CATALYST PHARMACEUTICALS, INC. - Quarter Report: 2016 March (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[Mark One]

For the Quarterly Period Ended March 31, 2016

OR

Commission File No. 001-33057

CATALYST PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer, large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date 82,870,649 shares of common stock, $0.001 par value per share, were outstanding as of May 6, 2016.

Table of Contents

CATALYST PHARMACEUTICALS, INC.

INDEX

PART I. FINANCIAL INFORMATION

2

Table of Contents

CATALYST PHARMACEUTICALS, INC.

BALANCE SHEETS

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

3

Table of Contents

CATALYST PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS (unaudited)

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

4

Table of Contents

CATALYST PHARMACEUTICALS, INC.

STATEMENT OF STOCKHOLDERS’ EQUITY (unaudited)

For the three months ended March 31, 2016

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

5

Table of Contents

CATALYST PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS (unaudited)

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

6

Table of Contents

CATALYST PHARMACEUTICALS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Catalyst Pharmaceuticals, Inc. (the Company) is a development-stage biopharmaceutical company focused on developing and commercializing innovating therapies for people with rare debilitating diseases, including Lambert-Eaton Myasthenic Syndrome (LEMS), Congenital Myasthenic Syndromes (CMS), infantile spasms and Tourette’s Disorder.

Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company’s primary focus is on the development and commercialization of its drug candidates. The Company has incurred operating losses in each period from inception through March 31, 2016. The Company has been able to fund its cash needs to date through several public and private offerings of its common stock and warrants, through government grants, and through an investment by a strategic purchaser. See Note 9.

Capital Resources

On January 31, 2014, the Company filed a Shelf Registration Statement on Form S-3 (the 2014 Shelf Registration Statement) with the U.S. Securities Exchange Commission (SEC) to sell up to $100 million of common stock. This registration statement (file No. 333-193699) was declared effective by the SEC on March 19, 2014. The Company has conducted two registered direct offerings under the 2014 Shelf Registration Statement. See Note 9.

While there can be no assurance, based on currently available information, the Company estimates that it has sufficient resources to support its operations for at least the next year.

The Company may raise required funds through public or private equity offerings, debt financings, corporate collaborations, governmental research grants or other means. The Company may also seek to raise new capital to fund additional product development efforts, even if it has sufficient funds for its planned operations. Any sale by the Company of additional equity or convertible debt securities could result in dilution to the Company’s current stockholders. There can be no assurance that any such required additional funding will be available to the Company at all or available on terms acceptable to the Company. Further, to the extent that the Company raises additional funds through collaborative arrangements, it may be necessary to relinquish some rights to the Company’s drug candidates or grant sublicenses on terms that are not favorable to the Company. If the Company is not able to secure additional funding when needed, the Company may have to delay, reduce the scope of, or eliminate one or more research and development programs, which could have an adverse effect on the Company’s business.

7

Table of Contents

In the opinion of management, the accompanying unaudited interim financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of the dates and for the periods presented. Accordingly, these statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2015 included in the 2015 Annual Report on Form 10-K filed by the Company with the SEC. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for any future period or for the full 2016 fiscal year.

8

Table of Contents

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

9

Table of Contents

As of March 31, 2016, there were outstanding stock options to purchase 4,345,000 shares of common stock, of which stock options to purchase 2,033,328 shares of common stock were exercisable as of March 31, 2016.

For the three month periods ended March 31, 2016 and 2015, the Company recorded stock-based compensation expense as follows:

10

Table of Contents

Potentially dilutive options to purchase common stock as of March 31, 2016 and 2015 have exercise prices ranging from $0.47 to $4.64 and $0.47 to $4.44, respectively. Potentially dilutive warrants to purchase common stock as of both March 31, 2016 and 2015 have exercise prices ranging from $1.04 to $2.08 and expire in periods between May 2017 and August 2017.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact this accounting standard will have on its financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public companies, the changes are effective for reporting periods (annual and interim) beginning after December 15, 2016. Early adoption is permitted. However, if early adoption is elected in an interim period, any adjustments should be reflected as of the beginning of the annual period that includes that interim period. The Company is currently evaluating the effect this standard will have on its financial statements.

2011 Warrants

The Company allocated approximately $1.3 million of proceeds from its October 2011 registered direct offering to the fair value of common stock purchase warrants issued in connection with the offering that are classified as a liability (the 2011 warrants). The 2011 warrants are classified as a liability because of provisions in such warrants that allow for the net cash settlement of such warrants in the event of certain fundamental transactions (as defined in the warrant agreement). The valuation of the 2011 warrants is determined using the Black-Scholes Model. This model uses inputs such as the underlying price of the shares issued when the warrant is exercised, volatility, risk free interest rate and expected life of the instrument.

11

Table of Contents

The Company has determined that the 2011 warrants liability should be classified within Level 3 of the fair value hierarchy by evaluating each input for the Black-Scholes Model against the fair value hierarchy criteria and using the lowest level of input as the basis for the fair value classification. There are six inputs: closing price of the Company’s common stock on the day of evaluation; the exercise price of the warrants; the remaining term of the warrants; the volatility of the Company’s common stock; annual rate of dividends; and the risk free rate of return. Of those inputs, the exercise price of the warrants and the remaining term are readily observable in the warrants agreement. The annual rate of dividends is based on the Company’s historical practice of not granting dividends.

The closing price of the Company’s common stock would fall under Level 1 of the fair value hierarchy as it is a quoted price in an active market. The risk free rate of return is a Level 2 input, while the historical volatility is a Level 3 input in accordance with the fair value accounting guidance. Since the lowest level input is a Level 3, the Company determined the 2011 warrants liability is most appropriately classified within Level 3 of the fair value hierarchy. This liability is subject to a fair value mark-to-market adjustment each reporting period.

The calculated value of the 2011 warrants liability was determined using the Black-Scholes Model with the following assumptions:

The following table rolls forward the fair value of the Company’s warrants liability activity for the three month periods ended March 31, 2016 and 2015:

During the three months ended March 31, 2016 none of the 2011 warrants were exercised. During the three months ended March 31, 2015, 152,174 of the 2011 warrants were exercised, with proceeds to the Company of $197,826. The Company recognizes the change in the fair value of the warrants liability as a non-operating income or loss in the accompanying statements of operations.

Prepaid expenses and other current assets consist of the following:

12

Table of Contents

Property and equipment, net consists of the following:

Depreciation expense was $13,198 and $8,148, respectively, for the three month periods ended March 31, 2016 and 2015.

Accrued expenses and other liabilities consist of the following:

Under the license agreement with Northwestern, the Company is responsible for continued research and development of any resulting product candidates. As of March 31, 2016, the Company has paid $406,590 in connection with the license and has accrued license fees of $78,750 in the accompanying March 31, 2016 balance sheet for expenses, maintenance fees and milestones. In addition, the Company is obligated to pay certain milestone payments in future years relating to clinical development activities with respect to CPP-115, and royalties on any products resulting from the license agreement. The next milestone payment of $300,000 is due on the earlier of successful completion of the first Phase 3 clinical trial for CPP-115 or August 27, 2018.

13

Table of Contents

As part of the License Agreement, the Company agreed: (i) to pay BioMarin royalties 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; (ii) to pay to the third-party licensor of the rights sublicensed to us royalty payments for seven years from the first commercial sale of Firdapse^® equal to 7% of net sales (as defined in the license agreement between BioMarin and the third-party licensor) in any calendar year; and (iii) to pay certain milestone payments that BioMarin is obligated to pay (approximately $2.6 million of which will be due upon acceptance by the FDA of a filing of an NDA for Firdapse^® for the treatment of LEMS, and approximately $7.2 million of which will be due on the unconditional approval by the FDA of an NDA for Firdapse^® for the treatment of LEMS). The Company also agreed to share in the cost of certain post-marketing studies being conducted by BioMarin, and, as of March 31, 2016, the Company had paid BioMarin $3.8 million related to expenses in connection with Firdapse^® studies and trials.

The Company is subject to income taxes in the U.S. federal jurisdiction and various states jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is not subject to U.S. federal, state and local tax examinations by tax authorities for any years before 2012. If the Company were to subsequently record an unrecognized tax benefit, associated penalties and tax related interest expense would be reported as a component of income tax expense.

14

Table of Contents

2014 Shelf Registration Statement

On January 31, 2014, the Company filed a Shelf Registration Statement on Form S-3 (the 2014 Shelf Registration Statement) with the SEC to sell up to $100 million of common stock. This registration statement (file No. 333-193699) was declared effective by the SEC on March 19, 2014. The Company has to date conducted the following sales under the 2014 Shelf Registration Statement:

Warrant Exercises

No warrants were exercised during the three months ended March 31, 2016. During the three months ended March 31, 2015, the Company issued an aggregate of 717,174 shares of its authorized but unissued common stock upon the exercise of previously issued common stock purchase warrants, raising gross proceeds of $1,191,026.

Stock Options

During the three month periods ended March 31, 2016 and 2015, the Company granted seven-year options to purchase an aggregate of 155,000 and 185,000 shares of the Company’s common stock to employees and directors. The Company recorded stock-based compensation related to stock options totaling $439,206 and $295,842 respectively, during the three month periods ended March 31, 2016 and 2015. During the three month periods ended March 31, 2016 and 2015, respectively, 56,665 and 25,000 options vested.

During the three month periods ended March 31, 2016 and 2015, options to purchase 50,000 and 829,608 shares of the Company’s common stock were exercised on a “cashless” basis, resulting in the issuance of an aggregate 20,030 and 673,583 shares of the Company’s common stock, respectively.

As of March 31, 2016, there was approximately $3,921,000 of unrecognized compensation expense related to non-vested stock compensation awards granted under the 2006 and 2014 Stock Incentive Plans. The cost is expected to be recognized over a weighted average period of approximately 2.18 years.

Restricted Stock Units

No restricted stock units were granted during the three months ended March 31, 2016 and 2015. The Company recorded stock-based compensation related to restricted stock units totaling $18,763 and $18,609, respectively, during the three month periods ended March 31, 2016 and 2015. As of March 31, 2016, there was $122,000 of total restricted stock unit compensation expense related to non-vested awards not yet recognized, which is expected to be recognized over a weighted average period of 1.62 years.

15

Table of Contents

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

We are a biopharmaceutical company focused on developing and commercializing innovative therapies for people with rare debilitating diseases. We currently have three drug candidates in development:

In October 2012, we licensed the North American rights to Firdapse^®, a proprietary form of amifampridine phosphate, or chemically known as 3,4-diaminopyridine phosphate, from BioMarin Pharmaceutical Inc. (BioMarin). In August 2013, we were granted “breakthrough therapy designation” by the U.S. Food & Drug Administration (FDA) for Firdapse^® for the treatment of patients with Lambert-Eaton Myasthenic Syndrome, or LEMS, a rare and sometimes fatal autoimmune disease characterized by muscle weakness, and, in March 2015, we were granted Orphan Drug Designation for Firdapse^® for the treatment of patients with Congenital Myasthenic Syndromes, or CMS.

The chemical entity, amifampridine (3,4-diaminopyridine or 3,4-DAP), has never been approved by the FDA for any indication. Because Firdapse^® has been granted Orphan Drug Designation for the treatment of LEMS and CMS by the FDA, the product is also eligible to receive seven years of marketing exclusivity for either or both indications. Further, if we are the first pharmaceutical company to obtain approval for an amifampridine product, of which there can be no assurance, we will be eligible to receive five years of marketing exclusivity with respect to the use of this product for any indication, running concurrently with the seven years of orphan marketing exclusivity described above if both exclusivities are granted.

As part of our 2012 agreement with BioMarin, we took over the sponsorship of an ongoing Phase 3 clinical trial evaluating Firdapse^® for the treatment of LEMS. The Phase 3 trial was designed as a double blind, randomized

16

Table of Contents

“withdrawal trial” in which all patients were initially treated with Firdapse^® during a 7 to 91-day run-in period followed by treatment with either Firdapse^® or placebo (randomly assigned, about 1:1) during a two-week randomization period. A total of 38 patients completed the run-in period and subsequent two week randomization period. In a trial of this design, the clinically significant findings, when present, are worsening of symptoms in the placebo group.

On September 29, 2014, we reported top-line results from this trial. A summary of the results is as follows:

During 2014, we established an expanded access program (EAP) to make Firdapse^® available to any patients diagnosed with LEMS, CMS, or Downbeat Nystagmus in the United States, who meet the inclusion and exclusion criteria, with Firdapse^® being provided to patients for free until sometime after NDA approval, should we receive such approval (of which there can be no assurance). We are informing neuromuscular physicians on the availability of the Firdapse^® EAP and working with various rare disease advocacy organizations to inform patients and physicians about the program.

On July 22, 2015, we announced that we had initiated a rolling submission of an NDA for Firdapse^® for the treatment of LEMS and CMS, and on December 17, 2015 we announced the completion of this submission. On February 17, 2016, we announced that we had received a “refusal to file” letter from the FDA regarding our NDA submission. The “refusal to file” letter stated that after a preliminary review, the FDA had found that our application was not sufficiently complete for review.

In early April 2016, we met with the FDA to obtain greater clarity regarding what will be required by the FDA to accept the Firdapse^® NDA for filing. Following the receipt of the formal minutes of that meeting, on April 26, 2016, we issued a press release reporting that the FDA has stated that in addition to the results of the Company’s previously submitted multi-center, randomized, placebo-controlled Phase 3 trial, we will need to submit positive results from an additional adequate and well-controlled study in patients with Lambert-Eaton Myasthenic Syndrome (LEMS). The FDA has stated that it is open to discuss a study design that could efficiently accomplish the requirement with a small, short-term study, and we are currently in discussions with the FDA, and with our clinical experts, regarding the protocol and logistics for this confirmatory study. Additionally, there is a requirement for several more short-term toxicology studies, which are expected to start soon. There can be no assurance that any of the trials and studies we are required to conduct will be successful.

17

Table of Contents

We expect to update our guidance as additional facts become available, and there can be no assurance as to the timing or requirements of this confirmatory study, whether this additional study will be sufficient for the FDA to accept for filing any NDA that we might refile in the future for Firdapse^®, or whether Firdapse^® will ever be approved for commercialization.

Our original NDA submission for Firdapse^® included data and information (including data from a currently ongoing investigator treatment IND) providing evidence supporting the benefits of Firdapse^® for treating certain types of CMS, and requested that CMS be included in our initial label for Firdapse^®. To provide additional support for our submission of an NDA for Firdapse^® for the treatment of CMS, in October 2015 we initiated a small blinded clinical trial in the pediatric CMS population, ages 2 to 17, to further evaluate the use of Firdapse^® for the treatment of CMS. There can be no assurance that this trial will be successful, whether other trials will be required before the FDA considers any NDA for Firdapse^® for the treatment of CMS, or whether any NDA that we may submit for Firdapse^® for the treatment of CMS will be filed by the FDA for review and approved.

Firdapse^® is also currently being evaluated as a treatment for MuSK-antibody positive myasthenia gravis. In February 2016, we announced the initiation of an investigator-sponsored, randomized, double-blind, placebo-controlled, crossover Phase 2/3 clinical trial evaluating the safety, tolerability and potential efficacy of Firdapse^® as a symptomatic treatment for patients with MuSK-antibody positive myasthenia gravis (MuSK-MG). The study is planned to include approximately 20 patients and we anticipate the investigator reporting top-line results from the study in 2017. We are providing study drug and financial support for this trial. If this trial is successful, we will consider pursuing approval of Firdapse^® for this indication. There can no assurance that this trial will be successful, or, even if this trial is successful, whether other clinical trials will be required before we may seek approval of an NDA for Firdapse^® for the treatment of MuSK-MG.

Finally, we may seek to evaluate Firdapse^® for the treatment of other treatment-refractory types of Myasthenia Gravis or other rare, similar neuromuscular diseases, although we have not yet begun to develop clinical programs for these indications. There can be no assurance that Firdapse^® will be an effective treatment for other treatment-refractory types of myasthenia gravis or for any other rare, similar neuromuscular diseases.

Prior to the receipt of the “refusal-to-file” letter, we were actively taking steps to prepare for the commercialization of Firdapse^® in the United States. In light of the determination that we will have to complete another adequate and well controlled study evaluating Firdapse^® for the treatment of LEMS, we are currently placing these activities on hold in order to conserve cash. Notwithstanding, we plan to continue to work with several rare disease advocacy organizations to help increase awareness of LEMS and CMS and to provide and support education for the physicians who treat these rare diseases and the patients they treat.

We are developing CPP-115, a GABA aminotransferase inhibitor that, based on our preclinical studies to date, we believe is a more potent form of vigabatrin, and may have fewer side effects (e.g., visual field defects, or VFDs) than those associated with vigabatrin. We are hoping to develop CPP-115 for the treatment of epilepsy (initially infantile spasms) and for the treatment of other selected neurological indications such as complex partial seizures and Tourette’s Disorder. CPP-115 has been granted Orphan Drug Designation by the FDA for the treatment of infantile spasms and Orphan Medicinal Product Designation in the European Union, or E.U., for West syndrome (a form of infantile spasms).

18

Table of Contents

We recently announced top line results from a Phase 1b double-blind, placebo controlled safety and tolerance study of CPP-115 in six normal, healthy, adult male volunteers. The results showed significant increases in brain levels of the surrogate marker for potential efficacy, gamma-aminobutyric acid (GABA), a mechanism known to effectively treat epilepsy, infantile spams, and potentially Tourette’s Disorder. The main adverse effect of prolonged elevated brain GABA, somnolence, was also observed.

While the primary objective of this study was to obtain safety and tolerability data for CPP-115 administered over 14 days, brain GABA levels were measured as a surrogate marker of potential efficacy, since CPP-115 is a second generation GABA aminotransferase inhibitor. Specifically, this study examined GABA levels in both the POC (Parietal-Occipital Cortex), a grey matter rich region similar to brain regions thought to be associated with epilepsy, and which was previously studied using vigabatrin, and the SMA (Supplementary Motor Area), which is thought to be associated with Tourette’s Disorder. The maximum brain GABA increases, in both brain regions, ranged from about 150% to over 200% of baseline levels, as measured by magnetic resonance spectroscopy (MRS).

We are presently evaluating the full results of this study, including additional data from laboratory safety tests and pharmacokinetic modeling of the patients in this study, and developing a plan to make CPP-115 “ready for Phase 2,” including a Phase 1b dose ranging study evaluating the effects on brain GABA of CPP-115 at lower doses. We hope to commence the next study sometime in 2016, subject to the availability of funding.

Tourette’s Disorder

During June 2015, we announced the top-line results of an academic investigator proof-of-concept study evaluating the use of CPP-109 (our formulation of vigabatrin, another GABA aminotransferase inhibitor) for the treatment of Tourette’s Disorder. The 8-week, four subject open label study was designed as an open label trial to evaluate the potential effect of GABA-aminotransferase inhibition as a mechanism for reducing tics in patients with treatment-refractory Tourette’s Disorder. The most common side-effect was daytime tiredness, and one subject experienced an increase in moodiness and obsessive-compulsive symptoms. Vigabatrin was used as a “research surrogate” in this study to demonstrate the utility of GABA-aminotransferase (GABA-AT) blockade, with the expectation that upon successfully demonstrating the utility of this mechanism, further development activities would focus on the potentially safer, more potent GABA-AT inhibitor, CPP-115.

We believe that the top-line results from this study suggest an encouraging signal of activity in adult treatment-refractory patients with Tourette’s Disorder. Further, we believe that CPP-109’s mechanism of action validates the potential for CPP-115 to be a candidate for the treatment of Tourette’s Disorder. However, there can be no assurance that CPP-115 will be effective for the treatment of refractory patients with Tourette’s Disorder.

Generic Sabril^®

During September 2015, we announced the initiation of a project to develop a generic version of Sabril^® (vigabatrin). Sabril^® is marketed by Lundbeck Inc. (“Lundbeck”) in the United States for the treatment of infantile spasms and complex partial seizures. We have substantial previous experience with our version of vigabatrin (CPP-109), which we believe will contribute to our development and submission of an abbreviated new drug application (ANDA) for a generic version of Sabril^®. There can be no assurance that we will be successful in these efforts or that any ANDA that we submit for vigabatrin will be accepted for review or approved.

Risks Associated with Product Development

The successful development of our current drug candidates or any other drug candidate we may acquire, develop or license in the future is highly uncertain. We cannot reasonably estimate or know the nature, timing, or estimated expenses of the efforts necessary to complete the development of, or the period in which material net cash

19

Table of Contents

inflows are expected to commence due to the numerous risks and uncertainties associated with developing such products, including the uncertainty of:

Available Capital Resources 

Based on forecasts of available cash, we currently believe that we have sufficient resources to fund our operations for at least the next year. However, until the details and logistics of our required confirmatory study evaluating Firdapse^® for the treatment of LEMS are finalized, and we can determine with certainty our path forward to refile our NDA for Firdapse^®, it will be difficult for us to provide more details regarding our capital resources. Once we have a better understanding of these requirements, we expect to take steps to allocate our resources and conserve cash based on our revised plan, at which time we expect to be in a better position to report on how far our existing capital resources will take us. Notwithstanding, and while there can be no assurance, we continue to believe that our currently available resources will be sufficient to complete the development of Firdapse^® and refile an NDA for Firdapse^®.

20

Table of Contents

If we require additional funding, there can be no assurance that we will obtain the required additional funding or that we will ever be in a position to commercialize any of our drug candidates. See “Liquidity and Capital Resources” below for further information on our liquidity and cash flow.

Basis of presentation

Revenues.

We are a development stage company and have had no revenues from product sales to date. We will not have revenues from product sales until such time as we receive approval of our drug candidates, successfully commercialize our products or enter into a licensing agreement which may include up-front licensing fees, of which there can be no assurance.

Research and development expenses.

Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as occasional support for selected investigator-sponsored research. The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related to our drug development efforts. To date, all of our research and development resources have been devoted to the development of CPP-109, CPP-115, and Firdapse^®, and we expect this to continue for the foreseeable future. Costs incurred in connection with research and development activities are expensed as incurred.

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 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 agreements, 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 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 such study or trial begins, and incurring additional expenditures as the study or trial progresses and reaches certain milestones.

Selling and marketing expenses.

We do not currently have any selling or marketing expenses. We have been incurring costs tied to our future sales and marketing efforts for Firdapse^®. However, we have recently put most of these activities on hold in order to conserve cash. Pre-commercialization expenses to date have been included in general and administrative expenses.

General and administrative expenses.

General and administrative expenses consist primarily of salaries and personnel expenses for accounting, corporate and administrative functions. Other costs include administrative facility costs, regulatory fees, and professional fees for legal, information technology, accounting and consulting services.

21

Table of Contents

Stock-based compensation.

We recognize expense for the fair value of all stock-based awards to employees, directors, scientific advisors and consultants in accordance with U.S. GAAP. For stock options we use the Black-Scholes option valuation model in calculating the fair value of the awards.

Warrants Liability.

We issued warrants to purchase shares of our common stock as part of an equity financing that we completed in October 2011. In accordance with U.S. GAAP, we have recorded the fair value of these warrants as a liability in the accompanying balance sheets at March 31, 2016 and December 31, 2015 using a Black-Scholes option-pricing model. We will re-measure the fair value of this warrants liability at each reporting date until the warrants are exercised or have expired. Changes in the fair value of the warrants liability are reported in the statements of operations as income or expense. The fair value of the warrants liability is subject to significant fluctuation based on changes in the inputs to the Black-Scholes option-pricing model, including our common stock price, expected volatility, expected life, the risk-free interest rate and dividend yield. The market price for our common stock has been and may continue to be volatile. Consequently, future fluctuations in the price of our common stock may cause significant increases or decreases in the fair value of these warrants.

Income taxes.

We have incurred operating losses since inception. Our net deferred tax asset has a 100% valuation allowance as of March 31, 2016 and December 31, 2015, as we believe it is more likely than not that the deferred tax asset will not be realized. If an ownership change, as defined under Internal Revenue Code Section 382, occurs, the use of any of our carry-forward tax losses may be subject to limitation.

As required by ASC 740, Income Taxes, we would recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Recently Issued Accounting Standards.

For discussion of recently issued accounting standards, please see Note 2, “Basis of Presentation and Significant Accounting Policies,” in the interim financial statements included in this report.

Non-GAAP Financial Measures.

We prepare our financial statements and footnotes thereto which accompany this report in accordance with U.S. Generally Accepted Accounting Principles (GAAP). To supplement our financial results presented on a GAAP basis, we may use non-GAAP financial measures in our reports filed with the Commission and/or in our communications with investors. Non-GAAP measures are provided as additional information and not as an alternative to our financial statements presented in accordance with GAAP. Our non-GAAP financial measures are intended to enhance an overall understanding of our current financial performance. We believe that the non-GAAP financial measures that we present provide investors and prospective investors with an alternative method for assessing our operating results in a manner that we believe is focused on the performance of ongoing operations and provide a more consistent basis for comparison between periods.

The non-GAAP financial measure that we typically present excludes from the calculation of net loss the expense (or the income) associated with the change in fair value of the liability-classified warrants.

Any non-GAAP financial measures that we report should not be considered in isolation or as a substitute for comparable GAAP accounting, and investors should read them in conjunction with our financial statements and notes thereto prepared in accordance with GAAP. Finally, the non-GAAP measures of net loss that we may use may be different from, and not directly comparable to, similarly titled measures used by other companies.

22

Table of Contents

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. For a full discussion of our accounting policies, please refer to Note 2 on the Financial Statements included in our 2015 Annual Report on Form 10-K filed with the SEC. Our most critical accounting policies and estimates include: accounting for research and development expenses and stock-based compensation, measurement of fair value, fair value of warrants liability, income taxes and reserves. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, our expected course of development, historical experience and other factors that we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2015 Annual Report on Form 10-K.

Results of Operations

Revenues.

We had no revenues for the three month periods ended March 31, 2016 and 2015.

Research and Development Expenses.

Research and development expenses for the three month periods ended March 31, 2016 and 2015 were $3,546,391 and $2,349,552, respectively, including stock-based compensation expense in each of the three month periods of $93,783 and $66,941, respectively. Research and development expenses, in the aggregate, represented approximately 57% and 55% of total operating costs and expenses for the three month periods ended March 31, 2016 and 2015, respectively. The stock-based compensation is non-cash and relates to the expense of stock options awards to certain employees.

Expenses for research and development for the three months ended March 31, 2016, excluding stock based compensation, increased compared to amounts expended in the same period in 2015, due primarily to consulting on regulatory matters, activities related to the Firdapse^® expanded access program, including manufacturing of related drug, and increased activities in other ongoing studies and trials. We expect that costs related to research and development activities will continue to be substantial throughout the balance of 2016.

Selling and Marketing Expenses.

We had no selling expenses during the three month periods ended March 31, 2016 and 2015. We have been incurring pre-commercialization costs for Firdapse^®, but have recently put most of these activities on hold in order to conserve cash. These costs are principally for personnel, and their related activities. Pre-commercialization costs are included in general and administrative expenses.

General and Administrative Expenses.

General and administrative expenses for the three months ended March 31, 2016 and 2015 were $2,691,145 and $1,942,363, respectively, including stock-based compensation expense in each of the three month periods ending March 31, 2016 and 2015 of $364,186 and $247,510, respectively. General and administrative expenses represented 43% and 45% of total operating costs and expenses for the three months ended March 31, 2016 and 2015, respectively. The increase in general and administrative expenses for the three months ended March 31, 2016 when compared to the same period in 2015 is primarily due to increases in pre-commercialization expenses, payroll and benefits expenses. We expect general and administrative expenses to decrease in 2016 as we take steps to conserve our available resources once we have a better understanding of the timing and logistics of our development plan for Firdapse^®.

23

Table of Contents

Stock-Based Compensation.

Total stock-based compensation for the three month periods ended March 31, 2016 and 2015 were $457,969 and $314,451, respectively. The increase in stock-based compensation for the three month periods ended March 31, 2016 when compared to the same period in 2015, is primarily due to additional headcount.

Change in fair value of warrants liability.

In connection with our October 2011 equity offering, we issued warrants to purchase an aggregate of 1,523,370 shares of common stock. The fair value of the portion of these warrants which remain outstanding is recorded in the liability section of the balance sheet and was estimated at $275,007 and $1,008,363 at March 31, 2016, and December 31, 2015, respectively. The fair value of the warrants liability is determined at the end of each reporting period with the resulting gains or losses recorded as the change in fair value of warrants liability in the statements of operations. For the three months ended March 31, 2016 and 2015, we recognized a gain of $733,356 and a loss of $1,180,278, respectively, due to the change in the fair value of the warrants liability. The gain during the three months ended March 31, 2016 was principally a result of the decrease of our stock price between December 31, 2015 and March 31, 2016. The loss during the three months ended March 31, 2015 was principally a result of the increase of our stock price between December 31, 2014 and March 31, 2015. We believe, future changes in the fair value of the warrants liability will be due primarily to fluctuations in the value of our common stock and the timing of warrant exercises.

Other Income, Net.

We reported other income, net in all periods relating to our investment of funds received from offerings of our securities. The increase in other income, net for the three months ended March 31, 2016 when compared to the same period in 2015 is due to higher average investment balances from the proceeds of our offerings. Other income, net, consists of interest income, dividend income and unrealized and realized gain (loss) on trading securities. These proceeds are used to fund our drug development activities and our operations. Substantially all such funds were invested in short-term interest bearing obligations and short-term bond funds.

Income taxes.

We have incurred net operating losses since inception. For the three month periods ended March 31, 2016 and 2015, we have applied a 100% valuation allowance against our deferred tax asset as we believe that it is more likely than not that the deferred tax asset will not be realized.

Net Loss.

Our net loss was $5,386,237 for the three months ended March 31, 2016 ($0.07, per basic and diluted share) as compared to a net loss of $5,410,259, for the three months ended March 31, 2015 ($0.07 per basic and diluted share).

Non-GAAP Net Loss.

Our non-GAAP net loss, which excludes for the three months ended March 31, 2016 and 2015 a gain of $733,356 and a loss of $1,180,278, respectively, associated with the change in the fair value of liability classified warrants, was $6,119,593 and $4,229,981 for the three months ended March 31, 2016 and 2015, respectively ($0.07 and $0.06, respectively, per basic and diluted share).

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through equity issuances, government grants, and an investment by a strategic purchaser. At March 31, 2016, we had cash and cash equivalents, certificates of deposit and short-term investments aggregating $52.5 million and working capital of $50.8 million. At December 31, 2015, we had cash and cash equivalents, certificates of deposit and short term investments aggregating $58.4 million and working capital of $56.5 million. At March 31, 2016, substantially all of our cash and cash equivalents were deposited with one financial institution, and such balances were in excess of federally insured limits.

24

Table of Contents

We have to date incurred operating losses, and we expect these losses to be substantial in the future as we expand our drug development programs and prepare for the commercialization of our drug candidates. We anticipate using current cash on hand to finance these activities. It will likely take several years to obtain the necessary regulatory approvals to commercialize one or more of our drug candidates in the United States.

Based on forecasts of available cash, we currently believe that we have sufficient resources to fund our operations for at least the next year. However, until the details and logistics of our required confirmatory study evaluating Firdapse^® for the treatment of LEMS are finalized, and we can determine with certainty our path forward to refile our NDA for Firdapse^®, it will be difficult for us to provide more details regarding our capital resources. Once we have a better understanding of these requirements, we expect to take steps to allocate our resources and conserve cash based on our revised plan, at which time we expect to be in a better position to report on how far our existing capital resources will take us. Notwithstanding, and while there can be no assurance, we continue to believe that our currently available resources will be sufficient to complete the development of Firdapse^® and refile an NDA for Firdapse^®.

In that regard, our future funding requirements will depend on many factors, including:

If we are required to raise additional funds to support our product development activities and working capital requirements, we would raise such funds through public or private equity offerings, 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 also seek to raise capital to fund additional product development efforts or product acquisitions, even if we have sufficient funds for our planned operations. Any sale by us of additional equity or convertible debt securities could result in dilution to our stockholders. There can be no assurance that any such required additional funding will be available to us at all or available on terms acceptable to us. Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more research and development programs, which could have an adverse effect on our business.

On January 31, 2014, we filed a shelf registration statement with the SEC to sell up to $100 million of common stock. This shelf registration statement was declared effective on March 19, 2014. We have completed two offerings under this shelf registration statement:

25

Table of Contents

Cash Flows

Net cash used in operating activities was $5,930,218 and $3,794,969, respectively, for the three month periods ended March 31, 2016 and 2015. During the three months ended March 31, 2016, net cash used in operating activities was primarily attributable to our net loss of $5,386,237, decreases of $542,654 in accounts payable and $219,984 in accrued expenses and other liabilities and $733,356 of non-cash change in fair value of warrants liability. This was partially offset by $480,846 decrease in prepaid expenses and other current assets and $471,167 of other non-cash expenses. During the three months ended March 31, 2015, net cash used in operating activities was primarily attributable to our net loss of $5,410,259 and a decrease of $763,695 in accounts payable, partially offset by a decrease of $120,124 in prepaid expenses and other current assets, and an increase of $755,984 in accrued expenses and other liabilities, $1,180,278 of non-cash change in fair value of warrants liability and $322,599 of other non-cash expenses.

Net cash used in investing activities during the three months ended March 31, 2016 was $65,571, consisting primarily of purchases of short-term investments. Net cash used in investing activities during the three months ended March 31, 2015 was $43,269 consisting primarily of purchases of short term investments of $34,807, and capital expenditures of $7,910.

Net cash used in financing activities during the three months ended March 31, 2016 was $11,265, for payment of employee withholding tax related to stock based compensation. Net cash provided by financing activities during the three months ended March 31, 2015 was $36,064,895, consisting of $34,873,869 from the net proceeds from the sale of common stock under the 2014 Shelf Registration Statement and $1,191,026 of proceeds from the exercise of warrants to purchase common stock.

Contractual Obligations

We have entered into the following contractual arrangements:

26

Table of Contents

Off-Balance Sheet Arrangements.

We currently have no debt or capital leases. We have operating leases for our office facilities. 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 Current Report on Form 10-Q contains “forward-looking statements”, as that term is defined in the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, plans or objectives for future operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, “believes”, “anticipates”, “proposes”, “plans”, “expects”, “intends”, “may”, and other similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. The forward-looking statements made in this report are based on current expectations that involve numerous risks and uncertainties.

The successful development and commercialization of our current drug candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing, or estimated expenses of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence due to the numerous risks and uncertainties associated with developing such products, including the uncertainty of:

27

Table of Contents

28

Table of Contents

Our current plans and objectives are based on assumptions relating to the development of our current drug candidates. Although we believe that our assumptions are reasonable, any of our assumptions could prove inaccurate. In light of the significant uncertainties inherent in the forward-looking statements we have made herein, which reflect our views only as of the date of this report, you should not place undue reliance upon such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Our market risks during the three months ended March 31, 2016 have not materially changed from those discussed in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2015.

29

Table of Contents

PART II. OTHER INFORMATION

See Note 7 to the Financial Statements in our financial statements for the year ended December 31, 2015 for information about the settlement of the securities class action litigation.

The Company is not a party to any other legal proceedings.

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 2015 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.

None

None

Not applicable

None

30

Table of Contents

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.

Date: May 10, 2016

31

Table of Contents

Exhibit Index