CATALYST PHARMACEUTICALS, INC. (CPRX)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read together with the Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis may contain forward-looking statements that involve certain risks, assumptions and uncertainties that could cause actual results to differ materially from those implied or described by the forward-looking statements. Future results could differ materially from the discussion that follows for many reasons, including the factors described in Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K, as well as those described in future reports filed with the SEC.

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:

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Overview. This section provides a general description of our business and information about our business that we believe is important in understanding our financial condition and results of operations.

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Basis of Presentation. This section provides information about key accounting estimates and policies that we followed in preparing our consolidated financial statements for the 2024 fiscal year.

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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 the critical accounting policies, are also summarized in the notes to our accompanying consolidated financial statements.

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Results of Operations. This section provides an analysis of our results of operations for the three fiscal years presented in the accompanying consolidated statements of operations and comprehensive income.

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Liquidity and Capital Resources. This section provides an analysis of our cash flows, capital resources, off-balance sheet arrangements, and our outstanding commitments, if any.

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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 commercial-stage, patient-centric biopharmaceutical company focused on in-licensing, developing, and commercializing novel high-quality medicines for patients living with rare and difficult to treat diseases. We currently market three drug products, FIRDAPSE® (amifampridine), FYCOMPA® (perampanel), and AGAMREE® (vamorolone). We are also currently seeking to further expand our drug portfolio, with a focus on acquiring the rights to late-stage products to treat orphan, rare diseases across therapeutic areas. With an unwavering patient focus embedded in everything we do, we are committed to providing innovative, best-in-class medications with the hope of making a meaningful impact on those affected by these conditions.

FIRDAPSE®

On November 28, 2018, we received approval from the FDA for our new drug application, (NDA) for FIRDAPSE® Tablets 10 mg for the treatment of adult patients (ages 17 and above) with LEMS, and in January 2019, we launched FIRDAPSE® in the U.S. Further, on September 29, 2022, the FDA approved our supplemental NDA (sNDA) to expand the indicated age range for FIRDAPSE® Tablets 10 mg for the treatment of LEMS to include pediatric patients six years of age and older. Finally, on May 30, 2024, the FDA approved our sNDA increasing the indicated maximum daily dosage of FIRDAPSE® tablets for the treatment of patients with LEMS from 80 mg to 100 mg. We believe that this recent sNDA approval offers healthcare providers and patients greater flexibility in treatment regimens for the management of LEMS.

We sell FIRDAPSE® in the U.S. through a field-based force experienced in neurologic, central nervous system or rare disease products consisting at this time of approximately 41 field personnel, including sales (Regional Account Managers), thought leader liaisons and patient assistance and insurance navigation support (Patient Access Liaisons). These field personnel have also supported AGAMREE® since its commercial launch in March 2024. We also have a field-based force of 10 medical science liaisons who are helping educate the medical community about scientific literature concerning LEMS and FIRDAPSE®. Additionally, we use non-personal promotion to reach the 20,000 neurologists who are potential LEMS treaters and the 16,000 oncologists who might be treating a LEMS patient who also has small cell lung cancer. Further, we continue to make available at no-cost a LEMS voltage gated calcium channel antibody diagnostic testing program for use by physicians who suspect that one of their patients may have LEMS and wish to reach a definitive diagnosis.

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When we launched AGAMREE®, in March 2024, we utilized the FIRDAPSE® commercial and medical field-based forces to market AGAMREE® as well. In early 2025, we made a strategic decision to split each of these field-based forces into two units, one for each function expressly focused on supporting FIRDAPSE® and one for each function expressly focused on supporting AGAMREE®. This change is being made in an effort to allow us to better focus our sales teams on the market for each product. We expect to complete this division of our field-based forces into two units early in the second quarter of 2025.

Finally, we are continuing to expand our digital and social media activities to introduce our products and services to potential patients and their healthcare providers. We also work with several rare disease advocacy organizations (including the Myasthenia Gravis Foundation of America, the National Organization for Rare Disorders, and the LEMS Family Association) to help increase awareness and level of support for patients living with LEMS and to provide education for the physicians who treat these rare diseases and the patients they treat.

We are supporting the distribution of FIRDAPSE® through Catalyst Pathways®, our personalized treatment support program for patients who enroll in it. Catalyst Pathways® is a single source for personalized treatment support, education and guidance through the challenging dosing and titration regimen required to reach an effective therapeutic dose. The program also includes distributing the drug through a very small group of exclusive specialty pharmacies (primarily AnovoRx), which is consistent with the way that most drug products for ultra-orphan diseases are distributed and dispensed to patients. We believe that by using specialty pharmacies in this way, the difficult task of navigating the health care system is far better for the patient needing treatment for their rare disease and the health care community in general.

In order to help patients with LEMS afford their medication, we, like other pharmaceutical companies which market drug products for ultra-orphan conditions, have developed an array of financial assistance programs to reduce out-of-pocket costs that makes FIRDAPSE® accessible and affordable. A co-pay assistance program has been designed to reduce commercial patients’ out of pocket costs to $0 whenever possible. Our FIRDAPSE® co-pay assistance program is not available to patients enrolled in state or federal healthcare programs, including Medicare, Medicaid, Department of Veterans Affairs (VA), Department of Defense (DoD), or TRICARE. However, we are donating, and committing to continue to donate, money to qualified, independent charitable foundations dedicated to providing assistance to any U.S. LEMS patients in financial need, who meet those independent organizations' guidelines. In addition, we have a safety net program in place for patients who are uninsured and underinsured. Subject to compliance with regulatory requirements, our goal is that no LEMS patient is ever denied access to their medication for financial reasons.

FIRDAPSE® is currently marketed for the treatment of LEMS in Canada through our exclusive sublicensee, KYE. We supply product to KYE at agreed upon prices and we are also eligible to earn sales milestones and sales royalties based on net revenues from sales of the product in Canada.

In December 2023, DyDo Pharma, Inc. (DyDo), our sub-licensee for FIRDAPSE® in Japan, filed a NDA with the Pharmaceuticals and Medical Devices Agency (PMDA) in Japan seeking approval to commercialize FIRDAPSE® for the treatment of LEMS in Japan. Upon acceptance of the Japan NDA by the PMDA in December 2023, our license for FIRDAPSE® automatically expanded to include other key markets in Asia and Latin America, and we are currently seeking opportunities to expand FIRDAPSE®’s global footprint through strategic partnerships (with the current focus on the Asia Pacific and Latin American regions). Further, in September 2024, DyDo advised us that the Ministry of Health, Labour and Welfare (MHLW) had approved DyDo's Japan NDA to commercialize FIRDAPSE® for the treatment of patients with LEMS in Japan. Finally, DyDo began commercialization of FIRDAPSE® in Japan on January 21, 2025. We will generate revenue through additional milestone payments and a transfer price on the product supplied by us to DyDo, in lieu of royalties.

We control six U.S. patents for FIRDAPSE® that are listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book), the earliest of which expires in 2032 and the latest of which expires in 2037. We also have orphan drug exclusivity (ODE) for the product that will not expire until November 2025, and no ANDA for the product can be finally approved by the FDA until the ODE exclusivity period has expired. Nevertheless, generic drug manufacturers were permitted to submit applications for the product challenging our patents starting in 2023.

In that regard, in January 2023, we received Paragraph IV Certification Notice Letters from three generic drug manufacturers (Teva Pharmaceuticals USA, Inc. and Teva Pharmaceuticals, Inc. (collectively Teva), Hetero USA, Inc. (Hetero), and Lupin Pharmaceuticals, Inc. (Lupin)) advising that they had each submitted an ANDA to the FDA seeking authorization from the FDA to manufacture, use or sell a generic version of FIRDAPSE® in the U.S. The notice letters each alleged that the six patents protecting FIRDAPSE® that are listed in the Orange Book in connection with FIRDAPSE® are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of the proposed product described in these ANDA submissions. Under the Federal Food, Drug, and Cosmetic Act (FDCA), as amended by the Drug Price Competition and Patent Term Restoration Act of 1984, we had 45 days from receipt of the notice letters to determine if there were grounds to bring a lawsuit and, if so, to commence patent infringement lawsuits against these generic drug manufacturers in a federal district court, which would trigger a statutory stay precluding the FDA from final approval of the subject ANDA until May 2026 or entry of judgment holding the patents invalid, unenforceable, or not infringed, whichever occurs first in all cases (but not earlier

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than the expiration of orphan drug exclusivity on November 28, 2025). In that regard, after conducting the necessary due diligence, we filed lawsuits on March 1, 2023 in the U.S. District Court for the District of New Jersey against each of the three generic drug manufacturers who notified us of their ANDA submissions, thus triggering the stay.

In June 2024, Lupin converted five of its Paragraph IV Certifications in its ANDA to Paragraph III certifications acknowledging the validity and their ANDA’s infringement of five of those patents, the latest ending in 2034. We subsequently dismissed all of our claims against Lupin related to those five patents but maintain our claims against Lupin for the remaining Paragraph IV certification for U.S. Patent No. 10,626,088, which is the patent expiring in 2037, accordingly the litigation continues.

Further, on January 8, 2025, we reached a settlement with Teva in which Teva agreed not to market a generic version of FIRDAPSE® in the U.S. any earlier than February 25, 2035, if approved by the FDA, unless certain limited circumstances customarily included in these types of agreements occur. In accordance with the settlement agreement, the parties terminated all ongoing patent litigation between us and Teva regarding FIRDAPSE® patents pending in the U.S. District Court for the District of New Jersey.

The pending FIRDAPSE® patent litigation against the remaining defendants, Hetero (for FIRDAPSE®’s Orange Book-listed patents expiring in 2032, 2034 and 2037) and Lupin (only for FIRDAPSE® patent expiring in 2037), remains ongoing, and there can be no assurance as to whether the currently ongoing litigation with Hetero and Lupin will allow a generic version of FIRDAPSE® to be marketed in the U.S. prior to Teva's licensed entry into the market on February 25, 2035.

Finally, in October 2023, we received a Paragraph IV Certification Notice Letter from a fourth generic drug manufacturer (Inventia Life Science Pty Ltd (Inventia)), and we filed a similar lawsuit against that manufacturer in November 2023 in the U.S. District Court for the District of New Jersey. On July 30, 2024, we settled this patent litigation with Inventia for FIRDAPSE®. In this settlement, Inventia acknowledged both the validity of our FIRDAPSE® patents and also the infringement by the ANDA filer's product of our patents. As part of the settlement, Inventia also agreed not to commercialize its product until the earlier of all FIRDAPSE® patents expiration or the entry into the market of another ANDA product meeting certain conditions.

The outcome of patent litigation with Paragraph IV challengers is always uncertain and there can be no assurance as to whether we will prevail in these litigations.

FYCOMPA®

On December 17, 2022, we entered into an agreement with Eisai Co., Ltd. (Eisai) for the acquisition of the U.S. rights to FYCOMPA® (perampanel) CIII. FYCOMPA® is a selective non-competitive antagonist of AMPA receptors, the major subtype of ionotropic glutamate receptors. It was the first, and still the only, drug of its class to be approved for epilepsy. Studies suggest that AMPA receptor antagonism can lead to reduced overstimulation and anticonvulsant effects, as well as inhibiting seizure generation and spread. FYCOMPA® is a controlled substance and is approved with a box warning label. FYCOMPA® is used to treat certain types of focal onset seizures (seizures that involve only one part of the brain) in adults and children four years of age and older. It is also used in combination with other medications to treat certain types of primary generalized tonic-clonic seizures (also known as a “grand mal” seizure, a seizure that involves the entire body) in adults and children 12 years of age or older. Perampanel is in a class of medications called anticonvulsants. It works by decreasing abnormal electrical activity in the brain.

On January 24, 2023, we closed our acquisition of the U.S. rights to FYCOMPA®. In connection with the acquisition, we purchased Eisai’s regulatory approvals and documentation, product records, intellectual property, inventory, and other matters relating to the U.S. rights for FYCOMPA®, in exchange for an upfront payment of $160 million in cash. We also agreed to pay Eisai royalty payments after patent protection for FYCOMPA® expires, which royalty payments will be reduced upon generic equivalents to FYCOMPA® entering the market.

In conjunction with the closing of the asset purchase, we entered into two additional agreements, a Transition Services Agreement (TSA) and a Supply Agreement. Under the Supply Agreement, Eisai agreed to manufacture FYCOMPA® for us for at least seven years at prices listed in the Supply Agreement (to be updated on a yearly basis), and under the TSA, a U.S. subsidiary of Eisai provided us with certain transitional services (which transition services ended on December 31, 2023).

We sell FYCOMPA® in the U.S. through a field-based force experienced in epilepsy products consisting at this time of approximately 27 field personnel, including sales (Regional Account Managers) and payor reimbursement (National Account Managers). We also have a field-based force of four medical science liaisons who are helping educate the medical community who treat epilepsy about scientific literature regarding epilepsy and FYCOMPA®. Further, since January 1, 2024, FYCOMPA® is being sold and distributed through a 3PL organization under our contracts.

We are currently taking steps to prepare for the loss of exclusivity for FYCOMPA®, which, assuming a timely ANDA approval of the respective generic applications, will take place on or after May 23, 2025 for the tablet version of the product and will

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take place on or after December 15, 2025 for the oral suspension version of the product. We expect to continue to market the product following the loss of patent exclusivity.

We are supporting patients using FYCOMPA® through an Instant Savings Card Program. Through the program, eligible commercially insured patients could pay as little as $5 for their FYCOMPA® co-pay (with a maximum savings of $2,500 per year). The FYCOMPA® Instant Savings Card Program is not available to patients enrolled in state or federal healthcare programs, including Medicare, Medicaid, VA, DoD, or TRICARE.

Patent protection for FYCOMPA® tablets and oral solution is primarily derived from two patents listed in the FDA’s Orange Book. The first, U.S. patent no. 6,949,571 (the ‘571 patent), will expire on May 23, 2025, including patent term extension. The second FYCOMPA® patent in the Orange Book is U.S. Patent No. 8,772,497 (the ‘497 patent), which will expire on July 1, 2026. The ‘497 patent, which covers the API used in both FYCOMPA® tablets and oral solution, has been the subject of previous Paragraph IV certifications from three ANDA filers for the tablet formulation, which were not contested by Eisai prior to our acquisition of the drug. Following our acquisition of the drug, we attempted to obtain an extension of the patent term for the '571 patent, which was ultimately unsuccessful. As a result, the '571 patent will expire on May 23, 2025 and the initial ANDA filers who did not challenge this patent may seek approval of their ANDA applications on or after that date.

In February 2023 we received a Paragraph IV certification for the '497 patent from an ANDA filer for two applications, one for the FYCOMPA® tablets and another for the FYCOMPA® oral suspension. After due diligence we filed lawsuits on April 5, 2023 in the U.S. District Court for the District of New Jersey against the drug manufacturer who notified us of their ANDA submissions alleging infringement of both patents. In June 2024, we settled the pending Paragraph IV litigation with the Paragraph IV filer for both ANDAs. As part of that settlement, this Paragraph IV filer agreed not to commercialize their proposed ANDA products for both the oral suspension formulation of FYCOMPA® and for FYCOMPA® tablets until at least December 15, 2025.

In January 2024, we received a Paragraph IV certification for the ’571 and ’497 patents from an ANDA filer for an application for the FYCOMPA® oral suspension. After due diligence, we determined that the circumstances and timeline did not warrant a lawsuit against this Paragraph IV filer.

AGAMREE®

On June 19, 2023, we entered into a License and Collaboration Agreement (AGAMREE® License Agreement) and an Investment Agreement (Investment Agreement) with Santhera Pharmaceuticals Holding, Inc. (Santhera). Under the AGAMREE® License Agreement, we contracted to obtain an exclusive North America license, manufacturing and supply agreement for Santhera’s investigational product candidate, AGAMREE® (vamorolone), a novel corticosteroid for the treatment of DMD. Under the Investment Agreement, we agreed to make a strategic investment into Santhera.

Both transactions closed on July 18, 2023. Under the AGAMREE® License Agreement, upon closing we made a $75 million payment to Santhera in return for the exclusive North American license for AGAMREE®. In addition to the rights to commercialize the product in North America, the AGAMREE® License Agreement provides us with the right of first negotiation for AGAMREE® in Japan should Santhera pursue partnership opportunities in that territory. Additionally, we will hold the North American rights to any future approved indications for AGAMREE®. Finally, under our AGAMREE® License Agreement with Santhera, we have agreed to purchase commercial supply of AGAMREE® from Santhera at agreed upon prices.

Concurrent with the closing of the AGAMREE® License Agreement, we made a strategic investment into Santhera in which we acquired 1,414,688 of Santhera’s ordinary shares (representing approximately 11.26% of Santhera’s outstanding ordinary shares immediately following the transaction) at an investment price of CHF 9.477 per share, with the approximately $15.7 million USD in equity investment proceeds to be used by Santhera for Phase IV studies of AGAMREE® in DMD and future development of additional indications for AGAMREE®. On February 24, 2025, the closing price of Santhera’s common shares on the SIX Swiss Exchange was CHF 16.08 per share (approximately $17.90 USD based on then-current exchange rates).

On October 26, 2023, the U.S. FDA approved Santhera’s NDA for AGAMREE® for use in treating DMD in patients aged two years and older. Shortly thereafter, as part of the previously described transaction, Santhera transferred the approved NDA to us. Additionally, following approval of the NDA for the drug, we became obligated to make a milestone payment of $36 million to Santhera, which we paid during the fourth quarter of 2023. We may also be obligated to pay future regulatory and commercial milestone payments to Santhera tied to calendar year sales of AGAMREE®, as well as commercial royalties.

On March 13, 2024, utilizing our FIRDAPSE® field-based force, we launched AGAMREE® for the treatment of DMD in the U.S. for patients aged two years or older. During the first quarter of 2024, in connection with our preparation for the commercial launch of AGAMREE®, we incurred substantial commercialization expenses, including sales, marketing, analytical infrastructure, patient services, patient advocacy, and other commercialization related expenses. Initially, we added approximately 10 additional members to our FIRDAPSE® team, and our commercial team marketed both products. However, in early 2025, we made a strategic decision to split our commercial field-based force into two units, one expressly focused on

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the marketing of FIRDAPSE® and one expressly focused on the marketing of AGAMREE®. This change is expected to allow us to better focus on the market for each product. We expect to complete this division of our field-based force into two units early in the second quarter of 2025.

We are further supporting the distribution of AGAMREE® through our Catalyst Pathways® patient services program to ensure that patients have access to a dedicated, personalized support team that assists families through the AGAMREE® patient journey, from answering questions to coordinating financial assistance programs for eligible patients. Finally, we have donated and intend to continue to donate funds to one or more qualified, independent charitable financial foundations who assist U.S. DMD patients in financial need for paying the costs of care including medication, to the extent permitted by each such organization's guidelines.

DMD, the most common form of muscular dystrophy, is a rare and life-threatening neuromuscular disorder characterized by progressive muscle dysfunction, ultimately leading to loss of ambulation, respiratory failure, and fatality. Current standard treatment for DMD involves corticosteroids, which often come with significant side effects. It is estimated that between 11,000 and 13,000 patients in the U.S. are affected by DMD, with approximately 70% of patients currently receiving a corticosteroid treatment. Steroids are expected to remain the foundation of therapy for DMD patients and dosed concomitantly with other therapies.

AGAMREE®’s unique mode of action is based on differential effects on glucocorticoid and mineralocorticoid receptors and modifying further downstream activity. As such, it is considered a novel corticosteroid that we hope has the potential to demonstrate comparable efficacy to corticosteroids, with the potential for a better-tolerated side effect profile. This mechanism of action may allow vamorolone to emerge as an effective alternative to the current standard of care corticosteroids in children, adolescents, and adult patients with DMD. In that regard, we have launched our SUMMIT study to evaluate data about long-term patient safety and quality of life data from the use of our product, with the hope of offering a deeper understanding of the product's potential long-term benefits for patients.

On October 13, 2023, Santhera announced that the European Union’s Committee for Medicinal Products for Human Use (CHMP) adopted a positive position in favor of AGAMREE® for the treatment of DMD patients aged four and older. In its recommendation for approval, CHMP acknowledged that there was a positive benefit-risk profile of AGAMREE® in such patient population, including certain safety benefits of AGAMREE® compared to standard of care corticosteroids in the treatment of DMD. Further, on December 18, 2023, the European Commission (EC) granted to Santhera marketing authorization for AGAMREE® for the treatment of DMD in patents ages four years and older and on January 12, 2024 Santhera announced that AGAMREE® had received approval by the Medicines and Healthcare products Regulatory Agency (MHRA) in the United Kingdom. Further, on January 15, 2024, Santhera announced that AGAMREE® was commercially launched in Germany. Finally, On January 16, 2025, the National Institute for Health and Care Excellence (NICE) issued positive Final Guidance that recommends AGAMREE® for use in the National Health Service (NHS) in England, Wales and Northern Ireland for the treatment of DMD in patients four years of age and older and on February 13, 2025, Santhera announced an agreement with the German National Association of Statutory Health Insurance Funds (GKV-SV) on the reimbursement for AGAMREE® (vamorolone) for the treatment of DMD. This milestone makes AGAMREE® the first product to receive an agreed federal price in Germany for the treatment of DMD in patients 4 years of age and older, independent of the underlying genetic mutation.

We are currently taking the first steps to seek to expand the number of diseases that can be treated with AGAMREE®. In furtherance of that objective, we are currently conducting a Phase 1 study in healthy adults comparing a single dose of vamorolone, prednisone, and deflazacort, and studying the immunosuppressive effect of multiple ascending doses of AGAMREE®, which study will attempt to define the immunosuppressive dose of vamorolone for future indications and for the use of our product in conjunction with gene and cell therapies that are approved to treat DMD and require a concurrent immunosuppressive regimen of a corticosteroid when administered. We expect to have the results of this study around the middle of this year and hope that the results of this study will provide important information for use in marketing our product to healthcare practitioners in an effort to help with the treatment of patients. We have also begun a long-term project to undertake long-term research and development efforts for the product.

Further, we have established a joint steering committee with Santhera that is overseeing the lifecycle management and development of AGAMREE®. There can be no assurance that we can develop our product for the treatment of diseases other than DMD.

In the U.S., AGAMREE® has New Chemical Entity exclusivity that expires in October 2028. AGAMREE® also has Orphan Drug Exclusivity expiring in October 2030. AGAMREE® is further protected by seven Orange Book listed patents expiring as early as May 28, 2029 and as late as July 16, 2040. The Company has also requested Patent Term Extension and will update the relevant expiration date in the Orange Book upon a final determination by the USPTO. The earliest a generic manufacturer could submit an ANDA is October 26, 2027. If we were to pursue a patent infringement action if any such ANDA challenges any of AGAMREE®’s Orange Book patents, then the automatic statutory 30-month stay would prevent FDA approval of such ANDA until April 26, 2031.

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Finally, on July 23, 2024 we entered into a license, supply and commercialization agreement with KYE, which is already our sublicensee for FIRDAPSE® in Canada, granting KYE the exclusive Canadian commercial rights to market AGAMREE® in Canada for DMD and other indications. Under the agreement, KYE is responsible for obtaining regulatory approval of the product from Health Canada (of which there can be no assurance), and we will supply product to KYE. Further, KYE has advised us that they expect to file an application with Health Canada seeking approval to commercialize AGAMREE® in Canada during the first quarter of 2025.

There can be no assurance that any such application when and if filed will be approved, and even if such application is approved that KYE will be successful in commercializing AGAMREE® in Canada.

Business Development

We continue to advance our strategic initiatives and portfolio expansion efforts, focusing on broadening and diversifying our rare (orphan) neurology product portfolio with innovative therapies that address critical unmet medical needs and expanding the geographical footprint of our existing products. In that regard, we are currently exploring clinically differentiated and adequately de-risked opportunities, with a keen focus on orphan, rare disease products across therapeutic areas. These prospects include evaluating companies with existing commercial drug products or drugs in development, for potential partnerships, licensing, geographical expansion opportunities with our existing products, and/or asset acquisitions. We continue to employ a disciplined, comprehensive, and exhaustive approach to identifying and evaluating opportunities that we believe will add significant value to our company over the near, mid, and long term. However, other than the recent sublicense agreement described above between the Company and KYE for AGAMREE® in Canada, no definitive agreements have been entered into to-date, and there can be no assurance that any of the Company's business development initiatives will be successful.

Capital Resources

At December 31, 2024, we had cash and investments of approximately $517.6 million. Based on our current financial condition, including our profitability, cash flows generated from operations and forecasts of available cash, we believe that we have sufficient funds to support our operations for at least the next 12 months. There can be no assurance that we will continue to be successful in commercializing FIRDAPSE® and AGAMREE®, that our projections about the commercialization of FYCOMPA® after the expiration of its patents will be correct, or that we will continue to be profitable and cash flow positive. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” below for further information on our liquidity and cash flow.

Basis of Presentation

Revenues

During the fiscal year ended December 31, 2024, we generated revenues from product sales of FIRDAPSE®, FYCOMPA®, and AGAMREE®. We expect these revenues to fluctuate in future periods based on our sales of FIRDAPSE®, FYCOMPA®, and AGAMREE®.

We received approval from Health Canada on July 31, 2020, for FIRDAPSE® for the symptomatic treatment of LEMS and as of December 31, 2020, our sub-licensee KYE launched FIRDAPSE® in Canada. During the fiscal year ended December 31, 2024, revenues generated under our collaboration agreement with KYE were immaterial. During the year ended December 31, 2024, we announced that we had entered into a collaboration agreement with KYE for the launch of AGAMREE® in Canada.

On September 24, 2024, we were informed by DyDo that it had received approval of its New Drug Application for the sale of FIRDAPSE® in Japan. Further, DyDo informed us that they had launched FIRDAPSE® in Japan in January 2025.

We expect revenues from both the KYE and DyDo agreements to be immaterial in 2025 as distribution ramps up in each jurisdiction and KYE begins the process of seeking approval to market AGAMREE® in Canada.

Cost of Sales

Cost of sales consists of third party manufacturing costs, freight, royalties, milestone payments, and indirect overhead costs associated with sales of our products. Cost of sales may also include period costs related to certain inventory manufacturing services, inventory adjustments charges, unabsorbed manufacturing and overhead costs and manufacturing variances.

Research and Development Expenses

Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as support for selected investigator-sponsored research. The major components of research and development costs include acquired IPR&D, preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, consulting, 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.

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Prior to January 2023, all of our research and development resources had been devoted to the development of FIRDAPSE®, and until we acquire or license new products we currently expect that our future development costs will be attributable principally to the continued development of FIRDAPSE®, and AGAMREE®.

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 (CROs). In the normal course of our 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 patients, the allocation of responsibilities among the parties to the agreement, 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 consolidated financial statements to the actual services received and efforts expended. As such, expense accruals related to preclinical 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. Preclinical and clinical study and trial activities require significant up-front expenditures. We anticipate paying significant portions of a study or trial’s cost before they begin and incurring additional expenditures as the study or trial progresses and reaches certain milestones.

Selling, General and Administrative Expenses

During 2019, we began to commit funds to developing our commercialization program for FIRDAPSE® and we have continued to incur substantial commercialization expenses, including sales, marketing, patient services, patient advocacy and other commercialization related expenses as we have continued our sales program for FIRDAPSE®. We are also now incurring substantial commercialization expenses for FYCOMPA® and AGAMREE® as we continue commercialization of both products. We expect that such expenses for FYCOMPA® may begin to decline as a result of a potential decline in sales upon the expiration of patent protection and the commencement of generic competition during 2025.

Our general and administrative expenses consist primarily of salaries and personnel expenses for accounting, corporate, compliance, and administrative functions. Other costs include administrative facility costs, regulatory fees, insurance, and professional fees for legal including litigation cost, IT, accounting, and consulting services.

Amortization of Intangible Assets

Amortization of intangible assets consists of the amortization of the FYCOMPA® product rights, which are amortized using the straight-line method over its estimated useful life of 5 years, the RUZURGI® product rights, which are amortized using the straight-line method over its estimated useful life of 14.5 years, and the milestone payment made to Santhera relating to the approval of AGAMREE® in the U.S. in October 2023, which is amortized using the straight-line method over its estimated useful life of 10.5 years.

Income Taxes

Our effective income tax rate is the ratio of income tax expense over our income before income taxes. As of December 31 2024, 2023, and 2022, we had no federal net operating loss carry-forwards. Additionally, we had no state net operating loss carry-forwards in any such year.

Recently Issued Accounting Standards

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

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). The preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue and expenses during the reporting periods. 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 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.

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The amounts of assets and liabilities reported in our consolidated balance sheets and the amounts reported in our consolidated statements of comprehensive income are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, valuation of intangible assets, stock-based compensation and valuation allowance for deferred tax assets. The accounting policies described below are not intended to be a comprehensive list of all of our accounting policies but represent the accounting estimates which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP. There are also areas in which our management’s judgment in selecting any available alternative would not produce a materially different result. Our consolidated financial statements and the notes thereto included elsewhere in this report contain accounting policies and other disclosures as required by U.S. GAAP.

Revenue Recognition.

Revenue from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts with our customer, payors, and other indirect customers relating to the sale of our products. These reserves are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the respective underlying contracts.

The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Our analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates as of December 31, 2024, 2023 and 2022 and, therefore, the transaction price was not reduced further during the years ended December 31, 2024, 2023 and 2022. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. Refer to Note 2, “Basis of Presentation and Significant Accounting Policies,” in the consolidated financial statements included in this report for further details on revenue recognition.

Valuation of Intangible Assets.

We have acquired and continue to acquire significant intangible assets that we record at fair value at the acquisition date. Transactions involving the purchase or sale of intangible assets are usually based on a discounted cash flow analysis. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, cost of capital and market participants. Each of these factors can significantly affect the value of the intangible asset. We engage independent valuation experts who review our critical assumptions and calculations for acquisitions of significant intangibles. We review intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist, an impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows. If the affected assets are deemed not recoverable, we would estimate the fair value of the assets and record an impairment loss. Where cash flows cannot be identified for an individual asset, the review is applied at the lowest group level for which cash flows are identifiable.

Stock-Based Compensation.

We recognize stock-based compensation for the fair value of all share-based payments, including grants of stock options and restricted stock units. For stock options, we use the Black-Scholes option valuation model to determine the fair value of stock options on the date of grant. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield. Expected volatility is based on reviews of historical volatility of our common stock. The estimated expected option life is based upon the simplified method. Under this method, the expected option life is presumed to be the mid-point between the vesting date and the end of the contractual term. We will continue to use the simplified method until we have sufficient historical exercise data to estimate the expected life of the options. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve appropriate for the expected life of our stock option awards. For the years ended December 31, 2024 and 2023, the assumptions used were an estimated annual volatility of 54.1% to 61.5% and 68.0% to 71.0%, expected holding periods of 4.5 to 5.0 years and 4.5 to 5.2 years, and risk-free interest rates of 3.70% to 4.70% and 3.55% to 4.92%, respectively.

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Results of Operations

Years Ended December 31, 2024 and 2023

Revenues.

For the fiscal year ended December 31, 2024, we recognized total revenues of approximately $491.7 million, which included approximately $489.3 million in net revenue from product sales primarily in the U.S., compared to approximately $398.2 million in total revenues, which included approximately $396.5 million in net revenues from product sales primarily in the U.S., for the fiscal year ended December 31, 2023.

FIRDAPSE® net sales were approximately $306.0 million for the fiscal year ended December 31, 2024, compared to approximately $258.4 million for the fiscal year ended December 31, 2023.

AGAMREE® net sales were approximately $46.0 million for the period between March 13, 2024 (date of commercial launch) and December 31, 2024.

FYCOMPA® net sales were approximately $137.3 million for the fiscal year ended December 31, 2024, compared to approximately $138.1 million for the period between January 24, 2023 (date of acquisition) and December 31, 2023. FYCOMPA® net sales for the fiscal year ended December 31, 2024 were affected by differences in variable consideration (gross-to-net) compared to the 2023 period when revenues were booked under Eisai’s more favorable cost arrangements with distributors and government authorities.

The increase of approximately $92.8 million in net product revenues when comparing the fiscal year ended December 31, 2024 and 2023 was primarily due to the commercialization of AGAMREE®, and related product sales, and increases in FIRDAPSE® sales volumes of approximately 12.4% and net price increases. Net revenues from product sales of FIRDAPSE® increased by 18.4% from 2023 to 2024.

In the first quarter of each calendar year, like many companies in our industry, we are also impacted by the reset of patient insurance deductibles.

Beginning in May 2025, product revenue for FYCOMPA® will be affected by the expiration of FYCOMPA® patent protection, which we expect will decrease our net product revenue for this product.

For the fiscal year ended December 31, 2024, we recognized $2.4 million in license and other revenue, as compared to $1.7 million during the fiscal year ended December 31, 2023. For the fiscal year ended December 31, 2024, license and other revenue consisted primarily of a milestone payment of $2.1 million earned upon DyDo receiving product approval to commercialize FIRDAPSE® for the treatment of patients with LEMS in Japan. For the fiscal year ended December 31, 2023, such revenue consisted of the $1.4 million payment achieved as a result of DyDo submitting a Japan NDA for FIRDAPSE® to the PMDA on December 18, 2023.

Cost of Sales.

Cost of sales was approximately $68.8 million for the fiscal year ended December 31, 2024, compared to $52.0 million for the fiscal year ended December 31, 2023. Cost of sales in both periods consisted principally of royalty payments, which are based on net revenue as defined in the applicable license agreements. For FIRDAPSE®, royalties are payable on the terms set forth below in Liquidity and Capital Resources—Contractual Obligations and Arrangements, and increase by 3% when net sales (as defined in the applicable license agreement) exceed $100 million in any calendar year. Cost of sales for FYCOMPA® for the fiscal year ended December 31, 2024 consisted of product costs and excludes the amortization of the FYCOMPA® intangible assets. Cost of sales for AGAMREE® for the fiscal year ended December 31, 2024 consisted of royalties payable on the terms set forth below in Liquidity and Capital Resources—Contractual Obligations and Arrangements, product costs and excludes the amortization of the AGAMREE® intangible asset. Royalties on sales of AGAMREE® in future years may increase as a percentage if net sales exceed certain amounts over $100 million. See Note 9 of the Notes to Consolidated Financial Statements included elsewhere in this report.

Amortization of Intangible Assets.

Amortization of intangible assets was approximately $37.4 million for the fiscal year ended December 31, 2024 compared to $32.6 million for fiscal year ended December 31, 2023. Amortization of intangible assets consists of the amortization of the FYCOMPA® rights, which are amortized using the straight-line method over its estimated useful life of 5 years, the RUZURGI® rights, which are amortized using the straight-line method over its estimated useful life of 14.5 years and the AGAMREE® rights, which are amortized using the straight-line method over its estimated useful life of 10.5 years.

Each fiscal quarter, we review the value of our intangible assets to determine if they are impaired. If we determine one or more of our intangible assets are impaired during a future period we would record a charge in the amount of that impairment.

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Research and Development Expenses.

Research and development expenses for the years ended December 31, 2024 and 2023 were approximately $12.6 million and $93.2 million, respectively, and represented approximately 4% and 30% of total operating costs and expenses, respectively. Research and development expenses for the years ended December 31, 2024 and 2023 were as follows (in thousands):

Research and development expenses decreased approximately $80.5 million during year ended December 31, 2024 when compared to the same period in 2023. The decrease is primarily attributable to the $81.5 million IPR&D purchase consideration for the acquisition of the license in North America for AGAMREE® during the third quarter of 2023. During 2024, research and development expenses consisted of costs for company-sponsored research and development activities, support for selected investigator-sponsored research, and support for our commercial activities.

We expect that research and development activities may become more significant in the future if we seek to execute on the development of additional indications for FIRDAPSE® and AGAMREE® and on our portfolio expansion efforts.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses for the years ended December 31, 2024 and 2023 were approximately $177.7 million and $133.7 million, respectively, and represented approximately 60% and 43% of total operating costs and expenses for the years ended December 31, 2024, and 2023, respectively. Selling, general and administrative expenses for the years ended December 31, 2024 and 2023 were as follows (in thousands):

For the year ended December 31, 2024, selling, general and administrative expenses increased approximately $44.0 million when compared to the same period in 2023. This was primarily attributable to an approximately $18.1 million increase in employee compensation and stock-based compensation related to annual merit increases and an increase in headcount resulting from the acquisitions of FYCOMPA® and AGAMREE®, an approximately $24.7 million increase in commercialization expenses related to the launch of AGAMREE® and to the timing of our commitments to make contributions to 501(c)(3) organizations supporting LEMS patients of approximately $1.3 million. Further, an approximately $3.9 million increase in stock-based compensation expense is related to the retirement of two former executive officers, which was recorded during the first quarter of 2024 upon lapse of the applicable revocation periods under the respective separation agreements with these former executives.

We expect that selling, general, and administrative expenses will continue to be substantial in future periods as we continue to sell FIRDAPSE® and AGAMREE® and as we take other steps in an effort to continue to expand our business.

Stock-Based Compensation.

Total stock-based compensation for the years ended December 31, 2024 and 2023 was $22.3 million and $14.3 million, respectively. In 2024 and 2023, grants were principally for stock options and restricted stock units related to year-end bonus awards and grants to new employees. For 2024, stock-based compensation included stock option and restricted stock unit grants to our new Chief Executive and Chief Financial Officers, each of which began employment at the beginning of 2024.

Other Income, Net.

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We reported other income, net in all periods, primarily relating to interest on our investment of our cash and cash equivalents of approximately $21.1 million and $7.7 million for the fiscal years ended December 31, 2024 and 2023, respectively. The increase in other income, net for the fiscal year ended December 31, 2024 when compared to the same period in 2023 was primarily due to increases in cash and cash equivalents partially a result of our underwritten public offering that we completed in January 2024 and an increase in the share price of our investment in Santhera, partially offset by lower interest rates.

Since Santhera’s shares are traded on the SIX Swiss Exchange, they have a readily determinable fair value, and as a result the investment is measured quarterly, at fair value, with changes reported in other income, net.

The components of other income, net were as follows (in thousands):

Income Taxes.

Our effective income tax rate was approximately 24.2% and 24.4% for fiscal years ended December 31, 2024 and 2023, respectively. Differences in our effective tax and the statutory federal income tax of 21% are driven by state income taxes and anticipated annual permanent differences offset by equity compensation deductions. Our effective tax rate is affected by many factors, including the number of stock options exercised in any period, and our effective tax rate is likely to fluctuate in future periods (and may be higher than it was in the 2024 fiscal year).

We had no material uncertain tax positions as of December 31, 2024 and 2023.

Net Income.

Our net income was approximately $163.9 million in the year ended December 31, 2024 ($1.38 per basic and $1.31 per diluted share) as compared to approximately $71.4 million in the year ended December 31, 2023 ($0.67 per basic and $0.63 per diluted share).

Years Ended December 31, 2023 and 2022

The information comparing results of operations for the year ended 2023 compared to 2022 was included in our Annual Report on Form 10-K for 2023 filed with the SEC on February 28, 2024.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through revenues from product sales and multiple offerings of our securities. At December 31, 2024 we had cash and cash equivalents aggregating $517.6 million and working capital of $502.9 million. At December 31, 2023, we had cash and cash equivalents aggregating $137.6 million and working capital of $143.3 million. At December 31, 2024, substantially all of our cash and cash equivalents were deposited with two financial institutions, and such balances were in excess of federally insured limits. Further, as of such date, substantially all such funds were invested in money market accounts and U.S. Treasuries.

On September 8, 2023, we filed a shelf registration statement with the SEC to sell up to $500 million of common stock, preferred stock, warrants to purchase common stock, debt securities and units consisting of one or more of such securities (the 2023 Shelf Registration Statement). The 2023 Shelf Registration Statement (file no. 333-274427) became effective upon filing. On January 9, 2024, we completed a public offering of 10 million shares of our common stock under the 2023 Shelf Registration Statement, raising net proceeds of approximately $140.7 million.

Based on our current financial condition, including our profitability, cash flows generated from operations and forecasts of available cash, we believe that we have sufficient funds to support our operations for at least the next 12 months from the date of this report. There can be no assurance that we will remain profitable or that we will be able to obtain any additional funding that we may require in the future.

In the future, we may require additional working capital to support our operations depending on our future success with FIRDAPSE®, FYCOMPA® and AGAMREE® sales, or the products we may acquire and continue to develop and whether our results continue to be profitable and cash flow positive. 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 if and when it is required.

In that regard, our future funding requirements will depend on many factors, including:

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the cost of diligence in seeking potential acquisitions and of the completion of such acquisitions, if any future acquisitions occur;

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future clinical trial results;

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the scope, rate of progress and cost of our clinical trials and other product development activities;

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the terms and timing of any collaborative, licensing and other arrangements that we may establish;

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the cost and timing of regulatory approvals;

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the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products;

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the amount of net revenues that we report from sales of FIRDAPSE®, FYCOMPA® and AGAMREE®;

•
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 may raise additional funds through public or private equity offerings, debt financings, corporate collaborations or other means. We also may seek governmental grants for a portion of the required funding for our clinical trials and preclinical trials. We may further seek to raise capital to fund additional product development efforts or product acquisitions, 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 technologies 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 provided by operating activities was $239.8 million and $143.6 million, respectively, for the years ended December 31, 2024 and 2023. During the year ended December 31, 2024, net cash provided by operating activities was primarily attributable to our net income of $163.9 million, increases of $1.8 million in accounts payable and $53.8 million in accrued expenses and other liabilities, $22.3 million in stock-based compensation and $37.8 million in amortization of intangible assets and depreciation. This was partially offset by increases of $12.0 million in accounts receivable, net, $3.9 million in inventory and $8.5 million prepaid expenses and other current assets, a decrease of $0.4 million in operating lease liability, $9.4 million in deferred taxes and $5.6 million in non-cash expenses. During the year ended December 31, 2023, net cash provided by operating activities was primarily attributable to our net income of $71.4 million, increases of $10.8 million in accounts payable and $5.8 million in accrued expenses and other liabilities, $81.5 million in acquired IPR&D, $14.3 million in stock-based compensation and $32.9 million in amortization of intangible assets and depreciation. This was partially offset by increases of $43.1 million in accounts receivable, net, $4.7 million in inventory and $5.8 million prepaid expenses and other current assets, a decrease of $0.3 million in operating lease liability, $17.8 million in deferred taxes and $1.3 million in non-cash expenses.

Net cash used in investing activities during the year ended December 31, 2024 was $0.6 million and consisted of purchases of property and equipment. Net cash used in investing activities during the year ended December 31, 2023 was $293.5 million and consisted primarily of payments in connection with asset acquisitions of $198.3 million, acquired IPR&D of $81.5 million and the purchase of equity securities of $13.5 million.

Net cash provided by financing activities during the year ended December 31, 2024 was $140.7 million, consisting primarily of proceeds from the issuance of common stock. Net cash used in financing activities during the year ended December 31, 2023 was $10.9 million, consisting primarily of payment of liabilities arising from asset acquisition of $12.7 million, partially offset by proceeds from the exercise of stock options of $2.8 million.

Contractual Obligations and Arrangements.

We have entered into the following contractual arrangements with respect to sales of FIRDAPSE®:

•
Payments due under our license agreement for FIRDAPSE®. We currently pay the following royalties under our license agreement:

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Royalties to our licensor for seven years from the first commercial sale of FIRDAPSE® equal to 7% of net sales (as defined in the FIRDAPSE® License Agreement) in North America for any calendar year for sales up to $100 million, and 10% of net sales in North America in any calendar year in excess of $100 million; and

•
Royalties to the third party licensor of the rights sublicensed to us from the first commercial sale of FIRDAPSE® equal to 7% of net sales (as defined in the FIRDAPSE® License Agreement between BioMarin (since transferred to SERB) and the third party licensor) in any calendar year for the duration of regulatory exclusivity within a territory and 3.5% for of net sales in any territory in which we do not enjoy regulatory exclusivity.

For the years ended December 31, 2024 and 2023, we recognized an aggregate of approximately $47.3 million and $39.5 million, respectively, of royalties payable under these license agreements, which is included in cost of sales in the accompanying consolidated statements of operations and comprehensive income.

Further, we will pay royalties to our licensor on net sales in Japan equal to a similar percentage to the royalties that we are currently paying for non-U.S. sales under our original FIRDAPSE® License Agreement for North America.

•
Payments due to Jacobus. In connection with our July 2022 settlement with Jacobus, we agreed to pay the following consideration to Jacobus:

•
$30 million of cash, of which $10 million was paid at the closing of the settlement on July 11, 2022, $10 million was paid on the first anniversary of closing and $10 million was paid on the second anniversary of closing; and

•
An annual royalty on Catalyst’s net sales (as defined in the License and Asset Purchase Agreement between Catalyst and Jacobus) of amifampridine products in the U.S. equal to: (a) for calendar years 2022 through 2025, 1.5% (with a minimum annual royalty of $3.0 million per year), and (b) for calendar years 2026 through the expiration of the last to expire of Catalyst’s FIRDAPSE® patents in the U.S., 2.5% (with a minimum annual royalty of $5 million per year); provided, however, that the royalty rate may be reduced and the minimum annual royalty may be eliminated under certain circumstances.

For the years ended December 31, 2024 and 2023, we recognized an aggregate of approximately $4.4 million and $3.7 million, respectively, of royalties payable to Jacobus.

We have entered into the following contractual arrangements with respect to sales of FYCOMPA®:

•
Payments due under our asset purchase agreement for FYCOMPA®. In connection with our asset purchase agreement with Eisai Co., Ltd. (Eisai), we agreed to pay the following consideration to Eisai:

•
We paid at closing a $160 million upfront cash payment, plus $1.6 million for reimbursement of certain prepayments.

•
Royalties commencing on loss of exclusivity for each calendar year during the royalty term equal to 12% on net sales greater than $10 million and less than $100 million, 17% on net sales of greater than $100 million and less than $125 million and 22% on net sales greater than $125 million prior to the date of generic entry. Royalties equal to 6% on net sales greater than $10 million and less than $100 million, 8.5% on net sales of greater than $100 million and less than $125 million and 11% on net sales greater than $125 million after the date of generic entry.

•
Concurrently with the acquisition, the parties entered into two related agreements: (i) a short-term TSA for commercial and manufacturing services (to which transition services ended on December 31, 2023) and (ii) a long-term Supply Agreement for the manufacturing of FYCOMPA®. Under the TSA, Eisai provided certain commercial and manufacturing services to the Company for a transition period following the closing of the acquisition. Further, under the Supply Agreement, Eisai will manufacture FYCOMPA® for the Company for a period of seven years (or such longer period as is set forth in the Supply Agreement) following the closing of the acquisition.

We have entered into the following contractual arrangements with respect to AGAMREE® (vamorolone):

•
Payments due under our license agreement for AGAMREE®. In connection with our recent acquisition from Santhera:

•
At closing we paid a $75 million initial cash payment.

•
In the fourth quarter of 2023, following regulatory approval of Santhera’s NDA for AGAMREE® by the FDA, we paid a regulatory milestone payment of $36 million. We are also obligated to pay additional regulatory

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milestone payments upon regulatory approval by the FDA in the U.S. of an NDA for the product for the first, second, and third additional indications in the amounts of $50 million, $45 million, and $45 million, respectively.

•
We are obligated to pay royalties and/or sales-based milestone payments if the applicable amount of net sales of all products in the territory in a single calendar year fall within the range of one or more of the net sales threshold levels set forth in the AGAMREE® License Agreement.

•
Until January 1, 2026, we are obligated to purchase all of the requirements for product solely from Santhera, and Santhera is required to manufacture, supply, and sell product to us at an agreed upon supply price.

•
Simultaneously with entering into the license agreement, we made a strategic equity investment into Santhera by acquiring 1,414,688 of Santhera’s ordinary shares (representing approximately 11.26% of Santhera’s outstanding ordinary shares immediately following the transaction) at an investment price of CHF 9.477 per share (corresponding to a mutually agreed volume-weighted average price prior to signing), with the approximately $15.7 million USD in equity investment proceeds, inclusive of the approximately $13.5 million USD fair value of the investment in Santhera and approximately $2.2 million USD of transaction costs included in acquired in-process research and development, to be used by Santhera for Phase IV studies in DMD and further development of additional indications for AGAMREE®.

For the year ended December 31, 2024, we recognized an aggregate of approximately $5.1 million of royalties payable under this license agreement, which is included in cost of sales in the accompanying consolidated statement of operations and comprehensive income. No royalties were recognized during the year ended December 31, 2023 under this agreement.

We also have entered into the following contractual arrangements:

•
Purchase commitment. We have entered into a purchase commitment with a contract manufacturing organization for approximately $0.5 million per year. The agreement expires in December 2025.

•
Lease for office space. We operate our business in leased office space in Coral Gables, Florida. We lease approximately 10,700 square feet of office space and we pay annual rent of approximately $0.5 million.

Off-Balance Sheet Arrangements.

We do not have any off-balance sheet arrangements as such term is defined in rules promulgated by the SEC.

Caution Concerning Forward-Looking Statements

This report contains “forward-looking statements”, as that term is defined in the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, plans or objectives for future operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, “believes”, “anticipates”, “proposes”, “plans”, “expects”, “intends”, “may”, and other similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or other achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the section entitled “Item 1A – Risk Factors.”

The continued successful commercialization of FIRDAPSE® (amifampridine), FYCOMPA® (perampanel) CIII, and AGAMREE® (vamorolone) are highly uncertain. Factors that will affect our success include the uncertainty of:

•
Whether we will be able to continue to successfully market and sell FIRDAPSE®, FYCOMPA®, and AGAMREE® while maintaining full compliance with applicable federal and state laws, rules and regulations;

•
Whether we will be able to continue to attract and retain the qualified personnel necessary to run our business;

•
Whether our estimates of the size of the market for FIRDAPSE® for the treatment of LEMS will prove to be accurate;

•
Whether the daily dose of FIRDAPSE® taken by patients changes over time and affects our results of operations;

•
Whether we will continue to be able to locate LEMS patients who are undiagnosed or are misdiagnosed with another disease;

•
Whether patients will discontinue from the use of our products at rates that are higher than historically experienced or are higher than we project;

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Whether new FIRDAPSE®, FYCOMPA®, and AGAMREE® patients can be successfully titrated to stable therapy;

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Whether we can continue to market our products on a profitable and cash flow positive basis;

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Whether we will be able to demonstrate, to the satisfaction of the FDA and third party payors, whether AGAMREE® offers advantages compared to other corticosteroids or competitor’s products;

•
Whether DMD patients transitioning to current or future gene therapy treatments will delay initiating use of AGAMREE® while waiting for access to such gene therapy, or stop their AGAMREE® therapy during the course of their gene therapy treatment;

•
Whether we will be able to continue to successfully commercialize FYCOMPA® after its patents expire starting in May 2025 and generic competition for FYCOMPA® enters the market;

•
Whether any revenue or earnings guidance that we provide to the public market will turn out to be accurate;

•
Whether payors will continue to provide coverage and reimburse for our products at the price that we charge for our products;

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The ability of our third party suppliers and contract manufacturers to continue to supply sufficient product to meet our customers’ needs in a timely manner;

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The ability of our third party suppliers and contract manufacturers to maintain compliance with current Good Manufacturing Practices (cGMP);

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The ability of those third parties that distribute our products to maintain compliance with applicable law;

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Our ability to maintain compliance with applicable rules relating to our patient assistance programs for our products;

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Our ability to maintain compliance with the applicable rules that relate to our contributions to 501(c)(3) organizations that support patients in financial need;

•
The scope of our intellectual property and the outcome of challenges to our intellectual property, and, conversely, whether any third party intellectual property presents unanticipated obstacles for FIRDAPSE®, FYCOMPA®, or AGAMREE®;

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Whether there will be a post-closing review by antitrust regulators of our previous acquisition transactions, and the outcome of any such reviews if they occur;

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Whether we will be able to acquire additional drug products under development, complete development required to commercialize such products, and thereafter, if such products are approved for commercialization, successfully market such products;

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Whether we will be successful in our litigation to enforce our patents against the Paragraph IV challengers who have filed ANDAs seeking to introduce generic versions of FIRDAPSE®;

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Whether our patents will be sufficient to prevent generic competition for FIRDAPSE® and AGAMREE® after our orphan drug exclusivity for each product expires;

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The impact on our profits and cash flow of adverse changes in reimbursement and coverage policies or regulations from government and private payors such as Medicare, Medicaid, insurance companies, health maintenance organizations and other plan administrators, or the impact of pricing pressures enacted by industry organizations, the federal government or the government of any state, including as a result of increased scrutiny over pharmaceutical pricing or otherwise;

•
Changes in the healthcare industry and the effect of political pressure from and actions by the President, Congress and/or medical professionals seeking to reduce prescription drug costs, and changes to the healthcare industry occasioned by any future changes in laws relating to the pricing of drug products, including changes made in the Inflation Reduction Act of 2022, changes (if any) to be made by the current President and/or the current Congressional administrations, changes to the review and approval process at the FDA, or changes in the healthcare industry generally;

•
Whether we and Santhera can successfully develop additional indications for AGAMREE® and obtain the ability to commercialize the product for these additional indications;

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•
The state of the economy generally and its impact on our business;

•
The scope, rate of progress and expense of future clinical trials and studies, pre-clinical studies, proof-of-concept studies, and our other drug development activities, and whether any trials and studies we undertake will be successful;

•
Our ability to complete any clinical trials and studies that we may undertake on a timely basis and within the budgets we establish for such trials and studies;

•
Whether FIRDAPSE® can be successfully commercialized in Canada on a profitable basis through KYE, our collaboration partner in Canada;

•
Whether AGAMREE® will be approved by Health Canada for commercialization in Canada and whether, if the product is approved, KYE can successfully commercialize it in Canada;

•
Whether KYE will successfully file an application seeking to commercialize AGAMREE® in Canada during the first quarter of 2025 or at all;

•
Now that FIRDAPSE® has been approved for commercialization in Japan and launched, whether DyDo will be successful in commercializing the product in Japan;

•
The impact on sales of FIRDAPSE® in the U.S. if an amifampridine product is purchased in Canada for use in the U.S.;

•
Whether our plans to expand the reach of FIRDAPSE® and AGAMREE® into other global regions will be successful;

•
System failures or security or data breaches due to cyber-attacks, or cyber intrusions, including ransomware, phishing attacks and other malicious intrusions whether it occurs directly to us or indirectly through third parties; and

•
Our ability to enhance our systems, processes and procedures to appropriately support the growing complexity and scale of our business.

Our current plans and objectives are based on assumptions relating to the continued commercialization of FIRDAPSE®, FYCOMPA®, and AGAMREE® and on our plans to seek to acquire or in-license additional products. Although we believe that our assumptions are reasonable, any of our assumptions could prove inaccurate. Considering the significant uncertainties inherent in the forward-looking statements we have made herein, which reflect our views only as of the date of this report, you should not place undue reliance upon such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction our consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under the caption “Risk Factors” in Item 1A of this report.

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

We are a commercial-stage, patient-centric biopharmaceutical company focused on in-licensing, developing, and commercializing novel high-quality medicines for patients living with rare and difficult to treat diseases. We utilize concerted diligence efforts in search of therapies that will improve the lives of those who suffer from rare or difficult to treat diseases. With an unwavering patient focus embedded in everything we do, we are committed to providing innovative, best-in-class medications with the hope of making a meaningful impact on those affected by these conditions.

Our flagship U.S. commercial product is FIRDAPSE® (amifampridine) Tablets 10 mg approved for the treatment of Lambert-Eaton myasthenic syndrome, or LEMS, for adults and for children ages six and up. Further, on January 24, 2023, we closed our acquisition of FYCOMPA® and are now also marketing that product in the United States. FYCOMPA® (perampanel) CIII is a prescription medication used alone or with other medicines to treat focal onset seizures with or without secondarily generalized seizures in people with epilepsy aged four and older and with other medicines to treat primary generalized tonic-clonic seizures in people with epilepsy aged 12 and older. Finally, on July 18, 2023, we closed our acquisition of an exclusive license for North America for vamorolone, a novel corticosteroid treatment for patients suffering from Duchenne Muscular Dystrophy (DMD). On October 26, 2023, the FDA approved AGAMREE® (vamorolone) oral suspension 40 mg/ml for the treatment of DMD. We are currently planning the commercial launch of AGAMREE® in the United States during the first quarter of 2024.

FIRDAPSE®

On November 28, 2018, we received approval from the FDA for our new drug application, or NDA, for FIRDAPSE® Tablets 10 mg for the treatment of adult patients (ages 17 and above) with LEMS, and in January 2019, we launched FIRDAPSE® in the United States. Further, on September 29, 2022, the FDA approved our supplemental NDA (sNDA) to expand the indicated age range for FIRDAPSE® Tablets 10 mg to include pediatric patients, six years of age and older for the treatment of LEMS.

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We sell FIRDAPSE® through a field force experienced in neurologic, central nervous system or rare disease products consisting at this time of approximately 35 field personnel, including sales (Regional Account Managers), thought leader liaisons, patient assistance and insurance navigation support (Patient Access Liaisons), and payor reimbursement (National Account Managers). We also have a field-based force of 10 medical science liaisons who are helping educate the medical community about scientific literature concerning LEMS and FIRDAPSE®.

Additionally, for the last few years we have contracted with an experienced inside sales agency that works to generate leads through telemarketing to targeted physicians. This inside sales agency allowed our sales efforts to not only reach the neuromuscular specialists who regularly treat LEMS patients, but also the roughly 9,000 neurology and neuromuscular healthcare providers that may be treating a LEMS patient who can benefit from FIRDAPSE®. However, effective January 1, 2024 we have terminated that arrangement. We also use non-personal promotion to reach the 20,000 neurologists who are potential LEMS treaters and the 16,000 oncologists who might be treating a LEMS patient with small cell lung cancer. Further, we continue to make available at no-cost a LEMS voltage gated calcium channel antibody diagnostic testing program for use by physicians who suspect that one of their patients may have LEMS and wish to reach a definitive diagnosis.

Finally, we are continuing to expand our digital and social media activities to introduce our products and services to potential patients and their healthcare providers. We also work with several rare disease advocacy organizations (including the Myasthenia Gravis Foundation of America and the National Organization for Rare Disorders) to help increase awareness and level of support for patients living with LEMS and to provide education for the physicians who treat these rare diseases and the patients they treat.

We are supporting the distribution of FIRDAPSE® through Catalyst Pathways®, our personalized treatment support program for patients who enroll in it. Catalyst Pathways® is a single source for personalized treatment support, education and guidance through the challenging dosing and titration regimen required to reach an effective therapeutic dose. It also includes distributing the drug through a very small group of exclusive specialty pharmacies (primarily AnovoRx), which is consistent with the way that most drug products for ultra-orphan diseases are distributed and dispensed to patients. We believe that by using specialty pharmacies in this way, the difficult task of navigating the health care system is far better for the patient needing treatment for their rare disease and the health care community in general.

In order to help patients with LEMS afford their medication, we, like other pharmaceutical companies which are marketing drugs for ultra-orphan conditions, have developed an array of financial assistance programs that are available to reduce patient co-pays and deductibles to a nominal affordable amount. A co-pay assistance program designed to keep out-of-pocket costs to not more than $10 per month (currently less than $2 per month) is available for all LEMS patients with commercial coverage who are prescribed FIRDAPSE®. Our FIRDAPSE® co-pay assistance program is not available to patients enrolled in state or federal healthcare programs, including Medicare, Medicaid, VA, DoD, or TRICARE. Separately, we are donating, and committing to continue to donate, money to qualified, independent charitable foundations dedicated to providing assistance to any U.S. LEMS patients in financial need. Subject to compliance with regulatory requirements, our goal is that no LEMS patient is ever denied access to their medication for financial reasons.

In January 2023, we received Paragraph IV Certification Notice Letters from three generic drug manufacturers advising that they had each submitted an Abbreviated New Drug Application (ANDA) to the FDA seeking authorization from the FDA to manufacture, use or sell a generic version of FIRDAPSE® in the United States. The notice letters each alleged that the six patents listed in the FDA Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book) in connection with FIRDAPSE® are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of the proposed product described in these ANDA submissions. Under the Federal Food, Drug and Cosmetic Act (FDCA), as amended by the Drug Price Competition and Patent Term Restoration Act of 1984, as amended, we had 45 days from receipt of the notice letters to determine if there were grounds to bring a lawsuit and, if so, to commence patent infringement lawsuits against these generic drug manufacturers in a federal district court, which would trigger a statutory stay precluding the FDA from final approval of the subject ANDA until May 2026 or entry of judgment holding the patents invalid, unenforceable, or not infringed, whichever occurs first. In that regard, after conducting the necessary due diligence, we filed lawsuits on March 1, 2023 in the U.S. District Court for the District of New Jersey against each of the three generic drug manufacturers who notified us of their ANDA submissions, thus triggering the stay. Further, in October 2023, we received a Paragraph IV Certification Notice Letter from a fourth generic drug manufacturer, and we filed a similar lawsuit against this manufacturer in November 2023 in the U.S. District Court for the District of New Jersey.

We intend to vigorously protect and defend our intellectual property for FIRDAPSE® and, although there can be no assurance, we believe that our patent estate will protect FIRDAPSE® from generic competition.

On August 4, 2023, we submitted an sNDA to increase the indicated maximum daily dosage of FIRDAPSE® tablets from 80 mg to 100 mg for the treatment of LEMS. On October 13, 2023, we announced that the FDA had accepted for review our sNDA and assigned a Prescription Drug User Fee Act (PDUFA) action date of June 4, 2024. There can be no assurance that the FDA will approve our sNDA.

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We are advised by our sub-licensee for FIRDAPSE® in Japan, DyDo Pharma, Inc. (DyDo), that on December 18, 2023, based on a preliminary favorable interim data analysis after six months into the safety phase of its registration study to evaluate the efficacy and safety of FIRDAPSE® for the treatment of LEMS, they filed a Japan NDA with the Pharmaceuticals and Medical Devices Agency (PMDA) in Japan seeking approval to commercialize the product in Japan. The review period is expected to be approximately nine months from the submission date, and there can be no assurance that the NDA filing made by DyDo will be approved.

Further, upon acceptance of the Japan NDA by the PMDA, which occurred on December 18, 2023, our license for FIRDAPSE® automatically expanded to include other key markets in Asia and Latin America, and we are currently initiating plans to seek opportunities to expand FIRDAPSE®’s global footprint through strategic partnerships (with the current focus on the Asia Pacific and Latin American regions).

FYCOMPA®

On December 17, 2022, we entered into an agreement with Eisai for the acquisition of the U.S. rights to FYCOMPA® (perampanel) CIII. FYCOMPA® is a selective non-competitive antagonist of AMPA receptors, the major subtype of ionotropic glutamate receptors. It was the first, and still the only, drug of its class to be approved for epilepsy. Studies suggest that AMPA receptor antagonism can lead to reduced overstimulation and anticonvulsant effects, as well as inhibiting seizure generation and spread. FYCOMPA® is a controlled substance and is approved with a box warning label.

FYCOMPA® is used to treat certain types of focal onset seizures (seizures that involve only one part of the brain) in adults and children four years of age and older. It is also used in combination with other medications to treat certain types of primary generalized tonic-clonic seizures (also known as a “grand mal” seizure, a seizure that involves the entire body) in adults and children 12 years of age or older. Perampanel is in a class of medications called anticonvulsants. It works by decreasing abnormal electrical activity in the brain.

On January 24, 2023, we closed our acquisition of the U.S. rights to FYCOMPA®. In connection with the acquisition, we purchased Eisai’s regulatory approvals and documentation, product records, intellectual property, inventory, and other matters relating to the U.S. rights for FYCOMPA®, in exchange for an upfront payment of $160 million in cash. We also agreed to pay Eisai an additional cash payment of $25 million if a requested patent extension for FYCOMPA® until June 8, 2026 was approved by the U.S. Patent and Trademark Office (USPTO), which did not occur. Finally, we agreed to pay Eisai royalty payments after patent protection for FYCOMPA® expires, which royalty payments will be reduced upon generic equivalents to FYCOMPA® entering the market.

In conjunction with the closing of the asset purchase, we entered into two additional agreements with Eisai; a TSA and a Supply Agreement. Under the TSA, a U.S. subsidiary of Eisai provided us with certain transitional services, and under the Supply Agreement, Eisai agreed to manufacture FYCOMPA® for us for at least seven years at prices listed in the Supply Agreement (to be updated on a yearly basis). As of December 31, 2023, the transition services under the TSA have been completed.

Initially, following the closing of the acquisition, we began to market FYCOMPA® in the U.S. through Eisai under the TSA as we built our FYCOMPA® marketing and sales team, and in May 2023, we took over the marketing program for FYCOMPA®. In that regard, we have hired approximately 35 sales and marketing personnel to support FYCOMPA®, most of whom previously worked in Eisai’s U.S. sales division marketing FYCOMPA®. We have also hired seven medical science liaisons to help us educate the medical community who treat epilepsy about scientific literature regarding epilepsy and FYCOMPA®.

We are supporting patients using FYCOMPA® through an Instant Savings Card Program. Through the program, eligible commercially insured patients could pay as little as $10 for their FYCOMPA® co-pay (with a maximum savings of $1,300 per year). The FYCOMPA® instant savings card program is not available to patients enrolled in state or federal healthcare programs, including Medicare, Medicaid, VA, DoD, or TRICARE.

Patent protection for FYCOMPA® is primarily from two patents listed in the Orange Book. The first, U.S. patent no. 6,949,571 (the ‘571 patent) will expire May 23, 2025, including patent term extension. Although the Company had requested that the USPTO reconsider this expiration date in favor of a June 8, 2026 expiration date, the request for reconsideration of the agency’s patent term extension calculation was denied and the Company has exhausted its reasonable avenues for an extension of that patent term. The Company will update the Orange Book to reflect the May 23, 2025 expiration date at the appropriate time. The second FYCOMPA® patent in the Orange Book is U.S. Patent No. 8,772,497 (the ‘497 patent), which expires on July 1, 2026. The ‘497 patent has been the subject of previous Paragraph IV certifications from three NDA filers.

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On February 20, 2023, we received a Paragraph IV Certification Notice Letter from a company that appears to have filed the first ANDA for the oral suspension formulation for FYCOMPA®. The same company sent a similar letter to us later in February with a similar certification for the tablet formulation for FYCOMPA®, the fourth such certification for this formulation. Both of these letters were paragraph IV certifications of non-infringement, non-validity, and unenforceability of the ‘497 patent for FYCOMPA® but each application, like the previous Paragraph IV notices from ANDA filers, does not challenge the ‘571 patent. Accordingly, the FDA may not approve any ANDA prior to expiration of the ‘571 patent, including patent term extension. Similar to the actions with the FIRDAPSE® Paragraph IV Certifications described above, after due diligence we filed lawsuits on April 5, 2023 in the U.S. District Court for the District of New Jersey against the drug manufacturer who notified us of their ANDA submissions for both FYCOMPA® formulations, thus triggering the 30 month stay for each application.

AGAMREE®

On June 19, 2023, we entered into the AGAMREE® License Agreement and the Investment Agreement with Santhera. Under the AGAMREE® License Agreement, we contracted to obtain an exclusive North America license, manufacturing and supply agreement for Santhera’s investigational product candidate, AGAMREE® (vamorolone), a novel corticosteroid for the treatment of DMD. Under the Investment Agreement, we agreed to make a strategic investment into Santhera.

Both transactions closed on July 18, 2023. Under the AGAMREE® License Agreement, upon closing, we made a $75 million payment to Santhera in return for the exclusive North American license for AGAMREE®. Additionally, following approval of the NDA for the drug, on October 26, 2023, we became obligated to make a milestone payment of $36 million to Santhera, $26 million of which Santhera has advised us was used to make milestone payments that they owe to third parties. The $36 million payment was made during the fourth quarter of 2023. We may also be obligated to pay future regulatory and commercial milestone payments to Santhera tied to calendar year sales of AGAMREE®, as well as commercial royalties. In addition to the rights to commercialize the product in North America, the AGAMREE® License Agreement provides us with the right of first negotiation for AGAMREE® in Europe and Japan should Santhera pursue partnership opportunities in those territories. Additionally, we will hold the North American rights to any future approved indications for AGAMREE®.

Concurrent with the closing of the AGAMREE® License Agreement, we made a strategic investment into Santhera in which we acquired 1,414,688 of Santhera’s post-reverse split ordinary shares (representing approximately 11.26% of Santhera’s outstanding ordinary shares following the transaction) at an investment price of CHF 9.477 per share (corresponding to a mutually agreed volume weighted average price prior to signing), with the approximately $15.7 million USD in equity investment proceeds, inclusive of the approximately $13.5 million USD fair value of the investment in Santhera and approximately $2.2 million USD of transaction costs included in acquired in-process research and development, to be used by Santhera for Phase IV studies of AGAMREE® in DMD and future development of additional indications for AGAMREE®. At February 26, 2024, the closing price of Santhera’s common shares on the SIX Swiss Exchange was CHF 11.36 per share.

DMD, the most common form of muscular dystrophy, is a rare and life-threatening neuromuscular disorder characterized by progressive muscle dysfunction, ultimately leading to loss of ambulation, respiratory failure, and fatality. Current standard treatment for DMD involves corticosteroids, which often come with significant side effects. It is estimated that between 11,000 and 13,000 patients in the U.S. are affected by DMD, with approximately 70% of patients currently receiving a corticosteroid treatment. Steroids are expected to remain the backbone of therapy for DMD patients and dosed concomitantly with other therapies.

AGAMREE®’s unique mode of action is based on differential effects on glucocorticoid and mineralocorticoid receptors and modifying further downstream activity. As such, it is considered a novel corticosteroid with dissociative properties in maintaining efficacy that we hope has the potential to demonstrate comparable efficacy to corticosteroids, with the potential for a better-tolerated side effect profile. This mechanism of action may allow vamorolone to emerge as an effective alternative to the current standard of care corticosteroids in children, adolescents, and adult patients with DMD. In the pivotal VISION-DMD study, vamorolone met the primary endpoint Time to Stand (TTSTAND) velocity versus placebo (p=0.002) at 24 weeks of treatment and showed a good safety and tolerability profile. The most commonly reported adverse events versus placebo from the VISION-DMD study were cushingoid features, vomiting, and vitamin D deficiency. Adverse events were generally of mild to moderate severity.

On October 13, 2023, Santhera announced that the European Union’s Committee for Medicinal Products for Human Use (CHMP) adopted a positive position in favor of AGAMREE® for the treatment of DMD patients aged four and older. In its recommendation for approval, CHMP acknowledged that there was a positive benefit-risk profile of AGAMREE® in such patient population, including certain safety benefits of AGAMREE® compared to standard of care corticosteroids in the treatment of DMD. On October 26, 2023, the U.S. FDA approved Santhera’s NDA for AGAMREE® for use in treating DMD in patients aged two years and older. As part of the previously described transaction, Santhera has transferred the approved New Drug Application to us. Further, on December 18, 2023, the European Commission (EC) granted to Santhera marketing authorization for AGAMREE® for the treatment of DMD in patents ages four years and older and on January 12, 2024, Santhera announced that AGAMREE® had received approval by the Medicines and Healthcare products Regulatory Agency (MHRA) in the United Kingdom. On January 15, 2024, Santhera announced that AGAMREE® was commercially launched in Germany.

We currently expect to launch AGAMREE® in the U.S. during the first quarter of 2024. We are incurring substantial commercialization expenses, including sales, marketing, analytical infrastructure, patient services, patient advocacy, and other commercialization related expenses, in preparation for the launch of the product in the U.S. We incurred a portion of such commercialization expenses during the fourth quarter of 2023 and we are incurring additional expenses during the first quarter of 2024. We anticipate minimal sales and marketing personnel expansion to market AGAMREE®, with approximately 10 additional commercial team members required, due to the synergy of this product within our existing neuromuscular franchise. We will support the distribution of AGAMREE® through our Catalyst Pathways® patient services program to ensure that patients have access to a dedicated, personalized support team that assists families through the AGAMREE® patient journey, from answering questions to coordinating financial assistance programs for eligible patients.

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We have established a joint steering committee with Santhera that will oversee the lifecycle management and development of AGAMREE® for additional indications beyond DMD. Under our AGAMREE® License Agreement with Santhera, we have agreed to purchase commercial supply of AGAMREE® from Santhera at agreed upon rates.

To support the approval of AGAMREE®, a randomized, double-blind, placebo and prednisone-controlled multinational trial of vamorolone was carried out in 121 patients with DMD. The study included patients ages four to less than seven years of age at time of enrollment in the study who were corticosteroid naïve and ambulatory. The trial met the primary (time to stand velocity after 24 weeks for vamorolone, 6 mg/kg per day vs placebo) and several sequential secondary motor function endpoints. Study participants receiving vamorolone, 2 mg/kg per day, and vamorolone, 6 mg/kg per day, showed improvements in multiple functional endpoints over the 24-week treatment period as compared to placebo. The statistical thresholds for the primary outcome and several secondary outcomes for vamorolone treatment were met, and vamorolone demonstrated efficacy across both dose ranges. The differences in time to stand from supine velocity (TTSTAND) were clinically meaningful. The differences in 6-minute walk test (6MWT) were also clinically meaningful.

AGAMREE® has New Chemical Entity exclusivity that expires in October 2028. AGAMREE® also enjoys Orphan Drug Exclusivity expiring in October 2030. AGAMREE® is further protected by six Orange Book listed patents expiring as early as May 28, 2029 and as late as July 16, 2040. The Company has also requested Patent Term Extension and will update the relevant expiration date in the Orange Book upon a final determination by the USPTO. The earliest a generic could file an ANDA is October 26, 2027. If we were to pursue a patent infringement action if any such ANDA challenges any of AGAMREE®’s Orange Book patents, then the automatic statutory 30-month stay would prevent FDA approval of the ANDA until April 26, 2031.

Business Development

We continue to advance our strategic initiatives and portfolio expansion efforts, focusing on broadening and diversifying our rare (orphan) Neurology product portfolio with innovative therapies that address critical unmet medical needs and expanding the geographical footprint of our existing products. In that regard, we are currently exploring clinically differentiated and adequately de-risked opportunities, with a keen focus on products to treat rare (orphan) central nervous system (CNS) and adjacent rare (orphan) diseases. These prospects include evaluating companies with existing commercial drug products or drugs in development, for potential partnerships, licensing, geographical expansion opportunities with our existing products, and/or asset acquisitions. We continue to employ a disciplined, comprehensive, and exhaustive approach to identifying and evaluating opportunities that we believe will add significant value to our company over the near, mid, and long term. However, no additional definitive agreements have been entered into to date, and there can be no assurance that these initiatives will be successful.

Capital Resources

At December 31, 2023, we had cash and cash equivalents of approximately $137.6 million. Further, on January 9, 2024, we completed a public offering of 10 million shares of our common stock, raising net proceeds of approximately $140.1 million. The proceeds from this offering will be used to potentially acquire new products and for general corporate purposes.

Based on our current financial condition and forecasts of available cash, we believe that we have sufficient funds to support our operations for at least the next 12 months. There can be no assurance that we will continue to be successful in commercializing FIRDAPSE® and FYCOMPA®, that our commercialization of AGAMREE® will be successful, or that we will continue to be profitable and cash flow positive. Further, there can be no assurance that if we need additional funding in the future, whether such funding will be available to us on acceptable terms.

Basis of Presentation

Revenues.

During the fiscal year ended December 31, 2023, we generated revenues from product sales of FIRDAPSE® primarily in the U.S. and FYCOMPA® in the U.S. We expect these revenues to fluctuate in future periods based on our sales of FIRDAPSE® and FYCOMPA®. We received approval from Health Canada on July 31, 2020, for FIRDAPSE® for the symptomatic treatment of LEMS and as of December 31, 2020, our sub-licensee KYE Pharmaceuticals launched FIRDAPSE® in Canada. During the fiscal year ended December 31, 2023, revenues generated under our collaboration agreement with KYE Pharmaceuticals were immaterial. We expect our revenues from the KYE collaboration agreement to fluctuate in future periods based on our collaborator’s ability to sell FIRDAPSE® in Canada.

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For the fiscal year ended December 31, 2023, we did not generate revenues under our collaborative agreement with Endo. We do not expect to generate revenue in future periods as a result of Endo informing us in the fourth quarter of 2023 that they are discontinuing work on the collaboration for development and commercialization of vigabatrin and that they wish to terminate the arrangement.

For the fiscal year ended December 31, 2023, we generated $1.9 million in revenues from our collaborative agreement with DyDo. We expect our revenue from the DyDo license agreement to fluctuate in future periods based on DyDo’s ability to meet various regulatory milestones set forth in such agreement.

Cost of Sales.

Cost of sales consists of third-party manufacturing costs, freight, royalties, and indirect overhead costs associated with sales of our products. Cost of sales may also include period costs related to certain inventory manufacturing services, inventory adjustments charges, unabsorbed manufacturing and overhead costs and manufacturing variances.

Research and Development Expenses.

Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as support for selected investigator-sponsored research. The major components of research and development costs include acquired IPR&D, preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, consulting, 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. Prior to January 2023, all of our research and development resources have been devoted to the development of FIRDAPSE®, CPP-109 (our version of vigabatrin), and formerly CPP-115, and until we acquire or license new products we currently expect that our future development costs will be attributable principally to the continued development of FIRDAPSE®, FYCOMPA® and AGAMREE®.

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 (CROs). In the normal course of our 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 patients, the allocation of responsibilities among the parties to the agreement, 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 consolidated financial statements to the actual services received and efforts expended. As such, expense accruals related to preclinical 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. Preclinical and clinical study and trial activities require significant up-front expenditures. We anticipate paying significant portions of a study or trial’s cost before they begin and incurring additional expenditures as the study or trial progresses and reaches certain milestones.

Selling, General and Administrative Expenses.

During 2019, we actively committed funds to developing our commercialization program for FIRDAPSE® and we have continued to incur substantial commercialization expenses, including sales, marketing, patient services, patient advocacy and other commercialization related expenses as we have continued our sales program for FIRDAPSE®. We are also now incurring substantial commercialization expenses for FYCOMPA® and substantial commercialization expenses for AGAMREE®, as we prepare for the planned launch of AGAMREE® during the first quarter of 2024.

Our general and administrative expenses consist primarily of salaries and personnel expenses for accounting, corporate, compliance, and administrative functions. Other costs include administrative facility costs, regulatory fees, insurance, and professional fees for legal including litigation cost, IT, accounting, and consulting services.

Amortization of Intangible Assets.

Amortization of intangible assets consists of the amortization of the FYCOMPA® product rights, which are amortized using the straight-line method over its estimated useful life of 5 years, and the RUZURGI® product rights, which are amortized using the straight-line method over its estimated useful life of 14.5 years. We also capitalized the $36 million of milestone payment paid to Santhera during the fourth quarter of 2023 which is being amortized over the product’s estimated useful life of 10.5 years.

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Stock-Based Compensation.

We recognize expense for the fair value of all stock-based awards to employees, directors, and consultants in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). For stock options, we use the Black-Scholes option valuation model in calculating the fair value of the awards.

Income Taxes.

Our effective income tax rate is the ratio of income tax expense over our income before income taxes.

As of December 31, 2023, 2022 and 2021, we had no federal net operating loss carry-forwards. Additionally, we had state net operating loss carry-forwards of approximately $0, $0 and $28 million, respectively, available to reduce future Florida taxable income for the years ended December 31, 2023, 2022 and 2021.

Recently Issued Accounting Standards.

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

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue and expenses during the reporting periods. 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 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.

The amounts of assets and liabilities reported in our consolidated balance sheets and the amounts reported in our consolidated statements of comprehensive income are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, valuation of intangible assets, leases, preclinical study and clinical trial expenses, stock-based compensation and valuation allowance for deferred tax assets. The accounting policies described below are not intended to be a comprehensive list of all of our accounting policies but represent the accounting estimates which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP. There are also areas in which our management’s judgment in selecting any available alternative would not produce a materially different result. Our consolidated financial statements and the notes thereto included elsewhere in this report contain accounting policies and other disclosures as required by U.S. GAAP.

Revenue Recognition.

Revenue from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts with our customer, payors, and other indirect customers relating to the sale of our products. These reserves are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the respective underlying contracts.

The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Our analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates as of December 31, 2023, 2022 and 2021 and, therefore, the transaction price was not reduced further during the years ended December 31, 2023, 2022 and 2021. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. Refer to Note 2, “Basis of Presentation and Significant Accounting Policies,” in the consolidated financial statements included in this report for further details on revenue recognition.

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Valuation of Intangible Assets.

We have acquired and continue to acquire significant intangible assets that we record at fair value at the acquisition date. Transactions involving the purchase or sale of intangible assets are usually based on a discounted cash flow analysis. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, cost of capital and market participants. Each of these factors can significantly affect the value of the intangible asset. We engage independent valuation experts who review our critical assumptions and calculations for acquisitions of significant intangibles. We review intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist, an impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows. If the affected assets are deemed not recoverable, we would estimate the fair value of the assets and record an impairment loss. Where cash flows cannot be identified for an individual asset, the review is applied at the lowest group level for which cash flows are identifiable.

Stock-Based Compensation.

We recognize stock-based compensation for the fair value of all share-based payments, including grants of stock options and restricted stock units. For stock options, we use the Black-Scholes option valuation model to determine the fair value of stock options on the date of grant. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield. Expected volatility is based on reviews of historical volatility of our common stock. The estimated expected option life is based upon the simplified method. Under this method, the expected option life is presumed to be the mid-point between the vesting date and the end of the contractual term. We will continue to use the simplified method until we have sufficient historical exercise data to estimate the expected life of the options. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve appropriate for the expected life of our stock option awards. For the years ended December 31, 2023 and 2022, the assumptions used were an estimated annual volatility of 68.0% to 71.0% and 68.4% to 69.5%, expected holding periods of 4.5 to 5.2 years and 4.5 years, and risk-free interest rates of 3.55% to 4.92% and 1.27% to 4.07%, respectively.

Results of Operations

Years Ended December 31, 2023 and 2022

Revenues.

For the fiscal year ended December 31, 2023, we recognized total revenues of $398.2 million which included $396.5 million in net revenue from product sales primarily in the U.S. compared to $214.2 million in total revenues, which included $213.9 million in net revenues from product sales for the fiscal year ended December 31, 2022. FIRDAPSE® net sales were approximately $258.4 million for the fiscal year ended December 31, 2023 and FYCOMPA® net sales were approximately $138.1 million for the period between January 24, 2023 (date of acquisition) and December 31, 2023. All net revenue from product sales during the fiscal year ended December 31, 2022 were from sales of FIRDAPSE®.

The increase of approximately $182.6 million in net product revenues when comparing the fiscal year ended December 31, 2023 and 2022 was primarily due to the acquisition of FYCOMPA® during January 2023, and related product sales, and increases in FIRDAPSE® sales volumes of approximately 12% (which included patients who were transferred to FIRDAPSE® in the first and second quarter of 2022 when RUZURGI® was removed from the market) and net price increases. Net revenues from product sales of FIRDAPSE® increased by 20.8% from 2022 to 2023.

Product revenue for FYCOMPA® in 2024 will be affected by differences in variable consideration (gross-to-net) compared to 2023, when revenues were booked under Eisai’s cost arrangements with distributors and government authorities. Starting on January 1, 2024, all such costs are tied to arrangements between us and those distributors and government agencies, which costs are likely to be higher than Eisai’s costs, thereby increasing the gross-to-net deductions for FYCOMPA® and correspondingly decreasing FYCOMPA® net product revenue.

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For the fiscal year ended December 31, 2023, we also recognized $1.7 million in license and other revenue, as compared to $0.3 million during the fiscal year ended December 31, 2022. The increase was primarily due to the milestone achieved as a result of DyDo submitting a Japan NDA for FIRDAPSE® to the PMDA on December 18, 2023.

Cost of Sales.

Cost of sales was approximately $52.0 million for the fiscal year ended December 31, 2023, compared to $34.4 million for the fiscal year ended December 31, 2022. Cost of sales in both periods consisted principally of royalty payments, which are based on net revenue as defined in the applicable license agreements. For FIRDAPSE®, royalties are payable on the terms set forth below in Liquidity and Capital Resources—Contractual Obligations and Arrangements, and increase by 3% when net sales (as defined in the applicable license agreement) exceed $100 million in any calendar year. Cost of sales for FYCOMPA® for the fiscal year ended 2023 consisted of product costs and excludes the amortization of the FYCOMPA® intangible assets. See Note 9 of the Notes to Consolidated Financial Statements included elsewhere in this report.

Amortization of Intangible Assets.

Amortization of intangible assets was approximately $32.6 million for the fiscal year ended December 31, 2023 compared to $1.1 million for fiscal year ended December 31, 2022. Amortization of intangible assets consists of the amortization of the FYCOMPA® rights, which are amortized using the straight-line method over its estimated useful life of 5 years, and the RUZURGI® rights, which are amortized using the straight-line method over its estimated useful life of 14.5 years. We also capitalized a $36 million milestone payment paid to Santhera during the fourth quarter of 2023 which is being amortized over the product’s estimated useful life of 10.5 years.

Research and Development Expenses.

Research and development expenses for the years ended December 31, 2023 and 2022 were approximately $93.2 million and $19.8 million, respectively, and represented approximately 30% and 18% of total operating costs and expenses, respectively. Research and development expenses for the years ended December 31, 2023 and 2022 were as follows (in thousands):

Research and development expenses increased approximately $73.4 million during year ended December 31, 2023 when compared to the same period in 2022. The increase is primarily attributable to the $81.5 million IPR&D purchase consideration for the acquisition of the license in North America for AGAMREE® during the third quarter of 2023. This was partially offset by decreases in costs relating to closing out sites for both our MuSK-MG clinical trial and our previously operated expanded access program.

We expect that research and development expenses will continue to be significant in 2024 and beyond as we execute on our strategic initiative and portfolio expansion efforts, with a keen focus on products to treat rare and difficult to treat diseases.

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Selling, General and Administrative Expenses.

Selling, general and administrative expenses for the years ended December 31, 2023 and 2022 were approximately $133.7 million and $57.1 million, respectively, and represented approximately 43% and 51% of total operating costs and expenses for the years ended December 31, 2023, and 2022, respectively. Selling, general and administrative expenses for the years ended December 31, 2023 and 2022 were as follows (in thousands):

For the year ended December 31, 2023, selling, general and administrative expenses increased approximately $76.6 million when compared to the same period in 2022. The increase was primarily attributable to the direct fees payable under the TSA associated with net product sales of FYCOMPA® of approximately $15.7 million, increases of approximately $22.5 million in selling (commercialization) expenses due to the acquisition of FYCOMPA®, which consist primarily of commercial systems implementation costs, hiring of the sales force and supporting personnel and an approximately $22.2 million increase in employee compensation and stock based compensation related to the increase in headcount resulting from the acquisitions of FYCOMPA® and AGAMREE®, and annual merit increases. SG&A excludes the amortization of the RUZURGI® intangible asset. See Note 9 of the Notes to Consolidated Financial Statements included elsewhere in this report.

We expect that selling, general and administrative expenses will continue to be substantial in future periods as we continue our efforts to increase our revenues from FIRDAPSE®, continue our efforts to market FYCOMPA®, take steps to prepare for the commercial launch of AGAMREE® in 2024, and take steps to continue to expand our business.

Stock-Based Compensation.

Total stock-based compensation for the years ended December 31, 2023 and 2022 was $14.3 million and $7.9 million, respectively. In 2023 and 2022, grants were principally for stock options relating to year-end bonus awards and grants to new employees.

Other Income, Net.

We reported other income, net in all periods, primarily relating to interest on our investment of our cash and cash equivalents of $7.7 million and $2.9 million for the fiscal years ended December 31, 2023 and 2022, respectively. The increase in other income, net for the fiscal year ended December 31, 2023 of approximately $4.8 million when compared to the same period in 2022 is primarily due to higher yields on investments offset by $2.0 million of accretion expense related to payments arising from our acquisition of RUZURGI®.

Since Santhera’s shares are traded on the SIX Swiss Exchange, they have a readily determinable fair value, and as a result the investment is measured quarterly, at fair value, with changes reported in other income, net.

The components of other income, net were as follows (in thousands):

Income Taxes.

Our effective income tax rate was 24.4% and 20.7% for fiscal years ended December 31, 2023 and 2022, respectively. Differences in our effective tax and the statutory federal income tax rate of 21% are driven by state income taxes and anticipated annual permanent differences offset by equity compensation deductions. Our effective tax rate is affected by many factors, including the number of stock options exercised in any period, and our effective tax rate is likely to fluctuate in future periods (and may be higher in future periods than it was in the 2023 fiscal year).

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We had no uncertain tax positions as of December 31, 2023 and 2022.

Net Income.

Our net income was approximately $71.4 million in the year ended December 31, 2023 ($0.67 per basic and $0.63 per diluted share) as compared to $83.1 million in the year ended December 31, 2022 ($0.80 per basic and $0.75 per diluted share).

Years Ended December 31, 2022 and 2021

The information comparing results of operations for the year ended 2022 compared to 2021 was included in our Annual Report on Form 10-K for 2022 filed with the SEC on March 15, 2023.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through multiple offerings of our securities and revenues from product sales. At December 31, 2023 we had cash and cash equivalents aggregating $137.6 million and working capital of $143.3 million. At December 31, 2022, we had cash and cash equivalents aggregating $298.4 million and working capital of $263.2 million. At December 31, 2023, substantially all of our cash and cash equivalents were deposited with one financial institution, and such balances were in excess of federally insured limits. Further, as of such date, substantially all such funds were invested in money market accounts and U.S. Treasuries.

Based on forecasts of available cash, we believe that we have sufficient resources to support our currently anticipated operations for at least the next 12 months from the date of this report. There can be no assurance that we will remain profitable or that we will be able to obtain any additional funding that we may require in the future.

In the future, we may require additional working capital to support our operations depending on our future success with FIRDAPSE®, FYCOMPA® and AGAMREE® sales, or the products we acquire and continue to develop and whether our results continue to be profitable and cash flow positive. 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 if and when it is required.

In that regard, our future funding requirements will depend on many factors, including:

We may raise additional funds through public or private equity offerings, debt financings, corporate collaborations or other means. We also may seek governmental grants for a portion of the required funding for our clinical trials and preclinical trials. We may further seek to raise capital to fund additional product development efforts or product acquisitions, 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 technologies 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.

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On September 8, 2023, we filed a shelf registration statement with the SEC to sell up to $500 million of common stock, preferred stock, warrants to purchase common stock, debt securities and units consisting of one or more of such securities (the 2023 Shelf Registration Statement). The 2023 Shelf Registration Statement (file no. 333-274427) became effective upon filing. On January 9, 2024, we completed a public offering of 10 million shares of our common stock under the 2023 Shelf Registration Statement, raising net proceeds of approximately $140.1 million.

Cash Flows.

Net cash provided by operating activities was $143.6 million and $116.0 million, respectively, for the years ended December 31, 2023 and 2022. During the year ended December 31, 2023, net cash provided by operating activities was primarily attributable to our net income of $71.4 million, increases of $10.8 million in accounts payable and $5.8 million in accrued expenses and other liabilities, $81.5 million in acquired IPR&D and $45.8 million in non-cash expenses. This was partially offset by increases of $43.1 million in accounts receivable, net, $4.7 million in inventory and $5.8 million prepaid expenses and other current assets, a decrease of $0.3 million in operating lease liability and $17.8 million in deferred taxes. During the year ended December 31, 2022, net cash provided by operating activities was primarily attributable to our net income of $83.1 million, a decrease of $1.1 million in inventory, increases of $1.2 million in accounts payable and $16.4 million in accrued expenses and other liabilities, $4.9 million in deferred taxes, $4.1 million in acquired research and development inventory expensed from asset acquisition and of $10.2 million of non-cash expenses. This was partially offset by increases of $3.8 million in accounts receivable, net and $0.8 million in prepaid expenses and other current assets and a decrease of $0.3 million in operating lease liability.

Net cash used in investing activities during the year ended December 31, 2023 was $293.5 million and consisted primarily of payments in connection with asset acquisitions of $198.3 million, acquired IPR&D of $81.5 million and the purchase of equity securities of $13.5 million. Net cash provided by investing activities during the year ended December 31, 2022 was $9.2 million and consisted primarily of proceeds from the sale of available-for-sale securities of $19.2 million, offset partially by payments in connection with asset acquisitions of $10.0 million.

Net cash used in financing activities during the year ended December 31, 2023 was $10.9 million, consisting primarily of payment of liabilities arising from asset acquisition of $12.7 million, partially offset by proceeds from the exercise of stock options of $2.8 million. Net cash provided by financing activities during the year ended December 31, 2022 was $1.7 million, consisting primarily of proceeds from the exercise of stock options, partially offset by repurchases of common stock.

Contractual Obligations and Arrangements.

We have entered into the following contractual arrangements with respect to sales of FIRDAPSE®:

For the year ended December 31, 2023, we recognized an aggregate of approximately $39.5 million of royalties payable under these license agreements, which is included in cost of sales in the accompanying consolidated statements of operations and comprehensive income.

Further, if DyDo is successful in obtaining the right to commercialize FIRDAPSE® in Japan, we will pay royalties to our licensor on net sales in Japan equal to a similar percentage to the royalties that we are currently paying for non-U.S. sales under our original FIRDAPSE® License Agreement for North America.

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For the year ended December 31, 2023, we recognized an aggregate of approximately $3.7 million of royalties payable to Jacobus.

We have entered into the following contractual arrangements with respect to sales of FYCOMPA®:

We have entered into the following contractual arrangements with respect to AGAMREE® (vamorolone):

We also have entered into the following contractual arrangements:

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Off-Balance Sheet Arrangements.

We do not have any off-balance sheet arrangements as such term is defined in rules promulgated by the SEC.

Caution Concerning Forward-Looking Statements

This report contains “forward-looking statements”, as that term is defined in the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, plans or objectives for future operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, “believes”, “anticipates”, “proposes”, “plans”, “expects”, “intends”, “may”, and other similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or other achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the section entitled “Item 1A – Risk Factors.”

The continued successful commercialization of FIRDAPSE® (amifampridine), FYCOMPA® (perampanel) CIII, and the successful launch and commercialization of AGAMREE® (vamorolone) are highly uncertain. Factors that will affect our success include the uncertainty of:

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Our current plans and objectives are based on assumptions relating to the continued commercialization of FIRDAPSE® and FYCOMPA®, the commercialization of AGAMREE® and on our plans to seek to acquire or in-license additional products. Although we believe that our assumptions are reasonable, any of our assumptions could prove inaccurate. Considering the significant uncertainties inherent in the forward-looking statements we have made herein, which reflect our views only as of the date of this report, you should not place undue reliance upon such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction our consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under the caption “Risk Factors” in Item 1A of this report.

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:

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Overview

We are a commercial-stage patient centric biopharmaceutical company focused on in-licensing, developing and commercializing novel high-quality medicines for patients living with rare diseases and diseases that are difficult to treat. With exceptional patient focus, we are committed to developing a robust pipeline of cutting-edge, best-in-class medicines for treating rare and difficult to treat diseases. We are dedicated to making a meaningful impact on the lives of those suffering from rare and difficult to treat diseases, and we believe in putting patients first in everything we do.

Our flagship U.S. commercial product is FIRDAPSE® (amifampridine) Tablets 10 mg. approved for the treatment of Lambert-Eaton myasthenic syndrome, or LEMS, for adults and for children ages six and up. On December 17, 2022, we entered into an agreement with Eisai Inc. (“Eisai”) for the acquisition of the United States rights to FYCOMPA®(perampanel) CIII, a prescription medication used alone or with other medicines to treat focal onset seizures with or without secondarily generalized seizures in people with epilepsy aged four and older and with other medicines to treat primary generalized tonic-clonic seizures in people with epilepsy aged 12 and older. We closed that acquisition on January 24, 2023 and we are now marketing FYCOMPA® in the United States.

Impact of the COVID-19 pandemic on our business

The COVID-19 pandemic affected our business operations in numerous ways. At various times during the pandemic, we had to make modifications to our normal operations, including allowing our employees to work remotely. Further, during the pandemic, national, state and local governments in affected regions implemented varying safety precautions, such as quarantines, border closures, increased border controls, travel restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings, mask mandates, and other measures. While most of these measures have since been relaxed or removed, a resurgence in cases as a result of one or more new variants could lead to some or all of these precautions being put back into place. At present, our operations have returned to mostly being in-person, with some contact with physicians by our commercial sales force still being done remotely. However, there can be no assurance that the COVID-19 pandemic will not in the future disrupt once again our normal business operations.

FIRDAPSE®

On November 28, 2018, we received approval from the FDA for our new drug application, or NDA, for FIRDAPSE® Tablets 10 mg for the treatment of adult patients (ages 17 and above) with Lambert-Eaton myasthenic syndrome, or LEMS, and in January 2019, we launched FIRDAPSE® in the United States. Further, on September 29, 2022, the FDA approved our supplemental NDA (sNDA) to expand the indicated age range for FIRDAPSE® Tablets 10 mg to include pediatric patients, six years of age and older for the treatment of LEMS.

We sell FIRDAPSE® through a field force experienced in neurologic, central nervous system or rare disease products consisting at this time of approximately 27 field personnel, including sales (Regional Account Managers), thought leader liaisons, patient assistance and insurance navigation support (Patient Access Liaisons), and payor reimbursement (National Account Managers). We also have a field-based force of six medical science liaisons who are helping educate the medical communities and patients about LEMS and our programs supporting patients and access to FIRDAPSE®.

Additionally, we have contracted with an experienced inside sales agency that works to generate leads through telemarketing to targeted physicians. This inside sales agency allows our sales efforts to not only reach the neuromuscular specialists who regularly treat LEMS patients, but also the roughly 9,000 neurology and neuromuscular healthcare providers that may be treating a LEMS patient who can benefit from FIRDAPSE®. We also use non-personal promotion to reach the 20,000 neurologists who are potential LEMS treaters and the 16,000 oncologists who might be treating a LEMS patient with small cell lung cancer. Further, we continue to make available at no-cost a LEMS voltage gated calcium channel antibody testing program for use by physicians who suspect that one of their patients may have LEMS and wish to reach a definitive diagnosis.

Finally, we are continuing to expand our digital and social media activities to introduce our product and services to potential patients and their healthcare providers. We also work with several rare disease advocacy organizations (including Global Genes and the National Organization for Rare Disorders) to help increase awareness and level of support for patients living with LEMS and to provide education for the physicians who treat these rare diseases and the patients they treat.

We are supporting the distribution of FIRDAPSE® through Catalyst Pathways®, our personalized treatment support program for patients who enroll in it. Catalyst Pathways® is a single source for personalized treatment support, education and guidance through the challenging dosing and titration regimen required to reach an effective therapeutic dose. It also includes distributing the drug through a very small group of exclusive specialty pharmacies (primarily AnovoRx), which is consistent with the way that most drug products for ultra-orphan diseases are distributed and dispensed to patients. We believe that by using specialty pharmacies in this way, the difficult task of navigating the health care system is far better for the patient needing treatment for their rare disease and the health care community in general.

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In order to help LEMS patients afford their medication, we, like other pharmaceutical companies which are marketing drugs for ultra-orphan conditions, have developed an array of financial assistance programs that are available to reduce patient co-pays and deductibles to a nominal affordable amount. A co-pay assistance program designed to keep out-of-pocket costs to not more than $10.00 per month (currently less than $2.00 per month) is available for all LEMS patients with commercial coverage who are prescribed FIRDAPSE®. Our FIRDAPSE® co-pay assistance program is not available to patients enrolled in state or federal healthcare programs, including Medicare, Medicaid, VA, DoD, or TRICARE. However, we are donating, and committing to continue to donate, money to qualified, independent charitable foundations dedicated to providing assistance to any U.S. LEMS patients in financial need. Subject to compliance with regulatory requirements, our goal is that no LEMS patient is ever denied access to their medication for financial reasons.

In January 2023, we received three Paragraph IV Certification Notice Letters from three generic drug manufacturers advising us that they had each submitted an Abbreviated New Drug Application (ANDA) to the FDA seeking authorization from the FDA to manufacture, use or sell a generic version of FIRDAPSE® in the United States. The notice letters each allege that our six patents listed in the FDA Orange Book covering FIRDAPSE® are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of the proposed product described in these ANDA submissions. Under the Federal Food, Drug, and Cosmetic Act (FDCA), as amended by the Drug Price Competition and Patent Term Restoration Act of 1984, as amended, we had 45 days from receipt of the notice letters to commence patent infringement lawsuits against these generic drug manufacturers in a federal district court to trigger a stay precluding FDA from approving any ANDA until May 2026 or entry of judgment holding the patents invalid, unenforceable, or not infringed, whichever occurs first, and in that regard, after conducting the necessary due diligence, we filed lawsuits on March 1, 2023 in the U.S. District Court for the District of New Jersey against each of the three generic drug manufacturers who notified us of their ANDA submissions.

We intend to vigorously protect and defend our intellectual property for FIRDAPSE® and, although there can be no assurance, we believe that our patent estate will protect FIRDAPSE® from generic competition for the life of our patents.

FYCOMPA®

On December 17, 2022, we entered into an agreement with Eisai for the acquisition of the U.S. rights to FYCOMPA® (perampanel) CIII. FYCOMPA® is a selective non-competitive antagonist of AMPA receptors, the major subtype of ionotropic glutamate receptors. It was the first, and still the only, drug of its class to be approved for epilepsy. Studies suggest that AMPA receptor antagonism can lead to reduced overstimulation and anticonvulsant effects, as well as inhibiting seizure generation and spread. FYCOMPA® is a controlled substance and is approved with a box warning label.

FYCOMPA® is used to treat certain types of focal onset seizures (seizures that involve only one part of the brain) in adults and children 4 years of age and older. It is also used in combination with other medications to treat certain types of primary generalized tonic-clonic seizures (also known as a “grand mal” seizure, a seizure that involves the entire body) in adults and children 12 years of age or older. Perampanel is in a class of medications called anticonvulsants. It works by decreasing abnormal electrical activity in the brain.

Pursuant to the Asset Purchase Agreement, which closed on January 24, 2023, we purchased Eisai’s regulatory approvals and documentation, product records, intellectual property, inventory, and other matters relating to the U.S. rights for FYCOMPA®, in exchange for an upfront payment of $160 million in cash. We also agreed to pay Eisai an additional cash payment of $25 million if a requested patent extension for FYCOMPA® is approved by the U.S. Patent and Trademark Office (USPTO). Finally, we agreed to pay Eisai royalty payments after patent protection for FYCOMPA® expires, which royalty payments will be reduced upon generic equivalents to FYCOMPA® entering the market.

In conjunction with the closing of the asset purchase, we entered into two additional agreements with Eisai; a Transition Services Agreement and a Supply Agreement. Under the Transition Services Agreement, a U.S. subsidiary of Eisai is providing us with certain transitional services, and under the Supply Agreement, Eisai has agreed to manufacture FYCOMPA® for us for at least seven years at prices listed in the Supply Agreement (to be updated on a yearly basis). Following the closing of the acquisition, we are currently marketing FYCOMPA® in the U.S. through Eisai under the Transition Services Agreement as we build our FYCOMPA® marketing and sales team, and we expect to take over the marketing program in May 2023. In that regard, we currently expect to hire approximately 34 sales and marketing personnel to support FYCOMPA®, many of whom previously worked in Eisai’s U.S. sales division marketing FYCOMPA®. We also are planning on hiring up to six medical science liaisons to help us educate the medical community who treat epilepsy and the patients who have epilepsy about their disease and the benefits of FYCOMPA®.

Catalyst is supporting patients using FYCOMPA® through an Instant Savings Card Program. Through the program, eligible commercially insured patients could pay as little as $10 for their FYCOMPA® co-pay (with a maximum savings of $1,300 per year). Eligible cash-paying patients receive up to $60 towards each prescription, up to a maximum of $720 per year. The FYCOMPA® instant

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savings card program is not available to patients enrolled in state or federal healthcare programs, including Medicare, Medicaid, VA, DoD, or TRICARE.

Patent protection for FYCOMPA will expire no earlier than May 23, 2025, the current expiration date of U.S. patent no. 6,949,571 including the USPTO’s patent term extension calculation. A request for reconsideration of the agency’s patent term extension calculation is currently pending. If successful, we would be entitled to patent term extension that would extend U.S. patent no. 6,949,571 until June 8, 2026. There can be no assurance that our request for reconsideration will be granted by the U.S. Patent and Trademark Office.

Business Development

We are continuing our efforts to broaden and diversify our product portfolio through acquisitions of early and/or late-stage products or companies or technology platforms in rare disease and CNS therapeutic categories. To accomplish these priorities, we are continuing to employ a disciplined approach to evaluating assets, and we believe that this strategic expansion will better position our company long term to build out a broader more diversified portfolio of drug candidates (which should add greater value to our company over the near and long-term). In that regard, we are currently exploring several additional potential opportunities to acquire companies with commercial drug products and/or drug products in development or to in-license or acquire commercialized drug products or drug products in development. However, no additional definitive agreements have been entered into to date and there can be no assurance that our efforts to continue to broaden and diversify our product portfolio will be successful.

Capital Resources

At December 31, 2022, we had cash and investments of approximately $298 million. Subsequent to the end of 2022, on January 24, 2023 we used $162 million of our available cash and cash equivalents to fund our acquisition of FYCOMPA® and to reimburse Eisai for certain prepaid expenses. Based on our current financial condition and forecasts of available cash, we believe that we have sufficient funds to support our operations for at least the next 12 months. There can be no assurance that we will continue to be successful in commercializing FIRDAPSE®, that our commercialization of FYCOMPA® will be successful, or that we will continue to be profitable and cash flow positive. Further, there can be no assurance that if we need additional funding in the future, whether such funding will be available to us on acceptable terms. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” below for further information on our liquidity and cash flow.

Basis of Presentation

Revenues.

During the fiscal year ended December 31, 2022, we continued to generate revenues from product sales of FIRDAPSE® in the U.S. We expect these revenues to fluctuate in future periods based on our sales of FIRDAPSE®. We received approval from Health Canada on July 31, 2020, for FIRDAPSE® for the symptomatic treatment of LEMS and as of December 31, 2020, we had launched FIRDAPSE® in Canada. During the fiscal year ended December 31, 2022, revenues generated under our collaboration agreement with KYE Pharmaceuticals were immaterial. We expect our revenues from the KYE collaboration agreement to fluctuate in future periods based on our collaborator’s ability to sell FIRDAPSE® in Canada.

For the fiscal year ended December 31, 2022, we did not generate revenues under our collaborative agreement with Endo. We expect our revenues from the Endo collaborative agreement to fluctuate in future periods based on our collaborator’s ability to meet various regulatory milestones set forth in such agreement.

For the fiscal year ended December 31, 2022, we generated revenues of approximately $0.5 million from our agreement with DyDo Pharma. We expect our revenue from the DyDo license agreement to fluctuate in future periods based on DyDo’s ability to meet various regulatory milestones set forth in such agreement.

Cost of Sales.

Cost of sales consists of third-party manufacturing costs, freight, royalties, and indirect overhead costs associated with sales of FIRDAPSE®. Cost of sales may also include period costs related to certain inventory manufacturing services, inventory adjustments charges, unabsorbed manufacturing and overhead costs, and manufacturing variances.

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Research and Development Expenses.

Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as support for selected investigator-sponsored research. The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, consulting, 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 FIRDAPSE®, CPP-109 (our version of vigabatrin), and formerly CPP-115, and until we acquire or license new products we currently expect that our future development costs will be attributable principally to the continued development of FIRDAPSE®.

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 (CROs). In the normal course of our 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 patients, the allocation of responsibilities among the parties to the agreement, 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 consolidated financial statements to the actual services received and efforts expended. As such, expense accruals related to preclinical 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. Preclinical and clinical study and trial activities require significant up-front expenditures. We anticipate paying significant portions of a study or trial’s cost before they begin and incurring additional expenditures as the study or trial progresses and reaches certain milestones.

Selling, General and Administrative Expenses.

During 2019, we actively committed funds to developing our commercialization program for FIRDAPSE® and we have continued to incur substantial commercialization expenses, including sales, marketing, patient services, patient advocacy and other commercialization related expenses as we have continued our sales program for FIRDAPSE®.

Our general and administrative expenses consist primarily of salaries and personnel expenses for accounting, corporate, compliance, and administrative functions. Other costs include administrative facility costs, regulatory fees, insurance, and professional fees for legal including litigation cost, information technology, accounting, and consulting services.

Stock-Based Compensation.

We recognize expense for the fair value of all stock-based awards to employees, directors, and consultants in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). For stock options, we use the Black-Scholes option valuation model in calculating the fair value of the awards.

Income Taxes.

Our effective income tax rate is the ratio of income tax expense (benefit) over our income before income taxes.

We incurred operating losses from inception through the three-month period ended March 31, 2019. As of December 31, 2022, 2021 and 2020, respectively, we had federal net operating loss carry-forwards of approximately $0, $0 and $3 million. Additionally, we had state net operating loss carry-forwards of approximately $0, $28 million and $42 million, respectively, available to reduce future Florida taxable income for the years ended December 31, 2022, 2021 and 2020.

In the third quarter of 2020, we determined that there was sufficient positive evidence to conclude that it is more likely than not that our additional deferred taxes of approximately $33 million are realizable. As a result, we reduced the valuation allowance accordingly.

Recently Issued Accounting Standards.

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

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue and expenses during the reporting periods. We

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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 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.

The amounts of assets and liabilities reported in our consolidated balance sheets and the amounts reported in our consolidated statements of comprehensive income are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, valuation of intangible assets, leases, preclinical study and clinical trial expenses, stock-based compensation and valuation allowance for deferred tax assets. The accounting policies described below are not intended to be a comprehensive list of all of our accounting policies but represent the accounting estimates which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP. There are also areas in which our management’s judgment in selecting any available alternative would not produce a materially different result. Our consolidated financial statements and the notes thereto included elsewhere in this report contain accounting policies and other disclosures as required by U.S. GAAP.

Revenue Recognition.

Revenue from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts with our customer, payors, and other indirect customers relating to the sale of our products. These reserves are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the respective underlying contracts.

The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Our analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates as of December 31, 2022 and 2021 and, therefore, the transaction price was not reduced further during the years ended December 31, 2022 and 2021. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. Refer to Note 2, “Basis of Presentation and Significant Accounting Policies,” in the consolidated financial statements included in this report for further details on revenue recognition.

Valuation of Intangible Assets.

We have acquired and continue to acquire significant intangible assets that we record at fair value at the acquisition date. Transactions involving the purchase or sale of intangible assets are usually based on a discounted cash flow analysis. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, cost of capital and market participants. Each of these factors can significantly affect the value of the intangible asset. We engage independent valuation experts who review our critical assumptions and calculations for acquisitions of significant intangibles. We review intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist, an impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows. If the affected assets are deemed not recoverable, we would estimate the fair value of the assets and record an impairment loss. Where cash flows cannot be identified for an individual asset, the review is applied at the lowest group level for which cash flows are identifiable.

Stock-Based Compensation.

We recognize stock-based compensation for the fair value of all share-based payments, including grants of stock options and restricted stock units. For stock options, we use the Black-Scholes option valuation model to determine the fair value of stock options on the date of grant. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield. Expected volatility is based on reviews of historical volatility of our common stock. The estimated expected option life is based upon the simplified method. Under this method, the expected option life is presumed to be the mid-point between the vesting date and the end of the contractual term. We will continue to use the simplified method until we have sufficient historical exercise data to estimate the expected life of the options. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve appropriate for the expected life of our stock option awards. For the years ended December 31, 2022 and 2021, the assumptions used were an estimated annual volatility of 69.2% and 70.0%, expected holding periods of primarily four and a half years, and risk-free interest rates of 1.27% to 4.07% and 0.34% to 1.18%, respectively.

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Valuation Allowance for Deferred Tax Assets.

We assess the need for a valuation allowance against our deferred tax asset each quarter through the review of all available positive and negative evidence. Deferred tax assets are reduced by a tax valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Management’s analysis depends on historical and projected taxable income. Projected taxable income includes significant assumptions related to revenue, commercial expenses and research and development activities. In the third quarter of 2020, we determined that there was sufficient positive evidence to conclude that it is more likely than not that our additional deferred taxes are realizable. As a result, we reduced the valuation allowance accordingly.

Results of Operations

Years Ended December 31, 2022 and 2021

Revenues.

For the year ended December 31, 2022, we recognized $213.9 million in net revenue from product sales of FIRDAPSE® primarily in the U.S. compared to $138.0 million for the year ended December 31, 2021. The increase of approximately $75.9 million was due to increases in sales volumes of approximately 49% (which included patients who were transferred to FIRDAPSE® in the first and second quarter of 2022 when RUZURGI® was removed from the market) and net price increases. For the year ended December 31, 2022, we also recognized $0.3 million in license and other revenue, as compared to $2.8 million during the year ended December 31, 2021. The decrease was primarily due to our license agreement with DyDo Pharma for the commercialization of FIRDAPSE® in Japan that was signed in 2021.

Cost of Sales.

Cost of sales was approximately $34.4 million for the year ended December 31, 2022, compared to $21.9 million for the year ended December 31, 2021. Cost of sales in both periods consisted principally of royalty payments, which are based on net revenue as defined in the applicable license agreement. Royalties are payable on the terms set forth below in Liquidity and Capital Resources -Contractual Obligations and Arrangements, and increase by 3% when net sales (as defined in the applicable license agreement) exceed $100 million in any calendar year.

Research and Development Expenses.

Research and development expenses for the years ended December 31, 2022 and 2021 were approximately $19.8 million and $16.9 million, respectively, and represented approximately 18% and 19% of total operating costs and expenses, respectively. Research and development expenses for the years ended December 31, 2022 and 2021 were as follows (in thousands):

Research and development expenses increased approximately $2.9 million during year ended December 31, 2022 when compared to the same period in 2021. The increase is primarily due to the acquisition of RUZURGI® inventory previously manufactured by Jacobus on July 11, 2022 of approximately $4.1 million, which was expensed in full in the third quarter of 2022 and is not a recurring expense. This was partially offset by an overall decrease in research and development activity. Further, for the year ended December 31, 2022, research and development expenses included costs relating to closing out sites for both the MuSK-MG clinical trial and our previously operated expanded access program. Research and development costs in the 2021 period included expenses relating to medical and regulatory affairs, our previously operated expanded access program, and our efforts to develop a long-acting formulation of amifampridine phosphate (which efforts have been discontinued).

We expect that research and development expenses will continue to be substantial in 2023 and beyond as we execute on our strategic initiative to acquire or in-license innovative technology platforms and/or earlier stage programs in rare disease categories outside of neuromuscular diseases.

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Selling, General and Administrative Expenses.

Selling, general and administrative expenses for the years ended December 31, 2022 and 2021 were approximately $58.2 million and $49.6 million, respectively, and represented approximately 52% and 56% of total operating costs and expenses for the years ended December 31, 2022, and 2021, respectively. Selling, general and administrative expenses for the years ended December 31, 2022 and 2021 were as follows (in thousands):

For the year ended December 31, 2022, selling, general and administrative expenses increased approximately $8.6 million when compared to the same period in 2021. The increase for the year ended December 31, 2022 was primarily attributable to the timing of our commitments to make contributions to 501(c)(3) organizations supporting LEMS patients of approximately $1.8 million, increases of sales commissions due to higher sales volume of approximately $2.1 million, approximately $3.1 million increase in employee compensation related to annual merit increases, approximately $1.1 million increase in amortization expense related to intangibles acquired in connection with the acquisition of RUZURGI® and an increase in stock-based compensation expense due to an increase in the average share price.

We expect that selling, general and administrative expenses will continue to be substantial in future periods as we continue our efforts to increase our revenues from FIRDAPSE®, begin our efforts to market FYCOMPA®, and take steps to continue to expand our business.

Stock-Based Compensation.

Total stock-based compensation for the years ended December 31, 2022 and 2021 was $7.9 million and $6.1 million, respectively. In 2022 and 2021, grants were principally for stock options relating to year-end bonus awards and grants to new employees.

Other Income, Net.

We reported other income, net in all periods, primarily relating to our investment of our cash and cash equivalents and investments of $2.9 million and $0.3 million for the years ended December 31, 2022 and 2021, respectively, which includes realized losses from the sale of available-for-sale securities of $0.8 million and $0 million, respectively. The increase in other income, net for the year ended December 31, 2022 of approximately $2.6 million when compared to the same period in 2021 is primarily due to higher yields on investments as well as higher invested balances. Other income, net, consists primarily of interest and dividend income.

Income Taxes.

As of December 31, 2022 and 2021, respectively, we had state net operating loss carryforwards of approximately $0 million and $28 million, respectively, available to reduce future Florida taxable income. We had no uncertain tax positions as of December 31, 2022 and December 31, 2021.

Our effective income tax rate was 20.7% and 25.0%, respectively, for fiscal year 2022 and fiscal year 2021. The difference in the effective rates between periods is driven by the stock compensation windfall tax benefit due to an increase in the number of awards exercised in the current period. Differences in the effective tax and the statutory federal income tax rate of 21% are driven by state income taxes and anticipated annual permanent differences, and offset by the orphan drug credit claimed. The effective tax rate is affected by many factors, including the number of stock options exercised in any period, and our effective tax rate is likely to fluctuate in future periods (and may be higher in future periods than it was in 2022).

Net Income.

Our net income was approximately $83.1 million in the year ended December 31, 2022 ($0.80 per basic and $0.75 per diluted share) as compared to $39.5 million in the year ended December 31, 2021 ($0.38 per basic and $0.37 per diluted share).

Years Ended December 31, 2021 and 2020

The information comparing results of operations for the year ended 2021 compared to 2020 was included in our Annual Report on Form 10-K for 2021.

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Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through multiple offerings of our securities and, since January 2019, from revenues from product sales of FIRDAPSE®. At December 31, 2022 we had cash and cash equivalents aggregating $298.4 million and working capital of $263.2 million. At December 31, 2021, we had cash and cash equivalents and investments aggregating $191.3 million and working capital of $183.0 million. At December 31, 2022, substantially all of our cash and cash equivalents were deposited with one financial institution, and such balances were in excess of federally insured limits. Further, as of such date, substantially all such funds were invested in money market accounts, short-term interest bearing obligations and U.S. Treasuries.

Based on forecasts of available cash, we believe that we have sufficient resources to support our currently anticipated operations for at least the next 12 months from the date of this report. There can be no assurance that we will remain profitable or that we will be able to obtain any additional funding that we may require in the future.

In the future, we may require additional working capital to support our operations depending on our future success with FIRDAPSE® sales, or the products we acquire and continue to develop and whether our results continue to be profitable and cash flow positive. 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:

We may raise additional funds through public or private equity offerings, debt financings, corporate collaborations or other means. We also may seek governmental grants for a portion of the required funding for our clinical trials and preclinical trials. We may further seek to raise capital to fund additional product development efforts or product acquisitions, 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 technologies 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.

On July 23, 2020, we filed a shelf registration statement with the SEC to sell up to $200 million of common stock, preferred stock, warrants to purchase common stock, debt securities and units consisting of one or more of such securities (the “2020 Shelf Registration Statement”). The 2020 Shelf Registration Statement (file no. 333-240052) was declared effective by the SEC on July 31, 2020. As of the date of this report, no offerings have been completed under the 2020 Shelf Registration Statement.

Cash Flows.

Net cash provided by operating activities was $116.0 million and $60.4 million, respectively, for the years ended December 31, 2022 and 2021. During the year ended December 31, 2022, net cash provided by operating activities was primarily attributable to our net income of $83.1 million, a decrease of $1.1 million in inventory, increases of $1.2 million in accounts payable and $16.4 million in accrued expenses and other liabilities, $4.9 million in deferred taxes, $4.1 million in acquired research and development inventory expensed from asset acquisition and of $10.2 million of non-cash expenses. This was partially offset by increases of $3.8 million in

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accounts receivable, net and $0.8 million in prepaid expenses and other current assets and deposits and a decrease of $0.3 million in operating lease liability. During the year ended December 31, 2021, net cash provided by operating activities was primarily attributable to our net income of $39.5 million, a decrease of $4.0 million in prepaid expenses and other current assets and deposits, increases of $5.5 million in accrued expenses and other liabilities, $0.9 million in operating lease liability, $9.3 million in deferred taxes and of $6.6 million of non-cash expenses. This was partially offset by increases of $0.6 million in accounts receivable, net and $3.2 million in inventory and a decrease of $1.5 million in accounts payable.

Net cash provided by investing activities during the year ended December 31, 2022 was $9.2 million and consisted primarily of proceeds from the sale of available-for-sale securities of $19.2 million, offset partially by payment in connection with license agreement of $10.0 million. Net cash used in investing activities was $11.0 million for the year ended December 31, 2021, consisting primarily of purchases of investments.

Net cash provided by financing activities during the year ended December 31, 2022 was $1.7 million, consisting primarily of proceeds from the exercise of options to purchase shares of common stock, partially offset by repurchases of common stock. Net cash used in financing activities during the year ended December 31, 2021 was $8.1 million, consisting primarily of repurchases of common stock, partially offset by proceeds from the exercise of options to purchase shares of common stock.

Contractual Obligations and Arrangements.

We have entered into the following contractual arrangements with respect to sales of FIRDAPSE®:

For the year ended December 31, 2022, we recognized an aggregate of approximately $32.1 million of royalties payable under these license agreements, which is included in cost of sales in the accompanying consolidated statements of operations and comprehensive income.

Further, if DyDo is successful in obtaining the right to commercialize FIRDAPSE® in Japan, we will pay royalties to our licensor on net sales in Japan equal to a similar percentage to the royalties that we are currently paying under our original license agreement for North America.

Royalties will be trued up at the end of the year to the extent that royalties on net sales are below the minimum royalty.

For the year ended December 31, 2022, we recognized an aggregate of approximately $1.6 million of royalties payable to Jacobus.

We also have entered into the following contractual arrangements:

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Off-Balance Sheet Arrangements.

We do not have any off-balance sheet arrangements as such term is defined in rules promulgated by the SEC.

Caution Concerning Forward-Looking Statements

This report contains “forward-looking statements”, as that term is defined in the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, plans or objectives for future operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, “believes”, “anticipates”, “proposes”, “plans”, “expects”, “intends”, “may”, and other similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or other achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the section entitled “Item 1A – Risk Factors.”

The continued successful commercialization of FIRDAPSE® and FYCOMPA® are highly uncertain. Factors that will affect our success include the uncertainty of:

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Our current plans and objectives are based on assumptions relating to the continued commercialization of FIRDAPSE® and FYCOMPA® and on our plans to seek to acquire or in-license additional products. Although we believe that our assumptions are reasonable, any of our assumptions could prove inaccurate. Considering the significant uncertainties inherent in the forward-looking statements we have made herein, which reflect our views only as of the date of this report, you should not place undue reliance upon such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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Basis of Presentation

Revenues.

During the fiscal year ended December 31, 2021, we continued to generate revenues from product sales of FIRDAPSE
®
in the U.S. We expect these revenues to fluctuate in future periods based on our sales of FIRDAPSE
®
. We received approval from Health Canada on July 31, 2020, for FIRDAPSE
®
for the symptomatic treatment of LEMS and as of December 31, 2020, we had launched FIRDAPSE
®
in Canada. During the fiscal year ended December 31, 2021, revenues generated under our collaboration agreement with KYE Pharmaceuticals were immaterial. We expect our revenues from the KYE collaboration agreement to fluctuate in future periods based on our collaborator’s ability to sell FIRDAPSE
®
in Canada.

For the fiscal year ended December 31, 2021, we did not generate revenues under our collaborative agreement with Endo. We expect our revenues from the Endo collaborative agreement to fluctuate in future periods based on our collaborator’s ability to meet various regulatory milestones set forth in such agreement.

For the fiscal year ended December 31, 2021, we generated revenues of approximately $2.9 million from our collaborative agreement with DyDo Pharma. We expect our revenue from the DyDo license agreement to fluctuate in future periods based on DyDo’s ability to meet various regulatory milestones set forth in such agreement.

Cost of Sales.

Cost of sales consists of third-party manufacturing costs, freight, royalties, and indirect overhead costs associated with sales of FIRDAPSE
®
. Cost of sales may also include period costs related to certain inventory manufacturing services, inventory adjustments charges, unabsorbed manufacturing and overhead costs, and manufacturing variances.

Research and Development Expenses.

Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as support for selected investigator-sponsored research. The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, consulting, 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 FIRDAPSE
®
,
CPP-109
(our version of vigabatrin), and formerly
CPP-115,
and until we acquire or license new products we currently expect that our future development costs will be attributable principally to the continued development of FIRDAPSE
®
.

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 (CROs). In the normal course of our 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

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payment flows. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, 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 consolidated financial statements to the actual services received and efforts expended. As such, expense accruals related to preclinical 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. Preclinical and clinical study and trial activities require significant
up-front
expenditures. We anticipate paying significant portions of a study or trial’s cost before they begin and incurring additional expenditures as the study or trial progresses and reaches certain milestones.

Selling, General and Administrative Expenses.

During 2019, we actively committed funds to developing our commercialization program for FIRDAPSE
®
and we have continued to incur substantial commercialization expenses, including sales, marketing, patient services, patient advocacy and other commercialization related expenses as we have continued our sales program for FIRDAPSE
®
.

Our general and administrative expenses consist primarily of salaries and personnel expenses for accounting, corporate, compliance, and administrative functions. Other costs include administrative facility costs, regulatory fees, insurance, and professional fees for legal including litigation cost, information technology, accounting, and consulting services.

Stock-Based Compensation.

We recognize expense for the fair value of all stock-based awards to employees, directors, and consultants in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). For stock options, we use the Black-Scholes option valuation model in calculating the fair value of the awards.

Income Taxes.

Our effective income tax rate is the ratio of income tax expense (benefit) over our income before income taxes.

We incurred operating losses from inception through the three-month period ended March 31, 2019. As of December 31, 2021 and 2020, respectively, we had federal net operating loss carry-forwards of approximately $0 million and $3 million. Additionally, we had state net operating loss carry-forwards of approximately $28 million and $42 million, respectively, available to reduce future Florida taxable income for the years ended December 31, 2021 and 2020.

In the third quarter of 2020, we determined that there was sufficient positive evidence to conclude that it is more likely than not that our additional deferred taxes of approximately $33.0 million are realizable. As a result, we reduced the valuation allowance accordingly.

Recently Issued Accounting Standards.

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

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue and expenses during the reporting periods. 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 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.

The amounts of assets and liabilities reported in our consolidated balance sheets and the amounts reported in our consolidated statements of comprehensive income are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, leases, preclinical study and clinical trial expenses, stock-based compensation and valuation allowance for deferred tax assets. The accounting policies described below are not intended to be a comprehensive list of all of our accounting policies but represent the accounting estimates which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP. There are also areas in which our management’s judgment in selecting any available alternative would not produce a materially different result. Our consolidated financial statements and the notes thereto included elsewhere in this report contain accounting policies and other disclosures as required by U.S. GAAP.

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Revenue Recognition.

Revenue from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts with our customer, payors, and other indirect customers relating to the sale of our products. These reserves are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the respective underlying contracts.

The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Our analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates as of December 31, 2021 and 2020 and, therefore, the transaction price was not reduced further during the years ended December 31, 2021 and 2020. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. Refer to Note 2, “Basis of Presentation and Significant Accounting Policies,” in the consolidated financial statements included in this report for further details on revenue recognition.

Stock-Based Compensation.

We recognize stock-based compensation for the fair value of all share-based payments, including grants of stock options and restricted stock units. For stock options, we use the Black-Scholes option valuation model to determine the fair value of stock options on the date of grant. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield. Expected volatility is based on reviews of historical volatility of our common stock. The estimated expected option life is based upon the simplified method. Under this method, the expected option life is presumed to be the
mid-point
between the vesting date and the end of the contractual term. We will continue to use the simplified method until we have sufficient historical exercise data to estimate the expected life of the options. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve appropriate for the expected life of our stock option awards. For the years ended December 31, 2021 and 2020, the assumptions used were an estimated annual volatility of 70.0% and 81.4%, expected holding periods of primarily four and a half years, and risk-free interest rates of 0.34% to 1.18% and 0.24% to 1.64%, respectively.

Valuation Allowance for Deferred Tax Assets.

We assess the need for a valuation allowance against our deferred tax asset each quarter through the review of all available positive and negative evidence. Deferred tax assets are reduced by a tax valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Management’s analysis depends on historical and projected taxable income. Projected taxable income includes significant assumptions related to revenue, commercial expenses and research and development activities. In the third quarter of 2020, we determined that there was sufficient positive evidence to conclude that it is more likely than not that our additional deferred taxes are realizable. As a result, we reduced the valuation allowance accordingly.

Results of Operations

Years Ended December 31, 2021 and 2020

Revenues.

For the year ended December 31, 2021, we recognized $138.0 million in net revenue from product sales of FIRDAPSE
®
primarily in the U.S. compared to $118.8 million for the year ended December 31, 2020. The increase of approximately $19.2 million was due to increases in sales volumes of approximately 10.4% and net price increases. For the year ended December 31, 2021, we also recognized $2.8 million in license and other revenue, as compared to $0.3 million during the year ended December 31, 2020. The increase was primarily due to our license agreement with DyDo Pharma for the commercialization of FIRDAPSE
®
in Japan that was signed in 2021.

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Cost of Sales.

Cost of sales was approximately $21.9 million for the year ended December 31, 2021, compared to $17.0 million for the year ended December 31, 2020. Cost of sales in both periods consisted principally of royalty payments, which are based on net revenue as defined in the applicable license agreement. Royalties are payable on the terms set forth below in Liquidity and Capital Resources -

Contractual Obligations and Arrangements

, and increase by 3% when net sales (as defined in the applicable license agreement) exceed $100 million in any calendar year.

Research and Development Expenses.

Research and development expenses for the years ended December 31, 2021 and 2020 were approximately $16.9 million and $16.5 million, respectively, and represented approximately 19% and 21% of total operating costs and expenses, respectively. Research and development expenses for the years ended December 31, 2021 and 2020 were as follows (in thousands):

Research and development expenses stayed relatively consistent for the 2021 fiscal year, when compared to the same period in 2020. For the 2020 fiscal year, research and development expenses included costs related to
our MuSK-MG
clinical trial and our SMA type

3 proof-of-concept trial,

both of which were completed in the second half of 2020. For the fiscal year ended December 31, 2021, research and development expenses included costs relating to closing out sites for both
the MuSK-MG
clinical trial and SMA type 3

proof-of-concept

trial. Research and development costs in both the 2020 and 2021 periods also included expenses relating to medical and regulatory affairs, our expanded access programs, and our efforts to develop a long-acting formulation of amifampridine phosphate.

We expect that research and development expenses will continue to be substantial in 2022 and beyond as we execute on our strategic initiative to acquire
or in-license innovative
technology platforms and/or earlier stage programs in rare disease categories outside of neuromuscular diseases.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses for the years ended December 31, 2021 and 2020 were approximately $49.6 million and $44.2 million, respectively, and represented approximately 56% and 57% of total operating costs and expenses for the years ended December 31, 2021, and 2020, respectively. Selling, general and administrative expenses for the years ended December 31, 2021 and 2020 were as follows (in thousands):

For the year ended December 31, 2021, selling, general and administrative expenses increased approximately $5.4 million, compared to the same period in 2020, primarily attributable to the timing of our commitments to make contributions to 501(c)(3) organizations supporting LEMS patients of approximately $1 million and increases of legal fees of approximately $1.9 million. The increase was also due to increased costs due to the expansion of our operations and headcount required to support our ongoing efforts to commercialize FIRDAPSE
®
.

We expect that selling, general and administrative expenses will continue to be substantial in future periods as we continue our efforts to increase our revenues from FIRDAPSE
®
and take steps to expand our business.

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Stock-Based Compensation.

Total stock-based compensation for the years ended December 31, 2021 and 2020 was $6.1 million and $6.3 million, respectively. In 2021 and 2020, grants were principally for stock options relating to
year-end
bonus awards and grants to new employees.

Other Income, Net.

We reported other income, net in all periods, primarily relating to our investment of our cash and cash equivalents and investments. The decrease in other income, net for the year ended December 31, 2021 of approximately $0.3 million when compared to the same period in 2020 is primarily due to lower yields on investments, despite higher invested balances. Other income, net, consists primarily of interest and dividend income.

Income Taxes.

As of December 31, 2021 and 2020, respectively, we had federal net operating loss carryforwards of approximately $0 million and $3 million. The federal net operating loss carryforwards were utilized in 2020. Additionally, we had state net operating loss carryforwards of approximately $28 million and $42 million, respectively, available to reduce future Florida taxable income. We had no uncertain tax positions as of December 31, 2021 and December 31, 2020.

For the year ending December 31, 2020 we recorded a net valuation release of $41.6 million ($0.40 per basic share and $0.39 per diluted share) on the basis of management’s determination that it is more likely than not that the amount of our deferred tax assets will be realized.

Our effective income tax rate was 25% and (79%), respectively, for fiscal year 2021 and fiscal year 2020. The difference in the effective rates between periods is driven by the release of the valuation allowance against deferred taxes in the third quarter of 2020. Differences in the effective tax and the statutory federal income tax rate of 21% are driven by state income taxes and anticipated annual permanent differences, and offset by the orphan drug credit claimed.

Net Income.

Our net income was approximately $39.5 million in the year ended December 31, 2021 ($0.38 per basic and $0.37 per diluted share) as compared to $75.0 million in the year ended December 31, 2020 ($0.72 per basic and $0.71 per diluted share).

Years Ended December 31, 2020 and 2019

The information comparing results of operations for the year ended 2020 compared to 2019 was included in our Annual Report on Form
10-K
for 2020.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through multiple offerings of our securities and, since January 2019, from revenues from product sales of FIRDAPSE
®
. At December 31, 2021 we had cash and cash equivalents and investments aggregating $191.3 million and working capital of $183.0 million. At December 31, 2020, we had cash and cash equivalents and investments aggregating $140.3 million and working capital of $136.5 million. At December 31, 2021, substantially all of our cash and cash equivalents were deposited with one financial institution, and such balances were in excess of federally insured limits. Further, as of such date, substantially all such funds were invested in money market accounts, short-term interest bearing obligations and U.S. Treasuries.

Based on forecasts of available cash, we believe that we have sufficient resources to support our currently anticipated operations for at least the next 12 months from the date of this report. There can be no assurance that we will remain profitable or that we will be able to obtain any additional funding that we may require in the future.

In the future, we may require additional working capital to support our operations depending on our future success with FIRDAPSE
®
sales, or the products we acquire and continue to develop and whether our results continue to be profitable and cash flow positive. 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:

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We may raise additional funds through public or private equity offerings, debt financings, corporate collaborations or other means. We also may seek governmental grants for a portion of the required funding for our clinical trials and preclinical trials. We may further seek to raise capital to fund additional product development efforts or product acquisitions, 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 technologies 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.

On July 23, 2020, we filed a shelf registration statement with the SEC to sell up to $200 million of common stock, preferred stock, warrants to purchase common stock, debt securities and units consisting of one or more of such securities (the “2020 Shelf Registration Statement”). The 2020 Shelf Registration Statement (file no.
333-240052)
was declared effective by the SEC on July 31, 2020. As of the date of this report, no offerings have been completed under the 2020 Shelf Registration Statement.

Cash Flows.

Net cash provided by operating activities was $60.4 million and $45.0 million, respectively, for the years ended December 31, 2021 and 2020. During the year ended December 31, 2021, net cash provided by operating activities was primarily attributable to our net income of $39.5 million, a decrease of $4.0 million in prepaid expenses and other current and
non-current
assets, increases of $5.5 million in accrued expenses and other liabilities, $0.9 million in operating lease liability, $9.3 million in deferred taxes and of $6.6 million of
non-cash
expenses. This was partially offset by increases of $0.6 million in accounts receivable, net and $3.2 million in inventory and a decrease of $1.5 million in accounts payable. During the year ended December 31, 2020, net cash provided by operating activities was primarily attributable to our net income of $75.0 million, a decrease of $4.5 million in accounts receivable, net, an increase of $0.1 million in accounts payable and $7.1 million net of
non-cash
expenses. This was partially offset by increases of $4.0 million in prepaid expenses and other current and
non-current
assets and $2.7 million in inventory and decreases of $1.2 million in accrued expenses and other liabilities, $0.9 million in operating lease liability and $33.0 million in
non-cash
deferred taxes.

Net cash used in investing activities was $11.0 million for the year ended December 31, 2021, consisting primarily of purchases of investments. Net cash used in investing activities was $5.0 million for the year ended December 31, 2020, consisting primarily of purchases of investments of $10.0 million, partially offset by proceeds from sales/maturities of investments of $5.0 million.

Net cash used in financing activities during the year ended December 31, 2021 was $8.1 million, consisting primarily of repurchases of common stock, partially offset by proceeds from the exercise of options to purchase shares of common stock. Net cash provided by financing activities during the year ended December 31, 2020 was $0.7 million, consisting primarily of proceeds from the exercise of options to purchase shares of common stock.

Contractual Obligations and Arrangements.

We have entered into the following contractual arrangements:

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For the year ended December 31, 2021, we recognized an aggregate of approximately $19.5 million of royalties, which is included in cost of sales in the accompanying consolidated statement of operations and comprehensive income.

Off-Balance
Sheet Arrangements.

We currently have no debt or finance leases. We have an operating lease for our office facilities. We do not have any
off-balance
sheet arrangements as such term is defined in rules promulgated by the SEC.

Caution Concerning Forward-Looking Statements

This report contains “forward-looking statements”, as that term is defined in the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, plans or objectives for future operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, “believes”, “anticipates”, “proposes”, “plans”, “expects”, “intends”, “may”, and other similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or other achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the section entitled “Item 1A – Risk Factors.”

The continued successful commercialization of FIRDAPSE
®
is highly uncertain. Factors that will affect our success include the uncertainty of:

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Our current plans and objectives are based on assumptions relating to the continued commercialization of FIRDAPSE
®
. Although we believe that our assumptions are reasonable, any of our assumptions could prove inaccurate. In light of the significant uncertainties inherent in the forward-looking statements we have made herein, which reflect our views only as of the date of this report, you should not place undue reliance upon such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.