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Will Catalyst Continue Rising And Become The Next Hot Orphan Drug Stock?

|About: Catalyst Pharmaceuticals, Inc. (CPRX), Includes: ACAD, BMRN, NVLNF, RPTP

Orphan drug stocks have been some of the best performers over the past year with companies like Acadia Pharmaceuticals (NASDAQ:ACAD) soaring from $1.36 to over $25.00 with a gain of over 1700%, Aegerion Pharmaceuticals (AEGR) rocketing from $13.50 to $97.00 for more than 500%, Raptor Pharmaceuticals (NASDAQ:RPTP) trading from $4.35 to almost $15.00 for 240%, and BioMarin (NASDAQ:BMRN) increasing from $36.28 to over $80.00 for more than 100%. Drugs with Orphan Status enjoy tremendous advantages over traditional drugs such as faster approval times, longer market exclusivity, tax advantages, patent advantages, smaller and less costly trials and perhaps most importantly, orphan drug pricing is very lucrative. Combined, these advantages add up to significantly faster growth and dramatically rising share prices.

Catalyst Pharmaceutical Partners (NASDAQ:CPRX) became a new player in the orphan drug space in October 2012 when they announced the company in-licensed the North American rights to Firdapse, an orphan drug used to treat Lambert Eaton Myasthenic Syndrome or LEMS. Catalyst licensed the rights from BioMarin that also purchased 17% of Catalyst's shares for an investment of $5 million. Unfortunately, the positive news about Firdapse and BioMarin's new stake in Catalyst was overshadowed by the company's announcement of the failure of the CPP109 phase II trial for cocaine addiction that sent shares tumbling from $1.50 all the way down to 37 cents.

Recognizing the value of Catalyst Pharmaceutical Partners and the fact that they are an orphan drug developer, an analyst from Aegis Capital initiated coverage on April 18th and provided a price target of $2.50. Since then, the price has been revised upward to $5. Within weeks of this analyst report, another claim that Catalyst was a new orphan drug developer was mentioned in "Catalyst Pharmaceuticals Successfully Repositions In Hot Orphan Drug Space". By this time, shares reversed and began advancing on big volume to over $1.00. During subsequent profit taking and consolidation, shares indicated solid underlying strength by holding firmly above $.80.

In addition to Firdapse, Catalyst is developing CPP115, another orphan drug that was mentioned in Seeking Alpha, "Catalyst's CPP115 May Be Big Pipeline In Just One Little Pill". This article told 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 Pfizer's blockbusters Lyrica and Neurontin. 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.

Catalyst's resurgence was explained in yet another article published on August 26th adding fuel for shares to trade as high as $2.63 on heavy volume of over 18 million shares. The article also explained why Catalyst might be the object of a takeover by orphan drug developer BioMarin Pharmaceutical . The very next day, the company issued a press release stating that after reviewing data on Firdapse, the FDA designated Firdapse as a "Breakthrough Therapy" meaning it will receive accelerated processing and special FDA focus.

There is strong evidence supporting the argument that Firdapse may be approved by the FDA late next year or in 2015. First, Firdapse has already been approved in the EU and is now selling in Europe. Second, the European Federation of Neurological Societies recommends Firdapseā„¢ as First-Line Treatment for LEMS. Third, there is a Data Monitoring Committee comprised of three independent physicians that 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 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 a "Breakthrough Therapy" instills even more confidence.

Firdapse has the potential to generate $400 million in revenues with only three indications of Lambert Eaton Myasthenic Syndrome, LEMS, Congenital Myasthenic Syndrome CMS, and Refractory Myasthenia Gravis. Combined, CPP115 and Firdapse future sales combined, have the potential to generate $2 billion in peak revenues.

Now that Catalyst just announced the closing of a $15 million dollar offering on September 10th, they have adequate cash to complete the Firdapse trial and to develop CPP115. All these factors help explain why Catalyst shares have advanced from $.37 to $2.99 on heavy trading in the last few months. The question now is, "Will Catalyst Continue Rising and Become The Next Hot Orphan Drug Stock?"

The answer may be coming in the next several months when Catalyst is expected to announce the results of several milestone events. In October, the Data Monitoring Committee is scheduled to review the latest data on Firdapse studies and make its recommendation to continue the trial, revise the trial, or suspend the trial. If they recommend continuing the study, this is a strong implication that they have seen not only safety, but efficacy as well. The Committee's positive decision last March tells that there were no safety issues and implies that results were good enough to continue the trial. There is little reason to expect anything but a repeat.

Catalyst expects to complete enrollment for the Phase III Firdapse trial by the end of this year insuring completion of trial results in the first half of 2014. Positive trial results followed by the filing of an NDA for Firdapse and then capped off with an FDA approval are likely to propel Catalyst shares to double digits. With about 50 million shares outstanding after the recent offering, Firdapse has the potential to generate close to $8 per share in revenues. Firdapse alone, could be a very big price driver.

Then there is CPP115 where results in a small trial of CPP109 for Tourette's syndrome are expected to be known in Q3 2013. If the results of the small trial for CPP109 used to treat Tourette's syndrome are positive, this could also spark another big move in Catalyst because the potential is so great for so many indications. CPP115 is the next generation of CPP109. It should also be noted that BioMarin is likely keeping a close eye on the CPP109 trial results expected very soon. If results are positive, BioMarin may want to make a bid for the remaining shares of Catalyst while shares are still relatively cheap. BioMarin has a strong history of buying Orphan Drug companies on the low side.

If CPP109 fails, it might provide an excellent buying opportunity to get positioned for Firdapse. If CPP109/CPP115 succeeds, shares will climb and buyout rumors may rocket shares to new highs. At projected peak sales for CPP115 of $1.6 billion, that would translate to about $32 per share in sales.

With significant news about Firdapse and CPP115 on the horizon, Catalyst is showing signs that it may be in the early stages of making a large advance and is trading in high enough volume and volatility to be attractive to both long and short traders. Catalyst appears to be an attractive investment because it has the potential for substantial percentage long-term gains.

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 it's 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 will be adversely impacted. "Orphan Drug Prices Under Siege in Austerity-Minded Europe" addresses some of the concerns about excessive orphan drug pricing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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. I have no business relationship with any company whose stock is mentioned in this article.