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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[Mark One]
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File No. 001-33057
CATALYST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of jurisdiction of
incorporation or organization)
355 Alhambra Circle, Suite 801
Coral Gables, Florida
(Address of principal executive offices)
76-0837053
(IRS Employer
Identification No.)
33134
(Zip Code)
Registrant’s telephone number, including area code: (305) 420-3200
Securities Registered Pursuant to Section 12(b) of the Act.
Title of Each Class
Common Stock, par value $0.001 per share
Ticker
Symbol
CPRX
Name of Exchange
on Which Registered
NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act.: None
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if registrant is not required to file reports pursuant to Rule 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act:
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging Growth Company
☒
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report ☒
As of June 30, 2021, the last business day of the Registrant’s most recently completed second quarter, the aggregate market value of all voting and
non-voting common equity held by non-affiliates was $551,581,521.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 102,744,913 shares of
common stock, $0.001 par value per share, were outstanding as of March 14, 2022.
Part III incorporates certain information by reference from the registrant’s definitive proxy statement for the 2022 annual meeting of stockholders. The
proxy statement with respect to the 2022 annual meeting of stockholders will be filed no later than 120 days after the close of the registrant’s fiscal year
ended December 31, 2021.
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
Table of Contents
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Selected Financial Data
Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
EXHIBITS FILED WITH FORM 10-K
EX 4.5
EX 23.1
EX 31.1
EX 31.2
EX 32.1
EX 32.2
Description of the Company’s Capital Stock
Consent of Independent Registered Public Accounting Firm
Section 302 Certification of CEO
Section 302 Certification of CFO
Section 906 Certification of CEO
Section 906 Certification of CFO
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You are urged to read this Annual Report on Form 10-K (“Form 10-K”) in its entirety. This Form 10-K contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ significantly from the projected results discussed in these forward-looking statements. Factors that
may cause such a difference include, but are not limited to, those discussed below and in Item 1A, “Risk Factors.”
PART I
“We,” “our,” “ours,” “us,” “Catalyst,” or the “Company,” when used herein, refers to Catalyst Pharmaceuticals, Inc., a Delaware corporation, and
its wholly-owned subsidiary, Catalyst Pharmaceuticals Ireland, Ltd., a corporation organized in the Republic of Ireland.
Forward-Looking Statements
This Annual Report on Form 10-K 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” and those discussed in the section entitled “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Caution Concerning Forward-Looking Statements.”
The continued successful commercialization of FIRDAPSE® is highly uncertain. Factors that will affect our success include the uncertainty of:
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The impact of the COVID-19 pandemic 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;
Whether the daily dose taken by patients changes over time and affects 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 or earnings guidance that we provide to the public market will turn out to be accurate;
Whether payors will 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;
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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 Pharmaceutical Company (Jacobus) and the specialty pharmacy distributing its product for patent
infringement will be successful;
Whether Jacobus will seek U.S. Supreme Court review of the decision of the U.S. Court of Appeals for the 11th Circuit granting summary
judgment in our favor in our case against the FDA, thereby overturning the FDA’s approval of Ruzurgi® , whether the U.S. Supreme Court
will agree to hear the case, or whether if the U.S. Supreme Court hears the case, they will overturn the decision of the 11th Circuit;
Whether the United States Congress will pass, and the President will sign, legislation revising the Orphan Drug Act that effectively
overturns the decision of the U.S. Court of Appeals for the 11th Circuit, and whether any such legislation, if passed and signed into law,
will retroactively affect the outcome of the 11th Circuit decision and allow the FDA to reinstate the approval of Ruzurgi® before the
expiration of FIRDAPSE®’s orphan drug exclusivity;
The impact on FIRDAPSE® of adverse changes in 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;
Changes in the healthcare industry and the effect of political pressure from and actions by the President, 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 changes 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, proof-of-concept studies, and our other drug
development activities, and whether our trials and studies will be successful;
Our ability to complete any clinical trials and studies that we may undertake on a timely basis and within the budgets we establish for such
trials and studies;
Whether COVID-19 will further affect the timing and costs of our currently ongoing and contemplated clinical trials;
Whether FIRDAPSE® can be successfully commercialized in Canada on a profitable basis;
Whether our suit with KYE Pharmaceuticals 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 our collaboration partner in Japan, DyDo Pharma (DyDo), will successfully complete the clinical trial in Japan that will be
required to seek approval to commercialize FIRDAPSE® in Japan;
Whether DyDo will be able to obtain approval to commercialize FIRDAPSE® in Japan;
Whether our efforts to grow our business beyond FIRDAPSE® through acquisitions of companies or in-licensing of product opportunities
will be successful;
Whether we will have sufficient capital to finance any such acquisitions;
Whether our version of 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.
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Our current plans and objectives are based on assumptions relating to the continued commercialization of FIRDAPSE® and on our plans to seek to
acquire or in-license additional products. Although we believe that our assumptions are reasonable, any of our assumptions could prove inaccurate. In
light of the significant uncertainties inherent in the forward-looking statements we have made herein, which reflect our views only as of the date of this
report, you should not place undue reliance upon such statements. We undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
Item 1.
Business
Overview
We are a commercial-stage biopharmaceutical company focused on in-licensing, 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, best-in-class medicines for rare
diseases. We historically focused our efforts on developing products that treat diseases in the neuromuscular and neurological space, but in 2021 we
made a strategic decision to broaden and diversify our product portfolio through acquisitions of both early and late-stage products or companies or
technology platforms in rare disease therapeutic categories outside of neuromuscular diseases. To accomplish these new priorities, we are employing a
disciplined approach to evaluating assets and we believe that this strategic expansion will better position our company to build out a broader more
diversified portfolio of drug candidates, which should add greater value to our company over the near and long-term. However, there can be no
assurance that whatever product candidates or technology platforms we acquire, if any, will be successfully developed or commercialized.
We are currently exploring several potential opportunities to acquire companies with drug products in development or to in-license or acquire drug
products in development. However, no definitive agreements have been entered into to date. Further, during the third quarter of 2021 we hired
Dr. Preethi Sundaram, who serves as our Chief Strategy Officer. In that position, Dr. Sundaram is leading our efforts to acquire R&D assets, from early
stage through late-stage clinical programs and technologies to treat rare diseases, and once such drug candidates are acquired, Dr. Sundaram will help
oversee the development of those assets.
We are dedicated to making a meaningful impact on the lives of those suffering from rare diseases, and we believe in putting patients first in everything
we do.
Impact of the COVID-19 pandemic on our business
The COVID-19 pandemic has affected our business operations in numerous ways, and we continue to monitor applicable government modifications. We
had to make modifications to our normal operations because of the COVID-19 pandemic, including allowing our employees to work remotely. At
present, our operations have returned to mostly being in-person, with some contact with physicians by our commercial sales force still being done
remotely. Notwithstanding, the COVID-19 pandemic, including the emergence of new COVID-19 variants, including the delta and omicron variants,
could affect the health and availability of our workforce as well as those of third parties whom we are relying upon to take similar measures. As such,
we have experienced in the past, and may experience in the future, disruptions to our business operations because of the COVID-19 pandemic, and our
business could be materially adversely affected by such disruptions, directly or indirectly. National, state and local governments in affected regions have
implemented and may continue to implement varying safety precautions, such as quarantines, border closures, increased border controls, travel
restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. Organizations and
individuals may continue to take additional steps to avoid infection, including limiting travel and staying home from work. These measures may
continue to disrupt normal business operations both inside and outside of affected areas and have had significant impacts on healthcare and businesses
worldwide.
We believe that because many healthcare providers who treat LEMS patients have delayed seeing new patients because of the pandemic, there has been
a delay in the diagnosis of new LEMS patients and their initiating therapy, which has slowed our efforts to locate new patients who could benefit from
our therapy. However, we believe that when conditions allow healthcare providers to resume seeing new patients in person on a regular basis, the impact
of this aspect of the COVID-19 pandemic on our business will lessen.
One area where we have not been impacted by the pandemic is in our supply chain. To date, we have been able to avoid material disruptions in the
production of FIRDAPSE® and, based upon current estimates, we have sufficient inventory to meet current and foreseeable patient needs for at least the
next 12 months.
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FIRDAPSE®
On November 28, 2018, we received approval from the FDA for FIRDAPSE® Tablets 10 mg for the treatment of adult patients (ages 17 and above) with
Lambert-Eaton, Myasthenic Syndrome (“LEMS”). In January 2019, we launched FIRDAPSE® in the United States. We sell our product through a field
force experienced in neurologic, central nervous system or rare disease products consisting at this time of approximately 30 field personnel, including
sales (Regional Account Managers), patient assistance and insurance navigation support (Patient Access Liaisons), and payor reimbursement (National
Account Managers). We also have a field-based force of five medical science liaisons who are helping educate the medical communities and patients
about LEMS and our programs supporting patients and access to FIRDAPSE®.
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 non-personal promotion to oncologists that may treat adult LEMS patients. We also are continuing to make available at no-cost 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.
Finally, we are continuing to expand our digital and social media activities in order to introduce our product and services to potential patients and their
healthcare providers. We also work 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
and to provide education for the physicians who treat these rare diseases and the patients they treat.
We are supporting the distribution of FIRDAPSE® through Catalyst Pathways®, our personalized treatment support program for patients who enroll in it.
Catalyst Pathways® is a single source for personalized treatment support, education and guidance through the challenging dosing and titration regimen
required to reach 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 drug 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 keep out-of-pocket costs to not more than $10.00 per
month (currently $0.00 per month) is available for all LEMS patients who are prescribed FIRDAPSE®. We are also donating, and committing to
continue to donate, money to qualified, independent charitable foundations dedicated to providing assistance to any U.S. LEMS patients in financial
need. Subject to compliance with regulatory requirements, our goal is that no LEMS patient is ever denied access to their medication for financial
reasons.
In May 2019, the FDA approved a New Drug Application (NDA) for Ruzurgi®, another version of amifampridine (3,4-DAP), for the treatment of
pediatric LEMS patients (ages 6 to under 17). While the NDA for Ruzurgi® only covers pediatric patients, we believe that Ruzurgi® has been regularly
prescribed off-label to adult LEMS patients. We also believe that the FDA’s approval of Ruzurgi® violated our statutory rights and was in multiple other
respects arbitrary, capricious and contrary to law. As a result, in June 2019 we filed suit against the FDA and several related parties challenging this
approval and related drug labeling, and Jacobus Pharmaceuticals (Jacobus) intervened in our case. Our complaint, which was filed in the federal district
court for the Southern District of Florida, alleged that the FDA’s approval of Ruzurgi® violated multiple provisions of FDA regulations regarding
labeling, resulting in misbranding in violation of the Federal Food, Drug, and Cosmetic Act (FDCA); violated our statutory rights to Orphan Drug
Exclusivity and New Chemical Entity Exclusivity under the FDCA; and was in multiple other respects arbitrary, capricious, and contrary to law, in
violation of the Administrative Procedure Act. Among other remedies, the suit sought an order setting aside the FDA’s approval of Ruzurgi®.
On 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 judgment and deny our motion for summary judgment. On
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 appealed the District Court’s decision to the U.S. Circuit Court of Appeals for the 11th Circuit. By early
2021, the case was fully briefed, and oral argument was held in March 2021.
On September 30, 2021, a three-judge panel of 11th Circuit judges issued a unanimous decision overturning the District Court’s decision. The appellate
court adopted our argument that the FDA’s approval of Ruzurgi® violated our rights to Orphan Drug Exclusivity and remanded the case to the District
Court with orders to enter summary judgment in our favor. In November 2021, Jacobus filed a motion seeking rehearing of the case from the full 11th
Circuit, which motion was denied in January 2022. Further, in January 2022, Jacobus filed motions with both the 11th Circuit and the U.S. Supreme
Court seeking a stay of the 11th Circuit’s ruling indicating that it would seek a review of the 11th Circuit’s decision from the U.S. Supreme Court. Both
stay motions were denied, and on January 28, 2022, the 11th Circuit issued a mandate directing the District Court to enter summary judgment in our
favor. The District Court entered that order on January 31, 2022. On February 1, 2022, the FDA informed Jacobus that, consistent with the Court of
Appeals for the Eleventh Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval of the Ruzurgi® NDA was switched to a
tentative approval until the 7-year orphan-drug exclusivity (ODE) for Firdapse® has expired.
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There can be no assurance as to whether Jacobus will seek U.S. Supreme Court review of the 11th Circuit’s decision, whether the U.S. Supreme Court
will agree to hear the case, or whether, if the U.S. Supreme Court agrees to hear the case, Jacobus’ appeal to overturn the decision of the 11th Circuit will
be successful. Similarly, there can be no assurance as to whether the U.S. Congress will pass, and the President will sign, legislation revising the Orphan
Drug Act that effectively overturns the decision of the U.S. Court of Appeals for the 11th Circuit, and whether any such legislation, if passed and signed
into law, will retroactively affect the outcome of the 11th Circuit decision and allow the FDA to reinstate the approval of Ruzurgi® before the expiration
of FIRDAPSE®’s orphan drug exclusivity.
We are actively working with parents and physicians of pediatric LEMS patients to make sure that such patients will be able to obtain FIRDAPSE®
through appropriate legal and regulatory means. In addition, we are working to file an application with the FDA seeking approval for use of
FIRDAPSE® by pediatric LEMS patients, though any effort to obtain such authorization is not guaranteed. We anticipate submitting the sNDA before
the end of the first quarter. For the adult LEMS patients who have been taking Ruzurgi® off-label (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.
We have been developing a long-acting formulation of amifampridine phosphate. While a number of formulations have been prepared, after discussions
with researchers and an advisory board made up of both patients and physicians, we recently concluded that we would be unable to develop a long-
acting formulation that was both beneficial to patients and commercially viable, and as a result we have made the determination not to proceed with
development of this product.
On August 10, 2020, we announced the top-line results from our Phase 3 clinical trial (MSK-002) evaluating FIRDAPSE® for the treatment of adults
with MuSK-MG. Unfortunately, the MSK-002 trial did not achieve statistical significance on its primary endpoint or its secondary endpoint. Following
our receipt of these results, we analyzed the data and proposed a plan to FDA to perform an additional study evaluating FIRDAPSE® for the treatment
of MuSK-MG. In response, the FDA provided written comments that were unfavorable towards our proposed revised study design and further
questioned the ability of the initial MuSK-MG pilot study to be supportive. These remarks make it unlikely that a single study of similar design to
MSK-002 would be sufficient for potential approval of the MuSK-MG indication. We also held an expert panel with key opinion leaders (KOLs) to
discuss options and review the likelihood of success for the MuSK-MG indication for FIRDAPSE® under these circumstances. After receiving the input
of the FDA and the KOLs, we concluded that the approval of FIRDAPSE® as a first line therapy for MuSK-MG is unlikely, and therefore we have
decided not to further pursue this indication.
We previously announced our intent to conduct a proof-of-concept study evaluating FIRDAPSE® as a treatment for Hereditary Neuropathy with
Liability to Pressure Palsies (HNPP). The FDA requested that a new, patient-centric endpoint be researched and used for our proposed study, without
assurance that such endpoint would be acceptable for approval. Based upon the uncertainty of such an endpoint, we have decided not to conduct this
study as a company-sponsored study, though there is a possibility that this study will move forward as investigator-initiated study that we will support.
There can be no assurance that any future clinical trials of FIRDAPSE® that we undertake will be successful. Further, there can be no assurance that we
will ever be granted the right to commercialize FIRDAPSE® for any additional indications.
Our NDS filing for FIRDAPSE® for the symptomatic treatment of LEMS was approved by Health Canada on July 31, 2020. In August 2020, we entered
into a license agreement with KYE Pharmaceuticals (KYE), pursuant to which we licensed the Canadian rights for FIRDAPSE® for the treatment of
LEMS to KYE. Pursuant to the license agreement, KYE was obligated to pay us an up-front payment based on approval, a milestone upon attainment of
marketing authorization and product supply, milestones based on achievements of sales and regulatory milestones, and a sharing of defined net sales
following commercialization.
On August 10, 2020, Health Canada issued a Notice of Compliance (NOC) to Medunik for Ruzurgi® for the treatment of LEMS. We 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. 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.
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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 re-issued an NOC for Ruzurgi®, once again allowing the product to be marketed in
Canada for patients with LEMS. As a result, in July 2021 we, along with our partner KYE, filed a second suit against Health Canada to overturn this
decision. That case was fully briefed in late 2021, with oral argument held in early December.
On March 11, 2022, we announced that we had received a favorable decision from the Canadian court setting aside, for the second time, the decision of
Health Canada approving Ruzurgi® for the treatment of LEMS patients. In its ruling, the court determined that the Minister of Health’s approach to
evaluating whether FIRDAPSE®’s data deserved protection based on FIRDAPSE®’s status as an innovative drug, which protects by regulation the use of
such data as part of a submission seeking an NOC for eight years from approval of the innovative drug, was legally flawed and not supported by the
evidence. As a result, the matter has, once again, been remanded to the Minister of Health to redetermine its decision in light of the court’s ruling. There
can be no assurance as to the outcome of this proceeding.
In May 2019, we entered into an amendment to our license agreement for FIRDAPSE®. Under the amendment, we 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 to our licensor 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 have reached an agreement with Japanese regulatory authorities as to the scope of the clinical trial that will be required to be completed before an
application can be submitted to Japanese regulatory authorities to commercialize FIRDAPSE® for the treatment of LEMS in Japan. We also have been
granted orphan drug designation in Japan for FIRDAPSE® for the symptomatic treatment of LEMS.
On June 28, 2021, we entered into a sub-license agreement with DyDo Pharma, Inc. (DyDo), pursuant to which we sub-licensed to DyDo the Japanese
rights for FIRDAPSE® for the treatment of LEMS. Under the terms of the Agreement, DyDo will have joint rights to develop FIRDAPSE®, and
exclusive rights to commercialize the product, in Japan. DyDo will be responsible for funding all clinical, regulatory, marketing and commercialization
activities in Japan. We will be responsible for clinical and commercial supply, as well as providing support to DyDo in its efforts to obtain regulatory
approval for the product from the Japanese regulatory authorities. Subject to the satisfaction of terms and conditions as set forth in the Agreement, we
have earned an upfront payment and are eligible to receive further development and sales milestones for FIRDAPSE®, as well as revenue on product
supplied to DyDo.
In December 2021, we announced that DyDo had initiated a Phase 3 registrational study in Japan to evaluate the efficacy and safety of FIRDAPSE® for
the treatment of LEMS. We anticipate completion of that study sometime in 2023. There can be no assurance that this trial will be successful or that
DyDo will be granted the right to commercialize FIRDAPSE® in Japan.
All of our patent rights for FIRDAPSE® are derived from our license agreement. In August 2020, the United States Patent and Trademark Office
(USPTO) allowed Patent No. 10,793,893 (the ’893 patent) to our licensor and thereby to us, and the patent issued on October 6, 2020. 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 intend to take all appropriate actions to protect our intellectual property.
In April 2021, the USPTO also allowed Patent No. 11,060,128 (the ’128 patent) to our licensor and thereby to us, and this second patent issued on
July 13, 2021. The patent is directed to the use of suitable doses of amifampridine to treat patients suffering with LEMS that are slow metabolizers of
amifampridine. Any drug product containing amifampridine with a label for the treatment of LEMS, that states the patented dosing regimens and doses
in the Dosing and Administration section of a product label, including generic drug product labels, could possibly infringe this patent prior to this
patent’s expiration date.
On December 24, 2021, the USPTO allowed continuing application, 17/503,190. On January 3, 2022, the USPTO allowed related continuing application
17/503,148. A further related continuing application, 17/503,092 was allowed on January 7, 2022. All three patents were issued in March 2022. The
claims in each of these applications have either already been listed in the Orange Book for FIRDAPSE® or are in the process of being listed.
We are also pursuing additional patent applications for FIRDAPSE® in an effort to further protect our drug product. There can be no assurance that any
additional patents will be issued which provide additional intellectual property protection for our drug product.
In that regard, in October 2020, we filed lawsuits against Jacobus and the specialty pharmacy marketing Ruzurgi®, PantherRx Rare LLC (PantherRx),
for infringement of the ‘893 patent. The suits have now been consolidated in a single action in the U.S. District Court for New Jersey. Further, in August
2021, the lawsuits were amended to include alleged infringement of the ‘128 patent. The lawsuits arise from Jacobus’ and PantherRx’s sales and
marketing of Ruzurgi® (amifampridine) Tablets, 10 mg. The lawsuits allege that the Ruzurgi® product infringes the ‘893 patent and the ‘128 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. The lawsuit is in the discovery stage and there can be no assurance as to the results of these proceedings.
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There 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.
Generic Sabril®
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. If
and when the product is launched, 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.
Capital Resources
At December 31, 2021, we had cash and investments of approximately $191.3 million. Based on our current financial condition and forecasts of
available cash, we believe that we have sufficient funds to support our operations for at least the next 12 months. There can be no assurance that we will
continue to be successful in commercializing FIRDAPSE® or will continue to be profitable. Further, there can be no assurance that if we need additional
funding in the future, whether such funding will be available to us. See Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources” below for further information on our liquidity and cash flow.
Our Strategy
Our goal is to develop and commercialize novel prescription drugs targeting rare (orphan) neuromuscular and neurological diseases and disorders. We
are dedicated to making a meaningful impact on the lives of those suffering from rare diseases, and we believe in putting patients first in everything we
do. Specifically, we intend to:
•
•
•
Continue to commercialize FIRDAPSE® for the treatment of LEMS and improve disease awareness. We are currently commercializing
FIRDAPSE® in the United States and supporting its commercialization in Canada. We are working to expand awareness of the disease,
including to physicians treating LEMS patients with small-cell lung cancer, and helping health care providers and their patients understand
the benefits of FIRDAPSE®. A cornerstone of our U.S. strategy is our continuing development of Catalyst Pathways®, our personalized
treatment support program, and our development of the patient assistance programs that are required to further our goal that no LEMS
patient be denied access to FIRDAPSE® for financial reasons within existing legal restrictions.
Seek approval for FIRDAPSE® in Japan. We are currently supporting our sub-licensee, DyDo, as they begin taking necessary steps to seek
approval for FIRDAPSE® in Japan for the treatment of patients with LEMS.
Seek to acquire additional products. We recently made a strategic decision to broaden and diversify our product portfolio through
acquisitions of both early and late-stage products or companies or technology platforms in rare disease therapeutic categories outside of
neuromuscular diseases. To accomplish these new priorities, we are employing a disciplined approach to evaluating assets and we believe
that this strategic expansion will better position our company to build out a broader more diversified portfolio of drug candidates, which
should add greater value to our company over the near and long-term. However, no products have been acquired to date.
FIRDAPSE® Product Overview
FIRDAPSE® is Catalyst’s registered trade name in the United States for amifampridine phosphate tablets. Amifampridine is the WHO (World Health
Organization) registered INN (International Nonproprietary Name) and United States Adopted Name (USAN) for the chemical entity,
3,4-diaminopyridine, often abbreviated as 3,4-DAP or DAP. FIRDAPSE® contains the phosphate salt of amifampridine, hence the name “amifampridine
phosphate.” We will refer to our drug by its trade name in the United States (FIRDAPSE®), by the INN/USAN (amifampridine), or by the specific salt in
our product (amifampridine phosphate), throughout this report.
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Amifampridine has been recommended as the first-line symptomatic treatment for LEMS by the European Federation of Neurological Societies (now
known as the European Academy of Neurology). In December 2009, amifampridine phosphate received marketing approval from the European
Commission (with the trade name FIRDAPSE®) for the symptomatic treatment of patients with LEMS. Safety data from clinical data published over the
last 30 years in patients with LEMS or other neurological disorders treated with amifampridine show that amifampridine is well tolerated at doses up to
80 mg per day. Among the 1,279 patients or healthy subjects assessed in the literature, the most frequently reported adverse events (AEs) were perioral
and peripheral paresthesias (unusual sensations like pins and needles), and gastrointestinal disorders (abdominal pain, nausea, diarrhea, and epigastralgia
(pain around the upper part of the stomach)). These events were typically mild or moderate in severity, and transient, seldom requiring dose reduction or
withdrawal from treatment.
Lambert-Eaton Myasthenic Syndrome (LEMS)
Lambert-Eaton Myasthenic Syndrome (LEMS) is a rare autoimmune neuromuscular disorder characterized primarily by muscle weakness of the limbs.
The disease is caused by an autoimmune reaction where antibodies are formed against voltage-gated calcium channels on nerve endings, which damages
the channels. These calcium channels are responsible for the transport of charged calcium atoms that activate the biochemical machinery responsible for
releasing acetylcholine. Acetylcholine is the neurotransmitter responsible for causing muscles to contract and the failure to release enough of this
neurotransmitter results in muscle weakness in LEMS patients. Additionally, LEMS is often associated with an underlying malignancy, most commonly
small-cell lung cancer (SCLC), and in some individuals, LEMS is the first symptom of such malignancy.
LEMS generally affects the extremities, especially the legs. As LEMS most affects the parts of limbs closest to the trunk, difficulties with climbing stairs
or rising from a sitting position are commonly reported. Physical exercise and high temperatures tend to worsen the symptoms. Other symptoms often
seen include weakness of the muscles of the mouth, throat, and eyes. Individuals affected with LEMS also may have a disruption of the autonomic
nervous system, including dry mouth, constipation, blurred vision, impaired sweating, and/or hypotension.
LEMS is managed by treating the symptoms or treating the underlying autoimmune attack on voltage gated calcium channels. Unapproved treatments
include steroids, azathioprine and intravenous immunoglobulin, which work by suppressing the immune system; and pyridostigmine and amifampridine,
which enhance neuromuscular transmission. Plasma exchange has also been used to attempt to remove antibodies from the body. FIRDAPSE® is a
symptomatic treatment and does not alter the underlying autoimmune condition. As a voltage gated potassium blocker, FIRDAPSE® prevents charged
potassium atoms from leaving the nerve cells, which prolongs the period of depolarization. This allows more charged calcium atoms to enter the nerves,
which enables the nerves to release acetylcholine and causes muscles to contract and to restore lost muscle strength in LEMS patients.
Based on currently available information, we estimate that there are approximately 3,000 LEMS patients in the United States, approximately 1,500 of
which are presently diagnosed and identified and approximately 1,500 of which we believe are undiagnosed or misdiagnosed. However, until awareness
of the disease is increased, it is unlikely that the total number of LEMS patients in the United States can be determined with better certainty (as is typical
of rare diseases), and the actual number of patients in the United States with LEMS may be higher or lower than our estimate.
Some of the factors that affect the size of the population with a rare disease such as LEMS include the number of patients actually diagnosed with the
disease, the number of patients who are misdiagnosed with other diseases, and the number of patients who are simply undiagnosed. Additionally, while
there is an antibody test that positively identifies patients with LEMS which we offer at no cost to health-care providers to be used to definitively
determine whether a patient has LEMS, the test is not particularly well known or utilized at this time by many neurologists. Further, many LEMS
patients who have small cell lung cancer (SCLC) are not currently being treated for LEMS because many oncology medical professionals who treat
SCLC patients are generally unfamiliar with how to diagnose and treat LEMS. All of these factors affect the ultimate number of patients who will
benefit from treatment with FIRDAPSE®.
License Agreement for FIRDAPSE®
On October 26, 2012, we licensed the exclusive North American rights to FIRDAPSE® pursuant to a License Agreement (the “License Agreement”)
between us and BioMarin Pharmaceutical Inc. (‘BioMarin”). Under the License Agreement, we make the following royalty payments on our net sales of
FIRDAPSE®:
•
•
Royalties to the 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
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 duration
of any pending or issued patents or regulatory exclusivity within a territory and 3.5% of net sales in any calendar year in territories without
pending or issued patents or regulatory exclusivity.
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On May 29, 2019, we entered into an amendment to our License Agreement. Under the amendment, we 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.
In January 2020, we were advised that BioMarin had sold certain rights under the License Agreement to SERB SA.
We believe that we remain in compliance with our obligations under the License Agreement.
Clinical trials supporting our NDA for FIRDAPSE® for LEMS and approval of our NDA
We conducted two successful Phase 3 double-blind, placebo-controlled clinical trials evaluating FIRDAPSE® for the treatment of LEMS. The results of
the first trial published in 2016 in Muscle & Nerve (Muscle Nerve, 2016, 53(5):717-725). The results of the second trial were published in March 2019
in the Journal of Clinical Neuromuscular Disease (J. Clin Neuromusc Dis 2019; 20:111-119).
In March 2018, we submitted an NDA seeking approval of FIRDAPSE® for the treatment of LEMS. Our NDA was accepted for filing in May 2018 and,
on November 28, 2018, the FDA granted approval of FIRDAPSE® for the treatment of LEMS in adult patients.
Required Post-Approval Studies
As part of the approval of our NDA for FIRDAPSE® for LEMS, the FDA required us to conduct a clinical trial to evaluate the effect of hepatic
impairment on the exposure of amifampridine after oral administration of FIRDAPSE® relative to that in subjects with normal hepatic function. This
study was recently completed and submitted to the FDA. We have also established a pregnancy surveillance program to collect and analyze information
for a minimum of ten (10) years on pregnancy complications and birth outcomes related to FIRDAPSE®. Finally, the FDA required us to perform a
second carcinogenicity study of amifampridine phosphate in mice, which we have completed and submitted to the FDA.
Expanded access program
We operate an expanded access program (EAP) that is currently making FIRDAPSE® available to a limited number of patients diagnosed with CMS or
Downbeat Nystagmus (DN). It is anticipated that the EAP may be used to make FIRDAPSE® available to pediatric LEMS patients now that the
Ruzurgi® approval has been vacated, subject to applicable legal and regulatory requirements.
Sales, Marketing and Distribution
Launch of FIRDAPSE® in January 2019
In January 2019, we launched FIRDAPSE® in the United States through a field force of approximately 20 personnel who are experienced in neurologic,
central nervous system or rare diseases in sales, patient support and payer reimbursement. The sales representatives (Regional Account Managers) who
were part of the field force targeted approximately 1,250 physicians who are either neuromuscular specialists or general neurologists with a known adult
LEMS patient or specific training in neuromuscular diseases. We also utilized field force Patient Access Liaisons who work with the patients and
provider offices to help navigate the insurance landscape, as well as National Account Managers who work directly with the payors to ensure
comprehensive coverage for FIRDAPSE® across the commercial and governmental plans in the United States. We also have a field-based force of five
medical science liaisons who help educate the medical communities and patients about LEMS and about our company’s ongoing clinical trial activities.
Further, we work closely 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 the level of support for patients living with LEMS, MuSK
antibody positive myasthenia gravis, and other neuromuscular diseases that may be treatable with FIRDAPSE®, 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 established a partnership with an experienced inside sales agency
generating leads through telemarketing to targeted physicians. Through this expansion of our sales team, we are working to expand our sales efforts
beyond the neuromuscular specialists who regularly treat LEMS patients to reach roughly 9,000 neurology and neuromuscular healthcare providers that
might be treating an adult LEMS patient who can benefit from FIRDAPSE®. We also make available a no-cost LEMS voltage gated calcium channel
(VGCC) antibody testing program for physicians who suspect their patient may have LEMS and wish to reach a definitive diagnosis.
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We are supporting the distribution of FIRDAPSE® through Catalyst Pathways®, our personalized treatment support program for enrolled patients.
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 drug products for ultra-orphan diseases are distributed and dispensed to patients. 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 addition, Catalyst Pathways® is the gateway for our free bridge medication for patients during transitioning from investigational product while they
are waiting for a coverage determination or, later on, for patients whose access is threatened by the bureaucratic complications arising from a change of
insurer. The Catalyst Pathways® program is also the access point for our Patient Assistance Program, which provides longer-term free medication for
those who are uninsured or functionally uninsured with respect to FIRDAPSE® because they may be unable to obtain coverage from their payer despite
having health insurance.
In addition to our current work to assist former Ruzurgi® patients to transition to FIRDAPSE®, we are continuing efforts on the longer, slower process to
identify patients and their physicians who have diagnosed LEMS, but have not had access, awareness or understanding of this treatment for their rare
disease. These patients often do not see their physician frequently, have many questions about changing treatment(s), and may not perceive the need to
change to a new therapy. Further, we have begun to focus our commercial efforts to locate misdiagnosed and undiagnosed LEMS patients and provide
educational and sales activities to help improve the diagnosis, understanding of the treatment, and information on the prescribing process. We plan to
continue to support LEMS and rare disease patient organizational groups’ efforts to generate awareness and educate patients and physicians on the
diagnosis of LEMS, the impact of the disease, and the support services and treatments available.
Access to FIRDAPSE®
In order to help patients afford their medication, we, like other pharmaceutical companies who are marketing drugs for ultra-orphan conditions, have
developed an array of financial assistance programs that are available to reduce patient co-pays and deductibles to a nominal affordable amount. For
eligible patients with commercial coverage, a co-pay assistance program designed to keep out-of-pocket costs to $10 or less per month (currently $0.00
per month) is available for all LEMS patients prescribed FIRDAPSE®. We are also donating, and committing to continue to donate, money to qualified,
independent charitable foundations dedicated to providing assistance to LEMS patients in financial need. Our goal is to ensure that no LEMS patient is
ever denied access to their medication for financial reasons.
To date, FIRDAPSE® has been widely covered and reimbursed by private and public payors for the indicated small population of adult LEMS patients.
FDA approval of Ruzurgi® for pediatric LEMS patients (ages 6 to under 17)
In May 2019, the FDA approved an NDA for Ruzurgi®, Jacobus Pharmaceuticals’ version of amifampridine (3,4-DAP), for the treatment of pediatric
LEMS patients (ages 6 to under 17). We believe that the vast majority of Ruzurgi® sales are to adult LEMS patients who are being prescribed the drug
off label. If Jacobus is able to successfully continue to sell Ruzurgi® off-label to additional adult LEMS patients, it could have a material adverse effect
on our business, financial condition and results of operations.
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. Jacobus later
intervened in the case. Our complaint, which was filed in the federal district court for the Southern District of Florida, alleged that the FDA’s approval of
Ruzurgi® violated multiple provisions of FDA regulations regarding labeling, resulting in misbranding in violation of the Federal Food, Drug, and
Cosmetic Act (FDCA); violated our statutory rights to Orphan Drug Exclusivity and New Chemical Entity Exclusivity under the FDCA; and was in
multiple other respects arbitrary, capricious, and contrary to law, in violation of the Administrative Procedure Act. Among other remedies, the suit seeks
an order vacating the FDA’s approval of Ruzurgi®.
On July 30, 2020, the Magistrate Judge considering this lawsuit 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 judgment and deny our motion for summary judgment. On 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 appealed the District Court’s decision to the U.S. Court of Appeals for the 11th Circuit. The case was fully briefed
in early 2021, and oral argument was held in March 2021.
On September 30, 2021, a three-judge panel of 11th Circuit judges issued a unanimous decision overturning the District Court’s decision. The appellate
court adopted our argument that the FDA’s approval of Ruzurgi® violated our rights to Orphan Drug Exclusivity and remanded the case to the District
Court with orders to enter summary judgment in our favor. In November 2021, Jacobus filed a motion
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seeking rehearing of the case from the full 11th Circuit, which motion was denied in January 2022. Further, in January 2022, Jacobus filed motions with
both the 11th Circuit and the U.S. Supreme Court seeking a stay of the 11th Circuit’s ruling indicating that it would seek a review of the 11th Circuit’s
decision from the U.S. Supreme Court. Both stay motions were denied, and on January 28, 2022, the 11th Circuit issued a mandate directing the District
Court to enter summary judgment in our favor. The District Court entered that order on January 31, 2022. On February 1, 2022, the FDA informed
Jacobus that, consistent with the Court of Appeals for the Eleventh Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval of the
Ruzurgi® NDA was switched to a tentative approval until the 7-year orphan-drug exclusivity (ODE) for Firdapse® has expired.
There can be no assurance as to whether Jacobus will seek U.S. Supreme Court review of the 11th Circuit’s decision, whether the U.S. Supreme Court
will agree to hear the case, or whether, if the U.S. Supreme Court agrees to hear the case, Jacobus’ appeal to overturn the decision of the 11th Circuit
will be successful. Similarly, there can be no assurance as to whether the U.S. Congress will pass, and the President will sign, legislation revising the
Orphan Drug Act that effectively overturns the decision of the U.S. Court of Appeals for the 11th Circuit, and whether any such legislation, if passed
and signed into law, will retroactively affect the outcome of the 11th Circuit decision and allow the FDA to reinstate the approval of Ruzurgi® before the
expiration of FIRDAPSE®’s orphan drug exclusivity.
Third-Party Reimbursement
Sales of drug products depend in significant part on the availability of coverage and adequate reimbursement by third party payors, such as state and
federal governments, including Medicare and Medicaid, managed care providers, private commercial insurance plans and pharmacy benefit management
(PBM) plans. Decisions regarding the extent of coverage and the amount of reimbursement to be provided for FIRDAPSE® are expected to be made on
a plan-by-plan, and in some cases, on a patient-by-patient basis. Particularly given the rarity of LEMS, our experience has been that securing coverage
and appropriate reimbursement from third-party payors requires targeted education and highly skilled insurance navigation experts that have experience
with rare disease launches and medical exception processes at insurance companies to provide patient coverage for important rare disease therapies. To
that end, we have engaged a dedicated team of field-based market access account managers and reimbursement experts as well as a patient service
center staffed with experienced personnel focused on ensuring that clinically-qualified patients have access to our product.
There can be no assurance, however, as to whether payors will continue to cover our product, and if so, at what level of reimbursement. In that regard,
we have advised payors that we will provide free medication to support titration and confirm patient therapeutic benefit. Further, when necessary, we
provide patients with access to therapy at no charge while those patients are awaiting coverage decisions.
Our efforts to develop FIRDAPSE® as a treatment for additional neuromuscular indications
Over the past few years, we have studied FIRDAPSE® as a potential treatment for multiple neuromuscular indications other than LEMS, and the results
of recent studies are summarized below. Based on the results of these activities, in 2021 we have made a strategic decision not to proceed forward to
further study FIRDAPSE® as a potential treatment for additional indications.
MuSK-MG studies
In February 2016, we initiated an investigator-sponsored, randomized, double-blind, placebo-controlled, crossover proof-of-concept clinical trial
evaluating the safety, tolerability and potential efficacy of FIRDAPSE® as a symptomatic treatment for patients with MuSK-MG. Seven patients
participated in this proof-of-concept trial. On March 15, 2017, we reported top-line results from this trial. Both of the co-primary efficacy endpoints of
change from baseline (CFB) in total Quantitative Myasthenia Gravis (QMG) score (p=0.0003) and CFB in total Myasthenia Gravis Activities of Daily
Living (MG-ADL) score (p=0.0006) were statistically and clinically significant in this trial. Several secondary efficacy measures also achieved
statistical significance. Amifampridine phosphate was well tolerated in this population of patients. The results of this study were published in SAGE
Open Medicine and can be accessed at https://journals.sagepub.com/doi/pdf/10.1177/2050312118819013. Subsequently, we engaged in a 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.
On August 10, 2020, we announced the top-line results from our Phase 3 clinical trial (MSK-002) evaluating FIRDAPSE® for the treatment of adults
with MuSK-MG. Unfortunately, the MSK-002 trial did not achieve statistical significance on its primary endpoint or its secondary endpoint, even
though clinical improvement was observed by patients and investigators during the initial dose-titration period of the trial and in the company’s previous
proof-of-concept trial. However, we have recently concluded a detailed analysis of the data from this trial in an effort to understand why the MuSK-MG
Phase 3 trial did not meet statistical significance on its endpoints.
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Following our receipt of these results, we analyzed the data and proposed a plan to the FDA to perform an additional study evaluating FIRDAPSE® for
MuSK-MG. In response, the FDA provided written comments that were unfavorable towards our proposed revised study design and further questioned
the ability of the initial MuSK-MG pilot study to be supportive. These remarks make it unlikely that a single study design similar to MSK-002 would be
sufficient for potential approval of the MuSK-MG indication. We also held an appropriate expert panel to discuss options and review the likelihood for
success for a MuSK-MG indication for FIRDAPSE®. Based on the input from the FDA and advisors, we have concluded that the approval of
FIRDAPSE® as a first-line therapy for MuSK-MG is unlikely and therefore we have decided not to continue to pursue this indication.
Proof-of-concept clinical trial evaluating FIRDAPSE® for the treatment of SMA Type 3
Our exploratory study, SMA-001 (A Randomized Placebo Controlled Crossover Study to Evaluate the Safety and Efficacy of Amifampridine Phosphate
in Ambulatory Patients with Spinal Muscular Atrophy (SMA) Type 3, met the primary endpoint of a statistically significant difference for the
Hammersmith Functional Motor Scale Expanded (HFMSE). Clinically, however, the effect was modest. The secondary endpoints were not statistically
significant, although several individual quality of life measures demonstrated a positive nominally statistically significant change. Key opinion leaders
with whom we have spoken believed that FIRDAPSE® needed to show a large clinically significant change if there was the possibility to affect disease
progression through retrograde signaling from enhanced neuromuscular junction function. After considering all of these factors, we have concluded that
the modest results exhibited in this study are unlikely to result in a sufficient modification of disease progression, and, particularly in light of the fact
that there are now three approved disease modifying medications for SMA Type 3, we have decided not to pursue the SMA Type 3 indication further.
Study to evaluate FIRDAPSE® as a treatment for HNPP
We previously announced our intent to conduct a proof-of-concept study evaluating FIRDAPSE® as a treatment for Hereditary Neuropathy with
Liability to Pressure Palsies (HNPP). The FDA requested that a new, patient centric endpoint be researched and used for our proposed study, without
assurance that such endpoint would be acceptable for approval. Based upon the uncertainty of such an endpoint, we have decided not to conduct this
study as a company sponsored study, though there is a possibility that this study will move forward as investigator-initiated study that we will support.
Long-acting version of amifampridine phosphate
We were previously developing a long-acting formulation of amifampridine phosphate. While a number of formulations were prepared, after discussions
with researchers and an advisory board made up of both patients and physicians, we concluded that we would be unable to develop a long-acting
formulation that is both beneficial to patients and commercially viable, and as a result we made the determination not to proceed with development of
this product.
Intellectual property and regulatory exclusivity protections for FIRDAPSE®
All of our patent rights for FIRDAPSE® are derived from our license agreement. In August 2020, the United States Patent and Trademark Office
(USPTO) allowed Patent No. 10,793,893 (the ’893 patent) to our licensor and thereby to us, and the patent issued on October 6, 2020. 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 intend to take all appropriate actions to protect our intellectual property.
In April 2021, the USPTO also allowed Patent No. 11,060,128 (the ’128 patent) to our licensor and thereby to us, and this second patent issued on
July 13, 2021. The patent is directed to the use of suitable doses of amifampridine to treat patients suffering with LEMS that are slow metabolizers of
amifampridine. Any drug product containing amifampridine with a label for the treatment of LEMS, that states the patented dosing regimens and doses
in the Dosing and Administration section of a product label, including generic drug product labels, could possibly infringe this patent prior to this
patent’s expiration date.
On December 24, 2021, the USPTO allowed continuing application, 17/503,190. On January 3, 2022, the USPTO allowed related continuing application
17/503,148. A further related continuing application, 17/503,092 was allowed on January 7, 2022. All three patents were issued in March 2022. The
claims in each of these applications have either already been listed in the Orange Book for FIRDAPSE® or are in the process of being listed.
We are also pursuing additional patent applications for FIRDAPSE® in an effort to further protect our drug product. There can be no assurance that any
additional patents will be issued which provide additional intellectual property protection for our drug product.
In that regard, in October 2020, we filed lawsuits against Jacobus and the specialty pharmacy marketing Ruzurgi®, PantherRx Rare LLC (PantherRx),
for infringement of the ‘893 patent. The suits have now been consolidated in a single action in the U.S. District Court for New Jersey. In August 2021,
the lawsuits were amended to include alleged infringement of the ‘128 patent. The lawsuits arise from
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Jacobus’ and PantherRx’s sales and marketing of Ruzurgi® (amifampridine) Tablets, 10 mg. The lawsuits allege that the Ruzurgi® product infringes the
‘893 patent and the ‘128 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. The lawsuit is in the discovery stage and there can be no assurance as to the results of
these proceedings.
There 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, we may
be prevented from pursuing product development, manufacturing or commercialization of our products that utilize such technologies. 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.
Until FIRDAPSE® was approved in November 2018, no drug product containing amifampridine for any indication had been approved by the FDA such
that we received five-year “new chemical entity” exclusivity from the FDA. New chemical entity exclusivity provides a five-year period of marketing
exclusivity for all indications and in the absence of an Orange Book listed patent, precludes a generic from submitting an abbreviated new drug
application (ANDA) until that five year period has expired. Further, when FIRDAPSE® was approved for the treatment of LEMS patients, we received
seven-year orphan drug exclusivity for our product for the treatment of LEMS, precluding a generic filer from receiving final FDA approval until the
ODE exclusivity period has expired. Because we have Orange Book listed patents for FIRDAPSE®, potential generic filers will be permitted to submit
ANDA filings to the FDA as early as the “NCE-1” date (November 28, 2022). In the event of such filings, and after appropriate investigation, we intend
to vigorously enforce our patent rights.
We have in-licensed the FIRDAPSE® trademark, and the trademark was registered in the United States in March 2015.
Protection of our intellectual property and regulatory exclusivities is a strategic priority for our business. Our ability to protect and use our intellectual
property rights and regulatory exclusivity in the future development and commercialization of our products, operate without infringing the proprietary
rights of others, and prevent others from infringing our proprietary rights, is crucial to our future success. See Item 1A. “Risk Factors—Risks Related to
Our Intellectual Property.”
Generic Sabril®
In September 2015, we announced the launch of a program to develop our version of vigabatrin (CPP-109) as a generic version of Sabril®, which is
marketed in the United States by Lundbeck. Lundbeck’s exclusivity for Sabril® expired on April 26, 2018. Vigabatrin comes in two dosage forms – a
powder sachet and a tablet. Par Pharmaceutical brought the first generic version of the powder sachet to market, and since then numerous additional
generic versions of this product have been approved. Further, four generic versions of vigabatrin tablets have also been approved.
On December 18, 2018, we entered into a definitive agreement with Endo International plc’s subsidiary, Endo Ventures Limited (Endo), for the further
development and commercialization of generic Sabril® tablets through Endo’s United States Generic Pharmaceuticals segment, Par Pharmaceutical.
Pursuant to the agreement, in December 2018, we received an up-front payment of $0.5 million. We will be entitled to receive a milestone payment of
$2.0 million on the commercial launch of the product. Further, we will receive a sharing of defined net profits upon commercialization and certain
expenses for development.
Sabril® is marketed by Lundbeck in the United States for infantile spasms and for refractory complex partial seizures. Lundbeck’s sales of Sabril®
(tablets and sachets) were approximately $129.0 million in 2019 and $118.3 million in 2020. Four generic versions of Sabril® tablets have been
approved to date in the United States, as have numerous generic versions of the powder form. We have entered into a definitive agreement with
Endo/Par for the further development and commercialization of generic Sabril® tablets.
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.
Plans to Acquire or In-License Additional Products
In 2021, we made a strategic decision to broaden and diversify our product portfolio through acquisitions of both early and late-stage products or
companies or technology platforms in rare disease therapeutic categories outside of neuromuscular diseases. To accomplish these new priorities, we are
employing a disciplined approach to evaluating assets and we believe that this strategic expansion will better position our company to build out a
broader more diversified portfolio of drug candidates, which should add greater value to our company over the near and long-term. However, there can
be no assurance that whatever product candidates or technology platforms we acquire, if any, will be successfully developed or commercialized.
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We are currently exploring several potential opportunities to acquire companies with drug products in development or to in-license or acquire drug
products in development. However, no definitive agreements have been entered into to date. Further, during the third quarter of 2021 we hired
Dr. Preethi Sundaram, who serves as our Chief Strategy Officer. In that position, Dr. Sundaram is leading our efforts to acquire R&D assets, from early
stage through late-stage clinical programs and technologies to treat rare diseases, and once such drug candidates are acquired, Dr. Sundaram will help
oversee the development of those assets.
Manufacturing and Supply
We are licensed in Florida as a virtual drug manufacturer, which means that we have no in-house manufacturing capacity and we are obligated to rely on
contract manufacturers and packagers. We have no plans to build or acquire the manufacturing capability needed to manufacture any of our research
materials or commercial products, and we expect that our drug products and drug substances will be prepared by contractors with suitable capabilities
for these tasks and that we will enter into appropriate supply agreements with these contractors at appropriate times in the development and
commercialization of our products. Because we will use contractors to manufacture and supply our products, we will be reliant on such contractors.
Further, the contractors selected would have to be inspected by the FDA and found to be in substantial compliance with federal regulations in order for
an application for one of our drug candidates to be approved, and there can be no assurance that the contractors we select would pass such an inspection.
We have entered into agreements with a supplier of the active pharmaceutical ingredient (API) contained in FIRDAPSE® for future requirements and we
have contracted with third-party contract manufacturers who are manufacturing FIRDAPSE® tablets for us.
Any significant change that we make for FIRDAPSE® must be approved by the FDA in a supplemental new drug application (sNDA). If the
manufacturing plan and data are insufficient, any sNDA we submit will not be approved. Before an sNDA can be approved, our manufacturers must also
demonstrate compliance with FDA’s current Good Manufacturing Practices (cGMPs) regulations and policies. Further, even if we receive approval of
any sNDAs for FIRDAPSE®, if our manufacturers do not follow cGMPs in the manufacture of our products, it may delay product launches or shipments
and adversely affect our business.
Since we contract with third parties to manufacture our products, our contract manufacturers are required to comply with all applicable environmental
laws and regulations that affect the manufacturing process. As a result, we do not believe that we will have any significant direct exposure to
environmental issues.
Competition
The pharmaceutical industry is intensely competitive, and any product candidate developed or licensed by us would likely compete with currently
marketed and potentially new drugs and therapies even though they are not indicated for these conditions. There are many pharmaceutical companies,
biotechnology companies, public and private universities, government agencies and research organizations that compete with us in developing various
approaches to the treatment of orphan diseases. Many of these organizations have substantially greater financial, technical, marketing and manufacturing
resources than we have.
Before the approval of FIRDAPSE®, LEMS was generally treated with unapproved drugs and therapies including steroids, azathioprine, other
immunosuppressants and intravenous immunoglobulin, which work by suppressing the immune system, and pyridostigmine. Plasma exchange has also
been used in an attempt to remove antibodies from the body. Further, one other product, guanidine HCl tablets, was approved many years ago (during a
period when drugs were not required to be reviewed by the FDA for both safety and effectiveness) for use in the treatment of LEMS. However, this drug
has significant side effects and is not currently viewed as an effective treatment for LEMS. Notwithstanding, drugs may be prescribed by physicians for
the treatment of LEMS whether or not they are considered effective.
For some years, Ruzurgi® for the treatment of pediatric patients with LEMS was often proscribed to adult LEMS patients, and at a lower price than
FIRDAPSE®. Now that Ruzurgi® is no longer on the market, it is no longer competitive to FIRDAPSE®. However, if Ruzurgi® were to become
available in the future, it would likely be competitive to FIRDAPSE®.
Finally, we are aware that amifampridine has been available from compounding pharmacies for many years and may remain available, even though we
have obtained FDA approval of FIRDAPSE®. Compounded amifampridine is likely to be substantially less expensive than FIRDAPSE®. The Food and
Drug Administration Modernization Act of 1997 included a new section, which clarified the status of pharmacy compounding under Federal law. Under
Section 503A, drug products that are lawfully compounded by a pharmacist or physician for an individual patient may be entitled to exemptions from
three key provisions of the FDCA: (1) the adulteration provision of section 501(a)(2)(B) (concerning FDA’s cGMP regulations); (2) the misbranding
provision of section 502(f)(1) (concerning the labeling of drugs with adequate directions for use); and (3) the new drug provision of section 505
(concerning the approval of drugs under new drug or abbreviated new drug applications).
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To qualify for these statutory exemptions, a compounded drug product must satisfy several legal requirements. One of these requirements restricts the
universe of bulk drug substances that a compounder may use. Specifically, every bulk drug substance used in compounding: (1) must comply with an
applicable and current USP or NF drug monograph, if one exists, as well as the current USP chapters on pharmacy compounding; (2) if such a
monograph does not exist, the bulk drug substance must be a component of an FDA-approved drug; or (3) if a monograph does not exist and the bulk
drug substance is not a component of an FDA-approved drug, it must appear on a list of bulk drug substances that may be used in compounding (i.e., the
“Section 503A bulk substances list 1”). While the advertising provisions in Section 503A were ruled unconstitutional in part in the United States by the
Supreme Court in 2002, the FDA, since 2013, has aggressively regulated and exercised oversight over the practice of pharmacy compounding following
the compounding incident at the New England Compounding Center in Massachusetts that sickened hundreds and killed over 60 individuals.
In 2013, Congress removed the unconstitutional advertising provisions in Section 503A when it passed the Drug Quality and Security Act of 2013
(DQSA), Title I (The Compounding Quality Act). The DQSA also created “outsourcing facilities” under Section 503B of the Federal Food, Drug, and
Cosmetic Act, which are drug compounders that voluntarily register with FDA and may produce compounded formulations for office use (at least one of
which must be sterile), but must comply with FDA’s cGMP regulations and other requirements set forth in Section 503B. Section 503B outsourcing
facilities may also only compound from bulk substances if the product is on FDA’s drug shortage list, or the substance is on FDA’s Section 503B list of
bulk substances that may be used in compounding (i.e., the Section 503B bulk substances list 1”).
While the FDA has been aggressively enforcing Section 503A since its re-enactment, compounders may still compound “near copies” (but not
“essentially copies”) of approved drug products, under Section 503A, so long as the prescriber makes a change to the compounded formulation that
produces for that patient a significant difference between the commercially available drug and the compounded version. Compounders may also copy
commercially available products if they do not do so in “regular or inordinate amounts.” In January 2018, FDA published a Final Guidance document
titled, “Compounded Drug Products That Are Essentially Copies of a Commercially Available Drug Product Under Section 503A of the Federal Food,
Drug, and Cosmetic Act.” This Final Guidance sets forth FDA’s enforcement policy concerning those compounders that make essentially copies of
commercially available drug products. FDA has defined the term “regular or inordinate” in the Final Guidance to mean: “a drug product that is
essentially a copy of a commercially available drug product is compounded regularly or in inordinate amounts if it is compounded more frequently than
needed to address unanticipated, emergency circumstances, or in more than the small quantities needed to address unanticipated, emergency
circumstances.” FDA has further stated it will not take enforcement action, considering all the facts and circumstances, against a compounder that
compounds less than four “essentially copies” of a commercially available drug product in a calendar month.
Factors affecting competition generally
In general, our ability to compete depends in large part upon:
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our ability to complete clinical development and obtain regulatory approvals for our drug candidates;
the demonstrated efficacy, safety and reliability of our drug candidates;
the timing and scope of regulatory approvals;
product acceptance by physicians and other health care providers;
the willingness of payors to reimburse for our product;
protection of our proprietary rights and the level of generic competition;
the speed at which we develop drug candidates;
our ability to supply commercial quantities of a product to the market;
our ability to obtain reimbursement from private and/or public insurance entities for product use in approved indications;
our ability to recruit and retain skilled employees; and
the availability of capital resources to fund our development and commercialization activities, including the availability of funding from
the federal government.
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Regulatory Matters
Government regulation and product approval
Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the
research, development, testing, manufacture, labeling, record-keeping, promotion, storage, advertising, distribution, marketing and export and import of
products such as those we are developing. Our drugs must be approved by the FDA through the NDA process before they may be legally marketed in
the United States.
In the United States, drugs are subject to rigorous regulation by the FDA under the Federal Food, Drug, and Cosmetic Act (FFDCA) and implementing
regulations, as well as other federal and state statutes. The process of obtaining regulatory approvals and the subsequent compliance with appropriate
federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the
applicable United States requirements at any time during the product development process, approval process, or after approval, may subject an applicant
to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, license suspension or
revocation, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or
distribution, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect on
us. The process required by the FDA before a drug may be marketed in the United States generally involves the following:
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completion of pre-clinical laboratory tests, animal studies and formulation studies according to the FDA’s good laboratory practice, or
GLP, regulations;
submission of an investigational new drug application, or IND, which must become effective before human clinical trials may begin and
which must include approval by an institutional review board, or IRB, at each clinical site before the trials are initiated;
performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended
use conducted in compliance with federal regulations and good clinical practice, or GCP, an international standard meant to protect the
rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors;
submission to, and acceptance by, the FDA of an NDA;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance
with current good manufacturing practice, or cGMP, regulations to assure that the facilities, methods and controls are adequate to preserve
the drug’s identity, strength, quality and purity;
potential FDA audit of the non-clinical and clinical trial sites that generated the data in support of the NDA; and
FDA review and approval of the NDA.
The testing and approval process requires substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain.
United States drug development process
Once a pharmaceutical candidate is identified for development it enters the pre-clinical testing stage. Pre-clinical tests include laboratory evaluations of
product chemistry, toxicity and formulation, as well as animal studies. Prior to beginning human clinical trials, an IND sponsor must submit an IND to
the FDA. The IND sponsor must submit the results of the pre-clinical tests, together with manufacturing information and analytical data, to the FDA as
part of the IND. Some pre-clinical or non-clinical testing may continue even after the IND is submitted. In addition to including the results of the
pre-clinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in
monitoring safety and the effectiveness criteria to be evaluated, if the trial lends itself to an efficacy evaluation. The IND automatically becomes
effective 30 days after receipt by the FDA, unless the FDA, within the 30–day time period, raises concerns or questions about the conduct of the trial. In
such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may, at any time, impose
a clinical hold on ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization
and then only under terms authorized by the FDA.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of one or more qualified
investigators in accordance with federal regulations and GCP.
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Clinical trials must be conducted under protocols detailing the objectives of the trial and the safety and effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND. Further, an Institutional Review Board (IRB) at each institution participating in the clinical
trial must review and approve each protocol before any clinical trial commences at that institution. All research subjects must provide informed consent,
and informed consent information must be submitted to the IRB for approval prior to initiation of the trial. Progress reports detailing the results of the
clinical trials must be submitted at least annually to the FDA and more frequently if adverse events or other certain types of other changes occur.
Human clinical trials are typically conducted in three phases. A fourth, or post-approval, phase may include additional clinical studies. These phases
generally include the following, and may be sequential, or may overlap or be combined:
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Phase 1 clinical trials involve the initial introduction of the drug into human subjects. These studies are designed to determine the safety of
usually single doses of the compound and determine any dose limiting intolerance, as well as evidence of the metabolism and
pharmacokinetics of the drug in humans.
Phase 2 clinical trials usually involve studies in a limited patient population to evaluate the safety and efficacy of the drug for specific,
targeted indications, to determine dosage tolerance and optimal dosage, and to identify possible adverse effects and safety risks.
In Phase 3, if a compound is found to be potentially effective and to have an acceptable safety profile in Phase 2 (or occasionally Phase 1)
studies, the Phase 3 studies will be conducted to further confirm clinical efficacy, optimal dosage and safety within an expanded population
which may involve geographically diverse clinical trial sites. Generally, but not always, two adequate and well-controlled Phase 3 clinical
trials are required by the FDA for approval of an NDA.
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Phase 4 clinical trials are studies required of or agreed to by a sponsor that are conducted after the FDA has approved a product for
marketing. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to
document a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a
company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials
to meet all or part of any Phase 4 clinical trial requirement. Failure to promptly conduct Phase 4 clinical trials where necessary could result
in withdrawal of approval for products approved under accelerated approval regulations.
While Phase 1, Phase 2, and Phase 3 tests are generally required for approval of an NDA, certain drugs may not require one or more steps in the process
depending on other testing and the situation involved. Additionally, the FDA, an IRB, or the sponsor may stop testing at any time if results show patients
being exposed to unnecessary health risks or overly dangerous side effects.
In addition, the manufacturer of an investigational drug in a Phase 2 or Phase 3 clinical trial for a serious or life-threatening disease is required to make
available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access to such investigational drug.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry
and physical characteristics of the drug and finalize a process for manufacturing the product in accordance with cGMP requirements. The manufacturing
process must be capable of consistently producing quality batches of the drug candidate and, among other requirements, the manufacturer must develop
methods for testing the identity, strength, quality and purity of the final drug. Additionally, appropriate packaging must be selected and tested, and
stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.
United States review and approval process
FDA approval of an NDA is required before marketing of the product may begin in the United States. The NDA must include the results of product
development, pre-clinical studies and clinical studies, together with other detailed information, including information on the chemistry, manufacture and
composition of the product. The FDA has 60 days from its receipt of the NDA to review the application to ensure that it is sufficiently complete for
substantive review before filing it. The FDA may request additional information rather than file an NDA. In this event, the NDA must be resubmitted
with the additional information. The resubmitted application also is subject to review before the FDA files it. Once the submission is filed, the FDA
begins an in-depth substantive review. The submission of an NDA is also subject to the payment of a substantial application fee (for FDA fiscal year
2022 this fee is $3,117,218), although a waiver of such fee may be obtained under certain limited circumstances, including when the drug that is subject
of the application has received Orphan Drug Designation for the indication sought. Further, the sponsor of an approved NDA is subject to an annual
program fee, which for FDA fiscal year 2022 is $369,413 per prescription drug product. User fees typically increase annually. The approval process is
lengthy and difficult, and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical
or other data and information. Even if such data and information is submitted, the FDA may ultimately decide that
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the NDA does not satisfy the criteria for approval. The FDA may also refer applications for novel drug products or drug products which present difficult
questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a
recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee. The FDA
reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use. Before approving an NDA, the FDA will
inspect the facility or facilities where the product is manufactured to determine whether its manufacturing is cGMP–compliant to assure and preserve the
product’s identity, strength, quality, purity and stability.
If the FDA’s evaluation of the NDA submission or manufacturing facilities is not favorable, the FDA will issue a complete response letter. The complete
response letter outlines the deficiencies in the submission and often requires additional testing or information in order for the FDA to reconsider the
application. Even after submitting this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria
for approval. With limited exceptions, the FDA may withhold approval of an NDA regardless of prior advice it may have provided or commitments it
may have made to the sponsor.
Once an NDA is approved, changes to the conditions of approval, including additional indications, are made by the submission of a supplement to the
NDA. The supplemental NDA, or sNDA, must contain all of the information necessary to support the change. In the case of a new indication, that
information usually consists of at least one clinical trial, and often more. Like an NDA, FDA determines whether the sNDA is sufficiently complete to
permit review before it files the sNDA. FDA then reviews the sNDA. Like an NDA, FDA can either approve the sNDA or issue a complete response
letter outlining the deficiencies in the sNDA.
Special Protocol Assessments
A SPA is a process in which sponsors may request to meet with the FDA to reach agreement on the design and size of certain clinical trials, clinical
studies, or animal trials to determine if they adequately address scientific and regulatory requirements. As part of this process, sponsors submit specific
questions about protocol design and scientific and regulatory requirements. After the FDA completes the review of a SPA request, the FDA may issue a
SPA Letter, including an assessment of the protocol, agreement or non-agreement with the proposed protocol, and answers to the sponsor’s relevant
questions.
A SPA agreement indicates concurrence by the FDA with the adequacy and acceptability of specific critical elements of overall protocol design (e.g.,
entry criteria, dose selection, endpoints, and planned analyses). These elements are critical to ensuring that the trial conducted under the protocol has the
potential to support a future submitted application’s ability to meet regulatory requirements for approval. Feedback on these issues provides the greatest
benefit to sponsors in planning late-phase development strategy. However, a SPA agreement does not indicate FDA concurrence on every protocol
detail. Further, the FDA may rescind a SPA if the director of the FDA reviewing division determines that a substantial scientific issue essential to
determining the safety or efficacy of the drug was identified after the trial began. Thus, a SPA is not binding on the FDA if, for example, the Agency
identifies a safety concern related to the product or its pharmacological class, if the FDA or the scientific community recognizes a paradigm shift in
disease diagnosis or management, if the relevant data or assumptions provided by the sponsor in the SPA submission are found to be false or misstated,
or if the sponsor fails to follow the protocol that was agreed upon with the FDA. The FDA retains significant latitude and discretion in interpreting the
terms of a SPA agreement and the data and results from the applicable clinical trial.
Because a SPA provides for the evaluation of protocols for trials that have not been initiated, the conduct and results of the subsequent trial are not part
of the evaluation. Therefore, the existence of an SPA agreement does not guarantee that the FDA will accept an NDA, or that the trial results will be
adequate to support approval. Those issues are addressed during the review of a submitted application; however, it is hoped that trial quality will be
improved by the SPA process.
Post-approval requirements and consideration
Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval
marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored
scientific and educational activities and promotional activities involving the internet. As a condition of NDA approval, the FDA may also require a risk
evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication
guides, communication plans for the healthcare professionals, and other Elements To Assure Safe Use, or ETASU. ETASU can include, but are not
limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of
patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug.
Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the
conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require
submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication
typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA
supplements as it does in reviewing NDAs.
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Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing
testing, known as Phase 4 testing, and surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict
the distribution or use of the product. In addition, quality control as well as drug manufacture, packaging, and labeling procedures must continue to
conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and
certain state agencies and are subject to periodic unannounced inspections by the FDA during which the agency inspects manufacturing facilities to
assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality
control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to
comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently
discovered.
The Hatch-Waxman Amendments
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims covering the applicant’s product or
approved methods of using the product. Upon approval of a drug, each of the patents listed in the application for the drug are then published in the
FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book
can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for
marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown to be
bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results
of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as
“generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically,
the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not
expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the
new product. The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carves
out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed
patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.
A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph
IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV
certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a
patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the
receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the
patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.
The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has
expired.
Exclusivity
Upon NDA approval of a new chemical entity (NCE), which is a drug product that contains an active moiety that has never been approved by FDA in
any other NDA, that drug receives five years of marketing exclusivity during which FDA cannot receive any ANDA seeking approval of a generic
version of that drug. A drug may obtain a three-year period of exclusivity for a particular condition of approval, or change to a marketed product, such
as a new formulation for the previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was
essential to the approval of the application and was conducted/sponsored by the applicant. During this period of exclusivity, FDA cannot approve an
ANDA for a generic drug that includes the change.
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An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange
Book, there cannot be a Paragraph IV certification, and, thus, no ANDA can be filed before the expiration of the exclusivity period.
Section 505(b)(2) New Drug Applications
Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a special type of NDA, commonly referred
to as a Section 505(b)(2), or 505(b)(2), NDA, which enables the applicant to rely, in part, on FDA’s previous approval of a similar product, or published
literature, in support of its application.
505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products.
Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or
for, the applicant and for which the applicant has not obtained a right of reference. If the Section 505(b)(2) applicant can establish that reliance on FDA’s
prior findings of safety and effectiveness or published literature is scientifically appropriate, it may eliminate the need to conduct certain pre-clinical or
clinical studies of the new product.
The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may
then approve the new product candidate for all, or some, of the label indications for which the referenced product has been approved, as well as for any
new indication sought by the Section 505(b)(2) applicant.
To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to
the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. A
Section 505(b)(2) NDA may be eligible for three years of marketing exclusivity to the same extent that a Section 505(b)(1) NDA is.
Abbreviated new drug applications
Generic drugs may enter the market after the approval of an ANDA. The ANDA development process typically does not require new pre-clinical or
clinical studies, but it does typically require one or more bioequivalence studies to show that the ANDA drug is bioequivalent to the previously
approved brand name reference listed drug. Bioequivalence studies compare the bioavailability of the proposed drug product with that of the approved
listed product containing the same active ingredient. Bioavailability is a measure of the rate and extent to which the active ingredient or active moiety is
absorbed from a drug product and becomes available at the site of action. A demonstration of bioequivalence means that the rate and extent of
absorption of the ANDA drug is not significantly different from the rate and extent of absorption of the brand name reference listed drug when
administered at the same molar dose under similar experimental conditions.
As noted above, generic drug products are generally introduced to the marketplace at the expiration of patent protection and non-patent market
exclusivity for the reference listed drug. However, if an ANDA applicant is the first ANDA applicant to submit an ANDA containing a Paragraph IV
certification, that ANDA may be eligible for a period of generic marketing exclusivity on approval. This exclusivity, which under certain circumstances
must be shared with other ANDA applicants with Paragraph IV certifications, lasts for 180 days, during which the FDA cannot grant final approval to
other ANDA sponsors of an application for a generic equivalent to the same reference drug. Under certain circumstances, eligibility for 180-day
exclusivity may be forfeited.
Various types of changes to an approved ANDA must be requested in a prior approval supplement. In addition, some changes may only be approved
after new bioequivalence studies are conducted or other requirements are satisfied. In addition, the ANDA applicant must demonstrate that
manufacturing procedures and operations conform to FDA cGMP requirements. Facilities, procedures, operations, and/or testing of products are subject
to periodic inspection by the FDA and other authorities. In addition, the FDA conducts pre-approval and post-approval reviews and inspections to
determine whether the systems and processes are in compliance with cGMP and other FDA regulations.
There are also user fees for ANDA applicants, sponsors, and manufacturers. For fiscal year 2022, the application fees are $225,712 per ANDA
application and the facility fees are $195,012 per domestic finished dosage form facility, $210,012 per foreign finished dosage form facility, $42,557 per
domestic active pharmaceutical ingredient facility, and $57,557 per foreign active pharmaceutical ingredient facility. In addition, there is a new annual
program fee based on the size of the generic drug applicant. These user fees typically increase each fiscal year.
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Other regulatory requirements
In addition to regulation by the FDA and certain state regulatory agencies, we are also subject to a variety of foreign regulations governing clinical trials
and the marketing of other products. Outside of the United States, our ability to market a product depends upon receiving a marketing authorization
from the appropriate regulatory agencies. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement
vary widely from country to country. In any country, however, we will only be permitted to commercialize our products if the appropriate regulatory
agency is satisfied that we have presented adequate evidence of safety, quality and efficacy. Whether or not FDA approval has been obtained, approval
of a product by the comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing of the product in
those countries. The regulatory approval and oversight process in other countries includes all of the risks associated with regulation by the FDA and
certain state regulatory agencies as described above.
Under the European Union regulatory system, applications for drug approval may be submitted either in a centralized or decentralized manner. Under
the centralized procedure, a single application to the European Medicines Agency leads to an approval granted by the European Commission which
permits marketing of the product throughout the European Union. The decentralized procedure provides for mutual recognition of nationally approved
decisions and is used for products that do not comply with requirements for the centralized procedure. Under the decentralized procedure, the holders of
national marketing authorization in one of the countries within the European Union may submit further applications to other countries within the
European Union, who will be requested to recognize the original authorization based on an assessment report provided by the country in which
marketing authorization is held.
Pharmaceutical pricing and reimbursement
In both United States and foreign markets, our ability to commercialize our products successfully, and to attract commercialization partners for our
products, depends in significant part on the availability of adequate financial coverage and reimbursement from third-party payors, including, in the
United States, governmental payors such as Medicare and Medicaid, managed care organizations, private commercial health insurers and PBMs. Third
party payors are increasingly challenging the prices charged for medicines and examining their cost effectiveness, in addition to their safety and efficacy.
We may need to conduct expensive pharmacoeconomic or other studies in order to further demonstrate the value of our products. Even with the
availability of such studies, our products may be considered less safe, less effective or less cost-effective than alternative products, and third-party
payors may not provide coverage and reimbursement for our drug candidates, in whole or in part.
Political, economic and regulatory influences are subjecting the health care industry in the United States to fundamental changes. There have been, and
we expect there will continue to be, legislative and regulatory proposals to change the healthcare system in ways that could significantly affect our
business, including the Patient Protection and Affordable Care Act of 2010 (the “Affordable Care Act”). In fact, there continue to be efforts in Congress
to revise the Affordable Care Act and replace it with another law. As a result, there is great uncertainty as to what changes will be made to United States
healthcare laws and there can be no assurance how changes to those laws may affect our business.
We anticipate that in the United States, Congress, state legislatures, and private sector entities will continue to consider and may adopt healthcare
policies intended to curb rising healthcare costs. These cost containment measures could include:
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controls on government-funded reimbursement for drugs;
mandatory rebates or additional charges to manufacturers for their products to be covered on Medicare Part D formularies;
controls on healthcare providers;
controls on pricing of drug products, including the possible reference of the pricing of United States drugs to non-United States drug
pricing for the same product;
challenges to the pricing of drugs or limits or prohibitions on reimbursement for specific products through other means;
reform of drug importation laws;
entering into contractual agreements with payors; and
expansion of use of managed-care systems in which healthcare providers contract to provide comprehensive healthcare for a fixed cost per
person.
We are unable to predict what additional legislation, regulations or policies, if any, relating to the healthcare industry or third-party coverage and
reimbursement may be enacted in the future or what effect such legislation, regulations or policies would have on our business. Any cost containment
measures, including those listed above, or other healthcare system reforms that are adopted may have a material adverse effect on our business
prospects.
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Further, the pricing of drug products generally, and particularly the pricing of orphan drugs, has recently received scrutiny from the press, and from
members of Congress in both parties. Some members of the medical community and Senator Bernie Sanders have also made statements in the press on
the potential pricing of orphan drugs generally and on the pricing of our product specifically. The impact of this scrutiny on us and on the pricing of
orphan drugs and other drug products generally cannot be determined with any certainty at this time.
Orphan Drug Exclusivity and Pediatric Exclusivity Designation
Some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the
Orphan Drug Act of 1983 (ODA), the FDA may grant Orphan Drug Designation to drugs intended to treat a rare disease or condition that affects fewer
than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation
that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the
United States for that drug. In the United States, Orphan Drug Designation must be requested before submitting an application for marketing approval.
An Orphan Drug Designation does not shorten the duration of the regulatory review and approval process. The grant of an Orphan Drug Designation
request does not alter the standard regulatory requirements and process for obtaining marketing approval. Safety and efficacy of a compound must be
established through adequate and well-controlled studies. If a product which has been granted Orphan Drug Designation subsequently receives the first
FDA approval for the indication for which it has such designation, the product is entitled to an orphan drug exclusivity period, which means the FDA
may not approve any other application to market the same drug for the same disease or condition for a period of seven years, except in limited
circumstances, such as where an alternative product demonstrates clinical superiority to the product with orphan exclusivity. In addition, holders of
exclusivity for orphan drugs are expected to assure the availability of sufficient quantities of their orphan drugs to meet the needs of patients. Failure to
do so could result in the withdrawal of marketing exclusivity for the drug.
The orphan drug exclusivity contained in the ODA has been the subject of recent scrutiny from the press, from some members of Congress and from
some in the medical community, and a recent proposed change to the ODA would limit the availability of the benefits of the act for drugs that treat more
than 200,000 individuals in the United States. There can be no assurance that the exclusivity granted in ODA to orphan drugs approved by the FDA will
not be modified in the future, and as to how any such change might affect our products, if approved.
Pediatric exclusivity is another type of non-patent exclusivity in the United States and, if granted, provides for the attachment of an additional six
months of marketing protection to the term of any existing regulatory exclusivity, including the five-year and three-year non-patent and seven-year
orphan exclusivities. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly responds to a written request from
the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied. If the FDA determines that
information relating to the use of the new drug in the pediatric population may produce health benefits in the population, the clinical study is deemed to
fairly respond to the FDA’s request and the reports of FDA-requested pediatric studies are submitted to and accepted by the FDA within the statutory
time limits, whatever statutory or regulatory periods of exclusivity or patent protection covering the product are extended by six months. This is not a
patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application relying on the NDA
sponsor’s data.
The European Orphan Drug Regulation is considered for drugs intended to diagnose, prevent or treat a life-threatening or very serious condition
afflicting five or fewer per 10,000 people in the EU, including compounds that for serious and chronic conditions would likely not be marketed without
incentives due to low market return on the sponsor’s development investment. The medicinal product considered should be of significant benefit to
those affected by the condition. Benefits of being granted Orphan Medicinal Product Designation are significant, including eight years of data
exclusivity, two years of marketing exclusivity and a potential one-year extension of both. The EU Community and Member States may not accept or
grant for ten years a new marketing authorization or application for another drug for the same therapeutic indication as the orphan drug, although the
ten-year period can be reduced to six years if, after the end of the fifth year, available evidence establishes that the product is sufficiently profitable not
to justify maintenance of the marketing exclusivity. A supplementary protection certificate may extend the protection six months beyond patent
expiration if that is later than the orphan drug exclusivity period. To apply for the supplementary protection, a pediatric investigation plan, or PIP, must
be included in the market application. In Europe all drugs now seeking marketing authorization need to have a PIP agreed with the European Medicines
Agency (EMA) before it can be approved, even if it is a drug being developed specifically for a pediatric indication. If a product is developed solely for
use in the pediatric population, then a Pediatric Use Marketing Authorization, or PUMA, may provide eight years of data exclusivity and ten years of
marketing exclusivity.
Breakthrough Therapy Designation
Breakthrough therapy designation is intended to expedite the development and review of drugs for serious or life-threatening conditions. The criteria for
breakthrough therapy designation require preliminary clinical evidence that demonstrates the drug may have substantial improvement on at least one
clinically significant endpoint over available therapy. A breakthrough therapy designation conveys all of the fast track program features (see below for
more details on fast track designation), as well as more intensive FDA guidance on an efficient drug development program. The FDA also has an
organizational commitment to involve senior management in such guidance. Actions taken to expedite development may include the following actions,
as appropriate:
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holding meetings with the sponsor and review team throughout the development of the drug;
providing timely advice to, and interactive communication with, the sponsor regarding the development of the drug to ensure that the
development program to gather the non-clinical and clinical data necessary for approval is as efficient as possible;
taking steps to ensure that the design of the clinical trials is as efficient as practicable, when scientifically appropriate, such as by
minimizing the number of patients exposed to a potentially less efficacious treatment;
assigning a cross-disciplinary project lead for the FDA review team to facilitate an efficient review of the development program and to
serve as a scientific liaison between the cross-discipline members of the review team (i.e., clinical, pharmacology-toxicology, chemistry,
manufacturing and control (CMC), compliance) for coordinated internal interactions and communications with the sponsor through the
review division’s Regulatory Health Project Manager; and
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involving senior managers and experienced review staff, as appropriate, in a collaborative, cross-disciplinary review.
Fast Track Designation and Accelerated Approval
FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening
disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition.
Under the fast track program, the sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication as a fast
track drug concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the drug candidate qualifies for fast track
designation within 60 days of receipt of the sponsor’s request.
Under the fast track program and FDA’s accelerated approval regulations, FDA may approve a drug for a serious or life-threatening illness that provides
meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or
on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible
morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of
alternative treatments.
In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement
of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drug
candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval
clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-
marketing studies, will allow FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved
under accelerated regulations are subject to prior review by FDA.
In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with FDA, FDA may initiate review
of sections of a fast track drug’s NDA before the application is complete. This rolling review is available if the applicant provides, and FDA approves, a
schedule for the submission of the remaining information and the applicant pays applicable user fees. However, FDA’s time period goal for reviewing an
application does not begin until the last section of the NDA is submitted. Additionally, the fast track designation may be withdrawn by the FDA if the
FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Priority Review
Under FDA policies, a drug candidate is eligible for priority review, or review within a six to eight-month time frame from the time a complete NDA is
submitted, if the drug candidate is intended for the treatment, diagnosis, or prevention of a serious or life-threatening condition, demonstrates the
potential to address an unmet medical need, or provides a significant improvement compared to marketed drugs.
Disclosure of clinical trial information
Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information
related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public
as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of results of these trials
can be delayed in certain circumstances for up to two years after the date of completion of the clinical trial. Competitors may use this publicly-available
information to gain knowledge regarding the progress of development programs.
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Anti-Kickback, False Claims Laws & the Prescription Drug Marketing Act
In addition to FDA restrictions on marketing of drug products, other state and federal laws have been applied to restrict certain marketing practices in
the pharmaceutical industry in recent years. These laws include anti-kickback statutes and false claims statutes. The federal healthcare program anti-
kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for
purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or
other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the
one hand and patients, prescribers, purchasers and formulary managers on the other. Violations of the anti-kickback statute are punishable by
imprisonment, criminal fines, civil monetary penalties, and exclusion from participation in federal healthcare programs. Although there are a number of
statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions
and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be
subject to scrutiny if they do not qualify for an exemption or safe harbor.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal
government, or knowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other
healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used
by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that
the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false
claims laws. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items
and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer.
The Centers for Medicare & Medicaid Services (CMS) has issued a final rule that requires manufacturers of approved prescription drugs to collect and
report information on payments or transfers of value to physicians, physician assistants, certain types of advanced practice nurses and teaching hospitals,
as well as investment interests held by physicians and their immediate family members. The information reported each year is made publicly available
on a searchable website. Failure to submit required information may result in civil monetary penalties.
In addition, several states now require prescription drug companies to report expenses relating to the marketing and promotion of drug products, to
report gifts and payments to individual physicians in these states and to report certain pricing information, including price increases. Other states
prohibit various other marketing-related activities. Still other states require the posting of information relating to clinical studies and their outcomes. In
addition, California, Connecticut, Nevada, and Massachusetts require pharmaceutical companies to implement compliance programs and/or marketing
codes. Several additional states are considering similar proposals. Compliance with these laws is difficult and time consuming, and companies that do
not comply with these state laws face civil penalties.
Prescription drug advertising is subject to federal, state and foreign regulations. In the United States, the FDA regulates prescription drug promotion,
including direct-to-consumer advertising. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Any
distribution of prescription drug products and pharmaceutical samples must comply with the United States Prescription Drug Marketing Act (PDMA), a
part of the FDCA. In addition, Title II of the Federal Drug Quality and Security Act of 2013, known as the Drug Supply Chain Security Act (DSCSA),
has imposed new “track and trace” requirements on the distribution of prescription drug products by manufacturers, distributors, and other entities in the
drug supply chain. The DSCSA requires product identifiers (i.e., serialization) on prescription drug products in order to eventually establish an
electronic interoperable prescription product to system to identify and trace certain prescription drugs distributed in the United States and preempts
existing state drug pedigree laws and regulations on this topic. The DSCSA also establishes new requirements for the licensing of wholesale distributors
and third-party logistic providers, although FDA regulations addressing wholesale distributors and third party logistics providers have not yet been
promulgated. We serialize our product at both the package and homogeneous case level, pass serialization and required transaction information to our
customers, and believe that we comply with all such requirements.
Government Programs for Marketed Drugs
Medicaid, the 340B Drug Pricing Program, and Medicare
Federal law requires that a pharmaceutical manufacturer, as a condition of having its products receive federal reimbursement under Medicaid and
Medicare Part B, must pay rebates to state Medicaid programs for all units of its covered outpatient drugs dispensed to Medicaid beneficiaries and paid
for by a state Medicaid program under either a fee-for-service arrangement or through a managed care organization. This federal requirement is
effectuated through a Medicaid drug rebate agreement between the manufacturer and the
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Secretary of Health and Human Services. CMS administers the Medicaid drug rebate agreements, which provide, among other things, that the drug
manufacturer will pay rebates to each state Medicaid agency on a quarterly basis and report certain price information on a monthly and quarterly basis.
The rebates are based on prices reported to CMS by manufacturers for their covered outpatient drugs. For innovator products, that is, drugs that are
marketed under approved NDAs, the basic rebate amount is the greater of 23.1% of the average manufacturer price (“AMP”) for the quarter or the
difference between such AMP and the best price for that same quarter. The AMP is the weighted average of prices paid to the manufacturer (1) directly
by retail community pharmacies and (2) by wholesalers for drugs distributed to retail community pharmacies. The best price is essentially the lowest
price available to non-governmental entities. Innovator products are also subject to an additional rebate that is based on the amount, if any, by which the
product’s current AMP has increased over the baseline AMP, which is the AMP for the first full quarter after launch, adjusted for inflation. To date, the
rebate amount for a drug has been capped at 100% of the AMP; however, effective January 1, 2024, this cap will be eliminated, which means that a
manufacturer could pay a rebate amount on a unit of the drug that is greater than the average price the manufacturer receives for the drug. For
non-innovator products, generally generic drugs marketed under approved abbreviated new drug applications, the basic rebate amount is 13% of the
AMP for the quarter. Non-innovator products are also subject to an additional rebate. The additional rebate is similar to that discussed above for
innovator products, except that the baseline AMP quarter is the fifth full quarter after launch (for non- innovator multiple source drugs launched on
April 1, 2013 or later) or the third quarter of 2014 (for those launched before April 1, 2013). The terms of participation in the Medicaid drug rebate
program impose an obligation to correct the prices reported in previous quarters, as may be necessary. Any such corrections could result in additional or
lesser rebate liability, depending on the direction of the correction. In addition to retroactive rebates, if a manufacturer were found to have knowingly
submitted false information to the government, federal law provides for civil monetary penalties for failing to provide required information, late
submission of required information, and false information.
A manufacturer must also participate in a federal program known as the 340B drug pricing program in order for federal funds to be available to pay for
the manufacturer’s drugs under Medicaid and Medicare Part B. Under this program, the participating manufacturer agrees to charge certain federally
funded clinics and safety net hospitals no more than an established discounted price for its covered outpatient drugs. The formula for determining the
discounted price is defined by statute and is based on the AMP and the unit rebate amount as calculated under the Medicaid drug rebate program,
discussed above. Manufacturers are required to report pricing information to the Health Resources and Services Administration (“HRSA”) on a
quarterly basis. HRSA has also issued regulations relating to the calculation of the ceiling price as well as imposition of civil monetary penalties for
each instance of knowingly and intentionally overcharging a 340B covered entity.
Federal law also requires that manufacturers report data on a quarterly basis to CMS regarding the pricing of drugs that are separately reimbursable
under Medicare Part B. These are generally drugs, such as injectable products, that are administered “incident to” a physician service and are not
generally self-administered. The pricing information submitted by manufacturers is the basis for reimbursement to physicians and suppliers for drugs
covered under Medicare Part B. As with the Medicaid drug rebate program, federal law provides for civil monetary penalties for failing to provide
required information, late submission of required information, and false information.
Medicare Part D provides prescription drug benefits for seniors and people with disabilities. Medicare Part D beneficiaries once had a gap in their
coverage (between the initial coverage limit and the point at which catastrophic coverage begins) where Medicare did not cover their prescription drug
costs, known as the coverage gap. However, beginning in 2019, Medicare Part D beneficiaries pay 25% of brand drug costs after they reach the initial
coverage limit—the same percentage they were responsible for before they reached that limit—thereby closing the coverage gap. Most of the cost of
closing the coverage gap is being borne by innovator companies and the government through subsidies. Each manufacturer of a drug approved under an
NDA is required to enter into a Medicare Part D coverage gap discount agreement and provide a 70% discount on those drugs dispensed to Medicare
beneficiaries in the coverage gap, in order for its drugs to be reimbursed by Medicare Part D.
Federal Contracting/Pricing Requirements
Manufacturers are also required to make their covered drugs, which are generally drugs approved under NDAs, available to authorized users of the
Federal Supply Schedule (“FSS”) of the General Services Administration. The law also requires manufacturers to offer deeply discounted FSS contract
pricing for purchases of their covered drugs by the Department of Veterans Affairs, the Department of Defense (“DoD”), the Coast Guard, and the
Public Health Service (including the Indian Health Service) in order for federal funding to be available for reimbursement or purchase of the
manufacturer’s drugs under certain federal programs. FSS pricing to those four federal agencies for covered drugs must be no more than the Federal
Ceiling Price (“FCP”), which is at least 24% below the Non-Federal Average Manufacturer Price (“Non-FAMP”) for the prior year.
The Non-FAMP is the average price for covered drugs sold to wholesalers or other middlemen, net of any price reductions.
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The accuracy of a manufacturer’s reported Non-FAMPs, FCPs, or FSS contract prices may be audited by the government. Among the remedies available
to the government for inaccuracies is recoupment of any overcharges to the four specified federal agencies based on those inaccuracies. If a
manufacturer were found to have knowingly reported false prices, in addition to other penalties available to the government, the law provides for civil
monetary penalties of $100,000 per incorrect item.
Finally, manufacturers are required to disclose in FSS contract proposals all commercial pricing that is equal to or less than the proposed FSS pricing,
and subsequent to award of an FSS contract, manufacturers are required to monitor certain commercial price reductions and extend commensurate price
reductions to the government, under the terms of the FSS contract Price Reductions Clause. Among the remedies available to the government for any
failure to properly disclose commercial pricing and/or to extend FSS contract price reductions is recoupment of any FSS overcharges that may result
from such omissions.
Tricare Retail Pharmacy Network Program
The DoD provides pharmacy benefits to current and retired military service members and their families through the Tricare healthcare program. When a
Tricare beneficiary obtains a prescription drug through a retail pharmacy, the DoD reimburses the pharmacy at the retail price for the drug rather than
procuring it from the manufacturer at the discounted FCP discussed above. In order for the DoD to realize discounted prices for covered drugs
(generally drugs approved under NDAs), federal law requires manufacturers to pay refunds on utilization of their covered drugs sold to Tricare
beneficiaries through retail pharmacies in DoD’s Tricare network. These refunds are generally the difference between the Non-FAMP and the FCP and
are due on a quarterly basis. Absent an agreement from the manufacturer to provide such refunds, DoD will designate the manufacturer’s products as
Tier 3 (non-formulary) and require that beneficiaries obtain prior authorization in order for the products to be dispensed at a Tricare retail network
pharmacy. However, refunds are due whether or not the manufacturer has entered into such an agreement.
Branded Pharmaceutical Fee
A branded pharmaceutical fee is imposed on manufacturers and importers of branded prescription drugs, generally drugs approved under NDAs. In each
year between 2011 and 2018, the aggregate fee for all such manufacturers ranged from $2.5 billion to $4.1 billion, and has remained at $2.8 billion in
2019 and subsequent years. This annual fee is apportioned among the participating companies based on each company’s sales of qualifying products to
or utilization by certain U.S. government programs during the preceding calendar year. The fee is not deductible for U.S. federal income tax purposes.
Utilization of generic drugs, generally drugs approved under ANDAs, is not included in a manufacturer’s sales used to calculate its portion of the fee.
Human Capital Management
We are dedicated to making a meaningful impact on the lives of those suffering from rare diseases, and we believe in putting patients first in everything
we do. To facilitate talent attraction and retention, we strive to make Catalyst an inclusive, safe, and healthy workplace, with opportunities to grow and
develop in their careers, supported by strong compensation, benefits, health and welfare programs. Our goal in selecting employees is to retain high
quality personnel with substantial prior experience who understand and support our mission as a company to develop and commercialize innovative
therapies for people with rare, debilitating, chronic neuromuscular and neurological diseases and who are willing to work hard and in a collaborative
manner to further that mission.
Employee Profile
As of March 14, 2022, we had approximately 76 employees, approximately 32 of whom are in our commercial organization, approximately 23 of whom
are in our R&D organization, and the rest of whom are in our G&A organization. We also utilize the services of several full-time consultants who work
with our commercial organization. None of our employees are covered by a collective bargaining agreement. We believe our relationship with our
employees and consultants is good.
Compensation and Benefits
Our compensation philosophy is to provide pay and benefits that are competitive in the biotechnology and pharmaceutical industry where we compete
for talent. We monitor our compensation programs closely and review them at least annually to provide what we consider to be a very competitive mix
of compensation and health, welfare and retirement benefits for all our employees. Our compensation package for all employees includes market-
competitive base salaries, annual performance bonuses and stock option grants. Our benefits programs include company sponsored medical, dental and
vision health care coverage, life and AD&D insurance, and a 401(k) plan with a matching employer contribution, among others benefits.
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Diversity, Equity and Inclusion
Our goal is a diverse and inclusive workforce – not because it is the right thing to do but because we believe that such a workforce is key to our long-
term success. Approximately 58% of our employees are female. At the leadership level (employees at manager and above) approximately 64% are
female, and two of seven members of our C-suite are female.
Communication and Engagement
We focus on engagement with our employees as we believe an engaged workforce is key to our success and to the success and wellbeing of our
employees. In October 2021, we held an in-person meeting with our sales staff for the first time since the beginning of the COVID-19 pandemic. This
meeting, as with the meetings prior to the pandemic, serve to bring together and energize our staff. We plan to hold further such meetings as the course
of the COVID-19 pandemic allows.
Health, Wellness and Safety
We are committed to the health and safety of our employees.
In March 2020, in light of worsening conditions as a result of the COVID-19 pandemic, we implemented a number of safety related initiatives among
our employees, including a travel ban and a work from home policy for all employees. This included our customer-facing employees, who began
working remotely and utilizing telephone and web-based technologies to provide support to patients and their healthcare providers. At present, our
operations have returned to mostly being in-person, with some contact with doctors by our commercial sales force still being done remotely.
Notwithstanding, the COVID-19 pandemic, including the emergence of new COVID-19 variants, including the delta and omicron variants, could affect
the health and availability of our workforce, and we may return to a work from home policy if it is in the best interests of the health and welfare of our
employees.
Available Information
We make available free of charge on or through our Internet website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished
to the Securities and Exchange Commission (SEC). Our Internet address is www.catalystpharma.com. The content on our website is not, nor should it be
deemed to be, incorporated by reference into this report.
Item 1A.
Risk Factors
Risk Factors Summary
We are providing the following summary of the risk factors contained in our Form 10-K to enhance the readability and accessibility of our risk factor
disclosures. We encourage our stockholders to carefully review the full risk factors contained in this Form 10-K in their entirety for additional
information regarding the risks and uncertainties that could cause our actual results to vary materially from our recent results or from our anticipated
future results.
Risks related to the commercialization of FIRDAPSE®
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We depend substantially on the commercial success of FIRDAPSE®.
Our success depends on our ability to continue to successfully commercialize FIRDAPSE®. We are primarily a single product company
with only limited commercial experience, which makes it difficult to evaluate our current business, predict our future prospects and
forecast our financial performance and growth.
If we are unable to continue to successfully commercialize FIRDAPSE®, our business, results of operations and financial condition may be
materially adversely affected.
Our business is subject to substantial competition.
Our strategy of seeking to acquire or in-license innovative technical platforms or earlier stage drug development programs in the rare
disease space may not be successful.
Our business may require additional capital.
The obligations incident to being a public company place significant demands on our management.
We are highly dependent on our small number of key personnel and advisors.
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The ongoing COVID-19 pandemic and the worldwide attempts to contain it could harm our business and results of operations and financial
condition and we could be adversely impacted by it.
Because the target patient population for FIRDAPSE® is small, we must achieve significant market share and obtain relatively high
per-patient prices for our products to achieve meaningful gross margins.
We face a risk of product liability claims and may not be able to obtain adequate insurance.
Business or economic disruptions or global health concerns could seriously harm our development efforts and increase our costs and
expenses.
Risks Related to the Development of Additional Drug Products
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Our efforts may fail.
Failure can occur at any stage of our drug development efforts.
We rely on third parties to conduct our pre-clinical studies and clinical studies and trials, and if they do not perform their obligations to us
we may not be able to obtain approval for additional indications.
We will need to continue to develop and maintain distribution and production capabilities or relationships to be successful.
We could be impacted by the viability of our suppliers.
We may encounter difficulties in managing our growth, which would adversely affect our results of operations.
Pressure on drug product third-party payor coverage, reimbursement and pricing may impair our ability to be reimbursed at prices or on
terms sufficient to provide a viable financial outcome.
Our internal computer systems, or those of our contract research organizations and other key vendors or consultants, may fail or suffer
security breaches, which could result in a material disruption of our product development programs.
Our employees, sales agents and consultants may engage in misconduct or other improper activities, including noncompliance with
regulatory standards and requirements.
Risks Related to Government Regulation
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The regulatory approval process is lengthy, and we may not be able to obtain all of the regulatory approvals required to manufacture and
commercialize FIRDAPSE® in all areas in which we are licensed to supply it.
If our pre-clinical studies or our clinical studies and trials are unsuccessful or significantly delayed, our ability to commercialize our
products will be impaired.
We may face significant delays in our clinical studies and trials due to an inability to recruit patients for our clinical studies and trials or to
retain patients in the clinical studies and trials we may perform.
If our third-party suppliers or contract manufacturers do not maintain appropriate standards of manufacturing in accordance with cGMP
and other manufacturing regulations, our development and commercialization activities could suffer significant interruptions or delays.
FIRDAPSE® is subject to ongoing regulatory review. If we fail to comply with continuing United States and applicable foreign regulations,
we could lose those approvals, and our business would be severely harmed.
Enacted and future legislation or judicial action may increase the difficulty and cost for us to commercialize FIRDAPSE® or any other
drug candidates we may acquire or license and affect the prices we may obtain.
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If we fail to obtain or subsequently maintain orphan drug exclusivity or regulatory exclusivity for FIRDAPSE® and any other orphan drug
candidates we may acquire or license, our competitors may sell products to treat the same conditions at greatly reduced prices, and our
revenues would be significantly adversely affected.
Changes to the Orphan Drug Act or successful legal challenges to the FDA’s interpretation of the Orphan Drug Act may affect our ability
to obtain or subsequently maintain orphan drug exclusivity or may affect the scope orphan drug exclusivity for our products.
Our operations and relationships with healthcare providers, healthcare organizations, customers and third-party payors are subject to
applicable anti-bribery, anti-kickback, fraud and abuse, transparency and other healthcare laws and regulations, which could expose us to,
among other things, enforcement actions, criminal sanctions, civil penalties, contractual damages, reputational harm, administrative
burdens and diminished profits and future earnings.
Risks Related to our Intellectual Property
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We are dependent on our relationships and license agreements, and we rely upon the patent rights granted to us pursuant to the license
agreements.
Our success will depend significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.
There are also general risk factors relating to us that you should consider that relate to our business and to our common stock.
Risk Factors
Our business involves a high degree of risk. You should carefully consider the risks and uncertainties described below, and all of the other information
contained in this Form 10-K in assessing the risks relating to ownership of our common stock. The risks described below could cause our business,
results of operations, financial condition and prospects to materially suffer and the market price of our stock to decline.
Risks related to Our Business
We depend substantially on the commercial success of FIRDAPSE®.
Until we launched FIRDAPSE® for the treatment of LEMS in January 2019, we focused all of our efforts over the prior six years on obtaining
regulatory approval for FIRDAPSE® for the treatment of LEMS, on evaluating FIRDAPSE® for the treatment of other neuromuscular diseases including
CMS, MuSK-MG and SMA Type 3, on raising capital, and on recruiting personnel. On November 28, 2018, the FDA approved our first product,
FIRDAPSE® for the treatment of adults with LEMS, which became commercially available in January 2019. While we reported net income in each year
since 2019, we have a prior history of operating losses in all prior fiscal years of our existence. In addition, we have recently concluded that we will no
longer go forward with the evaluation of FIRDAPSE® for the treatment of indications other than LEMS. As a result of this and other factors, there can
be no assurance that we will remain cash flow positive and profitable.
Our success depends on our ability to continue to successfully commercialize FIRDAPSE®. We are primarily a single product company with only
limited commercial experience, which makes it difficult to evaluate our current business, predict our future prospects, and forecast our financial
performance and growth.
We have invested a significant portion of our efforts and financial resources to date into the development and commercialization of our lead product,
FIRDAPSE®. Our success depends on our ability to effectively continue to commercialize FIRDAPSE®, and we expect that the vast majority of our
product revenues in the foreseeable future will be from sales of FIRDAPSE®. Continued commercialization of FIRDAPSE® is subject to many risks.
Until we launched FIRDAPSE®, we had never launched or commercialized a product, and there is no guarantee that we will be able to continue to be
profitable and cash flow positive based on our sales of FIRDAPSE®. There are numerous examples of unsuccessful product launches and failures to
meet high expectations of market growth potential, including by pharmaceutical companies with more resources and experience than we have. The long
term commercial success of FIRDAPSE® depends on the extent to which patients and physicians accept and adopt FIRDAPSE®. For example, if the
expected patient population is smaller than we estimate or if physicians are unwilling to prescribe or patients are unwilling to take FIRDAPSE®, or if
patients discontinue from use of the medication at rates that are higher than we expect, or if payers decide not to reimburse for our product, the
commercial potential of FIRDAPSE® will be limited. Thus, despite our success to date, significant uncertainty remains regarding the ultimate
commercial potential of FIRDAPSE®.
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Moreover, our ability to effectively continue to generate significant product revenue from FIRDAPSE® will depend on our ability to, among other
things:
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educate patients and physicians successfully about efficacy expectations, side effects expectations, and how to successfully dose and titrate
the medication to optimal patient benefit in order to minimize discontinuation due to perceived lack of efficacy or side effects;
educate LEMS patients who also suffer from small cell lung cancer, and the physicians who treat them, as to the benefits to such patients of
treatment for their LEMS using FIRDAPSE® (in addition to the treatments they are receiving for their cancer);
achieve and maintain compliance with regulatory requirements, including those related to our required post-approval studies, promotion
and advertising requirements;
increase awareness for and achieve market acceptance of FIRDAPSE® through our sales and marketing activities and other arrangements
established for the promotion of FIRDAPSE®;
train, deploy, support, and retain a qualified field sales and marketing force;
secure continued formulary approvals for FIRDAPSE® with a substantial number of targeted payors;
ensure that our third-party manufacturers manufacture FIRDAPSE® in sufficient quantities, in compliance with requirements of the FDA
and at acceptable quality and pricing levels, in order to meet commercial demand;
ensure that our third-party manufacturers develop, validate and maintain commercially viable manufacturing processes that are compliant
with current Good Manufacturing Practice (cGMP) regulations;
implement and maintain agreements with wholesalers, distributors and group purchasing organizations on commercially reasonable terms;
ensure that our entire supply chain efficiently and consistently delivers FIRDAPSE® to our customers;
provide co-pay assistance to help qualified patients with out-of-pocket costs associated with their FIRDAPSE® prescription, and/or other
programs to ensure patient access to our products, educate physicians and patients about the benefits, administration and use of
FIRDAPSE®, and obtain acceptance of FIRDAPSE® as safe and effective by patients and the medical community;
receive adequate levels of coverage and reimbursement for FIRDAPSE® from commercial health plans and governmental health programs;
generate positive experience with our Catalyst Pathways® program in helping patients obtain access to FIRDAPSE® at an acceptable
patient out-of-pocket cost;
maintain quality relationships with patient advocacy groups;
influence the nature of publicity related to our product relative to the publicity related to our competitors’ products; and
obtain regulatory approvals for additional indications for the use of FIRDAPSE® in treating other rare neuromuscular diseases.
Any disruption in our ability to generate product revenue from the sale of FIRDAPSE® will have a material and adverse impact on our results of
operations.
If we are unable to continue to successfully commercialize FIRDAPSE®, our business, results of operations and financial condition may be
materially adversely affected.
Our strategy is to continue to successfully commercialize FIRDAPSE® in the United States. There are risks involved both with maintaining our own
sales and marketing capabilities, and with entering into arrangements with third parties to perform these services. For example, any efforts to maintain a
direct sales and marketing organization are subject to numerous risks, including:
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the expense and time required to recruit, retain, and motivate members of the sales force;
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our inability to recruit, retain or motivate adequate numbers of effective marketing personnel and partner marketing agencies;
the inability to provide adequate training to sales and marketing personnel;
the expense and time required to monitor regulatory compliance;
the inability of sales personnel to obtain access to physicians or convince adequate numbers of physicians to prescribe any product; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
Similarly, as we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the profitability
associated with any product revenue may be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not
be successful in entering into arrangements with third parties to sell and market our products or may be unable to do so on terms that are favorable to us.
We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our
products effectively. Moreover, we may be negatively impacted by other factors outside of our control relating to such third parties, including, but not
limited to, their inability to comply with regulatory requirements. If we do not establish sales, marketing and distribution capabilities successfully, either
on our own or in collaboration with third parties, we will not be successful in commercializing our products.
Finally, because we are using a very small group of exclusive specialty pharmacies to distribute our product, if the organizations that we work with to
deliver our drug do not perform in a lawful manner or have issues unrelated to our business, our business could be adversely affected.
Our business is subject to substantial competition.
The biotechnology and pharmaceutical industries are highly competitive. Many of our competitors have substantially greater financial and other
resources, larger research and development staffs and more experience developing products, obtaining FDA and other regulatory approvals of products
and manufacturing and marketing products than we have. We compete against pharmaceutical companies that are developing or currently marketing
therapies that will compete with us. In addition, we compete against biotechnology companies, universities, government agencies, and other research
institutions in the development of drug products. Our business could be negatively impacted if our competitors’ present or future offerings are more
effective, safer or less expensive than ours, or more readily accepted by regulators, healthcare providers or third-party payors. Further, we may also
compete with respect to manufacturing efficiency and marketing capabilities.
Even with the FDA approval of FIRDAPSE®, the bulk active pharmaceutical ingredient in the drug (i.e., amifampridine) may be used by compounding
pharmacies pursuant to Section 503A of the Federal Food, Drug, and Cosmetic Act because the ingredient is a component of an FDA-approved drug
product, and pharmacies may lawfully compound for individually identified patients under Section 503A using components of approved drug products.
In addition, drugs that are not approved by FDA for the treatment of LEMS may nonetheless be prescribed by physicians for the treatment of LEMS.
For all of these reasons, we may not be able to continue to compete successfully.
Our strategy of seeking to acquire or in-license innovative technical platforms or earlier stage drug development programs outside of the
neuromuscular disease space may not be successful.
We have 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 including those outside of neuromuscular diseases. To accomplish these new
priorities, we are employing a disciplined approach to evaluating assets and we believe that this strategic expansion will better position our company to
build out a broader more diversified portfolio of drug candidates, which should add greater value to our company over the near and long-term. However,
there can be no assurance that whatever product candidates or technology platforms we acquire, if any, will be successfully developed or
commercialized.
The process of proposing, negotiating and implementing a license or acquisition of a product candidate is lengthy and complex, and we may be unable
to in-license or acquire the rights to any such products, product candidates or technologies from third parties for several reasons. Further, even if we
identify acquisition or in-licensing targets, we may not be able to close those deals or we may determine after diligence not to pursue identified targets.
The success of this strategy depends partly upon our ability to identify, select and acquire or in-license promising product candidates and technologies.
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The in-licensing and acquisition of drug products is an area characterized by intense competition, and a number of companies (both more established
and early-stage biotechnology companies) are also pursuing strategies to in-license or acquire product candidates or technologies that we may consider
attractive. We believe that other companies may be particularly active in pursuing opportunities to in-license or acquire the same or similar products
which we may seek to acquire. More established companies may have a competitive advantage over us due to their size, cash resources and greater
research, preclinical or clinical development or commercialization capabilities, while earlier stage companies may be more aggressive or have a higher
risk tolerance. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to
in-license or acquire the rights to the relevant product candidate or technology on terms that would allow us to make an appropriate return on our
investment. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize
the anticipated benefits of such efforts or we may incorrectly judge the value of an acquired or in-licensed product candidate or technology.
If we are unable to successfully obtain rights to suitable product candidates or technologies, our business, financial condition and prospects for growth
could suffer. In addition, acquisitions and in-licensing arrangements for product candidates and technologies are inherently risky, and ultimately, if we
do not complete an announced acquisition or license transaction or integrate an acquired or licensed product candidate or technology successfully and in
a timely manner, we may not realize the benefits of the acquisition or license to the extent anticipated and the perception of the effectiveness of our
management team and our company may suffer in the marketplace. In addition, even if we are able to successfully identify, negotiate and execute one or
more transactions to acquire or in-license new product candidates or technologies, our expenses and short-term costs may increase materially and
adversely affect our liquidity.
In addition, acquisitions and in-licenses may entail numerous operational, financial and legal risks, including:
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exposure to known and unknown liabilities, including possible intellectual property infringement claims, violations of laws, tax liabilities
and commercial disputes;
incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions;
higher than expected acquisition and integration costs;
difficulty in combining the operations and personnel of any acquired businesses with our operations and personnel;
inability to maintain uniform standards, controls, procedures and policies;
restructuring charges related to eliminating redundancies or disposing of assets as part of any such combination;
large write-offs and difficulties in assessing the relative percentages of in-process research and development expense that can be
immediately written off as compared to the amount that must be amortized over the appropriate life of the asset;
increased amortization expenses or, in the event that we write down the value of acquired assets, impairment losses;
potential failure of the due diligence process to identify significant problems, liabilities or other shortcomings or challenges of an acquired
or licensed product candidate or technology, including problems, liabilities or other shortcomings or challenges with respect to intellectual
property, product quality, revenue recognition or other accounting practices, partner disputes or issues and other legal and financial
contingencies and known and unknown liabilities; and
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entry into therapeutic modalities, indications or markets in which we have no or limited direct prior development or commercial experience
and where competitors in such markets have stronger market positions.
Our business may require additional capital.
We may need to raise additional capital in the future in order to fund our business (particularly to fund potential company or product acquisitions that are
intended to expand our product offerings). If necessary, we would likely raise additional funds in the future through public or private equity offerings,
debt financings, corporate collaborations, or other means. We may also seek governmental grants to support our clinical and pre-clinical trials. However,
there is no assurance that any such funding will be available, and, even if it is available, whether it will be available on terms that are favorable to us. We
may also seek to raise additional capital to fund additional product development efforts, even if we have sufficient funds for our planned operations.
Any sale by us of additional equity or debt securities convertible into additional equity could result in dilution to our stockholders. Further, to the extent
that we raise 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 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.
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The obligations incident to being a public company place significant demands on our management.
As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC,
including periodic reports, disclosures and more complex accounting rules. As directed by Section 404 of the Sarbanes-Oxley Act, the SEC adopted
rules requiring public companies to include a report of management on a company’s internal control over financial reporting in their Annual Report on
Form 10-K. Based on current rules, we are required to annually report under Section 404(a) of the Sarbanes-Oxley Act regarding our management’s
assessment as to the effectiveness of our internal control over financial reporting. Further, under Section 404(b) of the Sarbanes-Oxley Act, our auditors
are required to report on their assessment as to the effectiveness of our internal control over financial reporting. If we or our auditors are unable to
conclude that we have effective internal control over our financial reporting, investors could lose confidence in the reliability of our consolidated
financial statements, which could result in a decrease in the value of our common stock.
We are highly dependent on our small number of key personnel and advisors.
We are highly dependent on our executive officers and key employees, and on our Board of Directors. The loss of the services of one or more of these
individuals could significantly impede the achievement of our scientific and business objectives. Other than an employment agreement with Patrick J.
McEnany, our Chairman, President and Chief Executive Officer with respect to his services, we have no employment or retention agreements with any
of our other officers or key employees. If we lose the services of any of our existing executive officers or key employees, or if we were unable to recruit
qualified replacements on a timely basis for persons who leave our employ, our efforts to develop our drug candidates might be significantly delayed.
We do not carry key-man insurance on any of our personnel.
The ongoing COVID-19 pandemic and the worldwide attempts to contain it could harm our business and results of operations and financial
condition and we could be adversely impacted by it.
The COVID-19 pandemic has had an impact on our business operations, and we continue to monitor applicable government modifications. We had to
make modifications to our normal operations at various points in time during the pandemic, including requiring our employees to work remotely. At
present, our operations have returned mostly to being in-person, with some contact with doctors by our commercial sales force still being done remotely.
Notwithstanding, the COVID-19 pandemic, including the emergence of new COVID-19 variants, including the delta and omicron variants, has in the
past and may in the future affect the health and availability of our workforce as well as those of third parties whom we are relying upon to take similar
measures. As a result, we have previously and may in the future experience disruptions to our business operations due to the COVID-19 pandemic, and
our business could be materially adversely affected by such disruptions, directly or indirectly. National, state and local governments in affected regions
have implemented and may continue to implement varying safety precautions, such as quarantines, border closures, increased border controls, travel
restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. Organizations and
individuals may continue to take additional steps to avoid infection, including limiting travel and staying home from work. These measures may
continue to disrupt normal business operations both inside and outside of affected areas and have had significant impacts on healthcare and businesses
worldwide.
During 2020 and 2021, we believe that the COVID-19 pandemic impacted new patient starts in the United States, as some physicians were reluctant to
diagnose LEMS via telemedicine. To the extent that the COVID-19 pandemic continues, we may continue to see an impact on the number of naïve
patients who begin to take FIRDAPSE®. There can be no assurance as to how these matters will affect our business or results of operations.
We cannot assess the impact on our business of the public concerns expressed by a U.S. Senator and a vocal group of neuromuscular physicians and
patients with LEMS about the pricing of our product.
We are also aware that the vocal group of neuromuscular physicians and a number of LEMS patients who have raised these issues in the past are
continuing to raise concerns with the pricing of our product and with the appropriateness of the provisions in the Orphan Drug Act that grant us
exclusivity for FIRDAPSE®. A few of these patients continue to say negative things about us to the media, to other patients, to the FDA, and to
politicians. We cannot assess the impact of these activities on our business.
Because the target patient population for FIRDAPSE® is small, we must achieve significant market share and obtain relatively high per-patient
prices for our products to achieve meaningful gross margins.
FIRDAPSE® targets a disease with a small patient population. A key component of the successful commercialization of a drug product for these
indications includes identification of patients and a targeted prescriber base for the drug product. Due to small patient populations, we believe that we
would need to have significant market penetration to achieve meaningful revenues and identifying patients and targeting the prescriber base are key to
achieving significant market penetration. Typically, drugs for conditions with small prevalence have higher prices in order to generate a return on
investment, and as a result, the per-patient prices at which we sell
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FIRDAPSE® are relatively high in order for us to generate an appropriate return for the investment in these product development programs and achieve
meaningful gross margins, and high per patient prices could drive physicians to seek out compounding pharmacies to provide compounded
amifampridine to fill their prescriptions rather than FIRDAPSE®, thereby lowering the FIRDAPSE® market share or penetration in the market. There
can be no assurance that we will be successful in achieving a sufficient degree of market penetration and/or obtaining or maintaining high per-patient
prices for FIRDAPSE® for diseases with small patient populations. Further, even if we obtain significant market share for FIRDAPSE®, because the
potential target populations are very small, we may not be able to maintain profitability despite obtaining such significant market share. Additionally,
patients who discontinue therapy or do not fill prescriptions are not easily replaced by new patients, given the limited patient population.
We face a risk of product liability claims and may not be able to obtain adequate insurance.
Our business exposes us to potential liability risks that may arise from the clinical testing, manufacture, and/or sale of our drug products. Patients have
received substantial damage awards in some jurisdictions against pharmaceutical companies based on claims for injuries allegedly caused by the use of
drug products used in clinical trials or after FDA approval.
Liability claims may be expensive to defend and may result in large judgments against us. We currently carry liability insurance that we believe to be
adequate. Our insurance may not reimburse us for certain claims or the coverage may not be sufficient to cover claims made against us. We cannot
predict all of the possible harms or side effects that may result from the use of our current drug candidates, or any potential future products we may
acquire and use in clinical trials or after FDA approval and, therefore, the amount of insurance coverage we currently hold may not be adequate to cover
all liabilities we might incur. If we are sued for any injury allegedly caused by our products, our liability could exceed our ability to pay the liability.
Whether or not we are ultimately successful in any adverse litigation, such litigation could consume substantial amounts of our financial and managerial
resources, all of which could have a material adverse effect on our business, financial condition, results of operations, prospects and stock price.
Business or economic disruptions or global health concerns could seriously harm our development efforts and increase our costs and expenses.
Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development activities. Global health
concerns, such as the COVID-19 pandemic, could also result in social, economic, and labor instability in the countries in which we or the third parties
with whom we engage operate. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any
of the third parties with whom we engage, including the suppliers, clinical trial sites, regulators and other third parties with whom we conduct business,
were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned
could be materially and negatively impacted. It is also possible that global health concerns such as the COVID-19 pandemic could disproportionately
impact the hospitals and clinical sites in which we conduct any of our clinical trials, which could have a material adverse effect on our business and our
results of operation and financial condition.
Risks Related to the Development of Drug Products
Our efforts to develop additional drug products may fail.
Our efforts to develop additional products that we may acquire or in-license (or to develop additional indications for FIRDAPSE®) are subject to risks of
failure. For example:
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Our drug candidates may be found to be ineffective or unsafe for one or more additional indications, or fail to receive necessary regulatory
approvals;
Our drug candidates may not be economical to market or take substantially longer to obtain necessary approvals for additional indications
than anticipated; or
Competitors may develop and market equivalent or superior products, including next generation products that act with the same
mechanism of action as our drug candidates.
As a result, our drug development activities may not result in any safe, effective and commercially viable additional indications, and we may not be able
to commercialize our products successfully. For example, for several years, we evaluated FIRDAPSE® for the treatment of CMS, MuSK-MG and SMA
Type 3. However, FIRDAPSE® failed to meet the primary endpoints in a Phase 3 trial for CMS, and we are no longer pursing this indication. Further,
and even though we achieved statistical significance in the primary endpoint in our proof-of-concept trial for SMA Type 3, the lack of robust results in
this trial has caused us to decide to no longer pursue this indication. Finally, our Phase 3 clinical trial (MSK-002) evaluating FIRDAPSE® for the
treatment of adults with MuSK-MG did not achieve statistical significance on its primary endpoint or its secondary endpoint, even though clinical
improvement was observed by patients and investigators during the initial dose-titration period of the trial and in the company’s previous
proof-of-concept trial, and we are no longer pursuing this indication.
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Further, the efforts of our collaboration partner in Japan, DyDo Pharma, to commercialize FIRDAPSE® in Japan requires successful completion of a
small Phase 3 trial in Japan evaluating FIRDAPSE® for the treatment of LEMS that is currently ongoing. While we expect that trial to be successful
based on our prior trials evaluating our product for the treatment of LEMS, there can be no assurance that DyDo Pharma’s trial will be successful.
Our failure to develop safe, effective, and/or commercially viable products would have a material adverse effect on our business, prospects, results of
operations and financial condition.
Failure can occur at any stage of our drug development efforts.
We will only obtain regulatory approval to commercialize our future drug candidates if we can demonstrate to the satisfaction of the FDA (or the
equivalent foreign regulatory authorities) in adequate and well-controlled clinical studies and trials that the drug is safe and effective for its intended use,
that the clinical and other benefits outweigh the safety risks and that it otherwise meets approval requirements. As we have experienced in the past, a
failure of one or more pre-clinical or clinical trials or studies can occur at any stage of drug development. We may experience numerous unforeseen
events during, or as a result of, testing that could delay or prevent us from obtaining regulatory approval for, or commercializing our drug candidates,
including but not limited to:
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regulators or Institutional Review Boards (IRBs) may not authorize us to commence a clinical trial or conduct a clinical trial at a
prospective trial site;
conditions may be imposed upon us by the FDA regarding the scope or design of our clinical trials, or we may be required to resubmit our
clinical trial protocols to IRBs for review due to changes in the regulatory environment;
the number of subjects required for our clinical trials may be larger, patient enrollment may take longer, or patients may drop out of our
clinical trials at a higher rate than we anticipate;
we may have to suspend or terminate one or more of our clinical trials if we, regulators, or IRBs determine that the participants are being
subjected to unreasonable health risks;
our third-party contractors, clinical investigators or contractual collaborators may fail to comply with regulatory requirements or fail to
meet their contractual obligations to us in a timely manner;
the FDA may not accept clinical data from trials that are conducted at clinical sites in countries where the standard of care is potentially
different from the United States;
our tests may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional testing; and
the costs of our pre-clinical and/or clinical trials may be greater than we anticipate.
We rely on third parties to conduct our pre-clinical studies and clinical studies and trials, and if they do not perform their obligations to us we may
not be able to obtain approval for additional indications.
We do not currently have the ability to independently conduct pre-clinical studies or clinical studies and trials, and we typically rely on third parties,
such as third-party contract research and governmental organizations, medical institutions and clinical investigators (including academic clinical
investigators), to conduct studies and trials for us. Our reliance on third parties for development activities reduces our control over these activities. These
third parties may not complete activities on schedule or may not conduct our pre-clinical studies and our clinical studies and trials in accordance with
regulatory requirements or our study design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we
may be adversely affected, and our efforts to obtain regulatory approvals for and commercialize our product candidates may be delayed.
If we conduct studies with other parties, we may not have control over all decisions associated with that trial. To the extent that we disagree with the
other party on such issues as study design, study timing and the like, it could adversely affect our drug development plans.
Although we also rely on third parties to manage the data from our studies and trials, we are responsible for confirming that each of our studies and trials
is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies will require us to
comply with applicable regulations and standards, including Good Laboratory Practice (GLP) and Good
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Clinical Practice (GCP), for conducting, recording and reporting the results of such studies and trials to assure that the data and the results are credible
and accurate and that the human study and trial participants are adequately protected. Our reliance on third-parties does not relieve us of these
obligations and requirements, and we may fail to obtain regulatory approval for any additional indications if these requirements are not met.
We will need to continue to develop and maintain distribution and production capabilities or relationships to be successful.
We are licensed in Florida as a virtual drug manufacturer, which means we have no in-house manufacturing capacity and we will be obligated to rely on
contract manufacturers and packagers. We cannot be sure that we will successfully manufacture any product, either independently or under
manufacturing arrangements, if any, with third party manufacturers. Moreover, if any manufacturer should cease doing business with us or experience
delays, shortages of supply or excessive demands on their capacity, we may not be able to obtain adequate quantities of product in a timely manner, or at
all. Manufacturers, and in certain situations their suppliers, are required to comply with current NDA commitments and current good manufacturing
practices (cGMP) requirements enforced by the FDA, and similar requirements of other countries. The failure by a manufacturer to comply with these
requirements could affect its ability to provide us with product. Although we intend to rely on third-party contract manufacturers, we are ultimately
responsible for ensuring that our products are manufactured in accordance with cGMP. In addition, if, during a preapproval inspection or other
inspection of our third-party manufacturers’ facility or facilities, the FDA determines that the facility is not in compliance with cGMP, any of our
marketing applications that lists such facility as a manufacturer may not be approved or approval may be delayed until the facility comes into
compliance with cGMP and completes a successful re-inspection by the FDA.
Any manufacturing problem, natural disaster, or epidemic, affecting manufacturing facilities, or the loss of a contract manufacturer could be disruptive
to our operations and result in lost sales. Additionally, we will be reliant on third parties to supply the raw materials needed to manufacture our products.
Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs,
delivery schedules, reliability and quality. Any unanticipated disruption to future contract manufacture caused by problems at suppliers could delay
shipment of products, increase our cost of goods sold and result in lost sales. If our suppliers were to be unable to supply us with adequate supply of our
drugs, it could have a material adverse effect on our ability to successfully commercialize our drug candidates.
We could be impacted by the viability of our suppliers.
We source our products from more than one supplier, and we have entered into contracts with our suppliers that contractually obligate them to meet our
requirements. However, if our suppliers cannot or will not meet our requirements (for whatever reason), our business could be adversely impacted.
We may encounter difficulties in managing our growth, which would adversely affect our results of operations.
To manage future growth, we will likely need to hire, train, and manage additional employees. Concurrent with expanding our operational and
marketing capabilities, we will also need to increase our product development activities. We may not be able to support, financially or otherwise, future
growth, or hire, train, motivate, and manage the required personnel. Our failure to manage growth effectively could limit our ability to achieve our goals.
Our success in managing our growth will depend in part on the ability of our executive officers to continue to implement and improve our operational,
management, information and financial control systems, and to expand, train and manage our employee base, and particularly to expand, train and
manage a specially-trained sales force to market our products. We may not be able to attract and retain personnel on acceptable terms given the intense
competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions. Our
inability to manage growth effectively could cause our operating costs to grow at a faster pace than we currently anticipate and could have a material
adverse effect on our business, financial condition, results of operations and prospects.
Pressure on drug product third-party payor coverage, reimbursement and pricing may impair our ability to be reimbursed at prices or on terms
sufficient to provide a viable financial outcome.
The commercial success of our drug products, including FIRDAPSE® and any other products we are able to market in the future, will depend
substantially on the extent to which the cost of those products will be paid by health maintenance, managed care, pharmacy benefit and similar
healthcare management organizations, or reimbursed by government health administration authorities (such as Medicare and Medicaid), private health
coverage insurers and other third-party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to continue to
successfully commercialize our products. Even if coverage is provided, the approved reimbursement amount may not be high enough to establish and
maintain pricing sufficient to realize a meaningful return on our investment.
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The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Government authorities and third-party payors
have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell
our product candidates profitably. These payors may not view our products as cost-effective, and coverage and reimbursement may not be available to
our customers, or may not be sufficient to allow our products, if any, to be marketed on a competitive basis. Cost-control initiatives could cause us to
decrease the price we might establish for products, which could result in lower than anticipated product revenues. If the prices for our products decrease
or if governmental and other third-party payors do not provide adequate coverage or reimbursement, our prospects for revenue and profitability will
suffer.
There may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications
for which the drug is approved by the FDA. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate
that covers our costs, including research, development, manufacture, sale and distribution. Reimbursement rates may vary, by way of example,
according to the use of the drug and the clinical setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set
for lower cost drugs or may be incorporated into existing payments for other services.
In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are
challenging the prices charged. We cannot be sure that coverage will be available for any product candidate that we commercialize and, if available, that
the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes
to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. An inability to promptly
obtain coverage and adequate payment rates from both government-funded and private payors for any of our product candidates for which we obtain
marketing approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our
overall financial condition.
The pricing of drug products, in general, and of specialty drugs, in particular, has been a topic of concern in the United States Congress, where hearings
have been held on the topic, and several bills have been introduced proposing a variety of actions to restrain the prices of drugs. Former President Trump
frequently discussed his intention to reduce drug prices, as has President Biden. The Trump Administration solicited public comment on a variety of
regulatory proposals to reduce drug prices, and the Centers for Medicare and Medicaid Services (Center) published an interim final rule that establishes
a Most Favored Nation (MFN) Model for Medicare Part B drug payment. This regulation would substantially change the drug reimbursement landscape
as it bases Medicare Part B payment for 50 selected drugs on prices in foreign countries instead of average sales price, or ASP. The MFN drug payment
amount was expected to be lower than the current ASP-based payment limit because United States drug prices are generally the highest in the world.
While the MFN Model payment methodology was scheduled to begin on January 1, 2021, by the end of December 2020, three federal courts had
granted orders preventing implementation of the MFN Model rule. On August 6, 2021, the Center published a proposed rule rescinding the November
2020 MFN Model interim final rule, and on December 27, 2021, CMS published a final rule withdrawing the MFN Model effective February 28, 2022.
In its release, the Center stated that it will consider stakeholder feedback as it explores options to incorporate value into payments for Medicare Part B
drugs, improving access to evidence-based care, and reducing drug spending for consumers throughout the health care system. Further, since President
Biden took office, there have been continuing efforts in Congress and through the administration to reduce drug prices.
For example, on November 20, 2020, the United States Department of Health and Human Services (HHS) finalized a regulation removing safe harbor
protection under the Federal Anti-Kickback Statute for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either
directly or through pharmacy benefit managers, unless the price reduction is required by law or unless it is passed through to the dispensing pharmacy
and reflected in the price to the patient. The implementation of the rule has been delayed by the Biden administration to January 1, 2023 in response to
ongoing litigation. In addition, effective January 1, 2024, a provision capping the rebate amount under the Medicaid Drug Rebate program at 100% of
AMP will be eliminated, which means that a manufacturer could pay a rebate amount on a unit of the drug that is greater than the price the manufacturer
receives for the drug. Further, effective January 1, 2023, a final rule issued by CMS will change the way copay assistance program prices are treated in
best price for purposes of the Medicaid Drug Rebate Program. This change could result in manufacturers eliminating their patient assistance programs,
which would make many innovator drugs more expensive for patients. This final rule is subject to ongoing litigation, but it is not clear when a decision
will be made or how the court will rule.
On September 9, 2021, the Biden administration published a wide-ranging list of policy proposals, most of which would need to be carried out by
Congress, to reduce drug prices and drug payment. The HHS plan includes, among other reform measures, proposals to lower prescription drug prices,
including by allowing Medicare to negotiate prices and disincentivizing price increases, and to support market changes that strengthen supply chains,
promote biosimilars and generic drugs, and increase price transparency. Many similar proposals, including the plans to give Medicare Part D authority to
negotiate drug prices, require drug manufacturers to pay rebates on drugs whose prices increase greater than the rate of inflation, and cap out-of-pocket
costs, have already been included in policy statements and legislation currently being considered by Congress. It is unclear to what extent these and
other statutory, regulatory, and administrative initiatives will be enacted and implemented, and to what extent these or any future legislation or
regulations by the Biden administration will have an effect on our business, including market acceptance, and sales, of our products and product
candidates.
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We cannot predict how any such laws or regulations, or new laws or regulations that have yet to be proposed, will affect the pricing of our product, of
orphan drugs generally, or of drug products generally.
Our internal computer systems, or those of our contract research organizations and other key vendors or consultants, may fail or suffer security
breaches, which could result in a material disruption of our product development programs.
Our internal computer systems and those of our contract research organizations and other key vendors and consultants are vulnerable to damage from
computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and
cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data from completed
or ongoing clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To
the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or
proprietary information, we could incur liability and the further development of our drug candidates could be delayed.
Our employees, sales agents and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory
standards and requirements.
We are exposed to the risk of fraud or other misconduct by our employees, sales agents or consultants. Misconduct could include failures to comply with
FDA regulations, provide accurate information to the FDA, comply with manufacturing standards, comply with federal and state healthcare fraud and
abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and
business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing, and
other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales
commission, customer incentive programs, and other business arrangements. Misconduct could also involve the improper use of information obtained in
the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter
such misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or
losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or
regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could
have a significant impact on our business, including the imposition of significant fines or other sanctions.
Risks Related to Government Regulation
The regulatory approval process is lengthy, and we may not be able to obtain all of the regulatory approvals required in the future to manufacture
and commercialize FIRDAPSE® or other products we may develop in the future in all areas in which we are licensed to supply it.
We will not be able to commercialize our products in other countries or for additional indications until we have obtained the requisite regulatory
approvals from applicable governmental authorities. To obtain regulatory approval of a drug candidate for an indication, we must demonstrate to the
satisfaction of the applicable regulatory agency that such drug candidate is safe and effective for that indication. The type and magnitude of the testing
required for regulatory approval varies depending on the drug candidate and the disease or condition for which it is being developed. In addition, in the
United States we must show that the facilities used to manufacture our drug candidates are in compliance with cGMP requirements. We will also have to
meet similar regulations in any foreign country where we may seek to commercialize our drug candidates. In general, these requirements mandate that
manufacturers follow elaborate design, testing, control, documentation, and other quality assurance procedures throughout the entire manufacturing
process. The process of obtaining regulatory approvals typically takes several years and requires the expenditure of substantial capital and other
resources. Despite the time, expense and resources invested by us in the approval process, we may not be able to demonstrate that our drug candidate is
safe and effective for such indications, in which event we would not receive the regulatory approval required to market it.
If our pre-clinical studies or our clinical studies and trials are unsuccessful or significantly delayed, our ability to commercialize our products will
be impaired.
Before we can obtain future regulatory approval for the sale of our drug candidates for an indication, we may have to conduct, at our own expense,
pre-clinical tests in animals in order to support the safety of our drug candidates. Pre-clinical testing is expensive, difficult to design and implement, can
take several years to complete, and is uncertain as to outcome. Our pre-clinical tests may produce negative or inconclusive results, and on the basis of
such results, we may decide, or regulators may require us, to halt ongoing clinical trials or conduct additional pre-clinical testing.
Additionally, future clinical trials for FIRDAPSE® or any other drug candidate we may acquire may not be successfully completed or may take longer
than anticipated because of any number of factors, including potential delays in the start of the trial, an inability to recruit clinical trial participants at the
expected rate, failure to demonstrate safety and efficacy, unforeseen safety issues, or unforeseen governmental or regulatory delays. Further, our drug
candidate may not be found to be safe and effective in particular indications and
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may not be approved by regulatory authorities for the proposed indication. Further, regulatory authorities and IRBs that must approve and monitor the
safety of each clinical study may suspend a clinical study at any time if the patients participating in such study are deemed to be exposed to any
unacceptable health risk. We may also choose to suspend human clinical studies and trials if we become aware of any such risks. We might encounter
problems in our clinical trials, including our expanded access program, such as seizures, weakness or other side effects that will cause us, regulatory
authorities, or IRBs to delay or suspend such trial or study. Moreover, FDA will consider the data, including safety data, from patients enrolled in any
expanded access program we may implement in the evaluation of any NDA or sNDA we may submit.
In other countries where FIRDAPSE® or any other product we may acquire or license may be marketed, we will also be subject to regulatory
requirements governing human clinical studies, trials and marketing approval for drugs. The requirements governing the conduct of clinical studies,
trials, product licensing, pricing and reimbursement varies widely from country to country.
We may face significant delays in our clinical studies and trials due to an inability to recruit patients for our clinical studies and trials or to retain
patients in the clinical studies and trials we may perform.
We may encounter difficulties in our current and future clinical studies and trials recruiting patients, particularly since the conditions we are studying are
rare, orphan conditions. The availability of approved therapies can also make enrollment difficult. We compete for study and trial subjects with others
conducting clinical trials testing other treatments for the indications we are studying for our drug candidates. Further, unrelated third parties and
investigators in the academic community have in the past and we expect will continue in the future to test our drug candidates, including FIRDAPSE®.
If these third-party tests are unsuccessful, or if they show significant health risk to the test subjects, our development efforts may also be adversely
affected.
Clinical trials in orphan diseases are often difficult to enroll given the small number of patients with these diseases. Completion of orphan clinical trials
may take considerably more time than other trials, sometimes years, depending on factors such as type, complexity, novelty and intended use of a
product candidate. As a result of the uncertainties described above, there can be no assurance that we will meet timelines that we establish for any of our
clinical trials.
If our third-party suppliers or contract manufacturers do not maintain appropriate standards of manufacturing in accordance with cGMP and other
manufacturing regulations, our development and commercialization activities could suffer significant interruptions or delays.
We rely, and intend to continue to rely, on third-party suppliers and contract manufacturers to provide us with materials for our clinical trials and
commercial-scale production of our products. These suppliers and manufacturers must continuously adhere to cGMP as well as any applicable
corresponding manufacturing regulations outside of the United States. In complying with these regulations, we and our third-party suppliers and contract
manufacturers must expend significant time, money and effort in the areas of design and development, testing, production, record-keeping, and quality
control to assure that our products meet applicable specifications and other regulatory requirements. Failure to comply with these requirements could
result in an enforcement action against us, including warning letters, the seizure of products, suspension or withdrawal of approvals, shutting down of
production, and criminal prosecution. Any of these third-party suppliers or contract manufacturers will also be subject to inspections by the FDA and
other regulatory agencies. If any of our third-party suppliers or contract manufacturers fail to comply with cGMP or other applicable manufacturing
regulations, our ability to develop and commercialize our products could suffer significant interruptions and delays.
Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product ourselves, including:
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reliance on the third party for regulatory compliance and quality assurance;
reliance on the continued financial viability of the third parties;
limitations on supply availability resulting from capacity and scheduling constraints of the third parties;
impact on our reputation in the marketplace if manufacturers of our products fail to meet the demands of our customers;
the possible breach of the manufacturing agreement by the third party because of factors beyond our control; and
the possible termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or
inconvenient for us.
If any of our contract manufacturers fail to achieve and maintain appropriate manufacturing standards, patients using our products could be injured or
die, resulting in product liability claims. Even absent patient injury, we may be subject to product recalls, product seizures or withdrawals, delays or
failures in testing or delivery, cost overruns, or other problems that could seriously harm our business or profitability.
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FIRDAPSE® is subject to ongoing regulatory review. If we fail to comply with continuing United States and applicable foreign regulations, we could
lose those approvals, and our business would be severely harmed.
We are and will continue to be subject to continuing regulatory review for our approved products, including the review of our required nonclinical and
clinical post-marketing studies, and other clinical results which are reported after our drug candidates become commercially available approved drugs.
As greater numbers of patients use a drug following its approval, side effects and other problems may be observed after approval that were not seen or
anticipated during preapproval clinical studies and trials. In addition, the manufacturer, and the manufacturing facilities we use to make any approved
drugs, will also be subject to periodic review and inspection by the FDA. The subsequent discovery of previously unknown problems with the drug,
manufacturer or facility may result in restrictions on the drug, manufacturer or facility, including withdrawal of the drug from the market. If we fail to
comply with applicable continuing regulatory requirements, we may be subject to fines, suspension, or withdrawal of regulatory approval, product
recalls and seizures, operating restrictions, and criminal prosecutions.
Our product promotion and advertising are also subject to regulatory requirements and continuing regulatory review. In particular, the marketing claims
we will be permitted to make in labeling or advertising regarding our marketed products will be limited by the terms and conditions of the
FDA-approved labeling and available scientific data. We must submit copies of our advertisements and promotional labeling to the FDA at the time of
initial publication or dissemination. If the FDA believes these materials or statements promote our products for unapproved indications, or with
unsubstantiated claims, or if we fail to provide appropriate safety related information, the FDA could allege that our promotional activities misbrand our
products. Specifically, the FDA could issue an untitled letter or warning letter, which may demand, among other things, that we cease such promotional
activities and issue corrective advertisements and labeling to all recipients of the misbranded materials. The FDA also could take enforcement action
including seizure of allegedly misbranded product, injunction, or criminal prosecution against us and our officers or employees. If we repeatedly or
deliberately fail to submit such advertisements and labeling to the agency, the FDA could withdraw our approvals. Moreover, the Department of Justice
can bring civil or criminal actions against companies and executives that promote drugs or biologics for unapproved uses, based on the Federal Food,
Drug, and Cosmetic Act, the False Claims Act, and other federal laws governing the marketing and reimbursement for such products under federally
supported healthcare programs such as Medicare and Medicaid. Monetary penalties in such cases have often been substantial, and civil penalties can
include costly mandatory compliance programs and potential exclusion of a company’s products from federal healthcare programs.
Enacted and future legislation or judicial action may increase the difficulty and cost for us to commercialize FIRDAPSE® or any other drug
candidates we may acquire or license and affect the prices we may obtain.
In the United States, there have been a number of court cases, legislative and regulatory changes, and other potential changes relating to the healthcare
system that restrict or regulate post-approval activities, which may affect our ability to profitably sell FIRDAPSE® or any other drug candidates for
which we obtain marketing approval.
The Medicare Prescription Drug Improvement and Modernization Act of 2003, or MMA, changed the way Medicare covers and pays for drug products.
The legislation expanded Medicare coverage for outpatient drug purchases by those covered by Medicare under a new Part D and introduced a
reimbursement methodology based on average sales prices for Medicare Part B physician-administered drugs. In addition, this legislation authorized
Medicare Part D prescription drug plans to use formularies whereby they can limit the number of drugs that will be covered in any therapeutic class. As
a result of this legislation and the expansion of federal coverage of drug products, there is additional pressure to contain and reduce costs. While the
MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting
their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from
private payors. These cost reduction initiatives and other provisions of the MMA could decrease the coverage and reimbursement that we receive for
any approved products and could seriously harm our business. Manufacturers’ contributions to this area, including donut hole coverage (as described
below) or potential excise taxes, are increasing and are subject to additional changes in the future.
In 2010, former President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010 (together, the “Health Care Reform Law”), a sweeping law intended to broaden access to health insurance, reduce or
constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health
insurance industries, impose new taxes and fees on the health industry, and impose additional health policy reforms. The Health Care Reform Law,
among other things, revised the definition of Average Manufacturer Price used by the Medicaid Drug Rebate Program for reporting purposes, imposed a
significant annual fee on companies that manufacture or import branded prescription drug products and established an annual non-deductible fee on
entities that sell branded prescription drugs or biologics to specified government programs in the United States. The Health Care Reform Law also
expanded the 340B drug discount program (excluding orphan drugs), including the creation of new penalties for non-compliance and included a
discount (now 70%, on brand name drugs for Medicare Part D participants in the coverage gap, or “donut hole.” The Health Care Reform Law increased
the Medicaid rebates for line extensions or reformulated drugs, which could substantially increase our Medicaid rebate rate (in effect limiting
reimbursement for these patients).
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Beginning in January 2017, former President Trump signed two Executive Orders and other directives designed to delay the implementation of certain
provisions of the Health Care Reform Law or otherwise circumvent some of the requirements for health insurance mandated by the Health Care Reform
Law. These actions include directing applicable federal agencies to waive, defer, grant exemptions from, or delay the implementation of any provision of
the Health Care Reform Law that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or
manufacturers of pharmaceuticals or medical devices. On October 13, 2017, an Executive Order was signed terminating the cost sharing subsidies that
reimburse insurers under the Health Care Reform Law. Several state Attorneys Generals filed suit to stop the administration from terminating the
subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. Further, on June 14, 2018 the United
States Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $12.0 billion in Health Care Reform
Law risk corridor payments to third-party payors. The effects of this gap in reimbursement on third-party payors, the viability of the Health Care Reform
Law marketplace, providers, and our business, are not yet known. On December 18, 2019, the United States Court of Appeals for the Fifth Circuit ruled
that the Health Care Reform Law’s individual mandate is unconstitutional but sent the matter back down to a district court to determine whether that
provision can be removed from the rest of the Health Care Reform Law. On March 2, 2020, the U.S. Supreme Court agreed to review the Fifth Circuit’s
ruling, and oral argument was heard on November 10, 2020. On June 17, 2021, the U.S. Supreme Court dismissed the challenge to the Health Care
Reform Law in a 7-2 decision.
Additionally, in response to controversies regarding pricing of drug products, there has been a recent push to propose legislation, both on state and
federal levels, that would require greater disclosure as to the reasoning behind drug prices and, in some cases, could give state or federal-level
commissions the right to impose cost controls on certain drugs. These and other new provisions are likely to continue the pressure on pharmaceutical
pricing, may require us to modify our business practices with healthcare practitioners, and may also increase our regulatory burdens and operating costs.
In that regard, President Biden and members of Congress in both parties have expressed concerns about high drug prices. However, whether and to what
extent any such positions will result in changes of the law, and how any such changes could impact our business, cannot be determined at this time.
Legislative and regulatory proposals also have been made to expand post-approval requirements, restrict sales and promotional activities for drug
products, and with respect to orphan drug designation and exclusivity. In addition, increased scrutiny by the United States Congress of the FDA’s
approval process may subject us to more stringent product labeling and post-marketing testing and other requirements. Delays in feedback from the
FDA may affect our ability to quickly update or adjust our label in the interest of patient adherence and tolerability. We cannot predict whether other
legislative changes will be adopted or how such changes would affect the pharmaceutical industry generally and specifically the commercialization of
FIRDAPSE® and any other products we develop.
If we fail to obtain or subsequently maintain orphan drug exclusivity or regulatory exclusivity for FIRDAPSE® and any other orphan drug
candidates we may acquire or in-license, our competitors may sell products to treat the same conditions at greatly reduced prices, and our revenues
would be significantly adversely affected.
In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs,
tax advantages, and user-fee waivers. The company that first obtains FDA approval for a designated orphan drug for a given rare disease receives
marketing exclusivity for use of that drug for the stated disease or condition for a period of seven years, with an additional six months of exclusivity if
the product also qualifies for pediatric exclusivity. Orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for
designation was materially defective, a subsequent product is deemed clinically superior, or if the manufacturer is unable to deliver sufficient quantity of
the drug.
Because the extent and scope of patent protection for some of our drug products may be particularly limited, orphan drug designation – and ultimately,
orphan drug exclusivity – is especially important for our products that are eligible for orphan drug designation. For eligible drugs, we plan to rely on the
orphan exclusivity period to maintain a competitive position. However, if we do not obtain orphan drug exclusivity for our drug candidates or we cannot
maintain orphan exclusivity for our drug candidates, our competitors may then sell the same drug to treat the same condition and our revenues will be
reduced. Also, without strong patent protection, competitors may sell a generic version upon the expiration of orphan exclusivity if our patent position is
not upheld.
Even if we obtain orphan drug designation for our future drug candidates, we may not fulfill the criteria for exclusivity or we may not be the first to
obtain marketing approval for any orphan indication. Further, even if we obtain orphan drug exclusivity for a particular product, that exclusivity may not
effectively protect the product from competition because different drugs can be approved for the same condition, and FDA can approve the same drug
for a different patient population. Even after an orphan drug is approved, the FDA can subsequently approve a drug for the same condition if the FDA
concludes that the later drug is safer, more effective or makes a major contribution to patient care. The FDA can discontinue orphan drug exclusivity
after it has been granted if the orphan drug cannot be manufactured in sufficient quantities to meet demand.
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Finally, there can be no assurance that the exclusivity provisions currently in the law may not be changed in the future and the impact of any such
changes (if made) on us. The orphan drug exclusivity contained in the Orphan Drug Act has been the subject of recent scrutiny from the press, from
some members of Congress and from some in the medical community. There can be no assurance that the exclusivity granted in the Orphan Drug Act to
orphan drugs approved by the FDA will not be modified in the future, and as to how any such change might affect our products, if approved.
Changes to the Orphan Drug Act or successful legal challenges to the FDA’s interpretation of the Orphan Drug Act may affect our ability to obtain
or subsequently maintain orphan drug exclusivity or affect the scope of orphan drug exclusivity for our products.
There can be no assurance whether the exclusivity provisions in the Orphan Drug Act may be changed in the future and the impact of such changes, if
made on us. For example, if the United States Congress were to pass, and the President were to sign, legislation revising the Orphan Drug Act that
effectively overturns the decision of the U.S. Court of Appeals for the 11th Circuit, such legislation might retroactively affect the outcome of the 11th
Circuit decision and allow the FDA to reinstate the approval of Ruzurgi® before the expiration of Firdapse®’s orphan drug exclusivity.
The orphan drug exclusivity contained in the Orphan Drug Act has been the subject of recent scrutiny from the press, from some members of Congress
and from some in the medical community. Furthermore, the FDA’s interpretations of the Orphan Drug Act have been successfully challenged in court
and future court decisions could continue that trend. There can be no assurance that the exclusivity granted in the Orphan Drug Act to orphan drugs
approved by the FDA will not be modified in the future, and as to how any such change might affect our products, if approved.
Our operations and relationships with healthcare providers, healthcare organizations, customers and third-party payors are subject to applicable
anti-bribery, anti-kickback, fraud and abuse, transparency and other healthcare laws and regulations, which could expose us to, among other
things, enforcement actions, criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished
profits and future earnings.
Our current and future arrangements with healthcare providers, healthcare organizations, third-party payors, customers, and patients expose us to
broadly applicable anti-bribery, fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and
relationships through which we research, market, sell and distribute our drug candidates. In addition, we may be subject to patient data privacy and
security regulation by the U.S. federal government and the states and the foreign governments in which we conduct our business. Restrictions under
applicable federal and state anti-bribery and healthcare laws and regulations include the following:
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the Federal health care program Anti-Kickback Statute, which prohibits individuals and entities from, among other things, knowingly and
willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return
for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be
made under a federal and state healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation;
•
the federal criminal and civil false claims and civil monetary penalties laws, including the federal False Claims Act, which can be imposed
through civil whistleblower or qui tam actions against individuals or entities, prohibits, among other things, knowingly presenting, or
causing to be presented, to the federal government, claims for payment that are false or fraudulent, knowingly making, using or causing to
be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid,
decrease or conceal an obligation to pay money to the federal government. In addition, certain marketing practices, including off-label
promotion, may also violate false claims laws. Moreover, the government may assert that a claim including items and services resulting
from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act;
•
HIPAA, which imposes criminal and civil liability, prohibits, among other things, knowingly and willfully executing, or attempting to
execute a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material
fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;
similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to
violate it in order to have committed a violation;
•
HIPAA, as amended by HITECH, which impose obligations on certain healthcare providers, health plans, and healthcare clearinghouses,
known as covered entities, as well as their business associates that perform certain services involving the storage, use or disclosure of
individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security, and
transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of
certain breaches of security of individually identifiable health information;
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the federal legislation commonly referred to as the Physician Payments Sunshine Act, enacted as part of the ACA, and its implementing
regulations, which requires certain manufacturers of covered drugs, devices, biologics and medical supplies that are reimbursable under
Medicare, Medicaid, or the Children’s Health Insurance Program, with certain exceptions, to report annually to CMS information related to
certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and
chiropractors), physician assistants, certain types of advanced care practice nurses and teaching hospitals, as well as ownership and
investment interests held by the physicians described above and their immediate family members, with the information made publicly
available on a searchable website;
the U.S. Foreign Corrupt Practices Act of 1977, as amended, which prohibits, among other things, U.S. companies and their employees and
agents from authorizing, promising, offering, or providing, directly or indirectly, corrupt or improper payments or anything else of value to
foreign government officials, employees of public international organizations and foreign government owned or affiliated entities,
candidates for foreign political office, and foreign political parties or officials thereof;
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, that may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private
insurers; and
certain state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government in addition to requiring drug and therapeutic biologics
manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and
pricing information, state and local laws that require the registration of pharmaceutical sales representatives, and state laws governing the
privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are
not preempted by HIPAA, thus complicating compliance efforts.
If we or our collaborators, manufacturers or service providers fail to comply with applicable federal, state or foreign laws or regulations, we could be
subject to enforcement actions, which could affect our ability to develop, market and sell our products successfully and could harm our reputation and
lead to reduced acceptance of our products by the market. These enforcement actions include, not only civil and criminal penalties, but also exclusion
from participation in government-funded healthcare programs, and exclusion from eligibility for the award of government contracts for our products.
Efforts to ensure that our current and future business arrangements with third parties comply with applicable healthcare laws and regulations could
involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future
statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are
found to be in violation of any such requirements, we may be subject to significant penalties, including civil, criminal and administrative penalties,
damages, fines, disgorgement, imprisonment, the curtailment or restructuring of our operations, loss of eligibility to obtain approvals from the FDA,
exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid,
integrity oversight and reporting obligations, or reputational harm, any of which could adversely affect our financial results. Although effective
compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any
action against us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our management’s attention
from the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable laws and
regulations may be costly to us in terms of money, time and resources.
Risks Related to Our Intellectual Property
We are dependent on our relationships and license agreements, and we rely upon the patent rights granted to us pursuant to the license agreements.
All of our patent rights for FIRDAPSE® are derived from our license agreement. In August 2020, the United States Patent and Trademark Office
(USPTO) allowed U.S. Patent No. 10,793,893 (the ’893 patent) to our licensor and thereby to us, and the patent issued on October 6, 2020. 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 intend to take all appropriate actions to protect our intellectual property.
In April 2021, the USPTO also allowed Patent No. 11,060,128 (the ’128 patent) to our licensor and thereby to us, and this second patent issued on
July 13, 2021. The patent is directed to the use of suitable doses of amifampridine to treat patients suffering with LEMS that are slow metabolizers of
amifampridine. Any drug product containing amifampridine with a label for the treatment of LEMS, that states the patented dosing regimens and doses
in the Dosing and Administration section of a product label, including generic drug product labels, could possibly infringe this patent prior to this
patent’s expiration date.
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On December 24, 2021, the USPTO allowed continuing application, 17/503,190. On January 3, 2022, the USPTO allowed related continuing application
17/503,148. A further related continuing application, 17/503,092 was allowed on January 7, 2022. All three patents were issued in March 2022. The
claims in each of these applications have either already been listed in the Orange Book for FIRDAPSE® or are in the process of being listed.
We may lose our rights to these patents and patent applications if we breach our obligations under the License Agreement, including, without limitation,
our financial obligations to the licensor. If we violate or fail to perform any term or covenant of the License Agreement, the licensor may terminate the
License Agreement upon satisfaction of any applicable notice requirements and expiration of any applicable cure periods. Additionally, any termination
of the License Agreement, whether by us or by the licensor, will not relieve us of our obligation to pay any license fees owing at the time of such
termination. If we fail to retain our rights under the License Agreement, we would not be able to commercialize FIRDAPSE®, and our business, results
of operations, financial condition and prospects would be materially adversely affected.
Our commercial success will depend in large part on our ability to use patents and regulatory exclusivity to exclude others from competing with our
products. The patent position of emerging pharmaceutical companies like us can be highly uncertain and involve complex legal and technical issues.
Until the ’893 patent and the ‘128 patent are interpreted by a court, and unless and until our other pending applications are granted, we will not know the
breadth of protection that they will afford us. Our pending applications, if granted, may not contain claims sufficiently broad to prevent others from
practicing our technologies or marketing competing products. Third parties may intentionally attempt to design around any FIRDAPSE® patents that
ultimately grant so as to compete with us without infringing our patents. Although granted patents enjoy a presumption of validity, there is a risk that the
’893 patent, the ‘128 patent and any patents resulting from our ongoing prosecution efforts may be invalidated or rendered unenforceable if challenged
by others.
As a result of the foregoing factors, we cannot be certain how much protection from competition patent rights will provide us.
Our success will depend significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
Further, there 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 one or more patents or violate other proprietary rights of any
third parties, we may be prevented from pursuing product development, manufacturing or commercializing any of our products using such technologies.
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 claims of infringement against us may have on our business, financial condition, results of operations, or prospects.
If a third-party claims that we infringe its patents, any of the following may occur:
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we may be preliminarily enjoined from making, using, selling, or offering to sell our allegedly infringing product by a court of competent
jurisdiction in advance of any formal infringement determination;
we may be required to pay substantial financial damages if a court formally decides that our technologies infringe the third party’s
patent(s). Damages can be tripled if the infringement is deemed willful;
we may be required to discontinue or significantly delay developing, marketing, selling and licensing the allegedly infringing product(s)
absent a license from the patent holder, which may not be available on commercially acceptable terms or at all, or which may require us to
pay substantial royalties or grant cross-licenses to our patents; and
we may need to redesign our product so that it does not infringe the third party’s patent rights, which may not be possible or could require
substantial funds or time and require additional studies.
In addition, our employees, consultants, contractors and others may knowingly or unknowingly use the proprietary information of others in their work
for us or disclose our proprietary information to others. If our employees, consultants, contractors or others disclose our data to others or use data
belonging to others in connection with our business, it could lead to disputes over the ownership of inventions derived from that information or expose
us to potential damages or other penalties.
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The occurrence of any of these events could have a material adverse effect on our business, financial condition, results of operations or prospects.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.
There is substantial history of litigation and other proceedings regarding patent and intellectual property rights in the pharmaceutical industry. We may
be forced to defend claims of infringement brought by our competitors and others, and we may institute litigation against third parties who we believe
are infringing our intellectual property rights. The outcome of intellectual property litigation is subject to substantial uncertainties and may, for example,
turn on the interpretation of claim language by the court, which may not be to our advantage, or on the testimony of experts as to technical facts upon
which experts may reasonably disagree.
Under our License Agreements, we have the right to bring legal action against any alleged infringers of the patents we license. In that regard, in October
2020, we filed lawsuits against Jacobus and the specialty pharmacy marketing Ruzurgi®, PantherRx Rare LLC (PantherRx), for infringement of the ‘893
patent. The suits have now been consolidated in a single action in the U.S. District Court for New Jersey. In August 2021, the lawsuits were amended to
include alleged infringement of the ‘128 patent. The lawsuits arise from Jacobus’ and PantherRx’s sales and marketing of Ruzurgi® (amifampridine)
Tablets, 10 mg. The lawsuits allege that the Ruzurgi® product infringes the ‘893 patent and the ‘128 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. The lawsuit
is in the discovery stage and there can be no assurance as to the results of these proceedings.
Our involvement in intellectual property litigation could result in significant expense to us. Some of our competitors have considerable resources
available to them and a strong economic incentive to undertake substantial efforts to stop or delay us from commercializing products. Moreover,
regardless of the outcome, intellectual property litigation against or by us could significantly disrupt our development and commercialization efforts,
divert our management’s attention and quickly consume our financial resources.
In addition, if third parties have filed patent applications or have issued patents claiming technology that is also claimed by us in any of our pending
applications, we may be required to participate in interference or derivation proceedings with the third party at the United States Patent Office. We may
also need to participate in proceedings outside the United States, such as an opposition at the European Patent Office, to determine whether or not a
patent issued by the EPO was properly granted. Even if we are successful in these proceedings, we may incur substantial costs, and the time and
attention of our management and scientific personnel will be diverted from product development or other more productive matters.
General Risk Factors Relating to our Common Stock
The trading price of the shares of our common stock has been and could in the future be highly volatile.
The market price of our common stock has fluctuated in the past and is likely to fluctuate in the future. Market prices for biopharmaceutical companies
have historically been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:
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•
•
developments concerning our clinical studies and trials and our pre-clinical studies;
status of regulatory requirements for approval of our drug candidates;
adverse publicity regarding the pricing of FIRDAPSE®;
announcements of product development successes and failures by us or our competitors;
new products introduced or announced by us or our competitors;
adverse changes in the abilities of our third-party manufacturers to provide drug or product in a timely manner or to meet FDA
requirements;
changes in reimbursement levels;
changes in financial estimates by securities analysts;
actual or unanticipated variations in operating results;
changes in laws regarding FDA approval;
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•
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•
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•
expiration or termination of licenses (particularly our License Agreement for FIRDAPSE®), research contracts, or other collaboration
agreements;
conditions or trends in the regulatory climate and the biotechnology and pharmaceutical industries;
intellectual property, product liability or other litigation against us;
changes in the market valuations of similar companies;
changes in pharmaceutical company regulations or reimbursements for drug products as a result of healthcare reform or other legislation;
changes in economic conditions; and
sales of shares of our common stock, particularly sales by our officers, directors and significant stockholders, or the perception that such
sales may occur.
In addition, equity markets in general, and the market for emerging pharmaceutical and life sciences companies in particular, have experienced
substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies traded in those
markets. Further, changes in economic conditions in the United States, Europe, or globally could impact our ability to grow profitably. Adverse
economic changes are outside our control and may result in material adverse impacts on our business or financial results. These broad market and
industry factors may materially affect the market price of our shares, regardless of our own development and operating performance. In the past,
following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that
company. Any such litigation that we become involved in could cause us to incur substantial costs and divert our management’s attention and resources,
which could have a material adverse effect on our business, financial condition, and results of operations.
Delaware law and our certificate of incorporation and by-laws contain provisions that could delay and discourage takeover attempts that
stockholders may consider favorable.
Certain provisions of our certificate of incorporation and by-laws, and applicable provisions of Delaware corporate law, may make it more difficult for
or prevent a third party from acquiring control of us or changing our Board of Directors and management. These provisions include:
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the ability of our Board of Directors to issue preferred stock with voting or other rights or preferences;
limitations on the ability of stockholders to amend our charter documents, including stockholder supermajority voting requirements;
the inability of stockholders to act by written consent or to call special meetings;
requirements that special meetings of our stockholders may only be called by the Board of Directors; and
advance notice procedures our stockholders must comply with in order to nominate candidates for election to our Board of Directors or to
place stockholders’ proposals on the agenda for consideration at meetings of stockholders.
On September 20, 2011, the board of directors approved the adoption of a stockholder rights plan (Rights Plan), which was amended on September 19,
2016 and further amended on August 28, 2019. The Rights Plan was implemented through our entry into a rights agreement with Continental Stock
Transfer & Trust Company, as rights agent, and the declaration of a non-taxable dividend distribution of one preferred stock purchase right (each, a
Right) for each outstanding share of our common stock. The dividend had been paid on October 7, 2011 to holders of record as of that date. Each right
was attached to and traded with the associated share of common stock. Under the Rights Plan, the rights would have become exercisable only if a person
acquired beneficial ownership of 17.5% or more of our common stock (or, in the case of a person who beneficially owned 17.5% or more of our
common stock on the date the rights plan was adopted, such person acquires beneficial ownership of any additional shares of our common stock) or after
the date of the Rights Agreement, commenced a tender offer that, if consummated, would have resulted in beneficial ownership by a person of 17.5% or
more of our common stock.
On November 12, 2021, our Board of Directors terminated the Rights Plan. Despite the termination of the Rights Plan, the Board of Directors reserves
the right to take all necessary actions it deems appropriate in the future to protect the interests of all of the Company’s stockholders.
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In addition, Section 203 of the Delaware General Corporation Law generally prohibits us from engaging in a business combination with any person who
owns 15% or more of our common stock for a period of three years from the date such person acquired such common stock, unless Board or stockholder
approval is obtained. These provisions could make it difficult for a third party to acquire us, or for members of our Board of Directors to be replaced,
even if doing so would be beneficial to our stockholders.
Any delay or prevention of a change of control transaction or changes in our Board of Directors or management could deter potential acquirers or
prevent the completion of a transaction in which our stockholders could receive a substantial premium over the then current market price for their
shares.
Future sales of our common stock may cause our stock price to decline.
As of March 14, 2022, we had 102,744,913 shares of our common stock outstanding, of which 7,753,498 shares were held by our officers and directors.
We also had outstanding: (i) stock options to purchase an aggregate of 14,455,728 shares at exercise prices ranging from $0.79 to $7.07 per share
(9,726,842 of which are currently exercisable); and (ii) restricted stock units for 597,339 shares of common stock (none of which are currently vested).
Sales of shares, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our
common stock.
We do not intend to pay cash dividends on our common stock in the foreseeable future.
We have never declared or paid any cash dividends on our common stock or other securities, and we currently do not anticipate paying any cash
dividends in the foreseeable future. Accordingly, investors should not invest in our common stock if they require dividend income. Our stockholders will
not realize a return on their investment unless the trading price of our common stock appreciates, which is uncertain and unpredictable.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
We currently operate our business in leased office space in Coral Gables, Florida. During 2020, we leased approximately 7,800 square feet of space, for
which we paid annual rent of approximately $0.3 million. During May 2020 we amended our office lease to increase our leased space to approximately
10,700 square feet. The amended lease commenced in March 2021 when construction of the asset was completed and the space became available for
use. Our current annual rent in the new space is approximately $0.5 million.
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Item 3.
Legal Proceedings
Ruzurgi®
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). While the NDA for Ruzurgi® only covers pediatric patients, we believe that Ruzurgi® has been regularly
prescribed off-label to adult LEMS patients. We also believe that the FDA’s approval of Ruzurgi® violated our statutory rights and was in multiple other
respects arbitrary, capricious and contrary to law. As a result, in June 2019 we filed suit against the FDA challenging this approval and related drug
labeling, and Jacobus Pharmaceuticals (Jacobus) intervened in our case. Our complaint, which was filed in the federal district court for the Southern
District of Florida, alleged that the FDA’s approval of Ruzurgi® violated multiple provisions of FDA regulations regarding labeling, resulting in
misbranding in violation of the Federal Food, Drug, and Cosmetic Act (FDCA); violated our statutory rights to Orphan Drug Exclusivity and New
Chemical Entity Exclusivity under the FDCA; and was in multiple other respects arbitrary, capricious, and contrary to law, in violation of the
Administrative Procedure Act. Among other remedies, the suit sought an order setting aside the FDA’s approval of Ruzurgi®.
On 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 judgment and deny our motion for summary judgment. On
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 appealed the District Court’s decision to the U.S. Circuit Court of Appeals for the 11th Circuit. By early
2021, the case was fully briefed, and oral argument was held in March 2021.
On September 30, 2021, a three-judge panel of 11th Circuit judges issued a unanimous decision overturning the District Court’s decision. The appellate
court adopted our argument that the FDA’s approval of Ruzurgi® violated our rights to Orphan Drug Exclusivity and remanded the case to the District
Court with orders to enter summary judgment in our favor. In November 2021, Jacobus filed a motion seeking rehearing of the case from the full 11th
Circuit, which motion was denied in January 2022. Further, in January 2022, Jacobus filed motions with both the 11th Circuit and the U.S. Supreme
Court seeking a stay of the 11th Circuit’s ruling indicating that it would seek a review of the 11th Circuit’s decision from the U.S. Supreme Court. Both
stay motions were denied, and on January 28, 2022, the 11th Circuit issued a mandate directing the District Court to enter summary judgment in our
favor. The District Court entered that order on January 31, 2022. On February 1, 2022, the FDA informed Jacobus that, consistent with the Court of
Appeals for the Eleventh Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval of the Ruzurgi® NDA was switched to a
tentative approval until the 7-year orphan-drug exclusivity (ODE) for Firdapse® has expired.
There can be no assurance as to whether Jacobus will seek U.S. Supreme Court review of the 11th Circuit’s decision, whether the U.S. Supreme Court
will agree to hear the case, or whether, if the U.S. Supreme Court agrees to hear the case, Jacobus’ appeal to overturn the decision of the 11th Circuit
will be successful. Similarly, there can be no assurance as to whether the U.S. Congress will pass, and the President will sign, legislation effectively
overturning the 11th Circuit’s decision, and whether or not such legislation, if passed, would have any retroactive effect that would allow the FDA to
reinstate Ruzurgi®.
On August 10, 2020, Health Canada issued a Notice of Compliance (NOC) to Medunik for Ruzurgi® for the treatment of LEMS. We 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. 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.
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 re-issued an NOC for Ruzurgi®, once again allowing the product to be marketed in
Canada for patients with LEMS. As a result, in early July 2021 we, along with our partner KYE, filed a second suit against Health Canada to overturn
their most recent decision. That case was fully briefed in late 2021, with oral argument held in early December.
On March 11, 2022, we announced that we had received a favorable decision from the Canadian court setting aside, for the second time, the decision of
Health Canada approving Ruzurgi® for the treatment of LEMS patients. In its ruling, the court determined that the Minister of Health’s approach to
evaluating whether FIRDAPSE®’s data deserved protection based on FIRDAPSE®’s status as an innovative drug, which protects by regulation the use of
such data as part of a submission seeking an NOC for eight years from approval of the innovative drug, was legally flawed and not supported by the
evidence. As a result, the matter has, once again, been remanded to the Minister of Health to redetermine its decision in light of the court’s ruling. There
can be no assurance as to the outcome of this proceeding.
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Patent Litigation
All of our patent rights for FIRDAPSE® are derived from our license agreement. In August 2020, the United States Patent and Trademark Office
(USPTO) allowed Patent No. 10,793,893 (the ’893 patent) to our licensor and thereby to us, and the patent issued on October 6, 2020. 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 intend to take all appropriate actions to protect our intellectual property.
In April 2021, the USPTO also allowed Patent No. 11,060,128 (the ’128 patent) to our licensor and thereby to us, and this second patent issued on
July 13, 2021. The patent is directed to the use of suitable doses of amifampridine to treat patients suffering with LEMS that are slow metabolizers of
amifampridine. Any drug product containing amifampridine with a label for the treatment of LEMS, that states the patented dosing regimens and doses
in the Dosing and Administration section of a product label, including generic drug product labels, could possibly infringe this patent prior to this
patent’s expiration date.
On December 24, 2021, the USPTO allowed continuing application, 17/503,190. On January 3, 2022, the USPTO allowed related continuing application
17/503,148. A further related continuing application, 17/503,092 was allowed on January 7, 2022. All three patents were issued in March 2022. The
claims in each of these applications have either already been listed in the Orange Book for FIRDAPSE® or are in the process of being listed.
We are also pursuing additional patent applications for FIRDAPSE® in an effort to further protect our drug product. There can be no assurance that any
additional patents will be issued which provide additional intellectual property protection for our drug product.
In that regard, in October 2020, we filed lawsuits against Jacobus and the specialty pharmacy marketing Ruzurgi®, PantherRx Rare LLC (PantherRx),
for infringement of the ‘893 patent. The suits have been consolidated in a single action in the U.S. District Court for New Jersey. In August 2021, the
lawsuits were amended to include alleged infringement of the ‘128 patent. The lawsuits arise from Jacobus’ and PantherRx’s sales and marketing of
Ruzurgi® (amifampridine) Tablets, 10 mg. The lawsuits allege that the Ruzurgi® product infringes the ‘893 patent and the ‘128 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. The lawsuit is in the discovery stage and there can be no assurance as to the results of these proceedings.
Other Litigation
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.
Item 4.
Mine Safety Disclosure
Not applicable.
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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Performance Graph
The graph below matches Catalyst Pharmaceuticals, Inc.’s cumulative 5-Year total shareholder return on common stock with the cumulative total returns
of the NASDAQ Composite index, the Russell MicroCap index, and the NASDAQ Biotechnology index. The graph tracks the performance of a $100
investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2016 to 12/31/2021.
Catalyst Pharmaceuticals, Inc.
NASDAQ Composite
Russell MicroCap
NASDAQ Biotechnology
12/19
12/16
12/17
12/18
12/21
100.00 372.38 182.86 357.14 318.10 644.76
100.00 129.64 125.96 172.17 249.51 304.85
100.00 113.17 98.36 120.43 145.67 173.84
100.00 121.63 110.85 138.69 175.33 175.37
12/20
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
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Market Information
Our common stock trades on the Nasdaq Capital Market under the symbol “CPRX.” The closing sale price for the common stock on March 14, 2022
was $7.63. As of March 14, 2022, there were 31 holders of record of our common stock, which includes custodians who hold our securities for the
benefit of others.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to
support operations, finance the growth and development of our business, and repurchase up to $40 million of our common stock. We do not intend to
pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the
discretion of our Board of Directors.
Securities Authorized for Issuance under Equity Compensation Plans
The following table presents information as of December 31, 2021 with respect to compensation plans under which shares of our common stock may be
issued.
Plan Category
Equity compensation plans approved by
security holders (1)
Equity compensation plans not approved
by security holders
Total
Equity Compensation Plan Information
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
Weighted-average
exercise price of
outstanding options,
warrants, and rights
Number of securities
remaining available
for equity
compensation plans
14,207,728
—
14,207,728
$
$
3.55
—
3.55
4,708,013(2)
—
4,708,013
(1) Includes our 2014 Stock Incentive Plan and our 2018 Stock Incentive Plan
(2) Remaining shares are only under our 2018 Stock Incentive Plan
Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
In March 2021, our Board of Directors approved a share repurchase program that authorizes the repurchase of up to $40 million of our common stock,
pursuant to a repurchase program under Rule 10b-18 of the Securities Act (the “Share Repurchase Program”). The Share Repurchase Program
commenced on March 22, 2021.
The following table presents information regarding repurchases by us of our common stock under the Share Repurchase Program during the three
months ended December 31, 2021:
Period
October 1 – October 31, 2021
November 1 – November 30, 2021
December 1 – December 31, 2021
Total
Total
Number
of Shares
Purchased
58,546
6,654
393,346
458,546
Average
Price
Paid Per
Share
$ 5.99
$ 7.01
$ 6.81
Total
Number of
Shares
Purchased as
Part of
Publicly
Announced
Program
58,546
6,654
393,346
458,546
Dollar Value
of Shares that
May Yet Be
Purchased
(in thousands)
30,637
$
30,590
$
27,912
$
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Item 6.
Selected Financial Data
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction our consolidated financial
statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-
looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including but not limited to those set forth under the caption “Risk Factors” in Item 1A of this report.
Introduction
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide an understanding of our
financial condition, changes in financial condition and results of operations. The discussion and analysis is organized as follows:
•
•
•
•
•
•
Overview. This section provides a general description of our business and information about our business that we believe is important in
understanding our financial condition and results of operations.
Basis of Presentation. This section provides information about key accounting estimates and policies that we followed in preparing our
consolidated financial statements for the 2021 fiscal year.
Critical Accounting Policies and Estimates. This section discusses those accounting policies that are both considered important to our
financial condition and results of operations and require significant judgment and estimates on the part of management in their application.
All of our significant accounting policies, including the critical accounting policies, are also summarized in the notes to our accompanying
consolidated financial statements.
Results of Operations. This section provides an analysis of our results of operations for the three fiscal years presented in the
accompanying consolidated statements of operations and comprehensive income.
Liquidity and Capital Resources. This section provides an analysis of our cash flows, capital resources, off-balance sheet arrangements and
our outstanding commitments, if any.
Caution Concerning Forward-Looking Statements. This section discusses how certain forward-looking statements made throughout this
MD&A and in other sections of this report are based on management’s present expectations about future events and are inherently
susceptible to uncertainty and changes in circumstance.
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Overview
We are a commercial-stage biopharmaceutical company focused on in-licensing, 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, best-in-class medicines for rare
diseases. We historically focused our efforts on developing products that treat diseases in the neuromuscular and neurological space, but in 2021 we
made a strategic decision to broaden and diversify our product portfolio through acquisitions of both early and late-stage products or companies or
technology platforms in rare disease therapeutic categories outside of neuromuscular diseases. To accomplish these new priorities, we are employing a
disciplined approach to evaluating assets and we believe that this strategic expansion will better position our company to build out a broader more
diversified portfolio of drug candidates, which should add greater value to our company over the near and long-term. However, there can be no
assurance that whatever product candidates or technology platforms we acquire, if any, will be successfully developed or commercialized.
We are currently exploring several potential opportunities to acquire companies with drug products in development or to in-license or acquire drug
products in development. However, no definitive agreements have been entered into to date. Further, during the third quarter of 2021 we hired
Dr. Preethi Sundaram, who serves as our Chief Strategy Officer. In that position, Dr. Sundaram is leading our efforts to acquire R&D assets, from early
stage through late-stage clinical programs and technologies to treat rare diseases, and once such drug candidates are acquired, Dr. Sundaram will help
oversee the development of those assets.
We are dedicated to making a meaningful impact on the lives of those suffering from rare diseases, and we believe in putting patients first in everything
we do.
Impact of the COVID-19 pandemic on our business
The COVID-19 pandemic has affected our business operations in numerous ways, and we continue to monitor applicable government modifications. We
had to make modifications to our normal operations because of the COVID-19 pandemic, including allowing our employees to work remotely. At
present, our operations have returned to mostly being in-person, with some contact with physicians by our commercial sales force still being done
remotely. Notwithstanding, the COVID-19 pandemic, including the emergence of new COVID-19 variants, including the delta and omicron variants,
could affect the health and availability of our workforce as well as those of third parties whom we are relying upon to take similar measures. As such,
we have experienced in the past, and may experience in the future, disruptions to our business operations because of the COVID-19 pandemic, and our
business could be materially adversely affected by such disruptions, directly or indirectly. National, state and local governments in affected regions have
implemented and may continue to implement varying safety precautions, such as quarantines, border closures, increased border controls, travel
restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. Organizations and
individuals may continue to take additional steps to avoid infection, including limiting travel and staying home from work. These measures may
continue to disrupt normal business operations both inside and outside of affected areas and have had significant impacts on healthcare and businesses
worldwide.
We believe that because many healthcare providers who treat LEMS patients have delayed seeing new patients because of the pandemic, there has been
a delay in the diagnosis of new LEMS patients and their initiating therapy, which has slowed our efforts to locate new patients who could benefit from
our therapy. However, we believe that when conditions allow healthcare providers to resume seeing new patients in person on a regular basis, the impact
of this aspect of the COVID-19 pandemic on our business will lessen.
One area where we have not been impacted by the pandemic is in our supply chain. To date, we have been able to avoid material disruptions in the
production of FIRDAPSE® and, based upon current estimates, we have sufficient inventory to meet current and foreseeable patient needs for at least the
next 12 months.
FIRDAPSE®
On November 28, 2018, we received approval from the FDA for FIRDAPSE® Tablets 10 mg for the treatment of adult patients (ages 17 and above) with
Lambert-Eaton, Myasthenic Syndrome (“LEMS”). In January 2019, we launched FIRDAPSE® in the United States. We sell our product through a field
force experienced in neurologic, central nervous system or rare disease products consisting at this time of approximately 30 field personnel, including
sales (Regional Account Managers), patient assistance and insurance navigation support (Patient Access Liaisons), and payor reimbursement (National
Account Managers). We also have a field-based force of five medical science liaisons who are helping educate the medical communities and patients
about LEMS and our programs supporting patients and access to FIRDAPSE®.
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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 non-personal promotion to oncologists that may treat adult LEMS patients. We also are continuing to make available at no-cost 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.
Finally, we are continuing to expand our digital and social media activities in order to introduce our product and services to potential patients and their
healthcare providers. We also work 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
and to provide education for the physicians who treat these rare diseases and the patients they treat.
We are supporting the distribution of FIRDAPSE® through Catalyst Pathways®, our personalized treatment support program for patients who enroll in it.
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 drug 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 keep out-of-pocket costs to not more than $10.00 per
month (currently $0.00 per month) is available for all LEMS patients who are prescribed FIRDAPSE®. We are also donating, and committing to
continue to donate, money to qualified, independent charitable foundations dedicated to providing assistance to any U.S. LEMS patients in financial
need. Subject to compliance with regulatory requirements, our goal is that no LEMS patient is ever denied access to their medication for financial
reasons.
In May 2019, the FDA approved a New Drug Application (NDA) for Ruzurgi®, another version of amifampridine (3,4-DAP), for the treatment of
pediatric LEMS patients (ages 6 to under 17). While the NDA for Ruzurgi® only covers pediatric patients, we believe that Ruzurgi® has been regularly
prescribed off-label to adult LEMS patients. We also believe that the FDA’s approval of Ruzurgi® violated our statutory rights and was in multiple other
respects arbitrary, capricious and contrary to law. As a result, in June 2019 we filed suit against the FDA and several related parties challenging this
approval and related drug labeling, and Jacobus Pharmaceuticals (Jacobus) intervened in our case. Our complaint, which was filed in the federal district
court for the Southern District of Florida, alleged that the FDA’s approval of Ruzurgi® violated multiple provisions of FDA regulations regarding
labeling, resulting in misbranding in violation of the Federal Food, Drug, and Cosmetic Act (FDCA); violated our statutory rights to Orphan Drug
Exclusivity and New Chemical Entity Exclusivity under the FDCA; and was in multiple other respects arbitrary, capricious, and contrary to law, in
violation of the Administrative Procedure Act. Among other remedies, the suit sought an order setting aside the FDA’s approval of Ruzurgi®.
On 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 judgment and deny our motion for summary judgment. On
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 appealed the District Court’s decision to the U.S. Circuit Court of Appeals for the 11th Circuit. By early
2021, the case was fully briefed, and oral argument was held in March 2021.
On September 30, 2021, a three-judge panel of 11th Circuit judges issued a unanimous decision overturning the District Court’s decision. The appellate
court adopted our argument that the FDA’s approval of Ruzurgi® violated our rights to Orphan Drug Exclusivity and remanded the case to the District
Court with orders to enter summary judgment in our favor. In November 2021, Jacobus filed a motion seeking rehearing of the case from the full 11th
Circuit, which motion was denied in January 2022. Further, in January 2022, Jacobus filed motions with both the 11th Circuit and the U.S. Supreme
Court seeking a stay of the 11th Circuit’s ruling indicating that it would seek a review of the 11th Circuit’s decision from the U.S. Supreme Court. Both
stay motions were denied, and on January 28, 2022, the 11th Circuit issued a mandate directing the District Court to enter summary judgment in our
favor. The District Court entered that order on January 31, 2022. On February 1, 2022, the FDA informed Jacobus that, consistent with the Court of
Appeals for the Eleventh Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval of the Ruzurgi® NDA was switched to a
tentative approval until the 7-year orphan-drug exclusivity (ODE) for Firdapse® has expired.
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There can be no assurance as to whether Jacobus will seek U.S. Supreme Court review of the 11th Circuit’s decision, whether the U.S. Supreme Court
will agree to hear the case, or whether, if the U.S. Supreme Court agrees to hear the case, Jacobus’ appeal to overturn the decision of the 11th Circuit will
be successful. Similarly, there can be no assurance as to whether the U.S. Congress will pass, and the President will sign, legislation revising the Orphan
Drug Act that effectively overturns the U.S. Court of Appeals for the 11th Circuit, and whether any such legislation, if passed and signed into law, will
retroactively affect the outcome of the 11th Circuit decision and allow the FDA to reinstate the approval of Ruzurgi® before the expiration of
FIRDAPSE®’s orphan drug exclusivity.
We are actively working with parents and physicians of pediatric LEMS patients to make sure that such patients will be able to obtain FIRDAPSE®
through appropriate legal and regulatory means. In addition, we are working to file an application with the FDA seeking approval for use of
FIRDAPSE® by pediatric LEMS patients, though any effort to obtain such authorization is not guaranteed. We anticipate submitting the sNDA before
the end of the first quarter. For the adult LEMS patients who have been taking Ruzurgi® off-label (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.
We have been developing a long-acting formulation of amifampridine phosphate. While a number of formulations have been prepared, after discussions
with researchers and an advisory board made up of both patients and physicians, we recently concluded that we would be unable to develop a long-
acting formulation that was both beneficial to patients and commercially viable, and as a result we have made the determination not to proceed with
development of this product.
On August 10, 2020, we announced the top-line results from our Phase 3 clinical trial (MSK-002) evaluating FIRDAPSE® for the treatment of adults
with MuSK-MG. Unfortunately, the MSK-002 trial did not achieve statistical significance on its primary endpoint or its secondary endpoint. Following
our receipt of these results, we analyzed the data and proposed a plan to FDA to perform an additional study evaluating FIRDAPSE® for the treatment
of MuSK-MG. In response, the FDA provided written comments that were unfavorable towards our proposed revised study design and further
questioned the ability of the initial MuSK-MG pilot study to be supportive. These remarks make it unlikely that a single study of similar design to
MSK-002 would be sufficient for potential approval of the MuSK-MG indication. We also held an expert panel with key opinion leaders (KOLs) to
discuss options and review the likelihood of success for the MuSK-MG indication for FIRDAPSE® under these circumstances. After receiving the input
of the FDA and the KOLs, we concluded that the approval of FIRDAPSE® as a first line therapy for MuSK-MG is unlikely, and therefore we have
decided not to further pursue this indication.
We previously announced our intent to conduct a proof-of-concept study evaluating FIRDAPSE® as a treatment for Hereditary Neuropathy with
Liability to Pressure Palsies (HNPP). The FDA requested that a new, patient centric endpoint be researched and used for our proposed study, without
assurance that such endpoint would be acceptable for approval. Based upon the uncertainty of such an endpoint, we have decided not to conduct this
study as a company sponsored study, though there is a possibility that this study will move forward as investigator-initiated study that we will support.
There can be no assurance that any future clinical trials of FIRDAPSE® that we undertake will be successful. Further, there can be no assurance that we
will ever be granted the right to commercialize FIRDAPSE® for any additional indications.
Our NDS filing for FIRDAPSE® for the symptomatic treatment of LEMS was approved by Health Canada on July 31, 2020. In August 2020, we entered
into a license agreement with KYE Pharmaceuticals (KYE), pursuant to which we licensed the Canadian rights for FIRDAPSE® for the treatment of
LEMS to KYE. Pursuant to the license agreement, KYE was obligated to pay us an up-front payment based on approval, a milestone upon attainment of
marketing authorization and product supply, milestones based on achievements of sales and regulatory milestones, and a sharing of defined net sales
following commercialization.
On August 10, 2020, Health Canada issued a Notice of Compliance (NOC) to Medunik for Ruzurgi® for the treatment of LEMS. We 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. 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.
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 re-issued an NOC for Ruzurgi®, once again allowing the product to be marketed in
Canada for patients with LEMS. As a result, in July 2021 we, along with our partner KYE, filed a second suit against Health Canada to overturn this
decision. That case was fully briefed in late 2021, with oral argument held in early December.
On March 11, 2022, we announced that we had received a favorable decision from the Canadian court setting aside, for the second time, the decision of
Health Canada approving Ruzurgi® for the treatment of LEMS patients. In its ruling, the court determined that the Minister of Health’s approach to
evaluating whether FIRDAPSE®’s data deserved protection based on FIRDAPSE®’s status as an innovative drug, which protects by regulation the use of
such data as part of a submission seeking an NOC for eight years from approval of the innovative drug, was legally flawed and not supported by the
evidence. As a result, the matter has, once again, been remanded to the Minister of Health to redetermine its decision in light of the court’s ruling. There
can be no assurance as to the outcome of this proceeding.
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In May 2019, we entered into an amendment to our license agreement for FIRDAPSE®. Under the amendment, we 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 to our licensor 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 have reached an agreement with Japanese regulatory authorities as to the scope of the clinical trial that will be required to be completed before an
application can be submitted to Japanese regulatory authorities to commercialize FIRDAPSE® for the treatment of LEMS in Japan. We also have been
granted orphan drug designation in Japan for FIRDAPSE® for the symptomatic treatment of LEMS.
On June 28, 2021, we entered into a sub-license agreement with DyDo Pharma, Inc. (DyDo), pursuant to which we sub-licensed to DyDo the Japanese
rights for FIRDAPSE® for the treatment of LEMS. Under the terms of the Agreement, DyDo will have joint rights to develop FIRDAPSE®, and
exclusive rights to commercialize the product, in Japan. DyDo will be responsible for funding all clinical, regulatory, marketing and commercialization
activities in Japan. We will be responsible for clinical and commercial supply, as well as providing support to DyDo in its efforts to obtain regulatory
approval for the product from the Japanese regulatory authorities. Subject to the satisfaction of terms and conditions as set forth in the Agreement, we
have earned an upfront payment and are eligible to receive further development and sales milestones for FIRDAPSE®, as well as revenue on product
supplied to DyDo.
In December 2021, we announced that DyDo had initiated a Phase 3 registrational study in Japan to evaluate the efficacy and safety of FIRDAPSE® for
the treatment of LEMS. We anticipate completion of that study sometime in 2023. There can be no assurance that this trial will be successful or that
DyDo will be granted the right to commercialize FIRDAPSE® in Japan.
All of our patent rights for FIRDAPSE® are derived from our license agreement. In August 2020, the United States Patent and Trademark Office
(USPTO) allowed Patent No. 10,793,893 (the ’893 patent) to our licensor and thereby to us, and the patent issued on October 6, 2020. 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 intend to take all appropriate actions to protect our intellectual property.
In April 2021, the USPTO also allowed Patent No. 11,060,128 (the ’128 patent) to our licensor and thereby to us, and this second patent issued on
July 13, 2021. The patent is directed to the use of suitable doses of amifampridine to treat patients suffering with LEMS that are slow metabolizers of
amifampridine. Any drug product containing amifampridine with a label for the treatment of LEMS, that states the patented dosing regimens and doses
in the Dosing and Administration section of a product label, including generic drug product labels, could possibly infringe this patent prior to this
patent’s expiration date.
On December 24, 2021, the USPTO allowed continuing application, 17/503,190. On January 3, 2022, the USPTO allowed related continuing application
17/503,148. A further related continuing application, 17/503,092 was allowed on January 7, 2022. All three patents were issued in March 2022. The
claims in each of these applications have either already been listed in the Orange Book for FIRDAPSE® or are in the process of being listed.
We are also pursuing additional patent applications for FIRDAPSE® in an effort to further protect our drug product. There can be no assurance that any
additional patents will be issued which provide additional intellectual property protection for our drug product.
In that regard, in October 2020, we filed lawsuits against Jacobus and the specialty pharmacy marketing Ruzurgi®, PantherRx Rare LLC (PantherRx),
for infringement of the ‘893 patent. The suits have now been consolidated in a single action in the U.S. District Court for New Jersey. Further, in August
2021, the lawsuits were amended to include alleged infringement of the ‘128 patent. The lawsuits arise from Jacobus’ and PantherRx’s sales and
marketing of Ruzurgi® (amifampridine) Tablets, 10 mg. The lawsuits allege that the Ruzurgi® product infringes the ‘893 patent and the ‘128 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. The lawsuit is in the discovery stage and there can be no assurance as to the results of these proceedings.
There 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.
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Generic Sabril®
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. If
and when the product is launched, 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.
Capital Resources
At December 31, 2021, we had cash and cash equivalents and investments of approximately $191.3 million. Based on our current financial condition
and forecasts of available cash, we believe that we have sufficient funds to support our operations for at least the next 12 months. There can be no
assurance that we will continue to be successful in commercializing FIRDAPSE® or will continue to be profitable. Further, there can be no assurance
that if we need additional funding in the future, whether such funding will be available to us. See Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources” below for further information on our liquidity and cash flow.
Basis of Presentation
Revenues.
During the fiscal year ended December 31, 2021, 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®. We received approval from Health Canada on July 31, 2020, for FIRDAPSE®
for the symptomatic treatment of LEMS and as of December 31, 2020, we had launched FIRDAPSE® in Canada. During the fiscal year ended
December 31, 2021, revenues generated under our collaboration agreement with KYE Pharmaceuticals were immaterial. We expect our revenues from
the KYE collaboration agreement to fluctuate in future periods based on our collaborator’s ability to sell FIRDAPSE® in Canada.
For the fiscal year ended December 31, 2021, 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.
For the fiscal year ended December 31, 2021, we generated revenues of approximately $2.9 million from our collaborative agreement with DyDo
Pharma. We expect our revenue from the DyDo license agreement to fluctuate in future periods based on DyDo’s ability to meet various regulatory
milestones set forth in such agreement.
Cost of Sales.
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.
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
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®, CPP-109 (our
version of vigabatrin), and formerly CPP-115, 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 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
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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 substantial
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 including litigation cost,
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.
Income Taxes.
Our effective income tax rate is the ratio of income tax expense (benefit) over our income before income taxes.
We incurred operating losses from inception through the three-month period ended March 31, 2019. As of December 31, 2021 and 2020, respectively,
we had federal net operating loss carry-forwards of approximately $0 million and $3 million. Additionally, we had state net operating loss carry-
forwards of approximately $28 million and $42 million, respectively, available to reduce future Florida taxable income for the years ended
December 31, 2021 and 2020.
In the third quarter of 2020, we determined that there was sufficient positive evidence to conclude that it is more likely than not that our additional
deferred taxes of approximately $33.0 million are realizable. As a result, we reduced the 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
consolidated financial statements included in this report.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are 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 revenue and expenses during the reporting periods. 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
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.
The amounts of assets and liabilities reported in our consolidated balance sheets and the amounts reported in our consolidated statements of
comprehensive income are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, leases,
preclinical study and clinical trial expenses, stock-based compensation and valuation allowance for deferred tax assets. The accounting policies
described below are not intended to be a comprehensive list of all of our accounting policies but represent the accounting estimates which involve a
significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of
operations. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP. There are also areas in which our
management’s judgment in selecting any available alternative would not produce a materially different result. Our consolidated financial statements and
the notes thereto included elsewhere in this report contain accounting policies and other disclosures as required by U.S. GAAP.
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Revenue Recognition.
Revenue from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves
are established. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts,
government rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts with our customer,
payors, and other indirect customers relating to the sale of our products. These reserves are based on the amounts earned, or to be claimed on the related
sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a
party other than a customer). These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with
the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and
trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of
consideration to which we are entitled based on the terms of the respective underlying contracts.
The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the
extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future
period. Our analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of
revenue would not occur in a future period for the estimates as of December 31, 2021 and 2020 and, therefore, the transaction price was not reduced
further during the years ended December 31, 2021 and 2020. Actual amounts of consideration ultimately received may differ from our estimates. If
actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period
such variances become known. Refer to Note 2, “Basis of Presentation and Significant Accounting Policies,” in the consolidated financial statements
included in this report for further details on revenue recognition.
Stock-Based Compensation.
We recognize stock-based compensation for the fair value of all share-based payments, including grants of stock options and restricted stock units. For
stock options, we use the Black-Scholes option valuation model to determine the fair value of stock options on the date of grant. This model derives the
fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and
dividend yield. Expected volatility is based on reviews of historical volatility of our common stock. The estimated expected option life is based upon the
simplified method. Under this method, the expected option life is presumed to be the mid-point between the vesting date and the end of the contractual
term. We will continue to use the simplified method until we have sufficient historical exercise data to estimate the expected life of the options. The risk-
free interest rate assumption is based upon the U.S. Treasury yield curve appropriate for the expected life of our stock option awards. For the years
ended December 31, 2021 and 2020, the assumptions used were an estimated annual volatility of 70.0% and 81.4%, expected holding periods of
primarily four and a half years, and risk-free interest rates of 0.34% to 1.18% and 0.24% to 1.64%, respectively.
Valuation Allowance for Deferred Tax Assets.
We assess the need for a valuation allowance against our deferred tax asset each quarter through the review of all available positive and negative
evidence. Deferred tax assets are reduced by a tax valuation allowance when, in the opinion of management, it is more likely than not that some portion
of the deferred tax assets will not be realized. Management’s analysis depends on historical and projected taxable income. Projected taxable income
includes significant assumptions related to revenue, commercial expenses and research and development activities. In the third quarter of 2020, we
determined that there was sufficient positive evidence to conclude that it is more likely than not that our additional deferred taxes are realizable. As a
result, we reduced the valuation allowance accordingly.
Results of Operations
Years Ended December 31, 2021 and 2020
Revenues.
For the year ended December 31, 2021, we recognized $138.0 million in net revenue from product sales of FIRDAPSE® primarily in the U.S. compared
to $118.8 million for the year ended December 31, 2020. The increase of approximately $19.2 million was due to increases in sales volumes of
approximately 10.4% and net price increases. For the year ended December 31, 2021, we also recognized $2.8 million in license and other revenue, as
compared to $0.3 million during the year ended December 31, 2020. The increase was primarily due to our license agreement with DyDo Pharma for the
commercialization of FIRDAPSE® in Japan that was signed in 2021.
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Cost of Sales.
Cost of sales was approximately $21.9 million for the year ended December 31, 2021, compared to $17.0 million for the year ended December 31, 2020.
Cost of sales in both periods consisted principally of royalty payments, which are based on net revenue as defined in the applicable license agreement.
Royalties are payable on the terms set forth below in Liquidity and Capital Resources -Contractual Obligations and Arrangements, and increase by 3%
when net sales (as defined in the applicable license agreement) exceed $100 million in any calendar year.
Research and Development Expenses.
Research and development expenses for the years ended December 31, 2021 and 2020 were approximately $16.9 million and $16.5 million,
respectively, and represented approximately 19% and 21% of total operating costs and expenses, respectively. Research and development expenses for
the years ended December 31, 2021 and 2020 were as follows (in thousands):
Research and development expenses
Employee stock-based compensation
Total research and development expenses
For the year ended December 31,
2021
2020
$
$
15,325
1,611
16,936
$
$
14,912
1,585
16,497
Change
$ %
2.8
1.6
2.7
413
26
439
Research and development expenses stayed relatively consistent for the 2021 fiscal year, when compared to the same period in 2020. For the 2020 fiscal
year, research and development expenses included costs related to our MuSK-MG clinical trial and our SMA type 3 proof-of-concept trial, both of
which were completed in the second half of 2020. For the fiscal year ended December 31, 2021, research and development expenses included costs
relating to closing out sites for both the MuSK-MG clinical trial and SMA type 3 proof-of-concept trial. Research and development costs in both the
2020 and 2021 periods also included expenses relating to medical and regulatory affairs, our expanded access programs, and our efforts to develop a
long-acting formulation of amifampridine phosphate.
We expect that research and development expenses will continue to be substantial in 2022 and beyond as we execute on our strategic initiative to acquire
or in-license innovative technology platforms and/or earlier stage programs in rare disease categories outside of neuromuscular diseases.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses for the years ended December 31, 2021 and 2020 were approximately $49.6 million and $44.2 million,
respectively, and represented approximately 56% and 57% of total operating costs and expenses for the years ended December 31, 2021, and 2020,
respectively. Selling, general and administrative expenses for the years ended December 31, 2021 and 2020 were as follows (in thousands):
Selling
General and administrative
Employee stock-based compensation
Total selling, general and administrative expenses
For the year ended December 31,
Change
2021
2020
$
$
26,151 $
19,015
4,462
49,628 $
23,567
15,991
4,676
44,234
$
%
2,584 11.0
3,024 18.9
(214) (4.6)
5,394 12.2
For the year ended December 31, 2021, selling, general and administrative expenses increased approximately $5.4 million, compared to the same period
in 2020, primarily attributable to the timing of our commitments to make contributions to 501(c)(3) organizations supporting LEMS patients of
approximately $1 million and increases of legal fees of approximately $1.9 million. The increase was also due to increased costs due to the expansion of
our operations and headcount required to support our ongoing efforts to commercialize FIRDAPSE®.
We expect that selling, general and administrative expenses will continue to be substantial in future periods as we continue our efforts to increase our
revenues from FIRDAPSE® and take steps to expand our business.
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Stock-Based Compensation.
Total stock-based compensation for the years ended December 31, 2021 and 2020 was $6.1 million and $6.3 million, respectively. In 2021 and 2020,
grants were principally for stock options relating to year-end bonus awards and grants to new employees.
Other Income, Net.
We reported other income, net in all periods, primarily relating to our investment of our cash and cash equivalents and investments. The decrease in
other income, net for the year ended December 31, 2021 of approximately $0.3 million when compared to the same period in 2020 is primarily due to
lower yields on investments, despite higher invested balances. Other income, net, consists primarily of interest and dividend income.
Income Taxes.
As of December 31, 2021 and 2020, respectively, we had federal net operating loss carryforwards of approximately $0 million and $3 million. The
federal net operating loss carryforwards were utilized in 2020. Additionally, we had state net operating loss carryforwards of approximately $28 million
and $42 million, respectively, available to reduce future Florida taxable income. We had no uncertain tax positions as of December 31, 2021 and
December 31, 2020.
For the year ending December 31, 2020 we recorded a net valuation release of $41.6 million ($0.40 per basic share and $0.39 per diluted share) on the
basis of management’s determination that it is more likely than not that the amount of our deferred tax assets will be realized.
Our effective income tax rate was 25% and (79%), respectively, for fiscal year 2021 and fiscal year 2020. The difference in the effective rates between
periods is driven by the release of the valuation allowance against deferred taxes in the third quarter of 2020. 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, and offset by the orphan drug
credit claimed.
Net Income.
Our net income was approximately $39.5 million in the year ended December 31, 2021 ($0.38 per basic and $0.37 per diluted share) as compared to
$75.0 million in the year ended December 31, 2020 ($0.72 per basic and $0.71 per diluted share).
Years Ended December 31, 2020 and 2019
The information comparing results of operations for the year ended 2020 compared to 2019 was included in our Annual Report on Form 10-K for 2020.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through multiple offerings of our securities and, since January 2019, from revenues from
product sales of FIRDAPSE®. At December 31, 2021 we had cash and cash equivalents and investments aggregating $191.3 million and working capital
of $183.0 million. At December 31, 2020, we had cash and cash equivalents and investments aggregating $140.3 million and working capital of
$136.5 million. At December 31, 2021, 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, short-
term interest bearing obligations and U.S. Treasuries.
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 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, or the
products we acquire and continue to develop 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;
the cost of diligence in seeking a potential acquisition and of the completion of such acquisition, if an acquisition so occurs;
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•
•
•
•
•
•
•
•
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 may raise additional funds 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 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.
Cash Flows.
Net cash provided by operating activities was $60.4 million and $45.0 million, respectively, for the years ended December 31, 2021 and 2020. During
the year ended December 31, 2021, net cash provided by operating activities was primarily attributable to our net income of $39.5 million, a decrease of
$4.0 million in prepaid expenses and other current and non-current assets, increases of $5.5 million in accrued expenses and other liabilities,
$0.9 million in operating lease liability, $9.3 million in deferred taxes and of $6.6 million of non-cash expenses. This was partially offset by increases of
$0.6 million in accounts receivable, net and $3.2 million in inventory and a decrease of $1.5 million in accounts payable. During the year ended
December 31, 2020, net cash provided by operating activities was primarily attributable to our net income of $75.0 million, a decrease of $4.5 million in
accounts receivable, net, an increase of $0.1 million in accounts payable and $7.1 million net of non-cash expenses. This was partially offset by
increases of $4.0 million in prepaid expenses and other current and non-current assets and $2.7 million in inventory and decreases of $1.2 million in
accrued expenses and other liabilities, $0.9 million in operating lease liability and $33.0 million in non-cash deferred taxes.
Net cash used in investing activities was $11.0 million for the year ended December 31, 2021, consisting primarily of purchases of investments. Net
cash used in investing activities was $5.0 million for the year ended December 31, 2020, consisting primarily of purchases of investments of
$10.0 million, partially offset by proceeds from sales/maturities of investments of $5.0 million.
Net cash used in financing activities during the year ended December 31, 2021 was $8.1 million, consisting primarily of repurchases of common stock,
partially offset by proceeds from the exercise of options to purchase shares of common stock. Net cash provided by financing activities during the year
ended December 31, 2020 was $0.7 million, consisting primarily of proceeds from the exercise of options to purchase shares of common stock.
Contractual Obligations and Arrangements.
We have entered into the following contractual arrangements:
•
Payments under our license agreement. We have agreed to pay the following royalties under our license agreement:
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•
•
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
Royalties to the third-party licensor of the rights sublicensed to us 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 duration of regulatory exclusivity within a territory and 3.5% for territories in any calendar year in territories
without regulatory exclusivity.
•
•
•
For the year ended December 31, 2021, we recognized an aggregate of approximately $19.5 million of royalties, which is included in cost
of sales in the accompanying consolidated statement of operations and comprehensive income.
Employment agreements. We have entered into an employment agreement with our Chief Executive Officer that required us to make base
salary payments of approximately $0.6 million in 2021. The agreement expires in November 2022.
Purchase commitment. We have entered into a purchase commitment with our contract manufacturing organization for approximately
$0.5 million per year. The agreement expires in December 2023.
Lease for office space. We operate our business in leased office space in Coral Gables, Florida. We entered into an agreement in May 2020
that amended our lease for office facilities. Under the amended lease, our leased space increased from approximately 7,800 square feet of
office space to approximately 10,700 square feet of office space. We moved into the new space around March 1, 2021 when the space
became available for use. We pay annual rent of approximately $0.5 million.
Off-Balance Sheet Arrangements.
We currently have no debt or finance leases. We have an operating lease 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 report 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.”
The continued successful commercialization of FIRDAPSE® is highly uncertain. Factors that will affect our success include the uncertainty of:
•
•
•
•
•
•
•
•
The impact of the COVID-19 pandemic 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;
Whether the daily dose taken by patients changes over time and affects 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;
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Whether any revenue or earnings guidance that we provide to the public market will turn out to be accurate;
Whether payors will 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 Pharmaceutical Company (Jacobus) and the specialty pharmacy distributing its product for patent
infringement will be successful;
Whether Jacobus will seek U.S. Supreme Court review of the decision of the U.S. Court of Appeals for the 11th Circuit granting summary
judgment in our favor in our case against the FDA, thereby overturning the FDA’s approval of Ruzurgi®, whether the U.S. Supreme Court
will agree to hear the case, or whether if the U.S. Supreme Court hears the case, they will overturn the decision of the 11th Circuit;
Whether the United States Congress will pass, and the President will sign, legislation revising the Orphan Drug Act that effectively
overturns the decision of the U.S. Court of Appeals for the 11th Circuit, and whether any such legislation, if passed and signed into law,
will retroactively affect the outcome of the 11th Circuit decision and allow the FDA to reinstate the approval of Ruzurgi® before the
expiration of Firdapse®’s orphan drug exclusivity;
The impact on FIRDAPSE® of adverse changes in 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;
Changes in the healthcare industry and the effect of political pressure from and actions by the President, 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 changes 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, proof-of-concept studies, and our other drug
development activities, and whether our trials and studies will be successful;
Our ability to complete any clinical trials and studies that we may undertake on a timely basis and within the budgets we establish for such
trials and studies;
Whether COVID-19 will further affect the timing and costs of our currently ongoing and contemplated clinical trials;
Whether FIRDAPSE® can be successfully commercialized in Canada on a profitable basis;
Whether our suit with KYE Pharmaceuticals 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 our collaboration partner in Japan, DyDo, will successfully complete the clinical trial in Japan that will be required to seek
approval to commercialize FIRDAPSE® in Japan;
Whether DyDo will be able to obtain approval to commercialize FIRDAPSE® in Japan;
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•
•
•
•
•
Whether our efforts to grow our business beyond FIRDAPSE® through acquisitions of companies or in-licensing of product opportunities
will be successful;
Whether we will have sufficient capital to finance any such acquisitions;
Whether our version of 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 continued commercialization of 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 7A.
Quantitative and Qualitative Disclosures 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 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 8.
Financial Statements and Supplementary Data
See the list of financial statements filed with this report under Item 15 below.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Disclosure 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. The term “disclosure controls and
procedures”, as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other
procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under
the Exchange Act is processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management,
including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of December 31, 2021, 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
Securities Exchange Act of 1934, as amended, 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.
65
Table of Contents
Management’s Annual Assessment of Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our
consolidated financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Under the supervision and with the participation of our principal executive officer and our principal financial officer, management conducted an
evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the 2013 framework in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and in accordance with the
interpretive guidance issued by the SEC in Release No. 34-55929. Based on that evaluation, management concluded that our internal control over
financial reporting was effective as of December 31, 2021.
During the fourth quarter of 2021, there were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) under the
Securities and Exchange Act of 1934 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Our independent registered public accounting firm, Grant Thornton LLP, has issued a report on our internal control over financial reporting, which is
included in Item 15 of this Annual Report on Form 10-K.
Item 9B.
Other Information
Not applicable.
66
Table of Contents
PART III
Item 10.
Directors and Executive Officers of the Registrant
The information required by this item will be contained in our definitive proxy statement, or Proxy Statement, to be filed with the SEC in connection
with our 2022 Annual Meeting of Stockholders. Our Proxy Statement for the 2022 Annual Meeting of Stockholders is expected to be filed not later than
120 days after the end of our fiscal year ended December 31, 2021 and is incorporated into this report by this reference.
We have adopted a code of ethics that applies to our chief executive officer, chief financial officer, and to all of our other officers, directors, employees
and agents. The code of ethics is available on our website at www.catalystpharma.com. We intend to disclose future amendments to, or waivers from,
certain provisions of our code of ethics on the above website within five business days following the date of such amendment or waiver.
Item 11.
Executive Compensation
The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by this reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management
The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by this reference.
Item 13.
Certain Relationships and Related Transactions
The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by this reference.
Item 14.
Principal Accounting Fees and Services
The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by this reference.
67
Table of Contents
Item 15.
Exhibits and Financial Statement Schedules
Documents filed as part of this report.
PART IV
The following financial statements of Catalyst Pharmaceuticals, Inc. and Reports of Grant Thornton LLP, independent registered public accounting firm,
are included in this report:
Reports of Grant Thornton LLP, Independent Registered Public Accounting Firm.
Consolidated Balance Sheets as of December 31, 2021 and 2020.
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2021, 2020 and 2019.
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021, 2020 and 2019.
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019.
Notes to Consolidated Financial Statements.
List of financial statement schedules. All schedules are omitted because they are not applicable or the required information is shown in the financial
statements or notes thereto.
List of exhibits required by Item 601 of Regulation S-K. See part (b) below.
Amendment to Certificate of Incorporation
DEF 14A
001-33057
3/30/2015
Annex A
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
Exhibits.
Exhibit
Number
2.1
Description of Exhibit
Agreement and Plan of Merger, dated August 14, 2006, between the
Company and Catalyst Pharmaceutical Partners, Inc., a Florida
corporation
Certificate of Incorporation
Amendment to Certificate of Incorporation
Amendment to Certificate of Incorporation
By-Laws
Amendment to By-Laws
Specimen Stock Certificate for Common Stock
Rights Agreement between the Company and Continental Stock
Transfer and Trust Company
Amendment to Rights Agreement
Second Amendment to Rights Agreement
Description of the Company’s Capital Stock
10.1(a)+
Employment Agreement between the Company and Patrick J.
McEnany
10.1(b)+
First Amendment to Employment Agreement between the Company
and Patrick J. McEnany
10.1(c)+
Second Amendment to Employment Agreement between the
Company and Patrick J. McEnany
10.1(d)+
Third Amendment to Employment Agreement between the Company
and Patrick J. McEnany
68
Incorporated by Reference
Date of
Filing
File Number
Form
Exhibit
Number
Filed
Herewith
S-1
333-136039
9/1/2006
10.9
S-1
333-136039
7/25/2006
S-1
333-136039
7/25/2006
3.1
3.2
8-K
001-33057
8/21/2020
S-1
333-136039
9/1/2006
8-K
001-33057
11/27/2019
S-1
333-136039
9/1/2006
8-K
001-33057
9/23/2011
8-K
001-33057
9/19/2016
8-K
001-33057
8/30/2019
3.1
3.3
3.1
4.1
4.1
4.1
4.1
10-Q
001-33057
12/15/2006
10.1
8-K
001-33057
12/23/2008
10.1
10-Q
001-33057
11/12/2009
10.1
8-K
001-33057
9/15/2011
10.1
X
Table of Contents
Exhibit
Number
10.1(e)+
Description of Exhibit
Incorporated by Reference
Date of
Filing
File Number
Form
Exhibit
Number
Filed
Herewith
Fourth Amendment to Employment Agreement between the Company
and Patrick J. McEnany
8-K
001-33057
8/29/2013
10.1
10.1(f)+
Fifth Amendment to Employment Agreement between the Company
and Patrick J. McEnany
10.1(g)+
Sixth Amendment to Employment Agreement between the Company
and Patrick J. McEnany
10.1(h)+
Seventh Amendment to Employment Agreement between the Company
and Patrick J. McEnany
8-K
001-33057
6/24/2016
10.1
8-K
001-33057
5/31/2018
10.1
8-K
001-33057
9/11/2020
10.1
10.2(a)+ 2014 Stock Incentive Plan
DEF 14A
001-33057
3/19/2014
Annex A
10.2(b)+
Amendment No. 1 to 2014 Stock Incentive Plan
10.2(c)+
Amendment No. 2 to 2014 Stock Incentive Plan
10.3(a)+
2018 Stock Incentive Plan
10.3(b)+
Amendment No. 1 to 2018 Stock Incentive Plan
10.3(c)+
Amendment No. 2 to 2018 Stock Incentive Plan
DEF 14A
001-33057
4/29/2016
DEF 14A
001-33057
4/14/2017
DEF 14A
001-33057
4/17/2018
DEF 14A
001-33057
7/7/2020
DEF 14A
001-33057
10/25/2021
Annex
A
Annex
A
Annex
A
Annex
A
Annex
A
10.4(a)
Lease Agreement between the Company and 355 Alhambra Plaza, Ltd.
10-Q
001-33057
5/14/2007
10.1
10.4(b)
10.4(c)
10.4(d)
10.4(e)
10.4(f)
10.5
10.6(a)
10.6(b)
10.6(c)
First Amendment to Lease Agreement between the Company and CPT
355 Alhambra Circle, LLC
Second Amendment to Lease Agreement between the Company and
CPT 355 Alhambra Circle, LLC
Third Amendment to Lease Agreement between the Company and CPT
355 Alhambra Circle, LLC
Fourth Amendment to Lease Agreement between the Company and
PRII 355 Alhambra Circle, LLC
Fifth Amendment to Lease Agreement between the Company and PRII
355 Alhambra Circle, LLC
License Agreement, dated as of December 13, 2011, among New York
University, the Feinstein Institute for Medical Research, and the
Company
License Agreement, dated as of October 26, 2012, between the
Company and BioMarin
Amendment No. 1 to License Agreement, dated as of April 8, 2014,
between the Company and BioMarin
Settlement Agreement, dated effective as of July 26, 2018, by and
among (i) Aceras BioMedical, LLC, in its capacity as Stockholder
Representative for the Former stockholders of Huxley Pharmaceuticals,
Inc., (ii) BioMarin, and (iii) the Company
10-Q
001-33057
8/15/2011
10.1
8-K
001-33057
2/20/2014
10.1
8-K
001-33057
3/27/2015
10.1
8-K
001-33057
8/17/2018
10.1
8-K
001-33057
5/13/2020
10.1
10-K
001-33057
3/30/2012
10.15
8-K
001-33057
10/31/2012
10.2
8-K
001-33057
4/17/2014
10.1
10-Q
001-33057
8/17/2018
10.1
10.6(d)
Second Amendment to License Agreement, dated May 29, 2019,
between the Company and BioMarin
8-K
001-33057
5/30/2019
10.1
10.7
10.8
10.9
21.1
23.1
31.1
31.2
Development, License and Commercialization Agreement, dated
effective as of December 18, 2018, by and between Endo Ventures
Limited and the Company
License and Supply Agreement, dated as of August 14, 2020, by and
between KYE Pharmaceuticals, Inc. and the Company
License and Supply Agreement, dated as of June 28, 2021, by and
between DyDo Pharma, Inc. and the Company
Subsidiaries of the registrant
Consent of Independent Registered Public Accounting Firm
Section 302 CEO Certification
Section 302 CFO Certification
69
8-K
001-33057
12/26/2018
10.1
8-K
001-33057
8/20/2020
10.1
8-K
001-33057
6/28/2021
10-K
001-33057
3/16/2020
10.1
21.1
X
X
X
Table of Contents
Exhibit
Number
32.1
32.2
Section 906 CEO Certification
Section 906 CFO Certification
Description of Exhibit
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in
Exhibit 101)
70
Incorporated by Reference
Form
File
Number
Date of
Filing
Exhibit
Number
Filed
Herewith
X
X
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Annual Report on Form
10-K to be signed by the undersigned, thereunto duly authorized, this 16th day of March, 2022.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons, in the capacities and on the
dates indicated.
CATALYST PHARMACEUTICALS, INC.
By: /s/ Patrick J. McEnany
Patrick J. McEnany, Chairman,
President and CEO
Signature
/s/ Patrick J. McEnany
Patrick J. McEnany
/s/ Alicia Grande
Alicia Grande
/s/ Charles B. O’Keeffe
Charles B. O’Keeffe
/s/ Philip H. Coelho
Philip H. Coelho
/s/ David S. Tierney, M.D.
David S. Tierney, M.D.
/s/ Donald A. Denkhaus
Donald A. Denkhaus
/s/ Richard Daly
Richard Daly
/s/ Molly Harper
Molly Harper
Title
Chairman of the Board of Directors, President and Chief
Executive Officer (Principal Executive Officer)
Vice President, Treasurer, Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
71
Date
March 16, 2022
March 16, 2022
March 16, 2022
March 16, 2022
March 16, 2022
March 16, 2022
March 16, 2022
March 16, 2022
Table of Contents
INDEX TO FINANCIAL STATEMENTS
Years ended December 31, 2021, 2020 and 2019
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
F-2
F-4
F-5
F-6
F-7
F-8
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Catalyst Pharmaceuticals, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Catalyst Pharmaceuticals, Inc. (a Delaware corporation) and subsidiary (the “Company”)
as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
consolidated financial statements of the Company as of and for the year ended December 31, 2021, and our report dated March 16, 2022 expressed an
unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying Management’s Annual Assessment of Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Miami, Florida
March 16, 2022
F-2
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Catalyst Pharmaceuticals, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Catalyst Pharmaceuticals, Inc. (a Delaware corporation) and subsidiary (the
“Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, changes in stockholders’
equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 16, 2022,
expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2006.
Miami, Florida
March 16, 2022
F-3
Table of Contents
CATALYST PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current Assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventory
Prepaid expenses and other current assets
Total current assets
Operating lease right-of-use asset
Property and equipment, net
Deferred tax assets, net
Deposits
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Accrued expenses and other liabilities
Total current liabilities
Operating lease liability, net of current portion
Total liabilities
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized: none issued and outstanding at December 31, 2021
and 2020
Common stock, $0.001 par value, 200,000,000 shares authorized; 102,992,913 shares and 103,781,641 shares issued
and outstanding at December 31, 2021 and 2020, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2021
December 31,
2020
$ 171,445
19,821
6,619
7,870
4,351
210,106
3,017
959
23,697
9
$ 237,788
$ 130,237
10,041
5,987
4,651
8,328
159,244
—
130
32,971
9
$ 192,354
$
2,768
24,295
27,063
3,894
30,957
$
4,256
18,500
22,756
—
22,756
—
—
103
233,186
(26,310)
(148)
206,831
$ 237,788
104
223,168
(53,705)
31
169,598
$ 192,354
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
CATALYST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except share data)
Revenues:
Product revenue, net
License and other revenue
Total revenues
Operating costs and expenses:
Cost of sales
Research and development
Selling, general and administrative
Total operating costs and expenses
Operating income
Other income, net
Net income before income taxes
Income tax provision (benefit)
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
2021
Year Ended December 31,
2020
2019
$
$
$
$
137,997
2,836
140,833
21,884
16,936
49,628
88,448
52,385
282
52,667
13,185
39,482
0.38
0.37
$
$
$
$
118,790
283
119,073
17,039
16,497
44,234
77,770
41,303
587
41,890
(33,093)
74,983
0.72
0.71
$
$
$
$
102,306
—
102,306
14,759
18,843
36,881
70,483
31,823
1,586
33,409
1,534
31,875
0.31
0.30
Basic
Diluted
103,379,349
103,512,913
102,944,316
107,795,585
106,242,273
106,020,936
Net income
Other comprehensive income:
Unrealized gain (loss) on available-for-sale securities, net of tax of $46, $0 and $0,
respectively
Comprehensive income
$
$
39,482
(179)
39,303
$
$
74,983
22
75,005
$
$
31,875
30
31,905
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
CATALYST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the years ended December 31, 2021, 2020 and 2019
(in thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Gain (Loss)
Total
Balance at December 31, 2018
Issuance of stock options for services
Exercise of stock options for common stock
Amortization of restricted stock for services
Other comprehensive gain (loss)
Net income
Balance at December 31, 2019
Issuance of stock options for services
Exercise of stock options for common stock
Amortization of restricted stock for services
Issuance of common stock upon vesting of restricted
stock units, net
Other comprehensive gain (loss)
Net income
Balance at December 31, 2020
Issuance of stock options for services
Exercise of stock options for common stock
Amortization of restricted stock for services
Issuance of common stock upon vesting of restricted
stock units, net
Repurchase of common stock
Other comprehensive gain (loss)
Net income
Balance at December 31, 2021
Preferred
Stock
$ —
—
—
—
—
—
—
—
—
—
102,739 $ 103 $ 211,265 $ (160,563) $
—
658
—
—
—
103,397
—
282
—
3,780
1,115
45
—
—
216,205
5,694
758
567
—
—
—
—
31,875
(128,688)
—
—
—
—
1
—
—
—
104
—
—
—
—
—
—
—
—
—
—
103
—
—
103,782
—
1,328
—
—
—
—
104
—
1
—
(56)
—
—
223,168
5,550
4,098
523
—
—
74,983
(53,705)
—
—
—
—
—
—
—
$ —
91
(2,208)
—
—
102,993 $ 103 $233,186 $ (26,310) $
—
(12,087)
—
39,482
—
(2)
—
—
(153)
—
—
—
(20) $ 50,785
3,780
—
1,116
—
45
—
29
29
31,875
—
87,630
9
5,694
—
758
—
567
—
—
22
—
31
—
—
—
(56)
22
74,983
169,598
5,550
4,099
523
—
—
(179)
—
(153)
(12,089)
(179)
39,482
(148) $206,831
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
CATALYST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation
Stock-based compensation
Deferred taxes
Change in accrued interest and accretion of discount on investments
Reduction in the carrying amount of right-of-use asset
(Increase) decrease in:
Accounts receivable, net
Inventory
Prepaid expenses and other current assets and deposits
Increase (decrease) in:
Accounts payable
Accrued expenses and other liabilities
Operating lease liability
Net cash provided by (used in) operating activities
Investing Activities:
Purchases of property and equipment
Purchases of investments
Proceeds from maturities and sales of investments
Net cash provided by (used in) investing activities
Financing Activities:
Payment of employee withholding tax related to stock-based compensation
Proceeds from exercise of stock options
Repurchase of common stock
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents – beginning of period
Cash and cash equivalents – end of period
Supplemental disclosures of cash flow information:
Cash paid for income taxes
Non-cash investing and financing activities:
Operating lease liabilities arising from obtaining right-of-use assets
Year Ended December 31,
2020
2021
2019
$ 39,482 $ 74,983 $ 31,875
192
6,073
9,316
(5)
292
92
6,261
55
3,825
(32,971) —
(291)
244
(12)
793
(632)
(3,219)
3,977
4,549 (10,537)
(1,901)
(2,694)
(2,701)
(3,977)
(1,488)
5,520
864
60,372
138
1,780
(1,209) 12,540
(277)
45,034 34,612
(919)
(1,021)
(10,000)
—
(11,021)
(11)
(19)
(10,000) (34,725)
5,000 71,969
(5,011) 37,225
(56) —
(153)
1,116
758
4,099
— —
(12,089)
1,116
702
(8,143)
40,725 72,953
41,208
89,512 16,559
130,237
$171,445 $ 130,237 $ 89,512
$
3,000 $
2,785 $ —
$
3,309 $
—
$ —
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
CATALYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Description of Business.
Catalyst Pharmaceuticals, Inc. and subsidiary (collectively, the “Company”) is a commercial-stage biopharmaceutical company focused on
in-licensing, 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, best-in-class medicines for rare diseases. The Company (f/k/a Catalyst Pharmaceutical
Partners, Inc.) was incorporated in Delaware in July 2006. It is the successor by merger to Catalyst Pharmaceutical Partners, Inc., a Florida corporation,
which commenced operations in January 2002.
On November 28, 2018, the U.S. Food and Drug Administration, or FDA, granted approval of FIRDAPSE® for the treatment of adults with
Lambert-Eaton Myasthenic Syndrome (“LEMS”) (ages 17 and above). On January 15, 2019, the Company launched its first product, FIRDAPSE®, in
the United States for the treatment of adults with LEMS.
On August 6, 2020, the Company announced that Canada’s national healthcare regulatory agency, Health Canada, had approved FIRDAPSE® for
the treatment of patients in Canada with LEMS. On October 28, 2020, the Company launched FIRDAPSE® in Canada for the treatment of patients with
LEMS through a license and supply agreement with KYE Pharmaceuticals.
Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management
and technical staff, acquiring operating assets, raising capital, and selling its product. The Company incurred operating losses in each period from
inception and started reporting operating income during the year ended December 31, 2019. The Company has been able to fund its cash needs to date
through offerings of its securities and from revenues from sales of its product. See Note 13 (Stockholders’ Equity).
Capital Resources
While there can be no assurance, based on currently available information, the Company estimates that it has sufficient resources to support its
operations for at least the next 12 months from the issuance date of this report.
The Company may raise funds in the future through public or private equity offerings, debt financings, corporate collaborations, governmental
research grants or other means. The Company may also seek to raise new capital to fund additional drug development efforts, even if it has sufficient
funds for its planned operations. Any sale by the Company of additional equity or convertible debt securities could result in dilution to the Company’s
current stockholders. There can be no assurance that any required additional funding will be available to the Company at all or available on terms
acceptable to the Company. Further, to the extent that the Company raises additional funds through collaborative arrangements, it may be necessary to
relinquish some rights to the Company’s drug candidates or grant sublicenses on terms that are not favorable to the Company. If the Company is not able
to secure additional funding when needed, the Company may have to delay, reduce the scope of, or eliminate one or more research and development
programs, which could have an adverse effect on the Company’s business.
Risks and Uncertainties
There are numerous aspects of the coronavirus (COVID-19) 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.
2.
Basis of Presentation and Significant Accounting Policies.
a.
b.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the Company’s accounts and those of its wholly-
owned subsidiary, Catalyst Pharmaceuticals Ireland, Ltd. (“Catalyst Ireland”). All intercompany accounts and transactions have been
eliminated in consolidation. Catalyst Ireland was organized in 2017.
USE OF ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S.
(U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those estimates.
F-8
Table of Contents
2.
Basis of Presentation and Significant Accounting Policies (continued).
c.
d.
e.
f.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid instruments, purchased with an original maturity of three
months or less, to be cash equivalents. Cash equivalents consist mainly of money market funds and U.S. Treasuries. The Company has
substantially all of its cash and cash equivalents deposited with one financial institution. These amounts exceed federally insured limits.
INVESTMENTS. The Company invests in high credit-quality instruments in order to obtain higher yields on its cash available for
investments. At December 31, 2021 and 2020, investments consisted of short-term bond funds and U.S. Treasuries. Such investments are
not insured by the Federal Deposit Insurance Corporation.
The short-term bond funds and U.S. Treasuries held at December 31, 2021 are classified as available-for-sale 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 non-current
investments in its consolidated balance sheets. There are no non-current investments as of December 31, 2021 and 2020.
The Company records available-for-sale 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 available-for-sale 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 available-for-sale 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 available-for-sale securities. See Note 3
(Investments).
ACCOUNTS RECEIVABLE, NET. Accounts receivable is recorded net of customer allowance for distribution fees, trade discounts,
prompt payment discounts, chargebacks and expected credit losses. Allowances for distribution fees, trade discounts, prompt payment
discounts and chargebacks are based on contractual terms. The Company estimates the allowance for expected credit losses based on
existing contractual payment terms, actual payment patterns of its customers and individual customer circumstances. At December 31,
2021 and 2020, the Company determined that an allowance for expected credit losses was not required. No accounts were written off
during the periods presented.
INVENTORY. Inventories are stated at the lower of cost or net realizable value. Inventories consist of raw materials, work-in-process and
finished goods. Costs to be capitalized as inventories primarily include third party manufacturing costs and other overhead costs. Cost is
determined using a standard cost method, which approximates actual cost, and assumes a first-in, first out (FIFO) flow of goods. The
Company began capitalizing inventories post FDA approval of FIRDAPSE® on November 28, 2018 as the related costs were expected to
be recoverable through the commercialization of the product. Costs incurred prior to the FDA approval of FIRDAPSE® were recorded as
research and development expenses in prior years’ consolidated statements of operations and comprehensive income. If information
becomes available that suggests that inventories may not be realizable, the Company may be required to expense a portion or all of the
previously capitalized inventories.
Products that have been approved by the FDA or other regulatory authorities, such as FIRDAPSE®, are also used in clinical programs to
assess the safety and efficacy of the products for usage in treating diseases that have not been approved by the FDA or other regulatory
authorities. The form of FIRDAPSE® utilized for both commercial and clinical programs is identical and, as a result, the inventory has an
“alternative future use” as defined in authoritative guidance. Raw materials associated with clinical development programs are included in
inventory and charged to research and development expense when the product enters the research and development process and no longer
can be used for commercial purposes and, therefore, does not have an “alternative future use”.
F-9
Table of Contents
2.
Basis of Presentation and Significant Accounting Policies (continued).
g.
h.
i.
j.
The Company evaluates for potential excess inventory by analyzing current and future product demand relative to the remaining product
shelf life. The Company builds demand forecasts by considering factors such as, but not limited to, overall market potential, market share,
market acceptance, and patient usage.
PREPAID EXPENSES AND OTHER CURRENT ASSETS. Prepaid expenses and other current assets consist primarily of prepaid
manufacturing, prepaid tax, prepaid insurance, prepaid subscription fees, prepaid research fees, prepaid commercialization expenses,
amounts due from collaborative and license arrangements and prepaid conference and travel expenses. Prepaid research fees consist of
advances for the Company’s product development activities, including contracts for pre-clinical studies, clinical trials and studies,
regulatory affairs and consulting. Prepaid manufacturing consists of advances for the Company’s drug manufacturing activities. Such
advances are recorded as expense as the related goods are received or the related services are performed.
PROPERTY AND EQUIPMENT, NET. Property and equipment are recorded at cost less accumulated depreciation. Depreciation is
calculated to amortize the depreciable assets over their useful lives using the straight-line method and commences when the asset is placed
in service. Leasehold improvements are amortized on a straight-line basis over the term of the lease or the estimated life of the
improvement, whichever is shorter. Useful lives generally range from three to five years for computer equipment to five years for furniture
and equipment, and from five to ten years for leasehold improvements. Expenditures for repairs and maintenance are charged to expenses
as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company’s financial instruments consist of cash and cash equivalents,
investments, accounts receivable, accounts payable, and accrued expenses and other liabilities. At December 31, 2021 and 2020, the fair
value of these instruments approximated their carrying value.
FAIR VALUE MEASUREMENTS. Current Financial Accounting Standards Board (FASB) fair value guidance emphasizes that fair
value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined
based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant
assumptions in fair value measurements, current FASB guidance establishes a fair value hierarchy that distinguishes between market
participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are
classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions that it believes market participants would use
in pricing assets or liabilities (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to
access at the measurement date. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as
inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves
that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically
based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value
measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the
entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The
Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and
considers factors specific to the asset or liability.
F-10
Table of Contents
2.
Basis of Presentation and Significant Accounting Policies (continued).
Fair Value Measurements at Reporting Date Using (in thousands)
Cash and cash equivalents:
Money market funds
U.S. Treasuries
Short-term investments:
Short-term bond funds
Cash and cash equivalents:
Money market funds
U.S. Treasuries
Short-term investments:
Short-term bond funds
Balances as of
December 31,
2021
Quoted Prices in
Active Markets for
Identical
Assets/Liabilities
(Level 1)
10,990
140,995
$
$
10,990
140,995
19,821
$
Quoted Prices in
Active Markets for
Identical
Assets/Liabilities
(Level 1)
$
$
$
19,821
Balances as of
December 31,
2020
$
$
$
15,674
104,994
10,041
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
$
$
$
—
—
—
$
$
$
—
—
—
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
$
$
$
15,674
—
10,041
$
$
$
—
104,994
—
$
$
$
—
—
—
k.
OPERATING LEASES. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating
lease right-of-use (ROU) assets, other current liabilities, and operating lease liabilities on its consolidated balance sheets. Operating lease
ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease
term at commencement date. As the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate
based on the information available at commencement date in determining the present value of future payments. The operating lease ROU
asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease term
includes options to extend or terminate the lease, however, these options are not considered in the lease term as the Company is not
reasonably certain that it will exercise these options. Lease expense for minimum lease payments is recognized on a straight-line basis over
the lease term. The Company has a lease agreement with lease and non-lease components, which are accounted for separately.
l.
SHARE REPURCHASES. 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.
The Company accounts for share repurchases by charging the excess of the repurchase price over the repurchased common stock’s par
value entirely to accumulated deficit. All repurchased shares are retired and become authorized but unissued shares. The Company accrues
for the shares purchased under the share repurchase plan based on the trade date. The Company may terminate or modify its share
repurchase program at any time.
REVENUE RECOGNITION.
m.
Product Revenues:
The Company recognizes revenue when its customer obtains title of the promised goods, in an amount that reflects the consideration to
which the Company expects to be entitled in exchange for these goods. The Company had no contracts with customers until the FDA
approved FIRDAPSE® in November 2018. Subsequent to receiving FDA approval, the Company entered into an arrangement with one
distributor (the “Customer”), which is the exclusive distributor of FIRDAPSE® in the United States. The Customer subsequently resells
FIRDAPSE® to a small group of exclusive specialty pharmacies (“SPs”) whose dispensing activities for patients with specific payors may
result in government-mandated or privately negotiated rebate obligations for the Company with respect to the purchase of FIRDAPSE®.
F-11
Table of Contents
2.
Basis of Presentation and Significant Accounting Policies (continued).
To determine revenue recognition for arrangements that are within the scope of Accounting Standards Codification (“ASC”) Topic 606 –
Revenue from Contracts with Customers (“Topic 606”), the Company performs the following five steps: (i) identify the contract(s) with a
customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to
the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The
Company assesses the goods or services promised within each contract and determines those that are performance obligations by assessing
whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of
accounting for product revenue, see Product Revenue, Net below.
The Company also may generate revenues from payments received under collaborative and license agreements. Collaborative and license
agreement payments may include nonrefundable fees at the inception of the agreements, contingent payments for specific achievements
designated in the agreements, and/or net profit-sharing payments on sales of products resulting from the collaborative and license
arrangements. For a complete discussion of accounting for collaborative and licensing arrangements, see Revenues from Collaboration and
Licensing Arrangements below.
Product Revenue, Net: The Company sells FIRDAPSE® to the Customer (its exclusive distributor) who subsequently resells
FIRDAPSE® to both a small group of SPs who have exclusive contracts with the Company to distribute the Company’s products to
patients and potentially to medical centers or hospitals on an emergency basis. In addition to the distribution agreement with its Customer,
the Company enters into arrangements with health care providers and payors that provide for government-mandated and/or privately
negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products.
The Company recognizes revenue on product sales when the Customer obtains control of the Company’s product, which occurs at a point
in time (upon delivery or upon dispense to patient). Product revenue is recorded net of applicable reserves for variable consideration,
including discounts and allowances. The Company’s payment terms range between 15 and 30 days.
Shipping and handling costs for product shipments occur prior to the customer obtaining control of the goods and are recorded in cost of
sales.
If taxes should be collected from the Customer relating to product sales and remitted to governmental authorities, they will be excluded
from revenue. The Company expenses incremental costs of obtaining a contract when incurred if the expected amortization period of the
asset that the Company would have recognized is one year or less. However, no such costs were incurred during the years ended
December 31, 2021, 2020 and 2019.
During the years ended December 31, 2021, 2020 and 2019, principally all of the Company’s sales of FIRDAPSE® in the United States
were to its Customer.
Reserves for Variable Consideration: Revenue from product sales is recorded at the net sales price (transaction price), which includes
estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and
allowances, prompt payment discounts, product returns, provider chargebacks and discounts, government rebates, and other incentives,
such as voluntary patient assistance, and other allowances that are offered within contracts between the Company and its Customer,
payors, and other indirect customers relating to the Company’s sale of its products. These reserves, as detailed below, are based on the
amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to
the Customer) or a current liability (if the amount is payable to a party other than a Customer).
These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected
value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and
trends, industry data, and forecasted Customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates
of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts.
The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price
only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will
not occur in a future period. The Company’s analyses also contemplates application
F-12
Table of Contents
2.
Basis of Presentation and Significant Accounting Policies (continued).
of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future
period for the estimates detailed below as of December 31, 2021 and, therefore, the transaction price was not reduced further during the
years ended December 31, 2021, 2020 and 2019. Actual amounts of consideration ultimately received may differ from the Company’s
estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect
net product revenue and earnings in the period such variances become known.
Trade Discounts and Allowances: The Company provides its Customer with a discount that is explicitly stated in its contract and is
recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, the Company receives sales order
management, transactional data and distribution services from the Customer. To the extent the services received are distinct from the sale
of FIRDAPSE® to the Customer, these payments are classified in selling, general and administrative expenses in the Company’s
consolidated statement of operations and comprehensive income. However, if the Company has determined such services received are not
distinct from the Company’s sale of products to the Customer, these payments have been recorded as a reduction of revenue within the
consolidated statement of operations and comprehensive income through December 31, 2021, 2020 and 2019, as well as a reduction to
accounts receivable, net on the consolidated balance sheets.
Prompt Payment Discounts: The Company provides its Customer with prompt payment discounts which may result in adjustments to the
price that is invoiced for the product transferred, in the case that payments are made within a defined period. The prompt payment discount
reserve is based on actual invoice sales and contractual discount rates. Reserves for prompt payment discounts are included in accounts
receivable, net on the consolidated balance sheets.
Funded Co-pay Assistance Program: The Company contracts with a third-party to manage the co-pay assistance program intended to
provide financial assistance to qualified commercially-insured patients. The calculation of the accrual for co-pay assistance is based on an
estimate of claims and the cost per claim that the Company expects to receive associated with FIRDAPSE® that has been recognized as
revenue, but remains in the distribution channel at the end of each reporting period. These payments are considered payable to the third-
party vendor and the related reserve is recorded in the same period the related revenue is recognized, resulting in a reduction of product
revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities in the consolidated
balance sheets.
Product Returns: Consistent with industry practice, the Company offers the SPs and its distributor limited product return rights for
damaged and expiring product, provided it is within a specified period around the product expiration date as set forth in the applicable
individual distribution agreement. The Company estimates the amount of its product sales that may be returned by its Customer and
records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates
product return liabilities using available industry data and its own sales information, including its visibility into the inventory remaining in
the distribution channel. These payments are considered payable to the third-party vendor and the related reserve is recorded in the same
period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is
included in accrued expenses and other current liabilities in the consolidated balance sheets. The Company has an insignificant amount of
returns to date and believes that returns of its products will continue to be minimal.
Provider Chargebacks and Discounts: Chargebacks for fees and discounts to providers represent the estimated obligations resulting
from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to the
Customer, who directly purchases the product from the Company. The Customer charges the Company for the difference between what
they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same
period that the related revenue is recognized, resulting in a reduction of product revenue, net and accounts receivable, net. Chargeback
amounts are generally determined at the time of resale to the qualified healthcare provider by the Customer, and the Company generally
issues credits for such amounts within a few weeks of the Customer’s notification to the Company of the resale. Reserves for chargebacks
consist primarily of chargebacks that the Customer has claimed, but for which the Company has not yet issued a credit.
Government Rebates: The Company is subject to discount obligations under state Medicaid programs and Medicare. These reserves are
recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a
current liability, which is included in accrued expenses and other current liabilities on the consolidated balance sheets. For Medicare, the
Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional
liability under the Medicare Part D program. The Company’s liability for these rebates consists of invoices received for claims from prior
quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and
estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel
inventories at the end of each reporting period.
F-13
Table of Contents
2.
Basis of Presentation and Significant Accounting Policies (continued).
Bridge and Patient Assistance Programs: The Company provides FIRDAPSE® free of charge to uninsured patients who satisfy
pre-established 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 FIRDAPSE® while 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 FIRDAPSE® free 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.
Revenues from Collaboration and Licensing Arrangements:
The Company analyzes license and collaboration arrangements pursuant to FASB ASC Topic 808, Collaborative Arrangement Guidance
and Consideration, (“Topic 808”) to assess whether such arrangements, or transactions between arrangement participants, involve joint
operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards
dependent on the commercial success of such activities or are more akin to a vendor-customer relationship. In making this evaluation, the
Company considers whether the activities of the collaboration are considered to be distinct and deemed to be within the scope of the
collaborative arrangement guidance or if they are more reflective of a vendor-customer relationship and, therefore, within the scope of
Topic 606. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the
arrangement.
For elements of collaboration arrangements that are not accounted for pursuant to guidance in Topic 606, an appropriate recognition
method is determined and applied consistently, generally by analogy to the revenue from contracts with customers guidance.
The Company evaluates the performance obligations promised in the contract that are based on goods and services that will be transferred
to the customer and determines whether those obligations are both (i) capable of being distinct and (ii) distinct in the context of the
contract. Goods or services that meet these criteria are considered distinct performance obligations. The Company estimates the transaction
price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may
include fixed consideration or variable consideration.
The agreements provide for milestone payments upon achievement of development and regulatory events. The Company accounts for
milestone payments as variable consideration in accordance with Topic 606. At the inception of each arrangement that includes variable
consideration, the Company evaluates the amount of potential transaction price and the likelihood that the transaction price will be
received. The Company utilizes either the most likely amount method or expected value method to estimate the amount expected to be
received based on which method best predicts the amount expected to be received. The amount of variable consideration that is included in
the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant
reversal in the amount of the cumulative revenue recognized will not occur in a future period. Arrangements that include rights to
additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if
these options provide a material right to the customer and, if so, these options are considered performance obligations.
F-14
Table of Contents
2.
Basis of Presentation and Significant Accounting Policies (continued).
n.
o.
p.
q.
After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain
events. Any change in the overall transaction price is allocated to the performance obligations based on the same methodology used at
contract inception.
The Company recognizes sales-based royalties or net profit-sharing when the later of (a) the subsequent sale occurs, or (b) the
performance obligation to which the sales-based royalty or net profit-sharing has been allocated has been satisfied.
Payments to and from the collaborator are presented in the statement of operations based on the nature of the Company’s business
operations, the nature of the arrangement, including the contractual terms, and the nature of the payments.
Refer to Note 9 (Collaborative and Licensing Arrangements), for further discussion on the Company’s collaborative and licensing
arrangements.
RESEARCH AND DEVELOPMENT. Costs incurred in connection with research and development activities are expensed as incurred.
These costs consist of direct and indirect costs associated with specific projects, as well as fees paid to various entities that perform
research related services for the Company.
ADVERTISING EXPENSE. In connection with the FDA approval and commercial launch of FIRDAPSE® in 2019, the Company began
to incur advertising costs. Advertising costs are expensed as incurred. The company incurred $2.9 million, $2.5 million and $3.3 million in
advertising costs during the years ended December 31, 2021, 2020 and 2019, respectively, which are included in selling, general and
administrative expenses in the Company’s consolidated statement of operations and comprehensive income.
STOCK-BASED COMPENSATION. The Company recognizes expense in the consolidated statements of operations for the grant date
fair value of all stock-based payments to employees, directors and consultants, including grants of stock options and other share-based
awards. For stock options, the Company uses the Black-Scholes option valuation model, the single-option award approach, and the
straight-line attribution method. Using this approach, compensation cost is amortized on a straight-line basis over the vesting period of
each respective stock option, generally one to three years. Forfeitures are recognized as a reduction of stock-based compensation expense
as they occur.
CONCENTRATION OF RISK. The financial instruments that potentially subject the Company to concentration of credit risk are cash
equivalents (i.e., money market funds), investments and accounts receivable, net. The Company places its cash and cash equivalents with
high-credit quality financial institutions. These amounts at times may exceed federally insured limits. The Company has not experienced
any credit losses in these accounts.
The Company sells its product in the United States through an exclusive distributor (its Customer) to SPs. Therefore, its distributor and
SPs account for principally all of its trade receivables and net product revenues. The creditworthiness of its Customer is continuously
monitored, and the Company has internal policies regarding customer credit limits. The Company estimates an allowance for expected
credit loss primarily based on the credit worthiness of its Customer, historical payment patterns, aging of receivable balances and general
economic conditions.
The Company currently has a single product with limited commercial sales experience, which makes it difficult to evaluate its current
business, predict its future prospects and forecast financial performance and growth. The Company has invested a significant portion of its
efforts and financial resources in the development and commercialization of the lead product, FIRDAPSE®, and expects FIRDAPSE® to
constitute virtually all of product revenue for the foreseeable future. The Company’s success depends on its ability to effectively
commercialize FIRDAPSE®.
The Company relies exclusively on third parties to formulate and manufacture FIRDAPSE® and its drug candidates. The
commercialization of FIRDAPSE® and any other drug candidates, if approved, could be stopped, delayed or made less profitable if those
third parties fail to provide sufficient quantities of product or fail to do so at acceptable quality levels or prices. The Company does not
intend to establish its own manufacturing facilities. The Company is using the same third-party contractors to manufacture, supply, store
and distribute drug supplies for clinical trials and for the commercialization of FIRDAPSE®. If the Company is unable to continue its
relationships with one or more of these third-party contractors, it could experience delays in the development or commercialization efforts
as it locates and qualifies new manufacturers. The Company intends to rely on one or more third-party contractors to manufacture the
commercial supply of its drugs.
r.
ROYALTIES. Royalties incurred in connection with the Company’s license agreement, as disclosed in Note 11 (Agreements), are
expensed to cost of sales as revenue from product sales is recognized.
F-15
Table of Contents
2.
Basis of Presentation and Significant Accounting Policies (continued).
s.
INCOME TAXES. The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are
measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is
provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
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 more-likely-than-not threshold, the amount recognized
in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with
the relevant tax authority. 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
t.
u.
v.
w.
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.
COMPREHENSIVE INCOME. U.S. GAAP requires that all components of comprehensive income be reported in the financial
statements in the period in which they are recognized. Comprehensive income is net income, plus certain other items that are recorded
directly into stockholders’ equity. The Company’s comprehensive income is shown on the consolidated statements of operations and
comprehensive income for the years ended December 31, 2021, 2020 and 2019, and is comprised of net unrealized gains (losses) on the
Company’s available-for-sale securities.
NET INCOME PER COMMON SHARE. Basic net income per share is computed by dividing net income for the period by the weighted
average number of common shares outstanding during the period. With regard to common stock subject to vesting requirements, the
calculation includes only the vested portion of such stock and units.
Diluted net income per common share is computed by dividing net income by the weighted average number of common shares
outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.
The following table reconciles basic and diluted weighted average common shares:
Basic weighted average common shares outstanding
Effect of dilutive securities
Diluted weighted average common shares outstanding
2021
For the Years Ended
December 31,
2020
103,379,349 103,512,913 102,944,316
3,076,620
107,795,585 106,242,273 106,020,936
2,729,360
4,416,236
2019
Outstanding common stock equivalents totaling approximately 4.3 million, 7.1 million and 4.6 million, were excluded from the calculation
of diluted net income per common share for the years ended December 31, 2021, 2020 and 2019, respectively, as their effect would be
anti-dilutive. Potentially dilutive options to purchase common stock as of December 31, 2021, 2020 and 2019 had exercise prices ranging
from $0.79 to $4.64, $0.79 to $3.95 and $0.79 to $4.20, respectively.
SEGMENT INFORMATION. Management has determined that the Company operates in one reportable segment, which is the
development and commercialization of drug products.
RECLASSIFICATIONS. Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the
current year presentation.
F-16
Table of Contents
2.
Basis of Presentation and Significant Accounting Policies (continued).
x.
RECENTLY ISSUED ACCOUNTING STANDARDS.
In December 2019, the FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes, a new standard intended
to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the
methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.
The new standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the
accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for annual periods beginning after
December 15, 2020 and interim periods within, with early adoption permitted. Adoption of the standard requires certain changes to be
made prospectively, with some changes to be made retrospectively. The Company adopted the new standard on January 1, 2021. The
adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
3.
Investments.
Available-for-sale investments by security type were as follows (in thousands):
At December 31, 2021:
U.S. Treasuries - Cash equivalents
Short-term bond funds
Total
At December 31, 2020:
U.S. Treasuries - Cash equivalents
Short-term bond funds
Total
Estimated
Fair Value
$140,995
19,821
$160,816
$104,994
10,041
$ 115,035
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
$
$
$
$
2
—
2
2
29
31
$ —
(196)
(196)
$
$140,993
20,017
$161,010
$ —
—
$ —
$104,992
10,012
$ 115,004
There were no realized gains or losses from available-for-sale securities for the years ended December 31, 2021, 2020 or 2019.
The estimated fair values of available-for-sale securities at December 31, 2021, by contractual maturity, are summarized as follows (in thousands):
Due in one year or less
2021
$ 160,816
4.
Inventory.
Inventory consists of the following (in thousands):
Raw materials
Work-in-process
Finished goods
Total inventory
December 31, 2021
1,769
$
5,172
929
7,870
$
December 31, 2020
—
$
3,555
1,096
4,651
$
F-17
Table of Contents
5.
Prepaid Expenses and Other Current Assets.
Prepaid expenses and other current assets consist of the following as of December 31 (in thousands):
Prepaid manufacturing costs
Prepaid tax
Prepaid insurance
Prepaid subscriptions fees
Prepaid research fees
Prepaid commercialization expenses
Due from collaborative and licensing arrangements
Prepaid conference and travel expenses
Other
Total prepaid expenses and other current assets
2021
$ 307
564
1,213
909
452
195
105
279
327
$4,351
2020
$3,328
1,368
1,285
729
453
199
437
83
446
$8,328
6.
Operating Leases.
The Company has an operating lease agreement for its corporate office. The lease includes an option to extend the lease for up to 5 years and
options to terminate the lease within 6 and 7.6 years. There are no obligations under finance leases.
The Company entered into an agreement in May 2020 that amended its lease for its office facilities. Under the amended lease, the Company’s
leased space increased from approximately 7,800 square feet of space to approximately 10,700 square feet of space. The amended lease commenced in
March 2021 when construction of the asset was completed and space became available for use. Consequently, the Company recorded the effects of the
amended lease during Q1 2021.
The components of lease expense were as follows (in thousands):
Operating lease cost
Supplemental cash flow information related to lease was as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows
Right-of-use assets obtained in exchange for lease obligations:
Operating lease
Supplemental balance sheet information related to lease was as follows (in thousands):
Operating lease right-of-use assets
Other current liabilities
Operating lease liabilities, net of current portion
Total operating lease liabilities
For the Year
Ended December 31,
2021
$
379
December 31, 2021
$
$
109
80
December 31, 2021
3,017
$
308
$
3,894
4,202
$
As of December 31, 2021, the weighted average remaining lease term was 9.3 years and the weighted average discount rate used to determine the
operating lease liabilities was 4.51%.
F-18
Table of Contents
6.
Operating Leases (continued).
Remaining payments of lease liabilities as of December 31, 2021 were as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: imputed interest
Total
$
492
506
522
537
553
2,597
5,207
(1,005)
$ 4,202
Rent expense was $0.4 million, $0.3 million and $0.3 million for the years ended December 31, 2021, 2020 and 2019.
7.
Property and Equipment, Net.
Property and equipment, net consists of the following (in thousands):
Computer equipment
Furniture and equipment
Leasehold improvements
Less: Accumulated depreciation
Total property and equipment, net
$
December 31, 2021
$
51
203
980
(275)
959
8.
Accrued Expenses and Other Liabilities.
Accrued expenses and other liabilities consist of the following as of December 31 (in thousands):
Accrued preclinical and clinical trial expenses
Accrued professional fees
Accrued compensation and benefits
Accrued license fees
Accrued purchases
Accrued contributions
Operating lease liability
Accrued variable consideration
Accrued income tax
Other
Current accrued expenses and other liabilities
Lease liability – non-current
Non-current accrued expenses and other liabilities
Total accrued expenses and other liabilities
F-19
December 31, 2020
51
$
242
177
(340)
130
$
2021
$
659
2,391
4,035
12,819
2,045
—
308
1,716
79
243
24,295
3,894
3,894
$ 28,189
2020
$
585
1,884
3,991
10,373
258
310
29
964
—
106
18,500
—
—
$ 18,500
Table of Contents
9.
Collaborative and Licensing Arrangements.
Endo
In December 2018, the Company entered into a collaboration and license agreement (Collaboration) with Endo, for the further development and
commercialization of generic Sabril® (vigabatrin) tablets through Endo’s U.S. Generic Pharmaceuticals segment, doing business as Par Pharmaceutical
(Par). Under the Collaboration, Endo assumes all development, manufacturing, clinical, regulatory, sales and marketing costs under the collaboration,
while the Company is responsible for exercising commercially reasonable efforts to develop, or cause the development of, a final finished, stable dosage
form of generic Sabril® tablets.
Under the terms of the Collaboration, the Company has received an up-front payment, and will receive a milestone payment, and a sharing of
defined net profits upon commercialization from Endo consisting of a mid-double 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, Research and Development, should be applied by analogy to payments
between the parties during the development activities and Topic 606 for the milestone payment and sharing of defined net profits upon
commercialization.
The collaborative agreement included a nonrefundable upfront license fee that was recognized upon receipt following execution of the
collaborative arrangement for vigabatrin tablets.
The collaborative agreement provides for a $2.0 million milestone payment on the commercial launch of the product by Par. As of December 31,
2021, 2020 and 2019, no milestone payments have been earned.
There were no revenues from this collaborative arrangement for the years ended December 31, 2021, 2020 or 2019. Total expenses incurred, net,
in connection with the collaborative agreement for the years ended December 31, 2021, 2020 and 2019 were approximately $45,000, $4,200 and
$65,000, respectively. These expenses have been included in research and development expenses in the accompanying consolidated statements of
operations and comprehensive income.
KYE Pharmaceuticals Inc.
In August 2020, the Company entered into a collaboration and license agreement with KYE Pharmaceuticals Inc. (KYE), for the
commercialization of FIRDAPSE® in Canada.
Under the agreement, Catalyst granted KYE an exclusive license to commercialize and market FIRDAPSE® in Canada. KYE assumes all selling
and marketing costs under the collaboration, while the Company is responsible for supply of FIRDAPSE® based on the collaboration partner’s purchase
orders.
Under the terms of the agreement, the Company will receive an up-front payment, received payment upon transfer of Marketing Authorization and
delivery of commercial product, received payment for supply of FIRDAPSE®, will receive milestone payments, and a sharing of defined net profits
upon commercialization from KYE consisting of a mid-double-digit percent of net sales of FIRDAPSE®. 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 in Canada.
This agreement is in form identified as a collaborative agreement and the Company has concluded for accounting purposes that it also represents a
contract with a customer. This is because the Company grants to KYE a license and provides supply of FIRDAPSE® in exchange for consideration,
which are outputs of the Company’s ongoing activities. Accordingly, the Company has concluded that this collaborative arrangement will be accounted
for pursuant to Topic 606.
F-20
Table of Contents
9.
Collaborative and Licensing Arrangements (continued).
The collaborative agreement included a nonrefundable upfront license fee that was recognized upon transfer of the license based on a
determination that the right is provided as the intellectual property exists at the point in time in which the license is granted.
Under the arrangement, the Company will receive profit-sharing reports within nine days after quarter end from KYE. Revenue from sales of
FIRDAPSE® by KYE will be recognized in the quarter in which the sales occurred.
Revenues from the arrangement with KYE for the year ended December 31, 2021 were not material. Revenue is included in product revenue, net
and license and other revenue in the accompanying consolidated statements of operations and comprehensive income. Expenses incurred, net have been
included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income.
DyDo Pharma, Inc.
On June 28, 2021, the Company entered into a license agreement with DyDo Pharma, Inc. (DyDo), for the development and commercialization of
FIRDAPSE® in Japan.
Under the agreement, DyDo has joint rights to develop FIRDAPSE®, and exclusive rights to commercialize the product, in Japan. DyDo is
responsible for funding all clinical, regulatory, marketing and commercialization activities in Japan, while the Company is responsible for clinical and
commercial supply based on purchase orders, as well as providing support to DyDo in its efforts to obtain regulatory approval for the product from the
Japanese regulatory authorities.
Under the terms of the agreement, the Company has earned an up-front payment and may earn further development and sales milestones for
FIRDAPSE®, as well as revenue on product supplied to DyDo.
The Company has concluded that this license agreement will be accounted for pursuant to Topic 606. The agreement included a nonrefundable
upfront license fee that was recognized upon the effective date of the agreement as the intellectual property exists at the point in time in which the right
to the license is granted. The Company determined the granting of the right to the license is distinct from the supply of FIRDAPSE® and represents a
separate performance obligation in the agreement.
The agreement includes milestones that are considered a sales-based royalty in which the license is deemed to be the predominant item to which
these milestones relate. Revenue will be recognized when the later of (a) the subsequent sale occurs, or (b) the performance obligation to which the
sales-based royalty has been allocated has been satisfied. Additionally, the agreement includes regulatory milestone payments which represent variable
consideration, and due to uncertainty are fully constrained and only recognized when the uncertainty is subsequently resolved. For clinical and
commercial supply of the product, the Company will recognize revenue when the Customer obtains control of the Company’s product, which will occur
at a point in time which is generally at time of shipment.
Revenue from the arrangement with DyDo for the year ended December 31, 2021, was approximately $2.9 million, relating to the $2.7 million
nonrefundable upfront license fee included in license and other revenue in the accompanying consolidated statements of operations and comprehensive
income and the sale of FIRDAPSE® of $0.2 million included in product revenue, net within the accompanying consolidated statements of operations and
comprehensive income. As of December 31, 2021, no milestone payments have been earned.
10. Commitments and Contingencies.
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). While the NDA for Ruzurgi® only covers pediatric patients, the Company believes that Ruzurgi® is
regularly being prescribed off-label to adult LEMS patients. The Company also believes that the FDA’s approval of Ruzurgi® violated the Company’s
statutory rights and was in multiple other respects arbitrary, capricious and contrary to law. As a result, in June 2019 the Company filed suit against the
FDA and several related parties challenging this approval and related drug labeling, and Jacobus Pharmaceuticals (Jacobus) intervened in the case. The
Company’s complaint, which was filed in the federal district court for the Southern District of Florida, alleged that the FDA’s approval of Ruzurgi®
violated multiple provisions of FDA regulations regarding labeling, resulting in misbranding in violation of the Federal Food, Drug, and Cosmetic Act
(FDCA); violated the Company’s statutory rights to Orphan Drug Exclusivity and New Chemical Entity Exclusivity under the FDCA; and was in
multiple other respects arbitrary, capricious, and contrary to law, in violation of the Administrative Procedure Act. Among other remedies, the suit
sought an order setting aside the FDA’s approval of Ruzurgi®.
F-21
Table of Contents
10. Commitments and Contingencies (continued).
On July 30, 2020, the Magistrate Judge considering the Company’s 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 judgment and deny the Company’s
motion for summary judgment. On 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 the case. The Company appealed the District Court’s decision to the U.S. Circuit
Court of Appeals for the 11th Circuit. By early 2021, the case was fully briefed, and oral argument was held in March 2021.
On September 30, 2021, a three-judge panel of 11th Circuit judges issued a unanimous decision overturning the District Court’s decision. The
appellate court adopted the Company’s argument that the FDA’s approval of Ruzurgi® violated the Company’s rights to Orphan Drug Exclusivity and
remanded the case to the District Court with orders to enter summary judgment in the Company’s favor. In November 2021, Jacobus filed a motion
seeking rehearing of the case from the full 11th Circuit, which motion was denied in January 2022. Further, in January 2022, Jacobus filed motions with
both the 11th Circuit and the U.S. Supreme Court seeking a stay of the 11th Circuit’s ruling indicating that it would seek a review of the 11th Circuit’s
decision from the U.S. Supreme Court. Both stay motions were denied, and on January 28, 2022, the 11th Circuit issued a mandate directing the District
Court to enter summary judgment in the Company’s favor. The District Court entered that order on January 31, 2022. On February 1, 2022, the FDA
informed Jacobus that, consistent with the Court of Appeals for the 11th Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval
of the Ruzurgi® NDA was switched to a tentative approval until the 7-year orphan-drug exclusivity (ODE) for Firdapse® has expired. See Note 16.
There can be no assurance as to whether Jacobus will seek U.S. Supreme Court review of the 11th Circuit’s decision, whether the U.S. Supreme
Court will agree to hear the case, or whether, if the U.S. Supreme Court agrees to hear the case, Jacobus’ appeal to overturn the decision of the 11th
Circuit will be successful. Similarly, there can be no assurance as to whether the U.S. Congress will pass, and the President will sign, legislation
effectively overturning the 11th Circuit’s decision, and whether or not such legislation, if passed, would have any retroactive effect allowing the FDA to
reinstate the approval of Ruzurgi®.
On August 10, 2020, Health Canada issued a Notice of Compliance (NOC) to Medunik for Ruzurgi® for the treatment of LEMS. The Company
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. The Ruzurgi® Product Monograph clearly
references pivotal nonclinical carcinogenicity and reproductive toxicity data for amifampridine phosphate developed by the Company. As such, the
Company believes that its data was relied upon to establish the nonclinical safety profile of Ruzurgi® needed to meet the standards of the Canadian Food
and Drugs Act.
On June 3, 2021, the Company 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, the Company announced that Health Canada had re-issued a NOC for Ruzurgi®, once again allowing the
product to be marketed in Canada for patients with LEMS. As a result, in early July 2021, the Company, along with its partner KYE, filed a second suit
against Health Canada to overturn their most recent decision. That case was fully briefed in late 2021, with oral argument held in early December, and
the Company is currently awaiting a decision from the court. There can be no assurance as to the outcome of this proceeding. See Note 16.
Additionally, from time to time the Company may become involved in legal proceedings arising in the ordinary course of business. Except as set
forth above, the Company believes that there is no other litigation pending at this time that could have, individually or in the aggregate, a material
adverse effect on its results of operations, financial condition or cash flows.
11. Agreements.
a.
LICENSE AGREEMENT FOR FIRDAPSE®. On October 26, 2012, the Company entered into a license agreement with BioMarin
Pharmaceutical, Inc. (BioMarin) for the North American rights to FIRDAPSE®. Under the license agreement, the Company pays:
(i) royalties to the 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 the Company 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 duration of any regulatory exclusivity within a territory and 3.5% for territories in any calendar
year in territories without regulatory exclusivity.
F-22
Table of Contents
11. Agreements (continued).
On May 29, 2019, the Company and BioMarin entered into an amendment to the Company’s license agreement for FIRDAPSE®. Under
the amendment, the Company has expanded its commercial territory for FIRDAPSE®, which originally was comprised of North America,
to include Japan. Additionally, the Company has an option to further expand its 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, the Company
will pay royalties to our licensor on net sales in Japan of a similar percentage to the royalties that the Company is currently paying under
its original license agreement for North America.
In January 2020, the Company was advised that BioMarin has transferred certain rights under the license agreement to SERB S.A.
b.
AGREEMENTS FOR DRUG MANUFACTURING, DEVELOPMENT, PRECLINICAL AND CLINICAL STUDIES. The
Company has entered into agreements with contract manufacturers for the manufacture of commercial drug and drug and study placebo for
the Company’s trials and studies, with contract research organizations (CRO) to conduct and monitor the Company’s trials and studies and
with various entities for laboratories and other testing related to the Company’s trials and studies. The contractual terms of the agreements
vary, but most require certain advances as well as payments based on the achievement of milestones. Further, these agreements are
cancellable at any time, but obligate the Company to reimburse the providers for any time or costs incurred through the date of termination.
12.
Income Taxes.
The Company is subject to income taxes in the U.S. federal jurisdiction and various states jurisdictions.
The income tax expense (benefit) for the years ended December 31, 2021, 2020, and 2019 consists of (in thousands):
Current
Deferred
2021
$ 3,869
9,316
$ 13,185
2020
$
(122)
(32,971)
$ (33,093)
2019
$ 1,534
—
$ 1,534
The reconciliation of income tax expense (benefit) computed at the statutory federal income tax rate of 21% to amounts included in the statements
of operations is as follows:
Statutory rate
State tax
Valuation allowance
Executive compensation limitation
Tax credit
Other
2021
21.0%
3.4%
—
1.1%
(0.6)%
0.1%
25.0%
2020
21.0%
2.2%
(99.4)%
—
(2.4)%
(0.4)%
(79.0)%
2019
21.0%
6.5%
(20.9)%
0.1%
(2.5)%
0.4%
4.6%
F-23
Table of Contents
12.
Income Taxes (continued).
Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryovers and the temporary differences between
the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets/(liabilities) as of December 31, 2021 and 2020 are as follows (in thousands):
Deferred tax assets:
Net operating loss
Start-up costs
Tax credits
Deferred compensation
Inventory
Operating lease liability
Other
Total deferred tax assets
Deferred tax liabilities:
Prepaid expenses
Right-of use asset
Other
Total deferred tax liabilities
Deferred tax assets, net
2021
2020
$ 1,218 $ 2,320
11,203
10,403
15,616
8,516
3,889
3,959
212
163
—
1,003
130
—
33,370
25,262
(455)
(936)
(174)
(1,565)
(399)
—
—
(399)
$ 23,697 $ 32,971
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. As of December 31, 2021,
the Company determined that there is sufficient positive evidence to conclude that it is more likely than not that the above deferred taxes of
approximately $24 million are realizable. The Company released the full valuation allowance for deferred tax assets including net operating loss and tax
credit carryover as of December 31, 2020.
At December 31, 2021 and 2020 respectively, the Company had federal net operating loss carryforwards of approximately $0 million and
$3 million to reduce future taxable income. The federal net operating loss carryforwards were utilized in 2020. Additionally, at December 31, 2021 and
2020, respectively, the Company had state net operating loss carryforwards of approximately $28 million and $42 million available to reduce future
Florida taxable income. The state net operating loss carryforwards will expire at various dates beginning in 2034.
During 2020, the Company completed an analysis to determine whether, as a result of prior ownership changes, the utilization of certain net
operating loss and orphan drug tax credit carryforwards would be subject to annual limitations under Sections 382 and 383 of the Internal Revenue Code
and similar state provisions. In this analysis, the Company determined that the total net operating loss and orphan drug tax credit carryforwards are fully
utilizable. Thus, the deferred tax assets were adjusted accordingly.
Beginning in 2010, the Company has received several orphan drug designations by the FDA for products currently under development. The
orphan drug designations allow the Company to claim increased federal tax credits for certain research and development activities. The orphan drug
credit carryforwards will expire at various dates beginning in 2035.
An immaterial amount of interest and no penalties were accrued through December 31, 2021. No interest or penalties were accrued through
December 31, 2020. The Company’s policy is to recognize any related interest or penalties in income tax expense. The Company is not currently under
income tax examinations by any tax authorities.
13.
Stockholders’ Equity.
Preferred Stock
The Company has 5,000,000 shares of authorized preferred stock, $0.001 par value per share, at December 31, 2021 and 2020. No shares of
preferred stock were outstanding at December 31, 2021 and 2020.
F-24
Table of Contents
13.
Stockholders’ Equity (continued).
Common Stock
The Company has 200,000,000 shares of authorized common stock, par value $0.001 per share. At December 31, 2021 and 2020, 102,992,913 and
103,781,641 shares, respectively, of common stock were issued and outstanding. Each holder of common stock is entitled to one vote of each share of
common stock held of record on all matters on which stockholders generally are entitled to vote.
Share Repurchases
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 10b-18 of the Securities Act. The share repurchase program commenced on
March 22, 2021 and, during the year ended December 31, 2021, 2,208,292 shares were repurchased for an aggregate purchase price of approximately
$12.1 million ($5.47 average price per share).
2020 Shelf Registration Statement
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. 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 Company’s 2020 Shelf Registration Statement.
Stockholder Rights Plan
On September 20, 2011, the Board of Directors approved the Company’s adoption of a Stockholder Rights Plan. Under the Stockholders’ Rights
Plan, a dividend of one preferred share purchase right (a Right) was declared for each share of common stock of the Company that was outstanding on
October 7, 2011. Each Right entitled the holder to purchase from the Company one one-hundredth of a share of Series A Junior Preferred Stock at a
purchase price of $7.80, subject to adjustment.
The Rights traded automatically with the common stock and were not exercisable until a person or group had become an “acquiring person” by
acquiring 17.5% or more of the Company’s outstanding common stock, or a person or group commenced, or publicly announced a tender offer that
would result in such a person or group owning 17.5% or more of the Company’s outstanding common stock. Upon announcement that any person or
group had become an acquiring person, each Right would entitle all rightholders (other than the acquiring person) to purchase, for the exercise price of
$7.80, a number of shares of the Company’s common stock having a market value equal to twice the exercise price. Rightholders would also be entitled
to purchase common stock of the acquiring person having a value of twice the exercise price if, after a person had become an acquiring person, the
Company were to enter into certain mergers or other transactions. If any person becomes an acquiring person, the Board of Directors may, at its option
and subject to certain limitations, exchange one share of common stock for each Right.
The Rights had certain anti-takeover effects, in that they would cause substantial dilution to a person or group that attempts to acquire a significant
interest in the Company on terms not approved by the Board of Directors. In the event that the Board of Directors determines a transaction to be in the
best interests of the Company and its stockholders, the Board of Directors may redeem the Rights for $0.001 per share at any time prior to a person or
group becoming an acquiring person.
On September 19, 2016, the Board of Directors unanimously approved, and on the same date the Company entered into Amendment No. 1 to the
Stockholders Rights Plan (the “Amendment”). Under the terms of the Amendment, the outside expiration date of the rights plan was extended to
September 20, 2019. Additionally, as part of the Amendment, the Board adopted a Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock of the Company to increase the number of shares of Series A Junior Participating Preferred Stock of the Company
available for issuance under the Rights Plan from 500,000 shares to 1.5 million shares.
On August 28, 2019, the Board of Directors unanimously adopted Amendment No. 2 to the Stockholders’ Rights Plan further extending the
outside expiration date of the rights plan to September 20, 2022.
On November 12, 2021, the Board of Directors terminated the Rights Plan. Despite the termination of the Rights Plan, the Board of Directors
reserves the right to take all necessary actions it deems appropriate in the future to protect the interests of all of the Company’s stockholders.
F-25
Table of Contents
14.
Stock Compensation.
For the years ended December 31, 2021, 2020 and 2019, the Company recorded stock-based compensation expense as follows (in thousands):
Research and development
Selling, general and administrative
Total stock-based compensation
2021
$ 1,611
4,462
$ 6,073
2020
$ 1,585
4,676
$ 6,261
2019
$ 1,138
2,687
$ 3,825
The Company may issue stock options, restricted stock, stock appreciation rights and restricted stock units (collectively, the “Awards”) to
employees, directors, and consultants of the Company under the 2014 and 2018 Stock Incentive Plans (the 2014 Plan and the 2018 Plan or collectively,
the Plans). At December 31, 2021, no shares remain available for future issuance under the 2014 Plan. Under the 2018 Plan, 15,000,000 shares are
reserved for issuance and as of December 31, 2021, 4,708,013 shares remain available for future issuance.
Stock Options
The Company has granted stock options to employees, officers, directors, and consultants generally at exercise prices equal to the market price of
the common stock at grant date. Option awards generally vest over a period of 1 to 3 years of continuous service and have contractual terms of 7 years.
Certain awards provide for accelerated vesting if there is a change in control. The Company issues new shares as shares are required to be delivered
upon exercise of outstanding stock options.
During the years ended December 31, 2021, 2020, and 2019, options to purchase 1,328,936, 281,762 and 654,332 shares, respectively, of the
Company’s common stock were exercised with gross proceeds to the Company of approximately $4.1 million, $0.8 million, and $1.1 million,
respectively. During the years ended December 31, 2021 and 2020, no options to purchase shares of the Company’s common stock were exercised on a
“cashless” basis. During the year ended December 31, 2019, options to purchase 6,666 shares of the Company’s common stock were exercised on a
“cashless” basis, resulting in the issuance of an aggregate of 3,444 shares of the Company’s common stock.
During the years ended December 31, 2021, 2020, and 2019 the Company recorded non-cash stock-based compensation expense related to stock
options totaling approximately $5.5 million, $5.7 million, and $3.8 million, respectively.
During the years ended December 31, 2021, 2020, and 2019, the Company granted seven-year options to purchase an aggregate of 2,330,000,
2,715,000 and 2,183,500 shares, respectively, of the Company’s common stock to certain of the Company’s officers, employees, directors, and
consultants.
Stock option activity under the Company’s Plans for the year ended December 31, 2021 is summarized as follows:
Outstanding at beginning of year
Granted
Exercised or released
Forfeited or cancelled
Expired
Outstanding at end of year
Exercisable at end of year
Number of
Options
13,393,669
2,330,000
(1,328,936)
(177,006)
(9,999)
14,207,728
Weighted
Average
Exercise Price
3.10
$
5.89
3.09
3.92
5.12
3.55
$
9,473,196
$
2.87
F-26
Weighted
Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
4.15
3.21
$
$
46,168
36,958
Table of Contents
14.
Stock Compensation (continued).
Other information pertaining to stock option activity during the years ended December 31, 2021, 2020, and 2019 was as follows:
Weighted–average fair value of granted stock options
Total fair value of vested stock options (in thousands)
Total intrinsic value of exercised stock options (in thousands)
2021
$ 3.24
$6,421
$3,623
2020
$ 2.33
$5,312
$ 325
2019
$ 2.69
$ 3,865
$ 1,900
As of December 31, 2021, there was approximately $11.6 million of unrecognized compensation expense related to non-vested stock option
awards granted under the Plans. That cost is expected to be recognized over a weighted average period of approximately 2.43 years.
The Company utilizes the Black-Scholes option-pricing model to determine the fair value of stock options on the date of grant. This model derives
the fair value of stock options based on certain assumptions related to the expected stock price volatility, expected option life, risk-free interest rate and
dividend yield. Expected volatility is based on reviews of historical volatility of the Company’s common stock. The Company estimates the expected
option life for options granted to employees and directors based upon the simplified method. Under this method, the expected life is presumed to be the
mid-point between the vesting date and the end of the contractual term. The Company will continue to use the simplified method until it has sufficient
historical exercise data to estimate the expected life of the options. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve
appropriate for the estimated life of the stock option awards. The expected dividend rate is zero. Forfeitures are recognized as a reduction of stock-based
compensation expense as they occur.
Assumptions used during the years were as follows:
Risk free interest rate
Expected term
Expected volatility
Expected dividend yield
Expected forfeiture rate
Restricted Stock Units
2021
0.34% to 1.18%
4.5 – 4.8 years
68.6% to 72.8%
— %
— %
2020
0.24% to 1.64%
4.5 years
80.5% to 83.7%
— %
— %
2019
1.51% to 2.53%
4.5 years
75.5%
— %
— %
Under the 2018 Plan, participants may be granted restricted stock units, each of which represents a conditional right to receive shares of common
stock in the future. The restricted stock units granted under this plan generally vest ratably over a three-year period. Upon vesting, the restricted stock
units will convert into an equivalent number of shares of common stock. The amount of expense relating to the restricted stock units is based on the
closing market price of the Company’s common stock on the date of grant and is amortized on a straight-line basis over the requisite service period.
Restricted stock unit activity during 2021 and 2020 was as follows:
Nonvested balance at beginning of year
Granted
Vested
Forfeited
Nonvested balance at end of year
2021
Weighted Average
Grant Date Fair
Value
$
$
4.65
—
4.65
—
4.65
Number of
Restricted
Stock Units
352,500
30,000
(117,495)
(29,334)
235,671
2020
Weighted Average
Grant Date Fair
Value
$
$
4.64
4.70
4.64
4.64
4.65
Number of
Restricted
Stock Units
235,671
—
(112,832)
—
122,839
F-27
Table of Contents
14.
Stock Compensation (continued).
During the year ended December 31, 2019, 352,500 restricted stock units were granted and outstanding and there were no vested or forfeited
shares.
During the year ended December 31, 2021, 2020 and 2019, the Company recorded non-cash stock-based compensation expense related to
restricted stock units totaling $0.5 million, $0.6 million and $0.1 million, respectively.
15. Benefit Plan.
The Company maintains an employee savings plan pursuant to Section 401(k) of the Internal Revenue Code covering all eligible employees.
Subject to certain dollar limits, eligible employees may contribute up to 15% of their pre-tax annual compensation to the plan. The Company has elected
to make discretionary matching contributions of employee contributions up to 4% of an employee’s gross salary. For the years ended December 31,
2021, 2020, and 2019, the Company’s matching contributions were approximately $0.5 million, $0.5 million and $0.3 million, respectively.
16.
Subsequent Events.
Subsequent to year end, in January 2022, Jacobus filed motions with both the 11th Circuit and the U.S. Supreme Court seeking a stay of the 11th
Circuit’s ruling indicating that it would seek a review of the 11th Circuit’s decision from the U.S. Supreme Court. Both stay motions were denied, and
on January 28, 2022, the 11th Circuit issued a mandate directing the District Court to enter summary judgment in the Company’s favor. The District
Court entered that order on January 31, 2022. On February 1, 2022, the FDA informed Jacobus that, consistent with the Court of Appeals for the 11th
Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval of the Ruzurgi® NDA was switched to a tentative approval until the 7-year
orphan-drug exclusivity (ODE) for Firdapse® has expired. See Note 10.
Subsequent to year end, on March 11, 2022, the Company announced that it had received a favorable decision from the Canadian court setting
aside, for the second time, the decision of Health Canada approving Ruzurgi® for the treatment of LEMS patients. In its ruling, the court determined that
the Minister of Health’s approach to evaluating whether FIRDAPSE®’s data deserved protection based on FIRDAPSE®’s status as an innovative drug,
which protects by regulation the use of such data as part of a submission seeking an NOC for eight years from approval of the innovative drug, was
legally flawed and not supported by the evidence. As a result, the matter has, once again, been remanded to the Minister of Health to redetermine its
decision in light of the court’s ruling. See Note 10.
F-28
Description of the Registrant’s Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended
Exhibit 4.5
The common stock, par value $0.001 per share (“Common Stock”), of Catalyst Pharmaceuticals, Inc. (“Catalyst,” “we,” or “our”) is registered under
Section 12 of the Securities Exchange Act of 1934, as amended. The following description sets forth certain general terms and provisions of our
Common Stock. These descriptions are in all respects subject to and qualified in their entirety by, and should be read in conjunction with, the applicable
provisions of our Certificate of Incorporation (our “Certificate of Incorporation”) and our Bylaws (our “Bylaws”), each of which is incorporated herein
by reference and copies of which are incorporated by reference as exhibits to our most recent Annual Report on Form 10-K filed with the Securities and
Exchange Commission, and the applicable provisions of General Corporation Law of the State of Delaware (the “DGCL”).
Authorized Capital Stock
Our authorized capital currently consists of 200,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock,
par value $0.001 per share.
Common Stock
The following summary of the material features of our common stock does not purport to be complete and is subject to, and qualified in its entirety by
the provisions of our Certificate of Incorporation, our Bylaws and other applicable law. See “Where You Can Find Additional Information”.
Each holder of common stock is entitled to one vote for each share held of record on all matters presented to our stockholders, including the election of
directors. In the event of our liquidation, dissolution, or winding-up, the holders of common stock are entitled to share ratably and equally in our assets,
if any, that remain after paying all debts and liabilities and the liquidation preferences of any outstanding preferred stock. The common stock has no
preemptive or cumulative rights and no redemption or conversion provisions.
Holders of our common stock are entitled to receive dividends if, as, and when declared by our board of directors out of funds legally available therefor,
subject to the dividend and liquidation rights of any preferred stock that may be issued and outstanding, all subject to any dividend restrictions in our
credit facilities. No dividend or other distribution (including redemptions and repurchases of shares of capital stock) may be made, if after giving effect
to such distribution, we would not be able to pay our debts as they come due in the usual course of business, or if our total assets would be less than the
sum of our total liabilities plus the amount that would be needed at the time of a liquidation to satisfy the preferential rights of any holders of preferred
stock.
Preferred Stock
Our Certificate of Incorporation, as amended, authorizes our board of directors to establish one or more series of preferred stock. Unless required by law
or by any stock exchange on which our common stock is listed, the authorized shares of preferred stock will be available for issuance at the discretion of
our board of directors without further action by our stockholders. Our board of directors is able to determine, with respect to any series of preferred
stock, the terms and rights of that series, including:
•
•
•
•
•
•
•
•
the designation of the series;
the number of shares of the series;
whether dividends, if any, will be cumulative or non-cumulative and the dividend rate, if any, of the series;
the dates at which dividends, if any, will be payable;
the redemption rights and price or prices, if any, for shares of the series;
the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series;
the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of our company;
whether the shares of the series will be convertible into shares of any other class or series, or any other security, of our company or any
other entity, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate or rates and
provisions for any adjustments to such prices or rates, the date or dates as of which the shares will be convertible, and all other terms and
conditions upon which the conversion may be made;
•
•
•
the ranking of such series with respect to dividends and amounts payable on our liquidation, dissolution or winding-up, which may include
provisions that such series will rank senior to our common stock with respect to dividends and those distributions;
restrictions on the issuance of shares of the same series or any other class or series; or
voting rights, if any, of the holders of the series.
The issuance of preferred stock could adversely affect, among other things, the voting power of holders of common stock and the likelihood that
stockholders will receive dividend payments and payments upon our liquidation, dissolution or winding up. The issuance of preferred stock could also
have the effect of delaying, deferring or preventing a change in control of us.
A prospectus supplement relating to any series of preferred stock being offered will include specific terms related to the offering. They will include,
where applicable:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the title and stated value of the series of preferred stock and the number of shares constituting that series;
the number of shares of the series of preferred stock offered, the liquidation preference per share and the offering price of the shares of
preferred stock;
the dividend rate(s), period(s) and/or payment date(s) or the method(s) of calculation for those values relating to the shares of preferred
stock of the series;
the date from which dividends on shares of preferred stock of the series shall cumulate, if applicable;
our right, if any, to defer payment of dividends and the maximum length of any such deferral period;
the procedures for any auction and remarketing, if any, for shares of preferred stock of the series;
the provision for redemption or repurchase, if applicable, of shares of preferred stock of the series;
any listing of the series of shares of preferred stock on any securities exchange;
the terms and conditions, if applicable, upon which shares of preferred stock of the series will be convertible into shares of preferred stock
of another series or common stock, including the conversion price, or manner of calculating the conversion price;
whether the preferred stock will be exchangeable into debt securities, and, if applicable, the exchange period, the exchange price, or how it
will be calculated, and under what circumstances it may be adjusted;
voting rights, if any, of the preferred stock;
restrictions on transfer, sale or other assignment, if any;
whether interests in shares of preferred stock of the series will be represented by global securities;
any other specific terms, preferences, rights, limitations or restrictions of the series of shares of preferred stock;
a discussion of any material United States federal income tax consequences of owning or disposing of the shares of preferred stock of the
series;
the relative ranking and preferences of shares of preferred stock of the series as to dividend rights and rights upon liquidation, dissolution
or winding up of our affairs; and
any limitations on issuance of any series of shares of preferred stock ranking senior to or on a parity with the series of shares of preferred
stock as to dividend rights and rights upon liquidation, dissolution or winding up of our affairs.
Provisions of the Certificate and Bylaws
A number of provisions of our certificate of incorporation and bylaws concern matters of corporate governance and the rights of stockholders. Certain of
these provisions, as well as the ability of our board of directors to issue shares of preferred stock and to set the voting rights, preferences and other terms
thereof, may be deemed to have an anti-takeover effect and may discourage takeover attempts not first approved by the board of directors (including
takeovers which certain stockholders may deem to be in their best interests). To the extent takeover attempts are discouraged, temporary fluctuations in
the market price of the common stock, which may result from
actual or rumored takeover attempts, may be inhibited. These provisions, together with the ability of the board to issue preferred stock without further
stockholder action, also could delay or frustrate the removal of incumbent directors or the assumption of control by stockholders, even if such removal
or assumption would be beneficial to our stockholders. These provisions also could discourage or make more difficult a merger, tender offer or proxy
contests, even if they could be favorable to the interests of stockholders and could potentially depress the market price of the common stock. The board
of directors believes that these provisions are appropriate to protect our interest and the interests of our stockholders.
Meetings of Stockholders. The bylaws provide that a special meeting of stockholders may be called only by the board of directors unless otherwise
required by law. The bylaws provide that only those matters set forth in the notice of the special meeting may be considered or acted upon at that special
meeting, unless otherwise provided by law. In addition, the bylaws set forth certain advance notice and informational requirements and time limitations
on any director nomination or any new business which a stockholder wishes to propose for consideration at an annual meeting of stockholders.
No Stockholder Action by Written Consent. The certificate provides that any action required or permitted to be taken by our stockholders at an annual or
special meeting of stockholders must be effected at a duly called meeting and may not be taken or effected by a written consent of stockholders in lieu
thereof.
Amendment of the Certificate. The certificate provides that an amendment thereof must first be approved by a majority of the board of directors and
(with certain exceptions) thereafter approved by the holders of a majority of the total votes eligible to be cast by holders of voting stock with respect to
such amendment or repeal; provided, however, that the affirmative vote of 80% of the total votes eligible to be cast by holders of voting stock, voting
together as a single class, is required to amend provisions relating to the establishment of the board of directors and amendments to the certificate.
Amendments of Bylaws. The certificate provides that the board of directors or the stockholders may amend or repeal the bylaws. Such action by the
board of directors requires the affirmative vote of a majority of the directors then in office. Such action by the stockholders requires the affirmative vote
of the holders of at least two-thirds of the total votes eligible to be cast by holders of voting stock with respect to such amendment or repeal at an annual
meeting of stockholders or a special meeting called for such purposes, unless the board of directors recommends that the stockholders approve such
amendment or repeal at such meeting, in which case such amendment or repeal shall only require the affirmative vote of a majority of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or repeal.
Certain Anti-Takeover Matters
We are subject to the provisions of Section 203 of the Delaware General Corporation Law, or Delaware law, regulating corporate takeovers. In general,
these provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholders for a period of three years
following the date that the stockholder became an interested stockholder, unless:
•
•
either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder is approved by our
board of directors before the date the interested stockholder attained that status;
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of
determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned
(i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•
on or after that date, the business combination is approved by our board of directors and authorized at a meeting of stockholders, and not
by written consent, by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines “business combination” to include the following:
•
•
•
•
any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder;
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or
•
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
In general, Section 203 of the DGCL defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any of these entities or persons.
A Delaware corporation may opt out of this provision either with an express provision in its original certificate of incorporation or in an amendment to
its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision. The statute could prohibit or
delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability for monetary damages for breach of fiduciary duty by members of our Board of Directors, except for
liability that cannot be eliminated under Delaware law. Under Delaware law, our directors have a fiduciary duty to us which is not eliminated by this
provision in our certificate of incorporation. In addition, each of our directors is subject to liability under Delaware law for breach of their duty of
loyalty for acts or omissions which are found by a court of competent jurisdiction to be not in good faith or which involve intentional misconduct or
knowing violations of law for actions leading to improper personal benefit to the director and for payments of dividends or approval of stock
repurchases or redemptions that are prohibited by Delaware law. This provision does not affect our directors’ responsibilities under any other laws, such
as federal securities laws.
Delaware law provides that the directors of a company will not be personally liable for monetary damages for breach of their fiduciary duty as directors,
except for liability for any of the following:
•
•
•
•
any breach of a director’s duty of loyalty to us or our stockholders;
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
unlawful payment of dividends or unlawful stock repurchases or redemptions; or
any transaction from which the director derived an improper personal benefit.
Delaware law provides that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which our directors and
officers may be entitled to under our bylaws, any agreement, a vote of stockholders or otherwise. Our certificate of incorporation and bylaws eliminate
the personal liability of directors to the maximum extent permitted by Delaware law. In addition, our certificate of incorporation and bylaws provide that
we may fully indemnify any person who is or was a party to or is threatened to be made a party to any threatened, pending or completed action, suit of
proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was one of our directors, officers,
employees or other agents, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
Listing
Our common stock is listed on the Nasdaq Capital Market and trades under the symbol “CPRX”.
Transfer Agent and Registrar
Our transfer agent and registrar for our common stock is Continental Stock Transfer & Trust Company. They are located at One State Street Plaza, 30th
Floor, New York, New York 10004. They can be reached via telephone at (212) 509-4000.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated March 16, 2022, with respect to the consolidated financial statements and internal control over financial reporting
included in the Annual Report of Catalyst Pharmaceuticals, Inc. on Form 10-K for the year ended December 31, 2021. We consent to the incorporation
by reference of said reports in the Registration Statements of Catalyst Pharmaceuticals, Inc. on Form S-3 (File No. 333-240052) and Forms S-8 (File
No. 333-226008 and File No. 333-198119).
Exhibit 23.1
/s/ GRANT THORNTON LLP
Miami, Florida
March 16, 2022
Certification of Principal Executive Officer
Exhibit 31.1
I, Patrick J. McEnany, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Catalyst Pharmaceuticals, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 16, 2022
/s/ Patrick J. McEnany
Patrick J. McEnany
Chief Executive Officer
(Principal Executive Officer)
Certification of Principal Financial Officer
Exhibit 31.2
I, Alicia Grande, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Catalyst Pharmaceuticals, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 16, 2022
/s/ Alicia Grande
Alicia Grande
Chief Financial Officer
(Principal Financial Officer)
Certification Required by 18 U.S.C. Section 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.1
I, Patrick J. McEnany, as Principal Executive Officer of Catalyst Pharmaceuticals, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 (as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:
1.
the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2021 (the “Report”), filed with the U.S.
Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 16, 2022
/s/ Patrick J. McEnany
Patrick J. McEnany
Chief Executive Officer
(Principal Executive Officer)
Certification Required by 18 U.S.C. Section 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.2
I, Alicia Grande, as Principal Financial Officer of Catalyst Pharmaceuticals, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 (as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:
1.
the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2021 (the “Report”), filed with the U.S.
Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 16, 2022
/s/ Alicia Grande
Alicia Grande
Chief Financial Officer
(Principal Financial Officer)