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CPRX > SEC Filings for CPRX > Form 10-Q on 14-Nov-2012All Recent SEC Filings




Quarterly Report



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, trends in our industry, as well as a discussion regarding recent developments in our business.

• Basis of Presentation. This section provides information about key accounting estimates and policies that we followed in preparing our financial statements for the third quarter of fiscal 2012.

• 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 our critical accounting policies, are also summarized in the notes to our interim financial statements that are included in this report.

• Results of Operations. This section provides an analysis of our results of operations for the three and nine month periods ended September 30, 2012 as compared to the same periods ended September 30, 2011.

• Liquidity and Capital Resources. This section provides an analysis of our cash flows, capital resources, off-balance sheet arrangements and our outstanding commitments.

• 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.


We are a development-stage specialty pharmaceutical company focused on the development and commercialization of prescription drugs targeting diseases and disorders of the central nervous system with a focus on the treatment of addiction, epilepsy and LEMS. We currently have three products in development:

• Firdapse™. Subsequent to quarter end, we licensed the North American rights to FirdapseTM, a Phase III orphan drug for the treatment of LEMS, which is a rare and sometimes fatal autoimmune disease with the primary symptoms of muscle weakness. As part of that arrangement, BioMarin made a $5 million investment in us. The terms of our agreements with respect to this collaboration are described below.

• CPP-115. We are in the early stages of developing CPP-115, another GABA aminotransferase inhibitor that, based on our pre-clinical studies to date, we believe is more potent than vigabatrin and may have reduced side effects (e.g., visual field defects, or VFDs) from those associated with vigabatrin. We are planning to develop CPP-115 for several indications, including drug addiction, epilepsy (initially infantile spasms) and other selected central nervous disease indications. We believe that we control all current intellectual property for drugs that have a mechanism of action related to inhibition of GABA aminotransferase.

• CPP-109. We have been evaluating CPP-109 (our formulation of vigabatrin, a GABA aminotransferase inhibitor) for the treatment of cocaine addiction and Tourette Syndrome. However, CPP-109 recently failed to meet the primary endpoint in our Phase II(b) trial for cocaine addiction. As a result, we have put our program to develop this product for addiction on hold until we better understand why our clinical trial of the drug failed to achieve its primary endpoint. Once we have the full data set, which we expect to receive during the first half of 2013, we will meet with our collaborator on the Phase II(b) trial, NIDA, to determine next steps, if any, in the clinical development program for CPP-109 for addiction.

Acquisition of North American Rights to Firdapse TM

Investment Agreement. On October 26, 2012, we entered into the Investment Agreement with BioMarin pursuant to which BioMarin invested $5,000,000. Initially, such amount shall be treated as a loan. However, the amount of the loan shall automatically convert into shares of our authorized but unissued common stock on the earlier of: (i) March 31, 2013, or (ii) the date that is thirty (30) days after we publicly release top-line data from our Phase II(b) clinical trial evaluating the use of our product candidate, CPP-109, for the treatment of cocaine addiction (the "Conversion Date"), except in certain limited circumstances as more particularly described below and in the Investment Agreement. The top line results from our Phase II(b) trial were publicly released on November 8, 2012. The conversion price of the shares of our common stock to be acquired by BioMarin upon conversion of their $5 million investment in our Company will be the "dollar weighted average price" (as defined in the Investment Agreement) of our common stock for the fifteen (15) business day period prior to the Conversion Date, multiplied by 0.9, provided, however, that the conversion price shall not be less than $0.75 per share or more than $2.50 per share.

The Investment Agreement also provides that we will use the $5 million solely for the purpose of developing Firdapse™ and that for such period that BioMarin owns more than 10% of our outstanding common stock, BioMarin will exclusively use the exemption from registration provided under Rule 144 to make sales of our common stock shares acquired in the investment transaction. We also agreed in the Investment Agreement not to make certain asset sales or sales of our securities during the period between the date of the Investment Agreement and the Conversion Date without the prior written consent of BioMarin. Finally, the Investment Agreement provides that we are obligated to repay the $5 million to BioMarin, with interest, if an "event of default" (as defined in the Investment Agreement) occurs prior to the conversion of the loan amount into shares of our common stock.

Product Development Plans for Firdapse™. Firdapse™ is a proprietary form of 3,4-diaminopyridine (amifampridine phosphate), or 3,4-DAP, for the treatment of LEMS. BioMarin acquired the rights to Firdapse™ in October 2009 as a result of its acquisition of Huxley Pharmaceuticals, Inc. (Huxley). Firdapse™ was granted marketing approval in the European Union (EU) in December 2009, which, because Firdapse™ had previously been granted orphan medicinal product designation in the EU, included ten year marketing exclusivity in the EU. BioMarin will continue to sell Firdapse™ in the EU following this transaction.

Pursuant to the License Agreement, we licensed the rights to Firdapse™ in North America. At the time of the license agreement, BioMarin was conducting a Phase III clinical trial of Firdapse™ (the "Phase III Trial"), which trial is being transferred to and will be continued by us pursuant to the License Agreement. The Phase III Trial began in the second quarter of 2011 and is a randomized double-blind, placebo-controlled discontinuation study followed by an open-label extension period in approximately 30 patients across 10 sites in the United States (US) and Europe. The primary objective of the trial is to evaluate the efficacy and safety, including the long-term safety, of Firdapse™. The primary endpoint is a change from baseline in the Quantitative Myasthenia Gravis score at 14 days and the secondary endpoint is change from baseline in the timed 25-foot walk test at 14 days. At present, we expect to complete the double-blind treatment portion of the Phase III trial in the second half of 2014.

The US Food and Drug Administration (FDA) has previously granted orphan drug designation to Firdapse™ for the treatment of LEMS, which means that if we are the first to obtain approval for Firdapse™ in the US, it will be eligible to obtain seven year marketing exclusivity.

LEMS is a rare autoimmune disease with the primary symptoms of muscle weakness. The muscle weakness in LEMS is caused by autoantibodies to voltage gated calcium channels leading to a reduction in the amount of acetylcholine released from nerve terminals. The prevalence of LEMS is estimated at approximately 3,000 patients in the US and Canada. Approximately 50 percent of LEMS patients diagnosed have small cell lung cancer. Patients with LEMS typically present with fatigue, muscle pain and stiffness. The weakness is generally more marked in the proximal muscles, particularly of the legs and trunk. Other problems include reduced reflexes, drooping of the eyelids, facial weakness and problems with swallowing. Patients often report dry mouth, impotence, constipation and feelings of light headedness on standing. These problems can be life threatening when the weakness involves respiratory muscles. A diagnosis of LEMS is generally made on the basis of clinical symptoms, electromyographic testing and the presence of autoantibodies against voltage gated calcium channels.

There are no approved drugs in the US for the treatment of LEMS. Current options rely on intravenous immunoglobulin, plasmapheresis and/or immuno suppressant drugs. Firdapse™ is the only version of amifampridine phosphate (3,4-DAP) in Phase III trials for LEMS. However, we believe that another pharmaceutical company is conducting a Phase II clinical trial in the US for its version of amifampridine (3,4-DAP) for the treatment of LEMS.

While our initial efforts will be on seeking the approval of Firdapse™ for the treatment of LEMS in the US, we also intend to explore other potential orphan central nervous system indications for Firdapse™, such as Myasthenia Gravis and Congenital Myasthenic Syndrome.

License Agreement. On October 26, 2012, we entered into the License Agreement with BioMarin pursuant to which we licensed the North American rights to Firdapse™. As part of the License Agreement, we are taking over the Phase III Trial and will be obligated to use diligent efforts to seek to obtain regulatory approval for and to commercialize the Firdapse™ in the US. We are also obligated to use diligent efforts to complete the double-blind treatment phase of the Phase III trial within 24 months of entering into the License Agreement, and BioMarin has the right to terminate the License Agreement if such treatment phase has not been completed in such 24-month period (unless we are using diligent effort to pursue the completion of such treatment phase and have spent at least $5 million in connection with the conduct of the Phase III Trial during such 24 month period). We currently anticipate that the remaining development program costs required to file a New Drug Application (NDA) for Firdapse™ will be approximately $17 million.

Under the License Agreement, we have agreed to make: (i) certain royalty payments to BioMarin based on the net sales in North America; (ii) certain royalty payments to a third-party licensor of the rights being sublicensed to us based on the net sales in North America, and (iii) certain milestone payments to such third-party licensor and to the former stockholders of Huxley that BioMarin is obligated to make (which milestone payments are due, in part, upon acceptance by the FDA of a filing of an NDA for Firdapse™ for the treatment of LEMS, and, in part, on the unconditional approval by the FDA of an NDA for Firdapse™ for the treatment of LEMS). We have also agreed to share in the cost of certain post-marketing studies that are being conducted by BioMarin if such studies are required as a condition for approval of Firdapse™ by the FDA.

Update on CPP-115

On May 22, 2012, we reported positive results from a Phase I(a) double-blind, placebo-controlled, clinical trial evaluating the safety, tolerability and pharmacokinetics profile of CPP-115. The study evaluated single ascending doses ranging from 5 mg to 500 mg (a dose greater than ten times the predicted effective dose of 15-30 mg per day derived from animal model data) of CPP-115 solution administered orally to 55 healthy volunteers. The key findings of the study included: (i) CPP-115 was well tolerated at all six doses administered in the study; there were no serious or adverse events, and no cardiovascular or respiratory events were reported in the study; (ii) CPP-115 was rapidly absorbed (time to peak blood concentration was about 30 minutes); (iii) the drug had an elimination half-life of four to six hours; and (iv) peak serum concentration of the drug (Cmax) increased on a dose proportional basis over the range of doses studied, while there was a greater than proportional increase across the dose range in AUC, a method of measurement of the bioavailability of a drug based on a plot of blood concentrations sampled at frequent intervals.

Update on CPP-109

We jointly conducted with the National Institute of Drug Abuse (NIDA) and the Department of Veterans Affairs Cooperative Studies Program (VA) a U.S. Phase II(b) clinical trial evaluating CPP-109 for the treatment of cocaine addiction (the Phase II(b) Trial). The VA was responsible for management and statistical analyses of the data collected from the trial. Subsequent to quarter end, on November 8, 2012, we announced top-line results from the Phase II(b) trial. The data from the trial showed that CPP-109 did not meet the primary endpoint, that a significant larger proportion of CPP-109 treated subjects than placebo-treated subjects were cocaine-free during the last two weeks of the treatment period (weeks 8 and 9). The data also showed that the two key secondary endpoints, a significantly larger increase in cocaine negative urines and a significant decrease in the weekly fraction of use days in medication-treated subjects during weeks 3-9, also were not met. The clinical trial did not reveal any unexpected serious adverse effects.

We expect the remaining protocol-specified analyses for other secondary and exploratory clinical endpoints and safety data to be completed during the first half of next-year, after all the follow-up clinical data have been received to be able to fully unblind the trial data. After obtaining the full data set, we expect to meet with our collaborator on the Phase II(b) trial, NIDA, to determine next steps, if any, in the clinical development program for CPP-109 for cocaine addiction.

During September 2012, we announced that researchers at Mount Sinai School of Medicine in New York had commenced a safety and tolerability trial of vigabatrin in young adults with treatment refractory Tourette Disorder to evaluate whether CPP-109 can potentially reduce the severity of debilitating tics. The study is being conducted at Mount Sinai School of Medicine's Behavioral Science Unit. Catalyst is providing CPP-109 study medication and financial support to facilitate the study.

Lundbeck Inc.'s (Lundbeck) exclusivity for Sabril® tablets (its version of vigabatrin) as an adjunctive therapy to treat refractory complex partial seizures in adults will expire on August 21, 2014. At the present time, if we submit an NDA for CPP-109, we expect to submit such NDA under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (the FDCA) for CPP-109. A 505(b)(2) application is one that relies, at least partially, upon data that a company does not own or have right of reference to, including published literature. A 505(b)(2) application can also rely upon the FDA's previous findings of safety and efficacy for previously approved products. Additional information in a 505(b)(2) application includes data on manufacturing, bioequivalence and bioavailability; studies to support any change relative to the previously approved product; information with respect to any patents that claim the drug or use of the drug for which approval is sought; and an appropriate certification with respect to any patents listed for the previously approved drug on which investigations relied upon for NDA approval were conducted, or that claim a use of the listed drug. There can be no assurance whether, or to what extent, the FDA will file any 505(b)(2) NDA that we may submit for CPP-109. Further, we believe that we will not legally be permitted to submit a 505(b)(2) NDA for CPP-109 before August 21, 2014.

Other Matters

Our common stock currently trades on the Nasdaq Capital Market. On June 18, 2012, we were informed by the Nasdaq Stock Market (Nasdaq) that, as a result of our common stock no longer meeting the requirement that it trade at a bid price of at least $1.00 per share, our common stock would be delisted from the Nasdaq Capital Market if, by December 17, 2012, we did not regain compliance with the requirement by our common stock trading at a bid price of at least $1.00 per share for a period of at least ten consecutive trading days. On August 2, 2012, we received notice from Nasdaq confirming that we had regained compliance with the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market, as a result of our common stock closing with a bid price of at least $1.00 for at least ten consecutive trading days.

Resignation of Vice President, Commercial Operations

Richard P. Rieger has resigned as Vice President, Commercial Operations, effective November 16, 2012. Mr. Rieger's resignation was for personal reasons and not because of any disagreements with our management over operations.

Capital resources

The successful development of CPP-109, CPP-115, Firdapse™ or any other product we may acquire, develop or license is highly uncertain. We cannot reasonably estimate or know the nature, timing, or estimated expenses of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence due to the numerous risks and uncertainties associated with developing such products, including the uncertainty of:

• the scope, rate of progress and expense of our pre-clinical studies, clinical studies and trials, and other product development activities;

• the results of our pre-clinical studies and clinical studies and trials, and the number of clinical trials (and the scope of such trials) that will be required for us to seek and obtain approval of NDA's for CPP-109, CPP-115 and Firdapse™; and

• the expense of filing, and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights.

Based on currently available information, we estimate that we have sufficient working capital to support our operations through the first quarter of 2014. We will require additional capital to support our operations in periods after the first quarter of 2014.

We may raise in the future additional required funds through public or private equity offerings, debt financings, corporate collaborations, governmental research grants or other means. We may also seek to raise new capital to fund additional product development efforts, even if we have sufficient funds for our planned operations. Any sale of additional equity or convertible debt securities could result in dilution to our current stockholders. There can be no assurance that any such required additional funding will be available at all or available on acceptable terms. 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 unable 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.

There can be no assurance that we will actually have sufficient funds for the purposes described above or that we will obtain sufficient future funding to support our product development efforts. There is also no assurance that we will ever be in a position to commercialize any of our product candidates. See "Liquidity and Capital Resources" below.

Basis of presentation


We are a development stage company and have had no revenues from product sales to date. We will not have revenues from product sales until such time as we receive approval of CPP-109, CPP-115, or Firdapse™, successfully commercialize our products or enter into a licensing agreement which may include up-front licensing fees, of which there can be no assurance.

Research and development expenses

Our research and development expenses consist of costs incurred for Company-sponsored research and development activities, as well as occasional support for selected investigator-sponsored research. The major components of research and development costs include pre-clinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, consulting, scientific advisors 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 CPP-109 and CPP-115. Costs incurred in connection with research and development activities are expensed as incurred.

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. In the normal course of business we contract with third parties to perform various clinical study and trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the successful enrollment of subjects, the allocation of responsibilities among the parties to the agreements, 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 financial statements to the actual services received and efforts expended. As such, expense accruals related to pre-clinical and clinical studies and 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. Pre-clinical and clinical study and trial activities require significant up front expenditures. We anticipate paying significant portions of a study or trial's cost before such study or trial begins, and incurring additional expenditures as the study or trial progresses and reaches certain milestones.

Selling and marketing expenses

We do not currently have any selling or marketing expenses, as we have not yet received approval for the commercialization of any of our product candidates. We expect we will begin to incur such costs upon our submission of an NDA, so that we can have a sales force in place to commence our selling efforts immediately upon receiving approval of such NDA, of which there can be no assurance.

General and administrative expenses

General and administrative expenses consist primarily of salaries and personnel expenses for accounting, corporate and administrative functions. Other costs include administrative facility costs, regulatory fees, and professional fees for legal, information technology, accounting and consulting services.

Stock-based compensation

We recognize expense for the fair value of all stock-based awards to employees, directors, scientific advisors and consultants in accordance with U.S. generally accepted accounting principles. For stock options we use the Black-Scholes Model in calculating the fair value of the awards.

Warrants Liability

We issued warrants to purchase 1,523,370 shares of our common stock as part of the equity financing that we completed in October 2011 and warrants to purchase 1,510,870 of these shares remain outstanding. In accordance with U.S. generally accepted accounting principles, because these warrants allow for net cash settlement in the event of certain fundamental transactions (as defined in the warrants agreement), we have recorded the fair value of the 2011 warrants as a liability in the accompanying balance sheets at September 30, 2012 and December 31, 2011 using a Black-Scholes Model. We will remeasure the fair value of the 2011 warrants liability at each reporting date until the 2011 warrants are exercised or have expired. Changes in the fair value of the warrants liability are reported in the statements of operations as income or expense. The fair value of the warrants liability is subject to significant fluctuation based on changes in the inputs to the Black-Scholes Model, including our common stock price, expected volatility, expected life, the risk-free interest rate and dividend yield. The market price for our common stock has been and may continue to be volatile. Consequently, historic fluctuations in the price of our common stock have caused significant increases or decreases in the fair value of the 2011 warrants and future fluctuations in the price of our common stock will likely cause significant increases or decreases in the fair value of the 2011 warrants.

Income taxes

We have incurred operating losses since inception. Our net deferred tax asset has a 100% valuation allowance as of September 30, 2012 and December 31, 2011, as we believe it is more likely than not that the deferred tax asset will not be realized. If an ownership change, as defined under Internal Revenue Code
Section 382, occurs, the use of any of our carry-forward tax losses may be subject to limitation.

As required by ASC 740, Income Taxes, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely sustain the position following the 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.

Recently Issued Accounting Standards

There are no recently issued accounting standards that are expected to have a material effect on our financial statements.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. For a full discussion of our accounting policies please refer Note 2 to the Financial Statements included in our 2011 Annual Report on Form 10-K filed with the SEC. Our most critical accounting policies and estimates include: accounting for development stage, research and development expenses and stock-based compensation, measurement of fair value, fair value of warrants liability, income taxes and reserves. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, our expected course of development, historical experience and other factors that we . . .

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