Comps are some of the best tools for helping determine if a company is under or over valued and for projecting future valuations, however, finding good comps can be very tricky business because there are usually very few companies similar enough to inspire confidence. In the case of orphan drug developer, Catalyst Pharmaceutical Partners, Inc. (CPRX), two small, fast-growing pharma companies stand out as strong comps because they have strikingly similar pipelines, revenue opportunities, and timeframes of development to commercialization. The fact that they shared similar valuations 12 months ago compared to Catalyst today also tends to confirm them as a good choice.
Catalyst Pharmaceutical Partners is small-cap orphan drug developer with two drugs in its pipeline; Firdapse and CPP115, the new generation of CPP109. Neither drug is FDA approved, but Firdapse is a strong contender for approval for several reasons. First, Firdapse has already been approved in the EU and is now selling in Europe. Second, the European Federation of Neurological Societies recommends Firdapse™ as First-Line Treatment for LEMS. Third, a Data Monitoring Committee comprised of three independent physicians was created to oversee the phase III Firdapse trial. Their primary function is to oversee safety, but their decisions are also guided by efficacy because if they don't see efficacy, then they have to question the value of moving forward even if it appears safe. The Committee met in March 2013 and after analyzing the unblinded data, they recommended continuation of the trial. The committee will meet again this October. The fourth reason is that BioMarin invested $5 million in Catalyst expressing their confidence in the company and in Firdapse. And finally, the new FDA designation of Firdapse being declared a "Breakthrough Therapy" instills even more confidence as well accelerating commercialization to 2015.
Firdapse Top Line data is expected in the first half of 2014. In addition to LEMS, Firdapse is expected to treat Congenital Myasthenic Syndrome and Myasthenia Gravis, increasing the total Firdapse patient population to 5,000. The company projects peak Firdapse sales of between $200 million and $500 million, which is very similar to the sales projections for Juxtapid and Pimavanserin.
Catalyst is also developing another drug in its pipeline that has the potential to be a blockbuster. CPP115 is an orphan drug that was mentioned almost six months ago in the Seeking Alpha article, "Catalyst's CPP115 May Be Big Pipeline In Just One Little Pill". This article tells a promising story about CPP115 and how it could become a blockbuster orphan drug with the potential to generate $1.6 billion in peak sales.
CPP115 is designed to treat several orphan drug indications including Tourette's Syndrome, Epilepsy, Refractory Epilepsy, Infantile Spasms, Movement Disorders and was designed by the well-known Dr. Richard Silverman who also designed blockbusters Lyrica and Neurontin for Pfizer (PFE). Catalyst is currently providing CPP-109 (predecessor to CPP115) and financial support for a small Phase I/II trial being undertaken at Mt. Sinai School of Medicine in New York to evaluate the use of CPP-109/CPP115 in treating Tourette's disorder. This is a 6 to 10 patient open-label trial from which Catalyst anticipates top line results during the first half of 2014. If the results of the study show evidence of reduced numbers of tics, Catalyst hopes to develop CPP-115 for this indication as well as several others. CPP115 is 200 times more powerful than CPP109 and does not manifest the adverse side effects of peripheral vision loss associated with CPP109.
The first comp is Aegerion Pharmaceuticals (AEGR) that one year ago had close to 24 million shares outstanding and a market cap of $300 million with shares selling at $13.50, that compares to Catalyst's market cap today of $160 million. At that time, the FDA had not yet approved their lead drug, Juxtapid, for the treatment of the rare cholesterol disorder, HoFH. Juxtapid was approved in December 2012 and is the only drug in Aegerion's pipeline capable of generating significant revenues in the foreseeable future.
Estimates on how many patients suffer from HoFH in the U.S. range from as few as 315 to as many as Aegerion's estimate of up to 3,000. The FDA estimates the disease's occurrence to be one in a million, or roughly 315 annual claims. An article in Seeking Alpha examining Juxtapid sales suggests the number is somewhere between 315 and 3,000, and probably closer to 1,000. Based on the annual per-patient cost of $300,000, Juxtapid sales could reach $300 million annually. It should also be noted, however, that Juxtapid recently encountered competition from Sanofy (SNY) when the FDA approved their new drug Kynamro to treat HoFH. Aegerion sales are projected to be very close to projected sales for Catalyst's Firdapse.
Aegerion shares are selling at $95.00 today creating a market cap of about $2.75 billion. Juxtapid sales are beginning to trickle in with Aegerion reporting a little under $8 million in revenues for H1 2013.
Acadia Pharmaceuticals (ACAD) is developing Pimavanserin for the treatment of Parkinson's Psychosis. As of now, Pimvanserin is Acadia's only contender for commercial revenues in the coming few years and has not yet been approved by the FDA, but is expected to gain approval in 2014. At an estimated 25% market penetration, Pimavanserin is projected to achieve peak sales of $312 million. One year ago, Acadia had close to 55 million shares outstanding and a market cap of about $100 million. Today, with projected peak sales of $312 million, Acadia shares are selling at $29.00 and support a market cap of more than $2.5 billion.
The following table compares key elements of Aegerion and Acadia to Catalyst. Note that Catalyst is approximately 12 months behind both companies. Catalyst's projected value in 12 to 18 months is based on the assumptions that Firdapse will be FDA approved and will generate revenues similar to the projections for Juxtapid and Pimavanserin.
Catalyst Pharmaceutical Partners Comps
Mkt Cap 1 Year Ago
Mkt Cap Today
Price 1 Year Ago
Projected Peak Sales
Projected FDA Approval
$8 Mil H1/13
Projected CPRX Price In 12 to 18 months
Catalyst's fundamentals are sound with current assets of $12.5 million over current liabilities of $1.6 million for Q2 2013. Additionally, Catalyst announced the closing of a $15 million dollar offering on September 10th and has adequate cash to complete the Firdapse trial and to develop the next trials for CPP115. Now that shares are trading in heavy volume over $3.00, if shares remain at these levels or higher, the company will find it easier to meet future capital needs without excessive dilution.
Risk factors must always be considered and Catalyst is a small cap company that has risk of clinical trial failures. CPP109 could fail its current trial for Tourette's Syndrome, and Firdapse could fail its phase III trial for LEMS. Catalyst is also at risk of not being able to raise adequate capital to remain in business. Another risk is that because orphan drug pricing is lucrative and is the primary driver behind the outstanding performance of orphan drugs stocks, if orphan drug pricing is reduced substantially, orphan drug companies could be adversely impacted. "Orphan Drug Prices Under Siege in Austerity-Minded Europe" addresses some of the concerns about excessive orphan drug pricing. Because the need for orphan drugs is so large and unmet, it seems unlikely their prices will fall in the next few years.
In conclusion, Catalyst appears to be an excellent speculation for significant price appreciation based on comparison to Aegerion and Acadia, and also based on the high likelihood of Firdapse being approved by the FDA in 2015. If Catalyst matches the performance of Aegerion and Acadia, and if market conditions remain stable, shares have the potential to appreciate to $41.66 in 12 to 18 months.