Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2023
OR
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File
No. 001-33057
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
| |
||
(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 |
Name of Exchange on Which Registered | ||
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 Regulation Yes ☒ No ☐
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, 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 Rule 12b-2
of the Exchange Act:| Large 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 Rule ☒
12b-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 106,582,857 shares of common stock, $0.001 par value per share, were outstanding as of August 7, 2023.
Table of Contents
CATALYST PHARMACEUTICALS, INC.
INDEX
PART I. FINANCIAL INFORMATION
2
Table of Contents
CATALYST PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, 2023 |
December 31, 2022 |
|||||||
(unaudited) |
||||||||
| ASSETS |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Accounts receivable, net |
||||||||
| Inventory |
||||||||
| Prepaid expenses and other current assets |
||||||||
| |
|
|
|
|||||
| Total current assets |
||||||||
| Operating lease right-of-use |
||||||||
| Property and equipment, net |
||||||||
| License and acquired intangibles, net |
||||||||
| Deferred tax assets, net |
||||||||
| |
|
|
|
|||||
| Total assets |
$ | $ | ||||||
| |
|
|
|
|||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current Liabilities: |
||||||||
| Accounts payable |
$ | $ | ||||||
| Accrued expenses and other liabilities |
||||||||
| |
|
|
|
|||||
| Total current liabilities |
||||||||
| Operating lease liability, net of current portion |
||||||||
| Other non-current liabilities |
||||||||
| |
|
|
|
|||||
| Total liabilities |
||||||||
| Commitments and contingencies (Note 12) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $ |
||||||||
| Common stock, $ |
||||||||
| Additional paid-in capital |
||||||||
| Retained earnings |
||||||||
| Accumulated other comprehensive income (loss) (Note 4) |
||||||||
| |
|
|
|
|||||
| Total stockholders’ equity |
||||||||
| |
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | $ | ||||||
| |
|
|
|
|||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CATALYST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)
(in thousands, except share data)
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Revenues: |
||||||||||||||||
Product revenue, net |
$ | $ | $ | $ | ||||||||||||
License and other revenue |
||||||||||||||||
Total revenues |
||||||||||||||||
Operating costs and expenses: |
||||||||||||||||
Cost of sales (a) |
||||||||||||||||
Research and development |
||||||||||||||||
Selling, general and administrative (a) |
||||||||||||||||
Amortization of intangible assets |
||||||||||||||||
Total operating costs and expenses |
||||||||||||||||
Operating income |
||||||||||||||||
Other income (expense), net |
( |
) | ( |
) | ||||||||||||
Net income before income taxes |
||||||||||||||||
Income tax provision |
||||||||||||||||
Net income |
$ | $ | $ | $ | ||||||||||||
Net income per share: |
||||||||||||||||
Basic |
$ | $ | $ | $ | ||||||||||||
Diluted |
$ | $ | $ | $ | ||||||||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
||||||||||||||||
Diluted |
||||||||||||||||
Net income |
$ | $ | $ | $ | ||||||||||||
Other comprehensive income (Note 4): |
||||||||||||||||
Unrealized gain (loss) on available-for-sale securities, net of tax of ($ ( $) , respectively |
( |
) | ||||||||||||||
Comprehensive income |
$ | $ | $ | $ | ||||||||||||
| (a) | exclusive of amortization of intangible assets |
The accompanying notes are an integral part of these consolidated financial statements.
4
CATALYST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)
For the three and six months ended June 30, 2023 and 2022
(in thousands)
Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Total |
|||||||||||||||||||||||
Shares |
Amount |
|||||||||||||||||||||||||||
Balance at December 31, 2022 |
$ |
— |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||||||||
Issuance of stock options for services |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Exercise of stock options for common stock |
— |
— |
— |
|||||||||||||||||||||||||
Amortization of restricted stock for services |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Issuance of common stock upon vesting of restricted stock units, net |
— |
— |
( |
) |
— |
— |
( |
) | ||||||||||||||||||||
Other comprehensive gain (loss) |
— |
— |
— |
— |
— |
( |
) |
( |
) | |||||||||||||||||||
Net income |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Balance at March 31, 2023 |
— |
|||||||||||||||||||||||||||
Issuance of stock options for services |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Exercise of stock options for common stock |
— |
— |
— |
|||||||||||||||||||||||||
Amortization of restricted stock for services |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Issuance of common stock upon vesting of restricted stock units, net |
— |
— |
( |
) |
— |
— |
( |
) | ||||||||||||||||||||
Other comprehensive gain (loss) |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Net income |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Balance at June 30, 2023 |
$ |
— |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||||||||
Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Retained Earnings (Accumulated Deficit) |
Accumulated Other Comprehensive Income (Loss) |
Total |
|||||||||||||||||||||||
Shares |
Amount |
|||||||||||||||||||||||||||
Balance at December 31, 2021 |
$ | — | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||
Issuance of stock options for services |
— | — | — | — | — | |||||||||||||||||||||||
Exercise of stock options for common stock |
— | — | — | |||||||||||||||||||||||||
Amortization of restricted stock for services |
— | — | — | — | — | |||||||||||||||||||||||
Repurchase of common stock |
— | ( |
) | — | ( |
) | — | ( |
) | |||||||||||||||||||
Other comprehensive gain (loss) |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Balance at March 31, 2022 |
— | ( |
) | ( |
) | |||||||||||||||||||||||
Issuance of stock options for services |
— | — | — | — | — | |||||||||||||||||||||||
Exercise of stock options for common stock |
— | — | — | |||||||||||||||||||||||||
Amortization of restricted stock for services |
— | — | — | — | — | |||||||||||||||||||||||
Repurchase of common stock |
— | ( |
) | — | ( |
) | — | ( |
) | |||||||||||||||||||
Issuance of common stock upon vesting of restricted stock units, net |
— | — | ( |
) | — | — | ( |
) | ||||||||||||||||||||
Other comprehensive gain (loss) |
— | — | — | — | — | |||||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Balance at June 30, 2022 |
$ | — | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CATALYST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
For the Six Months Ended June 30, |
||||||||
2023 |
2022 |
|||||||
| Operating Activities: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Depreciation |
||||||||
| Stock-based compensation |
||||||||
| Amortization of intangible assets |
— | |||||||
| Deferred taxes |
( |
) | ||||||
| Change in accrued interest and accretion of discount on investments |
— | |||||||
| Reduction in the carrying amount of right-of-use |
||||||||
| Realized loss on sale of available-for-sale |
— | |||||||
| Acquired inventory samples expensed from asset acquisition |
— | |||||||
| (Increase) decrease in: |
||||||||
| Accounts receivable, net |
( |
) | ( |
) | ||||
| Inventory |
||||||||
| Prepaid expenses and other current assets |
( |
) | ||||||
| Increase (decrease) in: |
||||||||
| Accounts payable |
( |
) | ||||||
| Accrued expenses and other liabilities |
( |
) | ( |
) | ||||
| Operating lease liability |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash provided by (used in) operating activities |
||||||||
| |
|
|
|
|||||
| Investing Activities: |
||||||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Payment in connection with asset acquisition |
( |
) | — | |||||
| Proceeds from sale of available-for-sale |
— | |||||||
| |
|
|
|
|||||
| Net cash provided by (used in) investing activities |
( |
) | ||||||
| |
|
|
|
|||||
| Financing Activities: |
||||||||
| Payment of employee withholding tax related to stock-based compensation |
( |
) | ( |
) | ||||
| Proceeds from exercise of stock options |
||||||||
| Repurchase of common stock |
— | ( |
) | |||||
| Payment of liabilities arising from asset acquisition |
( |
) | — | |||||
| |
|
|
|
|||||
| Net cash provided by (used in) financing activities |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents – beginning of period |
||||||||
| |
|
|
|
|||||
| Cash and cash equivalents – end of period |
$ | $ | ||||||
| |
|
|
|
|||||
| Supplemental disclosures of cash flow information: |
||||||||
| Cash paid for income taxes |
$ | $ | ||||||
| Non-cash investing and financing activities: |
||||||||
| Liabilities arising from asset acquisition |
$ | $ | — | |||||
The accompanying notes are an integral part of these consolidated financial statements.
6
CATALYST PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. |
Organization and Description of Business. |
Catalyst Pharmaceuticals, Inc. and subsidiary (collectively, the Company) is a commercial-stage biopharmaceutical company focused on medicines that address rare neurological and epileptic diseases.
in-licensing,
developing, and commercializing novel medicines for patients living with rare diseases and diseases that are difficult to treat. With exceptional patient focus, the Company is committed to developing and commercializing innovative first-in-class
The Company’s New Drug Application for FIRDAPSE
®
(amifampridine) Tablets 10 mg for the treatment of adults with Lambert-Eaton myasthenic syndrome (LEMS) was approved in 2018 by the U.S. Food & Drug Administration (FDA), and FIRDAPSE®
is commercially available in the United States as a treatment for adults with LEMS. Further, Canada’s national healthcare regulatory agency, Health Canada, approved the use of FIRDAPSE®
for the treatment of adult patients in Canada with LEMS in 2020 and FIRDAPSE®
is commercially available in Canada for the treatment of patients with LEMS through a license and supply agreement with KYE Pharmaceuticals. Finally, in the third quarter of 2022, the FDA approved the Company’s sNDA approving an expansion of the FIRDAPSE®
label to include pediatric patients (ages six and older). On December 17, 2022, the Company entered into an asset purchase agreement with Eisai Co., Ltd. (Eisai) for the acquisition of the United States rights to FYCOMPA
®
(perampanel) CIII, a prescription medication used alone or in combination with other medicines to treat focal onset seizures with or without secondarily generalized seizures in people with epilepsy aged four and older and with other medicines to treat primary generalized tonic-clonic seizures in people with epilepsy aged 12 and older. The Company closed the acquisition of FYCOMPA®
on January 24, 2023 and the Company is marketing FYCOMPA®
in the United States. Since inception, the Company has devoted substantially all its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets, raising capital, and selling its products. The Company incurred operating losses in each period from inception and started reporting operating income during the year ended December 31, 2019. The Company has been able to fund its cash needs to date through offerings of its securities and from revenues from sales of its products. See Note 15 (Stockholders’ Equity).
Capital Resources
Based on forecasts of available cash, the Company believes that it has sufficient resources to support the currently anticipated operations for at least the next 12 months from the date of this report.
The Company may raise funds in the future through public or private equity offerings, debt financings, corporate collaborations, governmental research grants or other means. The Company may also seek to raise new capital to fund additional business development activities, even if it has sufficient funds for its planned operations. Any sale by the Company of additional equity or convertible debt securities could result in dilution to the Company’s current stockholders. There can be no assurance that any 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.
Risks and Uncertainties
There are numerous aspects of the coronavirus
(COVID-19)
pandemic that have adversely affected the Company’s business since the beginning of the pandemic. The Company closely monitors the impact of the pandemic on all aspects of its business and takes steps, wherever possible, to lessen those impacts. However, the Company is unable to predict the impact that the coronavirus pandemic will have on its business in future periods. 7
2. |
Basis of Presentation and Significant Accounting Policies. |
a. |
INTERIM FINANCIAL STATEMENTS. 10-Q was derived from the audited financial statements and does not include all disclosures required by U.S. GAAP. |
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, 2022 included in the 2022 Annual Report on
Form 10-K
filed by the Company with the SEC. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results to be expected for any future period or for the full 2023 fiscal year. b. |
PRINCIPLES OF CONSOLIDATION. |
c. |
USE OF ESTIMATES. |
d. |
CASH AND CASH EQUIVALENTS. |
e. |
INVESTMENTS. |
The U.S. Treasuries held at June 30, 2023 are classified as securities. The Company classifies U.S. Treasuries with stated maturities of greater than three months and less than one year in short-term investments. no
available-for-sale
U.S. Treasuries
with stated maturities greater than one year are classified as non-current
investments in its consolidated balance sheets. There are non-current
investments as of June 30, 2023 and December 31, 2022. The Company records 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 in the consolidated statements of operations and comprehensive income, 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 and comprehensive income. The Company recognizes a charge when the declines in the fair value below the amortized cost basis of its securities are judged to be as a result of a credit loss. The Company considers various factors in determining whether to recognize an allowance for credit losses 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. If the unrealized loss of an debt security is determined to be a result of a credit loss the Company would recognize an allowance and the corresponding credit loss would be included in the consolidated statements of operations and comprehensive income. The Company has not recorded an allowance for credit loss on its securities. See Note 3 (Investments).
available-for-sale
available-for-sale
available-for-sale
available-for-sale
f. |
ACCOUNTS RECEIVABLE, NET. Accounts receivable is recorded net of customer allowance for distribution fees, trade discounts, prompt payment discounts, chargebacks and expected credit losses. Allowances for distribution fees, trade discounts, prompt payment discounts and chargebacks are based on contractual terms. The Company estimates the allowance for expected credit losses based on existing contractual payment terms, actual payment patterns of its customers, current and future economic and market conditions and individual customer circumstances. At June 30, 2023 and December 31, 2022, the Company determined that an allowance for expected credit losses was not required. No accounts were written off during the periods presented. |
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
g. |
INVENTORY work-in-process first-in, first out (FIFO) flow of goods. 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. |
Products that have been approved by the FDA or other regulatory authorities, such as FIRDAPSE
®
and FYCOMPA®
, 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 forms of FIRDAPSE®
and FYCOMPA®
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 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 ASSETS. Prepaid expenses and other current assets consist primarily of prepaid manufacturing, prepaid tax, prepaid insurance, prepaid subscription fees, prepaid research fees, prepaid commercialization expenses, prepaid co-pay assistance program, amounts due from collaborative and license arrangements and prepaid conference and travel expenses. Prepaid research fees consist of advances for the Company’s product development activities, including contracts for pre-clinical studies, clinical trials and studies, regulatory affairs and consulting. Prepaid manufacturing consists of advances for the Company’s drug manufacturing activities. Such advances are recorded as expense as the related goods are received or the related services are performed. |
i. |
PROPERTY AND EQUIPMENT, NET. |
j |
BUSINESS COMBINATIONS AND ASSET ACQUISITIONS 805-50, which requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, which includes transaction costs in addition to consideration given. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values. Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the consideration is paid or becomes payable. |
Refer to Notes 12 (Commitments and Contingencies) and 13 (Agreements) for further discussion on the Company’s exclusive license agreement with Jacobus Pharmaceutical Company, Inc (Jacobus), for the rights to develop and commercialize RUZURGI
®
in the United States and Mexico, which the Company accounted for as an asset acquisition under ASC 805-50.
Refer to Note 13 (Agreements) for further discussion on the Company’s acquisition of the U.S. rights of FYCOMPA®
from Eisai Co., Ltd, which the Company accounted for as an asset acquisition under ASC 805-50.
See also Note 17 (Subsequent Events) for a discussion of the Company’s recent acquisition of a license in North America for vamorolone. k. |
INTANGIBLE ASSETS, NET. |
The Company reviews intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist, an impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows. If the affected assets are deemed not recoverable, the Company would estimate the fair value of the assets and record an impairment loss.
9
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
l. |
FAIR VALUE OF FINANCIAL INSTRUMENTS. |
m. |
FAIR VALUE MEASUREMENTS. |
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 (in thousands) |
||||||||||||||||
Balances as of June 30, 2023 |
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 |
$ |
$ |
$ |
— |
$ |
— |
||||||||||
U.S. Treasuries |
$ |
$ |
$ |
— |
$ |
— |
||||||||||
Balances as of December 31, 2022 |
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 |
$ | $ | $ | — | $ | — | ||||||||||
U.S. Treasuries |
$ | $ | $ | — | $ | — | ||||||||||
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
n. |
OPERATING LEASES. right-of-use non-lease components, which are accounted for separately. |
o. |
SHARE REPURCHASES. |
The Company accounts for share repurchases by charging the excess of the repurchase price over the repurchased common stock’s par value entirely to retained earnings. All repurchased shares are retired and become authorized but unissued shares. The Company accrues for the shares purchased under the share repurchase plan based on the trade date. The Company may terminate or modify its share repurchase program at any time.
p. |
REVENUE RECOGNITION. |
Product Revenues:
To determine revenue recognition for arrangements that are within the scope of Accounting Standards Codification (ASC) Topic 606 – Revenue from Contracts with Customers (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 assesses the goods or services promised within each contract and determines those that are performance obligations by assessing 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, see Product Revenue, Net below.
The Company also may generate revenues from payments received under collaborative and license agreements. Collaborative and license agreement payments may include nonrefundable fees at the inception of the agreements, contingent payments for specific achievements designated in the agreements, and/or net profit-sharing payments on sales of products resulting from the collaborative and license arrangements. For a complete discussion of accounting for collaborative and licensing arrangements, see Revenues from Collaboration and Licensing Arrangements below.
The Company recognizes revenue when its customer for FIRDAPSE
®
and its customers for FYCOMPA®
obtain title of the promised goods, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for these goods. For FIRDAPSE®
, subsequent to receiving FDA approval, the Company entered into an arrangement with one distributor (the Customer), which is the exclusive distributor of FIRDAPSE®
in the United States. The Customer subsequently resells FIRDAPSE®
to a small group of exclusive specialty pharmacies (SPs) whose dispensing activities for patients with specific payors may result in government-mandated or privately negotiated rebate obligations for the Company with respect to the purchase of FIRDAPSE®
. The Company sells FYCOMPA®
, through a Transition Service Agreement with Eisai, directly to major wholesalers, specialty pharmaceutical distributors, managed care organizations, and government agencies. FYCOMPA®
customer contracts generally consist of both a master agreement, which is signed by the Company and its customer, and a customer submitted purchase order, which is governed by the terms and conditions of the master agreement. These customers purchase FYCOMPA®
product, through the Transition Service Agreement, by direct channel sales from the Company or by indirect channel sales through various distribution channels. Product Revenue, Net:
®
to the 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. The Company sells FYCOMPA®
, through the Transition Service Agreement, directly to customers subject to both master agreements and purchase orders. In addition to the distribution agreement with its Customer and FYCOMPA®
customer contracts, 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. 2. |
Basis of Presentation and Significant Accounting Policies (continued). |
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 or upon dispense to patient). Product revenue is recorded net of applicable reserves for variable consideration, including discounts and allowances. The Company’s payment terms range between 15 and 30 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, 2023 and 2022.
During the three and six months ended June 30, 2023 and 2022, substantially all of the Company’s product revenues were from sales to customers in the United States.
The following table summarizes the Company’s net product revenue disaggregated by product (in thousands):
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
FIRDAPSE ® |
$ | $ | $ | $ | ||||||||||||
FYCOMPA ® |
||||||||||||||||
Total product revenue, net |
$ | $ | $ | $ | ||||||||||||
Reserves for Variable Consideration:
®
customers, 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 its FYCOMPA®
customers) or a current liability (if the amount is payable to a party other than the Customer or FYCOMPA®
customers). 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 contemplates 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, 2023 and, therefore, the transaction price was not reduced further during the three and six months ended June 30, 2023 and 2022. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.
Trade Discounts, Allowances and Wholesaler Fees:
®
customers 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, transactional data and distribution services from the Customer. To the extent the services received are distinct from the sale of FIRDAPSE®
to its Customer and the sale of FYCOMPA®
to its customers, these payments are classified in selling, general and administrative expenses in the Company’s consolidated statements of operations and comprehensive income. However, if the Company has determined such services received are not distinct from the Company’s sale of products to the Customer or to its FYCOMPA®
customers, these payments have been recorded as a reduction of revenue within the consolidated statements of operations and comprehensive income through June 30, 2023 and 2022, as well as a reduction to accounts receivable, net on the consolidated balance sheets. 2
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
Prompt Payment Discounts:
®
customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred, in the case that payments are made within a defined period. The prompt payment discount reserve is based on actual invoice sales and contractual discount rates. Reserves for prompt payment discounts are included in accounts receivable, net on the consolidated balance sheets. Funded
Co-pay
Assistance Program:co-pay
assistance program intended to provide financial assistance to qualified commercially-insured patients. The calculation of the accrual for co-pay
assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with its products, that have been recognized as revenue, but remains in the distribution channel at the end of each reporting period. These payments are considered payable to the third-party vendor 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:
®
customers 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 or master agreement. The Company estimates the amount of its product sales that may be returned by its Customer or its FYCOMPA®
customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. 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. These payments are considered payable to the third-party vendor 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. 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:
®
is extended below wholesaler list price to participating entities (the FYCOMPA®
Participants). These entities purchase FYCOMPA®
through wholesalers at the lower program price and the wholesalers then charge the Company the difference between their acquisition cost and the lower program price. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue, net and accounts receivable, net. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by the Customer or at the time of a resale to a FYCOMPA
®
Participant by a wholesaler, and the Company generally issues credits for such amounts within a few weeks of the Customer’s or wholesalers’ notification to the Company of the resale. Reserves for chargebacks consist primarily of chargebacks that the Customer or wholesalers have claimed, but for which the Company has not yet issued a credit. Government Rebates:
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:
®
free of charge to uninsured patients who satisfy pre-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 FIRDAPSE®
or FYCOMPA®
free of charge for longer periods of time for those who are uninsured or functionally uninsured with respect to FIRDAPSE®
or FYCOMPA®
because they are unable to obtain coverage from their payor despite having health insurance, to the extent allowed by applicable law. The Company provides FYCOMPA
®
free of charge to uninsured patients who satisfy pre-established
criteria through a Patient Assistance Program. In addition, Catalyst provides programs to assist patients through the process for obtaining reimbursement approval for their FYCOMPA®
prescriptions from their insurers. Catalyst also provides support for patients using FYCOMPA®
through an Instant Savings Card Program. The Company does not recognize any revenue related to these free products and the associated costs are classified in selling, general and administrative expenses in the Company’s consolidated statements of operations and comprehensive income.
Revenues from Collaboration and Licensing Arrangements:
The Company analyzes license and collaboration arrangements pursuant to FASB ASC Topic 808, Collaborative Arrangement Guidance and Consideration (Topic 808), to assess whether such arrangements, or transactions between arrangement participants, involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities or are more akin to a vendor-customer relationship. In making this evaluation, the Company considers whether the activities of the collaboration are considered to be distinct and deemed to be within the scope of the collaborative arrangement guidance or if they are more reflective of a vendor-customer relationship and, therefore, within the scope of Topic 606. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.
For elements of collaboration arrangements that are not accounted for pursuant to guidance in Topic 606, an appropriate recognition method is determined and applied consistently, generally by analogy to the revenue from contracts with customers guidance.
The Company evaluates the performance obligations promised in the contract that are based on goods and services that will be transferred to the customer and determines whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the contract. Goods or services that meet these criteria are considered distinct performance obligations. The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration.
The agreements provide for milestone payments upon achievement of development and regulatory events. The Company accounts for milestone payments as variable consideration in accordance with Topic 606. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of potential transaction price and the likelihood that the transaction price will be received. The Company utilizes either the most likely amount method or expected value method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration that is included in the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and, if so, these options are considered performance obligations.
After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events. Any change in the overall transaction price is allocated to the performance obligations based on the same methodology used at contract inception.
The Company recognizes sales-based royalties or net profit-sharing when the later of (a) the subsequent sale occurs, or (b) the performance obligation to which the sales-based royalty or net profit-sharing has been allocated has been satisfied.
Payments to and from the collaborator are presented in the statement of operations based on the nature of the Company’s business operations, the nature of the arrangement, including the contractual terms, and the nature of the payments.
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
Refer to Note 11 (Collaborative and Licensing Arrangements), for further discussion on the Company’s collaborative and licensing arrangements.
q. |
RESEARCH AND DEVELOPMENT. |
r. |
ADVERTISING EXPENSE. approximately $approximately $ million during the three and six months ended June 30, 2022, respectively, which are included in selling, general and administrative expenses in the Company’s consolidated statements of operations and comprehensive income. |
s. |
STOCK-BASED COMPENSATION. |
t. |
CONCENTRATION OF RISK. |
The Company sells its product, FIRDAPSE
®
, in the United States through an exclusive distributor (its Customer) to SPs. Therefore, its distributor and SPs account for principally all of its trade receivables and net product revenues. The creditworthiness of its Customer is continuously monitored, and the Company has internal policies regarding customer credit limits. The Company estimates an allowance for expected credit loss primarily based on the credit worthiness of its Customer, historical payment patterns, aging of receivable balances and general economic conditions. As of June 30, 2023, the Company had two products, which makes it difficult to evaluate its current business, predict its future prospects, and forecast financial performance and growth. The Company had invested a significant portion of its efforts and financial resources in the development and commercialization of its lead product, FIRDAPSE
®
. The Company expects FIRDAPSE®
and the recently acquired product FYCOMPA®
to constitute virtually all of the Company’s product revenue for the foreseeable future. The Company relies exclusively on third parties to formulate and manufacture FIRDAPSE
®
, FYCOMPA®
and any future drug candidates. The commercialization of FIRDAPSE®
, FYCOMPA®
, 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 for the commercialization of FIRDAPSE®
. It also relies on Eisai as its sole source of supply for FYCOMPA®
. 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 its drugs. u. |
ROYALTIES. ® , as disclosed in Note 13 (Agreements), are expensed to cost of sales as revenue from product sales is recognized. |
Royalties incurred in connection with the Company’s license agreement for RUZURGI3
®
, as disclosed in Note 13 (Agreements), are expensed to cost of sales as revenue from product sales is recognized for any royalties in excess of the minimum annual royalty payment from the effective date of the agreement through 2025. The minimum royalty payment that exists annually for calendar years from the Effective Date through 2025 of $v. |
INCOME TAXES. i ng for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. |
5
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
The Company recognizes 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 the
more-likely-than-not
threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company is subject to income taxes in the U.S. federal jurisdiction and various state 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 years before 2019. If the Company were to subsequently record an unrecognized tax benefit, associated penalties and tax related interest expense would be reported as a component of income tax expense. w. |
COMPREHENSIVE INCOME. available-for-sale |
x. |
NET INCOME PER COMMON SHARE. |
Diluted net income per common share is computed by dividing net income 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, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Basic weighted average common shares outstanding |
||||||||||||||||
Effect of dilutive securities |
||||||||||||||||
Diluted weighted average common shares outstanding |
||||||||||||||||
Outstanding common stock equivalents totaling approximately 2.0 2.2
y. |
SEGMENT INFORMATION. |
z. |
RECLASSIFICATIONS. |
aa. |
RECENTLY ISSUED ACCOUNTING STANDARDS. |
1
6
3. |
Investments. |
Available-for-sale
Estimated Fair Value |
Gross Unrealized Gains |
Gross Unrealized Losses |
Amortized Cost |
|||||||||||||
At June 30, 2023: |
||||||||||||||||
U.S. Treasuries - Cash equivalents |
$ | $ | $ | $ | ||||||||||||
Total |
$ | $ | $ | $ | ||||||||||||
At December 31, 2022: |
||||||||||||||||
U.S. Treasuries - Cash equivalents |
$ | $ | $ | $ | ||||||||||||
Total |
$ | $ | $ | $ | ||||||||||||
There were no 633
available-for-sale
available-for-sale
The estimated fair values of securities at June 30, 2022, by contractual maturity, are summarized as follows (in thousands):
available-for-sale
June 30, 2023 |
||||
Due in one year or less |
$ |
|||
4. |
Accumulated Other Comprehensive Income (Loss). |
The following table summarizes the changes in accumulated other comprehensive income (loss), net of tax from unrealized gains (losses) on securities (in thousands), the Company’s only component of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2023 and 2022.
available-for-sale
There were no reclassifications out of accumulated other comprehensive income (loss) during the three and six months ended June 30, 2023. The amount reclassified out of accumulated other comprehensive income (loss), net of tax and into net income during the three and six months ended June 30, 2022, was solely due to a realized loss from sale of securities.
available-for-sale
Total Accumulated Other Comprehensive Income (Loss) |
||||
Balance at March 31, 2023 |
$ |
|||
Other comprehensive loss before reclassifications |
||||
Amount reclassified from accumulated other comprehensive income |
||||
Net current period other comprehensive gain (loss) |
||||
Balance at June 30, 2023 |
$ |
|||
Balance at December 31, 2022 |
$ |
|||
Other comprehensive loss before reclassifications |
( |
) | ||
Amount reclassified from accumulated other comprehensive income |
||||
Net current period other comprehensive gain (loss) |
( |
) | ||
Balance at June 30, 2023 |
$ |
|||
7
4. |
Accumulated Other Comprehensive Income (Loss) (continued). |
Total Accumulated Other Comprehensive Income (Loss) |
||||
Balance at March 31, 2022 |
$ | ( |
) | |
Other comprehensive loss before reclassifications |
( |
) | ||
Amount reclassified from accumulated other comprehensive income |
||||
Net current period other comprehensive gain (loss) |
||||
Balance at June 30, 2022 |
$ | ( |
) | |
Balance at December 31, 2021 |
$ | ( |
) | |
Other comprehensive loss before reclassifications |
( |
) | ||
Amount reclassified from accumulated other comprehensive income |
||||
Net current period other comprehensive gain (loss) |
||||
Balance at June 30, 2022 |
$ | ( |
) | |
5. |
Inventory. |
Inventory consists of the following (in thousands):
June 30, 2023 |
December 31, 2022 |
|||||||
Raw materials |
$ | $ | ||||||
Work-in-process |
||||||||
Finished goods |
||||||||
Total inventory |
$ | $ | ||||||
6. |
Prepaid Expenses and Other Current Assets. |
Prepaid expenses and other current assets consist of the following (in thousands):
June 30, 2023 |
December 31, 2022 |
||||||||
Prepaid manufacturing costs |
$ | $ | |||||||
Prepaid tax |
|||||||||
Prepaid insurance |
|||||||||
Prepaid subscriptions fees |
|||||||||
Prepaid research fees |
|||||||||
Prepaid commercialization expenses |
|||||||||
Due from collaborative and licensing arrangements |
|||||||||
Prepaid conference and travel expenses |
|||||||||
Prepaid co-pay assistance program |
|||||||||
Other |
|||||||||
Total prepaid expenses and other current assets |
$ | $ | |||||||
1
8
7. |
Operating Leases. |
The Company has an operating lease agreement for its corporate office. The lease includes an option to extend the lease for up to 5 years and options to terminate the lease within 6 and 7.6 years. There are no obligations under finance leases.
The Company entered into an agreement in May 2020 that amended its lease for its office facilities. Under the amended lease, the Company’s leased space increased from approximately 7,800 square feet of space to approximately 10,700 square feet of space. The amended lease commenced in March 2021 when construction of the asset was completed and space became available for use. Consequently, the Company recorded the effects of the amended lease during the first quarter of 2021.
The components of lease expense were as follows (in thousands):
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Operating lease cost |
$ | $ | $ | $ | ||||||||||||
Supplemental cash flow information related to lease was as follows (in thousands):
For the Six Months Ended June 30, |
||||||||
2023 |
2022 |
|||||||
| Cash paid for amounts included in the measurement of lease liabilities: |
||||||||
| Operating cash flows |
$ |
$ |
||||||
| Right-of-use |
||||||||
| Operating lease |
$ |
$ |
||||||
Supplemental balance sheet information related to lease was as follows (in thousands):
June 30, 2023 |
December 31, 2022 |
|||||||
| Operating lease right-of-use |
$ |
$ |
||||||
| |
|
|
|
|||||
| |
$ |
$ |
||||||
| Operating lease liabilities, net of current portion |
||||||||
| |
|
|
|
|||||
| Total operating lease liabilities |
$ |
$ |
||||||
| |
|
|
|
|||||
As of June 30, 2023 and December 31, 2022, the weighted average remaining lease term was 7.8 years and 8.3 years, respectively. The weighted average discount rate used to determine the operating lease liabilities was 4.51
Remaining payments of lease liabilities as of June 30, 2023 were as follows (in thousands):
| 2023 (remaining six months) |
$ | |||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| Thereafter |
||||
| |
|
|||
| Total lease payments |
||||
| Less: imputed interest |
( |
) | ||
| |
|
|||
| Total |
$ | |||
| |
|
Rent expense was approximately $0.1 0.2
1
9
8. |
Property and Equipment, Net. |
Property and equipment, net consists of the following (in thousands):
June 30, 2023 |
December 31, 2022 |
|||||||
| Computer equipment |
$ | $ | ||||||
| Furniture and equipment |
||||||||
| Leasehold improvements |
||||||||
| Software |
||||||||
| Less: Accumulated depreciation |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total property and equipment, net |
$ | $ | ||||||
| |
|
|
|
|||||
9. |
License and Acquired Intangibles, Net. |
The following table presents the Company’s intangible assets at June 30, 2023 (in thousands):
Gross Carrying Value |
Accumulated Amortization |
Net Carrying Value |
||||||||||
| Intangible assets: |
||||||||||||
| License and acquired intangibles for RUZURGI ® |
$ | $ | $ | |||||||||
| License and acquired intangibles for FYCOMPA ® |
||||||||||||
| |
|
|
|
|
|
|||||||
| Total |
$ | $ | $ | |||||||||
| |
|
|
|
|
|
|||||||
The following table presents the Company’s intangible assets at December 31, 2022 (in thousands):
Gross Carrying Value |
Accumulated Amortization |
Net Carrying Value |
||||||||||
| Intangible assets: |
||||||||||||
| License and acquired intangibles for RUZURGI ® |
$ | $ | $ | |||||||||
| |
|
|
|
|
|
|||||||
| Total |
$ | |
$ | |
$ | |
||||||
| |
|
|
|
|
|
|||||||
The Company amortizes its definite-lived intangible assets using the straight-line method, which is considered the best estimate of economic benefit, over its estimated useful life. The useful lives for
RUZURGI
®
and FYCOMPA®
are approximately
The Company recorded approximately $0.6 million and $1.2 million in amortization expense related to the licensed and acquired intangibles for RUZURGI7.9 million and $13.9 million in amortization expense related to the licensed and acquired intangibles for FYCOMPA
®
during the three and six months ended June 30, 2023, within selling, general and administrative expenses in the consolidated statements of operations and comprehensive income. The Company recorded approximately $®
during the three and six months ended June 30, 2023, within cost of sales in the consolidated statement of operations and comprehensive income. There was no amortization expense recorded during the three and six months ended June 30, 2022. Amortization of both the FYCOMPA®
and RUZURGI®
intangible assets are reported together as amortization of intangible assets in the consolidated statements of operations and comprehensive income. The following table presents future amortization expense the Company expects for its intangible assets (in thousands):
| 2023 (remaining six months) |
$ | |||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| Thereafter |
||||
| |
|
|||
| Total |
$ | |||
| |
|
At June 30, 2023 and December 31, 2022, the weighted average amortization period remaining for intangible assets was 6.2 years and 14.0 years, respectively.
If all or a portion of the intangible assets are deemed not recoverable, the Company would estimate the fair value of the assets and record an impairment loss. There were no
20
10. |
Accrued Expenses and Other Liabilities. |
Accrued expenses and other liabilities consist of the following (in thousands):
June 30, 2023 |
December 31, 2022 |
|||||||
| Accrued preclinical and clinical trial expenses |
$ | $ | ||||||
| Accrued professional fees |
||||||||
| Accrued compensation and benefits |
||||||||
| Accrued license fees |
||||||||
| Accrued purchases |
||||||||
| Operating lease liability |
||||||||
| Accrued variable consideration |
||||||||
| Accrued income tax |
||||||||
| Due to licensor |
||||||||
| Other |
||||||||
| |
|
|
|
|||||
| Current accrued expenses and other liabilities |
||||||||
| |
|
|
|
|||||
| Lease liability – non-current |
||||||||
| Due to licensor – non-current |
||||||||
| |
|
|
|
|||||
| Non-current accrued expenses and other liabilities |
||||||||
| |
|
|
|
|||||
| Total accrued expenses and other liabilities |
$ | $ | ||||||
| |
|
|
|
|||||
11. |
Collaborative and Licensing Arrangements. |
Endo
In December 2018, the Company entered into a collaboration and license agreement (Collaboration) with 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 (Par). Under the Collaboration, Endo assumes 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 an ten years following the commercial launch of the product.
up-front
payment, and will receive a milestone payment, and a sharing of defined net profits upon commercialization from Endo consisting of a mid-double
digit percent of net sales of generic Sabril®
. The Company has also agreed to a sharing of certain development expenses. Unless terminated earlier in accordance with its terms, the collaboration continues in effect until the date that is The Company evaluated the license agreement with Endo to determine whether it is a collaborative arrangement for purposes of Topic 808. As the Company shares in the significant risks and rewards, the Company has concluded that this is a collaborative arrangement. As developing a final finished dosage form of a generic product in exchange for consideration is not an output of the Company’s ongoing activities, Endo does not represent a contract with a customer. However, Topic 808 does not provide guidance on the recognition of consideration exchanged or accounting for the obligations that may arise between the parties. The Company concluded that ASC Topic 730, , should be applied by analogy to payments between the parties during the development activities and Topic 606 for the milestone payment and sharing of defined net profits upon commercialization.
Research and Development
The collaborative agreement included a nonrefundable upfront license fee that was recognized upon receipt following execution of the collaborative arrangement for vigabatrin tablets.
The collaborative agreement provides for a $2.0 million milestone payment on the commercial launch of the product by Endo/Par. As of June 30, 2023 and 2022, no
There were no no
KYE Pharmaceuticals Inc.
In August 2020, the Company entered into a collaboration and license agreement with KYE Pharmaceuticals Inc. (KYE), for the commercialization of FIRDAPSE
®
in Canada. 21
11. |
Collaborative and Licensing Arrangements (continued). |
Under the agreement, Catalyst granted KYE an exclusive license to commercialize and market FIRDAPSE
®
in Canada. KYE assumes all selling and marketing costs under the collaboration, while the Company is responsible for supply of FIRDAPSE®
based on the collaboration partner’s purchase orders. Under the terms of the agreement, the Company will receive an
up-front
payment, received payment upon transfer of Marketing Authorization and delivery of commercial product, received payment for supply of FIRDAPSE®
, will receive milestone payments, and a sharing of defined net profits upon commercialization from KYE consisting of a mid-double-digit
percent of net sales of FIRDAPSE®
. The Company has also agreed to a sharing of certain development expenses. Unless terminated earlier in accordance with its terms, the collaboration continues in effect until the date that is ten years following the commercial launch of the product in Canada. This agreement is in form identified as a collaborative agreement and the Company has concluded for accounting purposes that it also represents a contract with a customer. This is because the Company grants to KYE a license and provides supply of FIRDAPSE
®
in exchange for consideration, which are outputs of the Company’s ongoing activities. Accordingly, the Company has concluded that this collaborative arrangement will be accounted for pursuant to Topic 606. The collaborative agreement included a nonrefundable upfront license fee that was recognized upon transfer of the license based on a determination that the right is provided as the intellectual property exists at the point in time in which the license is granted.
Under the arrangement, the Company will receive profit-sharing reports within nine days after quarter end from KYE. Revenue from sales of FIRDAPSE
®
by KYE is recognized in the quarter in which the sales occurred. Revenues from the arrangement with KYE for the three and six months ended June 30, 2023 and 2022 were no
DyDo Pharma, Inc.
On June 28, 2021, the Company entered into a license agreement with DyDo Pharma, Inc. (DyDo), for the development and commercialization of FIRDAPSE
®
in Japan. Under the agreement, DyDo has joint rights to develop FIRDAPSE
®
, and exclusive rights to commercialize the product, in Japan. DyDo is responsible for funding all clinical, regulatory, marketing and commercialization activities in Japan, while the Company is responsible for clinical and commercial supply based on purchase orders, as well as providing support to DyDo in its efforts to obtain regulatory approval for the product from the Japanese regulatory authorities. Under the terms of the agreement, the Company has earned an
up-front
payment and may earn further development and sales milestones for FIRDAPSE®
, as well as revenue on product supplied to DyDo. The Company has concluded that this license agreement will be accounted for pursuant to Topic 606. The agreement included a nonrefundable upfront license fee that was recognized upon the effective date of the agreement as the intellectual property exists at the point in time in which the right to the license is granted. The Company determined the granting of the right to the license is distinct from the supply of FIRDAPSE
®
and represents a separate performance obligation in the agreement. The agreement includes milestones that are considered a sales-based royalty in which the license is deemed to be the predominant item to which these milestones relate. Revenue will be recognized when the later of (a) the subsequent sale occurs, or (b) the performance obligation to which the sales-based royalty has been allocated has been satisfied. Additionally, the agreement includes regulatory milestone payments which represent variable consideration, and due to uncertainty are fully constrained and only recognized when the uncertainty is subsequently resolved. For clinical and commercial supply of the product, the Company will recognize revenue when the Customer obtains control of the Company’s product, which will occur at a point in time which is generally at time of shipment.
There were revenues of $0.3 million and $0.5 million in revenue from the arrangement with DyDo for the three and six months ended June 30, 2023, respectively, which is included in product revenue, net in the accompanying consolidated statements of operations and comprehensive income. There were revenues of $0.5 no milestone payments have been earned.
2
2
12. |
Commitments and Contingencies. |
In May 2019, the FDA approved a New Drug Application (NDA) for RUZURGI
®
, Jacobus Pharmaceuticals’ version of amifampridine (3,4-DAP),
for the treatment of pediatric LEMS patients (ages 6 to under 17). In June 2019 the Company filed suit against the FDA and several related parties challenging this approval and related drug labeling. Jacobus later intervened in the case. The Company’s complaint, which was filed in the federal district court for the Southern District of Florida, alleged 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, and Cosmetic Act (FDCA); violated the Company’s statutory rights to Orphan Drug Exclusivity and New Chemical Entity Exclusivity under the FDCA; and was in multiple other respects arbitrary, capricious, and contrary to law, in violation of the Administrative Procedure Act. Among other remedies, the suit sought an order vacating the FDA’s approval of RUZURGI®
. On July 30, 2020, the Magistrate Judge considering this lawsuit filed a Report and Recommendation in which she recommended to the District Judge handling the case that she grant the FDA’s and Jacobus’ motions for summary judgment and deny the Company’s motion for summary judgment. On September 29, 2020, the District Judge adopted the Report and Recommendation of the Magistrate Judge, granted the FDA’s and Jacobus’ motions for summary judgment, and dismissed the Company’s case. The Company appealed the District Court’s decision to the U.S. Court of Appeals for the 11
th
Circuit. The case was fully briefed in early 2021, and oral argument was held in March 2021. On September 30, 2021, a three-judge panel of 11 NDA was switched to a tentative approval until the
th
Circuit judges issued a unanimous decision overturning the District Court’s decision. The appellate court adopted the Company’s argument that the FDA’s approval of RUZURGI®
violated the Company’s rights to Orphan Drug Exclusivity and remanded the case to the District Court with orders to enter summary judgment in the Company’s favor. In November 2021, Jacobus filed a motion seeking rehearing of the case from the full 11th
Circuit, which motion was denied in January 2022. Further, in January 2022, Jacobus filed motions with both the 11th
Circuit and the U.S. Supreme Court seeking a stay of the 11th
Circuit’s ruling indicating that it would seek a review of the 11th
Circuit’s decision from the U.S. Supreme Court. Both stay motions were denied, and on January 28, 2022, the 11th
Circuit issued a mandate directing the District Court to enter summary judgment in the Company’s favor. The District Court entered that order on January 31, 2022. On February 1, 2022, the FDA informed Jacobus that, consistent with the Court of Appeals for the Eleventh Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval of the RUZURGI®
7-year
orphan-drug exclusivity (ODE) for FIRDAPSE®
has expired. On July 11, 2022, the Company settled certain of its disputes with Jacobus. In connection with the settlement, the Company licensed the rights to develop and commercialize RUZURGI
®
in the United States and Mexico (the Territory). Simultaneously, the Company purchased, among other intellectual property rights, Jacobus’ U.S. patents related to RUZURGI®
, its new drug applications in the United States for RUZURGI®
, and certain RUZURGI®
inventory previously manufactured by Jacobus. At the same time, the Company received a license from Jacobus for use of its know-how
related to the manufacture of RUZURGI®
. Further, the Company settled its patent case against Jacobus, which was dismissed without prejudice. Finally, Jacobus agreed that until the later of (i) the expiration of the royalty term or (ii) December 31, 2034, Jacobus and its affiliates, will not, directly or indirectly, research, develop, manufacture, commercialize, distribute, use or otherwise exploit any product competitive to FIRDAPSE®
or RUZURGI®
in the Territory, and Laura Jacobus, the sole shareholder of Jacobus, and two of Jacobus’ other officers, also signed individual non-competition
agreements containing the same terms. In connection with the settlement with Jacobus, the Company agreed to pay the following consideration to Jacobus:
| • | $ the next two years, on the first and second anniversary of closing. See Note 17 (Subsequent Events); |
| • | An annual royalty on our net sales (as defined in the License and Asset Purchase Agreement between Catalyst and Jacobus) of amifampridine products in the United States equal to: (a) for calendar years 2022 through 2025, the FIRDAPSECompany’s ® patents in the United States, |
| • | If the Company were to receive a priority review voucher for FIRDAPSE® or RUZURGI® in the future, |
Royalties will be trued up at the end of the year to the extent that royalties on net sales are below the minimum royalty.
23
12. |
Commitments and Contingencies (continued). |
The Company’s New Drug Submission filing for FIRDAPSE
®
for the symptomatic treatment of LEMS was approved when Health Canada issued a Notice of Compliance, or NOC, on July 31, 2020. In August 2020, the Company entered into a license agreement with KYE Pharmaceuticals, or KYE, pursuant to which the Company licensed to KYE the Canadian rights for FIRDAPSE®
for the treatment of LEMS. On August 10, 2020, Health Canada issued a NOC to Medunik (Jacobus’ licensee in Canada for RUZURGI®
) for the treatment of LEMS. Shortly thereafter, the Company initiated a legal proceeding in Canada seeking judicial review of Health Canada’s decision to issue the NOC for RUZURGI®
as incorrect and unreasonable under Canadian law due to Medunik’s use of Catalyst’s protected data in its application. After two decisions by the trial judge to quash the RUZURGI®
approval and remand the matter back to Health Canada, the Canadian Federal Appellate Court overturned the trial judge’s decision. The Minister subsequently reapproved RUZURGI®
’s NOC for Canada. In January 2023, the Company received Paragraph IV Certification Notice Letters from three generic drug manufacturers advising that they had each submitted an Abbreviated New Drug Application (ANDA) to the FDA seeking authorization from the FDA to manufacture, use or sell a generic version of FIRDAPSE45 days from receipt of the notice letters to commence patent infringement lawsuits against these generic drug manufacturers in a federal district court to trigger a stay precluding the FDA from approving any ANDA until May 2026 or entry of judgment holding the patents invalid, unenforceable, or not infringed, whichever occurs first. In that regard, after conducting the necessary due diligence, the Company filed lawsuits on March 1, 2023 in the U.S. District Court for the District of New Jersey against each of the three generic drug manufacturers who notified the Company of their ANDA submissions, thus triggering the stay.
®
in the United States. The notice letters each alleged that the six patents listed in the FDA Orange Book covering FIRDAPSE®
are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of the proposed product described in these ANDA submissions. Under the FDCA, as amended by the Drug Price Competition and Patent Term Restoration Act of 1984, as amended, the Company had On February 20, 2023, the Company received a Paragraph IV Certification Notice Letter from a company that appears to have filed the first ANDA for the oral suspension formulation for FYCOMPA
®
. The same company sent a similar letter to the Company later in February with a similar certification for the tablet formulation for FYCOMPA®
, the fourth such certification for this formulation. Both of these letters were paragraph IV certifications of non-infringement,
non-validity,
and unenforceability to the ‘497 patent for FYCOMPA®
but each application, like the previous Paragraph IV notices from ANDA filers, for FYCOMPA®
tablets does not challenge the ‘571 patent. Similar to the actions with the FIRDAPSE®
Paragraph IV Certifications described above, after due diligence the Company filed lawsuits on April 5, 2023 in the U.S. District Court for the District of New Jersey against the drug manufacturer who notified the Company of their ANDA submissions for both FYCOMPA®
formulations, thus triggering the 30 month stay for each application. 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.
13. |
Agreements. |
a. |
LICENSE AGREEMENT FOR FIRDAPSE ® ® . Under the license agreement, the Company pays: (i) royalties to the licensor for seven years from the first commercial sale of FIRDAPSE® equal to 100 million; and (ii) royalties to the third-party licensor of the rights sublicensed to the Company for ® equal to |
On May 29, 2019, the Company and BioMarin entered into an amendment to the Company’s license agreement for FIRDAPSE
®
. Under the amendment, the Company has expanded its commercial territory for FIRDAPSE®
, which originally was 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 will pay royalties to our licensor on net sales in Japan of a similar percentage to the royalties that the Company is currently paying under its original license agreement for North America. In January 2020, the Company was advised that BioMarin has transferred certain rights under the license agreement to SERB S.A.
4
13. |
Agreements (continued). |
b. |
LICENSE AGREEMENT FOR RUZURGI ® ® in the United States and Mexico. |
Pursuant to the terms of the license agreement, the Company paid Jacobus a $10 million 10 million on the first annual anniversary of the Effective Date (July 11, 2023), another $10 million on the second annual anniversary of the Effective Date (July 11, 2024) and tiered royalty payments on net sales (as defined in the license agreement) of all of the Company’s products in the United States that range from 1.25 % to 2.5
up-front
payment on the Effective Date and will pay an additional $% based on whether there is a competing product or generic version of FIRDAPSE being marketed or sold in the United States. See Note 17 (Subsequent Events).
®
A minimum royalty payment exists annually for calendar years from the Effective Date through 2025 of $3
®
patents in the United States) of $5
million unless a competing product or generic version of FIRDAPSE®
is being marketed or sold in the United States. If these minimum payments become probable in the future, the Company would recognize a contingent liability at that time with an offset to the value of the intangible asset acquired. Any royalties in excess of this amount will be charged to cost of sales as revenue from product sales is recognized. Royalties over the minimum, if any, will be paid based on the agreement terms on a quarterly basis. Assets acquired as part of the license agreement include among other intellectual property rights, Jacobus’ U.S. patents related to RUZURGI
®
, its new drug applications in the United States for RUZURGI®
, its Trademark for RUZURGI®
, the Orphan Drug Designation for RUZURGI®
and a license from Jacobus for use of its know-how
related to the manufacture of RUZURGI®
. Additionally, the Company also purchased from Jacobus approximately $4.1 million of RUZURGI
®
inventory previously manufactured by Jacobus, which were recorded as an expense in research and development expenses in the consolidated statement of operations and comprehensive income for the third quarter of 2022. Under business combination guidance, the screen test states that if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business and is accounted for as an asset acquisition. The Company has determined that the screen test was not met. However, the Company determined that the acquisition did not meet the definition of a business under ASC 805, Business Combination. The Company believes that the licensing agreement and other assets acquired from Jacobus are similar and considered them all to be intangible assets with the exception of the inventory acquired. As the screen test was not met, further determination was required to determine that the Company had not acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business, and therefore, determined that this was an asset acquisition. The Company accounted for the Jacobus license agreement as an asset acquisition under ASC
805-50,
which requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, which includes consideration given.The total purchase price was allocated to the acquired assets based on their relative fair values, as follows (in thousands):
License and acquired intangibles |
$ |
|||
Acquired research and development inventory expensed from asset acquisition |
||||
Total purchase price |
$ |
|||
The straight-line method is used to amortize the license and acquired intangibles, as disclosed in Note 9 (License and Acquired Intangibles, Net).
5
13. |
Agreements (continued). |
c. |
ACQUISITION OF U.S. RIGHTS FOR FYCOMPA ® . ® (perampanel) CIII a commercial stage epilepsy asset, from Eisai Co., Ltd. (Eisai). The aggregate consideration for the acquisition was $ |
Eisai is also eligible to receive a contingent payment of $25
million if a certain regulatory milestone is met. As meeting the regulatory milestone was not probable, the Company did not recognize any amount related to the milestone payments in the purchase price. Additionally, after the loss of patent exclusivity for FYCOMPA, the Company may be obligated to pay certain royalties to Eisai on net sales of FYCOMPA. As the Transaction is accounted for as an asset acquisition under U.S. GAAP, the Company opted to recognize the royalty payments in cost of sales as revenue from product sales is recognized.
®
®
Royalties commencing on loss of exclusivity for each calendar year during the royalty term equal to 12 % on net sales greater than $10 million and less than $100 million, 17 % on net sales of greater than $100 million and less than $125 million and 22 % on net sales greater than $125 million prior to the date of generic entry. Royalties equal to 6 % on net sales greater than $10 million and less than $100 million, 8.5 % on net sales of greater than $100 million and less than $125 million and 11 % on net sales greater than $125 million after the date of generic entry.
The following table summarizes the aggregate amount paid for the assets acquired by the Company in connection with the acquisition of FYCOMPA
®
(in thousands): Base cash payment |
$ | |||
Cash paid for pro-rated prepaid expenses |
||||
Reimbursement on base purchase price (i) |
( |
) | ||
Transaction costs (ii) |
||||
Total purchase consideration |
$ | |||
(i) |
Recorded in prepaid expenses and other current assets in the accompanying consolidated balance sheet as of the acquisition date and reimbursement was fully applied as of June 30, 2023 |
(ii) |
$ |
The acquisition of FYCOMPA includes a screen test, which provides that if substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the assets acquired are not considered to be a business. ASC 805 requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, which includes consideration given.
®
has been accounted for as an asset acquisition in accordance with FASB ASC 805-50.
The Company accounted for the acquisition of FYCOMPA®
as an asset acquisition because substantially all of the fair value of the assets acquired is concentrated in a single asset, the FYCOMPA®
product rights. The FYCOMPA®
products rights consist of certain patents and trademarks, at-market
contracts and regulatory approvals, marketing assets, and other records, and are considered a single asset as they are inextricably linked. ASC 805-10-55-5A
The total purchase price was allocated to the acquired assets based on their relative fair values, as follows (in thousands):
Inventory |
$ |
|||
Prepaid expenses and other current assets (samples) |
||||
Prepaid commercialization expenses |
||||
Property and equipment, net |
||||
License and acquired intangibles for FYCOMPA ® |
||||
Accrued preclinical and clinical trial expenses |
( |
) | ||