(In thousands, except per share data, or unless otherwise specified)
You should read the following discussion in conjunction with our condensed consolidated financial statements as of November 30, 2012, and the notes to such condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. All references to "the Company", "we", "our" and "us" include the activities of Raptor Pharmaceutical Corp. and its direct and indirect wholly-owned subsidiaries, Raptor Pharmaceuticals Corp. (which was merged into us as of December 7, 2011), Raptor Discoveries Inc. (which was merged into Raptor Therapeutics Inc. as of December 28, 2012), or Raptor Discoveries, Raptor Therapeutics Inc. (which changed its name to Raptor Pharmaceuticals Inc. as of December 28, 2012), or Raptor Pharmaceuticals, Raptor European Products, LLC, RPTP European Holdings C.V. and Raptor Pharmaceuticals Europe B.V.
This Quarterly Report on Form 10-Q, including this "Management's Discussion and Analysis of Financial Condition and Results of Operations" section, contains "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, that plan for or anticipate the future. In some cases, these statements can be identified by the use of terminology such as "believes," "expects," "anticipates," "plans," "may," "might," "will," "could," "should," "would," "projects," "predicts," "intends," "continues," "estimates," "potential," "opportunity" or the negative of these terms or other comparable terminology. All such statements, other than statements of historical facts, including our financial condition, future results of operations, projected revenues and expenses, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing intellectual properties, technologies, products, plans, and objectives of management, markets for our securities, and other matters, are about us and our industry that involve substantial risks and uncertainties and constitute forward-looking statements for the purpose of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such forward-looking statements, wherever they occur, are necessarily estimates reflecting the best judgment of our senior management on the date on which they were made, or if no date is stated, as of the date of the filing made with the SEC in which such statements were made. You should not place undue reliance on these statements, which only reflect information available as of the date that they were made. We cannot give you any assurance that such forward-looking statements will prove to be accurate and such forward-looking events may not occur. Our business' actual operations, performance, development and results might differ materially from any forward-looking statement due to various known and unknown risks, uncertainties, assumptions and contingencies, including those described in the section titled "Risk Factors That May Affect Future Results" in Part II, Item 1A of this Quarterly Report on Form 10-Q. Unless required by U.S. federal securities laws and the rules and regulations of the SEC, we do not undertake any obligation and disclaim any intention to update or release publicly any revisions to these forward-looking statements after the filing of this Quarterly Report on Form 10-Q to reflect later events or circumstances or to reflect the occurrence of unanticipated events or any other reason. Plan of Operation and Overview
We are a development stage biopharmaceutical company focused on developing and commercializing life-altering therapeutics that treat debilitating and often fatal diseases. Our initial focus is on developing our first product candidate, RP103, for the potential treatment for nephropathic cystinosis, or cystinosis, a rare genetic disorder. Cystinosis patients are at very high risk of experiencing life-threatening metabolic disorders, including kidney failure, severe gastrointestinal dysfunction and rickets as a result of an accumulation of the amino acid, cystine, in cells. As a result, cystinosis patients have a substantially reduced life span relative to unaffected individuals. In July 2011, we announced that RP103 had met the sole primary endpoint in our Phase 3 clinical trial designed to evaluate RP103 as a treatment of cystinosis. In addition, we now report that 39 patients (rather than 38 as originally reported) were included in the evaluable data set with respect to this trial, which continues to meet its sole primary endpoint. Based on the 39 patients, on average, the peak white blood cell, or WBC, cystine level measured in patients treated with Cystagon® was 0.44 +/- 0.05 nmol 1/2 cystine/mg protein, compared to an average peak value of 0.51 +/- 0.05 nmol 1/2 cystine/mg protein for patients treated with RP103. The mean difference was 0.08 nmol 1/2 cystine/mg protein, with a 95.8% confidence interval of 0.01-0.15 (one sided [p=0.021]). As stipulated in the Statistical Analysis Plan agreed upon with the FDA, the non-inferiority endpoint of the clinical trial would be achieved when the upper end of the confidence interval around the mean difference of WBC cystine levels did not exceed an absolute value of 0.3. The upper end of the confidence interval in the Phase 3 clinical trial was determined to be 0.15, thus achieving the non-inferiority endpoint. In addition, we now report that, on average, the total daily steady-state dose of RP103 in patients in the Phase 3 clinical trial was 84% of their established incoming dose of Cystagon.
In the first quarter of calendar 2012, we submitted a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, requesting approval to market RP103 for the treatment of cystinosis. The FDA granted Standard Review designation for RP103 and assigned an initial user fee goal date of January 30, 2013, which the FDA has extended to April 30, 2013. Also in the first quarter of calendar 2012, we submitted a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, requesting approval to market RP103 for the treatment of cystinosis.

                                                                            Increase
Reason for increase (decrease)                                             (decrease)

Increase in pre-commercial expenses (in support of launch of RP103 for
cystinosis) primarily for increased consulting services, staffing
compensation, travel and legal                                           $        2,290
Increase in finance and human resources infrastructure expenses                     652
Decrease in allocated administrative costs to R&D due to change in
allocation methodology                                                              338
Other, net                                                                          749

Total increase Q1 FY 2013 versus Q1 FY 2012                              $        4,029

Research and Development
Research and development expenses include medical, clinical, regulatory and scientists' compensation and benefits, lab collaborations, preclinical studies, clinical trials, clinical trial materials, commercial drug manufacturing costs prior to marketing approval, regulatory and clinical consultants, lab supplies, lab services, lab equipment maintenance and small equipment purchased to support the research laboratory, amortization of intangible assets and allocated human resources and facilities expenses. Research and development expenses for the three month period ended November 30, 2012 increased by approximately $1,769 over the prior year's first fiscal quarter primarily due to:

                                                                            Increase
Reason for increase (decrease)                                             (decrease)
Increased product manufacture of RP103 for cystinosis                    $          810
Increase in funding for NASH Phase 2b clinical trial                                750
Salary increases and new hire salaries                                              324
Increase in preclinical services                                                    250
Decrease in allocated administrative costs to R&D due to change in
allocation methodology                                                             (338 )
Other, net                                                                          (27 )

Total increase Q1 FY 2013 versus Q1 FY 2012                              $        1,769

Research and development expenses include the following: (in $ millions)

                                                                  Three month periods ended November 30,
Major Program (stage of development)                                 2012                        2011
RP103/RP104:
Cystinosis (pre-commercial)                                                  2.6                         2.4
HD (clinical)                                                                0.1                         0.8
NASH (clinical)                                                              0.8                         0.6
Preclinical programs                                                         0.1                         0.1
Minor or inactive programs                                                   0.2                           0
R & D personnel and other costs not allocated to programs                    3.0                         1.1

Total research & development expenses                                        6.8                         5.0

Major Program expenses recorded as general and administrative expenses: (in $

millions)
                                                                   Three month periods ended November 30,
Major Program (stage of development)                                  2012                       2011
RP103 for cystinosis (pre-commercial)                                           1.8                        0.3
Preclinical programs                                                            0.1                        0.0

Additional major program expenses include expenses related to the preparation for the potential commercial launch of RP103 for the treatment of cystinosis and patent fees and patent expenses which were recorded as general and administrative expenses as these fees are to support patent applications (not issued patents).
Any of our major programs could be partnered for further development and/or could be accelerated, slowed or ceased due to scientific results or challenges in obtaining funding. We anticipate that we will need additional funding in order to pursue our plans beyond the fourth calendar quarter of 2013. In addition, the timing and costs of development of our programs beyond the next 12 months are highly uncertain and difficult to estimate. See risks and other factors described under the section captioned "Risk Factors That May Affect Future Results" in Part II, Item 1A of this Quarterly Report on Form 10-Q. Interest Income
Interest income for the three-month periods ended November 30, 2012 and 2011 was $119 and $64, respectively.
Interest Expense
Interest expense for the three-month periods ended November 30, 2012 and 2011 was nominal.

Deferred Offering Costs
Deferred offering costs represent expenses incurred to raise equity capital related to financing transactions which have not yet been completed as of the balance sheet dates.

Debt Issuance Costs
Debt issuance costs represent expenses incurred to obtain the debt we incurred under a loan agreement with HealthCare Royalty Partners, or HC Royalty, in December 2012. These costs are initially capitalized and will be amortized over the life of the loan.
Intangible Assets
Intangible assets include the intellectual property and other rights relating to DR Cysteamine (currently developed as RP103 and RP104) and to an out-license acquired in the 2009 Merger. The intangible assets related to RP103/RP104 are amortized using the straight-line method over the estimated useful life of 20 years, which is the life of the intellectual property patents. The 20-year estimated useful life is also based upon the typical development, approval, marketing and life cycle management timelines of pharmaceutical drug products. The intangible assets related to the out-license are amortized using the straight-line method over the estimated useful life of 16 years, which is the life of the intellectual property patents. Goodwill
Goodwill represents the excess of the value of the purchase consideration over the identifiable assets acquired in the 2009 Merger. Goodwill is reviewed annually, or when an indication of impairment exists. An impairment analysis is performed, and if necessary, a resulting write-down in valuation is recorded. Fixed Assets
Fixed assets, which mainly consist of leasehold improvements, lab equipment, computer hardware and software and capital lease equipment, are stated at cost. Depreciation is computed using the straight-line method over the related estimated useful lives, except for leasehold improvements and capital lease equipment, which are depreciated over the shorter of the useful life of the asset or the lease term. Significant additions and improvements that have useful lives estimated at greater than one year are capitalized, while repairs and maintenance are charged to expense as incurred. Impairment of Long-Lived Assets
We evaluate our long-lived assets for indicators of possible impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset's fair value or discounted estimates of future cash flows.
As of August 31, 2012, we determined that the capitalized acquired in-process research and development cost of $900, representing the tezampanel and NGX 426 program acquired in our 2009 Merger, was impaired due to our decision to discontinue development of this product candidate for thrombosis due to regulatory hurdles that would require significant expenditures which we chose not to prioritize for funding. As such, we expensed $900 as in-process research and development as part of research and development expense on our consolidated statements of comprehensive loss for the year ended August 31, 2012. During the three month period ended November 30, 2012, we did not identify any such impairment losses.
Common Stock Warrant Liabilities
The warrants issued by us in our 2010 private placement contain a cash-out provision which may be triggered upon request by the warrant holders if we are acquired or upon the occurrence of certain other fundamental transactions involving us. This provision requires these warrants to be classified as liabilities and to be marked to market at each period-end commencing on August 31, 2010. The warrants issued by us in our December 2009 equity financing contain a conditional obligation that may require us to transfer assets to repurchase the warrants upon the occurrence of potential future events. Under the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 480, Distinguishing Liabilities from Equity, or ASC 480, a financial instrument that may require the issuer to settle the obligation by transferring assets is classified as a liability. Therefore, we have classified the warrants as liabilities and will mark them to fair value at each period-end. The common stock warrants are re-measured at the end of every reporting period with the change in value reported in our condensed consolidated statements of comprehensive loss. Warrants which are recorded as liabilities that are exercised are re-measured and marked to market the day prior to exercise. Upon exercise of such warrants, the fair value of such warrants is reclassified to equity.

Income Taxes
Income taxes are recorded under the liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Our effective tax rate is 0% for income tax for the three month period ended November 30, 2012 and we expect that our effective tax rate for our fiscal year ended August 31, 2012 and the short calendar year from September 1, 2012 to December 31, 2012 will be 0%. Based on the weight of available evidence, including cumulative losses since inception and expected future losses, we have determined that it is more likely than not that the deferred tax asset amount will not be realized and therefore a full valuation allowance has been provided on our net deferred tax assets.
Utilization of our net operating loss, or NOL, carryovers may be subject to substantial annual limitation due to the ownership change rules under the Internal Revenue Code and similar state income tax law provisions including those related to the suspension and limitation of NOL carryovers for certain tax years. Such an annual limitation could result in the expiration of our NOL carryovers before utilization.
On September 1, 2009, we adopted the provisions of ASC No. 740-10, Accounting for Uncertainty in Income Taxes, or ASC 740-10. ASC 740-10 requires entities following GAAP to identify uncertain tax positions and disclose any potential tax liability on their financial statements using a two-step process, which includes recognition and measurement.
Our continuing practice is to recognize interest and/or penalties related to income tax matters as a component of income tax expense. As of November 30, 2012, there were no accrued interest or penalties related to uncertain tax positions.
We file U.S. Federal, California, Georgia and North Carolina state income tax returns and Dutch income tax returns. We are currently not subject to any income tax examinations. Due to our NOLs, generally all tax years remain open. Research and Development
We are a development stage biotechnology company. Research and development costs are charged to expense as incurred. Research and development expenses include medical, clinical, regulatory and scientists' salaries and benefits, lab collaborations, preclinical studies, clinical trials, clinical trial materials, . . .