QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
|
||
(Address of principal executive offices) |
(Zip Code) |
Title of Each Class |
Ticker Symbol |
Name of Exchange on Which Registered | ||
Large accelerated filer | ☐ | ☒ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
Emerging growth company |
CATALYST PHARMACEUTICALS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. |
||||||
Consolidated balance sheets at September 30, 2023 (unaudited) and December 31, 2022 |
3 | |||||
4 | ||||||
5 | ||||||
7 | ||||||
8 | ||||||
Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
33 | ||||
Item 3. |
46 | |||||
Item 4. |
46 | |||||
PART II. OTHER INFORMATION | ||||||
Item 1. |
47 | |||||
Item 1A. |
47 | |||||
Item 2. |
47 | |||||
Item 3. |
48 | |||||
Item 4. |
48 | |||||
Item 5. |
48 | |||||
Item 6. |
48 | |||||
49 |
2
September 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 |
||||||||
Investment in equity securities |
||||||||
|
|
|
|
|||||
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 deficit) |
||||||||
Accumulated other comprehensive income (loss) (Note 4) |
||||||||
|
|
|
|
|||||
Total stockholders’ equity |
||||||||
|
|
|
|
|||||
Total liabilities and stockholders’ equity |
$ | $ | ||||||
|
|
|
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 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 (loss) |
( |
) | ||||||||||||||
Other income (expense), net |
( |
) | ||||||||||||||
Net income (loss) before income taxes |
( |
) | ||||||||||||||
Income tax provision (benefit) |
( |
) | ||||||||||||||
Net income (loss) |
$ | ( |
) | $ | $ | $ | ||||||||||
Net income (loss) per share: |
||||||||||||||||
Basic |
$ | ( |
) | $ | $ | $ | ||||||||||
Diluted |
$ | ( |
) | $ | $ | $ | ||||||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
||||||||||||||||
Diluted |
||||||||||||||||
Net income (loss) |
$ | ( |
) | $ | $ | $ | ||||||||||
Other comprehensive income (loss) (Note 4): |
||||||||||||||||
Unrealized gain (loss) on available-for-sale of $ |
( |
) | ( |
) | ||||||||||||
Comprehensive income (loss) |
$ | ( |
) | $ | $ | $ | ||||||||||
(a) | exclusive of amortization of intangible assets |
Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Retained Earnings (Accumulated Deficit) |
Accumulated Other Comprehensive Gain (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 (loss) |
— | — | — | — | — | |||||||||||||||||||||||
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 (loss) |
— | — | — | — | — | |||||||||||||||||||||||
Balance at June 30, 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 (loss) |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
Balance at September 30, 2023 |
$ | — | $ | $ | $ | $ | $ | |||||||||||||||||||||
Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Retained Earnings (Accumulated Deficit) |
Accumulated Other Comprehensive Gain (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 (loss) |
— | — | — | — | — | |||||||||||||||||||||||
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 (loss) |
— | — | — | — | — | |||||||||||||||||||||||
Balance at June 30, 2022 |
— | ( |
) | |||||||||||||||||||||||||
Issuance of stock options for services |
— | — | — | — | — | |||||||||||||||||||||||
Exercise of stock options for common stock |
— | — | — | |||||||||||||||||||||||||
Amortization of restricted stock for services |
— | — | — | — | — | |||||||||||||||||||||||
Other comprehensive gain (loss) |
— | — | — | — | — | |||||||||||||||||||||||
Net income (loss) |
— | — | — | — | — | |||||||||||||||||||||||
Balance at September 30, 2022 |
$ | — | $ | $ | $ | $ | $ | |||||||||||||||||||||
For the Nine Months Ended September 30, |
||||||||
2023 |
2022 |
|||||||
Operating Activities: |
||||||||
Net income (loss) |
$ | $ | ||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
Depreciation |
||||||||
Stock-based compensation |
||||||||
Amortization of intangible assets |
||||||||
Deferred taxes |
( |
) | ||||||
Accretion of discount |
||||||||
Reduction in the carrying amount of right-of-use |
||||||||
Realized loss on sale of available-for-sale |
— | |||||||
Acquired research and development inventory expensed from asset acquisition |
— | |||||||
Acquired inventory samples expensed from asset acquisition |
— | |||||||
Acquired in-process research and development |
— | |||||||
Change in fair value of equity securities |
— | |||||||
(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 |
( |
) | ( |
) | ||||
Payments in connection with asset acquisitions |
( |
) | ( |
) | ||||
Proceeds from sale of available-for-sale |
— | |||||||
Acquisition of in-process research and development |
( |
) | — | |||||
Purchase of equity securities |
( |
) | — | |||||
|
|
|
|
|||||
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 |
$ | $ | ||||||
Cash paid for interest |
$ | $ |
— | |||||
Non-cash investing and financing activities: |
||||||||
Liabilities arising from asset acquisition |
$ | $ |
1. |
Organization and Description of Business. |
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. |
b. |
PRINCIPLES OF CONSOLIDATION. |
c. |
USE OF ESTIMATES. |
d. |
CASH AND CASH EQUIVALENTS. |
e. |
INVESTMENTS. |
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
f. |
ACCOUNTS RECEIVABLE, NET. |
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. |
h. |
PREPAID EXPENSES AND OTHER CURRENT ASSETS. 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. |
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
k. |
INTANGIBLE ASSETS, NET. |
l. |
FAIR VALUE OF FINANCIAL INSTRUMENTS. |
m. |
FAIR VALUE MEASUREMENTS. |
Fair Value Measurements at Reporting Date Using (in thousands) |
||||||||||||||||
Balances as of September 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 |
$ | $ | $ | — | $ | — | ||||||||||
Investment in equity securities: |
||||||||||||||||
Equity securities |
$ | $ | $ | — | $ | — | ||||||||||
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. |
p. |
REVENUE RECOGNITION. |
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
FIRDAPSE ® |
$ | $ | $ | $ | ||||||||||||
FYCOMPA ® |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total product revenue, net |
$ | $ | $ | $ | ||||||||||||
|
|
|
|
|
|
|
|
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
q. |
RESEARCH AND DEVELOPMENT. |
r. |
ADVERTISING EXPENSE. |
s. |
STOCK-BASED COMPENSATION. and comprehensive income (loss) for the grant date fair value of all stock-based payments to employees, directors and consultants, including grants of stock options and other share-based awards. For stock options, the Company uses the Black-Scholes option valuation model, the single-option award approach, and the straight-line attribution method. Using this approach, compensation cost is amortized on a straight-line basis over the vesting period of each respective stock option, generally one to |
t. |
CONCENTRATION OF RISK. |
u. |
ROYALTIES. ® , as disclosed in Note 13 (Agreements), are expensed to cost of sales as revenue from product sales is recognized. |
2. |
Basis of Presentation and Significant Accounting Policies (continued). |
v. |
INCOME TAXES. |
w. |
COMPREHENSIVE INCOME (LOSS). available-for-sale |
x. |
NET INCOME (LOSS) PER COMMON SHARE. |
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Basic weighted average common shares outstanding |
||||||||||||||||
Effect of dilutive securities |
||||||||||||||||
Diluted weighted average common shares outstanding |
||||||||||||||||
y. |
SEGMENT INFORMATION. |
z. |
RECLASSIFICATIONS. |
aa. |
RECENTLY ISSUED ACCOUNTING STANDARDS. |
3. |
Investments. |
Estimated Fair Value |
Gross Unrealized Gains |
Gross Unrealized Losses |
Amortized Cost |
|||||||||||||
At September 30, 2023: |
||||||||||||||||
U.S. Treasuries—Cash equivalents |
$ | $ | $ | $ | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | $ | $ | $ | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
At December 31, 2022: |
||||||||||||||||
U.S. Treasuries—Cash equivalents |
$ | $ | $ | $ | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | $ | $ | $ | ||||||||||||
|
|
|
|
|
|
|
|
September 30, 2023 |
||||
Due in one year or less |
$ | |||
|
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Equity securities: |
||||||||||||||||
Net gains (losses) recognized during the period on equity securities |
$ | ( |
) | $ | — | $ | ( |
) | $ | — | ||||||
|
|
|
|
|
|
|
|
|||||||||
Unrealized net gains (losses) recognized during the period on equity securities still held at the reporting date |
$ | ( |
) | $ | — | $ | ( |
) | $ | — | ||||||
|
|
|
|
|
|
|
|
4. |
Accumulated Other Comprehensive Income (Loss). |
Total Accumulated Other Comprehensive Income (Loss) |
||||
Balance at June 30, 2023 |
$ | |||
|
|
|||
Other comprehensive loss before reclassifications |
( |
) | ||
Amount reclassified from accumulated other comprehensive income (loss) |
||||
|
|
|||
Net current period other comprehensive gain (loss) |
( |
) | ||
|
|
|||
Balance at September 30, 2023 |
$ | |||
|
|
|||
Balance at December 31, 2022 |
$ | |||
|
|
|||
Other comprehensive loss before reclassifications |
( |
) | ||
Amount reclassified from accumulated other comprehensive income (loss) |
||||
|
|
|||
Net current period other comprehensive gain (loss) |
( |
) | ||
|
|
|||
Balance at September 30, 2023 |
$ | |||
|
|
Total Accumulated Other Comprehensive Income (Loss) |
||||
Balance at June 30, 2022 |
$ | ( |
) | |
|
|
|||
Other comprehensive loss before reclassifications |
||||
Amount reclassified from accumulated other comprehensive income (loss) |
||||
|
|
|||
Net current period other comprehensive gain (loss) |
||||
|
|
|||
Balance at September 30, 2022 |
$ | |||
|
|
|||
Balance at December 31, 2021 |
$ | ( |
) | |
|
|
|||
Other comprehensive loss before reclassifications |
( |
) | ||
Amount reclassified from accumulated other comprehensive income (loss) |
||||
|
|
|||
Net current period other comprehensive gain (loss) |
||||
|
|
|||
Balance at September 30, 2022 |
$ | |||
|
|
5. |
Inventory. |
September 30, 2023 |
December 31, 2022 |
|||||||
Raw materials |
$ | $ | ||||||
Work-in-process |
||||||||
Finished goods |
||||||||
|
|
|
|
|||||
Total inventory |
$ | $ | ||||||
|
|
|
|
6. |
Prepaid Expenses and Other Current Assets. |
September 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 |
$ | $ | ||||||
|
|
|
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Operating lease cost |
$ | $ | $ | $ |
For the Nine Months Ended September 30, |
||||||||
2023 |
2022 |
|||||||
Cash paid for amounts included in the measurement of lease liabilities: |
||||||||
Operating cash flows |
$ | $ | ||||||
Right-of-use |
||||||||
Operating lease |
$ | $ |
September 30, 2023 |
December 31, 2022 |
|||||||
Operating lease right-of-use |
$ | $ | ||||||
|
|
|
|
|||||
|
$ | $ | ||||||
Operating lease liabilities, net of current portion |
||||||||
|
|
|
|
|||||
Total operating lease liabilities |
$ | $ | ||||||
|
|
|
|
2023 (remaining three months) |
$ | |||
2024 |
||||
2025 |
||||
2026 |
||||
2027 |
||||
Thereafter |
||||
|
|
|||
Total lease payments |
||||
Less: imputed interest |
( |
) | ||
|
|
|||
Total |
$ | |||
|
|
8. |
Property and Equipment, Net. |
September 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. |
Gross Carrying Value |
Accumulated Amortization |
Net Carrying Value |
||||||||||
Intangible assets: |
||||||||||||
License and acquired intangibles for RUZURGI ® |
$ | $ | $ | |||||||||
License and acquired intangibles for FYCOMPA ® |
||||||||||||
|
|
|
|
|
|
|||||||
Total |
$ | $ | $ | |||||||||
|
|
|
|
|
|
Gross Carrying Value |
Accumulated Amortization |
Net Carrying Value |
||||||||||
Intangible assets: |
||||||||||||
License and acquired intangibles for RUZURGI ® |
$ | $ | $ | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | $ | $ | |||||||||
|
|
|
|
|
|
2023 (remaining three months) |
$ | |||
2024 |
||||
2025 |
||||
2026 |
||||
2027 |
||||
Thereafter |
||||
|
|
|||
Total |
$ | |||
|
|
9. |
License and Acquired Intangibles, Net (continued). |
10. |
Accrued Expenses and Other Liabilities. |
September 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 |
||||||||
Accrued interest payable |
||||||||
Other |
||||||||
|
|
|
|
|||||
Current accrued expenses and other liabilities |
||||||||
|
|
|
|
|||||
Lease liability – non-current |
||||||||
Due to licensor – non-current |
||||||||
Other – non-current |
||||||||
|
|
|
|
|||||
Non-current accrued expenses and other liabilities |
||||||||
|
|
|
|
|||||
Total accrued expenses and other liabilities |
$ | $ | ||||||
|
|
|
|
11. |
Collaborative and Licensing Arrangements. |
11. |
Collaborative and Licensing Arrangements (continued). |
12. |
Commitments and Contingencies. |
• | $ , $ and the remaining $ will be paid on the second anniversary of closing; |
• | 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, ® patents in the United States, |
• | If the Company were to receive a priority review voucher for FIRDAPSE ® or RUZURGI® in the future, |
12. |
Commitments and Contingencies (continued). |
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 ® equal to |
13. |
Agreements (continued). |
b. |
LICENSE AGREEMENT FOR RUZURGI ® ® in the United States and Mexico. |
License and acquired intangibles |
$ | |||
Acquired research and development inventory expensed from asset acquisition |
||||
Total purchase price |
$ | |||
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 $ |
13. |
Agreements (continued). |
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) | As of September 30, 2023 the full $ |
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 |
( |
) | ||
Total purchase consideration |
$ | |||
13. |
Agreements (continued). |
d. |
LICENSE AGREEMENT FOR VAMOROLONE. |
Initial cash payment |
$ | |||
Investment in Santhera |
||||
Transaction costs |
||||
Total purchase consideration |
$ | |||
License and acquired intangibles for vamorolone (IPR&D) |
$ | |||
Investment in Santhera (i) |
||||
Total purchase consideration |
$ | |||
(i) | The fair value of the investment in Santhera was determined based on the closing market price (CHF |
13. |
Agreements (continued). |
e. |
AGREEMENTS FOR DRUG MANUFACTURING, DEVELOPMENT, PRECLINICAL AND CLINICAL STUDIES. |
14. |
Income Taxes. |
15. |
Stockholders’ Equity. |
16. |
Stock Compensation. |
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Research and development |
$ | $ | $ | $ | ||||||||||||
Selling, general and administrative |
||||||||||||||||
Total stock-based compensation |
$ | $ | $ | $ | ||||||||||||
17. |
Subsequent Events. |
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 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 third quarter of fiscal 2023. |
• | 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 the 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 nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022. |
• | 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 commercial-stage patient-centric biopharmaceutical company focused on in-licensing, developing and commercializing novel high-quality medicines for patients living with rare diseases and diseases that are difficult to treat. With exceptional patient focus, we are committed to developing a robust pipeline of cutting-edge, best-in-class medicines for treating rare and difficult to treat diseases. We are dedicated to making a meaningful impact on the lives of those suffering from rare and difficult to treat diseases, and we believe in putting patients first in everything we do.
Our flagship U.S. commercial product is FIRDAPSE® (amifampridine) Tablets 10 mg. approved for the treatment of Lambert-Eaton myasthenic syndrome, or LEMS, for adults and for children ages six and up. Further, on January 24, 2023, we closed our acquisition of FYCOMPA® and are now also marketing that product in the United States. FYCOMPA® (perampanel) CIII is a prescription medication used alone or with other medicines to treat focal onset seizures with or without secondarily generalized seizures in people with epilepsy aged four and older and with other medicines to treat primary generalized tonic-clonic seizures in people with epilepsy aged 12 and older. Finally, on July 18, 2023, we closed our acquisition of an exclusive license for North America for vamorolone, a novel corticosteroid treatment for patients suffering from Duchenne muscular dystrophy (DMD). On October 26, 2023, the FDA approved AGAMREE® (vamorolone) oral suspension 40 mg/ml for the treatment of DMD. We are currently planning the commercial launch of AGAMREE® in the United States during the first quarter of 2024.
FIRDAPSE®
On November 28, 2018, we received approval from the United States Food and Drug Administration (FDA) of our new drug application (NDA) for FIRDAPSE® Tablets 10 mg for the treatment of adult patients (ages 17 and above) with LEMS, and in January 2019, we launched FIRDAPSE® in the United States. Further, on September 29, 2022, the FDA approved our supplemental NDA (sNDA) to expand the indicated age range for FIRDAPSE® Tablets 10 mg to include pediatric patients, six years of age and older for the treatment of LEMS.
We sell FIRDAPSE® through a field force experienced in neurologic, central nervous system or rare disease products consisting at this time of approximately 29 field personnel, including sales (Regional Account Managers), thought-leader liaisons, patient assistance and insurance navigation support (Patient Access Liaisons), and payor reimbursement (National Account Managers). We also have a field-based force of six medical science liaisons who are helping educate the medical communities and patients about LEMS and our programs supporting patients and access to FIRDAPSE®.
Additionally, we have contracted with an experienced inside sales agency that works to generate leads through telemarketing to targeted physicians. This inside sales agency allows our sales efforts to not only reach the neuromuscular specialists who regularly treat LEMS patients, but also the roughly 9,000 neurology and neuromuscular healthcare providers that may be treating a LEMS patient who can benefit from FIRDAPSE®. We also use non-personal promotion to reach the 20,000 neurologists who are potential LEMS treaters and the 16,000 oncologists who might be treating a LEMS patient with small cell lung cancer. Further, we continue to make available at no-cost a LEMS voltage gated calcium channel antibody testing program for use by physicians who suspect that one of their patients may have LEMS and wish to reach a definitive diagnosis.
33
Finally, we are continuing to expand our digital and social media activities to introduce our product and services to potential patients and their healthcare providers. We also work with several rare disease advocacy organizations (including Global Genes and the National Organization for Rare Disorders) to help increase awareness and level of support for patients living with LEMS 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 for patients who enroll in it. Catalyst Pathways® is a single source for personalized treatment support, education and guidance through the challenging dosing and titration regimen required to reach an effective therapeutic dose. It also includes distributing the drug through a very small group of exclusive specialty pharmacies (primarily AnovoRx), which is consistent with the way that most drug products for ultra-orphan diseases are distributed and dispensed to patients. We believe that by using specialty pharmacies in this way, the difficult task of navigating the health care system is far better for the patient needing treatment for their rare disease and the health care community in general.
In order to help patients with LEMS afford their medication, we, like other pharmaceutical companies which are marketing drugs for ultra-orphan conditions, have developed an array of financial assistance programs that are available to reduce patient co-pays and deductibles to a nominal affordable amount. A co-pay assistance program designed to keep out-of-pocket costs to not more than $10.00 per month (currently less than $2.00 per month) is available for all LEMS patients with commercial coverage who are prescribed FIRDAPSE®. Our FIRDAPSE® co-pay assistance program is not available to patients enrolled in state or federal healthcare programs, including Medicare, Medicaid, VA, DoD, or TRICARE. However, we are donating, and committed to continuing to donate, money to qualified, independent charitable foundations dedicated to providing assistance to any U.S. LEMS patients in financial need. Subject to compliance with regulatory requirements, our goal is that no LEMS patient is ever denied access to their medication for financial reasons.
In January 2023, we received Paragraph IV Certification Notice Letters from three generic drug manufacturers advising us that they had each submitted an Abbreviated New Drug Application (ANDA) to the FDA seeking authorization from the FDA to manufacture, use or sell a generic version of FIRDAPSE® in the United States. The notice letters each alleged that our six patents listed in the FDA Orange Book covering FIRDAPSE® are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of the proposed product described in these ANDA submissions. Under the Federal Food, Drug, and Cosmetic Act (FDCA), as amended by the Drug Price Competition and Patent Term Restoration Act of 1984, as amended, we had 45 days from receipt of the notice letters to commence patent infringement lawsuits against these generic drug manufacturers in a federal district court to trigger a stay precluding the FDA from approving any ANDA until May 2026 or entry of judgment holding the patents invalid, unenforceable, or not infringed, whichever occurs first. In that regard, after conducting the necessary due diligence, we filed lawsuits on March 1, 2023 in the U.S. District Court for the District of New Jersey against each of the three generic drug manufacturers who notified us of their ANDA submissions, thus triggering the stay. We also very recently received a Paragraph IV Certification Notice Letter from a fourth generic drug manufacturer, which we are currently reviewing.
We intend to vigorously protect and defend our intellectual property for FIRDAPSE® and, although there can be no assurance, we believe that our patent estate will protect FIRDAPSE® from generic competition for the life of our patents.
On August 4, 2023, we submitted an sNDA to the FDA seeking an increase in the maximum indicated dose of FIRDAPSE® from 80 mg per day to 100 mg per day. On October 13, 2023, we announced that the FDA had accepted our sNDA for review and assigned a Prescription Drug User Fee Act (PDUFA) action date of June 4, 2024. There can be no assurance that the FDA will approve our sNDA.
We are advised by our sub-licensee for FIRDAPSE® in Japan, DyDo Pharma, Inc. (DyDo), that based on a preliminary favorable analysis results of interim data after six months into the safety phase of its registration study to evaluate the efficacy and safety of FIRDAPSE® for the treatment of LEMS, DyDo intends to file a Japan NDA with the MHLW in Japan seeking approval to commercialize the product in Japan by the end of 2023. There can be no assurance that any NDA filing made by DyDo will be approved.
FYCOMPA®
On December 17, 2022, we entered into an asset purchase agreement with Eisai Co., Ltd. (Eisai) for the acquisition of the U.S. rights to FYCOMPA® (perampanel) CIII. FYCOMPA® is a selective non-competitive antagonist of AMPA receptors, the major subtype of ionotropic glutamate receptors. It was the first, and still the only, drug of its class to be approved for epilepsy. Studies suggest that AMPA receptor antagonism can lead to reduced overstimulation and anticonvulsant effects, as well as inhibiting seizure generation and spread. FYCOMPA® is a controlled substance and is approved with a box warning label.
FYCOMPA® is used to treat partial onset seizures with or without secondarily generalized seizures in adults and children 4 years of age and older. It is also used in combination with other medications to treat primary generalized tonic-clonic seizures (also known as a “grand mal” seizure, a seizure that involves the entire body) in adults and children 12 years of age or older. Perampanel is in a class of medications called anticonvulsants. It works by decreasing abnormal electrical activity in the brain.
34
On January 24, 2023 we closed our acquisition of the U.S. rights to FYCOMPA®. In connection with the acquisition, we purchased Eisai’s regulatory approvals and documentation, product records, intellectual property, inventory, and other matters relating to the U.S. rights for FYCOMPA®, in exchange for a cash upfront payment of $160 million, plus $1.6 million for reimbursement of certain prepayments. Further, under certain circumstances, we may also be obligated to pay Eisai an additional cash payment of $25 million if a patent extension for FYCOMPA® until June 8, 2026 is approved by the U.S. Patent and Trademark Office (USPTO). Finally, we agreed to pay Eisai royalty payments after patent protection for FYCOMPA® expires, which royalty payments will be reduced upon generic equivalents to FYCOMPA® entering the market.
In conjunction with the closing of our acquisition of FYCOMPA®, we entered into two additional agreements with Eisai; a Transition Services Agreement and a Supply Agreement. Under the Transition Services Agreement, a U.S. subsidiary of Eisai is providing us with certain transitional services, and under the Supply Agreement, Eisai has agreed to manufacture FYCOMPA® for us for at least seven years at prices listed in the Supply Agreement (to be updated on a yearly basis).
Initially, following the closing of the acquisition, we began marketing FYCOMPA® in the U.S. through Eisai’s U.S. subsidiary under the Transition Services Agreement as we built our FYCOMPA® marketing and sales team, and on May 1, 2023, we took over the marketing program for FYCOMPA®. In that regard, we have hired approximately 34 sales and marketing personnel to support FYCOMPA®, most of whom previously worked in Eisai’s U.S. sales division marketing FYCOMPA®. We also have hired seven medical science liaisons to help us educate the medical community who treat epilepsy and the patients who have epilepsy about their disease and the benefits of FYCOMPA®.
Catalyst is supporting patients using FYCOMPA® through an Instant Savings Card Program. Through the program, eligible commercially insured patients could pay as little as $10 for their FYCOMPA® co-pay (with a maximum savings of $1,300 per year). The FYCOMPA® instant savings card program is not available to patients enrolled in state or federal healthcare programs, including Medicare, Medicaid, VA, DoD, or TRICARE.
Patent protection for FYCOMPA® is primarily from two patents listed in the Orange Book. The first, U.S. Patent No. 6,949,571 (the ‘571 patent), will expire no earlier than May 23, 2025, which is the current expiration date for the ‘571 patent that includes the USPTO’s current patent term extension calculation. A request for reconsideration of the agency’s patent term extension calculation to extend the period until June 8, 2026 was recently denied, and the Company is currently exploring its options to potentially obtain an extension of this patent term (and there can be no assurance that any extension of this patent term will be obtained). The second FYCOMPA® patent in the Orange Book is U.S. Patent No. 8,772,497 (the ‘497 patent) that expires on July 1, 2026. The ‘497 patent is the one that has been the subject of previous Paragraph IV certifications from three ANDA filers.
On February 20, 2023, Catalyst received a Paragraph IV Certification Notice Letter from a company that appears to have filed the first ANDA for the oral suspension formulation for FYCOMPA®. The same company sent a similar letter to the Company later in February with a similar certification for the tablet formulation for FYCOMPA®, the fourth such certification for this formulation. Both of these letters were paragraph IV certifications of non-infringement, non-validity, and unenforceability to the ‘497 patent for FYCOMPA® but each application, like the previous Paragraph IV notices from ANDA filers, for FYCOMPA® tablets does not challenge the ‘571 patent. Similar to our actions with the FIRDAPSE® Paragraph IV Certifications described above, after due diligence Catalyst filed lawsuits on April 5, 2023 in the U.S. District Court for the District of New Jersey against the drug manufacturer who notified Catalyst of their ANDA submissions for both FYCOMPA® formulations, thus triggering the 30 month stay for each application.
AGAMREE®
On June 19, 2023, we entered into a License and Collaboration Agreement (License Agreement) and an Investment Agreement (Investment Agreement) with Santhera Pharmaceuticals Holding, Inc. (Santhera). Under the License Agreement, we contracted to obtain an exclusive North America license, manufacturing and supply agreement for Santhera’s investigational product candidate, AGAMREE® (vamorolone), a novel corticosteroid for the treatment of DMD. Under the Investment Agreement, we agreed to make a strategic investment into Santhera.
Both transactions closed on July 18, 2023. Under the License Agreement, upon closing, we made a $75 million payment to Santhera in return for the exclusive North American license for AGAMREE®. Additionally, following approval of the NDA for the drug, on October 26, 2023, we became obligated to make milestone payments of $36 million to Santhera, $26 million of which will be used by Santhera to make milestone payments to third parties. This payment will be made in the fourth quarter of 2023. We may also be obligated to pay future regulatory and commercial milestone payments to Santhera tied to calendar year sales of AGAMREE®, as well as commercial royalties. In addition to the rights to commercialize the product in North America, the License Agreement provides us with the right of first negotiation for AGAMREE® in Europe and Japan should Santhera pursue partnership opportunities in those territories. Additionally, we will hold the North American rights to any future approved indications for AGAMREE®.
Concurrently with the closing of the License Agreement, we made a strategic investment into Santhera in which we acquired 1,414,688 of Santhera’s post-reverse split ordinary shares (representing approximately 11.26% of Santhera’s outstanding ordinary shares following the transaction) at an investment price of CHF 9.477 per share (corresponding to a mutually agreed volume weighted average price prior to signing), with the approximately $15 million investment to be used by Santhera for Phase IV studies of AGAMREE® in DMD and future development of additional indications for AGAMREE®.
35
DMD, the most common form of muscular dystrophy, is a rare and life-threatening neuromuscular disorder characterized by progressive muscle dysfunction, ultimately leading to loss of ambulation, respiratory failure, and fatality. Current standard treatment for DMD involves corticosteroids, which often come with significant side effects. It is estimated that between 11,000 and 13,000 patients in the U.S. are affected by DMD, with approximately 70% of patients currently receiving concomitant corticosteroid treatment.
AGAMREE®’s unique mode of action is based on differential effects on glucocorticoid and mineralocorticoid receptors and modifying further downstream activity and, as such, is considered a novel corticosteroid with dissociative properties in maintaining efficacy, with a better-tolerated side effect profile. This mechanism of action may allow vamorolone to emerge as an effective alternative to the current standard of care corticosteroids in children, adolescents, and adult patients with DMD. In the pivotal VISION-DMD study, vamorolone met the primary endpoint Time to Stand (TTSTAND) velocity versus placebo (p=0.002) at 24 weeks of treatment and showed a good safety and tolerability profile. The most commonly reported adverse events versus placebo from the VISION-DMD study were cushingoid features, vomiting, and vitamin D deficiency. Adverse events were generally of mild to moderate severity.
On October 13, 2023, Santhera announced that the European Union’s Committee for Medicinal Products for Human Use (CHMP) adopted a positive position in favor of AGAMREE® for the treatment of DMD patients aged 4 and older. In its recommendation for approval, CHMP acknowledged that there was a positive benefit-risk profile of AGAMREE® in such patient population, including certain safety benefits of AGAMREE® compared to standard of care corticosteroids in the treatment of DMD. On October 26, 2023, the U.S. FDA approved Santhera’s NDA for AGAMREE® for use in treating DMD in patients aged two years and older. As part of the previously described transaction, Santhera is in the process of transferring the approved New Drug Application to us.
We currently expect to launch AGAMREE® in the U.S. during the first quarter of 2024. We anticipate minimal sales and marketing personnel expansion to market AGAMREE®, with approximately 10 additional commercial team members required, due to the synergy of this product within our existing neuromuscular franchise. We will support the distribution of AGAMREE® through our Catalyst Pathways® patient services program to ensure that patients have access to a dedicated, personalized support team that assists families through the AGAMREE® patient journey, from answering questions to coordinating financial assistance programs for eligible patients.
We have established a joint steering committee with Santhera that will oversee the development of AGAMREE® for additional indications beyond DMD. Under our License Agreement with Santhera, we have agreed to purchase commercial supply of AGAMREE® from Santhera at agreed upon rates.
Business Development
We continue to advance our strategic initiatives and portfolio expansion efforts, focusing on broadening and diversifying our rare Neurology product portfolio with innovative therapies that address critical unmet medical needs and expanding the geographical footprint of our existing products. In that regard, we are currently exploring clinically differentiated and adequately de-risked opportunities, with a keen focus on products to treat rare neurological and epileptic diseases. These prospects include evaluating companies with existing commercial drug products or drugs in development, for potential partnerships, licensing, geographical expansion opportunities with our existing products, and/or asset acquisitions. We continue to employ a disciplined, comprehensive, and exhaustive approach to identifying and evaluating opportunities that we believe will add significant value to our company over the near, mid, and long term. However, no additional definitive agreements have been entered into to date, and there can be no assurance that these initiatives will be successful.
Capital Resources
At September 30, 2023, we had cash and cash equivalents of approximately $121.0 million. Subsequent to the end of the quarter and filing of this report, we became obligated to make a payment of $36 million to Santhera as a result of the FDA’s approval of the NDA for AGAMREE®, which we will pay during the fourth quarter of 2023. 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.
There can be no assurance that (i) we will continue to be successful in commercializing FIRDAPSE® and FYCOMPA®, (ii) we will be able to successfully commercialize AGAMREE®, or (iii) we will continue to be profitable and cash flow positive. Further, there can be no assurance that if we need additional funding in the future, whether such funding will be available to us on acceptable terms. See “Liquidity and Capital Resources” below for further information on our liquidity and cash flow.
36
Basis of Presentation
Revenues.
During the three and nine months ended September 30, 2023, we generated revenues from product sales of FIRDAPSE® primarily in the U.S. and FYCOMPA® in the U.S. We expect these revenues to fluctuate in future periods based on our sales of FIRDAPSE® and FYCOMPA®. We received approval from Health Canada on July 31, 2020, for FIRDAPSE® for the symptomatic treatment of LEMS and as of December 31, 2020, we had launched FIRDAPSE® in Canada. During the three and nine months ended September 30, 2023, revenues generated under our collaboration agreement with KYE Pharmaceuticals were immaterial. We expect our revenues from the KYE collaboration agreement to fluctuate in future periods based on our collaborator’s ability to sell FIRDAPSE® in Canada.
For the three and nine months ended September 30, 2023, we did not generate revenues under our collaborative agreement with Endo. We do not expect to generate revenue in future periods as a result of Endo informing us subsequent to quarter end that they are discontinuing work on the collaboration for development and commercialization of vigabatrin and that they wish to terminate the arrangement.
For the three and nine months ended September 30, 2023, we generated $0 and $0.5 million, respectively, in revenues from our collaborative agreement with DyDo. We expect our revenue from the DyDo license agreement to fluctuate in future periods based on DyDo’s ability to meet various regulatory milestones set forth in such agreement.
Cost of Sales.
Cost of sales consists of third-party manufacturing costs, freight, royalties, and indirect overhead costs associated with sales of our products. 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.
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 acquired IPR&D, preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, consulting, 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. Prior to January 2023, all of our research and development resources have been devoted to the development of FIRDAPSE®, CPP-109 (our version of vigabatrin), and formerly CPP-115, and until we acquire or license new products we currently expect that our future development costs will be attributable principally to the continued development of FIRDAPSE®, FYCOMPA® and AGAMREE®.
Our cost accruals for clinical studies and trials are based on estimates of the services received and efforts expended pursuant to contracts with numerous clinical study and trial sites and clinical research organizations (CROs). In the normal course of our business we contract with third parties to perform various clinical study and trial activities in the on-going 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 significant up-front expenditures. We anticipate paying significant portions of a study or trial’s cost before they begin and incurring additional expenditures as the study or trial progresses and reaches certain milestones.
Selling, General and Administrative Expenses.
During 2019, we actively committed funds to developing our commercialization program for FIRDAPSE® and we have continued to incur substantial commercialization expenses, including sales, marketing, patient services, patient advocacy and other commercialization related expenses as we have continued our sales program for FIRDAPSE®. We are also now incurring substantial commercialization expenses for FYCOMPA® and we anticipate incurring substantial commercialization expenses for AGAMREE® as we prepare for the planned launch of AGAMREE® during the first quarter of 2024.
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, and professional fees for legal including litigation cost, information technology, accounting, and consulting services.
37
Amortization of Intangible Assets.
Amortization of intangible assets consists of the amortization of the FYCOMPA® product rights, which are amortized using the straight-line method over its estimated useful life of 5 years, and the RUZURGI® product rights, which are amortized using the straight-line method over its estimated useful life of 14.5 years. We expect to capitalize the $36 million of milestone payments to be paid to Santhera during the fourth quarter of 2023 and amortize over the product’s estimated useful life of 10.5 years.
Stock-Based Compensation.
We recognize expense for the fair value of all stock-based awards to employees, directors, and consultants in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). For stock options, we use the Black-Scholes option valuation model in calculating the fair value of the awards.
Income Taxes.
Our effective income tax rate is the ratio of income tax expense (benefit) over our income before income taxes.
Recently Issued Accounting Standards.
For discussion of recently issued accounting standards, please see Note 2, “Basis of Presentation and Significant Accounting Policies,” in the consolidated financial statements included in this report.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. For a full discussion of our accounting policies, please refer to Note 2 on the Financial Statements included in our 2022 Annual Report on Form 10-K that we filed with the SEC on March 15, 2023. Our most critical accounting policies and estimates include: accounting for revenue recognition, valuation of intangible assets, stock-based compensation and valuation allowance for deferred tax assets. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, our expected course of development, historical experience and other factors that we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Annual Report on Form 10-K.
Results of Operations
Revenues.
For the three and nine months ended September 30, 2023, we recognized $102.6 million and $287.4 million, respectively, in net revenue from product sales primarily in the U.S. compared to $57.2 million and $153.3 million, respectively, for the three and nine months ended September 30, 2022. FIRDAPSE® net sales were approximately $66.2 million and $188.6 million, respectively, for the three and nine months ended September 30, 2023, and FYCOMPA® net sales were approximately $36.4 million for the three months ended September 30, 2023 and $98.8 million for the period between January 24, 2023 (date of acquisition) and September 30, 2023. All net revenue from product sales during the three and nine months ended September 30, 2022 were from sales of FIRDAPSE®.
The increases of approximately $45.4 million and $134.1 million in net product revenues when comparing the three and nine months ended September 30, 2023 and 2022, respectively, were due to the acquisition of FYCOMPA® during January 2023, and related product sales, and increases in FIRDAPSE® sales volumes of approximately 9% and 14%, respectively, (which included patients who were transferred to FIRDAPSE® in the first and second quarter of 2022 when RUZURGI® was removed from the market) and net price increases.
For the three and nine months ended September 30, 2023, we also recognized $0.1 million and $0.2 million, respectively, in license and other revenue, as compared to $0.1 million and $0.2 million, respectively, during the three and nine months ended September 30, 2022.
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Cost of Sales.
Cost of sales was approximately $14.2 million and $36.2 million, respectively, for the three and nine months ended September 30, 2023, compared to $9.7 million and $23.2 million, respectively, for the three and nine months ended September 30, 2022. Cost of sales in both periods consisted principally of royalty payments, which are based on net revenue as defined in the applicable license agreements. For FIRDAPSE®, royalties are payable on the terms set forth below in Liquidity and Capital Resources—Contractual Obligations and Arrangements, and increase by 3% when net sales (as defined in the applicable license agreement) exceed $100 million in any calendar year. Cost of sales for FYCOMPA® for the first three quarters of 2023 consisted of product costs and excludes the amortization of the FYCOMPA® intangible assets. See Note 9 of the Notes to Unaudited Consolidated Financial Statements included elsewhere in this report.
Amortization of Intangible Assets.
Amortization of intangible assets was approximately $8.5 million and $23.5 million for the three and nine months ended September 30, 2023, compared to $0.5 million for both the three and nine months ended September 30, 2022. Amortization of intangible assets consists of the amortization of the FYCOMPA® rights, which are amortized using the straight-line method over its estimated useful life of 5 years, and the RUZURGI® rights, which are amortized using the straight-line method over its estimated useful life of 14.5 years. We also will amortize the $36 million of milestone payments to be paid to Santhera during the fourth quarter of 2023 over AGAMREE®’s estimated useful life of 10.5 years.
Research and Development Expenses.
Research and development expenses for the three months ended September 30, 2023 and 2022 were approximately $83.7 million and $8.3 million, respectively, and represented approximately 60% and 26% of total operating costs and expenses, respectively. Research and development expenses for the three months ended September 30, 2023 and 2022 were as follows (in thousands):
Three months ended September 30, |
Change | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Research and development expenses |
$ | 83,290 | $ | 7,860 | 75,430 | 959.7 | ||||||||||
Employee stock-based compensation |
372 | 450 | (78 | ) | (17.3 | ) | ||||||||||
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Total research and development expenses |
$ | 83,662 | $ | 8,310 | 75,352 | 906.8 | ||||||||||
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Research and development expenses for the nine months ended September 30, 2023 and 2022 were approximately $91.2 million and $15.7 million, respectively, and represented approximately 38% and 19% of total operating costs and expenses, respectively. Research and development expenses for the nine months ended September 30, 2023 and 2022 were as follows (in thousands):
Nine months ended September 30, |
Change | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Research and development expenses |
$ | 90,116 | $ | 14,389 | $ | 75,727 | 526.3 | |||||||||
Employee stock-based compensation |
1,062 | 1,307 | (245 | ) | (18.7 | ) | ||||||||||
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Total research and development expenses |
$ | 91,178 | $ | 15,696 | $ | 75,482 | 480.9 | |||||||||
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For the three and nine months ended September 30, 2023, research and development expenses increased approximately $75.4 million and $75.5 million, respectively, compared to the same periods in 2022. The increase in both periods is primarily attributable to the $81.5 million IPR&D purchase consideration for the acquisition of the license in North America for vamorolone during the third quarter of 2023. This was partially offset by decreases in costs relating to closing out sites for both our MuSK-MG clinical trial and our previously operated expanded access program.
We expect that research and development expenses will continue to be substantial in 2023 and beyond as we execute on our strategic initiative and portfolio expansion efforts, with a keen focus on products to treat rare neurological and epileptic diseases.
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Selling, General and Administrative Expenses.
Selling, general and administrative expenses for the three months ended September 30, 2023 and 2022 were approximately $33.6 million and $13.6 million, respectively, and represented approximately 24% and 42% of total operating costs and expenses, respectively. Selling, general and administrative expenses for the three months ended September 30, 2023 and 2022 were as follows (in thousands):
Three months ended September 30, |
Change | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Selling |
$ | 21,681 | $ | 7,584 | 14,097 | 185.9 | ||||||||||
General and administrative |
8,441 | 4,460 | 3,981 | 89.3 | ||||||||||||
Employee stock-based compensation |
3,438 | 1,605 | 1,833 | 114.2 | ||||||||||||
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Total selling, general and administrative expenses |
$ | 33,560 | $ | 13,649 | 19,911 | 145.9 | ||||||||||
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Selling, general and administrative expenses for the nine months ended September 30, 2023 and 2022 were approximately $91.7 million and $43.0 million, respectively, and represented approximately 38% and 52% of total operating costs and expenses, respectively. Selling, general and administrative expenses for the nine months ended September 30, 2023 and 2022 were as follows (in thousands):
Nine months ended September 30, |
Change | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Selling |
$ | 57,757 | $ | 21,642 | 36,115 | 166.9 | ||||||||||
General and administrative |
24,979 | 16,681 | 8,298 | 49.7 | ||||||||||||
Employee stock-based compensation |
8,938 | 4,674 | 4,264 | 91.2 | ||||||||||||
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Total selling, general and administrative expenses |
$ | 91,674 | $ | 42,997 | 48,677 | 113.2 | ||||||||||
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For the three and nine months ended September 30, 2023, selling, general and administrative expenses increased approximately $19.9 million and $48.7 million, respectively, compared to the same periods in 2022. The increase for the nine months ended September 30, 2023 was primarily attributable to the direct fees payable under the transition services agreement associated with net product sales of FYCOMPA® of approximately $14.5 million, increases of approximately $12.6 million in selling (commercialization) expenses due to the acquisition of FYCOMPA®, which consist primarily of commercial systems implementation costs, hiring of the sales force and supporting personnel, to the timing of our commitments to make contributions to 501(c)(3) organizations supporting LEMS patients of approximately $1.1 million, and an approximately $13.2 million increase in employee compensation and stock based compensation related to annual merit increases and the increase in headcount resulting from the acquisition of FYCOMPA®.
We expect that selling, general and administrative expenses will continue to be substantial in future periods as we continue our efforts to increase our revenues from FIRDAPSE®, continue our efforts to market FYCOMPA®, take steps to prepare for the commercial launch of AGAMREE® in 2024, and take steps to continue to expand our business.
Stock-Based Compensation.
Total stock-based compensation for the three and nine months ended September 30, 2023 was $3.8 million and $10.0 million, respectively, and for the three and nine months ended September 30, 2022 was $2.1 million and $6.0 million, respectively. In the first three quarters of 2023 and 2022, grants were principally for stock options relating to year-end bonus awards and grants to new employees.
Other Income (Expense), Net.
We reported other income (expense), net in all periods, primarily relating to our investment of our cash and cash equivalents of ($0.8) million and $2.7 million for the three and nine months ended September 30, 2023 and $0.9 million and $0.7 million for the same periods in 2022, respectively. The decrease in other income (expense), net for the three months ended September 30, 2023 of approximately $1.7 million when compared to the same period in 2022, respectively, is primarily due to lower invested balances and $1.8 million of interest expense related to payments arising from our acquisition of RUZURGI®. The increase in other income (expense), net for the nine months ended September 30, 2023 of approximately $2.0 million when compared to the same period in 2022, respectively, is primarily due to higher yields on investments offset by $1.8 million of interest expense related to payments arising from our acquisition of RUZURGI®.
Since Santhera’s shares are traded on the SIX Swiss Exchange, they have a readily determinable fair value, and as a result the investment will be measured quarterly, at fair value, with changes reported in other income (expense), net.
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The components of other income (expense), net were as follows (in thousands):
Three months ended September 30, |
Nine months ended September 30, |
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2023 | 2022 | 2023 | 2022 | |||||||||||||
Interest income (expense), net |
$ | (265 | ) | $ | 1,027 | $ | 3,252 | $ | 1,343 | |||||||
Dividend income |
— | 7 | — | 93 | ||||||||||||
Realized gains (losses) from the sale of available-for-sale securities |
— | (129 | ) | — | (762 | ) | ||||||||||
Net gains (losses) recognized during the period on equity securities |
(568 | ) | — | (568 | ) | — | ||||||||||
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Total other income (expense), net |
$ | (833 | ) | $ | 905 | $ | 2,684 | $ | 674 | |||||||
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Income Taxes.
Our effective income tax rate was 23.5% and 19.7% for the nine months ended September 30, 2023 and 2022, respectively. Differences in our effective tax and the statutory federal income tax rate of 21% are driven by state income taxes and anticipated annual permanent differences offset by equity compensation deductions. Our effective tax rate is affected by many factors, including the number of stock options exercised in any period, and our effective tax rate is likely to fluctuate in future periods (and may be higher in future periods than it was in the first nine months of 2023).
We had no uncertain tax positions as of September 30, 2023 and December 31, 2022.
Net Income (Loss).
Our net income (loss) was ($30.8) million and $36.6 million, respectively, for the three and nine months ended September 30, 2023 (($0.29) and $0.34, respectively, per basic share and ($0.29) and $0.32, respectively, per diluted share) as compared to net income (loss) of $22.7 million and $57.6 million, respectively, for the three and nine months ended September 30, 2022 ($0.22 and $0.56, respectively, per basic and $0.20 and $0.52, respectively, per diluted share).
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through multiple offerings of our securities, since January 2019, from revenues from product sales of FIRDAPSE®, and since January 2023, from revenues from product sales of FYCOMPA®. At September 30, 2023 we had cash and cash equivalents aggregating $121.0 million and working capital of $134.2 million. At December 31, 2022, we had cash and cash equivalents aggregating $298.4 million and working capital of $263.2 million. On January 24, 2023, we used approximately $162 million of our cash and cash equivalents to acquire the U.S. rights to FYCOMPA®. In July 2023, we paid (i) approximately $95 million to Santhera as part of the closing of the transactions described above, and (ii) $10 million to Jacobus Pharmaceutical Company, Inc. due in connection with our July 2022 acquisition of RUZURGI®. At September 30, 2023, substantially all of our cash and cash equivalents were deposited with one financial institution, and such balances were in excess of federally insured limits. Further, as of such date, substantially all such funds were invested in money market accounts and U.S. Treasuries.
Based on forecasts of available cash, we believe that we have sufficient resources to support our currently anticipated operations for at least the next 12 months from the date of this report. There can be no assurance that we will remain profitable or that we will be able to obtain any additional funding that we may require in the future.
In the future, we may require additional working capital to support our operations depending on our future success with FIRDAPSE® and FYCOMPA® sales, or the products we acquire and continue to develop and whether our results continue to be profitable and cash flow positive. There can be no assurance as to the amount of any such funding that will be required for these purposes or whether any such funding will be available to us if and when it is required.
In that regard, our future funding requirements will depend on many factors, including:
• | the cost of diligence in seeking potential acquisitions and of the completion of such acquisitions, if any future acquisitions occur; |
• | future clinical trial results; |
• | the scope, rate of progress and cost of our clinical trials and other product development activities; |
• | the terms and timing of any collaborative, licensing and other arrangements that we may establish; |
• | the cost and timing of regulatory approvals; |
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• | the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products; |
• | the level of revenues that we report from sales of FIRDAPSE® and FYCOMPA®; |
• | the effect of competition and market developments; |
• | the cost of filing and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights; and |
• | the extent to which we acquire or invest in other products. |
We may raise additional funds 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 further seek to raise capital to fund additional business development activities, even if we have sufficient funds for our planned operations. Any sale by us of additional equity or convertible debt securities could result in dilution to our stockholders. There can be no assurance that any such required additional funding will be available to us at all or available on terms acceptable to us. Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more research and development programs, which could have an adverse effect on our business.
On September 8, 2023, we filed a shelf registration statement with the SEC to sell up to $500 million of common stock, preferred stock, warrants to purchase common stock, debt securities and units consisting of one or more of such securities (the 2023 Shelf Registration Statement). The 2023 Shelf Registration Statement (file no. 333-274427) became effective upon filing. As of the date of this report, no offerings have been completed under the Company’s 2023 Shelf Registration Statement.
Cash Flows.
Net cash provided by operating activities was $88.0 million and $76.0 million, respectively, for the nine months ended September 30, 2023 and 2022. During nine months ended September 30, 2023, net cash provided by operating activities was primarily attributable to our net income of $36.6 million, a decrease of $1.9 million in inventory, an increase of $0.6 million in accounts payable, $79.3 million in acquired IPR&D and $35.8 million of non-cash expenses. This was partially offset by increases of $18.7 million in deferred taxes, $37.6 million in accounts receivable, net, $7.2 million in prepaid expenses and other current assets and decreases of $2.4 million in accrued expenses and other liabilities and $0.3 million in operating lease liability. The increase in accounts receivable, net, primarily relates to sales of FYCOMPA®, which has a longer cash collection cycle than FIRDAPSE®. During the nine months ended September 30, 2022, net cash provided by operating activities was primarily attributable to our net income of $57.6 million, decreases of $0.7 million in inventory, $0.6 million in prepaid expenses and other current assets, increases of $4.9 million in accrued expenses and other liabilities, $3.7 million in deferred taxes, $4.1 million in acquired research and development inventory expensed from asset acquisition and $7.6 million of non-cash expenses. This was partially offset by increases of $2.7 million in accounts receivable, net and decreases of $0.2 million in accounts payable and $0.2 million in operating lease liability.
Net cash used in investing activities was $255.2 million for the nine months ended September 30, 2023, consisting primarily of payment in connection with the FYCOMPA® asset acquisition and acquired IPR&D and purchase of equity securities in connection with the vamorolone acquisition. Net cash provided by investing activities for the nine months ended September 30, 2022 was $9.2 million and consisted primarily of proceeds from the sale of available-for-sale securities of $19.2 million, offset partially by payment for asset acquisition of $10.0 million.
Net cash used in financing activities during the nine months ended September 30, 2023 was $10.2 million, consisting primarily of payment of liabilities arising from asset acquisition partially offset by proceeds from the exercise of stock options. Net cash used in financing activities during the nine months ended September 30, 2022 was $0.6 million consisting primarily of repurchases of common stock offset partially by proceeds from exercise of stock options.
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Contractual Obligations and Arrangements.
We have entered into the following contractual arrangements with respect to sales of FIRDAPSE®:
• | Payments due under our license agreement for FIRDAPSE®. We currently pay the following royalties under our license agreement: |
• | Royalties to our licensor 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% of net sales in North America in any calendar year in excess of $100 million; and |
• | Royalties to the third-party licensor of the rights sublicensed to us 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 for the duration of regulatory exclusivity within a territory and 3.5% for territories in any calendar year in territories without regulatory exclusivity. |
For the three and nine months ended September 30, 2023, we recognized an aggregate of approximately $10.9 million and $27.7 million, respectively, of royalties payable under these license agreements, which is included in cost of sales in the accompanying consolidated statements of operations and comprehensive income (loss).
Further, if DyDo is successful in obtaining the right to commercialize FIRDAPSE® in Japan, we will pay royalties to our licensor on net sales in Japan equal to a similar percentage to the royalties that we are currently paying under our original license agreement for North America.
• | Payments due to Jacobus. In connection with our July 2022 settlement with Jacobus, we agreed to pay the following consideration to Jacobus: |
• | $30 million of cash, of which $10 million was paid at the closing of the settlement on July 11, 2022, $10 million was paid on the first anniversary of closing and the remaining $10 million will be paid on the second anniversary of closing; |
• | An annual royalty on Catalyst’s net sales (as defined in the License and Asset Purchase Agreement between Catalyst and Jacobus) of amifampridine products in the United States equal to: (a) for calendar years 2022 through 2025, 1.5% (with a minimum annual royalty of $3.0 million per year), and (b) for calendar years 2026 through the expiration of the last to expire of Catalyst’s FIRDAPSE® patents in the United States, 2.5% (with a minimum annual royalty of $5 million per year); provided, however, that the royalty rate may be reduced and the minimum annual royalty may be eliminated under certain circumstances; and |
• | If Catalyst were to receive a priority review voucher for FIRDAPSE® or RUZURGI® in the future, 50% of the consideration paid by a third party to acquire that voucher will be paid to Jacobus. |
Royalties will be trued up at the end of the year to the extent that royalties on net sales are below the minimum royalty.
For the three and nine months ended September 30, 2023, we recognized an aggregate of approximately $1.0 million and $2.7 million, respectively, of royalties payable to Jacobus.
We have entered into the following contractual arrangements with respect to sales of FYCOMPA®:
• | Payments due under our asset purchase agreement for FYCOMPA®. In connection with our asset purchase agreement with Eisai Co., Ltd. (Eisai): |
• | $160 million upfront cash payment plus $1.6 million for reimbursement of certain prepayments, which was paid upon closing. Eisai is also eligible to receive a contingent payment of $25 million if a patent extension for FYCOMPA® until June 8, 2026 is approved by the USPTO; |
• | Royalties commencing on loss of exclusivity for each calendar year during the royalty term equal to 12% on net sales greater than $10 million and less than $100 million, 17% on net sales of greater than $100 million and less than $125 million and 22% on net sales greater than $125 million prior to the date of generic entry. Royalties equal to 6% on net sales greater than $10 million and less than $100 million, 8.5% on net sales of greater than $100 million and less than $125 million and 11% on net sales greater than $125 million after the date of generic entry. |
• | Concurrently with the acquisition, the parties entered into two related agreements: (i) a short-term Transition Services Agreement for commercial and manufacturing services and (ii) a long-term Supply Agreement for the manufacturing of FYCOMPA®. Under the Transition Services Agreement, Eisai is providing certain commercial and manufacturing services to the Company for a transition period following the closing of the acquisition. Further, under the Supply Agreement, Eisai will manufacture FYCOMPA® for the Company for a period of seven years (or such longer period as is set forth in the Supply Agreement) following the closing of the acquisition. |
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We have entered into the following contractual arrangements with respect to vamorolone:
• | Payments due under our license agreement for vamorolone. In connection with our recent acquisition from Santhera Pharmaceuticals Holdings (Santhera): |
• | $75 million initial cash payment, which was paid upon closing. |
• | Regulatory milestone payment of $36 million upon regulatory approval by the FDA in the U.S. of an NDA for the product for the treatment of DMD. Since approval of the NDA was received on October 26, 2023, we are now obligated to pay this amount (and such payment will be made during the fourth quarter of 2023). Additional regulatory milestone payments upon regulatory approval by the FDA in the U.S. of an NDA for the product for the first, second, and third additional indications in the amount of $50 million, $45 million, and $45 million, respectively. |
• | Sales-based milestone payments if the applicable amount of net sales of all products in the territory in a single calendar year reach one of more of the net sales threshold levels set forth in the license agreement. |
• | Until January 1, 2026, we are obligated to purchase all of the requirements for product solely from Santhera, and Santhera is required to manufacture, supply, and sell product to us at an agreed upon supply price. |
• | Simultaneously, we made a strategic equity investment into Santhera by acquiring 1,414,688 of Santhera’s post reverse-split ordinary shares (representing approximately 11.26% of Santhera’s outstanding ordinary shares following the transaction) at an investment price of CHF 9.477 per share (corresponding to a mutually agreed volume-weighted average price prior to signing), with the approximately $15 million USD in equity investment proceeds to be used by Santhera for Phase IV studies in DMD and further development of additional indications for vamorolone. |
We also have entered into the following contractual arrangements:
• | Employment agreements. We have entered into an employment agreement with our Chief Executive Officer that required us to make base salary payments of approximately $0.7 million in 2023. The agreement expires in November 2024. However, on July 25, 2023, our Chief Executive Officer announced his intention to retire by the end of 2023. |
• | Purchase commitment. We have entered into a purchase commitment with a contract manufacturing organization for approximately $0.5 million per year. The agreement expires in December 2023. |
• | Lease for office space. We operate our business in leased office space in Coral Gables, Florida. We entered into an agreement in May 2020 that amended our lease for office facilities. Under the amended lease, our leased space increased from approximately 7,800 square feet of office space to approximately 10,700 square feet of office space. We moved into the new space around March 1, 2021 when the space became available for use. We pay annual rent of approximately $0.5 million. |
Off-Balance Sheet Arrangements.
We do not have any off-balance sheet arrangements as such term is defined in rules promulgated by the SEC.
Caution Concerning Forward-Looking Statements
This report contains “forward-looking statements”, as that term is defined in the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, plans or objectives for future operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, “believes”, “anticipates”, “proposes”, “plans”, “expects”, “intends”, “may”, and other similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or other achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the section entitled “Item 1A – Risk Factors.”
The continued successful commercialization of FIRDAPSE®, FYCOMPA® and now AGAMREE® are highly uncertain. Factors that will affect our success include the uncertainty of:
• | The impact of the COVID-19 pandemic, or any future pandemic, on our business or on the economy generally; |
• | Whether we will be able to continue to successfully market FIRDAPSE® and FYCOMPA®, and successfully market AGAMREE® in future periods, while maintaining full compliance with applicable federal and state laws, rules and regulations; |
• | Whether our estimates of the size of the market for FIRDAPSE® for the treatment of Lambert-Eaton Myasthenic Syndrome (LEMS) will prove to be accurate; |
• | Whether we will be able to locate LEMS patients who are undiagnosed or are misdiagnosed with other diseases; |
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• | Whether patients will discontinue from the use of FIRDAPSE® and FYCOMPA® at rates that are higher than historically experienced or are higher than we project; |
• | Whether the daily dose of FIRDAPSE® taken by patients changes over time and affects our results of operations; |
• | Whether new FIRDAPSE® patients and FYCOMPA® patients can be successfully titrated to stable therapy; |
• | Whether we can continue to market FIRDAPSE® and FYCOMPA®, and market AGAMREE® in future periods, on a profitable and cash flow positive basis; |
• | Whether we can successfully integrate the team that we have hired to market FYCOMPA® into our current business structure; |
• | Whether the acquisition of FYCOMPA® will prove to be accretive to EBITDA and EPS in 2023; |
• | Whether any revenue or earnings guidance that we provide to the public market will turn out to be accurate; |
• | Whether payors will reimburse for our products at the price that we charge for our products; |
• | The ability of our third-party suppliers and contract manufacturers to maintain compliance with current Good Manufacturing Practices (cGMP); |
• | The ability of our third party suppliers and contract manufacturers to supply sufficient product to meet our customers’ needs in future periods; |
• | The ability of those third parties that distribute our products to maintain compliance with applicable law; |
• | Our ability to maintain compliance with applicable rules relating to our patient assistance programs for FIRDAPSE® and FYCOMPA®; |
• | Our ability to maintain compliance with the applicable rules that relate to our contributions to 501(c)(3) organizations that support LEMS patients; |
• | The scope of our intellectual property and the outcome of any challenges to our intellectual property, and, conversely, whether any third-party intellectual property presents unanticipated obstacles for FIRDAPSE®, FYCOMPA® or AGAMREE®; |
• | Our ability to obtain a favorable resolution of our dispute with the U.S. Patent Office on the term extension for one of our patents listed in the Orange Book for FYCOMPA®; |
• | Whether there will be a post-closing review by antitrust regulators of our previous acquisition transactions, and the outcome of any such reviews if they occur; |
• | Whether we will be able to acquire additional drug products under development, complete the research and development required to commercialize such products, and thereafter, if such products are approved for commercialization, successfully market such products; |
• | Whether our patents will be sufficient to prevent generic competition for FIRDAPSE® after our orphan drug exclusivity for FIRDAPSE® expires; |
• | Whether we will be successful in our litigation to enforce our patents against the Paragraph IV challengers who have filed relating to FIRDAPSE® and FYCOMPA®; |
• | The impact on our profits and cash flow of adverse changes in reimbursement and coverage policies from government and private payors such as Medicare, Medicaid, insurance companies, health maintenance organizations and other plan administrators, or the impact of pricing pressures enacted by industry organizations, the federal government or the government of any state, including as a result of increased scrutiny over pharmaceutical pricing or otherwise; |
• | Changes in the healthcare industry and the effect of political pressure from and actions by the President, Congress and/or medical professionals seeking to reduce prescription drug costs, and changes to the healthcare industry occasioned by any future changes in laws relating to the pricing of drug products, including changes made in the Inflation Reduction Act of 2022, or changes in the healthcare industry generally; |
• | Whether we will be able to successfully commercialize AGAMREE® in the territory and whether we will be successful in launching the product during the first quarter of 2024; |
• | Whether our commercialization of AGAMREE® will prove accretive to earnings; |
• | Whether we and Santhera can successfully develop additional indications for AGAMREE® and obtain the ability to commercialize the product for these additional indications; |
• | The state of the economy generally and its impact on our business; |
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• | The potential impact of future healthcare reform in the United States, including the Inflation Reduction Act of 2022, and measures being taken worldwide designed to reduce healthcare costs and limit the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our product; |
• | The scope, rate of progress and expense of our clinical trials and studies, pre-clinical studies, proof-of-concept studies, and our other drug development activities, and whether our trials and studies will be successful; |
• | Our ability to complete any clinical trials and studies that we may undertake on a timely basis and within the budgets we establish for such trials and studies; |
• | Whether FIRDAPSE® can be successfully commercialized in Canada on a profitable basis through KYE Pharmaceuticals, our collaboration partner in Canada; |
• | The impact on sales of FIRDAPSE® in the United States if an amifampridine product is purchased in Canada for use in the United States; |
• | Whether our collaboration partner in Japan, DyDo, will successfully complete the clinical trial in Japan that will be required to seek approval to commercialize FIRDAPSE® in Japan; and |
• | Whether DyDo will be able to obtain approval to commercialize FIRDAPSE® in Japan. |
Our current plans and objectives are based on assumptions relating to the continued commercialization of FIRDAPSE® and FYCOMPA®, the commercialization of AGAMREE®, and on our plans to seek to acquire or in-license additional products. Although we believe that our assumptions are reasonable, any of our assumptions could prove inaccurate. Considering 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 |
Market risk represents the risk of changes in the value of market risk-sensitive instruments caused by fluctuations in interest rates, foreign exchange rates and commodity prices. Changes in these factors could cause fluctuations in our results of operations and cash flows.
Our exposure to interest rate risk is currently confined to our cash and cash equivalents that are from time to time invested in highly liquid money market funds and U.S. Treasuries. The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. We do not use derivative financial instruments in our investment portfolio. Our cash and investments policy emphasizes liquidity and preservation of principal over other portfolio considerations.
ITEM 4. | 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 Rules 13a-15(e) and 15d-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 September 30, 2023, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act, was recorded, processed, summarized or reported within the time periods specified in the rules and regulations of the SEC, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports was accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. |
b. | During the three months ended September 30, 2023, there were no changes in our internal controls or in other factors that could have a material effect, or are reasonably likely to have a material effect, on our internal control over financial reporting. |
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PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
Paragraph IV Patent Litigation
In January 2023, we received Paragraph IV Certification Notice Letters from three generic drug manufacturers advising us that they had each submitted an Abbreviated New Drug Application (ANDA) to the FDA seeking authorization from the FDA to manufacture, use or sell a generic version of FIRDAPSE® in the United States. The notice letters each allege that our six patents listed in the FDA Orange Book covering FIRDAPSE® are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of the proposed product described in these ANDA submissions. Under the Federal Food, Drug, and Cosmetic Act, as amended by the Drug Price Competition and Patent Term Restoration Act of 1984, as amended, we had 45 days from receipt of the notice letters to commence patent infringement lawsuits against these generic drug manufacturers in a federal district court to trigger a stay precluding FDA from approving any ANDA until May 2026 or entry of judgment holding the patents invalid, unenforceable, or not infringed, whichever occurs first. In that regard, after conducting the necessary due diligence, we filed lawsuits on March 1, 2023 in the U.S. Federal District Court for the District of New Jersey against each of the three generic drug manufacturers who notified us of their ANDA filings. The Company recently received a Paragraph IV Certification Notice Letter from a fourth generic drug manufacturer, which the Company is currently reviewing.
We intend to vigorously protect and defend our intellectual property for FIRDAPSE® and, although there can be no assurance, we believe that our patents will protect FIRDAPSE® from generic competition for the life of our patents.
On February 20, 2023, we 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 us later in February with a similar certification for the tablet formulation for FYCOMPA®, the fourth such certification for this formulation. Both of these letters were paragraph IV certifications of non-infringement, non-validity, and unenforceability to the ‘497 patent for FYCOMPA® but each application, like the previous Paragraph IV notices from ANDA filers, for FYCOMPA® tablets does not challenge the ‘571 patent. Similar to our actions with the FIRDAPSE® Paragraph IV Certifications described above, after due diligence we filed lawsuits on April 5, 2023 in the U.S. District Court for the District of New Jersey against the drug manufacturer who notified us of their ANDA submissions for both FYCOMPA® formulations, thus triggering the 30 month stay for each application.
Other Litigation
From time to time we may become involved in legal proceedings arising in the ordinary course of business. Other than as set forth above, we believe that there is no litigation pending at this time that could have, individually or in the aggregate, a material adverse effect on our results of operations, financial condition or cash flows.
ITEM 1A. | RISK FACTORS |
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 2022 Annual Report on Form 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.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Issuer Purchases of Equity Securities
In March 2021, our Board of Directors approved a share repurchase program that authorizes the repurchase of up to $40 million of our common stock, pursuant to a repurchase program under Rule 10b-18 of the Securities Act (the Share Repurchase Program). The Share Repurchase Program commenced on March 22, 2021. At present, we are not purchasing shares under our share repurchase program, but rather we are retaining cash for use in our business development activities. The following table presents information regarding repurchases by us of our common stock under the Share Repurchase Program during the three months ended September 30, 2023:
Period |
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Program |
Dollar Value of Shares that May Yet Be Purchased (in thousands) |
||||||||||||
July 1, 2023 – July 31, 2023 |
— | $ | — | — | $ | 21,003 | ||||||||||
August 1, 2023 – August 31, 2023 |
— | $ | — | — | $ | 21,003 | ||||||||||
September 1, 2023 – September 30, 2023 |
— | $ | — | — | $ | 21,003 |
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ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. |
MINE SAFETY DISCLOSURE |
ITEM 5. |
OTHER INFORMATION |
ITEM 6. |
EXHIBITS |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Catalyst Pharmaceuticals, Inc. | ||
By: |
/s/ Alicia Grande | |
Alicia Grande | ||
Vice President, Treasurer and Chief Financial Officer |
Date: November 8, 2023
49
Exhibit 31.1
Certification of Principal Executive Officer
I, Patrick J. McEnany, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Catalyst Pharmaceuticals, Inc.; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 8, 2023
/s/ Patrick J. McEnany |
Patrick J. McEnany |
Chief Executive Officer |
(Principal Executive Officer) |
Exhibit 31.2
Certification of Principal Financial Officer
I, Alicia Grande, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Catalyst Pharmaceuticals, Inc.; |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 8, 2023
/s/ Alicia Grande |
Alicia Grande |
Chief Financial Officer |
(Principal Financial Officer) |
Exhibit 32.1
Certification Required by 18 U.S.C. Section 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
I, Patrick J. McEnany as Principal Executive Officer of Catalyst Pharmaceuticals, Inc. (the Company), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:
1. | the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2023 (the Report), filed with the U.S. Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 8, 2023 |
/s/ Patrick J. McEnany | |||||
Patrick J. McEnany | ||||||
Chief Executive Officer | ||||||
(Principal Executive Officer) |
Exhibit 32.2
Certification Required by 18 U.S.C. Section 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
I, Alicia Grande as Principal Financial Officer of Catalyst Pharmaceuticals, Inc. (the Company), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:
1. | the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2023 (the Report), filed with the U.S. Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 8, 2023 |
/s/ Alicia Grande | |||||
Alicia Grande | ||||||
Chief Financial Officer | ||||||
(Principal Financial Officer) |