremain profitable or that we will be able to obtain any additional funding that we may require in the future.
At the present time, we will require additional funding for future studies or trials, other than those described as beingon-going in this report. We may also require additional working capital to support our operations beyond that time, depending on when and if we are able to launchour future success with Firdapse® sales and whether theour results are cash flow positive. There can be no assurance as to the amount of any such funding that will be required for theseforthese 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 scope, rate of progress and cost of our clinical trials and other product development activities;
future clinical trial results;
the terms and timing of any collaborative, licensing and other arrangements that we may establish;
the cost and timing of regulatory approvals;
the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products;
the cost and timing of establishing sales, marketing and distribution capabilities;
| • | the level of revenues that we report from sales of Firdapse®; |
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 to raise additional funds that we may require in the future 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 product development efforts or product acquisitions, 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, we filed a shelf registration statement with the SEC to sell up to $150 million of common stock, preferred stock, warrants to purchase common stock, debt securities and units consisting of one or more of such securities (the “2017 Shelf Registration Statement”). The 2017 Shelf Registration Statement (file no.333-219259) was declared effective by the SEC on July 26, 2017. We have completed one offering under the 2017 Shelf Registration Statement, raising net proceeds of approximately $53.8 million from the sale of 16,428,572 shares of our common stock on November 28, 2017.
On December 23, 2016, we filed a shelf registration statement with the SEC to sell up to $33.8 million of common stock (the “2016 Shelf Registration Statement”). This shelf registration statement was declared effective by the SEC on January 9, 2017. We have made no sales under the 2016 Shelf Registration Statement.
At September 30, 2018,As of the date of this Form10-Q, the full amount of our 2016 Shelf Registration Statement and $92.5 million of our 2017 Shelf Registration Statement remains 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.
Cash Flows.
Net cash used inprovided by (used in) operating activities was $17,390,876$6,057,415 and $9,712,705,($10,843,056), respectively, for the nine-monthsix-month periods ended SeptemberJune 30, 20182019 and 2017.2018. During the ninesix months ended SeptemberJune 30, 2019, net cash provided by operating activities was primarily attributable to our net income of $10,315,445, increases of $991,359 in accounts payable, $3,393,753 in accrued expenses and other liabilities, and of $1,921,097 ofnon-cash expenses. This was partially offset by increases of $10,376,427 in accounts receivable, net, and $213,867 in inventory, and a decrease of $161,178 in prepaid expenses and other current and non-current assets and of $135,123 in operating lease liability. During the six months ended June 30, 2018, net cash used in operating activities was primarily attributable to our net loss of $19,503,905,$11,665,032, and decreases of $604,591$1,022,982 in accounts payable, and $185,812$175,273 in accrued expenses and other liabilities. This was partially offset by a $356,924$496,403 decrease in prepaid expenses and other current assets and deposits, and $2,546,508$1,523,828 of othernon-cash expenses. During the nine months ended September 30, 2017, netSuch additionalnon-cash expenses consist of depreciation, change inright-of-use asset, stock-based compensation expense, and change in accrued interest and accretion of discount on investments.
Net cash used in operatingprovided by investing activities was $518,797 for thesix-month period ended June 30, 2019, consisting primarily attributable to our net loss of $13,024,679. This was partially offset by a $537,452 decrease in prepaid expensespurchases of investments of $29,772,428 and other current assets and deposits, a $148,432 increase in accounts payable, a $477,981 increase in accrued expenses and other liabilities, a $186,904non-cash change in fair valuesales/maturities of warrants liability, and $1,961,205investments of othernon-cash expenses.
$30,310,595. Net cash used in investing activities was $29,631,129 and $64,748, respectively,$36,802,791, for the nine-month periodssix-month period ended SeptemberJune 30, 2018, and September 30, 2017. During the nine months ended September 30, 2018, net cash used in investing activities wasconsisting primarily attributable to purchases of investments of $37,141,968. This was partially offset by $7,546,032 proceeds from maturities of investments. During the nine months ended September 30, 2017, net cash used in investing activities consisted of purchases of short-term investments.
Net cash provided by financing activities during the nine-month periodsix-month periods ended SeptemberJune 30, 2019 and 2018 was $141,616,$281,900 and $37,084, respectively, consisting primarily of proceeds from the exercise of options to purchase common stock. Net cash provided by financing activities during the nine-month period ended September 30, 2017 was $3,213,373, consisting primarily of the net proceeds from the exercise of warrants.
Contractual Obligations.
We have entered into the following contractual arrangements:
| • | Payments to BioMarin and others under our license agreement with BioMarin. |
|
|
With respect to the third party licensor of the rights that have been sublicensed to us, we have agreed to pay: (i) $150,000 upon acceptance by the FDA of a filing of an NDA for Firdapse® for the treatment of LEMS (which amount was paid during the second quarter of 2018 after acceptance by the FDA of our NDA for Firdapse® for LEMS), and (ii) approximately $3.0 million of which will be due upon the unconditional approval by the FDA of an NDA for Firdapse® for the treatment of LEMS (which milestone payment has not yet been earned).
With respect to the former Huxley stockholders, we had agreed that we would pay the following milestone payments if either of the following milestones were satisfied before April 20, 2018: (i) $2,425,000 upon acceptance by the FDA of a filing of an NDA for Firdapse® for the treatment of LEMS, and (ii) approximately $4,200,000 of which was to be paid upon the unconditional approval by the FDA of an NDA for Firdapse® for the treatment of LEMS. Since neither of these milestones were met on or before April 20, 2018, these milestone payments were never earned. However, prior to April 20, 2018, we were advised that the former Huxley stockholders intended to take legal action against BioMarin and us seeking payment of the milestone payments due to them even if the milestones were achieved after their expiration date (April 20, 2018). While we disputed our obligation to pay either of the above described milestone payments if these milestones were achieved after April 20, 2018,included in an agreement which was executed and became effective on July 26, 2018, we, BioMarin and the former Huxley stockholders agreed to amicably resolve this matter. As part of the settlement, and without admitting any liability, we paid the former Huxley stockholders a $1.0 million milestone payment upon execution of the settlement agreement, and agreed to pay a $1.0 million payment upon the unconditional approval by the FDA of an NDA for Firdapse® for the treatment of LEMS (which milestone payment has not yet been earned). Further, as part of the settlement agreement, we, BioMarin and the former Huxley stockholders entered into mutual releases regarding these matters.
|
|
| • | Employment agreements.We have entered into an employment agreement with our Chief Executive Officer that requires us to make base salary payments of approximately |
| • | Lease for office space.We operate our business in leased office space in Coral Gables, Florida. We currently lease approximately 7,800 square feet of office space for which we pay annual rent of approximately $330,000. |
Off-Balance Sheet Arrangements.
We currently have no debt or capitalfinance 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-Q 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 achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. The forward-looking statements made in this report are based on current expectations that involve numerous risks and uncertainties.
The successful development and commercialization of our current drug candidates 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 risks and uncertainties, associated with developing such products, including the uncertainty of:
The effect on our estimates regarding anticipated capital requirementsbusiness and our needfuture results of operations arising from the recent approval by the FDA of an NDA for additional financing;
the risk that another pharmaceutical company will receive an approvalJacobus Pharmaceuticals for its formulationtheir version of3,4-DAP for the treatment of pediatric LEMS CMS, or any other indication, before we do;patients (ages 6 to under 17);
| • | whether |
| • | if the approval of RuzurgiTM is not overturned, whether we can successfully compete for LEMS patients; |
our estimates regarding anticipated capital requirements and our needs for additional financing in the future;
| • | the impact on Firdapse® of adverse changes in potential 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; |
| • | the impact on our business and results of operations of public statements by Senator Bernie Sanders and a vocal group of LEMS patients and doctors who object to |
| • | whether |
|
|
whether our estimates of the size of the market for our drug candidates will turn out to be accurate;
the pricing of our products thatwhether we maywill be able to achieve if welocate LEMS patients who are granted the ability to commercialize our drug candidates;undiagnosed or are misdiagnosed with other diseases;
| • |
|
|
whether payors will reimburse for our product;
changes in the healthcare industry and the effect of political pressure from President Trump, Congress andand/or medical professionals seeking to reduce prescription drug costs;
changes to the healthcare industry occasioned by any future repeal and replacement of the Affordable Care Act, in laws relating to the pricing of drug products, or changes in the healthcare industry generally;
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;
our ability to complete our trials and studies on a timely basis and within the budgets we establish for such trials and studies;
| • | whether the trials that we are currently undertaking to evaluate Firdapse® for the treatment of |
the result of our dispute with Northwestern regarding our license for CPP-115 and whether we will recover damages from Northwesternbe the first company to receive approval of3,4-DAP for their alleged breachthe treatment of their license agreement with us;CMS;
| • | whether |
|
whether our version of generic vigabatrin tablets will ever be approved by the United States Food and Drug Administration (FDA);
even if vigabatrin tablets are approved for commercialization, whether Endo Ventures/Par Pharmaceutical will be successful in marketing the product;
whether Catalyst will earn milestone payments on approval of an Abbreviated New Drug Application (ANDA) for generic vigabatrin tablets and royalties on sales of generic vigabatrin tablets;
the ability of our third-party suppliers and contract manufacturers to maintain compliance with current Good Manufacturing Practices (cGMP).;
the ability of our distributor and the specialty pharmacies that distribute our product to maintain compliance with applicable law; and
our ability to maintain compliance with applicable rules relating to our patient assistance programs and our contributions to 501(c)(3) organizations that support LEMS patients.
Our current plans and objectives are based on assumptions relating to the commercialization of Firdapse® and the development of our current drug candidates.additional indications for Firdapse®. Although we believe that our assumptions are reasonable, any of our assumptions could prove inaccurate. In light of 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
Our market risks during the nine months ended September 30, 2018 have not materially changed from those discussed in Item 7A of our Annual Report on Form10-K for the year ended December 31, 2017.Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
| 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 (as defined in Rules13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of |
| b. | During the three months ended |
|
In 2018, we became aware that certain patents granted to Northwestern University (which patents have been licensed by Northwestern to a third party) for a new GABA aminotransferase inhibitor were developed fromCPP-115, which had previously been licensed to us by Northwestern. As a result, on October 26, 2018, we terminated the license agreement forCPP-115 and commenced an arbitration proceeding against Northwestern seeking damages for alleged breaches of the license agreement. Shortly thereafter, Northwestern filed counterclaims against us in the arbitration action seeking damages for alleged breaches by us of the license agreement. On May 21, 2019, we entered into a settlement agreement with Northwestern that resolved all pending disputes between the parties with no admission of liability by either party, released all claims of liability or wrongdoing between us and Northwestern, and dismissed the pending arbitration. Under the settlement agreement, we received $100,000 at the time the settlement agreement was executed and we will also be entitled to receive certain contingent compensation that will be reported when and if it is received.
In May 2019, we became aware that the FDA had approved an NDA for Jacobus Pharmaceuticals for Ruzurgi™, their version of amifampridine(3,4-DAP) for pediatric LEMS patients. On June 12, 2019, we announced that we have filed suit against the FDA and several related parties challenging this approval and related drug labeling. The Companycomplaint, which was filed in the federal district court for the Southern District of Florida, alleges that the FDA’s approval of Ruzurgi™ violated multiple provisions of FDA regulations regarding labeling, resulting in misbranding in violation of the FDCA; violated our 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 seeks an order vacating the FDA’s approval of Ruzurgi™.
There can be no assurance as to the outcome of this lawsuit or as to the impact of the approval of Ruzurgi™ on our business, financial condition or results of operations.
Additionally, from time to time we may become involved in legal proceedings arising in the ordinary course of business. Except as set forth above, we believe that there is notno other litigation pending at this time that could have, individually or in the aggregate, a party to any material legal proceedings.adverse effect on our results of operations, financial condition or cash flows.
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 20172018 Annual Report on Form10-K 10–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.
The following is an additional risk factor regarding factors that you should consider that has recently arisen:
The FDA has approved Ruzurgi™, another formulation of amifampridine(3,4-DAP) for LEMS for the treatment of pediatric patients.
In May 2019, we became aware that Jacobus Pharmaceutical had been granted approval of an NDA for Ruzurgi™, their version of amifampridine(3,4-DAP) for pediatric LEMS patients (ages 6 to under 17). We expect that Jacobus may offer Ruzurgi™ at a lower price than we are able to offer Firdapse®. In addition, while the NDA for Ruzurgi™ only covers pediatric patients, we believe there is a significant risk that it will be prescribedoff-label in adult patients. While we believe that this approval was violative of our statutory rights and was in multiple other respects arbitrary, capricious, and contrary to law, and we have filed suit to that effect, there can be no assurance that our claims will be successful. If Jacobus is able to successfully sell Ruzurgi™off-label for adult LEMS patients, it could have a material adverse effect on our future business, financial condition and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
|
None.
None
|
None.
None
Not applicable.applicable
|
None.
None
|
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: NovemberAugust 7, 20182019
29
37