Catalyst Pharmaceuticals - 10-Q quarterly report FY2014 Q2

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[Mark One]

For the Quarterly Period Ended June 30, 2014

OR

Commission File No. 001-33057

CATALYST PHARMACEUTICAL PARTNERS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (305) 529-2522

Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer, large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date 67,169,383 shares of common stock, $0.001 par value per share, were outstanding as of August 8, 2014.

CATALYST PHARMACEUTICAL PARTNERS, INC.

INDEX

PART I. FINANCIAL INFORMATION

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CATALYST PHARMACEUTICAL PARTNERS, INC.

CONDENSED BALANCE SHEETS

The accompanying notes are an integral part of these condensed financial statements.

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CATALYST PHARMACEUTICAL PARTNERS, INC.

CONDENSED STATEMENTS OF OPERATIONS (unaudited)

The accompanying notes are an integral part of these condensed financial statements.

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CATALYST PHARMACEUTICAL PARTNERS, INC.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (unaudited)

For the six months ended June 30, 2014

The accompanying notes are an integral part of these condensed financial statements.

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CATALYST PHARMACEUTICAL PARTNERS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (unaudited)

The accompanying notes are an integral part of these condensed financial statements.

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CATALYST PHARMACEUTICAL PARTNERS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Catalyst Pharmaceutical Partners, Inc. (the Company) is a development-stage biopharmaceutical company focused on the development and commercialization of prescription drugs targeting rare (orphan) neurological diseases and disorders, including Lambert-Eaton Myasthenic Syndrome (LEMS) and infantile spasms.

Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company’s primary focus is on the development and commercialization of its drug candidates. The Company has incurred operating losses in each period from inception through June 30, 2014. The Company has been able to fund its cash needs to date through several public and private offerings of its common stock and warrants, through government grants, and through an investment by a strategic purchaser. See Note 9.

Capital Resources

On January 31, 2014, the Company filed a Shelf Registration Statement on Form S-3 (the 2014 Shelf Registration Statement) with the U.S. Securities and Exchange Commission (SEC) to sell up to $100 million of shares of common stock. This registration statement (file No. 333-193699) was declared effective by the SEC on March 19, 2014. On April 3, 2014, the Company sold 13,023,750 shares of its common stock in an underwritten public offering under the 2014 Shelf Registration Statement, raising net proceeds of approximately $26.7 million. While there can be no assurance, based on currently available information, the Company estimates that it currently has sufficient working capital to support its operations through the end of 2015. The Company will require additional capital to support its operations in periods after 2015.

The Company may raise required funds in the future through public or private equity offerings, debt financings, corporate collaborations, governmental research grants or other means. The Company may also seek to raise new capital to fund additional product development efforts, even if it has sufficient funds for its planned operations. Any sale by the Company of additional equity or convertible debt securities could result in dilution to the Company’s current stockholders. There can be no assurance that any such required additional funding will be available to the Company at all or available on terms acceptable to the Company. Further, to the extent that the Company raises additional funds through collaborative arrangements, it may be necessary to relinquish some rights to the Company’s drug candidates or grant sublicenses on terms that are not favorable to the Company. If the Company is not able to secure additional funding when needed, the Company may have to delay, reduce the scope of, or eliminate one or more research and development programs, which could have an adverse effect on the Company’s business.

In the opinion of management, the accompanying unaudited interim financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of the dates and for the periods presented. Accordingly, these statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2013 included in the 2013 Annual Report on Form 10-K filed by the Company with the SEC. The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results to be expected for any future period or for the full 2014 fiscal year.

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Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

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As of June 30, 2014, there were outstanding stock options to purchase 3,421,906 shares of common stock, of which stock options to purchase 3,100,238 shares of common stock were exercisable as of June 30, 2014.

For the three and six month periods ended June 30, 2014 and 2013, the Company recorded stock-based compensation expense as follows:

Potentially dilutive options to purchase common stock as of June 30, 2014 and 2013 have exercise prices ranging from $0.47 to $6.00 per share. Potentially dilutive warrants to purchase common stock as of June 30, 2014 and 2013 have exercise prices ranging from $1.04 to $2.08 per share.

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2011 Warrants

The Company allocated approximately $1.3 million of proceeds from its October 2011 registered direct offering to the fair value of common stock purchase warrants issued in connection with the offering that are classified as a liability (the 2011 warrants). The 2011 warrants are classified as a liability because of provisions in such warrants that allow for the net cash settlement of such warrants in the event of certain fundamental transactions (as defined in the warrant agreement). The valuation of the 2011 warrants is determined using the Black-Scholes Model. This model uses inputs such as the underlying price of the shares issued when the warrant is exercised, volatility, risk free interest rate and expected life of the instrument. The Company has determined that the 2011 warrants liability should be classified within Level 3 of the fair value hierarchy by evaluating each input for the Black-Scholes Model against the fair value hierarchy criteria and using the lowest level of input as the basis for the fair value classification. There are six inputs: closing price of the Company’s common stock on the day of evaluation; the exercise price of the warrants; the remaining term of the warrants; the volatility of the Company’s common stock; annual rate of dividends; and the risk free rate of return. Of those inputs, the exercise price of the warrants and the remaining term are readily observable in the warrants agreement. The annual rate of dividends is based on the Company’s historical practice of not granting dividends. The closing price of the Company’s common stock would fall under Level 1 of the fair value hierarchy as it is a quoted price in an active market. The risk free rate of return is a Level 2 input, while the historical volatility is a Level 3 input in accordance with the fair value accounting guidance. Since the lowest level input is a Level 3, the Company determined the warrants liability is most appropriately classified within Level 3 of the fair value hierarchy. This liability is subject to fair value mark-to-market adjustment each reporting period.

The calculated value of the 2011 warrants liability was determined using the Black-Scholes Model with the following assumptions:

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The following table rolls forward the fair value of the Company’s warrants liability activity for the three and six month periods ended June 30, 2014 and 2013:

No warrants were exercised during the three months ended June 30, 2014. During the six month period ended June 30, 2014, 12,696 of the 2011 warrants were exercised, with proceeds to the Company of $16,504. The Company recognizes the change in the fair value of the warrants liability as a non-operating income or loss in the accompanying statements of operations.

Prepaid expenses consist of the following:

Property and equipment, net consists of the following:

Depreciation expense was $6,083 and $11,368 for the three and six month periods ended June 30, 2014, and $5,706 and $11,070, for the three and six month periods ended June 30, 2013, respectively. The Company has executed a noncancellable operating lease agreement for its corporate offices. During February 2014, the Company entered into the second amendment of the lease for an additional contiguous space under substantially the same terms.

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Accrued expenses and other liabilities consist of the following:

Under the license agreement with Northwestern, the Company is responsible for continued research and development of any resulting product candidates. As of June 30, 2014, the Company has paid $246,590 in connection with the license and has accrued license fees of $92,500 in the accompanying June 30, 2014 condensed balance sheet for expenses, maintenance fees and milestones. In addition, the Company is obligated to pay certain milestone payments in future years relating to clinical development activities with respect to CPP-115, and royalties on any products resulting from the license agreement. The next milestone payment of $150,000 is due on the earlier of successful completion of the first Phase 2 clinical trial of CPP-115 or August 27, 2015.

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As part of the License Agreement, the Company has taken over a Phase 3 Trial previously being conducted by BioMarin and is obligated to use its diligent efforts to seek to obtain regulatory approval for and to commercialize Firdapse™ in the United States. The Company is obligated to use diligent efforts to complete the double-blind treatment phase of the Phase 3 trial within 24 months of entering into the License Agreement, and BioMarin has the right to terminate the License Agreement if such treatment phase has not been completed in such 24-month period (unless the Company is using diligent effort to pursue the completion of such treatment phase and has spent at least $5 million in connection with the conduct of the Phase 3 Trial during such 24 month period). As of June 30, 2014, the Company had disbursed more than $5 million in connection with expenses related to the Phase 3 trial.

As part of the License Agreement, the Company has agreed: (i) to pay BioMarin certain royalty payments based on net sales in North America; (ii) to pay to a third-party licensor of the rights sublicensed certain royalty payments based on net sales in North America, and (iii) to pay certain milestone payments that BioMarin is obligated to make (approximately $2.6 million of which will be due upon acceptance by the FDA of a filing of an NDA for Firdapse™ for the treatment of LEMS, and approximately $7.2 million of which will be due on the unconditional approval by the FDA of an NDA for Firdapse™ for the treatment of LEMS). The Company has also agreed to share in the cost of certain post-marketing studies that are being conducted by BioMarin. On April 15, 2014, effective as of April 8, 2014, the Company and BioMarin entered into Amendment No. 1 to the License Agreement, amending in certain respects the License Agreement, dated October 26, 2012, between the Company and BioMarin. The amendment related to purchases of additional product by the Company from BioMarin, the sharing of data between the parties with respect to clinical trials and studies undertaken by each party and the payment terms for certain joint studies.

Securities Class Action Lawsuit

In October 2013 and November 2013, three securities class action lawsuits were filed against the Company and certain of its executive officers and directors seeking unspecified damages in the U.S. District Court for the Southern District of Florida (the Court). These complaints, which were substantially identical, purported to state a claim for violation of federal securities laws on behalf of a class of those who purchased the Company’s common stock between October 31, 2012 and October 18, 2013. Two of the cases were voluntarily dismissed by the plaintiffs and the Court granted the Company’s motion to dismiss on the third case on January 3, 2014. However, the Court granted leave to the plaintiffs to file an amended complaint within 20 days.

On January 23, 2014, the plaintiffs filed an amended complaint against the Company and one of its executive officers seeking unspecified damages. The amended complaint purports to state a claim for alleged misrepresentations regarding the development of Firdapse™ on behalf of a class of those who purchased shares of the Company’s common stock between August 27, 2013 and October 18, 2013. In February 2014, the Company filed a motion to dismiss the amended complaint, which was granted in part and denied in part by the Court. The Company is vigorously defending this lawsuit. While there can be no assurance, based on currently available information, the Company does not expect this lawsuit to have a material adverse effect on the Company, and no amounts have been accrued with respect to this potential contingent liability in the accompanying June 30, 2014 and December 31, 2013 balance sheets.

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The Company is subject to income taxes in the U.S. federal jurisdiction and various states jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is not subject to U.S. federal, state and local tax examinations by tax authorities for any years before 2010. If the Company were to subsequently record an unrecognized tax benefit, associated penalties and tax related interest expense would be reported as a component of income tax expense.

2014 Shelf Registration Statement

On January 31, 2014, the Company filed a Shelf Registration Statement on Form S-3 (the 2014 Shelf Registration Statement) with the SEC to sell up to $100 million of shares of common stock. This registration statement (file No. 333-193699) was declared effective by the SEC on March 19, 2014.

On April 3, 2014, the Company filed a prospectus supplement and offered for sale 13,023,750 shares of its common stock at a price of $2.21 per share in an underwritten public offering. The Company received gross proceeds in the public offering of approximately $28.8 million before underwriting commission and incurred expenses of approximately $2.1 million.

At June 30, 2014, there is approximately $71.2 million available for future sale under the 2014 Shelf Registration Statement. If the Company’s public float (the market value of its common stock held by non-affiliate stockholders) falls below $75 million, the Company will be subject to a further limitation under which it can sell no more than one-third (1/3) of its public float during any 12-month period. Further, the number of shares that the Company can sell at any one time may be limited under certain circumstances to 20% of the outstanding common stock under applicable NASDAQ marketplace rules.

Warrant Exercises

No warrants were exercised during the three months ended June 30, 2014. During the six month period ended June 30, 2014, the Company issued an aggregate of 12,696 shares of its authorized but unissued common stock upon the exercise of previously issued common stock purchase warrants, raising gross proceeds of $16,504.

Stock Options

During the three and six month periods ended June 30, 2014, the Company granted five-year options to purchase an aggregate of 20,000 shares and 45,000 shares, respectively, of the Company’s common stock to employees and consultants. During the three and six month periods ended June 30, 2013, the Company granted five-year options to purchase an aggregate of 40,000 shares and 115,000 shares, respectively, of the Company’s common stock to certain employees. The Company recorded stock-based compensation related to stock options totaling $22,570 and $45,700 during the three and six month periods ending June 30, 2014, respectively. The Company recorded stock-based compensation related to stock options totaling $44,888 and $86,640, during the three and six month periods ended June 30, 2013, respectively. During the three and six month periods ended June 30, 2014, 13,333 and 38,333 options vested. No options vested during the three and six month periods ended June 30, 2013.

As of June 30, 2014, there was approximately $99,000 of unrecognized compensation expense related to non-vested stock compensation awards granted under the 2006 and 2014 Stock Incentive Plans. The cost is expected to be recognized over a weighted average period of approximately 1.74 years.

On February 27, 2014, the Company’s Board of Directors approved the adoption of the “Catalyst Pharmaceutical Partners, Inc. 2014 Stock Incentive Plan” (the 2014 Plan). The 2014 Plan became effective upon stockholder approval of the 2014 Plan at the Company’s 2014 Annual Meeting of Stockholders held on May 15, 2014.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide an understanding of our financial condition, changes in financial condition and results of operations. The discussion and analysis is organized as follows:

Overview

We are a development-stage biopharmaceutical company focused on the development and commercialization of prescription drugs targeting rare (orphan) neuromuscular and neurological diseases. We have three pharmaceutical products in development:

The chemical entity, 3,4-diaminopyridine (3,4-DAP) or its phosphate salt, has never been approved by the FDA for any indication. If we are the first pharmaceutical company to obtain approval for an amifampridine-based product, we will be eligible to receive five years of marketing exclusivity with respect to the use of this product for any indication. Further, since Firdapse™ for the treatment of LEMS has previously been granted Orphan Drug Designation by the FDA, Firdapse™ would also be eligible to receive seven years of marketing exclusivity for this indication, running concurrently with the five-year exclusivity described above.

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The Phase 3 trial is designed as a randomized double-blind, placebo-controlled discontinuation study followed by an open-label extension period. The trial is being conducted at sites in the United States and Europe. Thirty eight patients have been randomized into the double-blind, placebo-controlled, discontinuation portion of the trial. Following the randomization phase of the trial, patients may elect to receive open label Firdapse™ treatment for a two-year follow up period, and all patients who were randomized have elected to participate in the follow-up period. As allowed in the protocol for the study, all LEMS patients who are not randomized can also elect to continue to receive Firdapse™ as participants in the two year extension period.

During April 2014, we initiated the process required to establish an expanded access program to make Firdapse™ available in the United States to patients diagnosed with LEMS through their neuromuscular disease specialists. Firdapse™ distributed through this program will be provided at no cost until sometime after approval.

Based on currently available information, we expect to report top-line data from the double-blind, placebo-controlled portion of the Phase 3 trial before the end of the 2014 third quarter.

Recently Filed Securities Class Action Lawsuit

In October and November 2013, three securities class action lawsuits were filed against us and certain of our executive officers and directors seeking unspecified damages in the U.S. District Court for the Southern District of Florida (the Court). These complaints, which were substantially identical, purported to state a claim for violation of federal securities laws on behalf of a class of those who purchased our common stock between October 31, 2012 and October 18, 2013. Two of the cases were voluntarily dismissed by the plaintiffs and the Court granted our motion to dismiss on the third case on January 3, 2014. However, the Court granted leave to the plaintiffs to file an amended complaint within 20 days.

On January 23, 2014, the plaintiffs filed an amended complaint against us and one of our executive officers seeking unspecified damages. The amended complaint purports to state a claim for alleged misrepresentations regarding the development of Firdapse™ on behalf of a class of those who purchased shares of our common stock between August 27, 2013 and October 18, 2013. In February 2014, we filed a motion to dismiss the amended complaint, which was granted in part and denied in part by the Court.

We are vigorously defending this lawsuit. While there can be no assurance, based on currently available information, we do not expect this lawsuit to have a material adverse effect on us, and no amounts have been accrued with respect to this potential contingent liability in the June 30, 2014 and December 31, 2013 balance sheets that are included in Part I, Item 1 of this Form 10-Q.

Departure of Chief Commercial Officer

During the quarter ended June 30, 2014, the Company terminated its agreement with the consultant performing the duties of Chief Commercial Officer.

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Risks Associated with Product Development

The successful development of our current drug candidates or any other drug candidate we may acquire, develop or license in the future is highly uncertain. We cannot reasonably estimate or know the nature, timing, or estimated expenses of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence due to the numerous risks and uncertainties associated with developing such products, including the uncertainty of:

Available Capital Resources

Based on an analysis of our current financial condition and forecasts of available cash, we believe that we have sufficient resources to support our operations through 2015. However, we will require additional funding to support our operations beyond 2015. There can be no assurance that we will obtain required additional funding or ever be able to commercialize any of our product candidates. See “Liquidity and Capital Resources” below.

Basis of presentation

Revenues

We are a development stage company and have had no revenues from product sales to date. We will not have revenues from product sales until such time as we receive approval of our product candidates, successfully commercialize our products or enter into a licensing agreement which may include up-front licensing fees, of which there can be no assurance.

Research and development expenses

Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as occasional support for selected investigator-sponsored research. The major components of research and development costs include pre-clinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related to our product development efforts. To date, all of our research and development resources have been devoted to the development of CPP-109, CPP-115, and Firdapse™, and we expect this to continue for the foreseeable future. Costs incurred in connection with research and development activities are expensed as incurred.

Our cost accruals for clinical studies and trials are based on estimates of the services received and efforts expended pursuant to contracts with numerous clinical study and trial sites and clinical research organizations. In the normal course of business we contract with third parties to perform various clinical study and trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the agreements, and the completion of portions of the clinical study or trial or

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similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual services received and efforts expended. As such, expense accruals related to pre-clinical and clinical studies or trials are recognized based on our estimate of the degree of completion of the event or events specified in the specific study or trial contract. We monitor service provider activities to the extent possible; however, if we underestimate activity levels associated with various studies or trials at a given point in time, we could be required to record significant additional research and development expenses in future periods. Pre-clinical and clinical study and trial activities require significant up front expenditures. We anticipate paying significant portions of a study or trial’s cost before such study or trial begins, and incurring additional expenditures as the study or trial progresses and reaches certain milestones.

Selling and marketing expenses

We do not currently have any selling or marketing expenses. We expect we will begin to incur pre-commercialization costs tied to our future sales and marketing efforts during 2014 as we move closer to the potential commercialization of Firdapse™. In accordance with our 2014 business plan, during 2014 we have begun to contract with personnel that will help us develop both a sales force and a patient advocacy and assistance program so that we are in a position to commence our selling efforts immediately if we are successful in obtaining approval of any NDA that we may file for Firdapse™, of which there can be no assurance. Such pre-commercialization expenses have been included in general and administrative expenses.

General and administrative expenses

General and administrative expenses consist primarily of salaries and personnel expenses for accounting, corporate and administrative functions. Other costs include administrative facility costs, regulatory fees, certain pre-commercialization expenses, and professional fees for legal, information technology, accounting and consulting services.

Stock-based compensation

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

Warrants Liability

We issued warrants to purchase shares of our common stock as part of the equity financing that we completed in October 2011. In accordance with U.S. generally accepted accounting principles, we have recorded the fair value of these warrants as a liability in the accompanying balance sheets at June 30, 2014 and December 31, 2013 using a Black-Scholes option-pricing model. We will remeasure the fair value of the warrants liability at each reporting date until the warrants are exercised or have expired. Changes in the fair value of the warrants liability are reported in the statements of operations as income or expense. The fair value of the warrants liability is subject to significant fluctuation based on changes in the inputs to the Black-Scholes option-pricing model, including our common stock price, expected volatility, expected life, the risk-free interest rate and dividend yield. The market price for our common stock has been and may continue to be volatile. Consequently, future fluctuations in the price of our common stock may cause significant increases or decreases in the fair value of these warrants.

Income taxes

We have incurred operating losses since inception. Our net deferred tax asset has a 100% valuation allowance as of June 30, 2014 and December 31, 2013, as we believe it is more likely than not that the deferred tax asset will not be realized. If an ownership change, as defined under Internal Revenue Code Section 382, occurs, the use of any of our carry-forward tax losses may be subject to limitation.

As required by ASC 740, Income Taxes, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following the audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

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Recently Issued Accounting Standards

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

Non-GAAP Financial Measures

We prepare our financial statements and footnotes thereto which accompany this report in accordance with U.S. Generally Accepted Accounting Principles (GAAP). To supplement our financial results presented on a GAAP basis, we may use non-GAAP financial measures in our reports filed with the Commission and/or our communications with investor. Non-GAAP measures are provided as additional information and not as an alternative to our financial statements presented in accordance with GAAP. Our non-GAAP financial measures are intended to enhance an overall understanding of our current financial performance. We believe that the non-GAAP financial measures that we present provide investors and prospective investors with an alternative method for assessing our operating results in a manner that we believe is focused on the performance of ongoing operations and provide a more consistent basis for comparison between periods.

The non-GAAP financial measure that we often present excludes from the calculation of net loss the expense of (or the income associated with) the change in fair value of the liability-classified warrants.

Any non-GAAP financial measures that we report should not be considered in isolation or as a substitute for comparable GAAP accounting, and investors should read them in conjunction with our financial statements and notes thereto prepared in accordance with GAAP. Finally, the non-GAAP measures of net loss we may use may be different from, and not directly comparable to, similarly titled measures used by other companies.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. For a full discussion of our accounting policies, please refer to Note 2 on the Financial Statements included in our 2013 Annual Report on Form 10-K filed with the SEC. Our most critical accounting policies and estimates include: research and development expenses, stock-based compensation, measurement of fair value, fair value of warrants liability, income taxes and reserves. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, our expected course of development, historical experience and other factors that we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2013 Annual Report on Form 10-K, other than the discontinuation of accounting for development stage in accordance with ASU No. 2014-10.

Results of Operations

Revenues.

We had no revenues for the three and six month periods ended June 30, 2014 and 2013.

Research and Development Expenses.

Research and development expenses for the three and six month periods ended June 30, 2014 were $2,098,958 and $4,847,641, respectively, including stock-based compensation expense in each of the three and six months periods of $12,006 and $23,879, respectively. Research and development expenses for the three and six month periods ended June 30, 2013 were $2,132,038 and $3,224,339, respectively, including stock-based compensation expense in each of the three and six months periods of $21,612 and $40,375, respectively. Research and development expenses, in the aggregate, represented approximately 70% and 75% of total operating costs and

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expenses for the three and six month periods ended June 30, 2014 and 80% and 74% for the three and six month periods ended June 30, 2013, respectively. The stock-based compensation is non-cash and relates to the expense of stock options awards to certain employees.

Expenses for research and development for the six month period June 30, 2014, excluding stock based compensation, increased compared to amounts expended in the same period in 2013. During the first six months of 2013, we completed the transfer of the management and oversight of the currently ongoing Phase 3 trial of Firdapse™ for the treatment of LEMS from BioMarin. In connection with such transfer, we retained a CRO and hired additional personnel to provide day-to-day oversight of the Phase 3 trial, including identifying and contracting with additional clinical sites. Such efforts increased the number of total clinical sites and related expenses during 2013 and 2014. Expenses during the three and six month periods ended June 30, 2014 included costs associated with our Phase 3 trial and other clinical studies and trials that we are conducting. Additionally, these also included our share of the joint studies we are presently conducting with BioMarin.

As a result of our ongoing and projected studies and trials required for an NDA filing for Firdapse™, we expect that costs related to research and development activities will continue to be substantial throughout the balance of 2014, as we continue with the Phase 3 trial and its extension, launch our Expanded Access Program and conduct the clinical studies, and pre-clinical activities of Firdapse™ required to file an NDA for Firdapse™. It will also include costs related to the Phase 1 study for CPP-115 that we intend to commence in the third quarter of 2014.

Selling and Marketing Expenses.

We had no selling and marketing expenses during the three and six months periods ended June 30, 2014 and 2013. As we move closer to the potential commercialization of Firdapse™, we have begun to put in place the personnel that will help us develop both a sales force and a patient advocacy and assistance program so that we are in a position to commence our selling efforts immediately if we are successful in obtaining an approval of any NDA that we may file for Firdapse™, of which there can be no assurance. Such pre-commercialization costs, which commenced during 2014, have been included in general and administrative expenses.

General and Administrative Expenses.

General and administrative expenses for the three and six months ended June 30, 2014 were $891,215 and $1,650,897, respectively, including stock-based compensation expense in each of the three and six month periods ending June 30, 2014 of $10,564 and $21,821, respectively. General and administrative expenses for the three and six months ended June 30, 2013 were $521,491 and $1,134,620, respectively, including stock-based compensation expense in each of the three and six month periods ended June 30, 2013 of $23,276 and $46,265, respectively. General and administrative expenses represented 30% and 25% of total operating costs and expenses for the three and six months ended June 30, 2014 and 20% and 26% for the three and six months ended June 30, 2013, respectively. The increase in general and administrative expenses for the six month periods ended June 30, 2014 when compared to the same period in 2013 is primarily due to increases in consulting fees, mainly the beginning stages of our pre-commercial activities for Firdapse™, as well as increases in legal fees and investor relations expense, offset by a decrease in stock-based compensation expense. We expect that general and administrative costs in total will increase in 2014 and future periods based on anticipated efforts required to prepare for the future commercialization of Firdapse™.

Stock-Based Compensation.

Total stock-based compensation for the three and six month periods ended June 30, 2014 were $22,570 and $45,700, and for the three and six month periods ended June 30, 2013 were $44,888 and $86,640, respectively. The decrease in stock-based compensation for the three and six month periods ended June 30, 2014 when compared to the same periods in 2013, is because there were no year-end grants during 2013 to employees or directors, and a number of previous grants completely vested during 2013.

Change in fair value of warrants liability.

In connection with our October 2011 equity offering, we issued warrants to purchase an aggregate of 1,523,370 shares of common stock. The fair value of these warrants is recorded in the liability section of the balance sheet and was estimated at $2,360,130 and $1,819,562 at June 30, 2014 and December 31, 2013, respectively. The

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fair value of the warrants liability is determined at the end of each reporting period with the resulting gains or losses recorded as the change in fair value of warrants liability in the statements of operations. For the three and six months ended June 30, 2014, we recognized a loss of $223,591 and $559,105 due to the change in the fair value of the warrants liability. The loss during the three and six months ended June 30, 2014 was principally a result of the increase of our stock price between March 31, 2014 and June 30, 2014, and December 31, 2013 and June 30, 2014, respectively. Future changes in the fair value of the warrants liability will be due primarily to fluctuations in the value of our common stock.

Interest Income.

We reported interest income in all periods relating to our investment of funds received from offerings of our securities. The increase in interest income in the three and six month periods ended June 30, 2014 when compared to the same periods in 2013 is due to higher average investment balances from the proceeds of our offerings, slightly offset by lower interest rates. These proceeds were used to fund our product-development activities and our operations. Substantially all such funds were invested in short-term interest bearing obligations and short-term bond funds.

Income taxes.

We have incurred net operating losses since inception. For the three and six month periods ended June 30, 2014 and 2013, we have applied a 100% valuation allowance against our deferred tax asset as we believe that it is more likely than not that the deferred tax asset will not be realized.

Net Loss.

Our net loss was $3,198,020 and $7,009,139, respectively, for the three and six months ended June 30, 2014 ($0.05 and $0.12, respectively, per basic and diluted share) as compared to a net loss of $3,143,590 and $4,887,879, respectively, for the three and six months ended June 30, 2013 ($0.08 and $0.12, respectively, per basic and diluted share).

Non-GAAP Net Loss.

Our non-GAAP net loss, which excludes for the three and six months ended June 30, 2014 a loss of $223,591 and $559,105 associated with the change in the fair value of liability classified warrants, was $2,974,429 and $6,450,034 for the three and six months ended June 30, 2014 ($0.05 and $0.11, respectively, per basic and diluted share). Our non-GAAP net loss, which excludes for the three and six months ended June 30, 2013 a loss of $498,587 and $543,913 associated with the change in the fair value of liability classified warrants, was $2,645,003 and $4,343,966 for the three and six months ended June 30, 2013($0.06 and $0.11, respectively, per basic and diluted share).

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through equity issuances, government grants, and an investment by a strategic purchaser. At June 30, 2014, we had cash and cash equivalents, certificates of deposit and short-term investments aggregating $45.0 million and working capital of $43.5 million. At December 31, 2013, we had cash and cash equivalents, certificates of deposit and short term investments aggregating $23.7 million and working capital of $23.2 million. At June 30, 2014, substantially all of our cash and cash equivalents were deposited with one financial institution, and such balances were in excess of federally insured limits.

We have to date incurred operating losses, and we expect these losses to increase substantially in the future as we expand our product development programs and prepare for the commercialization of our product candidates. We anticipate using current cash on hand to finance these activities. It will likely take several years to obtain the necessary regulatory approvals to commercialize one or more of our product candidates in the United States.

While there can be no assurance, based on currently available information, we believe that we currently have the cash resources to support our planned operations through 2015. If our costs are greater than we expect, our assumptions may not prove to be accurate.

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At the present time, we believe that we will require additional working capital to support our operations beyond 2015, including obligations to make milestone payment in periods after 2015 that we may be obligated to pay. There can be no assurance as to the amount of any such funding that will be required for these purposes or whether any such funding will be available to us when it is required.

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

We hope to raise additional funds to support our future product development activities and working capital requirements through public or private equity offerings, corporate collaborations or other means. We also intend to seek governmental grants for a portion of the required funding for our clinical trials and pre-clinical trials. We may also seek to raise 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 convertible debt securities could result in dilution to our stockholders. There can be no assurance that any such required additional funding will be available to us at all or available on terms acceptable to us. Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more research and development programs, which could have an adverse effect on our business.

On January 31, 2014, we filed a Shelf Registration Statement on Form S-3 (the 2014 Shelf Registration Statement) with the SEC to sell up to $100 million of shares of common stock. This registration statement (file No. 333-193699) was declared effective by the SEC on March 19, 2014. On April 8, 2014, we issued 13,023,750 shares of our common stock in an underwritten public offering under the 2014 Shelf Registration Statement, raising gross proceeds of approximately $28.8 million, before underwriting commission and incurred expenses of approximately $2.1 million, for net proceeds of approximately $26.7 million.

There is approximately $71.2 million available for future sale under the 2014 Shelf Registration Statement. If our public float (the market value of our common stock held by non-affiliate stockholders) falls below $75 million, we will be subject to a further limitation under which we can sell no more than one-third (1/3) of our public float during any 12-month period. Further, the number of shares that we can sell at any one time may be limited under certain circumstances to 20% of the outstanding common stock under applicable NASDAQ marketplace rules.

Cash Flows

Net cash used in operating activities was $5,408,904 and $4,061,428, respectively, for the six month periods ended June 30, 2014 and 2013. During the six months ended June 30, 2014, net cash used in operating activities was primarily attributable to our net loss of $7,009,139 and a decrease in accrued expenses and other liabilities of $170,673. This was partially offset by a decrease of $767,348 in prepaid expenses and deposits, an

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increase of $387,387 in accounts payable, $559,105 of non-cash change in fair value of warrants liability and $57,068 of other non-cash expenses. During the six months ended June 30, 2013, net cash used in operating activities was primarily attributable to our net loss of $4,887,879, and a decrease in accounts payable of $917,381. This was partially offset by an increase of $907,164 in accrued expenses and other liabilities, a decrease of $195,045 in prepaid expenses and deposits, $543,913 of non-cash change in fair value of warrants liability and $97,710 of other non-cash expenses. Other non-cash expenses include depreciation and stock-based compensation expense.

Net cash used in investing activities during the six months period ended June 30, 2014 was $8,747,144, consisting primarily of purchases of short-term investments of $9,014,527, and capital expenditures of approximately $30,308, offset by redemptions of investments of $297,691. Net cash provided by investing activities during the six months period ended June 30, 2013 was $3,507,065, consisting primarily of redemptions of investments of $3,516,497, offset by purchases of furniture and computer equipment of $9,432.

Net cash provided by financing activities during the six month period ended June 30, 2014 was $26,741,634, consisting of $26,725,130 from the net proceeds from the sale of common stock under the 2014 Shelf Registration Statement, and $16,504 of proceeds from the exercise of warrants to purchase common stock. Net cash provided by financing activities during the six month period ended June 30, 2013 was $23,500, consisting of proceeds from the exercise of stock options.

Contractual Obligations

We have entered into the following contractual arrangements:

Off-Balance Sheet Arrangements

We currently have no debt. Capital lease obligations as of June 30, 2014 and December 31, 2013 were not material. We have an operating lease for our corporate office facility. We do not have any off-balance sheet arrangements as such term is defined in rules promulgated by the SEC.

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Caution Concerning Forward-Looking Statements

This Current Report on Form 10-Q contains “forward-looking statements”, as that term is defined in the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, plans or objectives for future operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, “believes”, “anticipates”, “proposes”, “plans”, “expects”, “intends”, “may”, and other similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. The forward-looking statements made in this report are based on current expectations that involve numerous risks and uncertainties.

The successful development of our product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing, or estimated expenses of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence due to the numerous risks and uncertainties associated with developing such products, including the uncertainty of:

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K we are not required to provide the information required by this section.

ITEM 4. CONTROLS AND PROCEDURES

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PART II. OTHER INFORMATION

See Note 7 to Notes to Unaudited Condensed Financial Statements for information about pending litigation.

Except as disclosed in this report, the Company is not a party to any other legal proceedings.

There are many factors that affect our business, our financial condition, and the results of our operations. In addition to the information set forth in this quarterly report, you should carefully read and consider “Item 1A. Risk Factors” in Part I, and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, of our 2013 Annual Report on Form 10–K filed with the SEC, which contain a description of significant factors that might cause our actual results of operations in future periods to differ materially from those currently expected or desired.

None

None

Not applicable

None

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SIGNATURES

Pursuant to the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 13, 2014

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Exhibit Index