Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) Q3 2023 Earnings Call Transcript

Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) Q3 2023 Earnings Call Transcript November 9, 2023

Operator: Hello, and welcome to the Catalyst Pharmaceuticals Third Quarter 2023 Financial Results Conference Call and Webcast [Operator Instructions]. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Chief Financial Officer, Ali Grande. Please go ahead, Ali.

Ali Grande: Good morning, everyone. And thank you for joining our conference call to discuss Catalyst’s third quarter 2023 financial results and corporate highlights. Leading the call today is Patrick McEnany, Chairman and Chief Executive Officer. We are also joined on today’s call by Dr. Steven Miller, our Chief Operating Officer and Chief Scientific Officer; and Jeffrey Del Carmen, our Chief Commercial Officer. Before we begin, I would like 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. These statements relate to our current expectations, estimates and projections and are not guarantees of future performance.

They involve risks, 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. These 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: Thanks, Ali. Good morning. And welcome everyone to our third quarter 2023 financial results conference call. We are pleased to report another quarter marked by exceptional financial results and the completion of another significant acquisition, further shaping the future of the company. First, I’d like to review key financial highlights from the third quarter of 2023. We achieved total product revenues of $102.6 million, representing a year-over-year increase of 79.5%, driven by continued revenue growth for our FIRDAPSE and FYCOMPA franchises. We reported yet another new all time high net revenue of FIRDAPSE for $66.2 million, reflecting an increase of 15.8% year-over-year and year-to-date through the third quarter, FIRDAPSE revenues increased by 23.1% over the same period last year.

This strong performance underscores another quarter of our outstanding organic growth for FIRDAPSE. Our overall revenue performance was fortified by FYCOMPA net product revenues of $36.4 million, establishing a favorable 5.3% third quarter increase compared to the second quarter of this year, underscoring an important contribution to our growing revenue base. This should serve as a testament to our exceptional execution across all business fronts and our ability to successfully integrate the acquisition of strategic products. As a result of our year-to-date progress, we are raising our 2023 total revenue guidance to between $390 million and $395 million from our previous guidance of $380 million to $390 million. Non-GAAP net income for the third quarter was $55.9 million or $0.49 per share diluted.

This excludes from GAAP net income, noncash stock-based compensation, depreciation, a nonrecurring one time in process R&D expense of $81.5 million associated with the acquisition of the North American license for AGAMREE, better known — also chemically known as vamorolone and the amortization of intangible assets. GAAP net loss was $30.8 million or $0.29 per diluted share, which again includes the nonrecurring onetime expense of $81.5 million associated with the acquisition of the AGAMREE license. While these previously disclosed nonrecurring in process R&D expenses impacted on our overall GAAP earnings per share, our performance underscores our fiscal discipline and operational execution. We ended the quarter with cash or cash equivalents of $121 million and continue to have no funded debt on our balance sheet.

Ali will provide you with more financial details during her presentation. Our recent acquisitions reinforce our confidence that we are on the right path towards realizing our near and longer term strategic and financial goals. Early in the third quarter, we acquired from Santhera Pharmaceuticals the license for the North American rights to vamorolone, again brand name, AGAMREE, which was pending an FDA approval for the treatment of Duchenne Muscular Dystrophy or DMD. On October 26th this year, we announced the FDA approval of AGAMREE oral solution, a novel corticosteroid for the treatment of DMD. We believe that AGAMREE may offer the potential to increase the duration of ambulation and mobility in these patients, thereby significantly improving their overall quality of life, also providing a more favorable side effect profile compared to other traditional steroid treatments.

Steve will have more to say about the AGAMRE approval and the potential benefits to DMD patients during his presentation. As most of you know, the current standard of care treatment for DMD involves corticosteroids, which often come with significant side effects. It is estimated that between 11,000 and 13,000 children in the US are affected by DMD with approximately 70% of the patients currently receiving corticosteroid treatment. We strongly believe that AGAMREE has the transformational potential to reshape the treatment period for this debilitating rare disease and holds the prospect for future possibilities for other chronic inflammatory conditions. AGAMREE has orphan drug and rare pediatric disease designations status for DMD, qualifying it for seven years of US market exclusivity as well as a number of issued and pending patents that extend to 2040.

Per our licensing agreement with Santhera, the approval of AGAMREE triggered a $36 million milestone payment that when paid this fourth quarter of this year will be recorded as an intangible asset and amortized over its useful life of 10.5 years. We are excited about the commercial launch of AGAMREE, a highly synergistic product to our existing neuromuscular franchise, which is planned to occur in the first quarter of 2024. At that time, we will introduce our comprehensive financial assistance program aimed at helping to ensure access and affordability for all DMD patients through our white glove Catalyst Pathways platform. Jeff will address some of the questions that many of you are asking about the opportunity that AGAMREE represents for Catalyst.

You will note in the Q4, we anticipate incurring an additional $6 million to $7 million in commercial and other expenses related to the AGAMREE launch preparations. In the third quarter, we announced that the sNDA seeking to increase the daily maximum dose of FIRDAPSE to 100 milligrams had been accepted for filing. We then provided a PDUFA action date of June 4, 2024. This represents a meaningful milestone as we estimate that about 40% of patients currently on treatment are already at or approaching the current maximum daily dose of 80 milligrams. We also just recently announced the allowance of two new patents to further strengthen the FIRDAPSE intellectual property estate, which currently has patent protection until 2037. Plans are underway to list these patents in the FDA’s orange book as soon as they are issued, bringing the total number of listed patents of FIRDAPSE to eight.

With the second consecutive full quarter of FYCOMPA under our belt, we are pleased with its positive growth trend. We attribute this success to our dedicated epilepsy franchise teams who were actively engaged with healthcare providers in the efficacy communities. We expect a continued tailwind for FYCOMPA due to its unique status as the only non-competitive AMPA receptor antagonist and that epilepsy patients tend to stay with the current treatment regimen once they achieve seizure free status. As we enter the fourth quarter, we expect an NDA submission for FIRDAPSE to the PMDA in Japan by our partner DyDo Pharma before the end of this year, which will trigger a $2 million regulatory milestone payment by DyDo to Catalyst. Acceptance of the submission in Japan also triggers an expansion of our territorial rights for FIRDAPSE under our amended license agreement with SERB.

We are developing plans to pursue opportunities to expand our global footprint through strategic partnerships with our current focus on the Asia Pacific and LatAm regions. Looking at the business development side of the company, where we are focused on pursuing adequately derisked and value added transaction opportunities. We continue to demonstrate progress with the recent closing of the acquisition of the North American rights to AGAMREE from Santhera. We have advanced our portfolio expansion strategy, search and evaluation efforts around two key pillars; first, focusing on broadening and diversifying our rare neuromuscular and epilepsy product portfolios with sufficiently derisked innovative therapies that address critical unmet medical needs; and second, expanding the geographic footprint of our existing products.

Overall, during this quarter, we’ve gained significant ground in our portfolio expansion efforts. We are currently in the advanced stages of due diligence on additional commercial stage opportunities that could come to fruition over the next few quarters. After our robust and comprehensive search, I was very pleased to announce that Rich Daly was our candidate of choice as my successor as CEO. As reported, Rich has over three decades of biopharma experience with large multinationals as well as smaller more entrepreneurial companies. Rich’s background and core strength is on the commercial side of the business, an attribute that is key to our near term and midterm strategic plan. He has been on our Board of Directors for almost nine years and he has been an integral part of the team that has helped design our current strategic plan and focus.

Rich and I have been working together closely since the announcement to ensure a smooth transition come January 1st of next year. Looking ahead to next year, we are fully prepared for sustained progress, fueled by our ability to execute, paving the path for further growth. With the collective capabilities of our Catalyst team, there is no doubt that we will continue to achieve noteworthy accomplishments and making a lasting impact on the lives of the patients that we serve. I’ll now turn the call over to Jeff Del Carmen, our Chief Commercial Officer, who will update us on our commercial activities.

Jeffrey Del Carmen : Thanks, Pat, and good morning, everyone. In the last quarter, our commercial team has achieved outstanding results across the board. I would like to draw your attention to our exceptional performance in this record breaking quarter and our continued strategic efforts, which are paving the way for future successes. We are delighted to report Q3 combined net revenues of $102.6 million, showcasing a substantial year-over-year growth of 79.4%. This remarkable performance was fueled by FIRDAPSE reaching an all time high of $66.2 million and the consistent strong contribution from FYCOMPA, which generated $36.4 million. Catalyst is strategically positioned to meet the revised revenue guidance range of $390 million to $395 million.

First, let’s discuss our progress with FIRDAPSE, which has emerged as a pivotal therapeutic option for individuals in the US who were affected by Lambert-Eaton Myasthenic Syndrome or LEMS. Q3 net revenues of $66.2 million represents a year-over-year increase of 15.8% versus the third quarter last year and year-to-date through the third quarter, FIRDAPSE revenues increased by 23.1% over the same period last year, a direct result of steady new patient starts and an annual discontinuation rate trending below 20%. Net new patients in Q3 were the highest quarterly total this year. Prescription approval rates exceeded 90% for all types of payers, including government and private commercial insurers. Patients enrolled in Catalyst Pathways, including those with Medicare coverage and accessing foundation assistance, experienced an average monthly co-pay of less than $2.

We have a strong belief in FIRDAPSE’s long term organic growth prospects. First, we have a robust pipeline with over 500 patient leads diagnosed with LEMS who have not yet started FIRDAPSE treatment. Additionally, we have identified new sources for potential LEMS patients, ensuring a continuous influx of high quality leads in the foreseeable future. Next, we recently presented an abstract at the World Conference on Lung Cancer in September that estimated the LEMS prevalence in the United States could be as large as 5,600 individuals, a significant increase from the previously estimated prevalence of 3,000. This estimate is derived from a detailed real world data analysis, specifically focusing on the prevalence of LEMS diagnosis among patients with small cell lung cancer.

Currently, we assess that greater than 80% of small cell lung cancer LEMS patients are undiagnosed, representing a significant opportunity for growth. In the last year, our LEMS education initiatives have demonstrated their effectiveness. This is evident from the notable rise in voltage gated calcium channel antibody tests, which streamline the diagnostic process for LEMS patients and consequently expand the pool of eligible candidates for FIRDAPSE treatment. Furthermore, our targeted educational campaigns aimed at thoracic oncologists have successfully contributed to the identification of a higher number of diagnosed small cell lung cancer LEMS patients. Additionally, FDA approval of the company’s sNDA to increase the indicated maximum daily dose of FIRDAPSE from 80 to 100 milligrams may offer significant benefits to some patients.

As Pat mentioned earlier, we anticipate that it could provide a notable improvement in the daily dosage of FIRDAPSE for a significant portion of our patient population. Now, I would like to provide some highlights of our progress with FYCOMPA. FYCOMPA commercialization is surpassing our expectations. We have actively collaborated with healthcare providers, expanding our outreach and forming valuable relationships that significantly contributed to FYCOMPA success. In Q3, FYCOMPA achieved net revenues of $36.4 million, marking a 5.2% increase quarter-over-quarter. Additionally, we are fostering crucial partnerships with patient advocacy groups to enhance awareness and promote our mission. Let’s turn to AGAMREE, a promising novel anti inflammatory corticosteroid that addresses a significant unmet need for more tolerable steroids for patients living with Duchenne Muscular Dystrophy or DMD.

The US Prevalence for DMD is estimated to be between 11,000 and 13,000 patients. Of patients currently being treated for DMD, approximately 70% of these patients receive concomitant steroid treatment. However, steroid treatment is associated with significant side effects. We believe that AGAMREE will offer an advancement to the current treatment paradigm addressing an important unmet need for DMD patients and caregivers. As we have disclosed before, we expect the commercial launch in the first quarter 2024. We will integrate AGAMREE into our neuromuscular franchise where we can leverage the team’s demonstrated capabilities, commercial expertise and experience. We are in the final stages of hiring 10 commercial personnel to support the pending launch, mostly in marketing and patient services.

Our existing neuromuscular sales force of 16 regional account managers and two area business directors will have responsibility for both FIRDAPSE and AGAMREE. In addition, AGAMREE will be supported by our best-in-class Catalyst Pathways program to help ensure that all eligible patients can access the product. Catalyst intends to price AGAMREE responsibly to ensure access for all appropriate patients living with DMD. We have done considerable outreach to key stakeholders since the acquisition was completed in July. Santhera had conducted one round of market and pricing research for AGAMREE, which was refreshed by Catalyst in October of this year. In addition, we’ve had several meetings with DMD community members and key advocates where we received feedback regarding pricing and access.

Lastly, Catalyst held an advisory board meeting with approximately 10 key opinion leaders in October. Based on the feedback from our constituents and analysis of the DMD market, the wholesale acquisition cost of AGAMREE will be at a slight discount to EMFLAZA. We will implement the same financial programs as we have for FIRDAPSE to ensure the average patient out of pocket cost will be less than $2 per month. More details on the commercial launch will be available in the coming months. In summary, we are extremely satisfied with our performance in Q3 and remain highly confident in achieving our adjusted 2023 revenue forecast of $390 million to $395 million. Furthermore, as we gear up for the launch of AGAMREE, we will capitalize on our proven commercial expertise.

I extend my heartfelt gratitude to the entire team at Catalyst for their dedicated commitment to patients, and I am eagerly anticipating a successful Q4 ahead. 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 Miller: Thank you, 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 AGAMREE products into Catalyst organization and then optimizing the commercial potential of those new assets. 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 submitted a supplementary NDA to the FDA for this change to the maximum daily dose in the second quarter and October 13th, Catalyst announced the FDA’s acceptance of this sNDA for review with an FDA PDUFA action date of June 4, 2024.

While there can be no assurance of approval of this sNDA barring any significant issues with the applications review, Catalyst anticipates approval of the application on or about June 4th of next year. Currently, there are a number of LEMS patients who are already being treated at a daily dosage of FIRDAPSE exceeding 80 milligrams after their physician worked with the pharmacy and the 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 the desire to increase the patient’s daily dosage above 80 milligrams per day and potentially up to 100 milligrams in order to optimize therapy, and this supplement, if approved, will help those patients.

Based on our Type-C Meeting with the FDA in May of this year and the recent acceptance of the sNDA, we believe that our submission strategy constitutes an acceptable basis for seeking approval of a 100 milligram maximum daily dosage of FIRDAPSE. Regarding our global expansion, we continue to 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 this year. Submission 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. We previously estimated there are about 1,200 to 1,300 LEMS patients in Japan. Under our license agreement for FIRDAPSE and upon acceptance of the filing of this NDA in Japan, Catalyst will gain the right to pursue other territories in the Asia Pacific and South American regions.

Catalyst recently announced that the company had received notification by the United States Patent and Trademark Office or USPTO, the two additional patents covering FIRDAPSE were allowed. These new patents are for claims associated with the unique and novel previously unknown bioavailability of FIRDAPSE under fasting and fed conditions of dosing. These two new patents with expiry dates out to mid 2032 further strengthen our NAT2 family of patents. We expect these patents to be granted within two months and preparations are already in motion to include these additional FIRDAPSE patents in the FDA orange book post grant, bringing the total list of patent count to eight. The addition of this new intellectual property to the FIRDAPSE product highlights one of our core objectives, which is to reinforce and safeguard the sustained commercial viability of FIRDAPSE, which currently benefits from patent exclusivity protection in the United States until 2037.

Next, I would like to discuss our recent in licensing of AGAMREE for the treatment of Duchenne Muscular Dystrophy or DMD from Santhera for the North American territory and also its recent FDA approval on October 26th. AGAMREE is a promising novel steroid with a unique chemical structure that may confirm improved long term safety for this drug. In clinical studies, vamorolone or AGAMREE demonstrated efficacy with improved muscle functions similar to that of prednisone, but with a reduction of steroid associated side effects over the 48-month duration of the trial that showed benefits in bone health, growth and behavioral symptoms, offering the potential to address an important unmet medical need. To further characterize the long term safety of AGAMREE beyond 48 months, Catalyst is planning to open a registry in the US for DMD patients that are initiated on AGAMREE.

AGAMREE has received FDA orphan drug exclusivity. DMD is a rare X-linked genetic disorder resulting in progressive muscle degeneration occurring in about 600 male newborns each year. The prevalence is about 11,000 to 13,000 patients and is gradually increasing as advancements in available treatments are expected to continued to increase the survival of patients with this devastating disease. DMD, the most common form of muscular dystrophy, is a condition that makes the skeletal and heart muscles weaker with time, reducing the lifespan of the affected male patients. The genetic defect lies in the dystrophin gene and like virtually all X-linked genetic diseases almost exclusively affects males. Steroids remain the standard of care for DMD patients.

And as Jeff pointed out, 75% of DMD patients receive steroid treatment. In addition, approximately 30% of these patients are amenable to one of the approved exon skipping therapies and a minority of patients would also be eligible for the newly approved gene therapy. However, even the patients treated with exon skipping treatments or gene therapy continued to require corticosteroids at some level both during treatment and beyond, it is anticipated that AGAMREE may be a safer and routine long term clinical use and may lead to earlier initiation of therapy closer to the time of diagnosis and potentially to continue therapy even after loss of ambulation. Overall, AGAMREE 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.

The pivotal clinical trial provided data on treatment efficacy and safety associated with AGAMREE treatment for upto 48 months, which will be augmented by a DMD patient registry in the US for patients that are initiated on AGAMREE. As previously reported, Catalyst acquired the US rights to FYCOMPA or Parampinil, which is the first and only approved AMPA receptor antagonist or inhibitor. FYCOMPA is approved as an anti seizure medication for treatment to treat partial onset seizures with or without secondarily generalized seizures in patients with epilepsy who are four years of age or older and in conjunction with other medicines as an add-on therapy to treat primarily generalized tonic clonic seizures in patients with epilepsy who are 12 years of age or older.

While FYCOMPA is a mature epilepsy product, it continues to offer physicians and patients a unique therapeutic option for the management of epilepsy. As I discussed in previous quarterly calls, FYCOMPA’s unique mechanisms of action has been a source of great interest to epilepsy researchers that continue to study it for the management of a number of types of epilepsies, including several rare epilepsies of genetic origin and published papers described FYCOMPA as the best therapeutic choice for a number of rare epilepsy types. It is for these reasons that we expect the use of FYCOMPA to continue to grow throughout the remainder of its period of market exclusivity. Catalyst is also continuing to evaluate potential legal options for extending the exclusivity of FYCOMPA beyond May of 2025.

Moving on to our medical information function. Catalyst Neuromuscular Medical Science Liaisons or MSLs are continuing to reach out to traditional FIRDAPSE prescribers and oncology healthcare providers to build relationships and provide education about the importance of testing their patients for LEMS in order to expand the use of FIRDAPSE. Oncologists that already treat LEMS in their practices have found that patients treated with FIRDAPSE maintained muscle strength and have an improved quality of life. With the in licensing of the AGAMREE and its planned launch in the first quarter of next year, Catalyst is adding four new MSLs specializing in Duchenne Muscular Dystrophy to the neuromuscular MSL team. Due to the unique mechanistic features of AGAMREE, it has and continues to be an active area of research that has and will continue to result in an ongoing stream of useful medical information that should be disseminated to doctors so that they can continue to optimize the treatment for their DMD patients.

Dissemination of the existing data and publications demonstrating the comparative safety of AGAMREE relative to its traditional cortical steroids will be the top focus of the neuromuscular MSL team in 2024 and beyond. These efforts should provide clinicians with the information they need to choose the best steroid options for their patients. Catalyst also has plans for advisory board activities to educate DMD treating physicians that were not part of the clinical trials about AGAMREE. Future updates will be provided as medical information programs are developed and implemented for AGAMREE. Next, FYCOMPA is a mature product for which extensive published information and real world data is available, including numerous publications and abstracts.

The FYCOMPA MSL team will continue to disseminate information to epilepsy treaters and will also address any questions that these physicians may have about using FYCOMPA. Catalyst FYCOMPA MSL team also attends epilepsy conferences like AES and IEC in order to keep FYCOMPA in the minds of epilepsy treaters as a potential treatment option for epilepsy patients. As a service to the physician community, Catalyst provide 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 patients, and we anticipate providing support for more programs, including new programs for AGAMREE.

Over this period of time, thousands of healthcare providers have utilized the CME programs and learning modules and hundreds of them are taking the CME test each quarter in order to be granted CME credit toward the maintenance of their medical licenses. In short, these programs are popular with treaters that use Catalyst products 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.

Ali Grande: Thanks, Steve. Results from Catalyst third quarter of 2023 kept us on pace for another year of exceptional financial performance and strong execution. In addition to our outstanding results, I would also like to highlight the excellent job done by the strategy and business development team at Catalyst, which were pivotal to continuing the momentum of our portfolio expansion efforts. As a result, we successfully closed the transaction to acquire the North American commercial rights to AGAMREE from Santhera during this quarter. This acquisition in addition to offering an expansion of our portfolio with a promising asset will also allow us to continue to deliver incremental net positive cash flow for the company and incremental value to our shareholders.

While on the topic of AGAMREE, I would like to take a moment to discuss some of the key accounting implications and accounting treatment of this transaction. During July 2023, at the time the transaction close, AGAMREE was not yet approved for sale by the US FDA. Consequently, the upfront payment as well as related transaction costs were extent in the third quarter as in process research and development or IPRD. Next, I would like to shift to the regulatory on payment. As a result of the FDA approval of AGAMREE, on October 26, 2023, we will make a $36 million milestone payment to Santhera in the fourth quarter of 2023, which will be capitalized on the balance sheet as an intangible asset and amortized over the estimated use for life of 10.5 years or 42 quarters.

I would like to reinforce that the approval occurred at the end of October 2023 and as such amortization expense will be prorated in the fourth quarter of 2023 and then will be consistent going forward. Lastly, in connection with the AGAMREE transaction, Catalyst made a strategic equity investment in Santhera as part of the acquisition terms. The equity investment has a book value of approximately [$13.5 million] and will be mark-to-market value on a quarterly basis using the observable market price for the ticker SANN this quarter on the SIX Swiss Exchange. Now on to Q3 results. Our total revenues for the third quarter of 2023 were $102.7 million, a 79.4% increase when compared to total revenues of $57.2 million for the third quarter of 2022.

Product revenue net for the third quarter of 2023 from our lead product FIRDAPSE was $66.2 million, a 15.8% increase year-over-year compared to $57.2 million for the third quarter of 2022. Product revenue net for FIRDAPSE was $36.4 million for the third quarter of 2023, which was a $5.2 million increase from $34.6 million for the second quarter of 2023. [Indiscernible] we acquired FYCOMPA during January 2023. Net loss before income taxes for third quarter 2023 was $38 million, a 246.2% decrease year-over-year compared to net income before income taxes of $26 million for the third quarter of 2022. We reported GAAP net loss for the third quarter of 2023 of $30.8 million or $0.29 per basic and diluted share, a decrease to 135.2% year-over-year compared to GAAP net income for the third quarter of 2022 of $22.7 million or $0.22 earnings per basic and $0.20 per diluted share.

The decrease from net income to net loss is largely attributed to the onetime AGAMREE related $81.5 million IP R&D expense charge during the third quarter of 2023. Non-GAAP net income for the third quarter of 2023 was $55.9 million or $0.52 per basic and $0.49 per diluted share, which excludes from GAAP net loss $81.5 million of IP R&D expense. The income tax benefit of $7.3 million, amortization of intangible assets related to our acquisitions of Ruzurgi and FYCOMPA of $8.5 million, stock based compensation expense of $3.8 million and depreciation of $81,000. This compares to non-GAAP net income for the third quarter of 2022, $28.6 million or $0.28 per basic and $0.26 per diluted share, which excludes from GAAP net income, the income tax provision of $3.3 million stock based compensation of $2.1 million, amortization of intangible assets of $518,000 and depreciation of $35,000.

The above represents an approximately 95.2% 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 third quarter of 2023. As previously mentioned, beginning in the fourth quarter of 2023 on a quarterly basis, we expect to recognize an additional $857,000 of amortization expense relating to regulatory milestone payments to be made to Santhera due to the timing of approval and the recognition of the intangible asset amortization in the fourth quarter of 2023 will be less as it will be prorated. We expect amortization for our acquired licenses and intangible assets to be approximately $9.1 million for the fourth quarter and $9.3 million beginning with the first quarter of 2024 and beyond.

Our effective tax rate for the third quarter of 2023 on an annualized basis was 23.5% compared to 19.6% for the third quarter of 2022. For 2023, the difference to the statutory federal income tax rate of 21% was primarily driven by state income taxes, anticipated annual permanent differences, offset by equity compensation deductions. The effective tax rate is [affected] [Technical Difficulty] manufactures, including the number of stock options exercised in any given period and is likely to fluctuate in future periods. Cost of sale expenses were approximately $14.2 million in the third quarter of 2023 compared to $9.7 million in the third quarter of 2022, and consisted principally of royalties. As a reminder, royalties of FIRDAPSE increased by 3% while 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 third quarter. FIRDAPSE net product sales for the remaining of the year will be subject to the higher royalty rate. Cost of sales for FYCOMPA in 2023 is exclusive of amortization of intangible assets. Research and development expenses were $83.7 million in the third quarter of 2023. This compares to $8.3 million in the third quarter of 2022. As previously mentioned, the driver behind the increase in research and development expenses is relating to the onetime AGAMREE IP R&D charge recorded during the third quarter. SG&A expenses for the third quarter of 2023 totaled $33.6 million compared to $13.7 million in Q3 2022. The increase in SG&A expenses year-over-year is principally due to cost 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 but also includes some back office headcount. In addition, there were selling and marketing related expenses incurred in the third quarter in anticipation of the AGAMREE approval and subsequent [plans]. Finally, we anticipate spending an additional $6 million to $7 million in commercial and other expenses related to the AGAMREE launch preparations during the fourth quarter of 2023. As reported, we ended the quarter with cash and cash equivalents of $121 million. As a reminder, in the fourth quarter of 2023, we will make a $36 million payment to Santhera in connection to the regulatory milestone earned upon the approval of AGAMREE by the FDA.

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, business development and portfolio expansion efforts leading to long term growth and value creation. More detailed information and analysis of our third 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, November 8th, and can be found on the Investor Relations page to our Web site at www.catalystpharma.com. And with that, I will turn the call over to Pat.

Patrick McEnany: Thanks, Ali. Operator, we can now open the line for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question is coming from Jun Lee from Truist Securities.

Les Sulewski: This is Les on for Jun. Thank you for taking my questions. First on the FIRDAPSE front. Can you just talk about any partnership developments on Asia Pacific and Latin America? And then second part to that, what are the two new patents that will be included on the orange book, what impact does that have to the ongoing situation with your Paragraph IV filers? And I have a few follow ups.

Patrick McEnany: Les, your first question was about pursuing other territories once we trigger the submission in Japan?

Les Sulewski: That’s correct.

Patrick McEnany: So we think that based on our preliminary research that there appears to be a great opportunity in China, South Korea, a few smaller markets in the Asia Pacific region, and also Brazil represents what we think is probably a fairly robust opportunity. So that’s where our initial thoughts are. With regard — Steve, you want to take that with regard to the patents?

Steven Miller: Les, the two new patents that were just allowed have claim language directed toward the pharmacokinetics of amifampridine and slow and fast metabolizers of amifampridine. They represent a significant addition to our family patents related to [Indiscernible] metabolism of the drug and we believe it will significantly strengthen that family of patents against challenge and will improve the ability to enforce our intellectual property.

Les Sulewski: And in regards to FYCOMPA outperformance, what are some of the driving metrics behind that and how do you see that as the year progresses next year?

Patrick McEnany: Jeff, do you want to take that?

Jeffrey Del Carmen: So Les, what we’re looking at is market share is around 14.9% for FYCOMPA versus the branded anti seizure medications. We think that our strategy to focus on the existing prescribers of FYCOMPA, those physicians that have prescribed it over the last year or two years. So just focusing on those physicians and getting those physicians to prescribe for more of their patients and earlier in their treatment protocol, that’s been our focus and we feel that’s the biggest contributor to our — exceeding our expectations.

Patrick McEnany: So Les, let me add that, as a fairly mature product, we continue to expect that we can grow it by single digit, high single digit from year-to-year. So I hope that helps answer your question.

Les Sulewski: I guess last one for me then on the acquisition front potentiality there. It sounds like you’re in advanced due diligence process. It appears to be in an epilepsy asset, maybe give some more color around that. If it is, how would that fit into the current sales force with FYCOMPA and is a potential acquisition essentially covered by the recurring cash balance?

Patrick McEnany: And so we’ve made it clear that from a strategic plan that our emphasis on our next acquisition really we’d like it something to be compatible with our epilepsy franchise, and we think it’s a growing opportunity and clearly we’ve made that point. I would not say that there is anything imminent. We are in deep diligence from a couple of opportunities. We want to be careful about doing too many acquisitions too quickly. We want to make sure that we integrate and we execute with each of these opportunities that we bring in most importantly. And certainly as stated our nine months cash position of $121 million, which continues to grow quarter-by-quarter, we think we’re in a fairly good position to do another tuck in or two. But I would not say that anything is imminent today. We hope over the next couple of quarters, we can announce another acquisition.

Operator: Next question today is coming Charles Duncan from Cantor Fitzgerald.

Charles Duncan: Congratulations on a great third quarter. And Pat, frankly congratulations and good luck with your career milestone and transition.

Patrick McEnany: Thank you, Charles.

Charles Duncan: I had a couple of questions, the vamorolone or AGAMREE and then one on the sNDA for FIRDAPSE. For vamorolone, I guess, I’m wondering if Steve or even Jeff could speak to the current market dynamics. I guess, any impact of the recent EMBARK results on what you think going to be the demand for AGAMREE? What do you anticipate in terms of the pace of adoption? Will there be switching of patients from current standard of care or will it be primarily targeting new patients? Thank you.

Patrick McEnany: I’ll pass this to Steve. Steve, you want to pick this up?

Steven Miller: Well, let me answer your first question about the EMBARK results, and it really speaks to a more general question regarding overall gene therapies and exon skipping therapies. The bottom line is that with the use of those therapies, patients still have a need for taking some kind of corticosteroid, both during the treatment with those alternate treatments as well as afterwards. There’s variability in how well the patients respond to therapy. And the EMBARK results, I don’t want to comment on another company’s products, so there’s not much I can say about those. But the bottom line is that we anticipate that there will continue to be healthy demand for steroid treatments for DMD patients. And now I apologize, can you repeat the other question, Charles?

Patrick McEnany: Steve, I’ll pass that to Jeff. The question was about switching — patient switching and some of the dynamics?

Jeffrey Del Carmen: Here are the market dynamics for corticosteroids for DMD right now. As we mentioned, 11,000 to 13,000 patients living with DMD in the US, of that, those 11,000 to 13,000, about 70% are on steroids. Now when you look at the market share breakdown there, it’s about a 60% prednisone market share and about a 35% to 40% are on EMFLAZA. And when you look at the potential patients for AGAMREE, they will be the switch patients, primarily from EMFLAZA, but also based on feedback that we’re hearing are some of these patients that are on prednisone. You will see some patients that are naive to steroids, but that’ll be a smaller percentage and over time that may happen. But I think for the initial launch, the patients that are currently on steroids will be looking to switch over.