CATALYST PHARMACEUTICALS, INC. - Quarter Report: 2021 March (Form 10-Q)

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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 definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule of the Exchange Act:

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

In the opinion of management, the accompanying unaudited interim consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of the dates and for the periods presented. Accordingly, these consolidated statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2020 included in the 2020 Annual Report on Form filed by the Company with the SEC. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for any future period or for the full 2021 fiscal year.

 

 

 

The Company sells Firdapse to the Customer (its exclusive distributor) who subsequently resells Firdapse to both a small group of SPs who have exclusive contracts with the Company to distribute the Company’s products to patients and potentially to medical centers or hospitals on an emergency basis. In addition to the distribution agreement with its Customer, the Company enters into arrangements with health care providers and payors that provide for government-mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products.

 

 

 

investments by security type were as follows (in thousands):

 

5.	Prepaid Expenses and Other Current Assets.

		March 31, 2021				December 31, 2020
Prepaid manufacturing costs		$	4,266			$	3,328
Prepaid tax			761				1,368
Prepaid insurance			1,011				1,285
Prepaid subscription fees			735				729
Prepaid research fees			426				453
Prepaid commercialization expenses			364				199
Due from collaborative arrangements			404				437
Other			276				529
Total prepaid expenses and other current assets		$	8,243			$	8,328

6.	Operating Lease.

		March 31, 2021
Operating lease cost		$	56

		March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows		$	29
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		$	14

Operating lease right-of-use assets		$	3,309
Other current liabilities		$	122
Operating lease liabilities, net of current portion			4,129
Total operating lease liabilities		$	4,251

Remaining  lease term			10.1 years
Discount rate			4.51	%

ten years

12.	Income Taxes.

13.	Stockholders’ Equity.

13.	Stockholders’ Equity (continued).

14.	Stock Compensation.

		Three months ended March 31,
		2021				2020
Research and development		$	389			$	418
Selling, general and administrative			1,182				1,101
Total stock-based compensation		$	1,571			$	1,519

14.	Stock Compensation (continued).

15.	Subsequent Events.

We are a commercial stage biopharmaceutical company focused on developing and commercializing novel high-quality medicines for patients living with rare diseases. We are currently focusing our efforts on products that treat diseases in the neuromuscular and neurological space, but recently, our Board of Directors approved an expansion in our company’s strategic focus to include acquiring or innovative technology platforms and earlier stage programs in other rare disease therapeutic categories outside of neuromuscular diseases. To accomplish these new priorities, we are prepared to invest more heavily in research and development, including acquiring earlier stage opportunities and innovative technology. We believe that this strategic expansion will better position our company to build out a broader more diversified portfolio of drug candidates that we believe will 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.

To spearhead this investment, we have commenced a national search for a key executive to manage this more progressive strategy. This person will likely be an M.D. or Ph.D. with at least years of relevant pharmaceutical experience and experience in developing innovative drug technology. This person will be responsible for portfolio expansion planning and developing medicines from discovery through marketing authorizations, as well as strategic leadership across all R&D activities including, direct oversight of science and clinical research.

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 and technologies to provide support to patients and their healthcare providers. We believe that because many healthcare providers 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 as more healthcare providers resume seeing new patients on a regular basis, that this aspect of the pandemic on our business will lessen.

Our Firdapse supply chain remains robust and thus far we have observed no disruptions in the production of Firdapse. We reiterate that we are committed to providing patients with the ability to obtain an uninterrupted supply of Firdapse, and we believe that we have an adequate supply of Firdapse to address patients’ needs for the foreseeable future. Further, we are advised by our U.S. manufacturing partners that they have implemented contingency plans to remain in operation. We are committed to meeting our patients’ needs for Firdapse and believe that our supply chain will continue to remain solid and uninterrupted through the outbreak and beyond.

Until such time as the pandemic is over, it will likely adversely impact the timetable of our ongoing and contemplated clinical trials and studies, and increase the costs of such trials and studies, consistent with the impact that the pandemic has had on many biopharmaceutical companies.

In October 2012, we licensed the North American rights to Firdapse, a proprietary form of amifampridine phosphate, or chemically known as phosphate. When we acquired the rights to the product, it had already been granted orphan drug designation by the Food and Drug Administration (FDA) for the treatment of patients with LEMS, a rare and sometimes fatal autoimmune disease characterized by muscle weakness. Additionally, in August 2013, we were granted “breakthrough therapy designation” by the FDA for Firdapse for the treatment of LEMS. Further, the FDA has granted Orphan Drug Designation for Firdapse for the treatment of Myasthenia Gravis (MG).

On November 28, 2018, we received approval from the FDA for Firdapse 10 mg tablets for the treatment of adult LEMS patients (ages 17 and above). In January 2019, we launched Firdapse in the United States, selling through a field force experienced in neurologic, central nervous system or rare disease products consisting at the time of approximately 20 field personnel, including sales (Regional Account Managers), patient assistance and insurance navigation support (Patient Access Liaisons), and payor reimbursement (National Account Managers). We also have a field-based force of six medical science liaisons who are helping educate the medical communities and patients about LEMS and about our ongoing clinical trial activities evaluating Firdapsefor other ultra-orphan, neuromuscular diseases. Finally, we are working with several rare disease advocacy organizations (including Global Genes, the National Organization for Rare Disorders (NORD), and the Myasthenia Gravis Foundation of America) to help increase awareness and level of support for patients living with LEMS, Anti-MuSK antibody positive myasthenia gravis, or and other neurological diseases, and to provide education for the physicians who treat these rare diseases and the patients they treat.

In early 2020, we expanded our field sales group by almost one hundred percent and contracted with an experienced inside sales agency generating leads through telemarketing to targeted physicians. We made these changes to expand our sales efforts beyond the neuromuscular specialists who regularly treat LEMS patients to reach the roughly 9,000 neurology and neuromuscular healthcare providers that may be treating an adult LEMS patient who can benefit from Firdapse. We also continue 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. Further, we are continuing to expand our digital and social media activities in order to introduce our product and services to potential patients and their healthcare providers.

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 is available for all LEMS patients prescribed Firdapse. We are also donating, and committing to continue to donate, money to qualified, independent charitable foundations dedicated to providing assistance to any U.S. LEMS patients in financial need. Subject to compliance with regulatory requirements, our goal is that no LEMS patient is ever denied access to 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 is regularly being prescribed off label to adult LEMS patients. We believe that under applicable law, Jacobus is not permitted to market its amifampridine product to adult LEMS patients in the United States, and we are continuing to aggressively take all steps available to us to protect Firdapse’s exclusivity under the Orphan Drug Act. There can be no assurance, however, that we will be able to stop the prescribing of Ruzurgi to adult LEMS patients. If Jacobus is able to successfully sell Ruzurgi to additional adult LEMS patients, it could have a material adverse effect on our business, financial condition and results of operations.

On August 10, 2020, we announced the results from our 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. Unfortunately, the trial did not achieve statistical significance on its primary endpoint or its secondary endpoint. 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, even though clinical improvement was observed by patients and investigators during the initial dose-titration period of the trial and in our previous trial. We found in our analysis that there was a large degree of symptom variability during the double-blind withdrawal period. We believe that sources of such variability can be addressed in a redesigned study that may better demonstrate the efficacy of our drug for the treatment of

We intend to present our hypotheses and a revised protocol to the FDA with respect to the indication for discussion during the first half of 2021. However, there can be no assurance that the FDA will agree with our new protocol design or, even if our new study is successful, accept the results of a single study of a different trial design as sufficient evidence for approval of the indication. In preparing to present this information to the FDA, we are evaluating new clinical trial sites and discussing the new trial design with investigators. Once we receive input from the FDA on this topic, we will determine whether to continue to develop Firdapsefor this indication.

We intend to conduct a study evaluating Firdapseas a treatment for Hereditary Neuropathy with Liability to Pressure Palsies (HNPP). The scientific basis for considering this indication is that leakage of neuron potassium channels is observed in HNPP. Since Firdapse is a potassium channel blocker, it may mitigate the pathological effects of the potassium channel leakage in HNPP patients. There can be no assurance that this study will be successful.

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 is obligated to pay us an payment based on approval and product supply, data protection milestones based on achievements of sales and regulatory milestones, and a sharing of defined net sales upon commercialization.

In December 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 $500,000. 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 we are obligated to share the costs of certain development expenses.

At March 31, 2021, we had cash and investments of approximately $143.3 million. Based on our current financial condition and forecasts of available cash, we believe that we have sufficient funds to support our operations for at least the next 12 months from the date of this Form There can be no assurance that we will continue to be successful in commercializing Firdapse or will continue to be profitable and cash flow positive. Further, there can be no assurance that if we need additional funding in the future, whether such funding will be available to us. See “Liquidity and Capital Resources” below for further information on our liquidity and cash flow.

Cost of sales consists of third-party manufacturing costs, freight, royalties, and indirect overhead costs associated with sales of Firdapse. Cost of sales may also include period costs related to certain inventory manufacturing services, inventory adjustments charges, unabsorbed manufacturing and overhead costs, and manufacturing variances. Prior to FDA approval in November 2018, the cost of manufacturing Firdapse was expensed, including our of anticipated launch product. This will cause the cost of sales to appear artificially low as we consumed product manufactured and in process prior to approval, and will continue to do so until we deplete such product.

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 we currently expect that our future development costs will be attributable principally to the continued development of Firdapse. However, as noted in the Overview above, we are prepared to invest in future research and development, including earlier stage opportunities and innovative technology.

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.

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. For a full discussion of our accounting policies, please refer to Note 2 on the Financial Statements included in our 2020 Annual Report on Form that we filed with the SEC on March 15, 2021. Our most critical accounting policies and estimates include: accounting for revenue recognition, leases, preclinical study and clinical trial expenses, stock-based compensation and valuation allowance for deferred tax assets. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, our expected course of development, historical experience and other factors that we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, included in our 2020 Annual Report on

.

.

For the three months ended March 31, 2020, research and development expenses included costs relating to our clinical trial and our SMA type 3 trial, both of which were completed in 2020. Research and development costs in both 2020 and 2021 include 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 2021 and beyond as we conduct our trial for HNPP, continue our Expanded Access Program, take steps to continue the development of a long-acting formulation of amifampridine phosphate, continue our regulatory path to seek approval of Firdapse in Japan and evaluate Firdapseas a treatment for other neuromuscular diseases. Research and development expenses will likely also increase if we elect to further the development of Firdapsefor or if we successfully execute on our strategic initiative to acquire or innovative technology platforms and/or earlier stage programs in other therapeutic categories outside of neuromuscular diseases.

.

Total stock-based compensation for the three-month periods ended March 31, 2021 and 2020 were $1.6 million and $1.5 million, respectively. In the first quarter of 2021, grants were principally for stock options relating to 2020 bonus awards. In the first quarter of 2020, grants were principally for stock options relating to 2019 bonus awards.

.

.

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 $3.8 million and $7.2 million, respectively, for the three-month periods ended March 31, 2021 and 2020. During the three months ended March 31, 2021 net cash provided by operating activities was primarily attributable to our net income of $7.7 million, decreases in accounts receivable of $0.4 million, of $0.1 million in prepaid expenses and other current and assets and $0.3 million in inventory, an increase in operating lease liability of $0.9 million and of $3.2 million of expenses. This was partially offset by decreases of $1.7 million in accounts payable and $7.0 million in accrued expenses and other liabilities. During the three months ended March 31, 2020, net cash provided by operating activities was primarily attributable to our net income of $10.4 million, decreases in accounts receivable of $3.6 million and of $1.7 million of expenses. This was partially offset by increases of $1.7 million in prepaid expenses and other current and assets, $0.3 million in inventory and decreases of $2.8 million in accounts payable, $3.7 million in accrued expenses and other liabilities and $0.1 million in operating lease liability.

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.

This Current Report on Form contains “forward-looking statements”, as that term is defined in the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, plans or objectives for future operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, “believes”, “anticipates”, “proposes”, “plans”, “expects”, “intends”, “may”, and other similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or other achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the section entitled “Item 1A – Risk Factors” in our 2020 Annual Report on Form