Catalyst Pharmaceuticals Inc

NASDAQ:CPRX

Earnings Call Transcript 2019-Q4

[Operator]

Greetings and welcome to the Catalyst Pharmaceuticals Fourth Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It’s now my pleasure to introduce your host, Ali Grande. Please go ahead.

[Alicia Grande, Chief Financial Officer]

Good morning, everyone, and welcome to today's conference call. Joining me on today's call are members of the Catalyst management team, including Patrick McEnany, Chairman and Chief Executive Officer; Dr. Steven Miller, Chief Operating Officer and Chief Scientific Officer; and Dan Brennan, our Chief Commercial Officer.

Before we begin, I would like to remind you that in the following comments and in the Q&A session, we will make statements about expected future results, which may be forward-looking statements for purposes of the federal securities laws. These statements relate to our current expectations, estimates and projections and are not guarantees of future performance. They involve risks, uncertainties and assumptions that are difficult to predict, which may prove not to be accurate. Actual results may vary. These forward-looking statements should be considered only in conjunction with the detailed information contained in our SEC filings including the risk factors described in our Annual Report on Form 10-K.

At this time, I'll turn the call over to Pat.

[Patrick McEnany, Chairman and Chief Executive Officer]

Thank you, Ali, and thank you, everyone for joining us this morning. 2019 was truly a transformative year for Catalyst as we transition from what was an R&D company into a U.S. commercial stage pharmaceutical company. We are pleased that in 2019, we exceeded our Firdapse launch expectations and are delighted to have helped more than 190 patients prior to our FDA approval, never had access to any form of 3,4-DAP or Amifampridine. As you know, Firdapse is an FDA-approved, evidence-based therapy that is now available to treat adult LEMS patients, and I can now report the patients’ monthly out-of-pocket expenses currently averaging $1.08 per month.

Our Catalyst team has executed across all functional areas of our business during 2019 and we've begun 2020 with great momentum. Recently, we announced the completion of enrollment in our Phase III study for antibody positive MuSK-MG. And we expect to announce topline results from this very important study during the second quarter of this year.

Since the launch of Firdapse in January of 2019, we have continued to see strong support and encouraging reactions from patients, physicians, and payers. Now that the initial phase of our launch is over, we look forward to introducing additional support programs in 2020 to assist both LEMS patients and their healthcare providers.

As you may have seen from our press release yesterday, we reported Firdapse fourth quarter of 2019 net revenues of $30 million and full-year 2019 net revenues of $102 million. As previously announced in January, we continue to expect full-year 2020 Firdapse net product revenues to be in the range of $135 million to $155 million. On our call this morning, Dan will provide you with a report on commercial operations and further key performance indicators related to our ongoing launch of Firdapse.

On today's call, we can't overlook the topic that is on everybody's minds these days, and that is how the coronavirus, COVID-19, could impact our business. First and foremost, we are concerned for the health and welfare of our employees and their families, as well as patient's wellbeing and maintaining a continuous uninterrupted supply of Firdapse for all patients. We know the concerns that some patients and the physicians have today about drug shortages and possible impact that the coronavirus could possibly have under availability of continuous drug supply.

Well let me reassure you, Catalyst has constructed its supply chain for Firdapse to ensure readiness for a wide variety of contingencies. We have also built significant safety stock into our supply chain to manage potential disruptions. Our API, or Active Pharmaceutical Ingredients is manufactured in the United States via highly regarded API supplier. And our finished dosage form of Firdapse is manufactured in the United States by one of the largest contract manufacturers in the world with multiple qualified manufacturing sites around the globe.

Additionally, we believe in redundancies, and to that extent, we have a second contract manufacturer in the U.S. that has been qualified to supply us with finished dosage form of Firdapse. We remain highly confident in our ability to supply Firdapse uninterrupted to all current and anticipated patients through the end of this year.

Additionally, we have a manufacturing campaign underway that will be completed within the next two weeks that will provide us with an additional six-month supply of Firdapse beyond the end of this year.

As of now, it is too early to assess the impact that the COVID-19 outbreak could have on our ability to enroll new LEMS patients in the Catalyst Pathways, revenue growth and potential delays of clinical data. As of today, we stand by all of our current guidances.

In addition to the ongoing launch of Firdapse for LEMS, we continue to make progress with our clinical programs for other potential indications in our neuromuscular portfolio. As announced previously, we have completed the enrollment of patients for our Phase III trial of Firdapse for MuSK-antibody positive myasthenia gravis or MuSK-MG. This trial is being conducted under a Special Protocol Agreement with the FDA and we expect to report topline results from this trial in the second quarter of this year.

As there are currently no approved treatments for MuSK-MG, we look forward to the potential of treating patients with this rare disease. We also have our proof-of-concept trial evaluating Firdapse in SMA Type 3 patients, which is ongoing in Italy and Eastern Europe. We expect topline results in the second quarter of this year.

We will also begin proof-of-concept studies in the coming months for additional neuromuscular conditions to be evaluated, including Kennedy's disease and hereditary neuropathy with liability to pressure palsies. Steve will provide you with more information on our current clinical program shortly.

As we have stated previously, business development has become a focal point of our strategic plan, and we have begun a formal process for evaluating additional rare disease opportunities. Last month, we are pleased to announce the hiring of David Ailinger, a seasoned Business Development Executive as our Vice President of Business Development at Catalyst. David is responsible for all activities related to sourcing, potential acquisitions, licensing, partnering, and alliance management. He will also be providing disciplined and structured approach to our evaluation of product or company opportunities.

We have also made great progress in expanding our global footprint for Firdapse. We have recently submitted our new drug submission, or NDS of Firdapse for LEMS in Canada, and it has been accepted in granted priority review, and we expect to receive an approval of this NDS in the second half of this year. Currently, we are having ongoing discussions with several Canadian pharmaceutical companies as we look for sales and marketing partner in Canada.

We have also completed our feasibility analysis in Japan to better understand what PMDA will likely requires a regulatory path toward approval. As part of this analysis, we have consulted with numerous neuromuscular key opinion leaders in Japan to seek their input in the coming months as we expect to meet with the Japanese authorities to present our plan. As we make further progress, we will keep you appropriately informed.

As you can see, our balance sheet at year-end is strong with about $95 million in cash and no funded debt. Our cash continues to build quarterly, which ensures that we are able to fund operations as well as able to fund potential future acquisitions. Our ability to secure term loans from traditional banking sources remains in place in the event that we require additional cash for acquisitions. We anticipate that there will be no need to go to the equity capital markets for cash anytime soon.

Also regarding our lawsuit against the FDA that we filed in June to challenge the FDA's approval of Ruzurgi on multiple grounds, it is progressing more or less as expected with some normal delays occurring. As of now, both we and the government have filed all scheduled briefs, though there are a few open motions for the court to address before reaching a decision.

At this time, our expected timetable for decision remains sometime in the second or third quarter of this year based on our current activities. Of course, decisions on the pending motions may introduce additional delays depending on the specifics of those decisions.

I will now turn the call over to Dan Brennan, our Chief Commercial Officer, to provide you specifics on our commercial operations and additional key performance indicators on the launch of Firdapse.

[Daniel Brennan, Chief Commercial Officer]

Thanks, Pat and good morning, everyone. The first year of our commercial launch for Firdapse was a productive and successful one as our performance exceeded all expectations for the year. In addition to the launch execution, we are pleased with the feedback that we have received from both patients and their medical providers. Their support and utilization of Firdapse has validated the patient need that drove our efforts to complete all safety and efficacy studies, obtained the necessary regulatory approval and create widespread availability of the medicine for all adult LEMS patients.

Since our launch in January, 2019, about 35% of the diagnosed adult LEMS patient population have received a Firdapse prescription. As this percentage continues to grow, we are pleased to see physicians viewing Firdapse as the standard of care and a life-changing medication for patients with LEMS a disease for which there were no prior approved therapies.

I would like to run through our key performance metrics that we have highlighted on previous calls. At the end of the fourth quarter, 532 patients had been prescribed Firdapse compared to just over 490 patients at the end of the third quarter. Over 190 of these patients were adult LEMS patients and naive to any form of 3,4-DAP and we are pleased to offer these patients medicine for the treatment of this disease which can truly impact the lives of the patients and their families.

At the end of the fourth quarter, 320 unique writers had prescribed Firdapse. In addition, there were 345 patients active and on insurer reimbursed therapy at the end of the fourth quarter. One of the key areas of importance to us through this commercial launch has been patient satisfaction, and as of the end of 2019, we had 345 customer satisfaction surveys completed, and our average rating remains at 4.8 out of 5 stars.

In the fourth quarter of 2019, the average co-pay across all patients has gone down to just a $1.08 per month per patient for those who take advantage of our Assistance Programs. 94% of the time Firdapse patients monthly out-of-pocket was zero. Patients have been consistently satisfied with the service they have received while being prescribed Firdapse.

Discontinuation rate for newly enrolled patients was a challenge early in our launch where we saw 90-day discontinuation for newly enrolled patients of over 35% in the first three quarters, but that has decreased to under 25% in Q4 a level that is more consistent with our clinical trial experience. I am pleased with our efforts to address those higher-than-expected initial discontinuation rates and where we are now with this metric.

As mentioned in last quarter's call, we did see a relatively larger number of patients who switched to the Jacobus drug in September, October and early November than when it was initially made commercially available during the summer of 2019, which is slowed down to a trickle at the end of November and December.

Most patients who switched to Ruzurgi were former Jacobus investigational study drug patient participants. And in recent months, we have seen a few patients returned back to Firdapse and Catalyst Pathways after trying the Jacobus pharmaceutical product, presumably because the Jacobus product or services were not to their satisfaction.

Moving forward, we are focused on finding and helping the diagnosed, but amifampridine untreated adult LEMS patients and the physicians who are treating them. We have had greater success in the month-to-month metric of new patients Firdapse enrollments and believe that our expanded commercial efforts are taking hold and continuing with increased momentum in 2022 through the first week in March.

These expanded commercial efforts include an updated and increased number of target physicians, broadening and increasing our non-personal promotional targeting and spend, nearly doubling our field salesforce which has now been fully recruited with our last two hires starting training in the first week of March, and full utilization of our new partnership with a rare disease inside sales tele-detailing agency to generate interest among prescribers and institution providers.

We have trained and begun outreach efforts with this telesales group and already seen over 15 physician leads and two Firdapse prescription enrollments as a result of just five weeks of effort with this new partner. I've been pleased with the speedy and efficient efforts to vet, contract, train and begin work with this new and valued partner.

And finally, as you may have seen, we recently hired a new senior manager of digital and social media to help us communicate more loudly and effectively across all the good work and programs that we have put in place for patients and the patient community. She is quickly integrated and started doing good work. We are using the social channels to more quickly update the community on questions, concerns, or misunderstandings they may have about our product or services and we'll share a variety of additional patient videos and stories across those social channels.

We continue to refine our commercialization strategy which evolves as the LEMS market opportunity matures. While I'm proud of what we've accomplished in 2019, 2020 will be an important year for Catalyst as we continue to expand on our resources to help and reach all patients suffering from LEMS, those diagnosed and those still on the long arduous and stressful journey towards obtaining a successful diagnosis for their rare disease. We are motivated to help shorten their diagnostic journey and find effective treatment as soon as possible.

And with that, I'll hand the call over to our Chief Operating Officer and Chief Scientific Officer, Steve Miller, who will report on the progress in our product development and clinic activities. Steve?

[Steven Miller]

Thanks for the commercial update Dan, and now I'll provide an update on our clinical pipeline to develop Firdapse for additional neuromuscular indications. Catalyst recently announced that we exceeded the enrollment goals for our ongoing Phase III multi-site international trial in MuSK-MG, which is being conducted under an FDA Special Protocol Assessment, or SPA. This Phase III trial follows our successful proof-of-concept trial for this indication.

In the FDA-approved SPA, Catalyst committed to the FDA that we would enroll at least 60 MuSK-MG patients and would attempt to enroll at least 10 acetylcholine receptor MG patients, sometimes called generalized MG, which were requested by the agency to determine if this other type of MG exhibits any response to treatment with amifampridine.

Catalyst exceeded the enrollment goals for both of these types, myasthenia gravis. The over enrollment was primarily due to patients that were screened and eligible for treatment after our enrollment goals were met and they wished to participate and which Catalyst chose to include for ethical reasons. At this time, the last activities of the clinical trial close-out are being completed and Catalyst anticipates reporting topline results in the second quarter of this year.

Catalyst remains cautiously optimistic about the outcome of this Phase III trial for the symptomatic treatment of MuSK Myasthenia Gravis with amifampridine. Like LEMS, MuSK-MG is an autoimmune disease caused by a single type of antibodies that damages a single protein in the neuromuscular junction and is therefore a relatively homogeneous disease which is in contrast to the difficulty in treating the heterogeneous CMS population.

Catalyst believes that homogeneity should result in a response to treatment similar to the previous proof-of-concept trial in much the same way all of the reported LEMS trial outcomes were very similar. MuSK-MG is an autoimmune disease for which there is currently no approved treatment, and we believe there are about 3,000 to 4,800 U.S. patients with MuSK-MG in the United States. Assuming the trial is successful, we look forward to one-day potentially being able to provide an FDA-approved treatment option for these patients.

Next, we have a proof-of-concept study ongoing in Spinal Muscular Atrophy or SMA Type 3. This trial is ongoing in Italy and Eastern Europe and is evaluating the safety, tolerability and potential efficacy of amifampridine for the symptomatic treatment of SMA Type 3 in ambulatory patients. We plan to enroll approximately 12 patients in this study and look forward to announcing topline results from this study in the second quarter of 2020.

SMA is caused by related genetic defects to the SMN protein in motor neurons, which should result in a relatively homogeneous disease that differs primarily in severity. This initial proof-of-concept study is a crossover design with a one-month treatment time in each period and is designed to measure changes in SMA disease symptoms, but does not address disease progression.

SMA Type 3 has an estimated prevalence of between 3,500 and 4,200 patients. It is important to note that all four types of SMA are caused by various generic defects to the same gene resulting in variations in severity, which are broadly characterized as SMA Types 1 through 4.

If this proof-of-concept trial is successful, Catalyst intends to discuss the design of a multi-center Phase III clinical trial with the FDA, in which we attend to address both symptomatic treatment and disease progression. Additionally, due to the common genetic etiology of all four types of SMA, Catalyst will also seek to include a broader group of SMA types in a future clinical trial.

I would also like to give one last update on our Phase III trial for Congenital Myasthenic Syndromes, or CMS. This Phase III trial called, CMS-001, was the first ever double-blind, placebo-controlled clinical trial for the symptomatic treatment of genetically confirmed CMS that are currently estimated to be about 1,000 to 1,500 U.S. CMS patients, representing a spectrum of more than 50 different possible genetic defects. This wide range of genetic defects produces a broad spectrum of clinical presentations of the disease and variations in response to therapy, and as such, is a very heterogeneous patient population that is difficult to study.

We treated 16 patients in this multi-center, two period to treatment crossover Phase III study. And given the sample size and patient genetic and phenotypic variation, the trial did not achieve overall statistical significance for the primary endpoint of subject global impression score or the secondary endpoint of muscle function measure.

Catalyst has discussed these results with the FDA and all now agree that the data set does not contain adequate evidence of efficacy, with most patients showing no clinical benefit and a few even showing a worsening in their condition. There was some evidence of benefit for some patients. However, at the individual patient level, little-to-no benefit was observed in most.

Such an outcome in this genetically diverse population makes it very difficult to estimate what trial size and endpoints would be needed to carry out a successful trial if at all. Our recently completed clinical trial took almost four years to recruit and it is reasonable to conclude that a much larger trial is simply not practical for this patient population.

Catalyst would again like to thank all families who agreed to participate in this trial. As of the end of 2019, Catalyst has discontinued the development of Firdapse for symptomatic treatment of CMS. A poster will be presented on the trial outcome at the International Conference on Neuromuscular Diseases in 2020.

Moving on to market expansion plans for Firdapse, Catalyst has now submitted a New Drug Submission, or NDS, in Canada, seeking approval of Firdapse for the symptomatic treatment of LEMS. Catalyst has also been granted the Priority Review for this drug NDS, which should reduce the review cycle time to six months. Catalyst expects approval of this NDS in the second half of 2020 and has not yet started commercialization activities in Canada. When those activities commenced, we will provide an update regarding our commercial plans in Canada.

Catalyst also recently announced an expansion of the marketing territories to include Japan. Recently, we have begun discussions with the Japanese Ministry of Health, Labor and Welfare, or MHLW, regarding regulatory pathway to seek approval of Firdapse in Japan. Approximately two years ago, the Japanese government designated the approval of amifampridine as a priority drug for the MHLW, and they have been actively soliciting companies to develop and file an NDA for this drug.

An update on the regulatory pathway for filing an NDA in Japan will be provided once Catalyst and the MHLW come to an agreement on what will be required to file that NDA in Japan. Patients have requested a long-acting version of Firdapse in order to eliminate the need to plan their daily activities around multiple doses of Firdapse. We are now actively developing this new product and will provide updates in the future when the product characteristics have been finalized. At this stage of the development program, candidate formulations are being developed and drug release properties are being studied in order to optimize the long-acting symptomatic treatment of LEMS.

Finally, Catalyst will also begin proof-of-concept studies in the near future for additional neuromuscular conditions to be evaluated, such as Kennedy's disease and hereditary neuropathy with liability to pressure palsies. As details of these trials are finalized, Catalyst will provide more details about the trial design, disease, and prevalence.

Overall, we are excited about the opportunities to expand the current Firdapse label into additional indications as well as in additional countries and to develop a better product for all these patients. We will provide any updates on these clinical and regulatory paths as they become available.

I would also like to comment on the ongoing public health emergency related to COVID-19 virus. Pat previously addressed the robustness of our supply chain to prevent interruptions to the supply of Firdapse to patients. The same robustness will also ensure an ongoing supply of clinical trial materials for our ongoing clinical trials, safety follow-up studies and Expanded Access Program.

To date, we have not encountered any delays in our ability to monitor and conduct trials. However, it is important to note that our clinical trials are being conducted at a variety of public and private healthcare institutions in multiple countries which are outside of our direct control. It is still too early to tell if any actions these institutions take in response to the COVID-19 virus outbreak will affect our ability to report topline results in the second quarter.

I will now turn the call over to Ali Grande, our Chief Financial Officer to review our financial results.

[Alicia Grande, Chief Financial Officer]

Thanks, Steve. As you've heard from our team, with revenue from the launch of Firdapse, our first product and continued disciplined expense management. In 2019, we achieved our first full-year of operating profitability. Yesterday, we filed our 2019 Annual Report on Form 10-K and reported GAAP net income of $32 million or $0.31 per basic and $0.30 per diluted share for the fiscal year 2019, compared to a GAAP net loss of $34 million or $0.33 per basic and diluted share for 2018.

For 2019, non-GAAP net income excluding $3.8 million of expenses related to non-cash stock-based compensation was $35.7 million or $0.35 per basic and $0.34 per diluted share. In comparison, 2018 non-GAAP net loss excluding $3.6 million of expenses related to non-cash stock-based compensation was $30.5 million or $0.30 per diluted and basic share.

For the fourth quarter of 2019, we reported GAAP net income of $7.9 million or $0.08 per basic and $0.07 per diluted share compared to a GAAP net loss of $14.5 million or $0.14 per basic and diluted share for the same period in 2018. Net product revenue from the launch of Firdapse in January, 2019 was $102.3 million for the fiscal 2019 year with related cost of sales of $14.8 million.

For the fourth quarter of 2019, net product revenue from Firdapse was $30.1 million with related cost of sales in the quarter of $4.4 million. It is important to remember that our gross margin benefited in 2019 from the inventory expense prior to the FDA approval of Firdapse, and this will not continue at the same rates during 2020. During the fourth quarter and year-end and year 2018, Catalyst had revenues of $500,000 from our collaboration with Endo for generic Sabril that began during December, 2018.

Research and development expenses were $6.3 million and $18.8 million for the fourth quarter and fiscal year 2019 respectively, as compared to $8.4 million and $19.9 million respectively for the fourth quarter and fiscal year 2018. Research and development expenses for the quarter and year ended December 31, 2019 primarily consisted of expenses for medical and regulatory affairs, quality assurance programs and expenses from our ongoing Firdapse clinical trials and studies and costs for our Expanded Access Program.

Research and development expenses in the comparable period in 2018, primarily consisted of consulting expenses for our NDA submission, milestone expenses in connection with the acceptance and approval of our NDA for Firdapse for the treatment of adults with LEMS, expenses from our medical affairs program and compensation and related personnel costs as we expand our headcounts to support our clinical trials and programs.

We expect that research and development cost will continue to be substantial in 2020 as we complete our ongoing clinical trials and studies in MuSK-MG and SMA Type 3 and continue our Expanded Access Program and our sustained release formulation program for Firdapse.

Selling, general and administrative expenses for the fourth quarter and fiscal year 2019 totaled $11.4 million and $36.9 million respectively, compared to $6.9 million and $15.9 million in the fourth quarter and fiscal year 2018. The increase is primarily due to increased selling expenses, including cost of commercial system implementation of our salesforce and supporting personnel, product launch expenses, market access and market research expenses, and professional fees associated with our lawsuit against the FDA.

We expects selling, general and administrative expenses to increase in 2020, as we continue to build our infrastructure and commercial and patient programs in support of Firdapse, sales activities and pursue our lawsuit against the FDA. For the full-year 2019, we have a provision for income taxes of $1.5 million for state taxes in states where we don't have available net operating losses. On December 31, 2019, Catalyst had cash and investments of $94.5 million and no funded debt.

More detailed information and analysis maybe found in the company's Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission yesterday, March 16, and can be found on the Investor Relations page on our website at www.catalystpharma.com.

I'll now turn the call over to Pat.

[Patrick McEnany, Chairman and Chief Executive Officer]

Thank you, Ali. Once again, I am very proud of what the Catalyst team has delivered across all functional areas in 2019. We are well positioned to build on this momentum in 2020 and there is a great deal to look forward to this year.

I believe that we have laid out a clear strategy to deliver near-term and longer-term shareholder value by further establishing Firdapse, a standard of care for adult LEMS patients, expanding the Firdapse label to include other indications, global expansion for Firdapse, lifecycle management for Firdapse, including a longer acting formulation, and continue to look for opportunities to diversify our business beyond Firdapse. Most importantly, we remain extremely focused on patients and our commitment to advance our mission to deliver life-changing medications to people living with rare diseases.

This concludes our prepared remarks today. With that, I'd like to open the call to questions. Operator, can we take the first question, please?

[Operator]

Certainly. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Charles Duncan from Cantor Fitzgerald. Your line is now live.

[Charles Duncan, Cantor Fitzgerald & Co.]

Good morning, Pat and team. First of all, thanks for taking our question. And secondly, congratulations on a successful transition from the development stage to the commercial stage, that's something that doesn't always happen and not all companies execute that this well.

Let me ask you Pat or Dan, a question about current – I guess, the current tone of business and the guidance, $135 million to $155 million. I'd like to get some additional information on what are the key drivers in that range? Is it new patients? Is it persistence for current patients or geographic expansion? And I'm wondering if you could just touch on your field teams' deployment over the course of, say, the next couple of weeks or months, should there be continued challenges with COVID-19?

[Patrick McEnany, Chairman and Chief Executive Officer]

Yes. Thank you, Charles for the question. Yesterday, we issued a travel ban for – a 30-day travel ban for all employees, including our field force, and I'll let Dan address that for you. So it's – as I think most companies will tell you, this is obviously an evolving situation, something that we're monitoring daily. The most important thing again is the safety of our employees.

And so we are employing a teller working program, doing remote meetings, virtual meetings, and so our IT department is really on top of keeping the community line of communication open with the docs, the patients, and of course, the payers. So to that extent, I think that you'll see as this evolves the situation with the coranavirus evolves, I think, we will be a little smarter and we will have more to talk about with regard to how we are reaching all of our constituencies.

So with regard to our guidance of $135 million to $155 million for this year, that does not include any global expansion. But I'll let Dan address the metrics and the things that we are monitoring to make sure that we do get to those levels, Charles.

[Charles Duncan, Cantor Fitzgerald & Co.]

Thanks.

[Daniel Brennan, Chief Commercial Officer]

Thanks, Pat. And thanks for the question Charles. Yes, I mean, you've pretty much hit it. The key drivers are really on new patient starts and those are still the patients that are out there diagnosed with LEMS and unfortunately not on this fantastic medication. So we still have some work. We have about – as I mentioned in my remarks, about 35% of the patients who are diagnosed that have tried Firdapse, we need to continue on with that.

So new patient starts is a key metric, and then, of course, maintaining the patients that we have on board, and that's why it was so important for us to be able to manage that initial 90-day discontinuation that we saw early on at above 35% and get it back under 25%, which is more in line with what we know from the studies and which is more manageable, especially as new patients starts are starting to rise with the expansion of our salesforce and increase in our non-personal promotion and other programs like the inside sales.

So really those are the two main metrics that are going to be driving. Everything else seems to be remaining stable with gross to net’s and average milligrams per prescription and such. So really it comes down to those elements.

[Charles Duncan, Cantor Fitzgerald & Co.]

No. I'm assuming that current roughly 90 – or 25% discontinuations really for the most part applies only to new patients?

[Daniel Brennan, Chief Commercial Officer]

Correct. That's our metric in looking at new enrollments within 90 days. What level of persistence and ultimately what level of discontinuation occurs.

[Charles Duncan, Cantor Fitzgerald & Co.]

Got it. And then in Canada, it would seem to me – well, I guess, I'm wondering why do you need a partner. You've doubled the size of the salesforce, and I'm just wondering why – is there some legal or regulatory reason you can't market in Canada?

[Patrick McEnany, Chairman and Chief Executive Officer]

Charles it would require a significant investment. We really don't want to reinvent the wheel of our sales and marketing team in Canada. So we'd ideally like to find a Canadian partner that's already marketing rare disease drugs and ideally, even to the neuromuscular community. As you can imagine, the rule of thumb is, 10% proportionate. And we believe that based on prevalence in the U.S., we think that they're probably 250 to 300 patients in Canada. So we're really not prepared to make a substantial investment to bring this to market ourselves in Canada.

[Charles Duncan, Cantor Fitzgerald & Co.]

Okay. That's helpful. And one last question for Steve, perhaps on the MuSK-MG trial. You mentioned that one being cautiously optimistic. If you could help us understand the cautiously part that would be useful. I think that that's a randomized withdrawal study. And I'm just wondering if you could provide us any clarity on the number of patients that responded versus enrolled at least on a blinded basis? What is the basis of your cautious?

[Steven Miller]

The basis of my cautious is simply would be presumptuous of me to tell everyone that it's definitely going to pass when it's still blinded.

[Charles Duncan, Cantor Fitzgerald & Co.]

Okay.

[Steven Miller]

But the reality is that we're optimistic because the proof-of-concept trial had a very good outcome. It's a homogeneous patient population and we expect to see a similar outcome in the current Phase III trial. And so we remain optimistic about the potential outcome of the trial.

[Charles Duncan, Cantor Fitzgerald & Co.]

Similar age in enrolled patients in the two – in the Phase II versus Phase I?

[Steven Miller]

Yes. So basically it's a very similar patient population. And the main reason for that is because the disease again is homogeneous. It affects people primarily of about the same age and the same gender. And so the patient populations look very similar between the proof-of-concept trial in this...

[Charles Duncan, Cantor Fitzgerald & Co.]

Okay. Thank you. I'll hop back in the queue. Congrats.

[Patrick McEnany, Chairman and Chief Executive Officer]

Thank you.

[Operator]

Thank you. Our next question is coming from Joe Catanzaro from Piper Sandler. Your line is now live.

[Joseph Catanzaro, Piper Sandler]

Hey guys. Thanks for taking the questions. So maybe I'll ask it from the opposite side of the spectrum here with regards to COVID and see if whether you guys have seen or expect any impact from COBIV on LEMS, follow-up with patients, follow-up visit there, opportunity to get their prescriptions refilled. And along those lines, I guess, what percent of prescriptions currently are delivered by mail directly to the patient?

[Patrick McEnany, Chairman and Chief Executive Officer]

Dan, would you take that please?

[Daniel Brennan, Chief Commercial Officer]

Sure. So all of our prescriptions are delivered directly to patients by mail, by our specialty pharmacy system, and we've had a lot of focusing on that. And in fact, we just sent out communications to all patients today through a variety of different means, letting them know, and give them comfort and ease that there is product available and it can be shipped and it can even be shipped out.

Earlier than normal, we can work with insurers to do that. So that end of COVID doesn't seem to be disrupted and we are very worried about that for our patients because we know that patients really can't – and don't want to handle one-day without therapy. It's that important to them.

So the area that is still TBD is on the new patient starts and office visits, on patients going in and being able to see their physician for a new prescription and for new enrollments. And we have ramped up our non-personal promotion for awareness, and alerting to physicians. We're still able to take enrollment forms. We can take enrollment forms on electronically and obtain patient signatures appropriately.

So we're assuring that everything is still a go, but it's just – we've seen very good results from our expansion efforts all the way through to last week. And then just like everyone else, we just have to kind of see how things happen in the coming weeks. But our eyes are on the new patient starts.

[Joseph Catanzaro, Piper Sandler]

Okay. Got it. And then just another follow-up here. So if you look at some of the metrics and numbers you've provided, it seems about net-net, there's about 25 less patients receiving an insurance-reimbursed prescription at the end of 4Q compared to 3Q. Can you just give us a sense maybe how that breaks out between discontinuation due to adverse events, no benefits, switches to the other drugs? And whether there's any other reasons that are popping up for this?

[Daniel Brennan, Chief Commercial Officer]

Yes. I mean, it came to two different things in Q3 versus Q4 as far as the number of reimbursed patients on drug. And it's primarily that discontinuations. And as I've mentioned before, we had a kind of a bolus of discontinuations from Ruzurgi patients or from our patients to the Jacobus drug that occurred at the end of September, October, and November.

And so we also did have – at the beginning of the quarter, we’re still fighting that initial naive new patient discontinuation that has gotten more under hand. So both of those elements impacted Q4 and have moderated. And at the same time in Q4, we had a much reduced number of new patient starts. So we actually ended up having more discontinuations for those other reasons than we had new patient starts.

All of these have started seeing trends in a much better direction from the Ruzurgi discontinuations to the new patients start discontinuations as well as new patients starts in Q1. So we're optimistic that our expansion efforts on the commercial side are helping that new patient enrollments at the same time, the discontinuations are going down.

[Joseph Catanzaro, Piper Sandler]

Okay. And maybe one quick one for Steve. And I think this is what maybe Charles was asking, but I'll ask it in a slightly different way. Would you be able to say what percent of patients for MuSK-MG trial were treated during the open-label run-in and ultimately entered the double-blind randomized portion of the study?

[Steven Miller]

We haven't given any specific details about the number that were enrolled, participated in run-in and then subsequently dropped out rather than being randomized. All I'll say right now is just a large majority continued through the randomization and completion.

[Joseph Catanzaro, Piper Sandler]

Okay. Got it. Thanks for taking the questions.

[Patrick McEnany, Chairman and Chief Executive Officer]

Thanks, Joe.

[Operator]

Thank you. Your next question is coming from Leland Gershell from Oppenheimer. You line is now live.

[Leland Gershell, Oppenheimer & Co. Inc.]

Hey, good morning. Thanks for taking my questions.

[Patrick McEnany, Chairman and Chief Executive Officer]

Good morning, Leland.

[Leland Gershell, Oppenheimer & Co. Inc.]

Hey, good morning. With regard to MuSK-MG versus LEMS, presumably those patients are all cared for by the same types of physicians. In other words, you would not have to redouble your marketing efforts, but you get approval in MuSK-MG, but therefore you could leverage your current salesforce for that indication?

[Patrick McEnany, Chairman and Chief Executive Officer]

Dan?

[Daniel Brennan, Chief Commercial Officer]

Yes, definitely the MuSK-MG is a nice fit with our existing salesforce and relationships and in targeting. In fact, most of our targeting with physicians right now are on the use of Mestinon, which is a medication that's often used in both LEMS patients as well as MuSK patients. So we feel very good that this is very much a fit-handed glove with the new indication.

[Leland Gershell, Oppenheimer & Co. Inc.]

Okay. And so we should not expect any need for any material field force expansion, should you get that approval…

[Daniel Brennan, Chief Commercial Officer]

We don't see any material increase in salesforce. Obviously, we need to create materials and information that would share the key benefits and differentiation of our medication, and there's cost there, but not right now as we see in salesforce expansion.

[Leland Gershell, Oppenheimer & Co. Inc.]

Okay, great. And then just a second question on your business development initiatives, as you look outside for opportunities. Just wanted to ask, does your focus there live squarely within neuromuscular rare disease? Is it broader than that? Could there be pediatric? Just curious kind of what the scope is as you look for potential licensing or for other deals for interesting assets? Thanks.

[Patrick McEnany, Chairman and Chief Executive Officer]

Yes. So Leland, we definitely want to stay in the rare disease space, ideally in the ultra-rare space, which is sort of defined as 5,000 or 6,000 patient prevalence that maybe difficult. Also ideally, we'd like to remain in neuromuscular or certainly in neuro and we really don't want to be too early. We really are looking for assets that are companies that are beyond proof-of-concept.

So having said that that's sort of our initial criteria, but anything interesting that crosses our plate that looks like it might be a fit for us from a company's perspective with our salesforce or something that we would be able to successfully market.

So I would say to you that's our initial criteria, that may change, that maybe a little too tight. But certainly, we're starting to get very busy on that front and looking at a lot of opportunities.

[Leland Gershell, Oppenheimer & Co. Inc.]

Okay. Terrific. Thanks very much for taking the questions.

[Patrick McEnany, Chairman and Chief Executive Officer]

Thank you.

[Operator]

Thank you. Your next question is coming from Scott Henry with ROTH Capital. Your line is now live.

[Scott Henry, ROTH Capital Partners, LLC]

Thank you, and good morning. A couple of questions. First, if you get a sense of what kind of share Jacobus has out there right now and should that be kind of reaching a steady state, or might that share be climbing or decreasing in the near-term? Just trying to get a sense of the market dynamics?

[Patrick McEnany, Chairman and Chief Executive Officer]

Dan, would you take that?

[Daniel Brennan, Chief Commercial Officer]

Sure. We see the – we don't have perfect insight to even people that will discontinue from Firdapse, although we try to get a good handle on why they would be discontinuing as they leave. And with that, we think that has leveled off. It's down to a very low trickle. And so that, I think – that element may continue at a small one to two to three patients per month perhaps, but that will stay stable.

What we don't have any insight to is the number of new patients. And so we still think that there's somewhere around 50, 55 patients, perhaps total. Most of those patients were on the initial Jacobus investigational drug program. And so our strong efforts have been all about supporting – strong support of existing patients. And then communicating and generating awareness among patients and their physicians that either haven't had been treated before or haven't even been diagnosed and quickly getting them into all of our programs, which have been shown to have great response and great result and satisfaction.

[Scott Henry, ROTH Capital Partners, LLC]

Okay, great. And then looking at the metrics, it would seem like insured patients would be a pretty good leading indicator. So a little concern that that declined in fourth quarter 2019. 2.5 months through with the first quarter of 2020, would you expect that number to jump up?

[Daniel Brennan, Chief Commercial Officer]

Yes. We definitely need and want that to jump up. As I mentioned earlier, in Q4 and it was mainly due to those discontinuations. Our discontinuations outpaced our new enrollments. What we do see in Q1 is that the discontinuations have decreased. Our new enrollments are increasing.

And so as Pat mentioned, we are reiterating our guidance and we think that we have what is a good balance. And all these new programs and our new salesforce just getting underfoot in this inside sales partnership, which is already showing good results, we look for that to continue and to grow.

[Scott Henry, ROTH Capital Partners, LLC]

Okay. Thank you for that color. Just shifting over to the income statement, just a couple of questions as we model this out. First that, should we expect COGS to pick up? I believe you had some early cost of goods sold while it was in development and when that runs out we might see a tick up in cost of goods sold. Any nuances to that in 2020?

[Patrick McEnany, Chairman and Chief Executive Officer]

Ali, would you take that?

[Alicia Grande, Chief Financial Officer]

Yes. So as I mentioned during the call, during 2019, we used the product that had been manufactured previous to our FDA approval and hence had been expensed in prior years, that will not continue at the same rate in 2020. So we believe that the cost of goods sold will increase, but we don't believe that that increase will be substantial.

[Patrick McEnany, Chairman and Chief Executive Officer]

Scott, recall that in our cost of goods, we included our 14% royalty payments to BioMarin and to Jazz. So as Ali pointed out, that was minimal incremental to the 14%, and so later this year, we'll start to reflect really the truer cost of goods, which again is not going to be significant compared to – a significant change compared to last year's costs of good.

[Alicia Grande, Chief Financial Officer]

Yes. And that will increase as we deplete not only the talent that we have manufactured, but also the API that we have manufactured previous to FDA approval.

[Scott Henry, ROTH Capital Partners, LLC]

Okay. Thank you. And staying on the income statement, would you expect to be a fully taxed entity at least for accounting purposes in 2020?

[Alicia Grande, Chief Financial Officer]

In 2020, so we expect to use our NOL for our federal taxes in 2019 and we also expect to use our NOLs for our firms – at least our firms, NOLs for our taxes during 2020. Does that answer your question?

[Scott Henry, ROTH Capital Partners, LLC]

Well, typically when a company gets sustainably profitable, they'll take a gain for those NOLs and then they'll report on a fully tax basis. I'm not sure if that will happen for you just yet, but it would seem like you're moving into that.

[Alicia Grande, Chief Financial Officer]

Yes. So as you know the accounting for deferred tax asset is very specific in the analysis for the reversal of the allowances is different than just looking at operations. ASC 740 requires that positive evidence and negative evidence, we waited before making a decision to reverse evaluation allowance.

The guidance gives more weight to factual evidence, such as previous losses and positive evidence, such as forecast for net income in future years. And as you might know, while we said, is the three-year pretax income tax. And while we didn't meet that three-year income tax at 12/31/19 and felt that the positive evidence it not always the negative evidence. For purposes of the ASC 740 analysis, we will continue to monitor the situation on a quarterly basis and do feel that it will.

[Patrick McEnany, Chairman and Chief Executive Officer]

So Ali, if we’re to meet our projections of this year, most of that income from this year would be sheltered. Would you agree with that?

[Alicia Grande, Chief Financial Officer]

Correct.

[Patrick McEnany, Chairman and Chief Executive Officer]

Okay.

[Scott Henry, ROTH Capital Partners, LLC]

Okay. Thank you for that color. That's very helpful. Final question, when we think about expenses for 2020, do you think – is fourth quarter 2019 somewhat representative of spending levels we should think about in the following year?

[Patrick McEnany, Chairman and Chief Executive Officer]

I don't think so, Scott. We had a number of things hit us in the fourth quarter. We had an accrual for charitable contributions that actually are going to be utilized in 2020 that we didn't expect to hit us. Also we had litigation expenses that were fairly significant in our lawsuit versus FDA. And we also took a hit on the state taxes that we don't expect to have going forward. So I don't think that the expenses in Q4 representative of what you're going to see going forward for 2020.

[Scott Henry, ROTH Capital Partners, LLC]

Okay, great. Thank you. That's helpful and congratulations again on a strong year. Thanks for taking the question.

[Patrick McEnany, Chairman and Chief Executive Officer]

Thank you.

[Operator]

Thank you. We’ve reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

[Patrick McEnany, Chairman and Chief Executive Officer]

Thank you very much for joining us today. We look forward to future calls. Thank you.

[Operator]

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