Item 1A. Risk Factors

Risk Factors Summary

We are providing the following summary of the risk factors contained in our Form

10-K

to enhance the readability and accessibility of our risk factor disclosures. We encourage our stockholders to carefully review the full risk factors contained in this Form

10-K

in their entirety for additional information regarding the risks and uncertainties that could cause our actual results to vary materially from our recent results or from our anticipated future results.

Risks related to the commercialization of FIRDAPSE

• We depend substantially on the commercial success of FIRDAPSE®.

• Our business is subject to substantial competition.

• Our business may require additional capital.

• We are highly dependent on our small number of key personnel and advisors.

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Risks Related to the Development of Additional Drug Products

• Our efforts may fail.

• Failure can occur at any stage of our drug development efforts.

• We could be impacted by the viability of our suppliers.

Risks Related to Government Regulation

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Risks Related to our Intellectual Property

There are also general risk factors relating to us that you should consider that relate to our business and to our common stock.

Risk Factors

Our business involves a high degree of risk. You should carefully consider the risks and uncertainties described below, and all of the other information contained in this Form

10-K

in assessing the risks relating to ownership of our common stock. The risks described below could cause our business, results of operations, financial condition and prospects to materially suffer and the market price of our stock to decline.

Risks related to Our Business

We depend substantially on the commercial success of FIRDAPSE

Until we launched FIRDAPSE

for the treatment of LEMS in January 2019, we focused all of our efforts over the prior six years on obtaining regulatory approval for FIRDAPSE

for the treatment of LEMS, on evaluating FIRDAPSE

for the treatment of other neuromuscular diseases including CMS,

MuSK-MG

and SMA Type 3, on raising capital, and on recruiting personnel. On November 28, 2018, the FDA approved our first product, FIRDAPSE

for the treatment of adults with LEMS, which became commercially available in January 2019. While we reported net income in each year since 2019, we have a prior history of operating losses in all prior fiscal years of our existence. In addition, we have recently concluded that we will no longer go forward with the evaluation of FIRDAPSE

for the treatment of indications other than LEMS. As a result of this and other factors, there can be no assurance that we will remain cash flow positive and profitable.

Our success depends on our ability to continue to successfully commercialize FIRDAPSE

. We are primarily a single product company with only limited commercial experience, which makes it difficult to evaluate our current business, predict our future prospects, and forecast our financial performance and growth.

We have invested a significant portion of our efforts and financial resources to date into the development and commercialization of our lead product, FIRDAPSE

. Our success depends on our ability to effectively continue to commercialize FIRDAPSE

, and we expect that the vast majority of our product revenues in the foreseeable future will be from sales of FIRDAPSE

. Continued commercialization of FIRDAPSE

is subject to many risks. Until we launched FIRDAPSE

, we had never launched or commercialized a product, and there is no guarantee that we will be able to continue to be profitable and cash flow positive based on our sales of FIRDAPSE

. There are numerous examples of unsuccessful product launches and failures to meet high expectations of market growth potential, including by pharmaceutical companies with more resources and experience than we have. The long term commercial success of FIRDAPSE

depends on the extent to which patients and physicians accept and adopt FIRDAPSE

. For example, if the expected patient population is smaller than we estimate or if physicians are unwilling to prescribe or patients are unwilling to take FIRDAPSE

or if patients discontinue from use of the medication at rates that are higher than we expect, or if payers decide not to reimburse for our product, the commercial potential of FIRDAPSE

will be limited. Thus, despite our success to date, significant uncertainty remains regarding the ultimate commercial potential of FIRDAPSE

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Moreover, our ability to effectively continue to generate significant product revenue from FIRDAPSE

will depend on our ability to, among other things:

• maintain quality relationships with patient advocacy groups;

Any disruption in our ability to generate product revenue from the sale of FIRDAPSE

will have a material and adverse impact on our results of operations.

If we are unable to continue to successfully commercialize FIRDAPSE

, our business, results of operations and financial condition may be materially adversely affected.

Our strategy is to continue to successfully commercialize FIRDAPSE

in the United States. There are risks involved both with maintaining our own sales and marketing capabilities, and with entering into arrangements with third parties to perform these services. For example, any efforts to maintain a direct sales and marketing organization are subject to numerous risks, including:

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• the inability to provide adequate training to sales and marketing personnel;

• the expense and time required to monitor regulatory compliance;

Similarly, as we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the profitability associated with any product revenue may be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our products or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. Moreover, we may be negatively impacted by other factors outside of our control relating to such third parties, including, but not limited to, their inability to comply with regulatory requirements. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our products.

Finally, because we are using a very small group of exclusive specialty pharmacies to distribute our product, if the organizations that we work with to deliver our drug do not perform in a lawful manner or have issues unrelated to our business, our business could be adversely affected.

Our business is subject to substantial competition.

The biotechnology and pharmaceutical industries are highly competitive. Many of our competitors have substantially greater financial and other resources, larger research and development staffs and more experience developing products, obtaining FDA and other regulatory approvals of products and manufacturing and marketing products than we have. We compete against pharmaceutical companies that are developing or currently marketing therapies that will compete with us. In addition, we compete against biotechnology companies, universities, government agencies, and other research institutions in the development of drug products. Our business could be negatively impacted if our competitors’ present or future offerings are more effective, safer or less expensive than ours, or more readily accepted by regulators, healthcare providers or third-party payors. Further, we may also compete with respect to manufacturing efficiency and marketing capabilities.

Even with the FDA approval of FIRDAPSE

, the bulk active pharmaceutical ingredient in the drug (i.e., amifampridine) may be used by compounding pharmacies pursuant to Section 503A of the Federal Food, Drug, and Cosmetic Act because the ingredient is a component of an

FDA-approved

drug product, and pharmacies may lawfully compound for individually identified patients under Section 503A using components of approved drug products. In addition, drugs that are not approved by FDA for the treatment of LEMS may nonetheless be prescribed by physicians for the treatment of LEMS.

For all of these reasons, we may not be able to continue to compete successfully.

Our strategy of seeking to acquire or

in-license

innovative technical platforms or earlier stage drug development programs outside of the neuromuscular disease space may not be successful.

We have made a strategic decision to broaden and diversify our product portfolio through acquisitions of both early and late-stage products or companies or technology platforms in rare disease therapeutic categories including those outside of neuromuscular diseases. To accomplish these new priorities, we are employing a disciplined approach to evaluating assets and we believe that this strategic expansion will better position our company 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. However, there can be no assurance that whatever product candidates or technology platforms we acquire, if any, will be successfully developed or commercialized.

The process of proposing, negotiating and implementing a license or acquisition of a product candidate is lengthy and complex, and we may be unable to

in-license

or acquire the rights to any such products, product candidates or technologies from third parties for several reasons. Further, even if we identify acquisition or

in-licensing

targets, we may not be able to close those deals or we may determine after diligence not to pursue identified targets. The success of this strategy depends partly upon our ability to identify, select and acquire or

in-license

promising product candidates and technologies.

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The

in-licensing

and acquisition of drug products is an area characterized by intense competition, and a number of companies (both more established and early-stage biotechnology companies) are also pursuing strategies to

in-license

or acquire product candidates or technologies that we may consider attractive. We believe that other companies may be particularly active in pursuing opportunities to

in-license

or acquire the same or similar products which we may seek to acquire. More established companies may have a competitive advantage over us due to their size, cash resources and greater research, preclinical or clinical development or commercialization capabilities, while earlier stage companies may be more aggressive or have a higher risk tolerance. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to

in-license

or acquire the rights to the relevant product candidate or technology on terms that would allow us to make an appropriate return on our investment. Moreover, we may devote resources to potential acquisitions or

in-licensing

opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts or we may incorrectly judge the value of an acquired or

in-licensed

product candidate or technology.

If we are unable to successfully obtain rights to suitable product candidates or technologies, our business, financial condition and prospects for growth could suffer. In addition, acquisitions and

in-licensing

arrangements for product candidates and technologies are inherently risky, and ultimately, if we do not complete an announced acquisition or license transaction or integrate an acquired or licensed product candidate or technology successfully and in a timely manner, we may not realize the benefits of the acquisition or license to the extent anticipated and the perception of the effectiveness of our management team and our company may suffer in the marketplace. In addition, even if we are able to successfully identify, negotiate and execute one or more transactions to acquire or

in-license

new product candidates or technologies, our expenses and short-term costs may increase materially and adversely affect our liquidity.

In addition, acquisitions and

in-licenses

may entail numerous operational, financial and legal risks, including:

• higher than expected acquisition and integration costs;

• inability to maintain uniform standards, controls, procedures and policies;

Our business may require additional capital.

We may need to raise additional capital in the future in order to fund our business (particularly to fund potential company or product acquisitions that are intended to expand our product offerings). If necessary, we would likely raise additional funds in the future through public or private equity offerings, debt financings, corporate collaborations, or other means. We may also seek governmental grants to support our clinical and

pre-clinical

trials. However, there is no assurance that any such funding will be available, and, even if it is available, whether it will be available on terms that are favorable to us. We may also seek to raise additional capital to fund additional product development efforts, even if we have sufficient funds for our planned operations.

Any sale by us of additional equity or debt securities convertible into additional equity could result in dilution to our stockholders. Further, to the extent that we raise 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 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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The obligations incident to being a public company place significant demands on our management.

As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC, including periodic reports, disclosures and more complex accounting rules. As directed by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules requiring public companies to include a report of management on a company’s internal control over financial reporting in their Annual Report on Form

10-K.

Based on current rules, we are required to annually report under Section 404(a) of the Sarbanes-Oxley Act regarding our management’s assessment as to the effectiveness of our internal control over financial reporting. Further, under Section 404(b) of the Sarbanes-Oxley Act, our auditors are required to report on their assessment as to the effectiveness of our internal control over financial reporting. If we or our auditors are unable to conclude that we have effective internal control over our financial reporting, investors could lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our common stock.

We are highly dependent on our small number of key personnel and advisors.

We are highly dependent on our executive officers and key employees, and on our Board of Directors. The loss of the services of one or more of these individuals could significantly impede the achievement of our scientific and business objectives. Other than an employment agreement with Patrick J. McEnany, our Chairman, President and Chief Executive Officer with respect to his services, we have no employment or retention agreements with any of our other officers or key employees. If we lose the services of any of our existing executive officers or key employees, or if we were unable to recruit qualified replacements on a timely basis for persons who leave our employ, our efforts to develop our drug candidates might be significantly delayed. We do not carry

key-man

insurance on any of our personnel.

The ongoing

COVID-19

pandemic and the worldwide attempts to contain it could harm our business and results of operations and financial condition and we could be adversely impacted by it.

The

COVID-19

pandemic has had an impact on our business operations, and we continue to monitor applicable government modifications. We had to make modifications to our normal operations at various points in time during the pandemic, including requiring our employees to work remotely. At present, our operations have returned mostly to being

in-person,

with some contact with doctors by our commercial sales force still being done remotely. Notwithstanding, the

COVID-19

pandemic, including the emergence of new

COVID-19

variants, including the delta and omicron variants, has in the past and may in the future affect the health and availability of our workforce as well as those of third parties whom we are relying upon to take similar measures. As a result, we have previously and may in the future experience disruptions to our business operations due to the

COVID-19

pandemic, and our business could be materially adversely affected by such disruptions, directly or indirectly. National, state and local governments in affected regions have implemented and may continue to implement 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 and other measures. Organizations and individuals may continue to take additional steps to avoid infection, including limiting travel and staying home from work. These measures may continue to disrupt normal business operations both inside and outside of affected areas and have had significant impacts on healthcare and businesses worldwide.

During 2020 and 2021, we believe that the

COVID-19

pandemic impacted new patient starts in the United States, as some physicians were reluctant to diagnose LEMS via telemedicine. To the extent that the

COVID-19

pandemic continues, we may continue to see an impact on the number of naïve patients who begin to take FIRDAPSE

. There can be no assurance as to how these matters will affect our business or results of operations.

We cannot assess the impact on our business of the public concerns expressed by a U.S. Senator and a vocal group of neuromuscular physicians and patients with LEMS about the pricing of our product.

We are also aware that the vocal group of neuromuscular physicians and a number of LEMS patients who have raised these issues in the past are continuing to raise concerns with the pricing of our product and with the appropriateness of the provisions in the Orphan Drug Act that grant us exclusivity for FIRDAPSE

. A few of these patients continue to say negative things about us to the media, to other patients, to the FDA, and to politicians. We cannot assess the impact of these activities on our business.

Because the target patient population for FIRDAPSE

is small, we must achieve significant market share and obtain relatively high

per-patient

prices for our products to achieve meaningful gross margins.

FIRDAPSE

targets a disease with a small patient population. A key component of the successful commercialization of a drug product for these indications includes identification of patients and a targeted prescriber base for the drug product. Due to small patient populations, we believe that we would need to have significant market penetration to achieve meaningful revenues and identifying patients and targeting the prescriber base are key to achieving significant market penetration. Typically, drugs for conditions with small prevalence have higher prices in order to generate a return on investment, and as a result, the

per-patient

prices at which we sell

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FIRDAPSE

are relatively high in order for us to generate an appropriate return for the investment in these product development programs and achieve meaningful gross margins, and high per patient prices could drive physicians to seek out compounding pharmacies to provide compounded amifampridine to fill their prescriptions rather than FIRDAPSE

, thereby lowering the FIRDAPSE

market share or penetration in the market. There can be no assurance that we will be successful in achieving a sufficient degree of market penetration and/or obtaining or maintaining high

per-patient

prices for FIRDAPSE

for diseases with small patient populations. Further, even if we obtain significant market share for FIRDAPSE

, because the potential target populations are very small, we may not be able to maintain profitability despite obtaining such significant market share. Additionally, patients who discontinue therapy or do not fill prescriptions are not easily replaced by new patients, given the limited patient population.

We face a risk of product liability claims and may not be able to obtain adequate insurance.

Our business exposes us to potential liability risks that may arise from the clinical testing, manufacture, and/or sale of our drug products. Patients have received substantial damage awards in some jurisdictions against pharmaceutical companies based on claims for injuries allegedly caused by the use of drug products used in clinical trials or after FDA approval.

Liability claims may be expensive to defend and may result in large judgments against us. We currently carry liability insurance that we believe to be adequate. Our insurance may not reimburse us for certain claims or the coverage may not be sufficient to cover claims made against us. We cannot predict all of the possible harms or side effects that may result from the use of our current drug candidates, or any potential future products we may acquire and use in clinical trials or after FDA approval and, therefore, the amount of insurance coverage we currently hold may not be adequate to cover all liabilities we might incur. If we are sued for any injury allegedly caused by our products, our liability could exceed our ability to pay the liability. Whether or not we are ultimately successful in any adverse litigation, such litigation could consume substantial amounts of our financial and managerial resources, all of which could have a material adverse effect on our business, financial condition, results of operations, prospects and stock price.

Business or economic disruptions or global health concerns could seriously harm our development efforts and increase our costs and expenses.

Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development activities. Global health concerns, such as the

COVID-19

pandemic, could also result in social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including the suppliers, clinical trial sites, regulators and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. It is also possible that global health concerns such as the

COVID-19

pandemic could disproportionately impact the hospitals and clinical sites in which we conduct any of our clinical trials, which could have a material adverse effect on our business and our results of operation and financial condition.

Risks Related to the Development of Drug Products

Our efforts to develop additional drug products may fail.

Our efforts to develop additional products that we may acquire or

in-license

(or to develop additional indications for FIRDAPSE

) are subject to risks of failure. For example:

As a result, our drug development activities may not result in any safe, effective and commercially viable additional indications, and we may not be able to commercialize our products successfully. For example, for several years, we evaluated FIRDAPSE

for the treatment of CMS,

MuSK-MG

and SMA Type 3. However, FIRDAPSE

failed to meet the primary endpoints in a Phase 3 trial for CMS, and we are no longer pursing this indication. Further, and even though we achieved statistical significance in the primary endpoint in our

proof-of-concept

trial for SMA Type 3, the lack of robust results in this trial has caused us to decide to no longer pursue this indication. Finally, our Phase 3 clinical trial

(MSK-002)

evaluating FIRDAPSE

for the treatment of adults with

MuSK-MG

did not achieve statistical significance on its primary endpoint or its secondary endpoint, even though clinical improvement was observed by patients and investigators during the initial dose-titration period of the trial and in the company’s previous

proof-of-concept

trial, and we are no longer pursuing this indication.

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Further, the efforts of our collaboration partner in Japan, DyDo Pharma, to commercialize FIRDAPSE

in Japan requires successful completion of a small Phase 3 trial in Japan evaluating FIRDAPSE

for the treatment of LEMS that is currently ongoing. While we expect that trial to be successful based on our prior trials evaluating our product for the treatment of LEMS, there can be no assurance that DyDo Pharma’s trial will be successful.

Our failure to develop safe, effective, and/or commercially viable products would have a material adverse effect on our business, prospects, results of operations and financial condition.

Failure can occur at any stage of our drug development efforts.

We will only obtain regulatory approval to commercialize our future drug candidates if we can demonstrate to the satisfaction of the FDA (or the equivalent foreign regulatory authorities) in adequate and well-controlled clinical studies and trials that the drug is safe and effective for its intended use, that the clinical and other benefits outweigh the safety risks and that it otherwise meets approval requirements. As we have experienced in the past, a failure of one or more

pre-clinical

or clinical trials or studies can occur at any stage of drug development. We may experience numerous unforeseen events during, or as a result of, testing that could delay or prevent us from obtaining regulatory approval for, or commercializing our drug candidates, including but not limited to:

We rely on third parties to conduct our

pre-clinical

studies and clinical studies and trials, and if they do not perform their obligations to us we may not be able to obtain approval for additional indications.

We do not currently have the ability to independently conduct

pre-clinical

studies or clinical studies and trials, and we typically rely on third parties, such as third-party contract research and governmental organizations, medical institutions and clinical investigators (including academic clinical investigators), to conduct studies and trials for us. Our reliance on third parties for development activities reduces our control over these activities. These third parties may not complete activities on schedule or may not conduct our

pre-clinical

studies and our clinical studies and trials in accordance with regulatory requirements or our study design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be adversely affected, and our efforts to obtain regulatory approvals for and commercialize our product candidates may be delayed.

If we conduct studies with other parties, we may not have control over all decisions associated with that trial. To the extent that we disagree with the other party on such issues as study design, study timing and the like, it could adversely affect our drug development plans.

Although we also rely on third parties to manage the data from our studies and trials, we are responsible for confirming that each of our studies and trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies will require us to comply with applicable regulations and standards, including Good Laboratory Practice (GLP) and Good

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Clinical Practice (GCP), for conducting, recording and reporting the results of such studies and trials to assure that the data and the results are credible and accurate and that the human study and trial participants are adequately protected. Our reliance on third-parties does not relieve us of these obligations and requirements, and we may fail to obtain regulatory approval for any additional indications if these requirements are not met.

We will need to continue to develop and maintain distribution and production capabilities or relationships to be successful.

We are licensed in Florida as a virtual drug manufacturer, which means we have no

in-house

manufacturing capacity and we will be obligated to rely on contract manufacturers and packagers. We cannot be sure that we will successfully manufacture any product, either independently or under manufacturing arrangements, if any, with third party manufacturers. Moreover, if any manufacturer should cease doing business with us or experience delays, shortages of supply or excessive demands on their capacity, we may not be able to obtain adequate quantities of product in a timely manner, or at all. Manufacturers, and in certain situations their suppliers, are required to comply with current NDA commitments and current good manufacturing practices (cGMP) requirements enforced by the FDA, and similar requirements of other countries. The failure by a manufacturer to comply with these requirements could affect its ability to provide us with product. Although we intend to rely on third-party contract manufacturers, we are ultimately responsible for ensuring that our products are manufactured in accordance with cGMP. In addition, if, during a preapproval inspection or other inspection of our third-party manufacturers’ facility or facilities, the FDA determines that the facility is not in compliance with cGMP, any of our marketing applications that lists such facility as a manufacturer may not be approved or approval may be delayed until the facility comes into compliance with cGMP and completes a successful

re-inspection

by the FDA.

Any manufacturing problem, natural disaster, or epidemic, affecting manufacturing facilities, or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Additionally, we will be reliant on third parties to supply the raw materials needed to manufacture our products. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to future contract manufacture caused by problems at suppliers could delay shipment of products, increase our cost of goods sold and result in lost sales. If our suppliers were to be unable to supply us with adequate supply of our drugs, it could have a material adverse effect on our ability to successfully commercialize our drug candidates.

We could be impacted by the viability of our suppliers.

We source our products from more than one supplier, and we have entered into contracts with our suppliers that contractually obligate them to meet our requirements. However, if our suppliers cannot or will not meet our requirements (for whatever reason), our business could be adversely impacted.

We may encounter difficulties in managing our growth, which would adversely affect our results of operations.

To manage future growth, we will likely need to hire, train, and manage additional employees. Concurrent with expanding our operational and marketing capabilities, we will also need to increase our product development activities. We may not be able to support, financially or otherwise, future growth, or hire, train, motivate, and manage the required personnel. Our failure to manage growth effectively could limit our ability to achieve our goals.

Our success in managing our growth will depend in part on the ability of our executive officers to continue to implement and improve our operational, management, information and financial control systems, and to expand, train and manage our employee base, and particularly to expand, train and manage a specially-trained sales force to market our products. We may not be able to attract and retain personnel on acceptable terms given the intense competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and

non-profit

research institutions. Our inability to manage growth effectively could cause our operating costs to grow at a faster pace than we currently anticipate and could have a material adverse effect on our business, financial condition, results of operations and prospects.

Pressure on drug product third-party payor coverage, reimbursement and pricing may impair our ability to be reimbursed at prices or on terms sufficient to provide a viable financial outcome.

The commercial success of our drug products, including FIRDAPSE

and any other products we are able to market in the future, will depend substantially on the extent to which the cost of those products will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities (such as Medicare and Medicaid), private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to continue to successfully commercialize our products. Even if coverage is provided, the approved reimbursement amount may not be high enough to establish and maintain pricing sufficient to realize a meaningful return on our investment.

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The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product candidates profitably. These payors may not view our products as cost-effective, and coverage and reimbursement may not be available to our customers, or may not be sufficient to allow our products, if any, to be marketed on a competitive basis. Cost-control initiatives could cause us to decrease the price we might establish for products, which could result in lower than anticipated product revenues. If the prices for our products decrease or if governmental and other third-party payors do not provide adequate coverage or reimbursement, our prospects for revenue and profitability will suffer.

There may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Reimbursement rates may vary, by way of example, according to the use of the drug and the clinical setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.

In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. We cannot be sure that coverage will be available for any product candidate that we commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of our product candidates for which we obtain marketing approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

The pricing of drug products, in general, and of specialty drugs, in particular, has been a topic of concern in the United States Congress, where hearings have been held on the topic, and several bills have been introduced proposing a variety of actions to restrain the prices of drugs. Former President Trump frequently discussed his intention to reduce drug prices, as has President Biden. The Trump Administration solicited public comment on a variety of regulatory proposals to reduce drug prices, and the Centers for Medicare and Medicaid Services (Center) published an interim final rule that establishes a Most Favored Nation (MFN) Model for Medicare Part B drug payment. This regulation would substantially change the drug reimbursement landscape as it bases Medicare Part B payment for 50 selected drugs on prices in foreign countries instead of average sales price, or ASP. The MFN drug payment amount was expected to be lower than the current

ASP-based

payment limit because United States drug prices are generally the highest in the world. While the MFN Model payment methodology was scheduled to begin on January 1, 2021, by the end of December 2020, three federal courts had granted orders preventing implementation of the MFN Model rule. On August 6, 2021, the Center published a proposed rule rescinding the November 2020 MFN Model interim final rule, and on December 27, 2021, CMS published a final rule withdrawing the MFN Model effective February 28, 2022. In its release, the Center stated that it will consider stakeholder feedback as it explores options to incorporate value into payments for Medicare Part B drugs, improving access to evidence-based care, and reducing drug spending for consumers throughout the health care system. Further, since President Biden took office, there have been continuing efforts in Congress and through the administration to reduce drug prices.

For example, on November 20, 2020, the United States Department of Health and Human Services (HHS) finalized a regulation removing safe harbor protection under the Federal Anti-Kickback Statute for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law or unless it is passed through to the dispensing pharmacy and reflected in the price to the patient. The implementation of the rule has been delayed by the Biden administration to January 1, 2023 in response to ongoing litigation. In addition, effective January 1, 2024, a provision capping the rebate amount under the Medicaid Drug Rebate program at 100% of AMP will be eliminated, which means that a manufacturer could pay a rebate amount on a unit of the drug that is greater than the price the manufacturer receives for the drug. Further, effective January 1, 2023, a final rule issued by CMS will change the way copay assistance program prices are treated in best price for purposes of the Medicaid Drug Rebate Program. This change could result in manufacturers eliminating their patient assistance programs, which would make many innovator drugs more expensive for patients. This final rule is subject to ongoing litigation, but it is not clear when a decision will be made or how the court will rule.

On September 9, 2021, the Biden administration published a wide-ranging list of policy proposals, most of which would need to be carried out by Congress, to reduce drug prices and drug payment. The HHS plan includes, among other reform measures, proposals to lower prescription drug prices, including by allowing Medicare to negotiate prices and disincentivizing price increases, and to support market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase price transparency. Many similar proposals, including the plans to give Medicare Part D authority to negotiate drug prices, require drug manufacturers to pay rebates on drugs whose prices increase greater than the rate of inflation, and cap

out-of-pocket

costs, have already been included in policy statements and legislation currently being considered by Congress. It is unclear to what extent these and other statutory, regulatory, and administrative initiatives will be enacted and implemented, and to what extent these or any future legislation or regulations by the Biden administration will have an effect on our business, including market acceptance, and sales, of our products and product candidates.

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We cannot predict how any such laws or regulations, or new laws or regulations that have yet to be proposed, will affect the pricing of our product, of orphan drugs generally, or of drug products generally.

Our internal computer systems, or those of our contract research organizations and other key vendors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.

Our internal computer systems and those of our contract research organizations and other key vendors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data from completed or ongoing clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our drug candidates could be delayed.

Our employees, sales agents and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of fraud or other misconduct by our employees, sales agents or consultants. Misconduct could include failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter such misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Risks Related to Government Regulation

The regulatory approval process is lengthy, and we may not be able to obtain all of the regulatory approvals required in the future to manufacture and commercialize FIRDAPSE

or other products we may develop in the future in all areas in which we are licensed to supply it.

We will not be able to commercialize our products in other countries or for additional indications until we have obtained the requisite regulatory approvals from applicable governmental authorities. To obtain regulatory approval of a drug candidate for an indication, we must demonstrate to the satisfaction of the applicable regulatory agency that such drug candidate is safe and effective for that indication. The type and magnitude of the testing required for regulatory approval varies depending on the drug candidate and the disease or condition for which it is being developed. In addition, in the United States we must show that the facilities used to manufacture our drug candidates are in compliance with cGMP requirements. We will also have to meet similar regulations in any foreign country where we may seek to commercialize our drug candidates. In general, these requirements mandate that manufacturers follow elaborate design, testing, control, documentation, and other quality assurance procedures throughout the entire manufacturing process. The process of obtaining regulatory approvals typically takes several years and requires the expenditure of substantial capital and other resources. Despite the time, expense and resources invested by us in the approval process, we may not be able to demonstrate that our drug candidate is safe and effective for such indications, in which event we would not receive the regulatory approval required to market it.

If our

pre-clinical

studies or our clinical studies and trials are unsuccessful or significantly delayed, our ability to commercialize our products will be impaired.

Before we can obtain future regulatory approval for the sale of our drug candidates for an indication, we may have to conduct, at our own expense,

pre-clinical

tests in animals in order to support the safety of our drug candidates.

Pre-clinical

testing is expensive, difficult to design and implement, can take several years to complete, and is uncertain as to outcome. Our

pre-clinical

tests may produce negative or inconclusive results, and on the basis of such results, we may decide, or regulators may require us, to halt ongoing clinical trials or conduct additional

pre-clinical

testing.

Additionally, future clinical trials for FIRDAPSE

or any other drug candidate we may acquire may not be successfully completed or may take longer than anticipated because of any number of factors, including potential delays in the start of the trial, an inability to recruit clinical trial participants at the expected rate, failure to demonstrate safety and efficacy, unforeseen safety issues, or unforeseen governmental or regulatory delays. Further, our drug candidate may not be found to be safe and effective in particular indications and

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may not be approved by regulatory authorities for the proposed indication. Further, regulatory authorities and IRBs that must approve and monitor the safety of each clinical study may suspend a clinical study at any time if the patients participating in such study are deemed to be exposed to any unacceptable health risk. We may also choose to suspend human clinical studies and trials if we become aware of any such risks. We might encounter problems in our clinical trials, including our expanded access program, such as seizures, weakness or other side effects that will cause us, regulatory authorities, or IRBs to delay or suspend such trial or study. Moreover, FDA will consider the data, including safety data, from patients enrolled in any expanded access program we may implement in the evaluation of any NDA or sNDA we may submit.

In other countries where FIRDAPSE

or any other product we may acquire or license may be marketed, we will also be subject to regulatory requirements governing human clinical studies, trials and marketing approval for drugs. The requirements governing the conduct of clinical studies, trials, product licensing, pricing and reimbursement varies widely from country to country.

We may face significant delays in our clinical studies and trials due to an inability to recruit patients for our clinical studies and trials or to retain patients in the clinical studies and trials we may perform.

We may encounter difficulties in our current and future clinical studies and trials recruiting patients, particularly since the conditions we are studying are rare, orphan conditions. The availability of approved therapies can also make enrollment difficult. We compete for study and trial subjects with others conducting clinical trials testing other treatments for the indications we are studying for our drug candidates. Further, unrelated third parties and investigators in the academic community have in the past and we expect will continue in the future to test our drug candidates, including FIRDAPSE

. If these third-party tests are unsuccessful, or if they show significant health risk to the test subjects, our development efforts may also be adversely affected.

Clinical trials in orphan diseases are often difficult to enroll given the small number of patients with these diseases. Completion of orphan clinical trials may take considerably more time than other trials, sometimes years, depending on factors such as type, complexity, novelty and intended use of a product candidate. As a result of the uncertainties described above, there can be no assurance that we will meet timelines that we establish for any of our clinical trials.

If our third-party suppliers or contract manufacturers do not maintain appropriate standards of manufacturing in accordance with cGMP and other manufacturing regulations, our development and commercialization activities could suffer significant interruptions or delays.

We rely, and intend to continue to rely, on third-party suppliers and contract manufacturers to provide us with materials for our clinical trials and commercial-scale production of our products. These suppliers and manufacturers must continuously adhere to cGMP as well as any applicable corresponding manufacturing regulations outside of the United States. In complying with these regulations, we and our third-party suppliers and contract manufacturers must expend significant time, money and effort in the areas of design and development, testing, production, record-keeping, and quality control to assure that our products meet applicable specifications and other regulatory requirements. Failure to comply with these requirements could result in an enforcement action against us, including warning letters, the seizure of products, suspension or withdrawal of approvals, shutting down of production, and criminal prosecution. Any of these third-party suppliers or contract manufacturers will also be subject to inspections by the FDA and other regulatory agencies. If any of our third-party suppliers or contract manufacturers fail to comply with cGMP or other applicable manufacturing regulations, our ability to develop and commercialize our products could suffer significant interruptions and delays.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product ourselves, including:

• reliance on the third party for regulatory compliance and quality assurance;

• reliance on the continued financial viability of the third parties;

If any of our contract manufacturers fail to achieve and maintain appropriate manufacturing standards, patients using our products could be injured or die, resulting in product liability claims. Even absent patient injury, we may be subject to product recalls, product seizures or withdrawals, delays or failures in testing or delivery, cost overruns, or other problems that could seriously harm our business or profitability.

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FIRDAPSE

is subject to ongoing regulatory review. If we fail to comply with continuing United States and applicable foreign regulations, we could lose those approvals, and our business would be severely harmed.

We are and will continue to be subject to continuing regulatory review for our approved products, including the review of our required nonclinical and clinical post-marketing studies, and other clinical results which are reported after our drug candidates become commercially available approved drugs. As greater numbers of patients use a drug following its approval, side effects and other problems may be observed after approval that were not seen or anticipated during preapproval clinical studies and trials. In addition, the manufacturer, and the manufacturing facilities we use to make any approved drugs, will also be subject to periodic review and inspection by the FDA. The subsequent discovery of previously unknown problems with the drug, manufacturer or facility may result in restrictions on the drug, manufacturer or facility, including withdrawal of the drug from the market. If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension, or withdrawal of regulatory approval, product recalls and seizures, operating restrictions, and criminal prosecutions.

Our product promotion and advertising are also subject to regulatory requirements and continuing regulatory review. In particular, the marketing claims we will be permitted to make in labeling or advertising regarding our marketed products will be limited by the terms and conditions of the

FDA-approved

labeling and available scientific data. We must submit copies of our advertisements and promotional labeling to the FDA at the time of initial publication or dissemination. If the FDA believes these materials or statements promote our products for unapproved indications, or with unsubstantiated claims, or if we fail to provide appropriate safety related information, the FDA could allege that our promotional activities misbrand our products. Specifically, the FDA could issue an untitled letter or warning letter, which may demand, among other things, that we cease such promotional activities and issue corrective advertisements and labeling to all recipients of the misbranded materials. The FDA also could take enforcement action including seizure of allegedly misbranded product, injunction, or criminal prosecution against us and our officers or employees. If we repeatedly or deliberately fail to submit such advertisements and labeling to the agency, the FDA could withdraw our approvals. Moreover, the Department of Justice can bring civil or criminal actions against companies and executives that promote drugs or biologics for unapproved uses, based on the Federal Food, Drug, and Cosmetic Act, the False Claims Act, and other federal laws governing the marketing and reimbursement for such products under federally supported healthcare programs such as Medicare and Medicaid. Monetary penalties in such cases have often been substantial, and civil penalties can include costly mandatory compliance programs and potential exclusion of a company’s products from federal healthcare programs.

Enacted and future legislation or judicial action may increase the difficulty and cost for us to commercialize FIRDAPSE

or any other drug candidates we may acquire or license and affect the prices we may obtain.

In the United States, there have been a number of court cases, legislative and regulatory changes, and other potential changes relating to the healthcare system that restrict or regulate post-approval activities, which may affect our ability to profitably sell FIRDAPSE

or any other drug candidates for which we obtain marketing approval.

The Medicare Prescription Drug Improvement and Modernization Act of 2003, or MMA, changed the way Medicare covers and pays for drug products. The legislation expanded Medicare coverage for outpatient drug purchases by those covered by Medicare under a new Part D and introduced a reimbursement methodology based on average sales prices for Medicare Part B physician-administered drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies whereby they can limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, there is additional pressure to contain and reduce costs. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors. These cost reduction initiatives and other provisions of the MMA could decrease the coverage and reimbursement that we receive for any approved products and could seriously harm our business. Manufacturers’ contributions to this area, including donut hole coverage (as described below) or potential excise taxes, are increasing and are subject to additional changes in the future.

In 2010, former President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, the “Health Care Reform Law”), a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry, and impose additional health policy reforms. The Health Care Reform Law, among other things, revised the definition of Average Manufacturer Price used by the Medicaid Drug Rebate Program for reporting purposes, imposed a significant annual fee on companies that manufacture or import branded prescription drug products and established an annual

non-deductible

fee on entities that sell branded prescription drugs or biologics to specified government programs in the United States. The Health Care Reform Law also expanded the 340B drug discount program (excluding orphan drugs), including the creation of new penalties for

non-compliance

and included a discount (now 70%, on brand name drugs for Medicare Part D participants in the coverage gap, or “donut hole.” The Health Care Reform Law increased the Medicaid rebates for line extensions or reformulated drugs, which could substantially increase our Medicaid rebate rate (in effect limiting reimbursement for these patients).

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Beginning in January 2017, former President Trump signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the Health Care Reform Law or otherwise circumvent some of the requirements for health insurance mandated by the Health Care Reform Law. These actions include directing applicable federal agencies to waive, defer, grant exemptions from, or delay the implementation of any provision of the Health Care Reform Law that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13, 2017, an Executive Order was signed terminating the cost sharing subsidies that reimburse insurers under the Health Care Reform Law. Several state Attorneys Generals filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. Further, on June 14, 2018 the United States Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $12.0 billion in Health Care Reform Law risk corridor payments to third-party payors. The effects of this gap in reimbursement on third-party payors, the viability of the Health Care Reform Law marketplace, providers, and our business, are not yet known. On December 18, 2019, the United States Court of Appeals for the Fifth Circuit ruled that the Health Care Reform Law’s individual mandate is unconstitutional but sent the matter back down to a district court to determine whether that provision can be removed from the rest of the Health Care Reform Law. On March 2, 2020, the U.S. Supreme Court agreed to review the Fifth Circuit’s ruling, and oral argument was heard on November 10, 2020. On June 17, 2021, the U.S. Supreme Court dismissed the challenge to the Health Care Reform Law in a

7-2

decision.

Additionally, in response to controversies regarding pricing of drug products, there has been a recent push to propose legislation, both on state and federal levels, that would require greater disclosure as to the reasoning behind drug prices and, in some cases, could give state or federal-level commissions the right to impose cost controls on certain drugs. These and other new provisions are likely to continue the pressure on pharmaceutical pricing, may require us to modify our business practices with healthcare practitioners, and may also increase our regulatory burdens and operating costs. In that regard, President Biden and members of Congress in both parties have expressed concerns about high drug prices. However, whether and to what extent any such positions will result in changes of the law, and how any such changes could impact our business, cannot be determined at this time.

Legislative and regulatory proposals also have been made to expand post-approval requirements, restrict sales and promotional activities for drug products, and with respect to orphan drug designation and exclusivity. In addition, increased scrutiny by the United States Congress of the FDA’s approval process may subject us to more stringent product labeling and post-marketing testing and other requirements. Delays in feedback from the FDA may affect our ability to quickly update or adjust our label in the interest of patient adherence and tolerability. We cannot predict whether other legislative changes will be adopted or how such changes would affect the pharmaceutical industry generally and specifically the commercialization of FIRDAPSE

and any other products we develop.

If we fail to obtain or subsequently maintain orphan drug exclusivity or regulatory exclusivity for FIRDAPSE

and any other orphan drug candidates we may acquire or

in-license,

our competitors may sell products to treat the same conditions at greatly reduced prices, and our revenues would be significantly adversely affected.

In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and

user-fee

waivers. The company that first obtains FDA approval for a designated orphan drug for a given rare disease receives marketing exclusivity for use of that drug for the stated disease or condition for a period of seven years, with an additional six months of exclusivity if the product also qualifies for pediatric exclusivity. Orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective, a subsequent product is deemed clinically superior, or if the manufacturer is unable to deliver sufficient quantity of the drug.

Because the extent and scope of patent protection for some of our drug products may be particularly limited, orphan drug designation – and ultimately, orphan drug exclusivity – is especially important for our products that are eligible for orphan drug designation. For eligible drugs, we plan to rely on the orphan exclusivity period to maintain a competitive position. However, if we do not obtain orphan drug exclusivity for our drug candidates or we cannot maintain orphan exclusivity for our drug candidates, our competitors may then sell the same drug to treat the same condition and our revenues will be reduced. Also, without strong patent protection, competitors may sell a generic version upon the expiration of orphan exclusivity if our patent position is not upheld.

Even if we obtain orphan drug designation for our future drug candidates, we may not fulfill the criteria for exclusivity or we may not be the first to obtain marketing approval for any orphan indication. Further, even if we obtain orphan drug exclusivity for a particular product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition, and FDA can approve the same drug for a different patient population. Even after an orphan drug is approved, the FDA can subsequently approve a drug for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. The FDA can discontinue orphan drug exclusivity after it has been granted if the orphan drug cannot be manufactured in sufficient quantities to meet demand.

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Finally, there can be no assurance that the exclusivity provisions currently in the law may not be changed in the future and the impact of any such changes (if made) on us. The orphan drug exclusivity contained in the Orphan Drug Act has been the subject of recent scrutiny from the press, from some members of Congress and from some in the medical community. There can be no assurance that the exclusivity granted in the Orphan Drug Act to orphan drugs approved by the FDA will not be modified in the future, and as to how any such change might affect our products, if approved.

Changes to the Orphan Drug Act or successful legal challenges to the FDA’s interpretation of the Orphan Drug Act may affect our ability to obtain or subsequently maintain orphan drug exclusivity or affect the scope of orphan drug exclusivity for our products.

There can be no assurance whether the exclusivity provisions in the Orphan Drug Act may be changed in the future and the impact of such changes, if made on us. For example, if the United States Congress were to pass, and the President were to sign, legislation revising the Orphan Drug Act that effectively overturns the decision of the U.S. Court of Appeals for the 11

Circuit, such legislation might retroactively affect the outcome of the 11

Circuit decision and allow the FDA to reinstate the approval of Ruzurgi

before the expiration of Firdapse

’s orphan drug exclusivity.

The orphan drug exclusivity contained in the Orphan Drug Act has been the subject of recent scrutiny from the press, from some members of Congress and from some in the medical community. Furthermore, the FDA’s interpretations of the Orphan Drug Act have been successfully challenged in court and future court decisions could continue that trend. There can be no assurance that the exclusivity granted in the Orphan Drug Act to orphan drugs approved by the FDA will not be modified in the future, and as to how any such change might affect our products, if approved.

Our operations and relationships with healthcare providers, healthcare organizations, customers and third-party payors are subject to applicable anti-bribery, anti-kickback, fraud and abuse, transparency and other healthcare laws and regulations, which could expose us to, among other things, enforcement actions, criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

Our current and future arrangements with healthcare providers, healthcare organizations, third-party payors, customers, and patients expose us to broadly applicable anti-bribery, fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we research, market, sell and distribute our drug candidates. In addition, we may be subject to patient data privacy and security regulation by the U.S. federal government and the states and the foreign governments in which we conduct our business. Restrictions under applicable federal and state anti-bribery and healthcare laws and regulations include the following:

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If we or our collaborators, manufacturers or service providers fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to enforcement actions, which could affect our ability to develop, market and sell our products successfully and could harm our reputation and lead to reduced acceptance of our products by the market. These enforcement actions include, not only civil and criminal penalties, but also exclusion from participation in government-funded healthcare programs, and exclusion from eligibility for the award of government contracts for our products.

Efforts to ensure that our current and future business arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any such requirements, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of our operations, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, integrity oversight and reporting obligations, or reputational harm, any of which could adversely affect our financial results. Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action against us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our management’s attention from the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources.

Risks Related to Our Intellectual Property

We are dependent on our relationships and license agreements, and we rely upon the patent rights granted to us pursuant to the license agreements.

All of our patent rights for FIRDAPSE

are derived from our license agreement. In August 2020, the United States Patent and Trademark Office (USPTO) allowed U.S. Patent No. 10,793,893 (the ’893 patent) to our licensor and thereby to us, and the patent issued on October 6, 2020. The patent is directed to the use of suitable doses of amifampridine to treat patients, regardless of the therapeutic indication, that are slow metabolizers of amifampridine. Any drug product containing amifampridine with a label that states the patented dosing regimens and doses in the Dosing and Administration section prior to April 7, 2034, the expiration date of the patent, could possibly infringe this patent. Generic drug product labels would necessarily have to do this, and we intend to take all appropriate actions to protect our intellectual property.

In April 2021, the USPTO also allowed Patent No. 11,060,128 (the ’128 patent) to our licensor and thereby to us, and this second patent issued on July 13, 2021. The patent is directed to the use of suitable doses of amifampridine to treat patients suffering with LEMS that are slow metabolizers of amifampridine. Any drug product containing amifampridine with a label for the treatment of LEMS, that states the patented dosing regimens and doses in the Dosing and Administration section of a product label, including generic drug product labels, could possibly infringe this patent prior to this patent’s expiration date.

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On December 24, 2021, the USPTO allowed continuing application, 17/503,190. On January 3, 2022, the USPTO allowed related continuing application 17/503,148. A further related continuing application, 17/503,092 was allowed on January 7, 2022. All three patents were issued in March 2022. The claims in each of these applications have either already been listed in the Orange Book for FIRDAPSE

or are in the process of being listed.

We may lose our rights to these patents and patent applications if we breach our obligations under the License Agreement, including, without limitation, our financial obligations to the licensor. If we violate or fail to perform any term or covenant of the License Agreement, the licensor may terminate the License Agreement upon satisfaction of any applicable notice requirements and expiration of any applicable cure periods. Additionally, any termination of the License Agreement, whether by us or by the licensor, will not relieve us of our obligation to pay any license fees owing at the time of such termination. If we fail to retain our rights under the License Agreement, we would not be able to commercialize FIRDAPSE

, and our business, results of operations, financial condition and prospects would be materially adversely affected.

Our commercial success will depend in large part on our ability to use patents and regulatory exclusivity to exclude others from competing with our products. The patent position of emerging pharmaceutical companies like us can be highly uncertain and involve complex legal and technical issues. Until the ’893 patent and the ‘128 patent are interpreted by a court, and unless and until our other pending applications are granted, we will not know the breadth of protection that they will afford us. Our pending applications, if granted, may not contain claims sufficiently broad to prevent others from practicing our technologies or marketing competing products. Third parties may intentionally attempt to design around any FIRDAPSE

patents that ultimately grant so as to compete with us without infringing our patents. Although granted patents enjoy a presumption of validity, there is a risk that the ’893 patent, the ‘128 patent and any patents resulting from our ongoing prosecution efforts may be invalidated or rendered unenforceable if challenged by others.

As a result of the foregoing factors, we cannot be certain how much protection from competition patent rights will provide us.

Our success will depend significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.

Further, there can be no assurance that we do not or will not infringe on patents held by third parties or that third parties in the future will not claim that we have infringed on their patents. In the event that our products or technologies infringe one or more patents or violate other proprietary rights of any third parties, we may be prevented from pursuing product development, manufacturing or commercializing any of our products using such technologies. For example, there may be patents or patent applications held by others that contain claims that our products or operations might be determined to infringe or that may be broader than we believe them to be. Given the complexities and uncertainties of patent laws, there can be no assurance as to the impact that future claims of infringement against us may have on our business, financial condition, results of operations, or prospects.

If a third-party claims that we infringe its patents, any of the following may occur:

In addition, our employees, consultants, contractors and others may knowingly or unknowingly use the proprietary information of others in their work for us or disclose our proprietary information to others. If our employees, consultants, contractors or others disclose our data to others or use data belonging to others in connection with our business, it could lead to disputes over the ownership of inventions derived from that information or expose us to potential damages or other penalties.

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The occurrence of any of these events could have a material adverse effect on our business, financial condition, results of operations or prospects.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

There is substantial history of litigation and other proceedings regarding patent and intellectual property rights in the pharmaceutical industry. We may be forced to defend claims of infringement brought by our competitors and others, and we may institute litigation against third parties who we believe are infringing our intellectual property rights. The outcome of intellectual property litigation is subject to substantial uncertainties and may, for example, turn on the interpretation of claim language by the court, which may not be to our advantage, or on the testimony of experts as to technical facts upon which experts may reasonably disagree.

Under our License Agreements, we have the right to bring legal action against any alleged infringers of the patents we license. In that regard, in October 2020, we filed lawsuits against Jacobus and the specialty pharmacy marketing Ruzurgi

, PantherRx Rare LLC (PantherRx), for infringement of the ‘893 patent. The suits have now been consolidated in a single action in the U.S. District Court for New Jersey. In August 2021, the lawsuits were amended to include alleged infringement of the ‘128 patent. The lawsuits arise from Jacobus’ and PantherRx’s sales and marketing of Ruzurgi

(amifampridine) Tablets, 10 mg. The lawsuits allege that the Ruzurgi

product infringes the ‘893 patent and the ‘128 patent when administered in accordance with its product labeling. The lawsuit seeks damages and injunctive relief to prevent further marketing of Ruzurgi

in violation of our patent rights. The lawsuit is in the discovery stage and there can be no assurance as to the results of these proceedings.

Our involvement in intellectual property litigation could result in significant expense to us. Some of our competitors have considerable resources available to them and a strong economic incentive to undertake substantial efforts to stop or delay us from commercializing products. Moreover, regardless of the outcome, intellectual property litigation against or by us could significantly disrupt our development and commercialization efforts, divert our management’s attention and quickly consume our financial resources.

In addition, if third parties have filed patent applications or have issued patents claiming technology that is also claimed by us in any of our pending applications, we may be required to participate in interference or derivation proceedings with the third party at the United States Patent Office. We may also need to participate in proceedings outside the United States, such as an opposition at the European Patent Office, to determine whether or not a patent issued by the EPO was properly granted. Even if we are successful in these proceedings, we may incur substantial costs, and the time and attention of our management and scientific personnel will be diverted from product development or other more productive matters.

General Risk Factors Relating to our Common Stock

The trading price of the shares of our common stock has been and could in the future be highly volatile.

The market price of our common stock has fluctuated in the past and is likely to fluctuate in the future. Market prices for biopharmaceutical companies have historically been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:

• status of regulatory requirements for approval of our drug candidates;

• adverse publicity regarding the pricing of FIRDAPSE®;

• new products introduced or announced by us or our competitors;

• changes in reimbursement levels;

• changes in financial estimates by securities analysts;

• actual or unanticipated variations in operating results;

• changes in laws regarding FDA approval;

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• intellectual property, product liability or other litigation against us;

• changes in the market valuations of similar companies;

• changes in economic conditions; and

In addition, equity markets in general, and the market for emerging pharmaceutical and life sciences companies in particular, have experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies traded in those markets. Further, changes in economic conditions in the United States, Europe, or globally could impact our ability to grow profitably. Adverse economic changes are outside our control and may result in material adverse impacts on our business or financial results. These broad market and industry factors may materially affect the market price of our shares, regardless of our own development and operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. Any such litigation that we become involved in could cause us to incur substantial costs and divert our management’s attention and resources, which could have a material adverse effect on our business, financial condition, and results of operations.

Delaware law and our certificate of incorporation and

by-laws

contain provisions that could delay and discourage takeover attempts that stockholders may consider favorable.

Certain provisions of our certificate of incorporation and

by-laws,

and applicable provisions of Delaware corporate law, may make it more difficult for or prevent a third party from acquiring control of us or changing our Board of Directors and management. These provisions include:

On September 20, 2011, the board of directors approved the adoption of a stockholder rights plan (Rights Plan), which was amended on September 19, 2016 and further amended on August 28, 2019. The Rights Plan was implemented through our entry into a rights agreement with Continental Stock Transfer & Trust Company, as rights agent, and the declaration of a

non-taxable

dividend distribution of one preferred stock purchase right (each, a Right) for each outstanding share of our common stock. The dividend had been paid on October 7, 2011 to holders of record as of that date. Each right was attached to and traded with the associated share of common stock. Under the Rights Plan, the rights would have become exercisable only if a person acquired beneficial ownership of 17.5% or more of our common stock (or, in the case of a person who beneficially owned 17.5% or more of our common stock on the date the rights plan was adopted, such person acquires beneficial ownership of any additional shares of our common stock) or after the date of the Rights Agreement, commenced a tender offer that, if consummated, would have resulted in beneficial ownership by a person of 17.5% or more of our common stock.

On November 12, 2021, our Board of Directors terminated the Rights Plan. Despite the termination of the Rights Plan, the Board of Directors reserves the right to take all necessary actions it deems appropriate in the future to protect the interests of all of the Company’s stockholders.

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In addition, Section 203 of the Delaware General Corporation Law generally prohibits us from engaging in a business combination with any person who owns 15% or more of our common stock for a period of three years from the date such person acquired such common stock, unless Board or stockholder approval is obtained. These provisions could make it difficult for a third party to acquire us, or for members of our Board of Directors to be replaced, even if doing so would be beneficial to our stockholders.

Any delay or prevention of a change of control transaction or changes in our Board of Directors or management could deter potential acquirers or prevent the completion of a transaction in which our stockholders could receive a substantial premium over the then current market price for their shares.

Future sales of our common stock may cause our stock price to decline.

As of March 14, 2022, we had 102,744,913 shares of our common stock outstanding, of which 7,753,498 shares were held by our officers and directors. We also had outstanding: (i) stock options to purchase an aggregate of 14,455,728 shares at exercise prices ranging from $0.79 to $7.07 per share (9,726,842 of which are currently exercisable); and (ii) restricted stock units for 597,339 shares of common stock (none of which are currently vested). Sales of shares, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.

We do not intend to pay cash dividends on our common stock in the foreseeable future.

We have never declared or paid any cash dividends on our common stock or other securities, and we currently do not anticipate paying any cash dividends in the foreseeable future. Accordingly, investors should not invest in our common stock if they require dividend income. Our stockholders will not realize a return on their investment unless the trading price of our common stock appreciates, which is uncertain and unpredictable.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We currently operate our business in leased office space in Coral Gables, Florida. During 2020, we leased approximately 7,800 square feet of space, for which we paid annual rent of approximately $0.3 million. During May 2020 we amended our office lease to increase our leased space to approximately 10,700 square feet. The amended lease commenced in March 2021 when construction of the asset was completed and the space became available for use. Our current annual rent in the new space is approximately $0.5 million.

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Item 3. Legal Proceedings

Ruzurgi

In May 2019, the FDA approved a New Drug Application (NDA) for Ruzurgi

, another version of amifampridine

(3,4-DAP),

for the treatment of pediatric LEMS patients (ages 6 to under 17). While the NDA for Ruzurgi

only covers pediatric patients, we believe that Ruzurgi

has been regularly prescribed

off-label

to adult LEMS patients. We also believe that the FDA’s approval of Ruzurgi

violated our statutory rights and was in multiple other respects arbitrary, capricious and contrary to law. As a result, in June 2019 we filed suit against the FDA challenging this approval and related drug labeling, and Jacobus Pharmaceuticals (Jacobus) intervened in our case. Our complaint, which was filed in the federal district court for the Southern District of Florida, alleged that the FDA’s approval of Ruzurgi

violated multiple provisions of FDA regulations regarding labeling, resulting in misbranding in violation of the Federal Food, Drug, and Cosmetic Act (FDCA); violated our statutory rights to Orphan Drug Exclusivity and New Chemical Entity Exclusivity under the FDCA; and was in multiple other respects arbitrary, capricious, and contrary to law, in violation of the Administrative Procedure Act. Among other remedies, the suit sought an order setting aside the FDA’s approval of Ruzurgi

On July 30, 2020, the Magistrate Judge considering our lawsuit against the FDA filed a Report and Recommendation in which she recommended to the District Judge handling the case that she grant the FDA’s and Jacobus’ motions for summary judgment and deny our motion for summary judgment. On September 29, 2020, the District Judge adopted the Report and Recommendation of the Magistrate Judge, granted the FDA’s and Jacobus’ motions for summary judgment, and dismissed our case. We appealed the District Court’s decision to the U.S. Circuit Court of Appeals for the 11th Circuit. By early 2021, the case was fully briefed, and oral argument was held in March 2021.

On September 30, 2021, a three-judge panel of 11th Circuit judges issued a unanimous decision overturning the District Court’s decision. The appellate court adopted our argument that the FDA’s approval of Ruzurgi

violated our rights to Orphan Drug Exclusivity and remanded the case to the District Court with orders to enter summary judgment in our favor. In November 2021, Jacobus filed a motion seeking rehearing of the case from the full 11th Circuit, which motion was denied in January 2022. Further, in January 2022, Jacobus filed motions with both the 11th Circuit and the U.S. Supreme Court seeking a stay of the 11th Circuit’s ruling indicating that it would seek a review of the 11th Circuit’s decision from the U.S. Supreme Court. Both stay motions were denied, and on January 28, 2022, the 11th Circuit issued a mandate directing the District Court to enter summary judgment in our favor. The District Court entered that order on January 31, 2022. On February 1, 2022, the FDA informed Jacobus that, consistent with the Court of Appeals for the Eleventh Circuit’s September 30, 2021, decision in favor of Catalyst, the final approval of the Ruzurgi

NDA was switched to a tentative approval until the

7-year

orphan-drug exclusivity (ODE) for Firdapse

has expired.

There can be no assurance as to whether Jacobus will seek U.S. Supreme Court review of the 11th Circuit’s decision, whether the U.S. Supreme Court will agree to hear the case, or whether, if the U.S. Supreme Court agrees to hear the case, Jacobus’ appeal to overturn the decision of the 11th Circuit will be successful. Similarly, there can be no assurance as to whether the U.S. Congress will pass, and the President will sign, legislation effectively overturning the 11th Circuit’s decision, and whether or not such legislation, if passed, would have any retroactive effect that would allow the FDA to reinstate Ruzurgi

On August 10, 2020, Health Canada issued a Notice of Compliance (NOC) to Medunik for Ruzurgi

for the treatment of LEMS. We initiated a legal proceeding in Canada seeking judicial review of Health Canada’s decision to issue the NOC for Ruzurgi

as incorrect and unreasonable under Canadian law. Data protection, per Health Canada regulations, is supposed to prevent Health Canada from issuing a NOC to a drug that directly or indirectly references an innovative drug’s data, for eight years from the date of the innovative drug’s approval. The Ruzurgi

Product Monograph clearly references pivotal nonclinical carcinogenicity and reproductive toxicity data for amifampridine phosphate developed by us. As such, we believe that our data was relied upon to establish the nonclinical safety profile of Ruzurgi

needed to meet the standards of the Canadian Food and Drugs Act.

On June 3, 2021, we announced a positive decision in this proceeding that quashed the NOC previously issued for Ruzurgi

and remanded the matter to the Minister of Health to redetermine its decision to grant marketing authorization to Ruzurgi

in spite of FIRDAPSE

’s data protection rights. However, on June 28, 2021, we announced that Health Canada had

re-issued

an NOC for Ruzurgi

, once again allowing the product to be marketed in Canada for patients with LEMS. As a result, in early July 2021 we, along with our partner KYE, filed a second suit against Health Canada to overturn their most recent decision. That case was fully briefed in late 2021, with oral argument held in early December.

On March 11, 2022, we announced that we had received a favorable decision from the Canadian court setting aside, for the second time, the decision of Health Canada approving Ruzurgi

for the treatment of LEMS patients. In its ruling, the court determined that the Minister of Health’s approach to evaluating whether FIRDAPSE

’s data deserved protection based on FIRDAPSE

’s status as an innovative drug, which protects by regulation the use of such data as part of a submission seeking an NOC for eight years from approval of the innovative drug, was legally flawed and not supported by the evidence. As a result, the matter has, once again, been remanded to the Minister of Health to redetermine its decision in light of the court’s ruling. There can be no assurance as to the outcome of this proceeding.

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Patent Litigation

All of our patent rights for FIRDAPSE

are derived from our license agreement. In August 2020, the United States Patent and Trademark Office (USPTO) allowed Patent No. 10,793,893 (the ’893 patent) to our licensor and thereby to us, and the patent issued on October 6, 2020. The patent is directed to the use of suitable doses of amifampridine to treat patients, regardless of the therapeutic indication, that are slow metabolizers of amifampridine. Any drug product containing amifampridine with a label that states the patented dosing regimens and doses in the Dosing and Administration section prior to April 7, 2034, the expiration date of the patent, could possibly infringe this patent. Generic drug product labels would necessarily have to do this, and we intend to take all appropriate actions to protect our intellectual property.

or are in the process of being listed.

We are also pursuing additional patent applications for FIRDAPSE

in an effort to further protect our drug product. There can be no assurance that any additional patents will be issued which provide additional intellectual property protection for our drug product.

In that regard, in October 2020, we filed lawsuits against Jacobus and the specialty pharmacy marketing Ruzurgi

, PantherRx Rare LLC (PantherRx), for infringement of the ‘893 patent. The suits have been consolidated in a single action in the U.S. District Court for New Jersey. In August 2021, the lawsuits were amended to include alleged infringement of the ‘128 patent. The lawsuits arise from Jacobus’ and PantherRx’s sales and marketing of Ruzurgi

(amifampridine) Tablets, 10 mg. The lawsuits allege that the Ruzurgi

in violation of our patent rights. The lawsuit is in the discovery stage and there can be no assurance as to the results of these proceedings.

Other Litigation

From time to time we may become involved in legal proceedings arising in the ordinary course of business. Other than as set forth above, we believe that there is no litigation pending at this time that could have, individually or in the aggregate, a material adverse effect on our results of operations, financial condition or cash flows.

Item 4. Mine Safety Disclosure

Not applicable.

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PART II

Performance Graph

The graph below matches Catalyst Pharmaceuticals, Inc.’s cumulative

5-Year

total shareholder return on common stock with the cumulative total returns of the NASDAQ Composite index, the Russell MicroCap index, and the NASDAQ Biotechnology index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2016 to 12/31/2021.

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

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Market Information

Our common stock trades on the Nasdaq Capital Market under the symbol “CPRX.” The closing sale price for the common stock on March 14, 2022 was $7.63. As of March 14, 2022, there were 31 holders of record of our common stock, which includes custodians who hold our securities for the benefit of others.

Dividend Policy

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support operations, finance the growth and development of our business, and repurchase up to $40 million of our common stock. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors.

Securities Authorized for Issuance under Equity Compensation Plans

The following table presents information as of December 31, 2021 with respect to compensation plans under which shares of our common stock may be issued.

Equity Compensation Plan Information

Equity compensation plans not approved by security holders — — —

(1) Includes our 2014 Stock Incentive Plan and our 2018 Stock Incentive Plan

(2) Remaining shares are only under our 2018 Stock Incentive Plan

Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

In March 2021, our Board of Directors approved a share repurchase program that authorizes the repurchase of up to $40 million of our common stock, pursuant to a repurchase program under Rule

10b-18

of the Securities Act (the “

Share Repurchase Program

”). The Share Repurchase Program commenced on March 22, 2021.

The following table presents information regarding repurchases by us of our common stock under the Share Repurchase Program during the three months ended December 31, 2021:

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Item 6. Selected Financial Data

Not applicable.

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:

Table of Contents

Overview

CPRX US Equity

CPRX · 10-K · period ended 2021-12-31

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Mine Safety Disclosure

Item 6. Selected Financial Data

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

CPRX US Equity☆

CPRX · 10-K · period ended 2021-12-31

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Mine Safety Disclosure

Item 6. Selected Financial Data

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

CPRX US Equity