Recently, shares of Catalyst Pharmaceutical Partners (CPRX) and Vertex Pharmaceuticals (VRTX) spiked dramatically upward, drawing the attention of many traders and investors. BioMarin (BMRN) has not been as dramatic for the short term, but its shares have been rising steadily and noticeably for the past two years. The primary driver behind the attention-getting performance of these three companies is that they are all developing "orphan drugs."
Don't let the term "orphan drugs" fool or mislead you. There is nothing little about them. In fact, small companies that develop orphan drugs have tremendous advantages over traditional Big Pharma companies, and these advantages are showing up in their rising share prices that are rapidly outpacing Big Pharma's performance.
The global orphan drugs market reached $84.9 billion in 2009 growing from $58.7 billion in 2006 and from $54.5 billion in 2005. The market is expected to grow at a compounded annual rate of nearly 6% to reach $112.1 billion by 2014.
Pharmaceutical drugs in the United States can be granted orphan status if they are used to treat illnesses where fewer than 200,000 people are afflicted. Most other countries have similar guidelines and incentives and it is estimated that there are over 5,000 orphan diseases.
The advantages of being classified an orphan drug are enormous, and include extended time for sales exclusivity without competition, significant tax advantages, accelerated FDA approval times, substantially less costly clinical trials due to smaller numbers of patients enrolled in trials, and significantly higher pricing than drugs for the broader markets because there is no competition.
Another advantage of orphan drugs is that the FDA is sometimes more lenient when it comes to the efficacy of the drug. If there are no serious adverse side effects, the FDA may approve less efficacious drugs because patients would otherwise have absolutely no therapy options.
Collectively, these advantages add up to very fast growth and fast-rising share prices. The following charts demonstrate the dramatic growth of these companies over the past year or a recent sharp upward spike indicating their resurgence.
BioMarin Pharmaceutical, Inc.
BioMarin shares recently closed up $2.65 at $65.44 on 1,311,295 shares and are up sharply from $35.00 in the past year. The company has generated about $500 million from its three approved drugs that treat rare genetic diseases. These drugs are Aldurazyme, Naglazyme, and Kuvan. BioMarin recently out licensed the North American rights for Firdapse, its orphan drug for Lambert-Eaton Myasthenic Syndrome to Catalyst Pharmaceutical Partners. Firdapse has been approved in Europe and is already generating early sales of over $10 million. BioMarin reported over $500 million in revenues for the year ending December 2012.
With 10 orphan drugs in its pipeline, and three already approved and selling, BioMarin is a strong buy and is positioned to grow very rapidly. Vimizin is designed for patients with mucopolysaccharidosis, that causes skeletal abnormalities, and vision and hearing loss. PEG-PAL was developed to treat a genetic disorder that can cause mental deficiency and seizures. BMN-190 is being developed for Batten disease.
BioMarin has a market cap of $8.25 billion.
Catalyst Pharmaceutical Partners, Inc.
In October 2012, Catalyst expanded its orphan drug pipeline by in-licensing the North American rights to Firdapse from BioMarin. Firdapse is approved in Europe and is used to treat Lambert-Eaton myasthenic syndrome, a rare condition afflicting an estimated 3,000 Americans. Firdapse has already sold over $10 million in Europe, and sales are expected to grow rapidly.
The numbers may sound small, but when you realize that they can translate to sales of over $25,000 per patient and possibly up to $100,000, the per share numbers for Firdapse have the potential to influence share prices greatly. Firdapse is in late-stage, pivotal phase III multicenter, double-blind, placebo-controlled, randomized discontinuation trial followed by an open-label extension period to evaluate the efficacy and safety in patients with LEMS.
Demonstrating their confidence in Catalyst and Firdapse, BioMarin invested $5 million into shares of Catalyst.
Catayst is also developing CPP115, a very promising drug that could be a "pipeline in a pill" as it has applicability in both West syndrome as well as treatment-resistant epilepsy and may also be useful in the treatment of other movement disorders. Many of these indications include orphan designations but some of them may also address very large markets.
Richard Silverman, Ph.D., the world-renowned medicinal chemist, is the developer of CPP115 and sits on Catalyst's Scientific Advisory Board. Dr. Silverman is the inventor of the Pfizer blockbusters Lyrica ($2 billion) and Neurontin ($2.7 billion). The potential for CPP115 is very large and could have an intense impact on the price of Catalyst's shares.
Analyst Report Ignites Shares of Catalyst Pharmaceutical Partners
On Thursday, April 18, 2013, Aegis Capital released its 34-page research report on Catalyst Pharmaceutical Partners, Inc. The report described the company's intensified game plan into the attractive space of orphan drugs. The report pointed out how undervalued the company's shares are and provided a $2.50 target for the next 15 months. It suggested that the potential for Firdapse and CPP115 have not been figured into the company's current share price and that in the next few years, Firdapse could generate up to $75 million per year and CPP115 could generate several hundred million dollars per year after that.
After reading the report, investors and traders quickly snatched up Catalyst shares causing it to rocket from $.47 Thursday morning to Monday's close of $1.06. Trading volume exploded from a daily average of 402,829 shares to over 16,000,000 shares in only 3 trading session. Catalyst's soaring trading activity triggered further buying from momentum trading programs, investors, traders and short covering.
Firdapse is the company's first opportunity to create significant revenues but CPP115 has much broader applications for multiple indications to treat infantile spasms, and epilepsy, as well as other neurological conditions associated with reduced GABAergic signaling, like post-traumatic stress disorder, Tourette's disorder, and movement disorders associated with the treatment of Parkinson's Disease.
Based on their pipeline and comps of these and other similar companies, Catalyst does appear to be substantially undervalued.
Catalyst Pharmaceutical Partners, Inc. has a market cap of $40 million.
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Vertex Pharmaceuticals, Inc.
In only one day recently, shares of Vertex soared an amazing $32.73 to close at $85.60 on 24,895,874 shares gaining 62%. Shares spiked on positive news from the phase II trial of its orphan drug VX-661 for Cystic Fibrosis. The trial showed statistically significant improvement in lung function among adults who have two copies (homozygous) of the most common mutation in a gene called CFTR.
Vertex reported sales in excess of $1.5 billion and has 6 drugs in a pipeline that is mature and close to producing additional large revenues. Vertex appears to be a strong buy for the long haul and judging by its' performance last Friday, investors are clearly jumping on board.
Vertex has a market cap of $18.68 billion.
Companies like BioMarin, Catalyst and Vertex that are developing orphan drugs, have major advantages for faster growth over their traditional Big Pharma competitors, and their faster rising share prices are reflecting these advantages.
After analyzing the three companies in this article and ranking them by what I believe will be their percentage returns, I rate them as follows:
With it's fast growing pipeline, BioMarin is a Strong Buy for the intermediate and long term.
After a recent big advance, Catalyst has been consolidating in a downward flag for the past week and appears to be building a base to make its next move to the $1.50 - $1.60 area. Technically, Catalyst appears close to breaking out again on the upside.
As a low priced stock, Catalyst is positioned to be a large percentage gainer over the next few weeks, months and years and is a Strong Buy.
Vertex has had such a strong advance recently that consolidation for the next several weeks is likely. With the news on VX-661 and with a pipeline that s becoming more advanced, Vertex is a Strong Buy for the intermediate and long term.
There is risk that any of the drugs in the development pipelines of all these companies may fail, or that some of these companies may not be able to raise adequate funding to continue operations.