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Company Overview

The US Department of Health and Human Services estimates that there are about 1 million Americans addicted to cocaine and another 300,000 addicted to methamphetamine. This compares to about 1.9 million Americans addicted to opioid analgesics. The largest selling drug for opioid addiction is Suboxone, which has current US sales of about $1.2 billion. Assuming pricing comparable to Suboxone, the addressable US market for the cocaine and methamphetamine addiction market is about $1.8 billion

There are no drugs approved for helping cocaine and methamphetamine addicts break their habit. Consequently, this is a significant unmet medical need and a large potential market opportunity for drug developers.

Catalyst Pharmaceutical Partners (CPRX) is in a late stage phase IIb clinical trial with its lead drug, CPP-109 that is in a potential registration trial. Earlier studies have suggested that it can help cocaine addicts achieve abstinence. Topline results are expected in 4Q, 2012 and success in this trial would be a major catalyst for the stock. Other drugs in phase II trials for this indication are Teva's (TEVA) narcolepsy drug modafinil and a cocaine vaccine from Xenova Group. There may be other drugs in development as I have not yet done a thorough competitive analysis.

I had my first opportunity to meet with management in January at a biotechnology conference in San Francisco and to discuss the company's technology platform, which is based on a novel class of drugs called GABA aminotransferase inhibitors. As will be discussed later in this report, this mechanism of action is believed to block or reduce the pleasure reward that cocaine users seek. Catalyst has two drugs of this class in clinical development, CPP-109 (generic name is vigabatrin) and CPP-115. Vigabatrin is the active pharmaceutical ingredient in the drug Sabril which was approved in Europe in 1992 for treating adult epilepsy and in the US in 2008 for treating infantile spasms, a severe form of epilepsy in infants.

Catalyst is developing vigabatrin/CPP-109 for a currently unapproved indication of treating cocaine addiction and will then try to extend this to methamphetamine addiction. The second drug in development CPP-115 is a next generation GABA aminotransferase inhibitor that has the same mechanism of action as CPP-109, but which based on pre-clinical studies holds the promise of being significantly more effective and safer. CPP-115 was invented by Dr. Richard Silverman of Northwestern who is also the inventor of Pfizer's Lyrica, a CNS Drug that achieved worldwide sales of $3.5 billion for the 12 month period ended September 2011.

CPP-115 will be developed for cocaine addiction like CPP-109 but it will also be developed for complex partial epileptic seizures and infantile spasms for which Sabril (vigabatrin) is now approved and potentially other addiction and CNS indications. The strategy is to build a cocaine addiction franchise with CPP-109 and then replace its position in that market with CPP-115. Importantly, the other indications being pursued could allow CPP-115 to address a much larger commercial opportunity.

If successfully developed, CPP-109 would be combined with behavioral counseling. Clinical studies in Mexico conducted over the last decade have been encouraging and a well-designed phase II trial showed that after nine weeks of drug use, 28% of cocaine users given CPP-109 in combination with behavioral therapy became abstinent versus just 8% given behavioral therapy alone. Earlier open label studies showed even better abstinence levels of 40% to 50% for treated patients at the end of 9 to 10 weeks of treatment.

Disappointingly, a US phase II trial of similar design to the one in Mexico reported in 2009 that it failed to meet its primary endpoint. After careful review Catalyst and the trial investigators concluded that this was due to faulty trial design rather than lack of effectiveness of CPP-109. It was decided to continue clinical development and launch a new trial which is now underway and for which topline results could be available in 4Q, 2012. This is an important binary event for the company and a trial failure would be a severe setback, but not quite a matter of life and death. If the trial were to fail, the fallback position would likely be to refocus all of the company's resources on developing CPP-115 for the orphan drug indication of infantile spasms, which could provide a fast path to approval.

CPP-115 is just entering phase I studies and its profile in humans has yet to be established, but based on pre-clinical studies it appears to be a much more elegant molecule than CPP-109. It is judged to be 200 times more potent and it also appears to be safer, particularly in regard to the most troublesome side effect of vigabatrin, which is that cumulative use over time can result in adverse effects on peripheral vision. However, this has not been an issue in the CPP-109 cocaine addiction trials because the cumulative dosage has been below the threshold level at which this side effect occurs. CPP-115 also has very strong patent protection as it is covered by a composition of matter patent that lasts until 2028 while CPP-109 is covered only by a method of use patent through 2018. Waxman Hatch provisions would likely extend protection for five years following its introduction, which might extend protection to 2019 or 2020.

The strong results in the Mexican studies with CPP-109 were highly encouraging but the unfavorable US trial results create uncertainty about the outcome of the critical phase IIb US trial now underway. However, besides the Mexican studies, there are reasons to believe that CPP-109 is an effective drug and could be successful in this trial. The National Institute on Drug Abuse (NIDA) believes that CPP-109 has such promise that it is funding most of the $10 million cost of the US trial. The Mexican phase II trial was published in in the American Journal of Psychiatry in 2009 which suggests that the addiction treating physician community takes the results of the Mexican trial very seriously. And finally, CPP-115 and CPP-109 have both been granted fast track status by the FDA for the treatment of cocaine dependency, a status that is accorded to promising drugs that address unmet medical needs and facilitates their development and regulatory review.

CPP-109 is not the ultimate answer to cocaine addiction. If the Mexican results are validated with the ongoing US trial, it would indicate that it can help 30% or more of cocaine addicts achieve abstinence when used in conjunction with behavioral modification. This compares to about 5% to 8% for behavioral modification alone. The potential for causing long term abstinence is not clear because studies to date have been limited to three to four months of treatment. However, in a market desperate for drug treatment options, it could be a very successful commercial product.

Investment View

Intuitively, I think that most investors would feel that if CPP-109 if approved for cocaine addiction that it will be a significant drug. It would be an early mover in a market with $1.8 billion of potential sales. It may or may not be first to market so that it could be in competition with other drugs. Still, in this large market, it would seem possible that it could carve out $200 to $400 million of sales before it loses patent protection in 2018, 2019 or 2020.

The product will probably have to be partnered which will reduce the economics to Catalyst as it might co-promote the drug and receive a royalty, but weighed against the diminutive $30 million market capitalization of Catalyst this seems to be a compelling opportunity. CPP-115, if successfully developed has the potential to enormously enhance the outlook for Catalyst with its much greater sales potential and long patent life, but until the drug confirms pre-clinical studies in phase II human studies, I am reluctant to place too much emphasis on this drug.

I am obviously interested in the investment scenario for Catalyst, but at this time I am not issuing an investment opinion. I have a rule that I don't issue a recommendation after one meeting with a company. I intend to watch the situation develop and gather more in-depth information before deciding on an investment recommendation. People who have read my past reports will understand that this is my usual mode of operation.

I do want to emphasize to investors that while the reward for the stock may be high so is the risk. Failure in the phase IIb trial would be a severe setback for a company that lacks financial strength. I think that Catalyst ended 2011 with about $6.0 million of cash. The recent quarterly burn rate of $1.3 is expected to be somewhat lower going forward. The company has guided investors that it has sufficient cash to cover operations through mid-2013 without any new cash infusions. Successful results in the US phase II trial could produce a lucrative partnering deal that might bring in significant amounts of cash.

The key event for Catalyst in 2012 is the reporting of top line results of the US phase IIb trial in 4Q, 2012. Results of the phase I trial of CPP-115 may be released in 1Q, 2012 and will be interesting, but of much less importance to the stock. The company thinks that it the phase IIb results are consistent with those seen in Mexico that it can file an NDA in 2H, 2013 and possibly see approval in 3Q, 2014. To meet this timetable, the results will have to be very convincing. CPP-115 is perhaps three to four years behind in development although there might be a chance to get it to market quicker if it shows good results in treating infantile spasms.

CPP-109 and Cocaine Addiction

Cocaine's addictive properties are due to its ability to increase levels of dopamine which is a neurotransmitter (chemical messenger in the brain). Increased levels dopamine can create a heightened sense of pleasure and well-being. CPP-109 reduces the dopamine rise after cocaine use and reduces the pleasure sensation or high that cocaine users are seeking. It does this through its effect on another neurotransmitter, gamma-aminobutyric acid (OTCQB:GABA) whose main role in the nervous system is to control neuronal excitation such as that caused by dopamine. CPP-109 inactivates the enzyme GABA aminotransferase that the brain uses to control and decrease levels of the protein GABA (don't confuse the enzyme and the protein it modulates). By decreasing GABA aminotransferase (the enzyme), GABA (the protein) levels in the brain are increased and this in turn leads to a decrease in dopamine levels. This appears to be done without creating a new addiction to CPP-109 and without causing withdrawal symptoms; tolerance has not yet been shown to be an issue.

Source: Catalyst Pharma: Awaiting Key Clinical Trial Results For CPP-109 For Treating Cocaine Addiction