Catalyst Pharmaceuticals, Inc.
Q1 2021 Earnings Call Transcript

Published: 11 May 2021

[Operator:]

Greetings, and welcome to the Catalyst Pharmaceuticals’ First Quarter 2021 Results Conference Call. 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. It is now my pleasure to introduce your host, Ms. Alicia Grande, Vice President, Chief Financial Officer and Treasurer. Thank you. You may begin.

[Alicia Grande:]

Good morning, everyone, and thank you for joining our conference call to discuss Catalyst’s first quarter 2021 financial results and corporate highlights. Leading the call today, we have Patrick McEnany, Chairman and Chief Executive Officer. We are joined by Dr. Steven Miller, Chief Operating Officer and Chief Scientific Officer; and Jeffrey Del Carmen, Chief Commercial Officer. For the question – for the Q&A session, we’ll also have Dr. Gary Ingenito, Chief Medical and Regulatory Officer.

[Patrick McEnany:]

Thank you, Ali, and thanks everyone for joining us this morning for our first quarter 2021 results and business update call. I hope that everyone is staying safe and healthy during these challenging times. Although we continue to see physician practices beginning to reopen in many parts of the country, data still supports the fact that certain parts of the country are much slower to open than others and some patients remain reluctant to have physical visits to physicians' offices or to lab. We continue to see signs that these dynamics are gradually improving and we remain optimistic that we will see a significant uptake in revenues during 2021. We are pleased to report first quarter revenues of $30.2 million versus $29.1 million for the first quarter of last year. This first quarter of 2021 will most likely be the most challenging comparison year-over-year because first quarter of last year was only modestly impacted by COVID where the Q1 of this year we were still recovering as we begin to move into the post-pandemic period. Despite being in recovery mode, we had a good quarter. Revenues increased almost 4% over the same quarter last year. However, there were several charges that affect that operating income and net income for the quarter. And Ali will explain those details in a few minutes. GAAP net income was $7.7 million and non-GAAP net income was $11.6 million. This year's first quarter net operating income was reduced substantially by timing difference relating to a charge of approximately $2 million committed in the first quarter of 2021 for patient assistance and foundation support programs that we were required to expense in the first quarter rather than expensing it over four quarters of 2021. Ali will be providing more detail regarding the differences for this quarter between the GAAP and non-GAAP financial results.

[Jeffrey Del Carmen:]

Thanks, Pat, and good morning everyone. We are very pleased with Q1 net sales of $30.2 million, which represents a 4% growth quarter versus the same quarter last year, despite the pandemics ongoing negative impact on diagnostic visits and subsequent new to brand prescriptions. As Pat mentioned, this quarter of 2021 will most likely be the most challenging comparison year-over-year because the first quarter of last year was only modestly impacted by COVID. Strong net revenue in Q1 was driven primarily by new patient enrolments that outpaced Q4 2020 continued favourable reimbursement dynamics and a significant decrease in discontinuations. Q1 is the third consecutive quarter with growth in new patient enrolments. In fact, new naive to 3, 4-DAP patient enrolments were higher in Q1 than any other quarter since Q3 2019, a 15% increase over Q4 2020. Our strong patient persistency resulted in continued low 90-day discontinuation rates of less than 10% and 40% less than Q1 of 2020. As I've mentioned on the last earnings call, we expect continued growth in 2021 versus same quarters last year as we build upon the momentum generated in Q4. Through Q1, IQVIA COVID-19 market impact data suggest that diagnostic visits in the overall pharmaceutical market were approximately 12% lower than a hypothetical non-COVID-19 scenario. As vaccination rates continue to increase, we are confident that the diagnostic visit backlog will translate into stronger new patient enrolment trends in the upcoming quarters. Based on early observations in Q2, we are very optimistic about the growth potential for Firdapse versus same quarter last year as well as versus Q1 of 2021. In April, new patient enrolments remain strong and compliance and persistence rates continue to be stable. Catalyst pathways are free personalized patient services program that offers patients and family’s one-on-one support throughout their treatment journey has done an outstanding job ensuring adult LEMS patients have an optimal experience on Firdapse. Prescription approval rates remained over 90% across all payers, government or private commercial insurers. Furthermore, 98% of re-authorizations were granted in Q1, which shows the value of Firdapse is recognized by payers. Patients enrolled in Catalyst Pathways, including those who are covered by Medicare and accessing foundation assistance, have an average co-pay of less than $2 per month.

[Steven Miller:]

Thanks for the commercial update, Jeff. I'll provide an update on our clinical pipeline to develop Firdapse for additional indications. Catalyst has now submitted our plans for a new clinical trial for the symptomatic treatment of MuSK myasthenia gravis or MuSK-MG to the FDA for the review and comment. We anticipate the agency's response to our plans within the next 90 days. Specifically, our briefing materials to the FDA discuss the differences in the design of the new trial relative to the design of the completed trials. As previously announced, our evaluation of the feasibility of conducting this new trial is underway. Upon receipt of the agency's comments and completion of our feasibility analysis we will update the investment community on our further plans for the symptomatic treatment of MuSK-MG with Firdapse.

[Alicia Grande:]

Thanks, Steve. Yesterday we filed our 2021 Form 10-Q with the SEC and reporter first quarter financial results and a press release. At a high level our financial results for the first quarter are in line with our internal expectations. Let me highlight a few of those results now. As we reported, we ended the quarter with cash and investments of $143.3 million and no funded debt, which we believe would enable to us to advance or R&D programs and support our strategic initiatives of acquiring earlier stage opportunities and innovative technologies to enable growth and value creation. Net revenues for the first quarter of 2021 was $30.2 million, compared to $29.1 million with Q1 2020. As expected our first quarter sales continue to be impacted by COVID-19 pandemic. In addition, in the first quarter of the calendar year like many companies in our industry. We are impacted by the reset of the patient deductibles, including the effect. Despite these challenges, our revenues were almost 4% higher in the first quarter of 2021 as compared to the first quarter of 2020. As Steven just mentioned, we are optimistic about our revenue growth in 2021 as the impact of the COVID-19 pandemic subsides. We reported GAAP net income of $7.7 million with Q1 2021 or $0.07 per basic and diluted share compared to GAAP net income of $10.4 million or $0.10 for basic and diluted share for Q1 2020. Before I continue, let me take a moment to provide more color on our first quarter tax. Our effective tax rate in the first quarter of 2021 was 22.5% as compared to 5.4% in the first quarter of 2020. At the same time, we benefited in Q2 2020 from the use of our differed tax assets, which is a noncash item. While we expect to use the balance of our federal net operating losses in 2021, we expect that we will continue to benefit in future periods from the use or deferred tax assets relating to paid net operating losses and the credit, although those are subject to certain limitations, resulting in a more normalized tax rate once we burn out our net operating losses. In the first quarter of 2021, we recorded a $2 million charge relating to commitments to make charitable donations to 501 foundations that support LEMS patient programs. While such continuations were required to be expensed in the first quarter of 2021, when we committed to the contributions, they will support LEMS patient programs for the 2021 fiscal year. Non-GAAP net income for Q1 2021 was $11.6 million or $0.11 per basic and diluted share, which excludes from GAAP net income, stock-based compensation expense of $1.6 million. Depreciation of $0.1 million and the provision for income taxes of $2.2 million. This compares to the non-GAAP net income for Q1 2020 were $0.6 million or $0.12 per basic and diluted share, which excludes from GAAP net income of base compensation of $1.5 million, depreciation of $14,000 and the provision for income taxes of $0.6 million. Because of the significant effect of the use of our deferred tax assets in the first quarter of 2021 compared to the first quarter of 2020, we believe that this non-GAAP measure is useful for an overall understanding of our resource of operations for the first quarter of 2021 compared to the first quarter of 2020. Cost of sales of $4.7 million for Q1 2021, were slightly up compared to $4.2 million for Q1 2020 at 15% and 14% of revenues respectively. As a reminder, our cost of products continue to benefit from inventory expenses from inventory expense prior to FDA approval of Firdapse, these to a lesser degree than in prior quarters. Research and development expenses were $3 million for Q1 2021, down from $4.2 million for Q1 2020, a 29% decrease in research and development expenses year-over-year is primarily due to increases in clinical trial expenses as we completed our MuSK-MG clinical trial and SMA proof-of-concept study during 2020. We expect that research and development expenses will continue to be substantial in 2021 and beyond as we conduct approval concept study for HNPP, continuing our expanded access programs expects to continue the development of a long-acting formulation program for Firdapse, continue our regulatory path to seek up oil products for the treatment of the lands in Japan and evaluate startup with a treatment for other neuromuscular diseases. Innovation, we expect R&D will also increase in future periods, if we successfully execute on our strategic initiatives to acquire or in-license innovative technology and our earlier-stage opportunities in other therapeutic categories outside of numerous early diseases. SG&A expenses for Q1 2021 totaled $12.7 million compared to $10.1 million in Q1 2020, a 26% increase year-over-year, largely attributable to the timing of the reporting was charged for our commitment to make charitable contributions to 501(c) foundation, supporting LEMS patient programs that I discussed earlier, as well as increases in costs for legal expenses associated with our ongoing litigation and the cost of additional personnel to support our expanding operations. We expect that SG&A expenses will continue to be substantial in 2021 as we conduct our efforts to increase revenues from Firdapse sales and take steps to further expand our business. 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 in May 10, and can be found on the Investor Relations page of our website at www.catalystpharma.com. And with that, I'll turn the call over to Pat.

[Patrick McEnany:]

Thanks, Ali. I'd like to close on our prepared remarks by emphasizing the effort and performance of all of our employees as a team during these challenging times to continue their diligent efforts, to assist all LEMS patients, their caregivers, and their healthcare providers. I'll now turn the call over to the operator so that we may take your questions.

[Operator:]

Thank you. Our first question is coming from Charles Duncan of Cantor Fitzgerald. Please go ahead.

[Charles Duncan:]

Thank you. Morning, Pat and team, congratulations on a good quarter and progress. Had a couple of questions for you, in particular for Jeff perhaps like all the color on how the quarter's going or how the quarter went. Can you just confirm that you saw quarterly growth in terms of new patient ads of roughly 15% Q4 to Q1? Is that the case and perhaps provide a little bit more color on – if you will, the breadth and depth of prescribers. So are you broadening prescriber base or are you deepening within a prescribers practice?

[Patrick McEnany:]

Thanks, Charles for the question. And yes, I will confirm there was a 15% growth in new patient enrollments seen or experienced in Q1 versus Q4 last year, so that I do confirm that. The second part is when we take a look at who our new enrollers are, and the new physicians, the significant or the vast majority, I'd say about 85% to 90% of our new enrollments are coming from physicians that are first-time prescribers. So – and that goes to show, that's why we target such a broad base of neurologist and neuromuscular specialists with both RAMs as well as our three ways

[Charles Duncan:]

Okay. And then I guess as a follow-on, when these prescribers get feedback from their patients do you – have you seen any prescribers say that they have additional perspective patients within their progress or their practice and have any of them followed up with say deepening their prescription practice within their practice, so to other patients, identify new patients and deepening it?

[Jeffrey Del Carmen:]

Yes. And remembering that this is an ultra orphan disease and there we think there are about 8,000 patients out there. But to answer your question, there are positions out there that are repeat writers. And more specifically, those that are neuromuscular specialists that may see more patients that have these types of symptoms as LEMS. So there are many repeat writers. Now from a general neurologist standpoint, there are physicians that have multiple patients because they see a lot of myasthenia gravis patients, and they look at their practice from previous years and some of these patients that maybe they had misdiagnosed or probably zero negative in myasthenia gravis patients, that now they're starting to think maybe I should test this patient for VGCC antibodies to see if they are potentially adult LEMS patients. So we are seeing physicians that prescribe it once and then look across their patient base and say, maybe this other patient could be a LEMS patient. So we're seeing that in both ways, yes.

[Charles Duncan:]

Okay. Very good. That's helpful. I appreciate that added color. I did want to ask Steve a question about the pipeline. I'm not sure you're going to be able to be all that disclosive, Steve. But I'm wondering if you could provide any color on call it, the elements of difference between the past MuSK-MG study and any particular element that you could highlight that may reduce the variability or reduce the potential compounding effect that you saw in MuSK-MG as you've proposed to the agency?

[Steven Miller:]

Charles, I can't give any specific details about the new design. Obviously, the FDA may actually ask for changes, so it would be premature to give you a whole lot of specific details. Generally, I can tell you, as you'll recall from the earlier part of the presentation that the primary causes of the previous failure to achieve statistical significance was primarily related to a high amount of variability in the disease state. And then the other observation that we had was patients generally showed a significant improvement in their condition upon initiation of therapy. So without giving any specific details about the trial, I can tell you that we actually included design elements in the new trial design that will take advantage of both of those observations. In the case of noise, you simply collect more data. And in the case of initiation of therapy, you change the design to take advantage of the fact that initiation of therapy seems to show an improvement.

[Charles Duncan:]

Okay, very good, that's helpful. We'll await those details. My last question is perhaps for Pat. Regarding business development activities, you've conducted some diligence or I think that you stated that you haven't gotten any firm commitments in terms of how to move forward. But are there any particular call it drug classes or areas of focus that you can highlight that would, in particular, leverage your existing successful approach to marketing Firdapse because it would seem to me that not only is the drug itself an asset, but your back-office and abilities with Firdapse in the LEMS patient population could be leveraged across other orphan disorders.

[Patrick McEnany:]

Yes. Good question, Charles. Thank you. Obviously, we'd love to leverage our existing sales force with another neuromuscular product. Those are very difficult to find. And when they are available, they're extremely costly. And so about a year ago, we decided to expand our therapeutic look into general neurology. And at the end of last year, we decided that we would be interested in products in any therapeutic area outside of oncology. Oncology is just too complicated. So we do want to stay in the rare disease space, ideally neuromuscular or neuro, but we're looking at other therapeutic areas. And we believe with rare disease drugs like Firdapse to treat LEMS, we do believe that we can replicate our sales and marketing team and put together a really strong effort in another therapeutic areas such as endocrinology or immunology. So, I think, we're well positioned and I think we're looking at a broad spectrum of therapeutic categories right now, again anything outside of oncology.

[Charles Duncan:]

Okay, that's helpful. Thank you for taking my questions. Congrats on the quarter.

[Patrick McEnany:]

Thank you, Charles.

[Operator:]

Thank you. Our next question is coming from Joon Lee of Truist. Please go ahead.

[Leszek Sulewski:]

Good morning. This is Les on for Joon. Thank you for taking my questions. So I just wanted to get back to the revenue line. And you've mentioned on the last call, you also saw a significant increase in new patient starts, perhaps you can quantify what that percentage increase was. You did mention it was 15% in the early stages of this quarter. Essentially what I am looking for is what impacted the sequential decline? I thought it was slight at 2% or so from 4Q. If you could just provide a little bit more color on that. Thank you and I have a follow up.

[Patrick McEnany:]

Yes. We're not going to be debt specific. I can tell you the new patient enrollments from Q3, Q4 of last year and Q1 of this year sequentially have been increased and we continue to see increases and we believe that the same should hold true for the rest of the year, right. We're not prepared to be that specific as to percentages or number of the new enrollments.

[Leszek Sulewski:]

Okay. And we go to the litigation side, I believe, end of March we received some news from the Federal Court in Canada regarding the dismissal of the application against Ruzurgi. Can you comment on that? And then there appears that there was no appeal made. So I just wanted to know what that means for your decision when – for your partnership with key and your expected commercialization efforts in Canada.

[Patrick McEnany:]

Yes, it's a good question and I'll turn that over to Brian Elsbernd, our Chief Legal and Compliance Officer.

[Brian Elsbernd:]

Yes. Thanks for the question, but I'm not exactly sure where it's coming from. We have not received any such notification of a loss of our ongoing action. We're actually waiting on a decision from the Federal Court of Canada. We've actually been in contact with our lawyers in the last couple of days. There has been no decision yet from the hearing that was held back in December.

[Leszek Sulewski:]

Okay. Well then I guess my mistaken, but perhaps can you just kind of update us on any news that we can potentially see in the near-term and any sort of timelines that you would expect.

[Patrick McEnany:]

With regard to our lawsuit against Health Canada?

[Leszek Sulewski:]

Yes.

[Patrick McEnany:]

Brian, do you want to opine on that?

[Brian Elsbernd:]

We're expecting a decision any day now, literally any day now. So I'll be honest, I check the docket in Canada on a daily basis to see if there is a decision. So when we hear something, I'm sure it will be public and you'll hear the answer.

[Leszek Sulewski:]

Excellent. Okay. Thank you. Okay. Last one for me and I'll jump back in the queue. Just regarding the share repurchases, I guess, great choice given where the stock is, but can you just kind of perhaps remind us what the expiration date is on the $40 million repurchase program, and have you established any kind of accelerated buybacks where that trigger a certain price in the stock?

[Patrick McEnany:]

Yes, we haven't put any timelines on the $40 million purchase. I think that we were thinking internally and our discussions at the board level would be – that would likely be a one-year program. So, again, we want to be strategic and thoughtful about these purchases and we want to do it on a rational basis. And so there really is no accelerating program. It's just from time to time dipping into the market when we think it's appropriate to repurchase additional shares.

[Leszek Sulewski:]

Great. Thank you for the clarity. Thank you.

[Operator:]

Thank you. At this time, I would like to turn the floor back over to management for any additional or closing comments.

[Patrick McEnany:]

Thank you for joining us today and I look forward to future calls. Have a great day. Thank you,

[Operator:]

Ladies and gentlemen, thank you for your participation. You may disconnect your lines or log off the webcast at this time and have a wonderful rest of your day.