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RPTP > SEC Filings for RPTP > Form 10-Q/A on 12-May-2014All Recent SEC Filings

Show all filings for RAPTOR PHARMACEUTICAL CORP

Form 10-Q/A for RAPTOR PHARMACEUTICAL CORP


12-May-2014

Quarterly Report


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

You should read the following discussion in conjunction with our condensed consolidated financial statements as of September 30, 2013, 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., Raptor Pharmaceuticals Inc., or Raptor Pharmaceuticals, Raptor European Products, LLC, RPTP European Holdings C.V., Raptor Pharmaceuticals Europe B.V., Raptor Pharmaceuticals France SAS and Raptor Pharmaceuticals Germany GmbH.

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. 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 fact, including but not limited to statements regarding our future results of operations, projected revenues and expenses, business strategies and transactions, partnering relationships and research collaborations, operating efficiencies or synergies, competitive positions, growth opportunities for existing intellectual properties, technologies or products, plans and objectives of management, clinical studies and regulatory filings and markets for our securities 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 are necessary estimates reflecting the best judgment of our management on the date on which they 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" in Part II, Item 1A of this Quarterly Report on Form 10-Q. Unless required by law, 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.

Change in Fiscal Year End

In December 2012, our board of directors approved a change in our fiscal year end from August 31 to December 31. The following discussions cover the period from January 1, 2013 through September 30, 2013, representing the first nine months of our recently adopted fiscal year. The prior year's comparable nine-month period covers December 1, 2011 through August 31, 2012, which is reported on the basis of our previous fiscal year end. As a result of the change in our fiscal year end, the quarterly periods of our newly adopted fiscal year do not coincide with the historical quarterly periods that we had previously reported. We did not recast the results for the 2012 fiscal periods because the financial reporting processes in place at the time included certain procedures that were only performed on a quarterly basis. Consequently, to recast those periods would have been impractical and would not have been cost-justified. We believe the comparative information provided for the three- and nine-month periods ended August 31, 2012 provide a meaningful comparison to the three- and nine-month periods ended September 30, 2013 and that there are no factors, seasonal or otherwise, that have a material impact on the comparability of information or trends.


Table of Contents
Plan of Operation and Overview

We are a biopharmaceutical company focused on developing and commercializing life-altering therapeutics that treat debilitating and often fatal diseases.

Our first product, PROCYSBI® (cysteamine bitartrate) delayed-release capsules, or PROCYSBI, received marketing approval from the U.S. Food and Drug Administration, or FDA, on April 30, 2013 for the management of nephropathic cystinosis in adults and children six years and older. The European equivalent, PROCYSBI gastro-resistant hard capsules of cysteamine (as mercaptamine bitartrate), received marketing authorization on September 6, 2013 from the European Commission, or EC, as an orphan medicinal product for the treatment of proven nephropathic cystinosis for marketing in the European Union, or EU. PROCYSBI received 7 years and 10 years of market exclusivity as an orphan drug in the U.S. and the EU, respectively. We commenced commercial sales of PROCYSBI in the U.S. in mid-June 2013 and plan to launch PROCYSBI in the EU in the first half of 2014.

We expect to have at least 160 U.S. commercial patients on PROCYSBI by the end of 2013 and have priced PROCYSBI at an average price of $250,000 per patient per year. In September 2013, we executed an agreement to participate in the U.S. State Medicare/Medicaid rebate program, which will be reflected in our net revenues from patients receiving State assistance.

PROCYSBI

PROCYSBI is a new therapy for the management of nephropathic cystinosis. PROCYSBI (formerly known as RP103 for cystinosis) capsules contain cysteamine bitartrate formulated into innovative microspheronized beads that are individually coated to create a delayed-release formulation with extended-release properties, allowing patients to maintain therapeutic systemic drug levels for a full 12-hour dosing period. The enteric coated beads are pH sensitive and bypass the stomach for dissolution and absorption in the more alkaline environment of the proximal small intestine. Randomized controlled clinical trials and extended treatment with PROCYSBI therapy demonstrated consistent cystine depletion as monitored by levels of the biomarker (and surrogate marker), white blood cell cystine.

About Nephropathic Cystinosis

Nephropathic cystinosis comprises 95% of cases of cystinosis, a rare, life-threatening metabolic lysosomal storage disorder that causes toxic accumulation of cystine in all cells, tissues and organs in the body. Elevated cystine leads to progressive, irreversible tissue damage and multi-organ failure, including kidney failure, blindness, muscle wasting and premature death. Nephropathic cystinosis is usually diagnosed in infancy after children present with symptoms including markedly increased urination, thirst, dehydration, gastrointestinal distress, failure to thrive, rickets, photophobia and specific kidney symptoms specific to Fanconi syndrome. Management of cystinosis requires lifelong therapy. If left untreated, the disease is usually fatal by the end of the first decade of life. There are an estimated 500 patients reported with cystinosis living in the U.S. and 2,000 worldwide. In October 2013, we executed a collaboration agreement with DaVita Clinical Research to screen blood samples from patients with end-stage renal disease in an effort to identify patients with unrecognized late-onset nephropathic cystinosis.

Cystine depletion is the only known treatment strategy for nephropathic cystinosis. Strict adherence to cystine depletion therapy is critical to achieve optimal clinical outcomes. Poor adherence results in poor sustained control of cystine levels, and patients consequently experience poor clinical outcomes, including kidney insufficiency leading to dialysis and kidney transplantation, muscle wasting and in some cases, premature death. Even brief interruptions in daily therapy can permit toxic accumulation of cystine, exposing tissues to renewed, progressive deterioration.


Table of Contents
RP103 for Huntington's Disease

RP103 is currently being evaluated in a phase 2/3 clinical study as a potentially disease modifying agent in the treatment of Huntington's disease, or HD. HD, formerly called Huntington's chorea, is a rare, inherited neurodegenerative disorder. HD causes neuronal degeneration in the cerebral cortex and basal ganglia, which play a key role in movement and behavior control. The cumulative damage to these areas results in the hallmark symptoms of HD: chorea (jerky movements), neuropsychiatric symptoms, loss of executive functioning and dementia. HD is caused by an autosomal dominant mutation in a gene called Huntingtin, which means any child of an affected person typically has a 50% chance of inheriting the disease. The Huntingtin gene encodes a protein that is also called "huntingtin." Expansion of a CAG triplet repeat within the Huntingtin gene results in a mutant form of the protein, which gradually damages cells in the brain. HD manifests as a triad of movement, cognitive and psychiatric symptoms which progress gradually in severity over many years, eventually causing severe physical and mental disability and potentially early death. The symptoms of HD usually become evident between the ages 35-44 years, but the onset can also begin from childhood to late life (>75 years).

Brain Derived Neurotropic Factor, or BDNF, is a secreted protein that helps support the survival, growth and differentiation of new neurons and synapses. BDNF is a member of the nerve growth factor family. It is induced by cortical neurons, and is necessary for survival of striatal neurons in the brain. Two master genes, Huntingtin, or Htt, and huntingtin-associated protein, or Hap1, govern BDNF axonal transport and secretion. Additionally, expression of the Bdnf gene is reduced in both Alzheimer's and Huntington's disease patients and HD patients are believed to be deficient in BDNF. The Bdnf gene may play a role in the regulation of stress response and in the biology of mood disorders. Cysteamine and its dimer cystamine have been shown in preclinical studies to increase levels of BDNF, and reduce associated tremor and abnormal movements in various animal models of Huntington's disease. Cysteamine's reported ability to inhibit caspase-3, inhibit transglutaminase 2 and reduce cellular and mitochondrial oxidative stress have also been proposed to be potentially beneficial in the treatment of Huntington's disease.

Centre Hospitalier Universitaire, or CHU, d'Angers, France, is currently conducting a Phase 2/3 clinical trial of RP103, our proprietary formulation of delayed-release cysteamine bitartrate, in which 96 patients were enrolled. This 36-month randomized trial is comprised of an 18-month blinded, placebo-controlled phase followed by an 18-month open-label phase in which all patients transition to RP103. The trial commenced in October 2010, with full enrollment achieved in June 2012. The primary endpoint of the trial is change from the baseline of the Total Motor Score of the Unified Huntington's Disease Rating Scale, or UHDRS. Blood levels of BDNF are being measured as a secondary endpoint and potential biomarker. Under the collaboration agreement with CHU d'Angers, we supply RP103 and placebo capsules for the clinical trial and open-label extension study in exchange for regulatory and commercial rights to the clinical trial results. Clinical expenses of the study are covered by a grant from the Programme Hospitalier de Recherche Clinique, which is funded by the French government. Interim results of this study following the first 18 months of treatment are anticipated in the first quarter of calendar 2014.

The treatment options for HD patients are very limited, with no drugs that address the underlying pathophysiology. Drugs that are available provide symptomatic relief of chorea and mood swings associated with HD. In preclinical studies, cysteamine has shown the potential to slow the progression of HD by increasing the levels and intracellular transport of BDNF in mice and non-human primates.

In 2008, we received FDA orphan drug designation for cysteamine formulations, including RP103, for the potential treatment of HD. We plan to apply for orphan drug designation in the EU pending availability of interim clinical data which we anticipate receiving in the first quarter of 2014.


Table of Contents
RP103 for Non-alcoholic Fatty Liver Disease in Children

Non-alcoholic fatty liver disease, or NAFLD, is the hepatic component of metabolic syndrome and is associated with deposition of triglycerides in the hepatocytes in individuals who do not consume alcohol in amounts generally considered to be harmful to the liver. NAFLD is commonly associated with elements of metabolic syndrome, such as obesity, diabetes mellitus and hypertriglyceridemia. Additional factors include family history of diabetes and high blood lipids in people who are not obese. NAFLD refers to a spectrum of conditions ranging from simple fat accumulation in the liver to steatohepatitis, cirrhosis and hepatocellular carcinoma.

· Non-alcoholic fatty liver, or NAFL - A benign condition with simple fat accumulation within liver cells (hepatic steatosis).

· Non-alcoholic steatohepatitis, or NASH - An aggressive form of NAFLD characterized by hepatic steatosis and inflammation with hepatocyte injury (ballooning) with or without fibrosis.

· Cirrhosis - 15% to 25% of patients with NASH progress to cirrhosis with consequential complications over 10 to 20 years. Cirrhosis is characterized by the replacement of healthy liver tissue with fibrosis and scar tissue, leading to loss of liver function. NASH cirrhosis is a risk factor for development of hepatocellular carcinoma, or HCC.

NAFLD prevalence is increasing along with the rise of obesity. Advanced NAFLD is now among the most common reasons why patients are referred for liver transplantation.

According to the World Gastroenterology Organization Global Guidelines, the prevalence of NAFLD in children is about 15% in the U.S. and western countries. NAFLD is underdiagnosed in children due to lack of recognition, screening or appreciation of associated complications by healthcare providers. Children may not be recognized as obese during office visits and age-appropriate norms for body mass index may go unacknowledged. Liver disease is screened by measuring serum alanine aminotransferase, or ALT, and aspartate aminotransferase, or AST, starting at 10 years old in obese children and those with a body mass index of 85th to 94th percentile with other risk factors.

Currently there are no drug treatment options for NAFLD. Disease management is through counseling with lifestyle changes in diet, exercise and weight reduction.

We believe that cysteamine may be useful for the treatment of NAFLD. Cysteamine is itself a potent antioxidant which may reduce oxidative damage resulting from excessive accumulation of fats in liver cells. Cysteamine is also known to increase levels of a key cellular antioxidant, glutathione, or GSH, with the potential to further reduce oxidative cellular damage. Glutathione is composed of the amino acids cysteine, glutamate and glycine. The availability of cysteine, which exists primarily as cystine, is the major rate-limiting factor in GSH production. Cysteamine may bind to extracellular cystine and enhance its cellular uptake, thereby increasing the cellular thiol pool and making more cysteine available for glutathione synthesis. Finally, cysteamine is known to inhibit transglutaminase, an enzyme responsible for generation of fibrotic tissue, an important aspect of late-stage NAFLD.

Phase 2a clinical trial results with a prototype of RP103 for the potential treatment of NASH and NAFLD showed that patients receiving enteric-coated cysteamine exhibited a marked decline in serum transaminase levels during the treatment period of 26 weeks. Seven of 11 juvenile childhood NAFLD patients entering the study with elevated ALT and AST achieved more than 50% reduction in ALT and 6 of 11 reduced levels to normal range. AST levels were also improved, with patients averaging 41% reduction by the end of the 6-month treatment phase. This reduction in serum liver enzymes was largely sustained during the 6-month post-treatment monitoring phase and other important liver function markers showed positive trends, suggesting improvements in hepatic histopathology. Levels of cytokeratin 18, or CK-18, a potential serum marker of disease activity in NASH and NAFLD, decreased by an average of 45%. Adiponectin levels showed a positive increase by an average of 35% during the treatment period. Reduced adiponectin levels are thought to be a marker of the pathogenesis and progression of NASH and NAFLD.

The Phase 2a trial results were consistent with ALT and AST reductions seen in patients who achieve a 10% weight loss, although body mass index did not change significantly during both the treatment and post-treatment phases in the Phase 2a clinical trial. In this Phase 2a clinical trial, the prototype of RP103 demonstrated a favorable safety profile, with mean gastrointestinal symptom scores of 1.1 (the maximum score of 14 indicates the most severe gastrointestinal symptoms) at baseline and 0.7 after 6 months of treatment.


Table of Contents
In June 2012, we announced the dosing of the first patient in a Phase 2b clinical trial - Cysteamine Bitartrate Delayed-Release for the Treatment of Non-alcoholic Fatty Liver Disease in Children, or CyNCh, which is evaluating the safety and efficacy of RP103 as a potential treatment of NAFLD in children. The clinical trial is being conducted under a Cooperative Research and Development Agreement, or CRADA, with the National Institute of Diabetes and Digestive and Kidney Diseases, or NIDDK, part of the National Institutes of Health, or NIH. The trial is expected to enroll a total of 160 pediatric participants at ten U.S. centers in the NIDDK-sponsored NAFLD Clinical Research Network. Raptor and NIDDK share the costs of conducting the CyNCh clinical trial. The primary objective of this randomized, multicenter, double-blind, placebo-controlled Phase 2b clinical trial is to evaluate whether 52 weeks of RP103 treatment reverses liver tissue damage caused by NAFLD as measured by changes in NAFLD Activity Score, or NAS, a histological rating scale of disease activity (based on scoring lobular inflammation, hepatocyte ballooning and steatosis from a liver biopsy), in conjunction with no worsening of liver tissue fibrosis. Secondary endpoints include blood markers for liver health including ALT and AST as well as safety and tolerability. We anticipate reaching full enrollment in the first half of 2014 and interim data for this study is anticipated in the first half of 2015.

Other Clinical-Stage Product Candidate

Convivia™ for ALDH2 Deficiency

We are developing Convivia, our proprietary oral formulation of 4-methylpyrazole, or 4-MP, for the potential treatment of acetaldehyde toxicity resulting from ALDH2 deficiency.

We own the intellectual property portfolio pertaining to Convivia, including method of use and formulation patents. In June 2010, we granted an exclusive license to commercialize Convivia in Taiwan to Uni Pharma Co., Ltd. Under this agreement, Uni Pharma is responsible for clinical development, registration and commercialization of Convivia in Taiwan. We continue to seek partners in other Asian countries to license Convivia.

Preclinical Product Candidates

Our preclinical programs include our cysteamine dioxygenase, or ADO, program, to improve treatment of diseases for which cysteamine is therapeutic and our HepTide™ program to treat hepatocellular carcinoma and other cancers susceptible to induced lysosomal storage.

Other Development Areas

Securing Additional and Complementary Technology Licenses from Others

We plan to establish additional research collaborations with prominent universities and research labs and to secure licenses from these universities and labs for technology resulting from the collaborations. No assurances can be made regarding our ability to establish such collaborations over the next 12 months, or at all. We may obtain complementary products through joint ventures or through merger and/or acquisitions with other biotechnology companies.

Future Activities

We expect that our near-term efforts will be focused on:

· Increasing sales of PROCYSBI and providing comprehensive reimbursement, education and persistency support to commercial patients in the U.S.;

· Negotiating reimbursement country by country and launching PROCYSBI within the European Union in 2014;

· Filing a New Drug Submission, or NDS, for PROCYSBI with Health Canada in the first half of 2014;

· Conducting clinical trials that evaluate PROCYSBI in cystinosis patients that are cysteamine-naïve, as well as other supporting trials in underdeveloped markets;

· Developing select global markets with significant numbers of known cystinosis patients;

· Screening for undiagnosed and unidentified late-onset nephropathic cystinosis;

· Supporting our clinical trials of RP103 for the potential treatment of HD in adults and NAFLD in children;

· Supporting our novel preclinical programs and identifying promising in-licensing candidates; and

· Continuing the development of our RP103 clinical pipeline in other indications including tissue fibrotic disease, Rett Syndrome and mitochondrial disorders.


Table of Contents
Results of Operations

Quarter ended September 30, 2013 and fiscal quarter ended August 31, 2012

Revenue

On April 30, 2013, the FDA granted marketing approval in the U.S. for the sale of our first product, PROCYSBI (cysteamine bitartrate) delayed-release capsules, for the management of nephropathic cystinosis in adults and children ages six and older. On September 6, 2013, the European equivalent, PROCYSBI gastro-resistant hard capsules of cysteamine (as mercaptamine bitartrate), received marketing authorization from the European Commission as an orphan medicinal product for the treatment of proven nephropathic cystinosis for marketing in the EU. For the quarter ended September 30, 2013, we recognized $6.6 million in PROCYSBI net product sales. The first U.S. sales of PROCYSBI commenced in June 2013 and the launch of PROCYSBI in the EU is anticipated to commence in the first half of 2014; there were no product sales for the fiscal quarter ended August 31, 2012.

Cost of Sales

Prior to FDA approval on April 30, 2013, our commercial manufacturing costs have been recorded as research and development expenses. As a result, our cost of sales for the next several quarters will reflect a lower average per unit cost of goods than will be recorded in the future. Cost of sales for the quarter ended September 30, 2013 were $0.4 million and primarily included capitalized commercial product sold, amortization of licensing milestone payments, royalty fees payable to UCSD on our net product sales and other indirect costs such as distribution, labeling, shipping and supplies. We began capitalizing commercial inventory costs upon FDA approval of PROCYSBI on April 30, 2013.

Research and Development

Research and development expenses include medical, clinical, regulatory and scientists' salaries and benefits; expenses associated with the manufacturing and testing of PROCYSBI inventory for our commercial launch in the U.S. which were expensed prior to drug approval; preclinical studies; clinical trials; regulatory and clinical consultants; research supplies and materials; amortization of intangible assets and allocated human resources and facilities expenses.

Research and development expenses increased approximately 6% to $6.8 million for the quarter ended September 30, 2013 from $6.4 million in the comparable fiscal quarter ended August 31, 2012. This increase was primarily due to higher external costs for clinical studies and lab services of $0.7 million and higher staffing costs of $0.5 million, offset by our prior year's write-off of an intangible asset of $0.9 million.

Major program expenses recorded as research and development expenses:

                                                                       Three Months Ended
                                                                September 30,         August 31,
(In millions)                                                       2013                 2012

PROCYSBI: cystinosis (commercial)                              $           3.9       $        2.8
RP103: HD (clinical)                                                      (0.1 )              0.2
RP103: NAFLD in children (clinical)                                        0.4                0.8
Preclinical programs                                                       0.3                0.2
Minor or inactive programs                                                 0.2                1.0
Research and development personnel and other costs not                     2.1                1.4
allocated to programs

Total research and development expenses                        $           6.8       $        6.4


Table of Contents
Selling, General and Administrative Expenses

Selling, general and administrative expenses primarily includes finance, executive and commercial operations salaries and benefits; commercial expenses, such as reimbursement and marketing studies; commercial launch expenses for PROCYSBI, including the set-up of RaptorCares.com to provide patient support and establish a customer relationship management system for our U.S. PROCYSBI sales team; intellectual property, legal and audit fees and other administrative and facilities costs.

Selling, general and administrative expenses increased approximately 43% to $8.3 million for the quarter ended September 30, 2013 from $5.8 million in the comparable fiscal quarter ended August 31, 2012. This increase was primarily due to staffing increases of $1.8 million, non-cash stock compensation expense of $0.5 million and in ramping up sales and marketing costs for the commercialization and U.S. launch of PROCYSBI of $0.3 million.

Interest Income

Interest income for the quarter ended September 30, 2013 and fiscal quarter ended August 31, 2012 was $3,000 and $78,000, respectively.

Interest Expense

Interest expense for the quarter ended September 30, 2013 and the fiscal quarter ended August 31, 2012 was $2.3 million and $1,000, respectively. The increase in interest expense was due primarily to the $50.0 million loan agreement that we entered into with HealthCare Royalty Partners II, L.P., or HC Royalty, in December 2012, of which net proceeds of $23.4 million and $23.7 million were received in December 2012 and May 2013, respectively. During the quarter ended September 30, 2013, we recognized interest expense of $2.3 million incurred under the HC Royalty loan agreement.

Foreign Currency Transaction Gains

Foreign currency transaction gains for the quarter ended September 30, 2013 and the fiscal quarter ended August 31, 2012 were $15,000 and $23,000, respectively.

Unrealized Gain/(Loss) on Short-Term Investments

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