CATALYST PHARMACEUTICALS, INC. - Quarter Report: 2022 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  ☒

CATALYST PHARMACEUTICALS, INC.

INDEX

PART I. FINANCIAL INFORMATION

Catalyst Pharmaceuticals, Inc. and subsidiary (collectively, the “Company”) is a commercial-stage biopharmaceutical company focused on developing, and commercializing novel medicines for patients living with rare diseases. With exceptional patient focus, Catalyst is committed to developing a robust pipeline of cutting-edge, medicines for rare diseases.

There are numerous aspects of the coronavirus pandemic that have adversely affected the Company’s business since the beginning of the pandemic. The Company closely monitors the impact of the pandemic on all aspects of its business and takes steps, wherever possible, to lessen those impacts. However, the Company is unable to predict the impact that the coronavirus pandemic will have on its business in future periods.

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, 2021 included in the 2021 Annual Report on filed by the Company with the SEC. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for any future period or for the full 2022 fiscal year.

The short-term bond funds and U.S. Treasuries held at March 31, 2022 are classified as securities. The short-term bond funds are classified as current assets, which reflects management’s intention to use the proceeds from the sale of these investments to fund the Company’s operations, as necessary. The Company classifies U.S. Treasuries with stated maturities of greater than three months and less than one year in short-term investments, U.S Treasuries with stated maturities greater than one year are classified as investments in its consolidated balance sheets. There are no investments as of March 31, 2022 and December 31, 2021.

The Company records securities at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses are included in other income, net and are derived using the specific identification method for determining the cost of securities sold. Interest income is recognized when earned and is included in other income, net in the consolidated statements of operations and comprehensive income. The Company recognizes a charge when the declines in the fair value below the amortized cost basis of its securities are judged to be as a result of a credit loss. The Company considers various factors in determining whether to recognize an allowance for credit losses including whether the Company intends to sell the security or whether it is more likely than not that the Company would be required to sell the security before recovery of the amortized cost basis. If the unrealized loss of an debt security is determined to be a result of a credit loss the Company would recognize an allowance and the corresponding credit loss would be included in the consolidated statements of operations and comprehensive income. The Company has not recorded an allowance for credit loss on its securities. See Note 3 (Investments).

		Fair Value Measurements at Reporting Date Using (in thousands)
		Balances as of March 31, 2022				Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Money market funds		$	12,129			$	12,129			$	—			$	—
U.S. Treasuries		$	146,939			$	146,939			$	—			$	—
Short-term investments:
Short-term bond funds		$	19,424			$	19,424			$	—			$	—

		Balances as of December 31, 2021				Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash and cash equivalents:
Money market funds		$	10,990			$	10,990			$	—			$	—
U.S. Treasuries		$	140,995			$	140,995			$	—			$	—
Short-term investments:
Short-term bond funds		$	19,821			$	19,821			$	—			$	—

The Company provides FIRDAPSE free of charge to uninsured patients who satisfy criteria for either the Bridge Program or the Patient Assistance Program. Patients who meet the Bridge Program eligibility criteria and are transitioning from investigational product while they are waiting for a coverage determination, or later, for patients whose access is threatened by the complications arising from a change of insurer may receive a temporary supply of free FIRDAPSEwhile the Company is determining the patient’s third-party insurance, prescription drug benefit or other third-party coverage for FIRDAPSE. The Patient Assistance Program provides FIRDAPSEfree of charge for longer periods of time for those who are uninsured or functionally uninsured with respect to FIRDAPSE because they are unable to obtain coverage from their payor despite having health insurance, to the extent allowed by applicable law. The Company does not recognize any revenue related to these free products and the associated costs are classified in selling, general and administrative expenses in the Company’s consolidated statements of operations and comprehensive income.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company is subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is not subject to U.S. federal, state and local tax examinations by tax authorities for years before 2018. If the Company were to subsequently record an unrecognized tax benefit, associated penalties and tax related interest expense would be reported as a component of income tax expense.

There were no realized gains or losses from securities for the three months ended March 31, 2022 or 2021.

9.14.51

Under the terms of the Collaboration, the Company has received an payment, and will receive a milestone payment, and a sharing of defined net profits upon commercialization from Endo consisting of a digit percent of net sales of generic Sabril. The Company has also agreed to a sharing of certain development expenses. Unless terminated earlier in accordance with its terms, the collaboration continues in effect until the date that is ten years following the commercial launch of the product.

The Company evaluated the license agreement with Endo to determine whether it is a collaborative arrangement for purposes of Topic 808. As the Company shares in the significant risks and rewards, the Company has concluded that this is a collaborative arrangement. As developing a final finished dosage form of a generic product in exchange for consideration is not an output of the Company’s ongoing activities, Endo does not represent a contract with a customer. However, Topic 808 does not provide guidance on the recognition of consideration exchanged or accounting for the obligations that may arise between the parties. The Company concluded that ASC Topic 730, , should be applied by analogy to payments between the parties during the development activities and Topic 606for the milestone payment and sharing of defined net profits upon commercialization.

In May 2019, the FDA approved a New Drug Application (NDA) filed by Jacobus Pharmaceutical Company, Inc. (“Jacobus”) for Ruzurgi, another formulation of amifampridine for the treatment of pediatric LEMS patients (ages 6 to under 17). As a result of the approval of Ruzurgi, based on the Company’s belief that the approval violated its statutory rights to exclusivity under the Orphan Drug Act, in June 2019 the Company filed suit against the FDA in the U.S. District Court for the Southern District of Florida challenging this approval, and Jacobus intervened in the case. While the District Court granted summary judgement in favor of the FDA and Jacobus in 2020, 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 the Company’s rights to Orphan Drug Exclusivity. In November 2021, Jacobus filed a motion seeking rehearing of the decision 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 31, 2022, the U.S. District Court for the Southern District of Florida, based on a mandate issued by the 11 Circuit, entered summary judgement in the Company’s favor. 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.

In March 2021, the Company’s Board of Directors approved a share repurchase program that authorizes the repurchase of up to $40 million of the Company’s common stock, pursuant to a repurchase plan under Rule of the Securities Act. The share repurchase program commenced on March 22, 2021. During the three months ended March 31, 2022 and 2021, 400,000 shares and 67,049 shares were repurchased for an aggregate purchase price of approximately $2.6 million and $0.3 million, respectively ($6.38 and $4.36 average price per share, respectively).

On July 23, 2020, the Company 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 Company’s 2020 Shelf Registration Statement.

As of March 31, 2022, there was approximately $11.4 million of unrecognized compensation expense related to stock option awards granted under the 2014 and 2018 Stock Incentive Plans. The cost is expected to be recognized over a weighted average period of approximately 2.31 years.

The Company granted 474,500 restricted stock units during the three months ended March 31, 2022. There were no grants of restricted stock units to employees or directors during the three months ended March 31, 2021. During the three months ended March 31, 2022 and 2021, the Company recorded stock-based compensation expense related to restricted stock units totaling $0.3 million and $0.1 million, respectively.

As of March 31, 2022, there was approximately $3.8 million of unrecognized compensation expense related to restricted stock units granted under the 2018 Stock Incentive Plan. The cost is expected to be recognized over a weighted average period of approximately 2.67 years.

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). In that regard, 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 and there can be no assurance that our efforts will be successful.

The pandemic has affected our business operations in numerous ways, and we continue to monitor applicable government modifications. At various times during the pandemic, we had to make modifications to our normal operations, 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, 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.

Further, national, state and local governments in affected regions have implemented and may continue to implement in the future 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. Additionally, 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 our normal business operations.

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 as 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 likely 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) filed by Jacobus Pharmaceutical Company, Inc. (“Jacobus”) for Ruzurgi, another formulation of amifampridine for the treatment of pediatric LEMS patients (ages 6 to under 17). As a result of the approval of Ruzurgi, based on our belief that the approval violated our statutory rights to exclusivity under the Orphan Drug Act, in June 2019 we filed suit against the FDA in the U.S. District Court for the Southern District of Florida challenging this approval, and Jacobus intervened in our case. While the District Court granted summary judgement in favor of the FDA and Jacobus in 2020, 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. In November 2021, Jacobus filed a motion seeking rehearing of the decision 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 31, 2022, the U.S. District Court for the Southern District of Florida, based on a mandate issued by the 11 Circuit, entered summary judgement in our favor. 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 recently filed an application with the FDA seeking approval for use of FIRDAPSE by pediatric LEMS patients, although any effort to obtain such authorization is not guaranteed. 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 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 in Canada, KYE, filed a second suit against Health Canada to overturn this decision.

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 has the exclusive rights to commercialize the product, in Japan. DyDo is responsible for funding all clinical, regulatory, marketing and commercialization activities in Japan. We are 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.

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 2021 Annual Report on Form that we filed with the SEC on March 16, 2022. Our most critical accounting policies and estimates include: accounting for revenue recognition, 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 2021 Annual Report on

Cost of sales was approximately $5.9 million for the three months ended March 31, 2022, compared to $4.7 million for the three months ended March 31, 2021. 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.