Catalyst Deserves The Attention

This article is now exclusive for PRO subscribers.

Biotechnology companies focused on developing drugs targeting orphan disease indications have recently been some of the best performers in Biotech. The success of companies with approved and marketed orphan drug products such as Alexion Pharmaceuticals (NASDAQ:ALXN), Vertex Pharmaceuticals (NASDAQ:VRTX), and BioMarin Pharmaceuticals (NASDAQ:BMRN) has lead the new industry trend in niche disorders. According to EvaluatePharma's 2013 Orphan Drug Report, the industry shift towards the treatment of rare diseases is already in full swing as it is forecasted that one dollar out of every six spent on drugs in 2018 will go for a rare disease treatment. BioMarin Pharmaceutical Inc. , which has successfully developed and commercialized three drugs in niche disorders, has been one of our best performing portfolio companies with returns in excess of 130%.

It is thus only fitting that since Aegis Capital Corp. initiated coverage of Catalyst Pharmaceutical Partners Inc. (NASDAQ:CPRX) last Thursday, the stock is up more than 120% on heavy volume as greater attention has been given to Firdapse for the treatment of ultra-orphan disease Lambert-Eaton myasthenic syndrome (LEMS). Despite the recent run-up in the stock price, Catalyst continues to offer a compelling value proposition given its deeply discounted enterprise value of roughly $20 million and its lead drug in Phase III development.

Catalyst Deserves The Attention

Little attention was paid to the announcement in October 2012 when Catalyst in-licensed Firdapse, a small molecule drug, from BioMarin Pharmaceuticals. Investors, instead, remained focused on last year's failure of CPP-109 (vigabatrin) in a Phase II study for the treatment of stimulant addiction. Catalyst's new strategic approach, however, to restart around this new lead compound deserves the recent attention.

Firdapse is a small molecule aminopyridine agent that acts by blocking potassium channels to increase neurotransmitter release at the neuromuscular junction similar to Acorda Therapeutic's (NASDAQ:ACOR) Ampyra, which recent announced positive Phase II data, and BioMarin's Kuvan, which recorded sales of $143 million in 2012. Firdapse has received orphan designation by the FDA and is approved for marketing in the European Union (EU) for the treatment of LEMS, a rare autoimmune disease afflicting approximately 4,000 individuals in the US. Based on the small LEMS population, Firdapse, thus, presents Catalyst with an ideal opportunity to use as a platform for successfully developing its first drug in the US and forward-integrating in the US market by building commercial infrastructure with a small, targeted sales force.

Risk-Mitigated Investment Opportunity

When Catalyst in-licensed Firdapse from BioMarin it brought in a late-stage asset targeting an attractive and addressable market at an economically viable cost. In conjunction with out-licensing the North American rights to Firdapse to Catalyst, BioMarin made an investment of $5 million towards development expenses associated with Firdapse and currently owns 16.1% of the outstanding shares of Catalyst.

Firdapse represents a risk-mitigated investment opportunity because it has a validated mechanism of action, is approved to treat LEMS in Europe, and has shown clinical efficacy in the LEMS indication previously. Additionally, Catalyst need only conduct one Phase III study in order to file for approval for Firdapse in the US. With patient enrollment set to be complete sometime this summer, the Phase III study, which was designed by BioMarin and is the subject of a Special Protocol Assessment (SPA) with the FDA, would be set to roll out top-line data by the first half of 2014, file an NDA by the beginning of 2015, and given Firdapse's ultra-orphan status, set a PDUFA date six-months later for the beginning of 2016.

Though BioMarin out-licensed the North American rights to Catalyst based on the fact that Firdapse was not considered a core asset to BioMarin's principal enzyme-focused marketing and product development strategy, it is likely that with positive top-line data from Firdapse's Phase III study, an event that is less than 12 months away, the chances BioMarin could decide to instead buy Catalyst and its promising pipeline become ever more realistic.

Especially exciting for Catalyst is its promising second pipeline candidate, CPP-115, which is considered to be a "pipeline within a pill". Having come out of the laboratory of Dr. Richard B. Silverman, who is well-known for discovering both Pfizer (NYSE:PFE) blockbuster drugs Neurontin (gabapentin) and Lyrica (pregabalin), CPP-115 has potential applicability across multiple movement disorders due to its improved safety profile and greater potency to approved agent vigabatrin.

With enough money through Phase III top-line results, attention should be paid to the catalysts for Catalyst - Firdapse and CPP-115 - as the wheels are already in motion.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.