Nov 10, 2020
Operator
Greetings and welcome to Catalyst Pharmaceuticals, CPRX Third Quarter 2020 Results. At this time, all participants are in a listen-only mode.
A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Alicia Grande, Chief Financial Officer.
Alicia Grande
Good morning everyone and welcome to today's conference call. Joining me on today's call are members of the Catalyst executive team including Patrick McEnany, Chairman and Chief Executive Officer; Dr.
Steven Miller, Chief Operating Officer and Chief Scientific Officer; Dr. Gary Ingenito, Chief Medical and Regulatory Officer; and Jeffrey Del Carmen, Chief Commercial Officer.
Patrick McEnany
Thank you, Ali and thanks everyone for joining us this morning for our third quarter results and business update call. I hope that everyone is staying safe and healthy during these unprecedented and challenging times.
I have a number of items to update you on this morning. I'll start with how pleased we are with the third quarter financial results that were achieved.
Despite operating under very difficult conditions in this COVID-19 environment, we generated product revenue of $29.2 million and net income from operations of $11.6 million, which included a non-cash stock-based compensation expense of $1.5 million which resulted in approximately $13 million of cash flow from operations. Additionally, we ended the quarter with $127.1 million in cash and cash equivalents and no funded debt.
Ali will provide you with more financial details in a few minutes. I want to reiterate how proud I am of the team's ongoing effort to demonstrate their steadfast commitment to the patients that we serve.
We have shown a remarkable resilience and ability to continue to expand the number of patients benefiting from Firdapse to treat their LEMS condition. COVID-19 continues to make it difficult for patients who have LEMS who have not received a definitive diagnosis from their physician because of their inability to schedule an in-person appointment or their personal concerns about in-person visits with their treating physician.
These issues have been an impact on the number of patients enrolled in Catalyst pathways. As a result new patient starts in Q2 and Q3 of this year were modest on a relative basis compared to the pre-COVID period.
Jeffrey Del Carmen
Thanks, Pat and good morning, everyone. As Pat mentioned, we are very pleased with the third quarter performance of $29.2 million net sales, resulting from our continued success engaging both healthcare providers and patients in this largely virtual setting.
As anticipated, we continue to see signs of recovery during the third quarter in underlying demand trends. New patient enrollments were significantly above Q2, while we saw the maintenance of strong medication compliance and persistence.
We feel that the bottom for new patient enrollments was observed in the second quarter with a significant uptick in the third quarter as many adult patients diagnosed with LEMS were finally able to visit their healthcare provider. As one might expect, we are seeing stronger trends in enrollment forms in regions where offices have higher reopening rates and consequently higher in-person patient visit volumes.
The 90-day discontinuation rates have remained steady at around 15% and discontinuations to Ruzurgi continue to be minimal. I'm extremely pleased with our commercial team's ability to deliver this result despite the ongoing impact of the COVID-19 pandemic.
Based on early observations in the fourth quarter, we are cautiously optimistic that this strong performance will continue. Our October new patient enrollments were higher than any month since July of 2019.
Among our existing base of patients, compliance and adherence remain very high and discontinuation rates remain low in October.
Steven Miller
Thanks for the commercial update, Jeff. I'll now provide an update on our clinical pipeline to develop Firdapse for additional neuromuscular indications.
Our analysis of the MuSK, Myasthenia Gravis trial data remains ongoing and we are discussing the results with our MuSK-MG key opinion leaders. During the clinical trial, significant clinical improvement was seen during the dose titration period and persisted throughout the safety follow-up period of the trial as well for more than a year in many cases.
However, the randomized portion of the clinical trial did not reach statistical significance. And paradoxically in some cases, patients that were randomized to continue on amifampridine illness withdrawal design trial shown a worsening of their condition and then clinically improved upon entering the safety follow-up period of the trial when placed on open-label amifampridine.
This outcome is in contrast to the successful prior proof-of-concept trial outcome.
Alicia Grande
Thanks, Steve. Yesterday, we filed our third quarter 2020 Form 10-Q and reported GAAP net income of $43.3 million or $0.42 per basic and $0.41 per diluted share, compared to GAAP net income of $13.6 million or $0.13 per basic and diluted share in the same period of 2019.
For the third quarter of 2020, non-GAAP net income excluding $1.5 million of expenses related to non-cash stock based compensation was $44.8 million or $0.43 per basic and $0.42 per diluted share. In comparison, third quarter 2019 non-GAAP net income excluding $817,000 of expenses related to non-cash stock-based compensation was $14.4 million or $0.14 per basic and $0.13 per diluted share.
Net product revenue for Firdapse was $29.2 million for the third quarter of 2020 with related cost of sales of $3.9 million. In comparison for the third quarter of 2019, net product revenue from Firdapse was $30.9 million with related cost of sales in the quarter of $4.4 million.
It's important to remember that our gross margins in both the 2020 and 2019 periods continue to benefit from the inventory manufacturer or in process and expense prior to the FDA approval of Firdapse. Research and development expenses were $3.8 million for the third quarter of 2020 as compared to $4.6 million for the third quarter of 2019.
Research and development expenses for the third quarter of 2020, as compared to $4.6 million for the third quarter of 2019. Research and development expenses for the third quarter of 2020 decreased when compared to those for the third quarter of 2019, primarily due to decreases in expenses for medical and regulatory affairs or quality assurance programs, expenses for our ongoing Firdapse clinical trials and studies as we closed out the MSK-002 trial and costs for our expanded access program.
We expect that research and development costs will continue to be substantial in 2020, as we continue our ongoing clinical trials and studies, including the SMA type 3 proof of concept, continue our expanded access programs and our long-acting formulation program for Firdapse, began to move forward with our required clinical study evaluating Firdapse for the treatment of LEMS in Japan and began to evaluate Firdapse as the treatment for other neuromuscular diseases. SG&A expenses for the third quarter of 2020 totaled $10 million compared to $8.1 million in the third quarter of 2018.
The increase, when compared to the same period in 2019, is primarily attributable to the expansion of our sales force in the first quarter of 2020, including related non-cash stock based compensation, the cost of additional supporting personnel and the cost of contracting with a rare disease experience in telesales agency. We expect that SG&A expenses will continue to be substantial in 2020, as we continue to build our infrastructure and commercial and patient programs, in support of the expansion of our sales activities for Firdapse.
We continue to pursue our losses against the FDA and Health Canada and continue to prosecute our cases alleging infringement of our patents. On September 30, 2020, Catalyst had cash and investments of $127.1 million and no funded debt.
More detailed information and analysis may be found in the company's quarterly report on Form 10-Q, which was filed with the Securities and Exchange Commission yesterday, November 9, and can be found on the Investor Relations page of our website at www.catalystpharma.com. Now, I'll turn the call over to Pat.
Patrick McEnany
Thanks, Ali. I just want to say once more, how pleased I am with the operational results that our team has realized to date during 2020.
We look forward to continuing our effort to assist adult LEMS patients with their treating physicians and find ways for an FDA-approved therapy for this debilitating disease. We will continue our efforts to study Firdapse for other rare neuromuscular conditions that are without an effective therapy, as well as advancing our work in a more patient friendly long-acting formulation of Firdapse.
Our recent announcements regarding the issuance of patent and legal challenges show our commitment to protecting Firdapse and patients, as we continue to invest in Firdapse as a potential therapy for other rare neuromuscular conditions. Also we are excited to see our global footprint expand as we partner with KYE Pharmaceuticals in Canada and as we continue our efforts to finalize partnering in Japan.
And lastly, we are very committed to bringing in other molecules and/or companies under the Catalyst umbrella. And with that, we'll open the line for questions.
Operator?
Operator
Thank you. Our first question today is from Joe Catanzaro of Piper Sandler.
Please proceed with your question.
Joe Catanzaro
Hey, guys. Thanks for taking my questions here.
Maybe, first, Pat you had just mentioned the opportunities in Canada and Japan. Just wondering if you could help us think about the size of those opportunities, pricing of Firdapse in those territories?
And then maybe just remind us the type and extent of exclusivity you're operating on in Canada and potentially in Japan? Thanks.
Patrick McEnany
Sure. Joe, thanks for the questions.
So in Canada, we believe that the Canadian population representing about 10% of the U.S. market, is we believe based on a few studies that we've conducted that there are probably 300 to 400 LEMS patients in Canada.
So, obviously, it's a much smaller opportunity than we had here in the U.S. And as you probably are well aware pricing in Canada is somewhat less than it is here in the U.S.
So currently Catalyst is negotiating with -- they will begin negotiations with government or public payers and as well with private payers in the near future. So we expect that the pricing will be less than in the U.S., but not ready to talk about where their pricing is going to be at this point.
Japan again represents about a 40% market size to U.S. We think there are about 1,200 LEMS patients in Japan.
There's some epidemiology data that we think supports that opportunity. We also recognize that pricing in Japan is much different than in the U.S.
They use a sort of a basket approach using other countries several EU countries, Canada and U.S. to get to the pricing.
So pricing has not been established in Japan at this point. And it will likely be certainly less than U.S.
pricing for Firdapse.
Joe Catanzaro
Okay. Got it.
That’s helpful. Thanks.
If I could just ask a follow-up maybe for Steve and his comments on the MuSK MG trial and that patients seem to benefit during the run-in and worsened during the randomized period and then improved once again in the open label. Just wondering if at this point you have any thoughts on why you saw that?
Was it -- is it aspects of the trial design underlying baseline characteristics for some patients. Just wondering if you have any initial thoughts there?
Steven Miller
There's really not much more detail than I can provide than what I already described. Basically, we observed a significant clinical improvement in the patients during the open-label portions of the trial, which is consistent with the large clinical improvement that we saw in our first proof-of-concept trial.
And the randomization phase of the most current trial is what is inconsistent with all of the prior data and the open-label portion of the most current trial. As for the reason, we still aren't sure.
The preponderance of evidence would lead us to believe that it could be trial design related, but it's not possible to say that for certain at this point in time.
Joe Catanzaro
Okay. Got it.
Thanks so much for taking my questions.
Steven Miller
Thank you, Joe.
Operator
The next question is from Charles Duncan of Cantor Fitzgerald. Please proceed with your question.
Charles Duncan
Hi, Pat and team, congrats on a good quarter. Thanks for taking my question.
I had a couple of questions for the commercial side then the pipeline and then even the CFO. So quickly in terms of the commercial side like to hear the commentary regarding the new patient adds.
I guess, I'm wondering if you can provide any color maybe remind us as to what it looked like in July of 2019 in terms of numbers and if you would anticipate with the kind of infection rate to see that modulate? Or do you believe that and I know you said this Pat, that you can't call a trend yet, but do you think that there is sufficient demand to see new patient adds continue to tick up?
Jeffrey Del Carmen
Yes. Thank you for that question.
As I mentioned, we are very confident in the ability to enroll new patients moving forward. October was our strongest month since July of 2019 and which is a very, very good sign for us.
We feel that there is a significant pent-up demand that was sitting there during coronavirus early on in the pandemic, where a lot of patients were not able to visit their health care providers. And when we take a look at some data that's out there about the impact that COVID-19 has had on the pharmaceutical market, neurologists are about 40% less likely to prescribe, a new product for patients via telehealth, versus inpatient visits.
So the biggest part of the enrollments is the opportunity for patients to actually be able to go visit in-person their physicians, which is why we feel that once the country started opening up in the early part of the third quarter that that happened and then physicians were then able to start patients – or more likely to start patients on Firdapse. So and we – early on in November, we're seeing the same trend.
So to your question, do you see that continuing? October was strong November is just as strong.
So we're very confident in the short-term trend that we're seeing.
Charles Duncan
Okay. That's helpful.
And consistent with our diligence in neurology, I hear you that, it's a challenge particularly for more interventional type diagnosis. So I wish you luck with that continued trend.
Maybe move over to say Steve in the pipeline. Steve first of all, with regard to Japan appreciate the recent question that you're asked on that in terms of market size.
But can you provide us any additional color on timing? I know that, you may do work with a partner by the end of the year, but what would be required to actually get Firdapse on the market in Japan?
Steven Miller
Well, as I said, we have reached agreement with PMDA. Specifically, they're requiring us to do a small study in Japanese patients, and also collect after the randomization period of that study about a year's worth of safety data.
So we haven't been specific on timing, but obviously, it's going to involve the setup of that trial, the execution of the trial, the collection of the data, and then filing of a Japanese NDA. The overall time period is about three years probably.
Charles Duncan
Okay. That's helpful.
And then perhaps, if I can ask a follow-up on the MuSK-MG analysis you're working on, any patient characteristics that you're looking at such as symptom severity, metabolism, concomitant meds or genotype? Or is this perhaps a trial design and conduct issue that you're investigating?
Steven Miller
Well, the answer to your question is all of the above except for genotype. As you know MuSK-MG is an autoimmune condition.
So there's really no genes that are actually involved. But naturally, we're looking at age, gender, concomitant medications in particular to see what they were on.
And we're also comparing that to our past proof-of-concept trial as well. And so that also adds a little bit of time to the overall analysis, because we have to pool all of that data together and take a look at it.
And we're looking at each individual patient looking to see how their MuSK-MG symptoms varied from point-to-point throughout the trial at each individual patient level looking at means of all the different groups and pulling different groups together to see, if we can see any kind of a pattern in terms of who responded and who didn't. And more importantly why?
Because that will help us answer whether or not we're dealing with something that's trial related or perhaps a response only in certain subgroups of patients or both. And it also will inform us on what kind of future trial design might be needed to ensure that we can get a positive signal, if in fact we decide to proceed with this and do a new trial in the future.
Charles Duncan
Yeah. Make sense.
Genotype could also refer to metabolism as well. Moving on Pat last question, with regard to kind of bigger picture Pat, I guess, as you think about corporate development what do you think is the best strategy to – or a good strategy to best leverage the core infrastructure in terms of the traction you've gotten with establishing your commercial infrastructure sales?
Or is it really looking to leverage the clinical development capabilities or even the back office in terms of focused on providing a drug for the orphan indication. What would you like to do?
Patrick McEnany
Charles, we have been from day one really focused – and I'll say day one was January of this year. We've been focused on opportunities to leverage our sales force for other neuromuscular opportunities.
As you can imagine there are very few of those that might be available. And so we've expanded our reach to look at other CNS or neurological type products, clearly late-stage Phase 3 or beyond.
We have no interest in really early opportunities or going back to the bench. Those are too expensive and too risky.
And so -- and we've begun recently to look at other therapeutic areas that we thought that represented opportunities -- if we had to put together another sales team for example endocrinology, which we don't have, it's sort of a bolt-on for us to look at other therapeutic areas, rare disease that didn't require a 200 man sales force where we could basically replicate what we've done in neuromuscular to another therapeutic area. So in doing so that's given us an opportunity to expand the universe of companies or products that we're looking at.
Charles Duncan
Thanks, perfect. I appreciate all the color, and I’ll hop back in the queue.
Thank you.
Patrick McEnany
Thank you.
Operator
The next question is from Scott Henry of Roth Capital. Please proceed with your question.
Scott Henry
Thank you and good morning.
Patrick McEnany
Good morning, Scott.
Scott Henry
A couple of accounting related questions. With the reversal of the tax allowance, I would assume you'll be a full taxpayer going forward.
Forgetting about any changes in the tax rate what would you expect your tax rate to be approximately?
Alicia Grande
So I believe that's noted on the income tax note. You'll see that we've -- that we put three, four -- $31.3 million of deferred tax assets on the books.
Scott Henry
I think what I'm asking is what would you expect the ongoing tax rate to be, 22%? Just trying to get a sense of what your tax rate will be going forward?
Patrick McEnany
Yeah. Scott we're estimating now and it's early to say, but we think 22% to 25% is certainly appropriate range for us to be considering.
Scott Henry
Okay. Thank you.
And when we think about 2021, it seems like there was -- the clinic was pretty active in 2020. Do you think R&D might dip down a little sequentially in 2021 from 2020?
Steven Miller
That's going to depend on the outcome of our analysis for the MuSK MG. It would be a similar cost to do another trial if the decision is made to move forward again.
So there might be a little low early in 2021. And, of course, HPP will be running as well.
And there'll be some R&D costs there as well. I would expect it to be approximately equivalent to where we were in 2020.
Scott Henry
Okay. Thank you.
And then, on the selling side, I believe you've almost doubled the sales force. And revenues are kind of the same.
Now it's not your fault. It's obviously a COVID-19 factor.
But I guess the question is do you ever consider paring back expenses, until we get a greater opening or maybe freezing hiring? How should we think about selling in the next couple of quarters versus two years out or whenever when we think we'll be back to a normal?
Patrick McEnany
Yeah. Good question, Scott.
We've had a hiring freeze really for the last several quarters. So we've really not meaningfully added to FTEs .
And that was by design by the way. But as far as paring back, no, we've positioned the company to really accelerate our growth on revenues, by basically doubling the sales force, bringing in the in-house telemarketing support team, in the non-personal promotion that we're doing.
We added about $5 million in selling expenses to this year's budget, versus last year's. And we did that at the beginning of the year.
And we executed on that flawlessly and so we've really got a great team put together, despite the fact that you haven't seen an acceleration in revenues during this COVID period, it's not unusual. And I think that frankly, holding our own basically has been pretty good, in this environment.
And so, we want to be ready. We don't want to have terminated folks that we hired at the beginning of the year because of COVID.
We in fact have done the opposite. We've gotten the team ready to go.
And I think we're already starting to see that, with the increased patient starts in September and October and November off to a really good start as well. So I don't think we're hitting full stride.
We're far from it. And I think we'll probably be looking at Q1, God willing.
And this pandemic is more in the rearview mirror, than the front windshield. So, anyhow I hope I've answered your question.
But we're pleased with what we did early in the year on the FTE side, for commercial. And we stand by that.
And I think we're already seeing positive benefits from doing so.
Scott Henry
Okay. Thank you.
That’s helpful, Pat. Final question, just with regard to the LEMS market on Firdapse, are you seeing any change in pricing?
Or is pricing relatively stable?
Patrick McEnany
Pricing is relatively stable.
Scott Henry
Okay. Great.
Thank you and thanks for taking my questions.
Patrick McEnany
Great. Thank you, Scott.
Operator
There are no additional questions at this time. I'd like to turn the call back to, Pat McEnany for closing remarks.
Patrick McEnany
Thank you very much for joining us today. We look forward to future calls.
Thank you. And have a great day.
Operator
This concludes today's conference. You may disconnect your lines at this time.
Thank you for your participation.