Catalyst Pharmaceuticals - Q2 2023

Transcript

Operator (participant)

Hello, and welcome to the Catalyst Pharmaceuticals Second Quarter 2023 Financial Results Conference Call and Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A Q&A session will follow the formal presentation. You may press star 1 at any time to be placed in the question queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Chief Financial Officer, Alicia Grande. Please go ahead, Ali.

Alicia Grande (CFO)

Good morning, everyone. Thank you for joining our conference call to discuss Catalyst's second quarter 2023 financial results and corporate highlights. Leading the call today is Patrick McEnany, Chairman and Chief Executive Officer. We are also joined by Dr. Steven R. Miller, our Chief Operating Officer and Chief Scientific Officer, and Jeffrey Del Carmen, our Chief Commercial Officer. Before we begin, I want to remind you that in our remarks this morning and in the Q&A session, we will make statements about expected future results, which may be forward-looking statements for purposes of federal securities laws. The statements relate to our current expectations, estimates, and projections and do not guarantee future performance. They involve risk, uncertainties, and assumptions that are difficult to predict and may prove not to be accurate. Actual results may vary from the expectations contained in our forward-looking statements.

Forward-looking statements should be considered only in conjunction with the detailed information contained in our SEC filings, including the risk factors described in our 2022 annual report on Form 10-K. At this time, I'll turn the call over to Pat.

Patrick McEnany (Chairman and CEO)

Thanks, Alicia. Welcome everyone to our Second Quarter 2023 Results Conference Call. Catalyst's outstanding results for the second quarter of 2023 reflect FIRDAPSE's strong organic growth performance, meaningful FYCOMPA revenue contributions, and continued execution excellence. Our achievements reinforce our confidence for sustained growth and further underscore the exceptional execution capabilities across all functional areas of our business. At this time, I'll present key highlights of our quarterly results. We achieved total revenues of $99.6 million during the quarter, representing 87.5% growth year-over-year. The strong performance reflects FIRDAPSE product net revenues of $64.9 million, achieving a net revenue increase of 22.3% year-over-year.

We are confident about the continued growth expectations for FIRDAPSE based on our recent initiatives targeting oncologists to treat the subset of LEMS patients suffering from small cell lung cancer, as well as more recent LEMS epidemiology data that Jeff will discuss. Total revenues were bolstered by FYCOMPA's second quarter net product revenue contribution of $34.6 million, the first full quarter under the Catalyst umbrella. Non-GAAP net income for the second quarter was $60.4 million, or $0.57 per basic share and $0.53 per diluted share. This excludes from GAAP net income, non-cash stock-based compensation, depreciation, amortization of intangible assets in our income tax provision. The expenses related to the amortization of the intangible assets associated with the acquisition of FYCOMPA and Ruzurgi are approximately $8.5 million for the quarter and $3.3 million in non-cash stock-based compensation.

GAAP net income for the second quarter was $37.8 million, or $0.36 per basic share and $0.33 per diluted share. We ended the quarter with cash and cash equivalents of $178.8 million. Several factors, including continued strong underlying demand for FIRDAPSE from both autoimmune and small cell lung cancer LEMS patients, as well as continued diagnosis of new LEMS patients, provides us with the confidence to raise our total net revenue guidance for 2023 of between $380 million-$390 million. Ali will provide more detailed financial highlights during her discussions in this call. Our operational synergies have been strong, and we are pleased by the efficiencies and enthusiasm demonstrated by our teams in achieving the successful commercial and medical affairs integration of FYCOMPA into our product portfolio.

With the integration nearly complete, we are focused on realizing the product's full potential. In July, we further diversified Catalyst's product portfolio with the addition of vamorolone, a promising dissociative anti-inflammatory steroid candidate for the treatment of Duchenne Muscular Dystrophy, or DMD, a devastating rare neuromuscular disease. As part of the DMD treatment regimen, steroids such as prednisone are commonly administered in addition to other therapies and are known to have notable side effect burden. Vamorolone has the potential to be an innovative new treatment option to address this important unmet need. In clinical studies, vamorolone demonstrated efficacy with a significant reduction of steroid-associated side effects and benefits for both health, bone health, growth and height, and behavior, along with reduced cardiovascular and pulmonary risk longer term. Vamorolone has been granted orphan drug and fast track designation and assigned a PDUFA action date of October 26, 2023.

If approved, it would serve as a meaningful advancement to the current DMD standard of care treatment paradigm and represent a pivotal reflection point for the company's growth potential. We anticipate the commercial launch in Q1 of 2024 based on the current timeline. Lastly, with regard to vamorolone, we'll have more details to provide in our third quarter conference call regarding our commercial launch details, financial impact, and expectations for the near and longer term. I want to take this opportunity to make several accounting points on the vamorolone program. We believe that we will take a one-time third quarter charge of $75 million for the acquisition of the vamorolone license, as that expense is considered in-process R&D, because vamorolone is not as of yet FDA approved or commercial.

As part of the transaction, we made an approximate $15 million investment in Santhera, representing approximately 11% ownership in Santhera. That investment will be recorded on the balance sheet and marked to the market at the end of each quarter. Additionally, we anticipate a modest increase in OpEx in the second half of this year, as we prepare for the anticipated launch of Vamorolone in Q1 of next year. Steve, Jeff, and Ali will have more to say about the Vamorolone program shortly. Last week, we submitted the supplemental NDA to the FDA, seeking to increase the maximum daily dose of FIRDAPSE from 80 to 100 milligrams. We believe that a substantial number of LEMS patients may benefit from an approved increased dosage, and we are confident that this has the potential to address an important need for these patients.

In Japan, our Japanese partner, DyDo Pharma, continued to make meaningful progress with its ongoing phase III study of FIRDAPSE or amifampridine. In mid-July, they reported positive interim phase III results. We now anticipate the NDA submission to the PMDA in Japan by the end of this year. Upon submitting the NDA for FIRDAPSE in Japan, our territorial rights to develop and market FIRDAPSE under the license with SERB, previously BioMarin, expands to include key markets in Asia, Australia, South and Central America. We plan to use this expansion to accelerate our global growth strategy for FIRDAPSE, first into targeted markets like China and South Korea, before evaluating and pursuing others. Initiatives are underway to identify potential partners in these targeted territories as part of our strategic plan. We look forward to providing further updates on these activities after the NDA submission in Japan.

Clearly, we've been very busy on the business development front, as I discussed earlier. We continue to successfully execute our portfolio expansion efforts, as well as our continuing effort to identify additional assets for potential acquisition or in-licensing in the rare neurology and epilepsy therapeutic areas and expand the geographical footprint of our existing products. We are reviewing additional therapies that are commercial stage and/or late-stage product development. As Jeff will discuss, the recent in-licensing of Vamorolone is a synergistic addition to our FIRDAPSE commercial and medical affairs teams, which will enable Catalyst to provide high levels of service to both DMD physicians and patients, and highlights part of our strategy to add new products that leverage our expertise, capabilities, and rare disease infrastructure. Our investments in the two new assets attained this year align with our capital allocation priorities.

Our fiscal discipline has enabled us to fully fund these programs in the entirety using available cash reserves. Our operational and commercial performance continues to fortify our growing cash position, providing a strong foundation to support our future growth initiatives. We expect to have an event-driven second half of the year that started with the closing of the license for vamorolone in July. The submission of the supplemental NDA to the FDA last week to increase the maximum daily dose of FIRDAPSE from 80-100 milligrams per day. Just several months away now from a PDUFA action date of October 26 for vamorolone, as well as the NDA submission in Japan by DyDo Pharma by year-end. As we move forward in the second half of this year and into next year, our business plan is fairly straightforward.

Continue to grow the FIRDAPSE and FYCOMPA brands, defend vigorously all of our intellectual property, prepare for a highly successful launch of vamorolone, geographic expansion of our FIRDAPSE footprint, and to bring in another product or company, ideally, an epilepsy program. This past quarter, we're pleased to announce the appointment of Tamar Thompson to Catalyst Board of Directors. Her knowledge and experience in rare diseases, health policy, and government affairs will add valuable insights to our board and strategic planning. I wanna take this time to acknowledge and thank our very patient-centric and dedicated team here at Catalyst for all that they do every day to improve the lives of people that are suffering with rare neurological conditions. I'll now turn the call over to Jeff Del Carmen, our Chief Commercial Officer, who will update you on our commercial activities.

Jeff Del Carmen (EVP and Chief Commercial Officer)

Thanks, Pat. Good morning, everyone. We are very pleased with the Q2 combined net revenue of $99.6 million, fueled by FIRDAPSE's all-time high $64.9 million revenues and meaningful FYCOMPA revenue contributions of $34.6 million, positioning Catalyst well to achieve our revised revenue guidance of $380 million-$390 million. I'd like to begin by discussing our progress with FIRDAPSE, the only FDA-approved treatment for LEMS. Q2 net sales of $64.9 million represents a 22% increase quarter over the same quarter last year, a 12.8% increase quarter-over-quarter. A direct result of steady new patient starts and low discontinuation rates. As a reminder, LEMS is a chronic condition, patients typically remain on treatment once diagnosed.

Prescription approval rates were greater than 90% across all payers, government or private commercial insurers. Patients enrolled in Catalyst Pathways, including those who are covered by Medicare and accessing foundation assistance, had an average copay of less than $2 per month. Sustained organic growth will be driven by several key areas. First, we have a pipeline of greater than 450 patients that are diagnosed with LEMS, but not yet on FIRDAPSE. Approximately 50% of new enrollments are generated from these leads. We have identified additional sources for potential new LEMS patients that will enable us to maintain a high level of quality lead for the foreseeable future. Next, our LEMS education programs have resulted in a significant increase in both calcium channel antibody tests, which shorten the diagnostic journey for LEMS patients and lead to more patients being eligible for treatment with FIRDAPSE.

It is important to note that we provide these tests at no cost to patients through a partnership with a national laboratory. Additionally, our focused educational efforts to thoracic oncologists are working. We continue to see an increase in the number of diagnosed small cell lung cancer LEMS patients. The oncology thought leader liaisons have actively focused on the top 30 thoracic oncology centers to accelerate the diagnosis of small cell lung cancer LEMS patients. Currently, we assess that greater than 80% of small cell lung cancer LEMS patients are undiagnosed, representing a significant opportunity for growth. We are pleased to report that in the coming weeks, the results from a quantitative small cell lung cancer LEMS market size analysis will be presented at an upcoming leading lung conference, which will provide further insight into the small cell lung cancer LEMS patient population.

This analysis is part of an initiative to reassess the LEMS market size, which may increase the overall prevalence above 3,000 LEMS patients in the U.S. We hope to provide an update later in Q3. Now, I would like to provide some highlights of our progress with FYCOMPA. We swiftly executed the seamless integration of FYCOMPA into our newly established epilepsy franchise. While we are still in the early stages, FYCOMPA commercialization is progressing well and in line with our expectations. We successfully onboarded and trained 27 FYCOMPA regional account managers, equipped with the necessary tools and knowledge to hit the ground running for their first full quarter with Catalyst. We are encouraged by the continued adoption of FYCOMPA, as well as the overwhelming support from key opinion leaders and advocacy within the epilepsy community.

Q2 net revenues for FYCOMPA were $34.6 million, which adds further confidence toward achieving our FYCOMPA full year 2023 revenue estimate of $130 million. As I have mentioned, adding FYCOMPA to our portfolio is an ideal strategic fit for our existing commercial infrastructure, with a 45% overlap in FYCOMPA and FIRDAPSE prescribers and increased share of voice that will benefit both franchises in driving growth. We will begin to fully leverage this overlap later this year. Let's turn to vamorolone, a promising best-in-class dissociative anti-inflammatory steroid treatment for DMD. The U.S. prevalence for DMD is estimated to be between 11,000 and 13,000 patients. Corticosteroids are the current standard of care for treating DMD. Of patients currently being treated for DMD, approximately 75% of these patients receive concomitant steroid treatment. However, steroid treatment is associated with significant side effects.

We believe vamorolone, if approved, would offer an advancement to the current treatment paradigm, addressing an important unmet need for DMD patients and caregivers. If approved by the PDUFA date of October 26th, 2023, we expect a commercial launch in the first quarter of 2024. We plan to integrate vamorolone into our neuromuscular franchise, where we can leverage the team's demonstrated capabilities, commercial expertise, and experience. We anticipate minimal sales and marketing personnel expansion, with fewer than 10 additional team members required. If approved, vamorolone will be supported by our best-in-class Catalyst Pathways program to help ensure that all eligible patients can access the product. In summary, we are very pleased with Q2 results and confident in achieving our revised 2023 revenue guidance of $380 million-$390 million.

Additionally, we will leverage our demonstrated commercial capabilities as we prepare for the expected launch of vamorolone. I want to thank the entire team at Catalyst for their unwavering commitment to patients and look forward to a successful second half of 2023. I will now turn the call over to Dr. Steven Miller, our Chief Operating Officer and Chief Scientific Officer, for an update on R&D activities.

Steven R. Miller (EVP, COO and Chief Scientific Officer)

Thanks, Jeff. Our clinical development and regulatory strategy for FIRDAPSE continues to focus on expanding access to all LEMS patients, enhancing the FIRDAPSE patent estate to maximize its commercial potential, and integrating the newly acquired FYCOMPA and vamorolone products into Catalyst's organization. First, I would like to discuss our development efforts to increase the indicated maximum dose of FIRDAPSE from 80 milligrams per day to 100 milligrams per day. Catalyst has now submitted a supplemental NDA to the FDA for this change to the maximum daily dose. While there can be no assurance of acceptance or approval of this sNDA, barring any significant issues with the submission, Catalyst anticipates completion of the agency's review in the first quarter of 2024.

Currently, there are a number of LEMS patients who are already being treated at 100 milligram daily dosage of FIRDAPSE after their physician worked with the pharmacy and insurance providers to justify the higher dose. Other patients on the current indicated maximum dose of 80 milligrams per day, and their physicians, have expressed a desire to increase the patient's daily dosage to 100 milligrams to optimize, optimize therapy. This supplement, if approved, will help those patients. Based on our Type C meeting with the FDA in May of this year, we believe that our submission strategy constitutes an acceptable basis for seeking a 100 milligram maximum daily dosage for FIRDAPSE. Regarding our global expansion, we anticipate that DyDo Pharma, our partner in Japan, will submit their NDA for FIRDAPSE to the Pharmaceuticals and Medical Devices Agency, or PMDA, by the end of 2023.

We estimate that there are about 1,200 to 1,300 LEMS patients in Japan. Submissions of this type typically take about 10 months to review by the PMDA, but there can be no assurance that such a submission will be found approvable within this 10-month period. As previously reported, Catalyst acquired U.S. rights to FYCOMPA or perampanel, which is the first and only approved AMPA receptor antagonist or inhibitor. FYCOMPA is approved as an antiseizure medication to treat partial onset seizures, with or without secondarily generalized seizures in people with epilepsy who are 4 years of age or older, and with other medicines to treat primary generalized tonic-clonic seizures in people with epilepsy who are 12 years of age or older. As previously reported in March, an article published in Epilepsia showed that perampanel effectively reduces seizures in patients with eight different rare genetic epilepsies.

In the second quarter, researchers published four abstracts highlighting FYCOMPA that were subsequently presented both at the 2023 AAN meeting in Boston this quarter and virtually. These were encore presentations sponsored by Eisai, who continues to hold the rights to FYCOMPA in countries and regions outside the U.S. The published abstracts detail the results from four independent clinical studies, further documenting the uses of perampanel in both focal and generalized epilepsy across a diverse range of patients, including those with a history of psychiatric and behavioral events, underage patients, and patients with seizures linked to Lennox-Gastaut Syndrome or LGS. Just this month, researchers published 3 papers summarizing studies of the first safety and efficacy of FYCOMPA in pediatric patients. Second, a study on the use of IV FYCOMPA as an alternative to oral FYCOMPA in epilepsy patients.

Third, a global pooled real-world extension study focusing on perampanel efficacy and safety by age group when treating focal and generalized epilepsy. Taken as a whole, all this academic research activity highlights the interest in FYCOMPA's unique mechanism of action, its potential to treat a variety of rare and refractory epilepsies, and the ongoing evolution of the epilepsy field toward precision medicine and identification and treatment of rare epilepsies in an area of great interest to Catalyst. Next, I would like to discuss our recent in-licensing of vamorolone for the treatment of Duchenne Muscular Dystrophy, or DMD, from Santhera for the North American territory. Vamorolone is a promising dissociative anti-inflammatory steroid treatment for DMD.

In clinical studies, vamorolone demonstrated efficacy with a significant reduction of corticosteroid-associated side effects and benefits for bone health, growth, and behavior, offering the potential to address an important unmet medical need in DMD patients. Vamorolone has received FDA orphan drug and fast track designations and has been granted a PDUFA action date of October 26th, 2023. The FDA has also granted vamorolone Rare Pediatric Disease Designation. DMD is a rare genetic disorder occurring in about 600 male newborns each year. The prevalence is about 11,000-13,000 patients and is gradually increasing as the available treatments continue to increase the survival of patients suffering from this tragic disease. DMD is a condition that weakens skeletal and heart muscle that quickly gets worse with time and is the most common form of Muscular Dystrophy.

It is an X-linked genetic defect to the dystrophin gene, and like virtually all X-linked diseases, almost exclusively affects males. Approximately 30% of the patients are amenable to one of the approved exon-skipping therapies, with the other 70% needing other treatments like corticosteroids. However, even the patients treated with exon-skipping treatments continue to need other treatments, like corticosteroids at some level. The majority of DMD cases are inherited from their mother, who is the defective gene carrier, but approximately 30% of the cases are due to new spontaneous genetic mutations that happen randomly and are not inherited.

The Parent Project Muscular Dystrophy, or PPMD, reported just this month that an average age of diagnosis is 4.2 years, and the average initiation of corticosteroid use is 5.9 years, with 83% of patients taking corticosteroids daily and the remainder taking corticosteroids on a less frequent basis, presumably for safety reasons. This report was based on a registry of 5,498 patients spanning 15 years of treatment. It is anticipated that vamorolone may be safer in routine clinical use and may lead to earlier initiation of therapy closer to the time of diagnosis and more regular use during therapy. Earlier this year, Jaffer Shah et al., in a meta-analysis of published clinical data for vamorolone, hypothesized how vamorolone may exhibit better safety profile than other corticosteroids.

Vamorolone is a first-in-class steroidal anti-inflammatory drug in that it lacks an oxygen functional group at the 11th position of the steroid ring system. This omitted oxygen functionality is one of five molecular interaction sites with the glucocorticoid receptor, thus altering vamorolone's interaction with this receptor type. This difference sets it apart from all other approved and researched medications in the corticosteroid class. In animal models, vamorolone retains the anti-inflammatory properties of steroid medications, but lacks its side effects, such as growth retardation, bone morbidities, and muscular atrophy as a result of this difference. Furthermore, numerous corticosteroids, such as prednisone and deflazacort, act as agonists of the mineralocorticoid receptor, raising blood pressure and volume via the renin-angiotensin system.

In contrast, in preclinical models, vamorolone has the same activity as the approved eplerenone or spironolactone drugs, which are both potent antagonists of the mineralocorticoid receptors, thus eliminating mineralocorticoid side effects in vamorolone therapy. In summary, vamorolone may optimize traditional steroidal anti-inflammatory activity while eliminating most of the glucocorticoid and mineralocorticoid side effects due to its unique binding and agonism or antagonism of the various corticosteroid receptors. Overall, vamorolone has the potential to be a differentiated treatment for DMD, with a desirable profile in comparison to the current standard of care options, addressing an important unmet medical need for DMD patients, starting at an early age.

Moving on to our medical information function, Catalyst Neuromuscular Medical Science Liaisons, or MSLs, are continuing to reach out to oncology healthcare providers to build relationships to provide education about the importance of testing their patients for LEMS in order to expand the use of FIRDAPSE by those patients. Oncologists that already treat LEMS in their practices have found that patients treated with FIRDAPSE maintain muscle strength, improving the patient and physician's perception of well-being and the patient's ability to maintain functional mobility. All these domains are critical for the patient's quality of life. As previously reported, Catalyst has also onboarded the new FYCOMPA MSL team and their new director, all with prior epilepsy experience to support FYCOMPA. FYCOMPA is a mature product for which extensive published information and real-world data is available, including the publications and abstracts I previously mentioned.

The MSL team will bring this information to healthcare providers that treat epilepsy and also address any questions that those physicians may have about using FYCOMPA. Additionally, Catalyst FYCOMPA MSL team attends epilepsy conferences like AES and IEC in order to keep FYCOMPA in the minds of epilepsy treaters as a potential option for epilepsy treatment. With the in-licensing of vamorolone, Catalyst will be adding four new MSLs specializing in Duchenne Muscular Dystrophy. Due to the unique mechanistic features of vamorolone, it has and continues to be an active area of research that will result in an ongoing stream of useful medical information that should be disseminated to doctors, so that they can continue to optimize the treatment of their DMD patients. Future updates will be provided as medical information programs are developed and implemented for vamorolone.

As a service to the physician community, Catalyst provides support for the development of continuing medical education, or CME programs, that are part of the formal, ongoing education of healthcare providers. Catalyst has, over the past three years, provided support for three CME programs for various aspects of the diagnosis, treatment, and management of LEMS. Over this period of time, thousands of healthcare providers have utilized the CME program's learning modules, and hundreds of them are taking CME tests each quarter in order to be granted CME credit toward maintenance of their medical licenses. In the fourth quarter of 2022, we sponsored a new CME program that targeted oncologists that treat small cell lung cancer due to the correlation between this cancer and associated LEMS.

In just over four additional months since the use of this course was last reported, almost 100 additional oncology healthcare providers have taken the CME test for credit. In short, these programs are popular with LEMS treaters and based on the CME test-taking frequency, appear to be a valuable part of their ongoing medical education. At this time, I would like to turn the call over to Alicia Grande, our CFO.

Alicia Grande (CFO)

Thanks, Steve. Results from Catalyst's second quarter of 2023 kept us on pace for another year of exceptional financial performance and strong execution. On the business development front, we continued to be busy as we entered into an agreement for the North American license rights for vamorolone. It is important to note that the vamorolone transaction did not close until July, in the third quarter of 2023. Our total revenues for the second quarter of 2023 were $99.6 million, an 87.5% increase when compared to total revenues of $53.1 million for the second quarter of 2022. Product revenues net for the second quarter of 2023 from our lead product, FIRDAPSE, was $64.9 million, a 22.3% increase year-over-year, compared to $53 million for the second quarter of 2022.

Product revenue net for FYCOMPA was $34.6 million for the second quarter of 2023. Net income before taxes for the second quarter of 2023 was $48.5 million, a 71.8% increase year-over-year, compared to $28.2 million for the second quarter of 2022. We reported GAAP net income for the second quarter of 2023 of $37.8 million, or $0.36 per basic and $0.33 per diluted share, an increase of 74.7% year-over-year compared to GAAP net income for the second quarter of 2022, $21.6 million, or $0.21 per basic and $0.20 per diluted share.

Non-GAAP net income for the second quarter of 2023 was $60.4 million, or $0.57 per basic and $0.53 per diluted share, which excludes from GAAP net income the income tax provision of $10.8 million, amortization of intangible assets related to our acquisitions of Ruzurgi and FYCOMPA of $8.5 million, stock-based compensation expense of $3.3 million, and depreciation of $82,000. This compares to non-GAAP net income for the second quarter of 2022, of $30.3 million, or $0.29 per basic and $0.28 per diluted share, which excludes from GAAP net income the income tax provision of $6.6 million, stock-based compensation of $2 million, and depreciation of $37,000. The above represents an approximately 99.2% increase of non-GAAP net income year-over-year.

Amortization of intangibles acquired in connection with both the FYCOMPA and the Ruzurgi products was approximately $8.5 million for the second quarter of 2023. We did not have any amortization in the comparable 2022 quarter, as we had not acquired either product during the second quarter of 2022. We expect intangible amortization for our acquired products to be approximately $8.5 million for the third quarter of 2023. Subsequent to the second quarter, during July 2023, we closed the North American license acquisition of vamorolone and paid approximately $75 million upon closing. We believe this amount will be recorded as a one-time charge to research and development expenses during the third quarter of 2023 and will not impact future intangible amortization.

However, it will significantly increase research and development expenses for the third quarter of 2023, making it not comparable to prior periods. Our effective tax rate for the second quarter of 2023 on an annualized basis was 21.5%, compared to 23.7% for the second quarter of 2022. For 2023, the difference to the statutory federal income tax rate of 21% was primarily driven by state income taxes and anticipated annual permanent differences, offset by the Orphan Drug Tax Credit claim. The effective tax rate is affected by many factors, including the number of stock options exercised in any given period, and is likely to fluctuate in future periods.

Cost of sales expenses were approximately $12 million in the second quarter of 2023, compared to $7.6 million in the second quarter of 2022, consisted primarily of royalties. As a reminder, royalties for FIRDAPSE increased by 3% when net product sales exceed $100 million in any calendar year. In 2023, this threshold was met during the second quarter, making related royalties trend up for the second quarter. We expect all FIRDAPSE net product sales for the remaining of the year to be subject to the higher royalty rate. Cost of sales related to FYCOMPA in 2023 is exclusive of amortization of intangible assets. Research and development expenses were $4 million in both the second quarters of 2023 and 2022.

As previously discussed, we expect a significant increase in R&D expenses during the third quarter of 2023, for the one-time expense of $75 million related to the acquisition of the North American licensed rights for vamorolone during July 2023. Vamorolone is a late-stage drug candidate with a PDUFA date of October 26, 2023. SG&A expenses for the second quarter of 2023 totaled $28.4 million, compared to $12.9 million in Q2 2022. SG&A expenses increased slightly as a percentage of total operating expenses to 54% for Q2 2023, compared to 53% for Q2 2022.

The overall increase of SG&A expenses in the second quarter of 2023 was principally due to expenses related to FYCOMPA, such as commercial expenses under the Transition Services Agreement, selling expenses, and an increase in headcount, principally for the sales and marketing force hired during May 2023. As reported, we ended the quarter with cash and cash equivalents of $178.8 million. As a reminder, subsequent to the quarter, during July 2023, we used approximately $75 million of our available cash in connection to the license acquisition of the North American rights for vamorolone and approximately $15 million for a strategic investment in common stock of the license source, Santhera. In addition, we paid $10 million to under our research license upon the first anniversary of the transaction, also occurring in July 2023.

We believe our current funds continue to allow us the financial flexibility to fund our existing R&D programs, meet our potential contractual obligations, and support our strategic initiatives and portfolio expansion efforts, leading to future growth and value creation. In the event the FDA approves vamorolone on its PDUFA date in the fourth quarter, as we anticipate, Catalyst will owe $36 million in milestones under our agreement with Santhera. More detailed information and analysis of our second quarter 2023 financial performance may be found in our quarterly report on Form 10-Q, which was filed with the Securities and Exchange Commission yesterday, August 9th, and can be, can be found on our Investor Relations page on our website at www.catalystpharma.com. With that, I'll turn the call over to Pat.

Patrick McEnany (Chairman and CEO)

Thanks, Alicia. In closing, the first half of 2023 has been a remarkable period of accomplishments for the company, demonstrated by our success in executing on our strategic vision. As we advance into the second half of this year, we are well poised for sustained momentum to capitalize on our expanded product portfolio and have a sound strategy for our company's future. I want to thank our Catalyst team, partners, and collaborators for their hard work and ongoing commitment to the patient communities. I'm proud of our accomplishments that align with our core mission to deliver value to patients, healthcare providers, and shareholders. At this time, I'd like to turn the call over to the operator to open the line for questions.

Operator (participant)

Thank you. We'll now be conducting a Q&A session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment please, while we pull for questions. Our first question today is coming from Joseph Catanzaro from Piper Sandler. Your line is now live.

Joseph Catanzaro (Director and Senior Biotech Equity Analyst)

Hey, everybody. Thanks so much for taking the questions. Of course, want to congratulate you, Pat, on all your success you've had, and hope you enjoy a well-deserved retirement. I had two questions, maybe first on FIRDAPSE. It seems that the patient lead pool is holding pretty steady at around 450 patients. Just wanted to know if that lead pool is coming solely from your VGCC testing or are there other sources? If you have the data, do you know how that lead pool splits between autoimmune and small cell lung cancer patients? I guess as a follow-up, I think last quarter you said around 25% of new enrollments came from tumor LEMS. Wondering if you could speak to that dynamic in 2Q. Thanks, and I have a follow-up.

Patrick McEnany (Chairman and CEO)

Thanks, Joe. Thanks for your kind wishes about retirement. Yeah, great quarter. Good questions. Jeff, you wanna take, the question with regarding to the lead pool?

Jeff Del Carmen (EVP and Chief Commercial Officer)

Sure. Joe, when you mentioned the 450 working leads, where we're getting those leads, we've identified new sources, and a lot of those are stemming from the increase in the VGCC testing. We partner with national laboratories that they provide us some leads of patients that had positive VGCC antibody tests. We know the patients that most likely have LEMS, and then that's when our field force goes and tries to help these patients if FIRDAPSE is the appropriate treatment for those patients. They work directly with the healthcare providers. That's where we do that, but we continually source new leads and new find new ways to maintain that 450, 'cause we know it's very important in ultra-orphan disease to identify the patients.

As far as the mix goes, the vast majority of these leads are the autoimmune or the non-small cell lung cancer LEMS patients. We are seeing an increase in the number of these leads that also have small cell lung cancer. That's what's giving us validation that all the efforts we're putting out there, the educational efforts and the resources are paying off, 'cause we're able to help these patients get diagnosed. I hope that helps, Joe.

Joseph Catanzaro (Director and Senior Biotech Equity Analyst)

That's, that's really helpful. Maybe, my follow-up is on vamorolone. I just wanted to see if you could contextualize a future potential launch, I guess more specifically, Jeff, I think you said there were about 75% of DMD patients that are currently receiving steroids. Just wondering if there are expectations that you would see patients switching, and if so, to what extent and what drives that? Thanks.

Patrick McEnany (Chairman and CEO)

Jeff, you wanna take that as well?

Jeff Del Carmen (EVP and Chief Commercial Officer)

Sure. Joe, we'll provide more details about the launch, probably on our Q3 conference call. Yeah, you're correct, and it's about 70% or so of DMD patients are on steroids, is one, the backbone of treatment for DMD. We do feel like there is a value proposition with vamorolone versus what's available on the market. We do feel that some of these patients will like to switch over to vamorolone when available.

Patrick McEnany (Chairman and CEO)

Joe, we'll have a lot more to talk about on our third quarter call after the PDUFA date, October 26th. We're working on our launch details now, budgets, forecast, and, we'll be far more informative about our path forward with vamorolone on that call.

Joseph Catanzaro (Director and Senior Biotech Equity Analyst)

Okay, perfect. Got it. Appreciate you taking my questions. Thanks so much.

Patrick McEnany (Chairman and CEO)

Thanks, Joe.

Operator (participant)

Thank you. Next question is coming from Joon Lee from Truist Securities. Your line is now live.

Joon Lee (Director and Senior Biotech Equity Analyst)

Good morning. This is Les Chan for Joon Lee. I actually just wanted to echo Joe Catanzaro's comments and congrats to you, Patrick McEnany, on the retirement. Well deserved. Just in regards to FYCOMPA, what are your thoughts on the recent script trends? Could you provide any sort of update on the sales force transition? I have a follow-up.

Patrick McEnany (Chairman and CEO)

Jeff, you wanna take that?

Jeff Del Carmen (EVP and Chief Commercial Officer)

Sure. Hey, Lee. The transition has been extremely smooth. Integration is the way we wanted it. It was swift and effective. Now, as far as the numbers, you know, we, we forecasted a flat for FYCOMPA versus 2022. You know, we've met those expectations. Great news is, in the recent four-week, rolling four-week data for new prescriptions, we are seeing a stabilization and actually a slight growth for the first time. We know our efforts are working. We will continue to analyze how our marketing resources are gaining traction, but we're very confident they will be effective. The other part, as I mentioned it earlier, we're so confident about FYCOMPA because of the overwhelming support that we've received from key opinion leaders and also the advocacy out there.

It, it's been a, a great transition, and we're confident about the future of FYCOMPA.

Joon Lee (Director and Senior Biotech Equity Analyst)

That's helpful. Thank you. In regards to the cadence for the second half of the year, do you have a little bit more visibility now in FIRDAPSE that gives you, I guess, some sort of comfort level into the guidance? What do you think about the growth margins as we exit the year? You know, beginning first half was around 88%. Do you think we can achieve that for the second half? Then what's the additional ramp-up in SG&A for the number of sales force that you identified for the vamorolone launch? Thank you.

Patrick McEnany (Chairman and CEO)

Yeah, I'll take the last one first, Lee. We're not ready to talk about the increase in SG&A yet. As I mentioned, we're putting together the plan. We do believe, obviously, there's gonna be an uptick in OpEx in the second half of the year as Jeff starts to add a few more to his commercial team and marketing team and a few of the MSLs. With regard to margins, we expect that our margins will stay pretty close to where they are now. They've been fairly consistent year-to-year. Then, your first point being, the, what we see in the second half and what gives us confidence with regard to the, to our revised guidance was that...

We never deviated, even in Q1, to talk about the seasonality of most ultra-rare disease drugs. We experienced that. Despite that, for the first half, FIRDAPSE revenues were up 28% year-over-year, 2023 versus 2022. Consistent with what we've said all along. Remember, with ultra-rare disease drugs, the growth is not necessarily linear because patients are hard to find. Patients are hard to get on, therapy once they're found. It, it, you know, it's a little bit of a saw-tooth, but we're very confident in achieving our, our guidance and hopefully towards the high end of that guidance for the second half of this year.

Joon Lee (Director and Senior Biotech Equity Analyst)

Great. Thank you.

Operator (participant)

Thank you. Next question is coming from Charles Duncan from Cantor Fitzgerald. Your line is now live.

Charles Duncan (Managing Director and Senior Research Analyst)

Yeah, good morning, Garrett and team. First of all, congrats on the guidance raise, and for you, Pat, congrats on the decision regarding the near-term transition.

Operator (participant)

Pardon me, Charles. The operator, would you mind picking up your handset?

Charles Duncan (Managing Director and Senior Research Analyst)

Yeah. Can you hear me now?

Patrick McEnany (Chairman and CEO)

Well, no, it's not great, Charles.

Charles Duncan (Managing Director and Senior Research Analyst)

Sorry. Can you hear me now?

Operator (participant)

Yes, please proceed.

Charles Duncan (Managing Director and Senior Research Analyst)

Okay.

Operator (participant)

Yes.

Charles Duncan (Managing Director and Senior Research Analyst)

Sorry for the technical issue. Congrats on the guidance raise. Congrats, Pat, to you and your transition, near-term transition. I had a couple of questions. First of all, with regard to FIRDAPSE, I guess I'm wondering, Jeff, if you had one thing that you would like to see, in terms of the future for FIRDAPSE, would it be new patients or increased persistence for FIRDAPSE? Then I had a question regarding FYCOMPA, but I'll, I'll wait for your answer on FIRDAPSE.

Jeff Del Carmen (EVP and Chief Commercial Officer)

Sure. I mean, the persistence is already very high, Charles, over 90%. You know, our focus is really helping more patients get on treatment, because we know these patients will benefit from FIRDAPSE. That's, that's the primary goal.

Charles Duncan (Managing Director and Senior Research Analyst)

Do you have any internal metrics by which you measure that and what your, you know, kinda goal number is, if you will, not necessarily granularity, but kind of a % by this time next year?

Jeff Del Carmen (EVP and Chief Commercial Officer)

You know, we do have an internal goal, that, as you know, we've-- we have not disclosed how many patients, you know, on specific patient count. Yeah, we do have that goal, and it's really about getting the net new patients. The discontinuation on an annual rate is also very low, about 80%, or I'm sorry, 20% on an annual basis, 20% discontinuation, and making sure ensuring that we get a lot of new enrollments per month. That's what we look at. It's more of a new patients coming in.

The other thing I wanted to add is, you know, I, I mentioned it in the script, the revised assessment of the LEMS prevalence in the U.S., it, it's gonna be a, an important part for us and, and help us grow, well into the future, helping some of these patients. I mentioned it also, that greater than 80% of these small cell lung cancer LEMS patients are unfortunately undiagnosed with LEMS. So that is one of our key focus areas, is educating these thoracic oncologists that when small cell cancer patients are diagnosed, have symptoms, similar to LEMS symptoms, that, they do a paraneoplastic panel that includes VGCC antibody test. That's what we're excited about, but, we look forward to sharing more information about the increased prevalence here, later this quarter.

Charles Duncan (Managing Director and Senior Research Analyst)

Very good. Sorry, I missed those prepared remarks. I'm juggling calls. Quick question on FYCOMPA. I'm wondering if you could provide some color on the synergies that you're seeing in terms of marketing, sales, and back office efforts relative to FIRDAPSE for FYCOMPA? Thanks.

Patrick McEnany (Chairman and CEO)

Jeff?

Jeff Del Carmen (EVP and Chief Commercial Officer)

Charles, it's interesting. We've had a lot of anecdotes from the field, and we're just so incredibly thankful that the collaboration is there between the two sales forces, really. I know you mentioned the back office, but when you look at some of the FIRDAPSE, we've had so many physicians, probably 80%+ of our physicians have only prescribed once. That talks about, that speaks volumes about the ultra-rare part of LEMS, that there are only 3,000 patients out there. When you have a FYCOMPA RAM that's out there speaking to a physician about FYCOMPA, and then it comes up about LEMS, then they have a question.

They, they actually collaborate with their RAM from the FIRDAPSE side and say, "The physician wants to talk to you about this." We've seen successes where physicians that we did not have targeted, that a FYCOMPA RAM went in there, connected the two, and then a, a LEMS patient was put on FIRDAPSE. That's just in a quick example of how we can leverage this overlap. In the back offices it's the same thing. You know, you have speaker programs or you have lunches with some offices that why not bring both, both RAMs into that appointment? You know, all those things, the, the collaboration,the overlap, and the synergies are great and, and what we expected, if not more.

Patrick McEnany (Chairman and CEO)

Charles, remember, the FYCOMPA RAMs have only been on board with us a couple of months.

Jeff Del Carmen (EVP and Chief Commercial Officer)

Yeah.

Patrick McEnany (Chairman and CEO)

They're, they're getting their feet wet with Catalyst, and I expect in the second half and into next year, we'll see a lot more cross-promotion between the two products and the two teams. We're excited about the synergistic effect of this, this acquisition for us.

Charles Duncan (Managing Director and Senior Research Analyst)

Very good. Doing well by doing good. Thanks for taking my questions.

Patrick McEnany (Chairman and CEO)

Thanks, Charles.

Operator (participant)

Thank you. We've reached the end of our Q&A session. I'd like to turn the floor back over to Pat for any further closing comments.

Patrick McEnany (Chairman and CEO)

Thank you, everyone, for joining our call today. We look forward to providing updates on our continuing process. Thank you. Have a great day.

Operator (participant)

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.