Catalyst Pharmaceuticals(US:CPRX)2023-11-07 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements The financial statements show a Q3 2023 net loss due to a significant IPR&D expense, despite strong revenue growth from recent acquisitions, and a decrease in cash from acquisition funding Consolidated Balance Sheets This section presents the company's financial position, highlighting changes in assets, liabilities, and equity due to recent acquisitions - Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $120,971 | $298,395 | | Accounts receivable, net | $48,049 | $10,439 | | License and acquired intangibles, net | $167,108 | $32,471 | | Total assets | $413,211 | $375,630 | | Total liabilities | $64,663 | $75,209 | | Total stockholders' equity | $348,548 | $300,421 | - The significant decrease in cash and cash equivalents is primarily due to cash used for acquisitions, while the increase in license and acquired intangibles reflects the addition of FYCOMPA® to the company's portfolio9 Consolidated Statements of Operations This section details the company's revenues, expenses, and net income (loss) over specific periods, reflecting the impact of recent strategic transactions - Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $102,688 | $57,244 | $287,636 | $153,446 | | Research and development | $83,662 | $8,310 | $91,178 | $15,696 | | Operating income (loss) | $(37,188) | $25,102 | $45,120 | $71,037 | | Net income (loss) | $(30,764) | $22,748 | $36,566 | $57,608 | | Diluted EPS | $(0.29) | $0.20 | $0.32 | $0.52 | - The company reported a net loss in Q3 2023 despite a 79% increase in revenue, driven by a massive surge in R&D expenses, primarily due to the immediate expensing of acquired in-process research and development (IPR&D) for vamorolone12151 Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities, highlighting the impact of recent acquisitions on liquidity - Cash Flow Summary for the Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $87,952 | $75,970 | | Net cash provided by (used in) investing activities | $(255,184) | $9,209 | | Net cash provided by (used in) financing activities | $(10,192) | $(559) | | Net increase (decrease) in cash | $(177,424) | $84,620 | - Investing activities show a significant cash outflow of $255.2 million in the first nine months of 2023, primarily for asset acquisitions including FYCOMPA® ($162.3 million) and the IPR&D for vamorolone ($79.3 million)21 Notes to Unaudited Consolidated Financial Statements The notes detail the company's business, accounting policies, and the financial impact of recent strategic moves, including asset acquisitions, a significant IPR&D charge, ongoing patent litigation, and subsequent FDA approval of AGAMREE® - The company's product portfolio has expanded with the acquisition of U.S. rights to FYCOMPA® in January 2023 and an exclusive North American license for vamorolone in July 20232627 - Net Product Revenue by Product (in thousands) | Product | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | FIRDAPSE® | $66,224 | $57,173 | $188,648 | $153,255 | | FYCOMPA® | $36,393 | $— | $98,750 | $— | | Total | $102,617 | $57,173 | $287,398 | $153,255 | - The acquisition of vamorolone rights from Santhera was accounted for as an asset acquisition, with the purchase price allocated to IPR&D ($81.5 million) and an investment in Santhera ($13.5 million), with the IPR&D immediately expensed to R&D as the product had not yet received regulatory approval150151 - Subsequent to the quarter's end, on October 26, 2023, AGAMREE® (vamorolone) was approved by the FDA for treating Duchenne muscular dystrophy (DMD), triggering a milestone payment obligation171 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q3 2023 revenue growth to FYCOMPA® and FIRDAPSE® sales, explains the net loss by a one-time IPR&D expense, and confirms sufficient liquidity despite acquisition-related cash outflows Overview This section provides a high-level summary of the company's business, strategic focus, and key developments, including product portfolio and intellectual property defense - The company is a commercial-stage biopharmaceutical firm focused on rare diseases, with three key products: FIRDAPSE® (for LEMS), FYCOMPA® (for epilepsy), and the newly licensed AGAMREE® (vamorolone) for Duchenne muscular dystrophy (DMD)173174 - The company is actively defending its intellectual property for FIRDAPSE® and FYCOMPA® against multiple generic drug manufacturers that have filed Abbreviated New Drug Applications (ANDAs), with lawsuits filed triggering a 30-month stay on FDA approval for the generics181192 - Following the FDA approval of AGAMREE® (vamorolone) on October 26, 2023, the company is planning a commercial launch in the U.S. during the first quarter of 2024174199 Results of Operations This section provides a detailed analysis of the company's financial performance, explaining the drivers behind revenue, cost of sales, and operating expenses - Q3 2023 vs Q3 2022 Operating Results (in thousands) | Item | Q3 2023 | Q3 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Product Revenue | $102,617 | $57,173 | $45,444 | 79.5% | | Cost of Sales | $14,167 | $9,665 | $4,502 | 46.6% | | R&D Expenses | $83,662 | $8,310 | $75,352 | 906.8% | | SG&A Expenses | $33,560 | $13,649 | $19,911 | 145.9% | | Net Income (Loss) | $(30,764) | $22,748 | $(53,512) | -235.2% | - The increase in net product revenue was driven by the acquisition of FYCOMPA® (contributing $36.4 million in Q3 2023) and a 9% increase in FIRDAPSE® sales volume218219 - The primary driver for the increase in R&D expenses was the $81.5 million IPR&D charge for the vamorolone license acquisition in Q3 2023223 - SG&A expenses increased significantly due to commercialization costs for FYCOMPA®, including transition service fees and the hiring of a dedicated sales force226 Liquidity and Capital Resources This section discusses the company's ability to meet its financial obligations, detailing cash position, working capital, and significant cash flow activities - As of September 30, 2023, the company had cash and cash equivalents of $121.0 million and working capital of $134.2 million, down from $298.4 million and $263.2 million, respectively, at year-end 2022235 - Major cash outflows in 2023 included approximately $162 million for the FYCOMPA® acquisition, approximately $95 million for the vamorolone license and Santhera equity investment, and a $10 million payment to Jacobus for the RUZURGI® acquisition235 - The company filed a $500 million shelf registration statement on September 8, 2023, providing flexibility for future capital raises, though no offerings have been completed under it yet241 - A regulatory milestone payment of $36 million for AGAMREE® became due upon its FDA approval on October 26, 2023, and will be paid in the fourth quarter of 2023250 Item 3. Quantitative and Qualitative Disclosure About Market Risk The company's primary market risk is interest rate exposure on its cash and cash equivalents, managed through investments in highly liquid instruments without derivatives - The company's market risk is confined to interest rate risk on its cash and cash equivalents257258 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal controls - As of September 30, 2023, the company's disclosure controls and procedures were deemed effective by management262 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is engaged in significant patent litigation, having filed lawsuits against generic manufacturers for FIRDAPSE® and FYCOMPA®, triggering 30-month FDA approval stays - The company has initiated patent infringement lawsuits against three generic manufacturers for FIRDAPSE® and one manufacturer for FYCOMPA® following their Paragraph IV ANDA filings264266 - These legal actions have triggered a statutory 30-month stay, preventing the FDA from approving the generic versions of FIRDAPSE® until at least May 2026, and also staying the approval for the FYCOMPA® generics, absent an earlier court decision264266 Item 1A. Risk Factors This section refers readers to the 2022 Form 10-K for detailed risk factors, noting no material changes to previously disclosed risks - The report directs investors to the Risk Factors section of the 2022 Form 10-K for a comprehensive discussion of potential risks268 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock in Q3 2023, prioritizing cash for business development, with $21 million remaining under the repurchase program - No shares were repurchased during the three months ended September 30, 2023269 - The company is prioritizing cash for business development over share repurchases at present269 Item 5. Other Information The company announced a CEO transition, with Richard R. Daly appointed to succeed retiring Patrick J. McEnany, effective January 1, 2024 - A CEO transition is underway, with Richard R. Daly appointed to take over from the retiring Patrick J. McEnany on January 1, 2024271