as
3,4-diaminopyridine phosphate.
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 adults
with LEMS
(agepatients (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) personnel. 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 Firdapse
®
for 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
MuSK-MG,
and Spinal Muscular Atrophy (SMA) Type 3, 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 a rare-disease experienced inside sales agency. Through this recent expansion of our sales team, we hope 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 are also making available
ourat no-cost
a LEMS voltage gated calcium channel (VGCC) antibody testing program (using a commercially available test approved by the FDA) for use by physicians who suspect that one of their
patientpatients may have LEMS and wish to reach a definitive diagnosis.
Because of
the
COVID-19
pandemic, in March 2020 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 are working remotely and utilizing telephone
and
web-based
technologies to provide support to patients and their healthcare providers. We are also continuing to expand our digital and social media activities in order to introduce our product to potential patients and their healthcare providers. While we are
starting to see thatseeing some healthcare providers
who are beginning to again see patients and sales representatives face to face (and we hope that trend will continue),
since many healthcare providers have delayed seeing patients other than those affected bytheCOVID-19
thispandemic has
definitely limited our ability to locate new patients who might benefit from our drug and slowed our efforts to increase our sales from prior periods.
We are supporting the distribution of Firdapse
®
through “Catalyst Pathways
™
”, our personalized treatment support program. “Catalyst Pathways
™
” is a single source for personalized treatment support, education and guidance through the challenging dosing and titration regimen to an effective therapeutic dose. It also includes distributing the drug through a very small group of exclusive specialty pharmacies (primarily AnovoRx), which is consistent with the way that most pharmaceutical products for ultra-orphan diseases are distributed and dispensed to patients. We believe that by using specialty pharmacies in this way, the difficult task of navigating the health care system is far better for the patient needing treatment for their rare disease and the health care community in general.
In order to help 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
co-pays
and deductibles to a nominal affordable amount. For eligible patients with commercial coverage,
a
co-pay
assistance program designed to
keepcosts 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 Firdapse
®
for financial reasons.
In May 2019, the FDA approved a New Drug Application (NDA) for Ruzurgi
®
, another version of
amifampridine
(3,4-DAP),
for the treatment of pediatric LEMS patients (ages 6 to under 17). Based on publicly available information, we believe that Jacobus Pharmaceuticals is offering Ruzurgi
®
at a cost for a patient taking a daily dose of 60 mg per day of approximately $175,200 annually and a cost for a patient taking a daily dose of 100 mg of approximately $292,000 annually. Both prices are lower than the list price for an equivalent amount of Firdapse
®
. In addition, 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
FirdapseFirdapse’s®
’s exclusivity under the Orphan Drug Act. There can be no assurance, however, that we will be able to stop
the
off-label
prescribing of Ruzurgi
®
to adult LEMS patients, and if Jacobus is able to successfully sell Ruzurgi
®
off-label to
off-label
to additional adult LEMS patients, it could have a material adverse effect on our business, financial condition and results of operations.
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. Our complaint, which was filed in the federal district court for the Southern District of Florida,
allegesalleged 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
seekssought an order setting aside the FDA’s approval of Ruzurgi
®
.
We have filed a motion for summary judgement in our case, and the FDA has filed a cross motion for summary judgement. Further, Jacobus has intervened in the case and has filed their own cross motion for summary judgement.On July 30, 2020, the Magistrate Judge considering Catalyst’sour lawsuit against the FDA filed a Report and Recommendation in which she recommended to the District Judge handling the case that she grant the FDA’s and Jacobus’ motions for summary judgement and deny Catalyst’sour motion for summary judgement. We are currently reviewingOn September 29, 2020, the District Judge adopted the Report and Recommendation of the Magistrate Judge, granted the FDA’s and Jacobus’ motions for summary judgment, and dismissed our case.
We believe that the District Judge’s decision which we believe to beis incorrect as a matter of law and contrary to the plain language of the Orphan Drug Act, and we intend to pursue the case further with the District Judge. The decision on whether to grant or deny our motion for summary judgement remains with the District Judge handling the case.Act. We believe that if the MagistrateDistrict Judge’s recommendationdecision to grant summary judgement is correct on the law, it means that the FDA has the authority to effectively eliminate the benefits of exclusivity under the Orphan Drug Act, which we believe will chill the incentive for drug companies like ourselves to spend the millions of dollars necessary to develop an orphan drug. As a result, we have appealed the decision to the Eleventh Circuit Court of Appeals. There can be no assurance of the result of such proceeding.
On August 10, 2020, we announced the
top-line results
results from our Phase 3 clinical
trial
(MSK-002)
evaluating Firdapse
®
for the treatment of adults
with
MuSK-MG.
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. Details of this trial are available on www.clinicaltrials.gov (NCT03304054).
TheUnfortunately, theMSK-002
trial did not achieve statistical significance on the primary endpoint, which was the eight-item Myasthenia Gravis Activities of Daily
Living
(MG-ADL)
total score change from baseline to day 10, in this randomized withdrawal trial
with a score of (p=0.2196).
The secondary endpoint, Quantitative Myasthenia Gravis (QMG) scale also did not achieve statistical significance (p=
0.3736)
0.3736). QMG is a thirteen-item evaluation of ocular, facial, bulbar, gross motor, axial, and respiratory weaknesses. Firdapse
®
was safe and well tolerated during the
MSK-002
trial and demonstrated a safety profile similar to that seen for Firdapse
®
used for the treatment LEMS.
We are continuing to provide Firdapse®
After allto trial subjects who have requested that they continue to receive study medication and we are in the process of the data from the MSK-002 trial has been thoroughly evaluated, we intend to meetmeeting with our neuromuscular advisors andin order to determine our path forward for this indication. We also plan to make the results of this study available in a future scientific forumforum.
.
We
are currently conducting ahave completeda proof-of-concept clinical
clinical study evaluating Firdapse
®
as a symptomatic treatment for ambulatory patients with Spinal Muscular Atrophy (SMA) Type 3. The study
which is beingwas conducted at trial sites in Italy and
Serbia, has enrolled the anticipated 12 subjects in a randomized (1:1), double-blind,2-period,
2-treatment,
crossover, outpatientstudy evaluating the safety, tolerability and potential efficacy of amifampridine in ambulatory patients diagnosed with SMA Type 3.Serbia. Details of this trial are available on
www.clinicaltrials.gov
(NCT03781479).
. We
believe that our SMA Type 3 study will be completed this year and that we will be in a positionexpect to
report
top-line results
results from this study before the end of 2020.
We are also
supporting investigator-sponsoredconducting studies evaluating Firdapse
®
as a treatment for Kennedy’s Disease and Hereditary Neuropathy with liability to Pressure Palsies (HNPP).
There can be no assurance that our study evaluating Firdapse
®
for the treatment of SMA Type 3, or any trials we may undertake or support in the future to evaluate Firdapse
®
for the treatment of other rare neuromuscular diseases, will be successful. Further, there can be no assurance that we will ever be granted the right to commercialize Firdapse
®
for
MuSK-MG,
SMA Type 3, or any other additional indications.
We are currently in the early stages of developing a long-acting formulation of amifampridine.
We have retained a contractor which is currently assisting us in developing the formulation of the product. WeAlthough there can be no assurance, we currently anticipate that initial formulation candidates and their drug release and absorption properties
shallwill be determined
duringbefore the end of 2020. There can be no assurance that we will be able to successfully develop a
sustained releaselong-acting formulation of Firdapse
®
, that any such formulation will be approved for marketing, or that any such formulation will be commercially viable.
The CanadianOur NDS
filing for Firdapse
®
for the symptomatic treatment of LEMS
that we submitted in October 2019, was approved by Health Canada on
July 31, 2020. In August
4, 2020. Since there2020, we entered into a license agreement with KYE Pharmaceuticals, pursuant to which we licensed the Canadian rights for Firdapse®
for the treatment of LEMS to KYE. Pursuant to the license agreement, KYE is
no orphan exclusivityobligated to pay us anup-front
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.
On August 10, 2020, Health Canada issued a Notice of Compliance (NOC) to Medunik for Ruzurgi®
for the treatment of LEMS. We have since initiated a legal proceeding in Canada
there can be no assuranceseeking judicial review of Health Canada’s decision to issue the NOC for Ruzurgi®
as incorrect and unreasonable under Canadian law. Data protection, per Health Canada regulations, is supposed to prevent Health Canada from issuing a NOC to a drug that
any applicationdirectly or indirectly references an innovative drug’s data, for eight years from the date of the innovative drug’s approval. The Ruzurgi®
Product Monograph clearly references pivotal nonclinical carcinogenicity and reproductive toxicity data for amifampridine
filedphosphate developed by
other parties will not be approved as well.us. As
a result,such, we
may face competition in Canada for LEMS patients inbelieve that our data was relied upon to establish the
future.nonclinical safety profile of Ruzurgi®
We are currently in discussions with a potential marketing needed to meet the standards of the Canadian Food and distribution partner in Canada.Drugs Act. There can be no assurance that we will reach an agreement for a marketing and collaboration agreement in Canada withof the results of this or any other potential partners.
proceeding.In May 2019, we entered into an amendment to our license agreement for Firdapse
®
. Under the amendment, we have expanded our commercial territory for Firdapse
®
, which originally was comprised of North America, to include Japan. Additionally, we have an option to further expand our territory under the license agreement to include most of Asia, as well as Central and South America, upon the achievement of certain milestones in Japan. Under the amendment, we will pay royalties on net sales in Japan of a similar percentage to the royalties that we are currently paying under our original license agreement for North America.
We recently met with Japanese regulatory authorities and believe that we have reached
a tentativean agreement with them as to the scope of the clinical trial that we will be required to undertake in Japan before we will be permitted to submit an application to the Japanese regulatory authorities to seek to commercialize Firdapse
®
for the treatment of LEMS in Japan. We also intend to apply for orphan drug designation in Japan for the symptomatic treatment of LEMS. There can be no assurance that we will successfully obtain the right to commercialize Firdapse
®
in Japan or obtain orphan drug designation.
All of our patent rights for Firdapse
®
are derived from our license agreement.
Under the License Agreement, we licensed two pending patents and certain trademarks for Firdapse®
. One of the licensed applications, U.S. App. No. 10/467,082 is abandoned as are its children (U.S. App. No. 14/085,017 and 14/818,848) such that we are no longer pursuing patent protection out of this family of applications. The second licensed patent application claims methods of administering Firdapse®
. We recently received an office action fromIn August 2020, the United States Patent and Trademark Office responding(USPTO) issued U.S. Patent No. 10,793,893 (the ’893 patent) to our second application,licensor and thereby to us. The patent is directed to the use of suitable doses of amifampridine to treat patients, regardless of the therapeutic indication, that are slow metabolizers of amifampridine. Any drug product containing amifampridine with a label that states the patented dosing regimens and doses in the Dosing and Administration section prior to April 7, 2034, the expiration date of the patent, could possibly infringe this patent. Generic drug product labels would necessarily have to do this, and we have respondedintend to that office action. There can be no assurance thattake all appropriate actions to protect our pending patent will be granted or as to the protection from competition that it will provide us if it is granted.intellectual property.
In that regard, on October 19, 2020, we announced that we have filed a lawsuit in the U.S. District Court for New Jersey against Jacobus and a lawsuit in the U.S. District Court for the Western District of Pennsylvania against the specialty pharmacy marketing Ruzurgi®
, PantherRx Rare LLC (PantherRx), for infringement of the ‘893 Patent. The lawsuit arises from Jacobus’ and PantherRx’s sales and marketing of Ruzurgi®
(amifampridine, 10 mg). The lawsuit alleges that the Ruzurgi®
product infringes the ‘893 patent when administered in accordance with its product labeling. The lawsuit seeks damages and injunctive relief to prevent further marketing of Ruzurgi®
in violation of our patent rights.
Further, thereThere can be no assurance that we do not or will not infringe on patents held by third parties or that third parties in the future, will not claim that we have infringed on their patents. In the event that our products or technologies infringe or violate the patent or other proprietary rights of third parties, there is a possibility we may be prevented from pursuing product development, manufacturing or commercialization of our products that utilize such technologies until the underlying patent dispute is resolved. For example, there may be patents or patent applications held by others that contain claims that our products or operations might be determined to infringe or that may be broader than we believe them to be. Given the complexities and uncertainties of patent laws, there can be no assurance as to the impact that future patent claims against us may have on our business, financial condition, results of operations, or prospects.
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
up-front
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.
There can be no assurance that our collaboration with Endo for the development of generic Sabril
(vigabatrin) tablets will be successful and that if an abbreviated new drug application (ANDA) is approved for vigabatrin tablets in the future, that it will be profitable to us.
At
JuneSeptember 30, 2020, we had cash and investments of approximately
$115.1$127.1 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
10-Q.
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.
At
JuneSeptember 30, 2020 we continued to generate revenues from product sales of Firdapse
®
.in the U.S. We expect these revenues to fluctuate in future periods based on our sales of Firdapse
®
.
Although we received approval from Health Canada on July 31, 2020, for Firdapse®
for the symptomatic treatment of LEMS, as of September 30, 2020, the Company has not launched Firdapse®
in Canada. At
JuneSeptember 30, 2020 and
JuneSeptember 30, 2019, we did not generate revenues under our collaborative agreement with Endo. We expect our revenues from the
Endo collaborative agreement to fluctuate in future periods based on our collaborator’s ability to meet various regulatory milestones set forth in such agreement.
At September 30, 2020, we generated revenues of $150,000 fromup-front
fees earned under a collaborative agreement with KYE. We expect our revenue from the KYE collaborative agreement to fluctuate in future periods based on our collaborator’s ability to market and sell Firdapse®
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
build-up
of anticipated launch product. This has caused 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 and additional product is manufactured and distributed.
Research and Development Expenses.
Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as support for 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
®
,
CPP-109
(our version of vigabatrin), and formerly
CPP-115,
and 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
on-going
development of potential products. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions. The objective of our accrual policy is to match the recording of expenses in our consolidated financial statements to the actual services received and efforts expended. As such, expense accruals related to preclinical and clinical studies or trials are recognized based on our estimate of the degree of completion of the event or events specified in the specific study or trial contract. We monitor service provider activities to the extent possible; however, if we underestimate activity levels associated with various studies or trials at a given point in time, we could be required to record significant additional research and development expenses in future periods. Preclinical and clinical study and trial activities require significant
up-front
expenditures. We anticipate paying significant portions of a study or trial’s cost before they begin, and incurring additional expenditures as the study or trial progresses and reaches certain milestones.
Selling, General and Administrative Expenses.
During 2019, we actively committed funds to developing our commercialization program for Firdapse
®
and we have continued to incur commercialization expenses, including sales, marketing, patient services, patient advocacy and other commercialization related expenses, as we have continued our sales program for Firdapse
®
.
Our general and administrative expenses consist primarily of salaries and personnel expenses for accounting, corporate, compliance, and administrative functions. Other costs include administrative facility costs, regulatory fees, insurance, and professional fees for legal, information technology, accounting, and consulting services.
Stock-Based Compensation.
We recognize expense for the fair value of all stock-based awards to employees, directors, and consultants in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). For stock options, we use the Black-Scholes option valuation model in calculating the fair value of the awards.
Our effective income tax rate is the ratio of income tax expense (benefit) over our income (loss) before income taxes.
WeIn the third quarter of 2020, we determined that there is sufficient positive evidence to conclude that it is more likely than not that our additional deferred taxes of approximately $31.3 million are currently conductingrealizable. As a study ofresult, we reduced the availability for use of our net operating loss carryforwards and other credits under Section 382 of the Internal Revenue Code, and the results of this study could impact the amounts of net operating losses and other credits that we have available for use in future periods, and the timing of their use.valuation allowance accordingly.
Recently Issued Accounting Standards.
For discussion of recently issued accounting standards, please see Note 2, “Basis of Presentation and Significant Accounting Policies,” in the interim consolidated financial statements included in this report.
Non-GAAP
Financial Measures.
We prepare our consolidated financial statements and notes thereto which accompany this report in accordance with U.S. GAAP. To supplement our financial results presented on a U.S. GAAP basis, we may use
non-GAAP
financial measures in our reports filed with the Commission and/or our communications with investors.
Non-GAAP
measures are provided as additional information and not as an alternative to our consolidated financial statements presented in accordance with GAAP. Our
non-GAAP
financial measures are intended to enhance an overall understanding of our current financial performance. We believe that the
non-GAAP
financial measures we present provide investors and prospective investors with an alternative method for assessing our operating results in a manner that we believe is focused on the performance of ongoing operations and provide a more consistent basis for comparison between periods.
The
non-GAAP
financial measure that we present excludes from the calculation of net income the
non-cash
expense associated with stock-based compensation. Further, we often report
non-GAAP
net income (loss) per share, which is calculated by dividing
non-GAAP
net income (loss) by the weighted average common shares outstanding.
Any
non-GAAP
financial measures that we report should not be considered in isolation or as a substitute for comparable U.S. GAAP accounting, and investors should read them in conjunction with our financial statements and notes thereto prepared in accordance with U.S. GAAP. Finally, the
non-GAAP
measures of net income (loss) we may use may be different from, and not directly comparable to, similarly titled measures used by other companies.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. For a full discussion of our accounting policies, please refer to Note 2 on the Financial Statements included in our 2019 Annual Report on Form
10-K
filed with the SEC. Our most critical accounting policies and estimates include: revenue recognition, leases, accounting for research and development expenses, stock-based compensation, measurement of fair value, income taxes, and reserves. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, our expected course of development, historical experience and other factors that we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations
of our 2019 Annual Report on Form
10-K.
For the three and
six-month
nine-month periods ended
JuneSeptember 30, 2020, we recognized approximately
$29.6$29.2 million and
$58.7$87.9 million, respectively, in net revenue from product sales from Firdapse
®
in the U.S. compared to approximately
$28.8$30.9 million and
$41.3$72.2 million for the three and
six-month
nine-month periods ended
JuneSeptember 30, 2019.
We recognized $150,000 in revenues from our collaborative arrangements for the three and nine-month periods ended September 30, 2020. We had no revenues from our collaborative arrangement for the three and
six-month
nine-month periods ended
JuneSeptember 30,
2020 and 2019.
Cost of sales was approximately
$4.1$3.9 million and
$8.3$12.2 million for the three and
six-months
nine-months ended
JuneSeptember 30, 2020 compared to approximately
$4.3$4.4 million and
$6.0$10.4 million for the three and
six-months
nine-months ended
JuneSeptember 30, 2019. Cost of sales consists principally of royalty payments which are based on net revenue as defined in the applicable license agreement. Further, cost of sales may be artificially low until we fully utilize product manufactured that was recorded as expense prior to FDA approval of Firdapse
®
.
Research and Development Expenses
.
Research and development expenses for the three-month periods ended JuneSeptember 30, 2020 and 2019 were approximately $4.3$3.7 million and $4.6 million, respectively, and represented approximately 22.5%21% and 25.9%27% of total operating costs and expenses, respectively. Research and development expenses for the three months ended JuneSeptember 30, 2020 and 2019 were as follows:
| | | Three months ended June 30, | | | | | | Three months ended September 30, | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Research and development expenses | | $ | 3,928,423 | | | $ | 4,356,152 | | | | (427,729 | ) | | | (9.8 | ) | | $ | 3,349,986 | | | $ | 4,354,172 | | | | (1,004,186 | ) | | | (23.1 | ) |
Employee stock-based compensation | | | 421,220 | | | | 273,212 | | | | 148,008 | | | | 54.2 | | | | 399,247 | | | | 242,867 | | | | 156,380 | | | | 64.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total research and development expenses | | $ | 4,349,643 | | | $ | 4,629,364 | | | | (279,721 | ) | | | (6.0 | ) | | $ | 3,749,233 | | | $ | 4,597,039 | | | | (847,806 | ) | | | (18.4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Research and development expenses for the
six-month
nine-month periods ended
JuneSeptember 30, 2020 and 2019 were approximately
$8.6$12.3 million and
$7.9$12.5 million, respectively, and represented approximately
22.7%22% and
25.3%26% of total operating costs and expenses for the
six-month
nine-month periods ended
JuneSeptember 30, 2020 and 2019, respectively. Research and development expenses for the
sixnine months ended
JuneSeptember 30, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | |
Research and development expenses | | $ | 7,733,181 | | | $ | 7,376,390 | | | | 356,791 | | | | 4.8 | |
Employee stock-based compensation | | | 839,273 | | | | 560,933 | | | | 278,340 | | | | 49.6 | |
| | | | | | | | | | | | | | | | |
Total research and development expenses | | $ | 8,572,454 | | | $ | 7,937,323 | | | | 635,131 | | | | 8.0 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Nine months ended September 30, | | | | |
| | | | | | | | | | | | |
Research and development expenses | | $ | 11,083,166 | | | $ | 11,730,562 | | | | (647,396 | ) | | | (5.5 | ) |
Employee stock-based compensation | | | 1,238,521 | | | | 803,800 | | | | 434,721 | | | | 54.1 | |
| | | | | | | | | | | | | | | | |
Total research and development expenses | | $ | 12,321,687 | | | $ | 12,534,362 | | | | (212,675 | ) | | | (1.7 | ) |
| | | | | | | | | | | | | | | | |
For the three and sixnine months ended JuneSeptember 30, 2020, research and development expenses decreased approximately $0.3$0.8 million and increased approximately $0.6$0.2 million, respectively, compared to the same periodperiods in 2019, primarily attributable to the following:
increasesdecreases in
headcount, medical and regulatory affairs and quality assurance expenses and expenses from our ongoing clinical trials evaluating Firdapse
®
for the treatment of
MuSK-MG
as we close out that trial, and our
trial evaluating Firdapse
®
for the treatment of SMA Type 3; and
increases in employee stock-based compensation which is
non-cash
and relates to the expense of stock options awards to certain employees
and stock option awards due to
increase in headcount.headcount increases.We expect that research and development expenses will continue to be substantial in 2020
and into 2021 as we continue our clinical program evaluating Firdapse
®
for the treatment of
MuSK-MG,
continue our
trial for SMA Type 3, continue our Expanded Access Program, take steps to develop a
sustained releaselong-acting formulation of Firdapse
®
, continue our regulatory path to seek approval of Firdapse
®
in Japan and
begin to evaluate Firdapse
®
as a treatment for other neuromuscular diseases.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses for the three months ended JuneSeptember 30, 2020 and 2019 were approximately $10.8$10.0 million and $9.0$8.1 million, respectively, and represented 56.1%57% and 50.3%47% of total operating costs and expenses for the three months ended JuneSeptember 30, 2020 and 2019, respectively. Selling, general and administrative expenses for the three months ended JuneSeptember 30, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | |
| | | | | | | | | | | | |
| | $ | 5,621,780 | | | $ | 4,881,137 | | | | 740,643 | | | | 15.2 | |
General and administrative | | | 3,838,336 | | | | 3,454,801 | | | | 383,535 | | | | 11.1 | |
Employee stock-based compensation | | | 1,373,242 | | | | 651,784 | | | | 721,458 | | | | 110.7 | |
| | | | | | | | | | | | | | | | |
Total selling, general and administrative expenses | | $ | 10,833,358 | | | $ | 8,987,722 | | | | 1,845,636 | | | | 20.5 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | |
| | | | | | | | | | | | |
| | $ | 5,578,521 | | | $ | 4,670,568 | | | | 907,953 | | | | 19.4 | |
General and administrative | | | 3,327,841 | | | | 2,823,031 | | | | 504,810 | | | | 17.9 | |
Employee stock-based compensation | | | 1,078,599 | | | | 574,193 | | | | 504,406 | | | | 87.8 | |
| | | | | | | | | | | | | | | | |
Total selling, general and administrative expenses | | $ | 9,984,961 | | | $ | 8,067,792 | | | | 1,917,169 | | | | 23.8 | |
| | | | | | | | | | | | | | | | |
Selling, general and administrative expenses for the sixnine months ended JuneSeptember 30, 2020 and 2019 were approximately $20.9$30.9 million and $17.4$25.5 million, respectively, and represented 55.3%56% and 55.6%53% of total operating costs and expenses for the sixnine months ended JuneSeptember 30, 2020 and 2019, respectively. Selling, general and administrative expenses for the sixnine months ended JuneSeptember 30, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | |
| | $ | 11,425,925 | | | $ | 9,985,045 | | | | 1,440,880 | | | | 14.4 | |
General and administrative | | | 6,995,941 | | | | 6,121,663 | | | | 874,278 | | | | 14.3 | |
Employee stock-based compensation | | | 2,474,540 | | | | 1,297,474 | | | | 1,177,066 | | | | 90.7 | |
| | | | | | | | | | | | | | | | |
Total selling, general and administrative expenses | | $ | 20,896,406 | | | $ | 17,404,182 | | | | 3,492,224 | | | | 20.1 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Nine months ended September 30, | | | | |
| | | | | | | | | | | | |
| | $ | 17,004,447 | | | $ | 14,655,613 | | | | 2,348,834 | | | | 16.0 | |
General and administrative | | | 10,323,782 | | | | 8,944,694 | | | | 1,379,088 | | | | 15.4 | |
Employee stock-based compensation | | | 3,553,138 | | | | 1,871,667 | | | | 1,681,471 | | | | 89.8 | |
| | | | | | | | | | | | | | | | |
Total selling, general and administrative expenses | | $ | 30,881,367 | | | $ | 25,471,974 | | | | 5,409,393 | | | | 21.2 | |
| | | | | | | | | | | | | | | | |
For the three and sixnine months ended JuneSeptember 30, 2020, selling, general and administrative expenses increased approximately $1.8$1.9 million and $3.5$5.4 million, respectively, compared to the same periods in 2019, primarily attributable to the following:
increases in selling (commercialization) expenses, which consist primarily of the costs of our expansion of the sales force and the cost of contracting with a rare-disease experience inside sales agency;
increases in general and administrative expenses, which are primarily due to the expansion of our operations and headcount to support our ongoing efforts to expand our net revenues from sales of Firdapse
®
; and
increases in employee stock-based compensation which is
non-cash
and relates to the expense of stock
optionsoption awards to certain employees and directors
and stock option awards due to
increase in headcount.headcount increases.We expect that selling, general and administrative expenses will be substantial in future periods as we continue our efforts to sell Firdapse
®
and take steps that we hope will help us expand our business.
Total stock-based compensation for the three and
six-month
nine-month periods ended
JuneSeptember 30, 2020 were
$1.8$1.5 million and
$3.3$4.8 million, respectively, and for the three and
six-month
nine-month periods ended
JuneSeptember 30, 2019 were
$925,000$0.8 million and
$1.9$2.7 million, respectively. In the first
halfnine months of 2020, grants were principally of stock options relating to 2019
year-end
bonus
awards.awards and grants to new employees. In the first
halfnine months of 2019, most of the option grants were to new employees hired in connection with the launch of Firdapse
®
.
We reported other income, net in all periods relating to our investment of funds received from offerings of our securities and product sales. For the three and
six-months
nine-months ended
JuneSeptember 30, 2019, other income, net
also included $100,000 received as part of the settlement agreement between us and Northwestern. Excluding the settlement income, the decrease in other income, net of approximately
$246,000$606,000 for the
sixnine months ended
JuneSeptember 30, 2020 when compared to the same period in 2019 is primarily due to lower yields on investments, despite higher invested balances. Other income, net, generally consists of interest income, dividend income and unrealized and realized gain (loss) on trading securities.
We incurred net operating losses since inception through the
three-month
period ended March 31, 2019. Our effective income tax rate was
5.70%2.79% and
4.21%4.18% for the
sixnine months ended
JuneSeptember 30, 2020 and 2019, respectively. Differences in the effective tax and the statutory federal income tax rate of 21% are driven by state income taxes and anticipated annual permanent differences, including orphan drug credit expense limitations and other items.
We had no uncertain tax positions as of JuneSeptember 30, 2020 and December 31, 2019. We have a full valuation allowance for
As of December 31, 2019, our deferred tax assets at Junewere primarily the result of US NOL and tax credit carryforwards and a full valuation was recorded against our gross deferred tax asset balance. For the quarter ending September 30, 2020 we recorded a net valuation release of $31.3 million ($0.30 per basic share and December 31, 2019.$0.29 per diluted share) on the basis of management’s determination that it is more likely than not that the amount of its deferred tax assets will be realized.
Our net income was approximately $9.8$43.3 million and $20.2$63.5 million, respectively, for the three and sixnine months ended JuneSeptember 30, 2020 ($0.090.42 and $0.20,$0.61, respectively, per basic share and $0.09$0.41 and $0.19,$0.60, respectively, per diluted share) as compared to net income of approximately $11.0$13.6 million and $10.3$23.9 million, respectively, for the three and sixnine months ended JuneSeptember 30, 2019 ($0.110.13 and $0.10,$0.23, respectively, per basic share and $0.10 and $0.10, respectively, per diluted share).
Our
non-GAAP
net income, which excludes for the three and
sixnine months ended
JuneSeptember 30, 2020 an approximately
$1.8$1.5 million and
$3.3$4.8 million, respectively, expense associated with
non-cash
stock-based compensation was approximately
$11.6$44.8 million and
$23.5$68.3 million ($
0.110.43 and
$0.23,$0.66, respectively, per basic share and
$0.11$0.42 and
$0.22,$0.64, respectively, per diluted share). Our
non-GAAP
net income for the three and
sixnine months ended
JuneSeptember 30, 2019 was approximately
$11.9$14.4 million and
$12.2$26.6 million, respectively ($
0.120.14 and $0.26, respectively, per basic
share and
$0.11$0.13 and $0.25, respectively, per diluted
share and $0.12 per basic and diluted share, respectively),share) which excludes
non-cash
stock-based compensation of approximately
$925,000$0.8 million and
$1.9$2.7 million, respectively.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through multiple public and private offering of our securities and, since January 2019, from revenues from product sales of Firdapse
®
. At
JuneSeptember 30, 2020, we had cash and cash equivalents and investments aggregating approximately
$115.1$127.1 million and working capital of approximately
$111.0$125.1 million. At December 31, 2019, we had cash and cash equivalents and investments aggregating approximately $94.5 million and working capital of approximately $87.3 million. At
JuneSeptember 30, 2020, substantially all of our cash and cash equivalents were deposited with one financial institution, and such balances were in excess of federally insured limits. Further, as of such date, substantially all such funds were invested in money market accounts and U.S. Treasuries.
We incurred operating losses through the quarter ended March 31, 2019 and reported operating income for the first time during the three and six month periods ended June 30, 2019. We expect to continue to spend substantial dollars on our current and future drug development programs.
Based on forecasts of available cash, we believe that we have sufficient resources to support our currently anticipated operations for at least the next 12 months from the date of this report. There can be no assurance that we will remain profitable and cash-flow positive or that we will be able to obtain any additional funding that we may require in the future.
In the future, we may require additional working capital to support our operations depending on our future success with Firdapse
®
sales and whether our results continue to be profitable and cash flow positive. There can be no assurance as to the amount of any such funding that will be required for these purposes or whether any such funding will be available to us when it is required.
In that regard, our future funding requirements will depend on many factors, including:
the scope, rate of progress and cost of our clinical trials and other product development activities;
future clinical trial results;
the terms and timing of any collaborative, licensing and other arrangements that we may establish;
the cost and timing of regulatory approvals;
the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products;
the level of revenues that we report from sales of Firdapse
®
;
the effect of competition and market developments;
the cost of filing and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
the extent to which we acquire or invest in other products.
We plan tomay raise additional funds that we may requireif required in the future through public or private equity offerings, debt financings, corporate collaborations or other means. We also may seek governmental grants for a portion of the required funding for our clinical trials and preclinical trials. We may further seek to raise capital to fund additional product development efforts or product acquisitions, even if we have sufficient funds for our planned operations. Any sale by us of additional equity or convertible debt securities could result in dilution to our stockholders. There can be no assurance that any such required additional funding will be available to us at all or available on terms acceptable to us. Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more research and development programs, which could have an adverse effect on our business.
On July 12, 2017, we filed a shelf registration statement with the SEC to sell up to $150 million of common stock, preferred stock, warrants to purchase common stock, debt securities and units consisting of one or more of such securities (the “2017 Shelf Registration Statement”). The 2017 Shelf Registration Statement (file no.333-219259)
was declared effective by the SEC on July 26, 2017. We have completed one offering under the 2017 Shelf Registration Statement, raising net proceeds of approximately $53.8 million from the sale of 16,428,572 shares of our common stock on November 28, 2017. The 2017 Shelf Registration Statement expired on July 26, 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.
333-240052)
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
$20,478,188$31,929,297 and
$6,057,415,$22,320,032, respectively, for the
six-month
nine-month periods ended
JuneSeptember 30, 2020 and 2019. During the
sixnine months ended
JuneSeptember 30, 2020 net cash provided by operating activities was primarily attributable to our net income of
$20,206,002, increases$63,545,869, a decrease of
$3,774,735$4,665,104 in accounts receivable, net, and
$1,687,331 in accounts payable and decreases of $128,868 in inventory and $4,074,661$5,633,815 of
non-cash
expenses. This was partially offset by
an increaseincreases of
$3,170,179$2,790,746 in inventory, $1,262,978 in prepaid expenses and other current
assets and
non-current
assets deposits and decreases of
$5,473,075$31,347,442 in deferred taxes, $2,112,107 in accounts payable, $3,568,729 in accrued expenses and other liabilities and
$750,155$833,489 in operating lease liability. During the
sixnine months ended
JuneSeptember 30, 2019, net cash provided by operating activities was primarily attributable to our net income of
$10,315,445, decreases of $161,178 in prepaid expenses and other current assets and$23,945,624, increases of
$991,359$1,809,662 in accounts payable,
and $3,393,753$6,400,279 in accrued expenses and other liabilities, and
$1,921,097of $2,697,950 of
non-cash
expenses. This was partially offset by increases of
$10,376,427$10,095,352 in accounts receivable, net,
and $213,867$543,789 in inventory,
and $1,689,618 in prepaid expenses and other current assets and deposits and a decrease of
$135,123$204,724 in operating lease liability.
Net cash
provided byused in investing activities was
$5,000,000,$5,011,398, for the
six-month
nine-month period ended
JuneSeptember 30, 2020, consisting
mostly of
purchases of short-term investments, partially offset by proceeds from maturities of investments. Net cash provided by investing activities was
$518,797$5,565,824 for the
six-month
nine-month period ended
JuneSeptember 30, 2019, consisting primarily of proceeds from sales and maturities of investments of
$30,310,595,$40,310,595, partially offset by purchases of investments of
$29,772,428.$34,725,401.Net cash provided by financing activities during the
six-month
nine-month periods ended
June,September 30, 2020 and 2019 was
$62,350$676,364 and
$281,900,$537,962, respectively,
mostly consisting of proceeds from the exercise of options to purchase common stock.
Contractual Obligations and Arrangements.
We have entered into the following contractual arrangements:
Payments under our license agreement
. Under our license agreement, we have agreed to pay (i) royalties to our licensor for seven years from the first commercial sale of Firdapse
®
equal to 7% of net sales (as defined in the license agreement) in North America for any calendar year for sales up to $100 million, and 10% of net sales in North America in any calendar year in excess of $100 million; and (ii) royalties to the third-party licensor of the rights sublicensed to us for seven years from the first commercial sale of Firdapse
®
equal to 7% of net sales (as defined in the license agreement between BioMarin and the third-party licensor) in any calendar year. For the three and
six-months
nine-months ended
JuneSeptember 30, 2020, we recognized approximately $3.9 million and
$7.8$11.8 million, respectively, of royalties, which is included in cost of sales in the accompanying consolidated statement of operations.
. We have entered into purchase commitments with our contract manufacturing organizations aggregating to approximately $950,000 per year. The agreements expire on various dates through 2024.
. We have entered into an employment agreement with our Chief Executive Officer that requires us to make base salary payments of approximately $600,000 in 2020. The agreement expires in November
2020.2022.
. We operate our business in leased office space in Coral Gables, Florida. We currently lease approximately 7,800 square feet of office space for which we pay annual rent of approximately $330,000. We entered into an agreement in May 2020 that amended its lease for its office facilities. Under the amended lease, our leased space will increase from approximately 7,800 square feet of space to approximately 10,700 square feet of space. The lessor is currently building out this space. The lease is expected to commence in early 2021 when construction of the asset is expected to be completed and available for use.
Off-Balance
Sheet Arrangements.
We currently have no debt or finance leases. We have operating leases for our office facilities. We do not have any
off-balance
sheet arrangements as such term is defined in rules promulgated by the SEC.
Caution Concerning Forward-Looking Statements
This Current Report on Form
10-Q
contains “forward-looking statements”, as that term is defined in the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, plans or objectives for future operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, “believes”, “anticipates”, “proposes”, “plans”, “expects”, “intends”, “may”, and other similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or 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 2019 Annual Report on Form
10-K.
The continued successful commercialization of Firdapse
®
and the development of additional indications for Firdapse
®
is highly uncertain. Factors that will affect our success include the uncertainty of:
The impact of the recent outbreak of a novel strain of coronavirus on our business or on the economy generally;
Whether we will be able to continue
to successfully market Firdapse
®
while maintaining full compliance with applicable federal and state laws, rules and regulations;
Whether our estimates of the size of the market for Firdapse
®
for the treatment of Lambert-Eaton Myasthenic Syndrome (“LEMS”) will turn out to be accurate;
Whether we will be able to locate LEMS patients who are undiagnosed or are misdiagnosed with other diseases;
Whether patients will discontinue from the use of our drug at rates that are higher than historically experienced or are higher than we project;
If the average daily dose taken by patients changes over time, it could affect our results of operations;
Whether Firdapse
®
patients can be successfully titrated to stable therapy;
Whether we can continue to market Firdapse
®
on a profitable and cash flow positive basis;
Whether any revenue guidance that we provide to the public market will turn out to be accurate;
Whether payors will continue to reimburse for our product at the price that we charge for the product;
The ability of our third-party suppliers and contract manufacturers to maintain compliance with current Good Manufacturing Practices (cGMP);
The ability of our distributor and the specialty pharmacies that distribute our product to maintain compliance with applicable law;
Our ability to maintain compliance with applicable rules relating to our patient assistance programs and our contributions to 501(c)(3) organizations that support LEMS patients;
The scope of our intellectual property and the outcome of any future challenges or opposition to our intellectual property, and, conversely, whether any third-party intellectual property presents unanticipated obstacles for Firdapse
®
;
Whether our lawsuits against Jacobus and the specialty pharmacy distributing its product for patent infringement will be successful;
The effect on our business and future results of operations arising from the approval by the FDA of Ruzurgi
®
for the treatment of pediatric LEMS patients (ages 6 to under 17);
Whether our suit against the United States FDA seeking to vacate the FDA’s approval of Ruzurgi
®
will
ultimately be successful;
Whether we can continue to compete successfully if the approval of Ruzurgi
®
is not overturned and Ruzurgi
®
continues to be prescribed for
off-label
use by adult LEMS patients;
Whether, because of the lower price of Ruzurgi
®
, payors will require that patients try
off-label
Ruzurgi
®
first before they approve Firdapse
®
as a treatment for adult LEMS patients;
The impact on Firdapse
®
of adverse changes in potential reimbursement and coverage policies from government and private payors such as Medicare, Medicaid, insurance companies, health maintenance organizations and other plan administrators, or the impact of pricing pressures enacted by industry organization, the federal government or the government of any state, including as a result of increased scrutiny over pharmaceutical pricing or otherwise;
The impact on our business and results of operations of public statements by politicians and a vocal group of LEMS patients and doctors who object to our pricing of Firdapse
®
;
Changes in the healthcare industry and the effect of political pressure from and actions by President Trump, Congress and/or medical professionals seeking to reduce prescription drug costs;
The state of the economy generally and its impact on our business;
Changes to the healthcare industry occasioned by any future repeal and replacement of the Affordable Care Act, in laws relating to the pricing of drug products, or changes in the healthcare industry generally;
The scope, rate of progress and expense of our clinical trials and studies,
pre-clinical
studies,
studies, and our other drug development activities, and whether our trials and studies will be successful;
Our ability to complete our trials and studies on a timely basis and within the budgets we establish for such trials and studies;
Whether the recent coronavirus outbreak will further affect the timing of our currently ongoing clinical trials;
Whether the trial that we are currently undertaking to evaluate Firdapse
®
for the treatment of Spinal Muscular Atrophy (SMA) Type 3, or any other trials that we may undertake in the future, will be successful;
Whether Firdapse
®
will ever be approved for the treatment of
MuSK-MG,
SMA Type 3, or any other neuromuscular disease;
Whether we can successfully commercialize Firdapse
®
in Canada on a profitable basis;
Whether our suit to overturn the approval of Ruzurgi®
in Canada will be successful;
The impact on sales of Firdapse
®
in the United States if an amifampridine product is purchased in Canada for use in the United States;
Whether we will be able to successfully complete the clinical trial in Japan that will be required to seek approval to commercialize Firdapse
®
in Japan;
Whether we will be able to obtain approval to commercialize Firdapse
®
in Japan;
Whether we can successfully develop, obtain approval of and successfully market a
sustained releaselong-acting version of Firdapse
®
;
Whether our efforts to grow our business beyond Firdapse
®
through acquisitions of companies or
in-licensing
of product opportunities in the neuromuscular or neurology therapeutic areas will be successful;
Whether we will have sufficient capital to finance any such acquisitions;
Whether our version of generic vigabatrin tablets will ever be approved by the FDA;
Even if our version of vigabatrin tablets is approved for commercialization, whether Endo Ventures/Par Pharmaceutical (our collaborator in this venture) will be successful in marketing the product; and
Whether we will earn milestone payments on the first commercial sale of vigabatrin tablets and royalties on sales of generic vigabatrin tablets.
Our current plans and objectives are based on assumptions relating to the commercialization of Firdapse
®
and the development of additional indications for Firdapse
®
. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk represents the risk of changes in the value of market risk-sensitive instruments caused by fluctuations in interest rates, foreign exchange rates and commodity prices. Changes in these factors could cause fluctuations in our results of operations and cash flows.
Our exposure to interest rate risk is currently confined to our cash and short-term investments that are from time to time invested in highly liquid money market funds, U.S. Treasuries and U.S. Treasuries.short-term bond funds. The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. We do not use derivative financial instruments in our investment portfolio. Our cash and investments policy emphasizes liquidity and preservation of principal over other portfolio considerations.
ITEM 4. CONTROLS AND PROCEDURES
| | We have carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of JuneSeptember 30, 2020, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act, was recorded, processed, summarized or reported within the time periods specified in the rules and regulations of the SEC, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports was accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. |
| | During the three months ended JuneSeptember 30, 2020, there were no changes in our internal controls or in other factors that could have a material effect, or are reasonably likely to have a material effect, on our internal control over financial reporting. |
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Litigation over approval of Ruzurgi
®
in the United States We 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. Our complaint, which was filed in the federal district court for the Southern District of Florida,
allegesalleged 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
seekssought an order vacating the FDA’s approval of Ruzurgi
®
.
We recently filed a motion for summary judgement in our case, and the FDA has filed a cross motion for summary judgement. Further, Jacobus has intervened in our case and filed their own cross-motion for summary judgement. Based on currently available information, we expect that there will be a decision in the case sometime later this year. There can be no assurance as to the outcome of this lawsuit, the timing of any decision, or the likelihood of an appeal if our suit is successful.
On July 30, 2020, the Magistrate Judge considering our lawsuit against the FDA filed a Report and Recommendation in which she recommended to the District Judge handling the case that she grant the FDA’s and Jacobus’ motions for summary judgement and deny our motion for summary judgement. We are currently reviewing the Magistrate Judge’s decision, which we believe to be incorrect as a matter of law and contrary to the plain language of the Orphan Drug Act, and we intend to pursue the case further with the District Judge. The decision on whether to grant or deny our motion for summary judgement remains withOn September 29, 2020, the District Judge handling the Company’s lawsuit against the FDA adopted the previously reported Report and Recommendation of the Magistrate Judge, granted summary judgement in favor of the FDA and Jacobus, and dismissed the Company’s case. The Company has appealed the result to the Eleventh Circuit Court of Appeals. There can be no assurance as to the outcome of this lawsuit.
Litigation over approval of Ruzurgi in Canada
On August 10, 2020, Health Canada issued a Notice of Compliance (NOC) to Medunik for Ruzurgi®
for the treatment of LEMS. The Ruzurgi®
Product Monograph clearly references pivotal nonclinical carcinogenicity and reproductive toxicity data for amifampridine phosphate developed by us. As such, we believe that our data was relied upon to establish the nonclinical safety profile of Ruzurgi®
needed to meet the standards of the Canadian Food and Drugs Act. As a result, we have initiated a legal proceeding in Canada seeking judicial review of Health Canada’s decision to issue the NOC for Ruzurgi®
as incorrect and unreasonable under Canadian law. Data protection, per Health Canada regulations, is supposed to prevent Health Canada from issuing a NOC to a drug that directly or indirectly references an innovative drug’s data, for eight years from the date of the innovative drug’s approval. There can be no assurance of the results of this proceeding. On October 19, 2020, we announced that we have filed a lawsuit in the U.S. District Court for New Jersey against Jacobus, and a lawsuit in the U.S. District Court for the Western District of Pennsylvania against PantherRx Rare LLC (PantherRx) for infringement of our patent for Firdapse®
(the ’893 patent. The lawsuit arises from Jacobus’ and PantherRx’s sales and marketing of Ruzurgi®
(amifampridine, 10 mg). The lawsuit alleges that the Ruzurgi®
product infringes the ‘893 patent when administered in accordance with its product labeling. The lawsuit seeks damages and injunctive relief to prevent further marketing of Ruzurgi®
in violation of the ‘893 patent. There can be no assurance as to the outcome of this matter.
From time to time we may become involved in legal proceedings arising in the ordinary course of business. Other than as set forth above, we believe that there is no litigation pending at this time that could have, individually or in the aggregate, a material adverse effect on our results of operations, financial condition or cash flows.
There are many factors that affect our business, our financial condition, and the results of our operations. In addition to the information set forth in this quarterly report, you should carefully read and consider “Item 1A. Risk Factors” in Part I, and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, of our 2019 Annual Report on Form
10-K
filed with the SEC, which contain a description of significant factors that might cause our actual results of operations in future periods to differ materially from those currently expected or desired.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURE
ITEM 5. OTHER INFORMATION
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| | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| | Inline XBRL Taxonomy Extension Schema Document |
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| | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| | Inline XBRL Taxonomy Extension Label Linkbase Document |
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| | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| | The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended JuneSeptember 30, 2020, has been formatted in Inline XBRL. |
Pursuant to the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Catalyst Pharmaceuticals, Inc. |
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By: | | |
| | Alicia Grande |
| | Vice President, Treasurer and Chief Financial Officer |
Date: August 10,November 9, 2020