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CPRX > SEC Filings for CPRX > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for CATALYST PHARMACEUTICAL PARTNERS, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for CATALYST PHARMACEUTICAL PARTNERS, INC.


14-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 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 second quarter of fiscal 2013.

• 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 six month periods ended June 30, 2013 as compared to the same periods ended June 30, 2012.

• 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.

Overview

We are a development-stage specialty pharmaceutical company focused on the development and commercialization of novel prescription drugs targeting rare (orphan) neuromuscular and neurological diseases and disorders. We have three pharmaceutical products in development:

• Firdapse™. In October 2012, we licensed the North American rights to Firdapse™, a proprietary form of amifampridine phosphate, or chemically known as 3,4-diaminopyridine phosphate, from BioMarin Pharmaceutical Inc. ("BioMarin"). As part of our agreements with BioMarin, we have taken over the sponsorship of an ongoing Phase III clinical trial evaluating Firdapse for the treatment of Lambert-Eaton Myasthenic Syndrome, or LEMS, a rare and sometimes fatal autoimmune disease characterized by muscle weakness. The trial is designed as a randomized double-blind, placebo-controlled discontinuation study followed by an open-label extension period in approximately 36-patients across twelve sites in the United States and Europe. We expect to add up to an additional 15 sites in the United States, Canada, South America and Europe in the near future. We hope to have the top-line results from the double-blind portion of this Phase III trial during the second quarter of 2014. Amifampridine phosphate has been granted Orphan Drug Designation by the U.S. Food & Drug Administration, or FDA, for the treatment of LEMS, making us eligible to be granted a seven-year marketing exclusivity if we are the first pharmaceutical company to obtain approval of an NDA for our formulation. We also hope to evaluate Firdapse for the treatment of other central nervous system (CNS) orphan indications such as Congenital Myasthenic Syndrome and Myasthenia Gravis.


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• CPP-115. We are in the early stages of developing CPP-115, a GABA aminotransferase inhibitor that, based on our pre-clinical studies to date, we believe is a more potent form of vigabatrin, but may have fewer side effects (e.g., visual field defects, or VFDs) than those associated with vigabatrin. We are hoping to develop CPP-115 for the treatment of epilepsy (initially infantile spasms) and for the treatment of other selected central nervous disease indications. CPP-115 has been granted Orphan Drug Designation by the FDA for the treatment of infantile spasms and Orphan Medicinal Product Designation in the European Union, or EU, for West's syndrome (a form of infantile spasms).

• CPP-109. For several years, we evaluated CPP-109 (our formulation of vigabatrin, another GABA aminotransferase inhibitor) for the treatment of cocaine addiction. However, CPP-109 recently failed to meet the primary and two key secondary endpoints in a Phase II(b) trial for cocaine addiction. As a result, we are no longer focusing our efforts on evaluating CPP-109 for addiction. An academic investigator proof-of-concept study evaluating the use of CPP-109 for the treatment of Tourette Syndrome is currently ongoing and, if the results of that study show evidence of reduced number of tics, we will likely seek to develop CPP-109 (and/or CPP-115, which has the same mechanism of action as CPP-109), for this indication.

The successful development of our product candidates 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 clinical studies and trials, pre-clinical studies, and other product development activities;

• the results of our pre-clinical studies and clinical studies and trials, and the number of such studies and trials (and the scope of such studies and trials) that will be required for us to seek and obtain approval of our product candidates; and

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

Based on an analysis of our current financial condition and forecasts of available cash, we believe that we have sufficient resources to support our operations through the first quarter of 2014. However, we will require additional funding to support our operations beyond the first quarter of 2014. There can be no assurance that we will obtain required additional funding or ever be able to commercialize any of our product candidates. See "Liquidity and Capital Resources" below.

Basis of presentation

Revenues

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 our product candidates, 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, CPP-115, and Firdapse™, and we expect this to continue for the foreseeable future. Costs incurred in connection with research and development activities are expensed as incurred.


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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 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. 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 filing 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 shares of our common stock as part of the equity financing that we completed in October 2011. In accordance with U.S. generally accepted accounting principles, we have recorded the fair value of the warrants as a liability in the accompanying balance sheets at June 30, 2013 and December 31, 2012 using a Black-Scholes option-pricing model. We will remeasure the fair value of the warrants liability at each reporting date until the 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 option-pricing 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, future fluctuations in the price of our common stock may cause significant increases or decreases in the fair value of the warrants.

Income taxes

We have incurred operating losses since inception. Our net deferred tax asset has a 100% valuation allowance as of June 30, 2013 and December 31, 2012, 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.


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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 than not 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

For discussion of recently issued accounting standards, please see Note 2, "Basis of Presentation and Significant Accounting Policies," in the interim financial statements included in this report.

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 to Note 2 on the Financial Statements included in our 2012 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 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. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2012 Annual Report on Form 10-K.

Results of Operations

Revenues.

We had no revenues for the three and six month periods ended June 30, 2013 and 2012.

Research and Development Expenses.

Research and development expenses for the three and six months periods ended June 30, 2013 and 2012 were $2,132,038 and $532,741, and $3,224,339 and $1,260,068 respectively, including stock-based compensation expense in each of the three and six month periods of $21,612 and $18,302 and $40,375 and $36,605, respectively. Research and development expenses, in the aggregate, represented approximately 80% and 50%, and 74% and 52%, respectively, of total operating costs and expenses for the three and six month periods ended June 30, 2013 and 2012. The stock-based compensation is non-cash and relates to the expense of stock options awards to certain employees. Expenses for research and development for the six month period ended June 30, 2013 increased compared to amounts expended in the same period in 2012 as we continued to incur costs associated with our currently ongoing phase III trial of Firdapse™ for the treatment of LEMS. Expenses for the comparable period in 2012 included expenses related to NIDA/VA Phase II(b) clinical trial evaluating CPP-109 for use in the treatment of cocaine addiction and our Phase I(a) human clinical safety study for CPP-115. As a result of our ongoing and projected studies and trials required for an NDA filing for Firdapse, we expect that costs related to research and development activities will continue to be substantial in 2013 and 2014.

Selling and Marketing Expenses.

We had no selling and marketing expenses during the three and six month periods ended June 30, 2013 and 2012. We anticipate that we will begin to incur sales and marketing expenses when we file NDA's for our product candidates, in order to develop a sales organization to market products we may develop upon the receipt of required approvals.


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General and Administrative Expenses.

General and administrative expenses for the three and six months ended June 30, 2013 and 2012 were $521,491 and $534,623 and $1,134,620 and $1,172,006, respectively, including stock-based compensation expense in each of the three and six month periods of $23,276 and $26,787 and $46,265 and $53,575, respectively. General and administrative expenses represented 20% and 50% and 26% and 48%, respectively, of total operating costs and expenses for the three and six month periods ended June 30, 2013 and 2012. General and administrative expenses for the six months ended June 30, 2013 were comparable to those of the same period in 2012.

Stock-Based Compensation.

Total stock-based compensation for the three and six month periods ended June 30, 2013 and 2012 was $44,888 and $45,090 and $86,640 and $90,180, respectively. Stock-based compensation was comparable to those of the same period in 2012.

Change in fair value of warrants liability.

In connection with our October 2011 equity offering, we issued warrants to purchase an aggregate of 1,523,370 shares of common stock. The fair value of these warrants is recorded in the liability section of the balance sheet and was estimated at $1,042,500 and $498,587 at June 30, 2013 and December 31, 2012, respectively. The fair value of the warrants liability is determined at the end of each reporting period with the resulting gains or losses recorded as the change in fair value of warrants liability in the statements of operations. For the three and six months ended June 30, 2013, we recognized losses of $498,587 and $543,913, respectively, due to the change in the fair value of the warrants liability. The losses during the three and six months ended June 30, 2013 were principally a result of the increase of our stock price between March 31, 2013 and June 30, 2013 and December 31, 2012 and June 30, 2013, respectively. Future changes in the fair value of the warrants liability will be primarily due to fluctuations in the value of our common stock.

Interest Income.

We reported interest income in all periods relating to our investment of funds received from offerings of our securities. The increase in interest income in the three and six month periods ended June 30, 2013 when compared to the same periods in 2012 is due to higher average investment balances slightly offset by lower interest rates. These proceeds were used to fund our product-development activities and our operations. Substantially all such funds were invested in short-term interest bearing obligations.

Income taxes.

We have incurred net operating losses since inception. For the three and six month periods ended June 30, 2013 and 2012, we have applied a 100% valuation allowance against our deferred tax asset as we believe that it is more likely than not that the deferred tax asset will not be realized.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through equity issuances, government grants, and an investment by a strategic purchaser. At June 30, 2013, we had cash and cash equivalents, certificates of deposit and short-term investments aggregating $11.4 million and working capital of $10.8 million. At December 31, 2012, we had cash and cash equivalents, certificates of deposit and short term investments aggregating $15.4 million and working capital of $15.1 million. At June 30, 2013, substantially all of our cash and cash equivalents were deposited with one financial institution, and such balances were in excess of federally insured limits throughout the quarter.

We have to date incurred operating losses, and we expect these losses to increase substantially in the future as we expand our product development programs and prepare for the commercialization of our product candidates. We anticipate using current cash on hand to finance these activities. It will likely take several years to obtain the necessary regulatory approvals to commercialize one or more of our product candidates in the United States.


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While there can be no assurance, based on currently available information, we believe that we have the cash resources to support our operations through the first quarter of 2014. If our costs are greater than we expect, our assumptions may not prove to be accurate.

At the present time, we believe that we will require additional funding for future studies or trials and to pay future milestone payments that we may be obligated to make. We will also require additional working capital to support our operations beyond the first quarter of 2014. 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;

• 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 cost and timing of establishing sales, marketing and distribution capabilities;

• 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 hope to raise additional funds to support our product development activities and working capital requirements through public or private equity offerings, corporate collaborations or other means. We also intend to seek governmental grants for a portion of the required funding for our clinical trials and pre-clinical trials. We may also seek to raise 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 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 drug candidates 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.

Cash Flows

Net cash used in operating activities was $4,061,428 and $2,445,646, respectively, for the six month periods ended June 30, 2013 and 2012. During the six months ended June 30, 2013, net cash used in operating activities was primarily attributable to our net loss of $4,887,879, and a decrease in accounts payable of $917,381. This was partially offset by an increase of $907,164 in accrued expenses and other liabilities, a decrease of $195,045 in prepaid expenses and deposits, $543,913 of non-cash change in fair value of warrants liability and $97,710 of other non-cash expenses. During the six months ended June 30, 2012, net cash used in operating activities was primarily attributable to our net loss of $1,378,266, a $1,051,126 non-cash change in fair value of warrants liability, a $40,951 decrease in accounts payable and a $103,322 decrease in accrued expenses and other liabilities. This was offset in part by $95,691 of other non-cash expenses and a decrease of $32,328 in prepaid expenses and deposits. Other non-cash expenses include depreciation and stock-based compensation expense.


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Net cash provided by investing activities during the six months period ended June 30, 2013 was $3,507,065, consisting primarily of redemptions of investments of $3,516,497, offset by purchases of furniture and computer equipment of $9,432. Net cash used in investing activities during the six month period ended June 30, 2012 was $6,881 for the purchase of furniture and equipment.

Net cash provided by financing activities during the six month period ended June 30, 2013 was $23,500, consisting of proceeds from the exercise of stock options. Net cash provided by financing activities during the six month period ended June 30, 2012 was $3,938,303, consisting of the net proceeds from the sale of common stock and warrants through a secondary public offering.

Contractual Obligations

We have entered into the following contractual arrangements:

• Payments to BioMarin and others under our license agreement. We have agreed:
(i) to pay BioMarin certain royalty payments based on our net sales in North America; (ii) to pay to a third-party licensor of the rights sublicensed to us certain royalty payments based on our net sales in North America, and
(iii) to pay certain milestone payments that BioMarin is obligated to make (approximately $2.6 million of which will be due upon acceptance by the FDA of a filing of an NDA for Firdapse for the treatment of LEMS, and approximately $7.2 million of which will be due upon 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 the product by the FDA. However, no such payments will be due until the FDA has accepted for filing an NDA for Firdapse.

• Payments for Firdapse development. Based on current available information, we estimate that the total product development costs for Firdapse, excluding third-party milestone payments, will be approximately $20 million. At June 30, 2013, we had paid approximately $2.1 million of this amount and had prepaid research fees of $875,000, accounts payable of approximately $298,000 and accrued liabilities of approximately $1,014,000 in the accompanying condensed balance sheet in connection with related agreements. Under our license agreement with BioMarin, we are obligated to spend at least $5 million in connection with the Phase III trial of Firdapse during the two years following the date of the license agreement (October 26, 2012). We currently expect that we will spend more than $5 million on the Phase III trial during 2013.

• Payments to Northwestern University under our license agreement. Under our license agreement with Northwestern, we have paid to date $241,590, had accrued liabilities of $42,500, at June 30, 2013 in the accompanying condensed balance sheet, and owe certain milestone payments in future years if we do not cancel the license agreement. The next milestone payment of $150,000 is due on the earlier of August 27, 2015 or the successful completion of the first Phase II trial of CPP-115.

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