CATALYST PHARMACEUTICALS, INC. - Annual Report: 2021 (Form 10-K)

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to rule 405 of Regulation (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

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

As of June 30, 2021, the last business day of the Registrant’s most recently completed second quarter, the aggregate market value of all voting and common equity held by was $551,581,521.

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

Our current plans and objectives are based on assumptions relating to the continued commercialization of FIRDAPSE and on our plans to seek to acquire or additional products. 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.

We are a commercial-stage biopharmaceutical company focused on developing and commercializing novel medicines for patients living with rare diseases. With exceptional patient focus, we are committed to developing a robust pipeline of cutting-edge, medicines for rare diseases. We historically focused our efforts on developing products that treat diseases in the neuromuscular and neurological space, but in 2021 we made a strategic decision to broaden and diversify our product portfolio through acquisitions of both early and late-stage products or companies or technology platforms in rare disease therapeutic categories outside of neuromuscular diseases. To accomplish these new priorities, we are employing a disciplined approach to evaluating assets and we believe that this strategic expansion will better position our company to build out a broader more diversified portfolio of drug candidates, which should add greater value to our company over the near and long-term. However, there can be no assurance that whatever product candidates or technology platforms we acquire, if any, will be successfully developed or commercialized.

We are currently exploring several potential opportunities to acquire companies with drug products in development or to or acquire drug products in development. However, no definitive agreements have been entered into to date. Further, during the third quarter of 2021 we hired Dr. Preethi Sundaram, who serves as our Chief Strategy Officer. In that position, Dr. Sundaram is leading our efforts to acquire R&D assets, from early stage through late-stage clinical programs and technologies to treat rare diseases, and once such drug candidates are acquired, Dr. Sundaram will help oversee the development of those assets.

The pandemic has affected our business operations in numerous ways, and we continue to monitor applicable government modifications. We had to make modifications to our normal operations because of the pandemic, including allowing our employees to work remotely. At present, our operations have returned to mostly being with some contact with physicians by our commercial sales force still being done remotely. Notwithstanding, the pandemic, including the emergence of new variants, including the delta and omicron variants, could affect the health and availability of our workforce as well as those of third parties whom we are relying upon to take similar measures. As such, we have experienced in the past, and may experience in the future, disruptions to our business operations because of the pandemic, and our business could be materially adversely affected by such disruptions, directly or indirectly. National, state and local governments in affected regions have implemented and may continue to implement varying safety precautions, such as quarantines, border closures, increased border controls, travel restrictions, orders and shutdowns, business closures, cancellations of public gatherings and other measures. Organizations and individuals may continue to take additional steps to avoid infection, including limiting travel and staying home from work. These measures may continue to disrupt normal business operations both inside and outside of affected areas and have had significant impacts on healthcare and businesses worldwide.

We believe that because many healthcare providers who treat LEMS patients have delayed seeing new patients because of the pandemic, there has been a delay in the diagnosis of new LEMS patients and their initiating therapy, which has slowed our efforts to locate new patients who could benefit from our therapy. However, we believe that when conditions allow healthcare providers to resume seeing new patients in person on a regular basis, the impact of this aspect of the pandemic on our business will lessen.

Further, 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 an adult LEMS patient who can benefit from FIRDAPSE. Additionally, we recently began promotion to oncologists that may treat adult LEMS patients. We also are continuing to make available at a LEMS voltage gated calcium channel (VGCC) antibody testing program for use by physicians who suspect that one of their patients may have LEMS and wish to reach a definitive diagnosis.

In order to help adult LEMS patients afford their medication, we, like other pharmaceutical companies which are marketing drugs for ultra-orphan conditions, have developed an array of financial assistance programs that are available to reduce patient and deductibles to a nominal affordable amount. For eligible patients with commercial coverage, a assistance program designed to keep costs to not more than $10.00 per month (currently $0.00 per month) is available for all LEMS patients who are prescribed FIRDAPSE. We are also donating, and committing to continue to donate, money to qualified, independent charitable foundations dedicated to providing assistance to any U.S. LEMS patients in financial need. Subject to compliance with regulatory requirements, our goal is that no LEMS patient is ever denied access to their medication for financial reasons.

In May 2019, the FDA approved a New Drug Application (NDA) for Ruzurgi, another version of amifampridine for the treatment of pediatric LEMS patients (ages 6 to under 17). While the NDA for Ruzurgi only covers pediatric patients, we believe that Ruzurgi has been regularly prescribed to adult LEMS patients. We also believe that the FDA’s approval of Ruzurgi violated our statutory rights and was in multiple other respects arbitrary, capricious and contrary to law. As a result, in June 2019 we filed suit against the FDA and several related parties challenging this approval and related drug labeling, and Jacobus Pharmaceuticals (Jacobus) intervened in our case. Our complaint, which was filed in the federal district court for the Southern District of Florida, alleged that the FDA’s approval of Ruzurgi violated multiple provisions of FDA regulations regarding labeling, resulting in misbranding in violation of the Federal Food, Drug, and Cosmetic Act (FDCA); violated our statutory rights to Orphan Drug Exclusivity and New Chemical Entity Exclusivity under the FDCA; and was in multiple other respects arbitrary, capricious, and contrary to law, in violation of the Administrative Procedure Act. Among other remedies, the suit sought an order setting aside the FDA’s approval of Ruzurgi.

On September 30, 2021, a three-judge panel of 11 Circuit judges issued a unanimous decision overturning the District Court’s decision. The appellate court adopted our argument that the FDA’s approval of Ruzurgi violated our rights to Orphan Drug Exclusivity and remanded the case to the District Court with orders to enter summary judgment in our favor. In November 2021, Jacobus filed a motion seeking rehearing of the case from the full 11 Circuit, which motion was denied in January 2022. Further, in January 2022, Jacobus filed motions with both the 11 Circuit and the U.S. Supreme Court seeking a stay of the 11 Circuit’s ruling indicating that it would seek a review of the 11 Circuit’s decision from the U.S. Supreme Court. Both stay motions were denied, and on January 28, 2022, the 11 Circuit issued a mandate directing the District Court to enter summary judgment in our favor. The District Court entered that order on January 31, 2022. On February 1, 2022, the FDA informed Jacobus that, consistent with the Court of Appeals for the Eleventh Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval of the RuzurgiNDA was switched to a tentative approval until the orphan-drug exclusivity (ODE) for Firdapse has expired.

We are actively working with parents and physicians of pediatric LEMS patients to make sure that such patients will be able to obtain FIRDAPSE through appropriate legal and regulatory means. In addition, we are working to file an application with the FDA seeking approval for use of FIRDAPSE by pediatric LEMS patients, though any effort to obtain such authorization is not guaranteed. We anticipate submitting the sNDA before the end of the first quarter. For the adult LEMS patients who have been taking Ruzurgi (who are believed to be a large majority of the patients currently taking Ruzurgi), we are working with prescribers to transition such patients to FIRDAPSE as needed.

On August 10, 2020, we announced the results from our Phase 3 clinical trial evaluating FIRDAPSE for the treatment of adults with Unfortunately, the trial did not achieve statistical significance on its primary endpoint or its secondary endpoint. Following our receipt of these results, we analyzed the data and proposed a plan to FDA to perform an additional study evaluating FIRDAPSE for the treatment of In response, the FDA provided written comments that were unfavorable towards our proposed revised study design and further questioned the ability of the initial pilot study to be supportive. These remarks make it unlikely that a single study of similar design to would be sufficient for potential approval of the indication. We also held an expert panel with key opinion leaders (KOLs) to discuss options and review the likelihood of success for the indication for FIRDAPSE under these circumstances. After receiving the input of the FDA and the KOLs, we concluded that the approval of FIRDAPSE as a first line therapy for is unlikely, and therefore we have decided not to further pursue this indication.

We previously announced our intent to conduct a study evaluating FIRDAPSE as a treatment for Hereditary Neuropathy with Liability to Pressure Palsies (HNPP). The FDA requested that a new, patient-centric endpoint be researched and used for our proposed study, without assurance that such endpoint would be acceptable for approval. Based upon the uncertainty of such an endpoint, we have decided not to conduct this study as a company-sponsored study, though there is a possibility that this study will move forward as investigator-initiated study that we will support.

Our NDS filing for FIRDAPSE for the symptomatic treatment of LEMS was approved by Health Canada on July 31, 2020. In August 2020, we entered into a license agreement with KYE Pharmaceuticals (KYE), pursuant to which we licensed the Canadian rights for FIRDAPSE for the treatment of LEMS to KYE. Pursuant to the license agreement, KYE was obligated to pay us an payment based on approval, a milestone upon attainment of marketing authorization and product supply, milestones based on achievements of sales and regulatory milestones, and a sharing of defined net sales following commercialization.

On June 3, 2021, we announced a positive decision in this proceeding that quashed the NOC previously issued for Ruzurgi and remanded the matter to the Minister of Health to redetermine its decision to grant marketing authorization to Ruzurgi in spite of FIRDAPSE’s data protection rights. However, on June 28, 2021, we announced that Health Canada had an NOC for Ruzurgi, once again allowing the product to be marketed in Canada for patients with LEMS. As a result, in July 2021 we, along with our partner KYE, filed a second suit against Health Canada to overturn this decision. That case was fully briefed in late 2021, with oral argument held in early December.

On June 28, 2021, we entered into a agreement with DyDo Pharma, Inc. (DyDo), pursuant to which we to DyDo the Japanese rights for FIRDAPSE for the treatment of LEMS. Under the terms of the Agreement, DyDo will have joint rights to develop FIRDAPSE, and exclusive rights to commercialize the product, in Japan. DyDo will be responsible for funding all clinical, regulatory, marketing and commercialization activities in Japan. We will be responsible for clinical and commercial supply, as well as providing support to DyDo in its efforts to obtain regulatory approval for the product from the Japanese regulatory authorities. Subject to the satisfaction of terms and conditions as set forth in the Agreement, we have earned an upfront payment and are eligible to receive further development and sales milestones for FIRDAPSE, as well as revenue on product supplied to DyDo.

FIRDAPSE is Catalyst’s registered trade name in the United States for amifampridine phosphate tablets. Amifampridine is the WHO (World Health Organization) registered INN (International Nonproprietary Name) and United States Adopted Name (USAN) for the chemical entity, often abbreviated as or DAP. FIRDAPSE contains the phosphate salt of amifampridine, hence the name “amifampridine phosphate.” We will refer to our drug by its trade name in the United States (FIRDAPSE), by the INN/USAN (amifampridine), or by the specific salt in our product (amifampridine phosphate), throughout this report.

We conducted two successful Phase 3 double-blind, placebo-controlled clinical trials evaluating FIRDAPSE for the treatment of LEMS. The results of the first trial published in 2016 in Muscle & Nerve (Muscle Nerve, 2016, The results of the second trial were published in March 2019 in the Journal of Clinical Neuromuscular Disease (J. Clin Neuromusc Dis 2019;

In early 2020, we expanded our field sales group by almost one hundred percent and established a partnership with an experienced inside sales agency generating leads through telemarketing to targeted physicians. Through this expansion of our sales team, we are working to expand our sales efforts beyond the neuromuscular specialists who regularly treat LEMS patients to reach roughly 9,000 neurology and neuromuscular healthcare providers that might be treating an adult LEMS patient who can benefit from FIRDAPSE. We also make available a LEMS voltage gated calcium channel (VGCC) antibody testing program for physicians who suspect their patient may have LEMS and wish to reach a definitive diagnosis.

In order to help patients afford their medication, we, like other pharmaceutical companies who are marketing drugs for ultra-orphan conditions, have developed an array of financial assistance programs that are available to reduce patient and deductibles to a nominal affordable amount. For eligible patients with commercial coverage, a assistance program designed to keep costs to $10 or less per month (currently $0.00 per month) is available for all LEMS patients prescribed FIRDAPSE. We are also donating, and committing to continue to donate, money to qualified, independent charitable foundations dedicated to providing assistance to LEMS patients in financial need. Our goal is to ensure that no LEMS patient is ever denied access to their medication for financial reasons.

In May 2019, the FDA approved an NDA for Ruzurgi, Jacobus Pharmaceuticals’ version of amifampridine for the treatment of pediatric LEMS patients (ages 6 to under 17). We believe that the vast majority of Ruzurgi sales are to adult LEMS patients who are being prescribed the drug off label. If Jacobus is able to successfully continue to sell Ruzurgi to additional adult LEMS patients, it could have a material adverse effect on our business, financial condition and results of operations.

seeking rehearing of the case from the full 11 Circuit, which motion was denied in January 2022. Further, in January 2022, Jacobus filed motions with both the 11 Circuit and the U.S. Supreme Court seeking a stay of the 11 Circuit’s ruling indicating that it would seek a review of the 11 Circuit’s decision from the U.S. Supreme Court. Both stay motions were denied, and on January 28, 2022, the 11 Circuit issued a mandate directing the District Court to enter summary judgment in our favor. The District Court entered that order on January 31, 2022. On February 1, 2022, the FDA informed Jacobus that, consistent with the Court of Appeals for the Eleventh Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval of the RuzurgiNDA was switched to a tentative approval until the orphan-drug exclusivity (ODE) for Firdapse has expired.

Sales of drug products depend in significant part on the availability of coverage and adequate reimbursement by third party payors, such as state and federal governments, including Medicare and Medicaid, managed care providers, private commercial insurance plans and pharmacy benefit management (PBM) plans. Decisions regarding the extent of coverage and the amount of reimbursement to be provided for FIRDAPSE are expected to be made on a and in some cases, on a basis. Particularly given the rarity of LEMS, our experience has been that securing coverage and appropriate reimbursement from third-party payors requires targeted education and highly skilled insurance navigation experts that have experience with rare disease launches and medical exception processes at insurance companies to provide patient coverage for important rare disease therapies. To that end, we have engaged a dedicated team of field-based market access account managers and reimbursement experts as well as a patient service center staffed with experienced personnel focused on ensuring that clinically-qualified patients have access to our product.

In February 2016, we initiated an investigator-sponsored, randomized, double-blind, placebo-controlled, crossover clinical trial evaluating the safety, tolerability and potential efficacy of FIRDAPSE as a symptomatic treatment for patients with Seven patients participated in this trial. On March 15, 2017, we reported results from this trial. Both of the efficacy endpoints of change from baseline (CFB) in total Quantitative Myasthenia Gravis (QMG) score (p=0.0003) and CFB in total Myasthenia Gravis Activities of Daily Living score (p=0.0006) were statistically and clinically significant in this trial. Several secondary efficacy measures also achieved statistical significance. Amifampridine phosphate was well tolerated in this population of patients. The results of this study were published in SAGE Open Medicine and can be accessed at . Subsequently, we engaged in a Phase 3 clinical trial evaluating FIRDAPSE for the treatment of adults with Our trial was a multi-site, international (United States, Italy and Serbia), double-blind, placebo-controlled, clinical trial being conducted under a Special Protocol Assessment (SPA) with the FDA. The trial enrolled more than 60 MuSK antibody positive patients. It also enrolled more than 10 generalized myasthenia gravis patients who were assessed with the same clinical endpoints. However, achieving statistical significance in this subgroup of patients was not required.

On August 10, 2020, we announced the results from our Phase 3 clinical trial evaluating FIRDAPSE for the treatment of adults with Unfortunately, the trial did not achieve statistical significance on its primary endpoint or its secondary endpoint, even though clinical improvement was observed by patients and investigators during the initial dose-titration period of the trial and in the company’s previous trial. However, we have recently concluded a detailed analysis of the data from this trial in an effort to understand why the Phase 3 trial did not meet statistical significance on its endpoints.

Following our receipt of these results, we analyzed the data and proposed a plan to the FDA to perform an additional study evaluating FIRDAPSE for In response, the FDA provided written comments that were unfavorable towards our proposed revised study design and further questioned the ability of the initial pilot study to be supportive. These remarks make it unlikely that a single study design similar to would be sufficient for potential approval of the indication. We also held an appropriate expert panel to discuss options and review the likelihood for success for a indication for FIRDAPSE. Based on the input from the FDA and advisors, we have concluded that the approval of FIRDAPSE as a first-line therapy for is unlikely and therefore we have decided not to continue to pursue this indication.

Our exploratory study, (A Randomized Placebo Controlled Crossover Study to Evaluate the Safety and Efficacy of Amifampridine Phosphate in Ambulatory Patients with Spinal Muscular Atrophy (SMA) Type 3, met the primary endpoint of a statistically significant difference for the Hammersmith Functional Motor Scale Expanded (HFMSE). Clinically, however, the effect was modest. The secondary endpoints were not statistically significant, although several individual quality of life measures demonstrated a positive nominally statistically significant change. Key opinion leaders with whom we have spoken believed that FIRDAPSE needed to show a large clinically significant change if there was the possibility to affect disease progression through retrograde signaling from enhanced neuromuscular junction function. After considering all of these factors, we have concluded that the modest results exhibited in this study are unlikely to result in a sufficient modification of disease progression, and, particularly in light of the fact that there are now three approved disease modifying medications for SMA Type 3, we have decided not to pursue the SMA Type 3 indication further.

We previously announced our intent to conduct a study evaluating FIRDAPSE as a treatment for Hereditary Neuropathy with Liability to Pressure Palsies (HNPP). The FDA requested that a new, patient centric endpoint be researched and used for our proposed study, without assurance that such endpoint would be acceptable for approval. Based upon the uncertainty of such an endpoint, we have decided not to conduct this study as a company sponsored study, though there is a possibility that this study will move forward as investigator-initiated study that we will support.

Until FIRDAPSE was approved in November 2018, no drug product containing amifampridine for any indication had been approved by the FDA such that we received five-year “new chemical entity” exclusivity from the FDA. New chemical entity exclusivity provides a five-year period of marketing exclusivity for all indications and in the absence of an Orange Book listed patent, precludes a generic from submitting an abbreviated new drug application (ANDA) until that five year period has expired. Further, when FIRDAPSE was approved for the treatment of LEMS patients, we received seven-year orphan drug exclusivity for our product for the treatment of LEMS, precluding a generic filer from receiving final FDA approval until the ODE exclusivity period has expired. Because we have Orange Book listed patents for FIRDAPSE, potential generic filers will be permitted to submit ANDA filings to the FDA as early as the date (November 28, 2022). In the event of such filings, and after appropriate investigation, we intend to vigorously enforce our patent rights.

We have the FIRDAPSE trademark, and the trademark was registered in the United States in March 2015.

In September 2015, we announced the launch of a program to develop our version of vigabatrin as a generic version of Sabril, which is marketed in the United States by Lundbeck. Lundbeck’s exclusivity for Sabril expired on April 26, 2018. Vigabatrin comes in two dosage forms – a powder sachet and a tablet. Par Pharmaceutical brought the first generic version of the powder sachet to market, and since then numerous additional generic versions of this product have been approved. Further, four generic versions of vigabatrin tablets have also been approved.

On December 18, 2018, we entered into a definitive agreement with Endo International plc’s subsidiary, Endo Ventures Limited (Endo), for the further development and commercialization of generic Sabril tablets through Endo’s United States Generic Pharmaceuticals segment, Par Pharmaceutical. Pursuant to the agreement, in December 2018, we received an payment of $0.5 million. We will be entitled to receive a milestone payment of $2.0 million on the commercial launch of the product. Further, we will receive a sharing of defined net profits upon commercialization and certain expenses for development.

We are currently exploring several potential opportunities to acquire companies with drug products in development or to or acquire drug products in development. However, no definitive agreements have been entered into to date. Further, during the third quarter of 2021 we hired Dr. Preethi Sundaram, who serves as our Chief Strategy Officer. In that position, Dr. Sundaram is leading our efforts to acquire R&D assets, from early stage through late-stage clinical programs and technologies to treat rare diseases, and once such drug candidates are acquired, Dr. Sundaram will help oversee the development of those assets.

We are licensed in Florida as a virtual drug manufacturer, which means that we have no manufacturing capacity and we are obligated to rely on contract manufacturers and packagers. We have no plans to build or acquire the manufacturing capability needed to manufacture any of our research materials or commercial products, and we expect that our drug products and drug substances will be prepared by contractors with suitable capabilities for these tasks and that we will enter into appropriate supply agreements with these contractors at appropriate times in the development and commercialization of our products. Because we will use contractors to manufacture and supply our products, we will be reliant on such contractors. Further, the contractors selected would have to be inspected by the FDA and found to be in substantial compliance with federal regulations in order for an application for one of our drug candidates to be approved, and there can be no assurance that the contractors we select would pass such an inspection.

To qualify for these statutory exemptions, a compounded drug product must satisfy several legal requirements. One of these requirements restricts the universe of bulk drug substances that a compounder may use. Specifically, every bulk drug substance used in compounding: (1) must comply with an applicable and current USP or NF drug monograph, if one exists, as well as the current USP chapters on pharmacy compounding; (2) if such a monograph does not exist, the bulk drug substance must be a component of an drug; or (3) if a monograph does not exist and the bulk drug substance is not a component of an drug, it must appear on a list of bulk drug substances that may be used in compounding (i.e., the “Section 503A bulk substances list 1”). While the advertising provisions in Section 503A were ruled unconstitutional in part in the United States by the Supreme Court in 2002, the FDA, since 2013, has aggressively regulated and exercised oversight over the practice of pharmacy compounding following the compounding incident at the New England Compounding Center in Massachusetts that sickened hundreds and killed over 60 individuals.

While the FDA has been aggressively enforcing Section 503A since its compounders may still compound “near copies” (but not “essentially copies”) of approved drug products, under Section 503A, so long as the prescriber makes a change to the compounded formulation that produces for that patient a significant difference between the commercially available drug and the compounded version. Compounders may also copy commercially available products if they do not do so in “regular or inordinate amounts.” In January 2018, FDA published a Final Guidance document titled, “Compounded Drug Products That Are Essentially Copies of a Commercially Available Drug Product Under Section 503A of the Federal Food, Drug, and Cosmetic Act.” This Final Guidance sets forth FDA’s enforcement policy concerning those compounders that make essentially copies of commercially available drug products. FDA has defined the term “regular or inordinate” in the Final Guidance to mean: “a drug product that is essentially a copy of a commercially available drug product is compounded regularly or in inordinate amounts if it is compounded more frequently than needed to address unanticipated, emergency circumstances, or in more than the small quantities needed to address unanticipated, emergency circumstances.” FDA has further stated it will not take enforcement action, considering all the facts and circumstances, against a compounder that compounds less than four “essentially copies” of a commercially available drug product in a calendar month.

Once a pharmaceutical candidate is identified for development it enters the testing stage. tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. Prior to beginning human clinical trials, an IND sponsor must submit an IND to the FDA. The IND sponsor must submit the results of the tests, together with manufacturing information and analytical data, to the FDA as part of the IND. Some or testing may continue even after the IND is submitted. In addition to including the results of the studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated, if the trial lends itself to an efficacy evaluation. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30–day time period, raises concerns or questions about the conduct of the trial. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may, at any time, impose a clinical hold on ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization and then only under terms authorized by the FDA.

FDA approval of an NDA is required before marketing of the product may begin in the United States. The NDA must include the results of product development, studies and clinical studies, together with other detailed information, including information on the chemistry, manufacture and composition of the product. The FDA has 60 days from its receipt of the NDA to review the application to ensure that it is sufficiently complete for substantive review before filing it. The FDA may request additional information rather than file an NDA. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA files it. Once the submission is filed, the FDA begins an substantive review. The submission of an NDA is also subject to the payment of a substantial application fee (for FDA fiscal year 2022 this fee is $3,117,218), although a waiver of such fee may be obtained under certain limited circumstances, including when the drug that is subject of the application has received Orphan Drug Designation for the indication sought. Further, the sponsor of an approved NDA is subject to an annual program fee, which for FDA fiscal year 2022 is $369,413 per prescription drug product. User fees typically increase annually. The approval process is lengthy and difficult, and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data and information. Even if such data and information is submitted, the FDA may ultimately decide that

A SPA is a process in which sponsors may request to meet with the FDA to reach agreement on the design and size of certain clinical trials, clinical studies, or animal trials to determine if they adequately address scientific and regulatory requirements. As part of this process, sponsors submit specific questions about protocol design and scientific and regulatory requirements. After the FDA completes the review of a SPA request, the FDA may issue a SPA Letter, including an assessment of the protocol, agreement or with the proposed protocol, and answers to the sponsor’s relevant questions.

Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for advertising, promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. As a condition of NDA approval, the FDA may also require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for the healthcare professionals, and other Elements To Assure Safe Use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug.

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims covering the applicant’s product or approved methods of using the product. Upon approval of a drug, each of the patents listed in the application for the drug are then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug.

The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented rather than certify to a listed patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.

The ANDA application also will not be approved until any applicable exclusivity listed in the Orange Book for the referenced product has expired.

505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. If the Section 505(b)(2) applicant can establish that reliance on FDA’s prior findings of safety and effectiveness or published literature is scientifically appropriate, it may eliminate the need to conduct certain or clinical studies of the new product.

Generic drugs may enter the market after the approval of an ANDA. The ANDA development process typically does not require new or clinical studies, but it does typically require one or more bioequivalence studies to show that the ANDA drug is bioequivalent to the previously approved brand name reference listed drug. Bioequivalence studies compare the bioavailability of the proposed drug product with that of the approved listed product containing the same active ingredient. Bioavailability is a measure of the rate and extent to which the active ingredient or active moiety is absorbed from a drug product and becomes available at the site of action. A demonstration of bioequivalence means that the rate and extent of absorption of the ANDA drug is not significantly different from the rate and extent of absorption of the brand name reference listed drug when administered at the same molar dose under similar experimental conditions.

As noted above, generic drug products are generally introduced to the marketplace at the expiration of patent protection and market exclusivity for the reference listed drug. However, if an ANDA applicant is the first ANDA applicant to submit an ANDA containing a Paragraph IV certification, that ANDA may be eligible for a period of generic marketing exclusivity on approval. This exclusivity, which under certain circumstances must be shared with other ANDA applicants with Paragraph IV certifications, lasts for 180 days, during which the FDA cannot grant final approval to other ANDA sponsors of an application for a generic equivalent to the same reference drug. Under certain circumstances, eligibility for exclusivity may be forfeited.

Various types of changes to an approved ANDA must be requested in a prior approval supplement. In addition, some changes may only be approved after new bioequivalence studies are conducted or other requirements are satisfied. In addition, the ANDA applicant must demonstrate that manufacturing procedures and operations conform to FDA cGMP requirements. Facilities, procedures, operations, and/or testing of products are subject to periodic inspection by the FDA and other authorities. In addition, the FDA conducts and post-approval reviews and inspections to determine whether the systems and processes are in compliance with cGMP and other FDA regulations.

Pediatric exclusivity is another type of exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the five-year and three-year and seven-year orphan exclusivities. This exclusivity may be granted if an NDA sponsor submits pediatric data that fairly responds to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied. If the FDA determines that information relating to the use of the new drug in the pediatric population may produce health benefits in the population, the clinical study is deemed to fairly respond to the FDA’s request and the reports of pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection covering the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application relying on the NDA sponsor’s data.

The European Orphan Drug Regulation is considered for drugs intended to diagnose, prevent or treat a life-threatening or very serious condition afflicting five or fewer per 10,000 people in the EU, including compounds that for serious and chronic conditions would likely not be marketed without incentives due to low market return on the sponsor’s development investment. The medicinal product considered should be of significant benefit to those affected by the condition. Benefits of being granted Orphan Medicinal Product Designation are significant, including eight years of data exclusivity, two years of marketing exclusivity and a potential extension of both. The EU Community and Member States may not accept or grant for ten years a new marketing authorization or application for another drug for the same therapeutic indication as the orphan drug, although the period can be reduced to six years if, after the end of the fifth year, available evidence establishes that the product is sufficiently profitable not to justify maintenance of the marketing exclusivity. A supplementary protection certificate may extend the protection six months beyond patent expiration if that is later than the orphan drug exclusivity period. To apply for the supplementary protection, a pediatric investigation plan, or PIP, must be included in the market application. In Europe all drugs now seeking marketing authorization need to have a PIP agreed with the European Medicines Agency (EMA) before it can be approved, even if it is a drug being developed specifically for a pediatric indication. If a product is developed solely for use in the pediatric population, then a Pediatric Use Marketing Authorization, or PUMA, may provide eight years of data exclusivity and ten years of marketing exclusivity.

Sponsors of clinical trials of products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of results of these trials can be delayed in certain circumstances for up to two years after the date of completion of the clinical trial. Competitors may use this publicly-available information to gain knowledge regarding the progress of development programs.

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including promotion, may also violate false claims laws. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer.

Prescription drug advertising is subject to federal, state and foreign regulations. In the United States, the FDA regulates prescription drug promotion, including advertising. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Any distribution of prescription drug products and pharmaceutical samples must comply with the United States Prescription Drug Marketing Act (PDMA), a part of the FDCA. In addition, Title II of the Federal Drug Quality and Security Act of 2013, known as the Drug Supply Chain Security Act (DSCSA), has imposed new “track and trace” requirements on the distribution of prescription drug products by manufacturers, distributors, and other entities in the drug supply chain. The DSCSA requires product identifiers (i.e., serialization) on prescription drug products in order to eventually establish an electronic interoperable prescription product to system to identify and trace certain prescription drugs distributed in the United States and preempts existing state drug pedigree laws and regulations on this topic. The DSCSA also establishes new requirements for the licensing of wholesale distributors and third-party logistic providers, although FDA regulations addressing wholesale distributors and third party logistics providers have not yet been promulgated. We serialize our product at both the package and homogeneous case level, pass serialization and required transaction information to our customers, and believe that we comply with all such requirements.

Federal law requires that a pharmaceutical manufacturer, as a condition of having its products receive federal reimbursement under Medicaid and Medicare Part B, must pay rebates to state Medicaid programs for all units of its covered outpatient drugs dispensed to Medicaid beneficiaries and paid for by a state Medicaid program under either a arrangement or through a managed care organization. This federal requirement is effectuated through a Medicaid drug rebate agreement between the manufacturer and the

Secretary of Health and Human Services. CMS administers the Medicaid drug rebate agreements, which provide, among other things, that the drug manufacturer will pay rebates to each state Medicaid agency on a quarterly basis and report certain price information on a monthly and quarterly basis. The rebates are based on prices reported to CMS by manufacturers for their covered outpatient drugs. For innovator products, that is, drugs that are marketed under approved NDAs, the basic rebate amount is the greater of 23.1% of the average manufacturer price (“AMP”) for the quarter or the difference between such AMP and the best price for that same quarter. The AMP is the weighted average of prices paid to the manufacturer (1) directly by retail community pharmacies and (2) by wholesalers for drugs distributed to retail community pharmacies. The best price is essentially the lowest price available to entities. Innovator products are also subject to an additional rebate that is based on the amount, if any, by which the product’s current AMP has increased over the baseline AMP, which is the AMP for the first full quarter after launch, adjusted for inflation. To date, the rebate amount for a drug has been capped at 100% of the AMP; however, effective January 1, 2024, this cap will be eliminated, which means that a manufacturer could pay a rebate amount on a unit of the drug that is greater than the average price the manufacturer receives for the drug. For products, generally generic drugs marketed under approved abbreviated new drug applications, the basic rebate amount is 13% of the AMP for the quarter. products are also subject to an additional rebate. The additional rebate is similar to that discussed above for innovator products, except that the baseline AMP quarter is the fifth full quarter after launch (for innovator multiple source drugs launched on April 1, 2013 or later) or the third quarter of 2014 (for those launched before April 1, 2013). The terms of participation in the Medicaid drug rebate program impose an obligation to correct the prices reported in previous quarters, as may be necessary. Any such corrections could result in additional or lesser rebate liability, depending on the direction of the correction. In addition to retroactive rebates, if a manufacturer were found to have knowingly submitted false information to the government, federal law provides for civil monetary penalties for failing to provide required information, late submission of required information, and false information.

Manufacturers are also required to make their covered drugs, which are generally drugs approved under NDAs, available to authorized users of the Federal Supply Schedule (“FSS”) of the General Services Administration. The law also requires manufacturers to offer deeply discounted FSS contract pricing for purchases of their covered drugs by the Department of Veterans Affairs, the Department of Defense (“DoD”), the Coast Guard, and the Public Health Service (including the Indian Health Service) in order for federal funding to be available for reimbursement or purchase of the manufacturer’s drugs under certain federal programs. FSS pricing to those four federal agencies for covered drugs must be no more than the Federal Ceiling Price (“FCP”), which is at least 24% below the Average Manufacturer Price for the prior year.

The is the average price for covered drugs sold to wholesalers or other middlemen, net of any price reductions.

The accuracy of a manufacturer’s reported FCPs, or FSS contract prices may be audited by the government. Among the remedies available to the government for inaccuracies is recoupment of any overcharges to the four specified federal agencies based on those inaccuracies. If a manufacturer were found to have knowingly reported false prices, in addition to other penalties available to the government, the law provides for civil monetary penalties of $100,000 per incorrect item.

The DoD provides pharmacy benefits to current and retired military service members and their families through the Tricare healthcare program. When a Tricare beneficiary obtains a prescription drug through a retail pharmacy, the DoD reimburses the pharmacy at the retail price for the drug rather than procuring it from the manufacturer at the discounted FCP discussed above. In order for the DoD to realize discounted prices for covered drugs (generally drugs approved under NDAs), federal law requires manufacturers to pay refunds on utilization of their covered drugs sold to Tricare beneficiaries through retail pharmacies in DoD’s Tricare network. These refunds are generally the difference between the and the FCP and are due on a quarterly basis. Absent an agreement from the manufacturer to provide such refunds, DoD will designate the manufacturer’s products as Tier 3 and require that beneficiaries obtain prior authorization in order for the products to be dispensed at a Tricare retail network pharmacy. However, refunds are due whether or not the manufacturer has entered into such an agreement.

Our goal is a diverse and inclusive workforce – not because it is the right thing to do but because we believe that such a workforce is key to our long-term success. Approximately 58% of our employees are female. At the leadership level (employees at manager and above) approximately 64% are female, and two of seven members of our are female.

We focus on engagement with our employees as we believe an engaged workforce is key to our success and to the success and wellbeing of our employees. In October 2021, we held an meeting with our sales staff for the first time since the beginning of the pandemic. This meeting, as with the meetings prior to the pandemic, serve to bring together and energize our staff. We plan to hold further such meetings as the course of the pandemic allows.

In March 2020, in light of worsening conditions as a result of the pandemic, we implemented a number of safety related initiatives among our employees, including a travel ban and a work from home policy for all employees. This included our customer-facing employees, who began working remotely and utilizing telephone technologies to provide support to patients and their healthcare providers. At present, our operations have returned to mostly being with some contact with doctors by our commercial sales force still being done remotely. Notwithstanding, the pandemic, including the emergence of new variants, including the delta and omicron variants, could affect the health and availability of our workforce, and we may return to a work from home policy if it is in the best interests of the health and welfare of our employees.

We make available free of charge on or through our Internet website our Annual Report on Form Quarterly Reports on Form Current Reports on Form and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). Our Internet address is www.catalystpharma.com. The content on our website is not, nor should it be deemed to be, incorporated by reference into this report.

Until we launched FIRDAPSE for the treatment of LEMS in January 2019, we focused all of our efforts over the prior six years on obtaining regulatory approval for FIRDAPSE for the treatment of LEMS, on evaluating FIRDAPSE for the treatment of other neuromuscular diseases including CMS, and SMA Type 3, on raising capital, and on recruiting personnel. On November 28, 2018, the FDA approved our first product, FIRDAPSE for the treatment of adults with LEMS, which became commercially available in January 2019. While we reported net income in each year since 2019, we have a prior history of operating losses in all prior fiscal years of our existence. In addition, we have recently concluded that we will no longer go forward with the evaluation of FIRDAPSE for the treatment of indications other than LEMS. As a result of this and other factors, there can be no assurance that we will remain cash flow positive and profitable.

Even with the FDA approval of FIRDAPSE, the bulk active pharmaceutical ingredient in the drug (i.e., amifampridine) may be used by compounding pharmacies pursuant to Section 503A of the Federal Food, Drug, and Cosmetic Act because the ingredient is a component of an drug product, and pharmacies may lawfully compound for individually identified patients under Section 503A using components of approved drug products. In addition, drugs that are not approved by FDA for the treatment of LEMS may nonetheless be prescribed by physicians for the treatment of LEMS.

The process of proposing, negotiating and implementing a license or acquisition of a product candidate is lengthy and complex, and we may be unable to or acquire the rights to any such products, product candidates or technologies from third parties for several reasons. Further, even if we identify acquisition or targets, we may not be able to close those deals or we may determine after diligence not to pursue identified targets. The success of this strategy depends partly upon our ability to identify, select and acquire or promising product candidates and technologies.

The and acquisition of drug products is an area characterized by intense competition, and a number of companies (both more established and early-stage biotechnology companies) are also pursuing strategies to or acquire product candidates or technologies that we may consider attractive. We believe that other companies may be particularly active in pursuing opportunities to or acquire the same or similar products which we may seek to acquire. More established companies may have a competitive advantage over us due to their size, cash resources and greater research, preclinical or clinical development or commercialization capabilities, while earlier stage companies may be more aggressive or have a higher risk tolerance. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to or acquire the rights to the relevant product candidate or technology on terms that would allow us to make an appropriate return on our investment. Moreover, we may devote resources to potential acquisitions or opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts or we may incorrectly judge the value of an acquired or product candidate or technology.

If we are unable to successfully obtain rights to suitable product candidates or technologies, our business, financial condition and prospects for growth could suffer. In addition, acquisitions and arrangements for product candidates and technologies are inherently risky, and ultimately, if we do not complete an announced acquisition or license transaction or integrate an acquired or licensed product candidate or technology successfully and in a timely manner, we may not realize the benefits of the acquisition or license to the extent anticipated and the perception of the effectiveness of our management team and our company may suffer in the marketplace. In addition, even if we are able to successfully identify, negotiate and execute one or more transactions to acquire or new product candidates or technologies, our expenses and short-term costs may increase materially and adversely affect our liquidity.

In addition, acquisitions and may entail numerous operational, financial and legal risks, including:

We may need to raise additional capital in the future in order to fund our business (particularly to fund potential company or product acquisitions that are intended to expand our product offerings). If necessary, we would likely raise additional funds in the future through public or private equity offerings, debt financings, corporate collaborations, or other means. We may also seek governmental grants to support our clinical and trials. However, there is no assurance that any such funding will be available, and, even if it is available, whether it will be available on terms that are favorable to us. We may also seek to raise additional capital to fund additional product development efforts, even if we have sufficient funds for our planned operations.

As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC, including periodic reports, disclosures and more complex accounting rules. As directed by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules requiring public companies to include a report of management on a company’s internal control over financial reporting in their Annual Report on Form Based on current rules, we are required to annually report under Section 404(a) of the Sarbanes-Oxley Act regarding our management’s assessment as to the effectiveness of our internal control over financial reporting. Further, under Section 404(b) of the Sarbanes-Oxley Act, our auditors are required to report on their assessment as to the effectiveness of our internal control over financial reporting. If we or our auditors are unable to conclude that we have effective internal control over our financial reporting, investors could lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our common stock.

We are highly dependent on our executive officers and key employees, and on our Board of Directors. The loss of the services of one or more of these individuals could significantly impede the achievement of our scientific and business objectives. Other than an employment agreement with Patrick J. McEnany, our Chairman, President and Chief Executive Officer with respect to his services, we have no employment or retention agreements with any of our other officers or key employees. If we lose the services of any of our existing executive officers or key employees, or if we were unable to recruit qualified replacements on a timely basis for persons who leave our employ, our efforts to develop our drug candidates might be significantly delayed. We do not carry insurance on any of our personnel.

The pandemic has had an impact on our business operations, and we continue to monitor applicable government modifications. We had to make modifications to our normal operations at various points in time during the pandemic, including requiring our employees to work remotely. At present, our operations have returned mostly to being with some contact with doctors by our commercial sales force still being done remotely. Notwithstanding, the pandemic, including the emergence of new variants, including the delta and omicron variants, has in the past and may in the future affect the health and availability of our workforce as well as those of third parties whom we are relying upon to take similar measures. As a result, we have previously and may in the future experience disruptions to our business operations due to the pandemic, and our business could be materially adversely affected by such disruptions, directly or indirectly. National, state and local governments in affected regions have implemented and may continue to implement varying safety precautions, such as quarantines, border closures, increased border controls, travel restrictions, orders and shutdowns, business closures, cancellations of public gatherings and other measures. Organizations and individuals may continue to take additional steps to avoid infection, including limiting travel and staying home from work. These measures may continue to disrupt normal business operations both inside and outside of affected areas and have had significant impacts on healthcare and businesses worldwide.

During 2020 and 2021, we believe that the pandemic impacted new patient starts in the United States, as some physicians were reluctant to diagnose LEMS via telemedicine. To the extent that the pandemic continues, we may continue to see an impact on the number of naïve patients who begin to take FIRDAPSE. There can be no assurance as to how these matters will affect our business or results of operations.

FIRDAPSE targets a disease with a small patient population. A key component of the successful commercialization of a drug product for these indications includes identification of patients and a targeted prescriber base for the drug product. Due to small patient populations, we believe that we would need to have significant market penetration to achieve meaningful revenues and identifying patients and targeting the prescriber base are key to achieving significant market penetration. Typically, drugs for conditions with small prevalence have higher prices in order to generate a return on investment, and as a result, the prices at which we sell

FIRDAPSE are relatively high in order for us to generate an appropriate return for the investment in these product development programs and achieve meaningful gross margins, and high per patient prices could drive physicians to seek out compounding pharmacies to provide compounded amifampridine to fill their prescriptions rather than FIRDAPSE, thereby lowering the FIRDAPSEmarket share or penetration in the market. There can be no assurance that we will be successful in achieving a sufficient degree of market penetration and/or obtaining or maintaining high prices for FIRDAPSE for diseases with small patient populations. Further, even if we obtain significant market share for FIRDAPSE, because the potential target populations are very small, we may not be able to maintain profitability despite obtaining such significant market share. Additionally, patients who discontinue therapy or do not fill prescriptions are not easily replaced by new patients, given the limited patient population.

Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development activities. Global health concerns, such as the pandemic, could also result in social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including the suppliers, clinical trial sites, regulators and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. It is also possible that global health concerns such as the pandemic could disproportionately impact the hospitals and clinical sites in which we conduct any of our clinical trials, which could have a material adverse effect on our business and our results of operation and financial condition.

Our efforts to develop additional products that we may acquire or (or to develop additional indications for FIRDAPSE) are subject to risks of failure. For example:

As a result, our drug development activities may not result in any safe, effective and commercially viable additional indications, and we may not be able to commercialize our products successfully. For example, for several years, we evaluated FIRDAPSE for the treatment of CMS, and SMA Type 3. However, FIRDAPSE failed to meet the primary endpoints in a Phase 3 trial for CMS, and we are no longer pursing this indication. Further, and even though we achieved statistical significance in the primary endpoint in our trial for SMA Type 3, the lack of robust results in this trial has caused us to decide to no longer pursue this indication. Finally, our Phase 3 clinical trial evaluating FIRDAPSE for the treatment of adults with did not achieve statistical significance on its primary endpoint or its secondary endpoint, even though clinical improvement was observed by patients and investigators during the initial dose-titration period of the trial and in the company’s previous trial, and we are no longer pursuing this indication.

We will only obtain regulatory approval to commercialize our future drug candidates if we can demonstrate to the satisfaction of the FDA (or the equivalent foreign regulatory authorities) in adequate and well-controlled clinical studies and trials that the drug is safe and effective for its intended use, that the clinical and other benefits outweigh the safety risks and that it otherwise meets approval requirements. As we have experienced in the past, a failure of one or more or clinical trials or studies can occur at any stage of drug development. We may experience numerous unforeseen events during, or as a result of, testing that could delay or prevent us from obtaining regulatory approval for, or commercializing our drug candidates, including but not limited to:

We do not currently have the ability to independently conduct studies or clinical studies and trials, and we typically rely on third parties, such as third-party contract research and governmental organizations, medical institutions and clinical investigators (including academic clinical investigators), to conduct studies and trials for us. Our reliance on third parties for development activities reduces our control over these activities. These third parties may not complete activities on schedule or may not conduct our studies and our clinical studies and trials in accordance with regulatory requirements or our study design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be adversely affected, and our efforts to obtain regulatory approvals for and commercialize our product candidates may be delayed.

We are licensed in Florida as a virtual drug manufacturer, which means we have no manufacturing capacity and we will be obligated to rely on contract manufacturers and packagers. We cannot be sure that we will successfully manufacture any product, either independently or under manufacturing arrangements, if any, with third party manufacturers. Moreover, if any manufacturer should cease doing business with us or experience delays, shortages of supply or excessive demands on their capacity, we may not be able to obtain adequate quantities of product in a timely manner, or at all. Manufacturers, and in certain situations their suppliers, are required to comply with current NDA commitments and current good manufacturing practices (cGMP) requirements enforced by the FDA, and similar requirements of other countries. The failure by a manufacturer to comply with these requirements could affect its ability to provide us with product. Although we intend to rely on third-party contract manufacturers, we are ultimately responsible for ensuring that our products are manufactured in accordance with cGMP. In addition, if, during a preapproval inspection or other inspection of our third-party manufacturers’ facility or facilities, the FDA determines that the facility is not in compliance with cGMP, any of our marketing applications that lists such facility as a manufacturer may not be approved or approval may be delayed until the facility comes into compliance with cGMP and completes a successful by the FDA.

Our success in managing our growth will depend in part on the ability of our executive officers to continue to implement and improve our operational, management, information and financial control systems, and to expand, train and manage our employee base, and particularly to expand, train and manage a specially-trained sales force to market our products. We may not be able to attract and retain personnel on acceptable terms given the intense competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and research institutions. Our inability to manage growth effectively could cause our operating costs to grow at a faster pace than we currently anticipate and could have a material adverse effect on our business, financial condition, results of operations and prospects.

The pricing of drug products, in general, and of specialty drugs, in particular, has been a topic of concern in the United States Congress, where hearings have been held on the topic, and several bills have been introduced proposing a variety of actions to restrain the prices of drugs. Former President Trump frequently discussed his intention to reduce drug prices, as has President Biden. The Trump Administration solicited public comment on a variety of regulatory proposals to reduce drug prices, and the Centers for Medicare and Medicaid Services (Center) published an interim final rule that establishes a Most Favored Nation (MFN) Model for Medicare Part B drug payment. This regulation would substantially change the drug reimbursement landscape as it bases Medicare Part B payment for 50 selected drugs on prices in foreign countries instead of average sales price, or ASP. The MFN drug payment amount was expected to be lower than the current payment limit because United States drug prices are generally the highest in the world. While the MFN Model payment methodology was scheduled to begin on January 1, 2021, by the end of December 2020, three federal courts had granted orders preventing implementation of the MFN Model rule. On August 6, 2021, the Center published a proposed rule rescinding the November 2020 MFN Model interim final rule, and on December 27, 2021, CMS published a final rule withdrawing the MFN Model effective February 28, 2022. In its release, the Center stated that it will consider stakeholder feedback as it explores options to incorporate value into payments for Medicare Part B drugs, improving access to evidence-based care, and reducing drug spending for consumers throughout the health care system. Further, since President Biden took office, there have been continuing efforts in Congress and through the administration to reduce drug prices.

On September 9, 2021, the Biden administration published a wide-ranging list of policy proposals, most of which would need to be carried out by Congress, to reduce drug prices and drug payment. The HHS plan includes, among other reform measures, proposals to lower prescription drug prices, including by allowing Medicare to negotiate prices and disincentivizing price increases, and to support market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase price transparency. Many similar proposals, including the plans to give Medicare Part D authority to negotiate drug prices, require drug manufacturers to pay rebates on drugs whose prices increase greater than the rate of inflation, and cap costs, have already been included in policy statements and legislation currently being considered by Congress. It is unclear to what extent these and other statutory, regulatory, and administrative initiatives will be enacted and implemented, and to what extent these or any future legislation or regulations by the Biden administration will have an effect on our business, including market acceptance, and sales, of our products and product candidates.

Before we can obtain future regulatory approval for the sale of our drug candidates for an indication, we may have to conduct, at our own expense, tests in animals in order to support the safety of our drug candidates. testing is expensive, difficult to design and implement, can take several years to complete, and is uncertain as to outcome. Our tests may produce negative or inconclusive results, and on the basis of such results, we may decide, or regulators may require us, to halt ongoing clinical trials or conduct additional testing.

Our product promotion and advertising are also subject to regulatory requirements and continuing regulatory review. In particular, the marketing claims we will be permitted to make in labeling or advertising regarding our marketed products will be limited by the terms and conditions of the labeling and available scientific data. We must submit copies of our advertisements and promotional labeling to the FDA at the time of initial publication or dissemination. If the FDA believes these materials or statements promote our products for unapproved indications, or with unsubstantiated claims, or if we fail to provide appropriate safety related information, the FDA could allege that our promotional activities misbrand our products. Specifically, the FDA could issue an untitled letter or warning letter, which may demand, among other things, that we cease such promotional activities and issue corrective advertisements and labeling to all recipients of the misbranded materials. The FDA also could take enforcement action including seizure of allegedly misbranded product, injunction, or criminal prosecution against us and our officers or employees. If we repeatedly or deliberately fail to submit such advertisements and labeling to the agency, the FDA could withdraw our approvals. Moreover, the Department of Justice can bring civil or criminal actions against companies and executives that promote drugs or biologics for unapproved uses, based on the Federal Food, Drug, and Cosmetic Act, the False Claims Act, and other federal laws governing the marketing and reimbursement for such products under federally supported healthcare programs such as Medicare and Medicaid. Monetary penalties in such cases have often been substantial, and civil penalties can include costly mandatory compliance programs and potential exclusion of a company’s products from federal healthcare programs.

In 2010, former President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, the “Health Care Reform Law”), a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry, and impose additional health policy reforms. The Health Care Reform Law, among other things, revised the definition of Average Manufacturer Price used by the Medicaid Drug Rebate Program for reporting purposes, imposed a significant annual fee on companies that manufacture or import branded prescription drug products and established an annual fee on entities that sell branded prescription drugs or biologics to specified government programs in the United States. The Health Care Reform Law also expanded the 340B drug discount program (excluding orphan drugs), including the creation of new penalties for and included a discount (now 70%, on brand name drugs for Medicare Part D participants in the coverage gap, or “donut hole.” The Health Care Reform Law increased the Medicaid rebates for line extensions or reformulated drugs, which could substantially increase our Medicaid rebate rate (in effect limiting reimbursement for these patients).

Beginning in January 2017, former President Trump signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the Health Care Reform Law or otherwise circumvent some of the requirements for health insurance mandated by the Health Care Reform Law. These actions include directing applicable federal agencies to waive, defer, grant exemptions from, or delay the implementation of any provision of the Health Care Reform Law that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13, 2017, an Executive Order was signed terminating the cost sharing subsidies that reimburse insurers under the Health Care Reform Law. Several state Attorneys Generals filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. Further, on June 14, 2018 the United States Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $12.0 billion in Health Care Reform Law risk corridor payments to third-party payors. The effects of this gap in reimbursement on third-party payors, the viability of the Health Care Reform Law marketplace, providers, and our business, are not yet known. On December 18, 2019, the United States Court of Appeals for the Fifth Circuit ruled that the Health Care Reform Law’s individual mandate is unconstitutional but sent the matter back down to a district court to determine whether that provision can be removed from the rest of the Health Care Reform Law. On March 2, 2020, the U.S. Supreme Court agreed to review the Fifth Circuit’s ruling, and oral argument was heard on November 10, 2020. On June 17, 2021, the U.S. Supreme Court dismissed the challenge to the Health Care Reform Law in a decision.

In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and waivers. The company that first obtains FDA approval for a designated orphan drug for a given rare disease receives marketing exclusivity for use of that drug for the stated disease or condition for a period of seven years, with an additional six months of exclusivity if the product also qualifies for pediatric exclusivity. Orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective, a subsequent product is deemed clinically superior, or if the manufacturer is unable to deliver sufficient quantity of the drug.

Certain provisions of our certificate of incorporation and and applicable provisions of Delaware corporate law, may make it more difficult for or prevent a third party from acquiring control of us or changing our Board of Directors and management. These provisions include:

On September 20, 2011, the board of directors approved the adoption of a stockholder rights plan (Rights Plan), which was amended on September 19, 2016 and further amended on August 28, 2019. The Rights Plan was implemented through our entry into a rights agreement with Continental Stock Transfer & Trust Company, as rights agent, and the declaration of a dividend distribution of one preferred stock purchase right (each, a Right) for each outstanding share of our common stock. The dividend had been paid on October 7, 2011 to holders of record as of that date. Each right was attached to and traded with the associated share of common stock. Under the Rights Plan, the rights would have become exercisable only if a person acquired beneficial ownership of 17.5% or more of our common stock (or, in the case of a person who beneficially owned 17.5% or more of our common stock on the date the rights plan was adopted, such person acquires beneficial ownership of any additional shares of our common stock) or after the date of the Rights Agreement, commenced a tender offer that, if consummated, would have resulted in beneficial ownership by a person of 17.5% or more of our common stock.

In May 2019, the FDA approved a New Drug Application (NDA) for Ruzurgi, another version of amifampridine for the treatment of pediatric LEMS patients (ages 6 to under 17). While the NDA for Ruzurgi only covers pediatric patients, we believe that Ruzurgi has been regularly prescribed to adult LEMS patients. We also believe that the FDA’s approval of Ruzurgi violated our statutory rights and was in multiple other respects arbitrary, capricious and contrary to law. As a result, in June 2019 we filed suit against the FDA challenging this approval and related drug labeling, and Jacobus Pharmaceuticals (Jacobus) intervened in our case. Our complaint, which was filed in the federal district court for the Southern District of Florida, alleged that the FDA’s approval of Ruzurgi violated multiple provisions of FDA regulations regarding labeling, resulting in misbranding in violation of the Federal Food, Drug, and Cosmetic Act (FDCA); violated our statutory rights to Orphan Drug Exclusivity and New Chemical Entity Exclusivity under the FDCA; and was in multiple other respects arbitrary, capricious, and contrary to law, in violation of the Administrative Procedure Act. Among other remedies, the suit sought an order setting aside the FDA’s approval of Ruzurgi.

On September 30, 2021, a three-judge panel of 11th Circuit judges issued a unanimous decision overturning the District Court’s decision. The appellate court adopted our argument that the FDA’s approval of Ruzurgi violated our rights to Orphan Drug Exclusivity and remanded the case to the District Court with orders to enter summary judgment in our favor. In November 2021, Jacobus filed a motion seeking rehearing of the case from the full 11th Circuit, which motion was denied in January 2022. Further, in January 2022, Jacobus filed motions with both the 11th Circuit and the U.S. Supreme Court seeking a stay of the 11th Circuit’s ruling indicating that it would seek a review of the 11th Circuit’s decision from the U.S. Supreme Court. Both stay motions were denied, and on January 28, 2022, the 11th Circuit issued a mandate directing the District Court to enter summary judgment in our favor. The District Court entered that order on January 31, 2022. On February 1, 2022, the FDA informed Jacobus that, consistent with the Court of Appeals for the Eleventh Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval of the Ruzurgi NDA was switched to a tentative approval until the orphan-drug exclusivity (ODE) for Firdapse has expired.

On June 3, 2021, we announced a positive decision in this proceeding that quashed the NOC previously issued for Ruzurgi and remanded the matter to the Minister of Health to redetermine its decision to grant marketing authorization to Ruzurgi in spite of FIRDAPSE’s data protection rights. However, on June 28, 2021, we announced that Health Canada had an NOC for Ruzurgi, once again allowing the product to be marketed in Canada for patients with LEMS. As a result, in early July 2021 we, along with our partner KYE, filed a second suit against Health Canada to overturn their most recent decision. That case was fully briefed in late 2021, with oral argument held in early December.

The graph below matches Catalyst Pharmaceuticals, Inc.’s cumulative total shareholder return on common stock with the cumulative total returns of the NASDAQ Composite index, the Russell MicroCap index, and the NASDAQ Biotechnology index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2016 to 12/31/2021.

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 of the Securities Act (the “”). The Share Repurchase Program commenced on March 22, 2021.

We are a commercial-stage biopharmaceutical company focused on developing and commercializing novel medicines for patients living with rare diseases. With exceptional patient focus, we are committed to developing a robust pipeline of cutting-edge, medicines for rare diseases. We historically focused our efforts on developing products that treat diseases in the neuromuscular and neurological space, but in 2021 we made a strategic decision to broaden and diversify our product portfolio through acquisitions of both early and late-stage products or companies or technology platforms in rare disease therapeutic categories outside of neuromuscular diseases. To accomplish these new priorities, we are employing a disciplined approach to evaluating assets and we believe that this strategic expansion will better position our company to build out a broader more diversified portfolio of drug candidates, which should add greater value to our company over the near and long-term. However, there can be no assurance that whatever product candidates or technology platforms we acquire, if any, will be successfully developed or commercialized.

We are currently exploring several potential opportunities to acquire companies with drug products in development or to or acquire drug products in development. However, no definitive agreements have been entered into to date. Further, during the third quarter of 2021 we hired Dr. Preethi Sundaram, who serves as our Chief Strategy Officer. In that position, Dr. Sundaram is leading our efforts to acquire R&D assets, from early stage through late-stage clinical programs and technologies to treat rare diseases, and once such drug candidates are acquired, Dr. Sundaram will help oversee the development of those assets.

The pandemic has affected our business operations in numerous ways, and we continue to monitor applicable government modifications. We had to make modifications to our normal operations because of the pandemic, including allowing our employees to work remotely. At present, our operations have returned to mostly being with some contact with physicians by our commercial sales force still being done remotely. Notwithstanding, the pandemic, including the emergence of new variants, including the delta and omicron variants, could affect the health and availability of our workforce as well as those of third parties whom we are relying upon to take similar measures. As such, we have experienced in the past, and may experience in the future, disruptions to our business operations because of the pandemic, and our business could be materially adversely affected by such disruptions, directly or indirectly. National, state and local governments in affected regions have implemented and may continue to implement varying safety precautions, such as quarantines, border closures, increased border controls, travel restrictions, orders and shutdowns, business closures, cancellations of public gatherings and other measures. Organizations and individuals may continue to take additional steps to avoid infection, including limiting travel and staying home from work. These measures may continue to disrupt normal business operations both inside and outside of affected areas and have had significant impacts on healthcare and businesses worldwide.

We believe that because many healthcare providers who treat LEMS patients have delayed seeing new patients because of the pandemic, there has been a delay in the diagnosis of new LEMS patients and their initiating therapy, which has slowed our efforts to locate new patients who could benefit from our therapy. However, we believe that when conditions allow healthcare providers to resume seeing new patients in person on a regular basis, the impact of this aspect of the pandemic on our business will lessen.

Further, 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 an adult LEMS patient who can benefit from FIRDAPSE. Additionally, we recently began promotion to oncologists that may treat adult LEMS patients. We also are continuing to make available at a LEMS voltage gated calcium channel (VGCC) antibody testing program for use by physicians who suspect that one of their patients may have LEMS and wish to reach a definitive diagnosis.

In order to help adult LEMS patients afford their medication, we, like other pharmaceutical companies which are marketing drugs for ultra-orphan conditions, have developed an array of financial assistance programs that are available to reduce patient and deductibles to a nominal affordable amount. For eligible patients with commercial coverage, a assistance program designed to keep costs to not more than $10.00 per month (currently $0.00 per month) is available for all LEMS patients who are prescribed FIRDAPSE. We are also donating, and committing to continue to donate, money to qualified, independent charitable foundations dedicated to providing assistance to any U.S. LEMS patients in financial need. Subject to compliance with regulatory requirements, our goal is that no LEMS patient is ever denied access to their medication for financial reasons.

In May 2019, the FDA approved a New Drug Application (NDA) for Ruzurgi, another version of amifampridine for the treatment of pediatric LEMS patients (ages 6 to under 17). While the NDA for Ruzurgi only covers pediatric patients, we believe that Ruzurgi has been regularly prescribed to adult LEMS patients. We also believe that the FDA’s approval of Ruzurgi violated our statutory rights and was in multiple other respects arbitrary, capricious and contrary to law. As a result, in June 2019 we filed suit against the FDA and several related parties challenging this approval and related drug labeling, and Jacobus Pharmaceuticals (Jacobus) intervened in our case. Our complaint, which was filed in the federal district court for the Southern District of Florida, alleged that the FDA’s approval of Ruzurgi violated multiple provisions of FDA regulations regarding labeling, resulting in misbranding in violation of the Federal Food, Drug, and Cosmetic Act (FDCA); violated our statutory rights to Orphan Drug Exclusivity and New Chemical Entity Exclusivity under the FDCA; and was in multiple other respects arbitrary, capricious, and contrary to law, in violation of the Administrative Procedure Act. Among other remedies, the suit sought an order setting aside the FDA’s approval of Ruzurgi.

On September 30, 2021, a three-judge panel of 11 Circuit judges issued a unanimous decision overturning the District Court’s decision. The appellate court adopted our argument that the FDA’s approval of Ruzurgi violated our rights to Orphan Drug Exclusivity and remanded the case to the District Court with orders to enter summary judgment in our favor. In November 2021, Jacobus filed a motion seeking rehearing of the case from the full 11 Circuit, which motion was denied in January 2022. Further, in January 2022, Jacobus filed motions with both the 11 Circuit and the U.S. Supreme Court seeking a stay of the 11 Circuit’s ruling indicating that it would seek a review of the 11 Circuit’s decision from the U.S. Supreme Court. Both stay motions were denied, and on January 28, 2022, the 11 Circuit issued a mandate directing the District Court to enter summary judgment in our favor. The District Court entered that order on January 31, 2022. On February 1, 2022, the FDA informed Jacobus that, consistent with the Court of Appeals for the Eleventh Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval of the RuzurgiNDA was switched to a tentative approval until the orphan-drug exclusivity (ODE) for Firdapse has expired.

We are actively working with parents and physicians of pediatric LEMS patients to make sure that such patients will be able to obtain FIRDAPSE through appropriate legal and regulatory means. In addition, we are working to file an application with the FDA seeking approval for use of FIRDAPSE by pediatric LEMS patients, though any effort to obtain such authorization is not guaranteed. We anticipate submitting the sNDA before the end of the first quarter. For the adult LEMS patients who have been taking Ruzurgi (who are believed to be a large majority of the patients currently taking Ruzurgi), we are working with prescribers to transition such patients to FIRDAPSE as needed.

On August 10, 2020, we announced the results from our Phase 3 clinical trial evaluating FIRDAPSE for the treatment of adults with Unfortunately, the trial did not achieve statistical significance on its primary endpoint or its secondary endpoint. Following our receipt of these results, we analyzed the data and proposed a plan to FDA to perform an additional study evaluating FIRDAPSE for the treatment of In response, the FDA provided written comments that were unfavorable towards our proposed revised study design and further questioned the ability of the initial pilot study to be supportive. These remarks make it unlikely that a single study of similar design to would be sufficient for potential approval of the indication. We also held an expert panel with key opinion leaders (KOLs) to discuss options and review the likelihood of success for the indication for FIRDAPSE under these circumstances. After receiving the input of the FDA and the KOLs, we concluded that the approval of FIRDAPSE as a first line therapy for is unlikely, and therefore we have decided not to further pursue this indication.

We previously announced our intent to conduct a study evaluating FIRDAPSE as a treatment for Hereditary Neuropathy with Liability to Pressure Palsies (HNPP). The FDA requested that a new, patient centric endpoint be researched and used for our proposed study, without assurance that such endpoint would be acceptable for approval. Based upon the uncertainty of such an endpoint, we have decided not to conduct this study as a company sponsored study, though there is a possibility that this study will move forward as investigator-initiated study that we will support.

Our NDS filing for FIRDAPSE for the symptomatic treatment of LEMS was approved by Health Canada on July 31, 2020. In August 2020, we entered into a license agreement with KYE Pharmaceuticals (KYE), pursuant to which we licensed the Canadian rights for FIRDAPSE for the treatment of LEMS to KYE. Pursuant to the license agreement, KYE was obligated to pay us an payment based on approval, a milestone upon attainment of marketing authorization and product supply, milestones based on achievements of sales and regulatory milestones, and a sharing of defined net sales following commercialization.

On June 3, 2021, we announced a positive decision in this proceeding that quashed the NOC previously issued for Ruzurgi and remanded the matter to the Minister of Health to redetermine its decision to grant marketing authorization to Ruzurgi in spite of FIRDAPSE’s data protection rights. However, on June 28, 2021, we announced that Health Canada had an NOC for Ruzurgi, once again allowing the product to be marketed in Canada for patients with LEMS. As a result, in July 2021 we, along with our partner KYE, filed a second suit against Health Canada to overturn this decision. That case was fully briefed in late 2021, with oral argument held in early December.

On June 28, 2021, we entered into a agreement with DyDo Pharma, Inc. (DyDo), pursuant to which we to DyDo the Japanese rights for FIRDAPSE for the treatment of LEMS. Under the terms of the Agreement, DyDo will have joint rights to develop FIRDAPSE, and exclusive rights to commercialize the product, in Japan. DyDo will be responsible for funding all clinical, regulatory, marketing and commercialization activities in Japan. We will be responsible for clinical and commercial supply, as well as providing support to DyDo in its efforts to obtain regulatory approval for the product from the Japanese regulatory authorities. Subject to the satisfaction of terms and conditions as set forth in the Agreement, we have earned an upfront payment and are eligible to receive further development and sales milestones for FIRDAPSE, as well as revenue on product supplied to DyDo.

Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as support for selected investigator-sponsored research. The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, consulting, and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials, and allocations of various overhead costs related to our product development efforts. To date, all of our research and development resources have been devoted to the development of FIRDAPSE, (our version of vigabatrin), and formerly 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.

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 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 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.

We recognize stock-based compensation for the fair value of all share-based payments, including grants of stock options and restricted stock units. For stock options, we use the Black-Scholes option valuation model to determine the fair value of stock options on the date of grant. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield. Expected volatility is based on reviews of historical volatility of our common stock. The estimated expected option life is based upon the simplified method. Under this method, the expected option life is presumed to be the between the vesting date and the end of the contractual term. We will continue to use the simplified method until we have sufficient historical exercise data to estimate the expected life of the options. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve appropriate for the expected life of our stock option awards. For the years ended December 31, 2021 and 2020, the assumptions used were an estimated annual volatility of 70.0% and 81.4%, expected holding periods of primarily four and a half years, and risk-free interest rates of 0.34% to 1.18% and 0.24% to 1.64%, respectively.

Cost of sales was approximately $21.9 million for the year ended December 31, 2021, compared to $17.0 million for the year ended December 31, 2020. Cost of sales in both periods consisted principally of royalty payments, which are based on net revenue as defined in the applicable license agreement. Royalties are payable on the terms set forth below in Liquidity and Capital Resources -, and increase by 3% when net sales (as defined in the applicable license agreement) exceed $100 million in any calendar year.

Research and development expenses stayed relatively consistent for the 2021 fiscal year, when compared to the same period in 2020. For the 2020 fiscal year, research and development expenses included costs related to clinical trial and our SMA type both of which were completed in the second half of 2020. For the fiscal year ended December 31, 2021, research and development expenses included costs relating to closing out sites for both clinical trial and SMA type 3 trial. Research and development costs in both the 2020 and 2021 periods also included expenses relating to medical and regulatory affairs, our expanded access programs, and our efforts to develop a long-acting formulation of amifampridine phosphate.

We expect that research and development expenses will continue to be substantial in 2022 and beyond as we execute on our strategic initiative to acquire technology platforms and/or earlier stage programs in rare disease categories outside of neuromuscular diseases.

Total stock-based compensation for the years ended December 31, 2021 and 2020 was $6.1 million and $6.3 million, respectively. In 2021 and 2020, grants were principally for stock options relating to bonus awards and grants to new employees.

The information comparing results of operations for the year ended 2020 compared to 2019 was included in our Annual Report on Form for 2020.

On July 23, 2020, we filed a shelf registration statement with the SEC to sell up to $200 million of common stock, preferred stock, warrants to purchase common stock, debt securities and units consisting of one or more of such securities (the “2020 Shelf Registration Statement”). The 2020 Shelf Registration Statement (file no. was declared effective by the SEC on July 31, 2020. As of the date of this report, no offerings have been completed under the 2020 Shelf Registration Statement.

Net cash provided by operating activities was $60.4 million and $45.0 million, respectively, for the years ended December 31, 2021 and 2020. During the year ended December 31, 2021, net cash provided by operating activities was primarily attributable to our net income of $39.5 million, a decrease of $4.0 million in prepaid expenses and other current and assets, increases of $5.5 million in accrued expenses and other liabilities, $0.9 million in operating lease liability, $9.3 million in deferred taxes and of $6.6 million of expenses. This was partially offset by increases of $0.6 million in accounts receivable, net and $3.2 million in inventory and a decrease of $1.5 million in accounts payable. During the year ended December 31, 2020, net cash provided by operating activities was primarily attributable to our net income of $75.0 million, a decrease of $4.5 million in accounts receivable, net, an increase of $0.1 million in accounts payable and $7.1 million net of expenses. This was partially offset by increases of $4.0 million in prepaid expenses and other current and assets and $2.7 million in inventory and decreases of $1.2 million in accrued expenses and other liabilities, $0.9 million in operating lease liability and $33.0 million in deferred taxes.

We currently have no debt or finance leases. We have an operating lease for our office facilities. We do not have any sheet arrangements as such term is defined in rules promulgated by the SEC.