Catalyst Pharmaceuticals (CPRX), a small-cap biopharmaceutical company that produces novel orphan drugs, and is thought to be the next Acadia (ACAD) among many investors, experienced a strong sell off on Friday after an investigative report from The Street's senior columnist, Adam Feuerstein. The article bashed the company for attempting to profit off of sick people with their upcoming drug Firdapse, and almost portrayed Catalyst Pharmaceuticals as an evil company. Because nothing has fundamentally changed for the company, and the article was somewhat biased and only talked about one segment of Catalyst's pipeline, I believe now is the perfect time to open a speculative position in this potential blockbuster pharmaceutical company if you haven't already.
The article, "Catalyst Pharma: Orphan Drug Poseur, Profiteer" by Adam Feuerstein presents an in depth look at the current treatment available for patients suffering from Lambert-Eaton Myasthenic Syndrome (LEMS), and slams Catalyst for attempting to move into this space with their drug Firdapse, which has already been approved in Europe, and was recently awarded breakthrough therapy designation from the FDA in August of this year. Catalyst received the rights from Biomarin Pharmaceuticals (BMRN) to market Firdapse in the United States, and is currently finishing Biomarin's Phase III study with top-line results expected in 2014. Because of Firdapses success in Europe, there is a high likelihood that the FDA will approve the drug and Catalyst will commence sales by 2016.
The main gripe Feuerstein had in particular with Catalyst, is the fact that there already is an almost identical treatment available for LEMS patients that is offered for free, called 3, 4-Dap. This drug is produced by Jacobus Pharmaceuticals, a small, family-owned company that offers the drug through academic medical centers and special clinics. The company has been producing the drug for more than 20 years. Because the drug is not FDA approved, the company is required by law to provide the drug for free. However, the tone of the article paints Catalyst as a villain, and Jacobus Pharmaceutical as a hero.
The quotes below help prove my point.
"This 'We're an orphan drug company, too!" pitch that Catalyst makes to investors has been effective."
"But there are also some companies who will take shortcuts or push the orphan drug formula too far (in reference to Catalyst)."
Why do you supply 3,4-Dap for Free?
"Because supplying the drug for free is the right thing to do. My father believed, and we still believe, that we have a moral responsibility to support this fragile patient population and not profit from them." (Laura Jacobus)
"What Catalyst is doing is making money off LEMS patients. They don't want to help LEMS patients; they just want to make money. If I worked for Catalyst, I wouldn't be able to sleep at night." (Laura Jacobus)
"David and Laura Jacobus aren't socialists. They have no problem with companies developing novel drugs to treat disease and making money selling them. But that's not what Catalyst is doing with Firdapse…"
Considering the quotes above, the fact that Feuerstein failed to mention Catalyst's main drug under development, (CPP-115), and the fact that the article was published on Jim Cramer's website, who advised investors to sell Acadia and similar small cap biotech stocks less than two weeks ago, I believe investors should take Feuerstein's article with a grain of salt.
The Bottom Line
Feuerstein's article caused a dramatic sell off in Catalyst's shares. The stock fell 27% to $1.90, and then dropped another $0.10 to $0.20 during after hours. Shares are hugging the price level of $1.74, which was the price of their last stock offering. Nothing fundamentally has changed for Catalyst Pharmaceuticals. They still have an impressive balance sheet, legendary chemist Rick Silverman is still working on their blockbuster drug CPP-115, and after receiving breakthrough designation from the FDA, Firdapse is highly expected to be approved and commence sales in 2016.
While 3,4-Dap is free and available today, the CEO of Catalyst, who responded to Adam Feurestein via email, made some very good points as to why Firdapse is necessary for the medical community and why the company is actually not that evil after all.
Catalyst was aware of 3,4-Dap and its effectiveness in the treatment of LEMS, but because the drug has been available for more than 20 years and there is still to this day no FDA approved drug, Catalyst felt this was an opportunity to serve an underserved population of patients.
And the CEO is right; patients can only obtain the 3,4-Dap treatment through specific clinics and academic medical centers, which means availability is limited, depending on where you live. Also, Catalyst has been able to recruit trial subjects throughout the U.S., which shows that there is demand for this product. Why would patients be enrolling in clinical trials when they can get the almost identical drug for free today? Clearly there is a need for this drug. Firdapse will be a rigorously tested drug that meets the standards of the FDA and has an improved shelf life when compared to 3,4-Dap.
The fact remains, that if Catalyst manages to report positive results in 2014 on their Phase III study of Firdapse, they will most likely be granted approval by the FDA the following year and receive drug exclusivity in the U.S., barring Jacobus Pharmaceuticals from supplying 3,4-Dap. Because Catalyst is nearing the end of their study, and Jacobus is a small scale pharmaceutical company who has begun a clinical study and is currently in Phase II, with little information surrounding it and no disclosure of how many patients were enrolled, and because Jacobus hasn't managed to obtain FDA approval for their 3,4-Dap drug in more than 20 years, I believe Catalyst Pharmaceuticals will have no trouble obtaining FDA approval for their superior drug, Firdapse.
The panic selling that occurred with Catalyst Pharmaceutical due to Adam Feuerstein's investigative article on Friday was overdone, and the fact remains that nothing has fundamentally changed for the company. The drug Firdapse is still expected to release positive results next year, gain FDA approval the following year, and commence sales by 2016, reaching peak annual sales of up to $300 million. Include the fact that the true value behind this company lies behind Rick Silverman's development of CPP-115, which wasn't even mentioned in Feuerstein's article, and you have a stock that is sure to rebound from this sharp sell-off.