Catalyst Pharmaceuticals(CPRX) - 2024 Q4 - Annual Report

Business Overview Catalyst Pharmaceuticals is a commercial-stage biopharmaceutical company focused on rare diseases, marketing FIRDAPSE®, FYCOMPA®, and AGAMREE®, and actively seeking to acquire additional late-stage products to drive future growth Company and Product Portfolio Overview Catalyst Pharmaceuticals is a commercial-stage biopharmaceutical company focused on rare diseases, marketing FIRDAPSE®, FYCOMPA®, and AGAMREE®, and actively seeking to acquire additional late-stage products to drive future growth - The company markets three drug products: FIRDAPSE® (amifampridine), FYCOMPA® (perampanel), and AGAMREE® (vamorolone)[20] - The company's strategy is to expand its drug portfolio by acquiring rights to late-stage products for orphan and rare diseases[20][62] - In early 2025, the company decided to split its field-based forces into two dedicated units, one for FIRDAPSE® and one for AGAMREE®, to better focus its sales efforts. This division is expected to be complete in Q2 2025[23] FIRDAPSE® (amifampridine) - FIRDAPSE® is approved for treating LEMS in adults and children (6+ years). In May 2024, the FDA approved an increased maximum daily dosage from 80 mg to 100 mg[21] - The company is expanding FIRDAPSE®'s global footprint, with commercialization in Canada via KYE and in Japan via DyDo, which launched the product in January 2025[28][29] - Catalyst is defending its FIRDAPSE® patents against generic challengers. It has settled with Teva and Inventia, securing the market until at least February 2035 against Teva. Litigation with Hetero and Lupin is ongoing[31][33][36] FYCOMPA® (perampanel) - The company acquired the U.S. rights to FYCOMPA®, a treatment for epilepsy, from Eisai in January 2023 for an upfront payment of $160 million[38][39] - Patent protection for FYCOMPA® is set to expire, with the tablet version losing exclusivity on May 23, 2025, and the oral suspension on December 15, 2025. The company expects generic competition thereafter[42][121] AGAMREE® (vamorolone) - In July 2023, Catalyst acquired the exclusive North American license for AGAMREE® from Santhera for a $75 million upfront payment and a $36 million milestone payment upon FDA approval[47][48][50] - AGAMREE® was approved by the FDA on October 26, 2023, for treating DMD in patients aged two and older, and was commercially launched in the U.S. on March 13, 2024[50][51] - The company is exploring additional indications for AGAMREE® and is conducting a Phase 1 study to define its immunosuppressive dose for potential use with gene therapies[57] - AGAMREE® has robust intellectual property protection, including New Chemical Entity exclusivity until October 2028, Orphan Drug Exclusivity until October 2030, and patents extending to 2040[59] Company Strategy The company's strategy focuses on a "buy-and-build" model, prioritizing commercial success of FIRDAPSE® and AGAMREE®, geographic expansion, and acquiring additional rare disease products to diversify its portfolio - Continue to commercialize FIRDAPSE® for LEMS and AGAMREE® for DMD, while improving disease awareness and patient support through the Catalyst Pathways® program[66] - Seek to expand the market for FIRDAPSE® into Asia and Latin America and for AGAMREE® into Japan[66] - Actively pursue acquisitions of early and/or late-stage products, companies, or technology platforms in the rare disease space to broaden and diversify the product portfolio[66] Manufacturing and Supply Catalyst operates as a virtual manufacturer, relying entirely on third-party CMOs for all products, including FIRDAPSE®, FYCOMPA®, and AGAMREE®, under various supply agreements - The company has no in-house manufacturing capacity and relies on contract manufacturers for all products[137] - FYCOMPA® is manufactured by Eisai under a seven-year supply agreement running through at least the end of 2029[139] - AGAMREE® is supplied by Santhera, an obligation that runs until January 1, 2026, after which Catalyst has the right to contract with other third-party manufacturers[140] Competition The company faces intense competition across its product lines, including unapproved therapies for FIRDAPSE®, established anti-epileptic drugs and generics for FYCOMPA®, and other corticosteroids and gene therapies for AGAMREE® - FIRDAPSE® competes with unapproved treatments like steroids and immunosuppressants, as well as amifampridine from compounding pharmacies[145][146] - FYCOMPA® faces competition from numerous other anti-epileptic drugs and expects significant competition from generic manufacturers after its patent expiration in 2025[147][148] - AGAMREE®'s main competitors in the DMD market are other corticosteroids like Emflaza and new gene therapies such as Sarepta's Elevidys[149][150] Regulatory Matters The company's operations are subject to extensive FDA and global regulations covering product development, manufacturing, marketing, and pricing, including NDA approval, orphan drug exclusivity, Hatch-Waxman Act, and government pricing programs - The FDA drug approval process is rigorous, involving preclinical studies and three phases of human clinical trials to establish safety and efficacy before an NDA can be approved[155][161][162] - The Hatch-Waxman Act provides pathways for generic drug approval (ANDA) and sets rules for patent challenges (Paragraph IV certifications), which can trigger a 30-month stay on FDA approval of the generic[174][176] - Orphan Drug Designation provides seven years of market exclusivity in the U.S. for the approved indication, a critical protection for FIRDAPSE® and AGAMREE®[201][202] - The company is subject to numerous government pricing programs, including Medicaid Drug Rebate Program, 340B Drug Pricing Program, and Medicare Part D, which involve mandatory rebates and discounts[219][221][223] - The Inflation Reduction Act of 2022 (IRA) introduces significant changes, including Medicare price negotiation for certain high-expenditure drugs and inflation-based rebates, which could impact future revenues[196][224] Human Capital Management As of February 24, 2025, Catalyst employed 181 people, primarily in commercial roles, focusing on attracting and retaining talent through competitive compensation and a culture of integrity and diversity - As of February 24, 2025, the company had 181 employees, with 127 in commercial, 11 in R&D, and the remainder in G&A[234] - The compensation package is designed to be competitive and includes base salary, annual performance bonuses, and stock option grants. Benefits include comprehensive health coverage and a 401(k) with employer match[235] Risk Factors The company faces substantial risks, including dependence on product commercial success, intense competition, reliance on third-party manufacturing, stringent regulatory environment, pricing pressures, and intellectual property litigation Marketing and Commercialization Risks The company's success depends on the commercial performance of its products, facing risks from market acceptance, intense competition, profitability challenges for small patient populations, and FYCOMPA®'s boxed warning - The company's success hinges on the successful commercialization of its products, and any failure to do so would materially harm the business[244] - The small patient populations for FIRDAPSE® and AGAMREE® require achieving significant market share and high per-patient prices to be profitable[244][262] - FYCOMPA® carries a boxed warning for serious psychiatric and behavioral changes, which may cause reluctance among patients and providers to use the drug[244][264] Development and Operational Risks The company faces drug development and operational risks, including clinical trial failures, heavy reliance on third-party CROs and CMOs, supply chain disruptions, managing growth, and navigating third-party payor pressures on reimbursement and pricing - The company relies on third parties for all pre-clinical and clinical studies, as well as for all manufacturing, which reduces control and introduces risk if these partners fail to perform[245][268][271] - The company is dependent on its licensing partners, Eisai for FYCOMPA® and Santhera for AGAMREE®, for product supply[245][276] - Pressure from third-party payors on coverage, reimbursement, and pricing, along with healthcare reforms like the IRA, may impair the company's ability to achieve profitable pricing[246][279][284] Regulatory Risks The company faces significant regulatory risks, including uncertain drug approval, loss of orphan drug exclusivity, generic competition, impact of the IRA on pricing, and complex compliance with anti-kickback and fraud laws - Failure to obtain or maintain orphan drug exclusivity for FIRDAPSE® and AGAMREE® would expose them to competition and significantly harm revenues[247][305] - The approval of generic versions of the company's products, particularly after patent expiry, would lead to significant price erosion and loss of market share[247][310] - The company is subject to complex anti-kickback, fraud and abuse, and transparency laws, violations of which could lead to significant penalties and reputational harm[247][318][319] Intellectual Property Risks The company's success relies on its intellectual property, facing risks from failing to secure or maintain patent protection, inability to prevent generic competition, and high costs and uncertainty of patent litigation - The company's ability to compete effectively depends on maintaining patent protection; failure to do so would open the company to competition[249][328] - There is a risk that the company's patents may not adequately protect its products from generic competition, as evidenced by the ongoing Paragraph IV challenges for FIRDAPSE®[249][310] - The company may incur substantial costs from litigation related to intellectual property, such as defending its patents or claims of infringing on others' patents[249][340] Cybersecurity Catalyst integrates cybersecurity into its risk management, with Board oversight and CLCO/COO responsibility, engaging third-party experts for assessments, and has not experienced material incidents to date - The Board of Directors, with its Audit Committee, provides oversight for cybersecurity risks[378] - The Chief Legal and Compliance Officer (CLCO) and Chief Operating Officer (COO), along with IT personnel, are primarily responsible for assessing and managing cybersecurity risks[374] - The company engages external experts for regular audits and threat assessments to ensure its strategies align with industry best practices[369][370] - To date, the company has not encountered any cybersecurity incidents that have materially affected its operations or financial condition[372] Legal Proceedings The company is engaged in ongoing Paragraph IV patent litigation to defend FIRDAPSE® against generic manufacturers Hetero and Lupin, having settled with Teva and Inventia, with no other material litigation pending - The company is engaged in ongoing patent litigation against Hetero and Lupin, who have filed ANDAs to market generic versions of FIRDAPSE®[380][680] - In January 2025, the company settled with Teva, which agreed not to market a generic FIRDAPSE® version before February 25, 2035, under most circumstances[679] - In July 2024, the company settled with Inventia, which acknowledged the validity and infringement of FIRDAPSE® patents and agreed not to commercialize its product until patent expiration or other specified conditions[681] Management's Discussion and Analysis (MD&A) In FY2024, total revenues grew 23.5% to $491.7 million, driven by FIRDAPSE® sales and AGAMREE® launch, leading to a net income of $163.9 million and a strengthened financial position with $517.6 million in cash Results of Operations (2024 vs. 2023) Total revenues increased to $491.7 million in 2024, driven by FIRDAPSE® and AGAMREE® sales, leading to operating income of $195.1 million and net income of $163.9 million, primarily due to revenue growth and lower R&D expenses Product Revenue, Net (in millions) | Product | 2024 | 2023 | | :--- | :--- | :--- | | FIRDAPSE® | $306.0 | $258.4 | | FYCOMPA® | $137.3 | $138.1 | | AGAMREE® | $46.0 | $0.0 | | Total | $489.3 | $396.5 | Key Operating Results (in millions) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Revenues | $491.7 | $398.2 | | Cost of Sales | $68.8 | $52.0 | | R&D Expenses | $12.6 | $93.2 | | SG&A Expenses | $177.7 | $133.7 | | Operating Income | $195.1 | $86.8 | | Net Income | $163.9 | $71.4 | | Diluted EPS | $1.31 | $0.63 | - The decrease in R&D expenses from $93.2 million in 2023 to $12.6 million in 2024 was primarily due to the $81.5 million in-process research and development (IPR&D) expense recognized for the AGAMREE® acquisition in 2023[468] - Selling, general and administrative (SG&A) expenses increased by $44.0 million, or 32.9%, primarily due to increased headcount and commercialization expenses related to the launch of AGAMREE®[470] Liquidity and Capital Resources The company's financial position strengthened, with cash and equivalents increasing to $517.6 million by end of 2024, driven by $239.8 million in operating cash flow and $140.7 million from an equity offering, ensuring sufficient liquidity for the next 12 months Financial Position (in millions) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $517.6 | $137.6 | | Working Capital | $502.9 | $143.3 | - In January 2024, the company completed a public offering of 10 million shares of common stock, raising net proceeds of approximately $140.7 million[481][576] Cash Flow Summary (in millions) | Cash Flow | 2024 | 2023 | | :--- | :--- | :--- | | Net cash from operating activities | $239.8 | $143.6 | | Net cash used in investing activities | ($0.6) | ($293.5) | | Net cash from (used in) financing activities | $140.7 | ($10.9) | Critical Accounting Policies and Estimates The company's critical accounting policies involve significant judgment, including revenue recognition (gross-to-net adjustments), valuation of intangible assets (discounted cash flow), and stock-based compensation (Black-Scholes model) - Revenue Recognition: Product sales are recorded at a net price, which requires estimating variable consideration for items like government rebates, chargebacks, and product returns[454] - Valuation of Intangible Assets: Acquired intangible assets are recorded at fair value, determined using a discounted cash flow analysis that requires assumptions about future cash flows, risk, and cost of capital[456] - Stock-Based Compensation: The fair value of stock options is calculated using the Black-Scholes model, which requires estimates for stock price volatility, option life, and interest rates[457] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with Grant Thornton LLP issuing an unqualified opinion on internal control effectiveness - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of December 31, 2024[510] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2024, based on the COSO 2013 framework[513] - The independent registered public accounting firm, Grant Thornton LLP, issued a report concurring with management's assessment of effective internal control over financial reporting[514][540]