For the past six months shareholders of Catalyst Pharmaceutical Partners' (NASDAQ:CPRX) have been unusually big winners with shares soaring almost 1,000% from $.37 to a new high of $3.65. Shares have been rising dramatically because Catalyst has successfully positioned into the exciting space of orphan drugs and is even being compared to high flying orphan drug developers like Aegerion Pharmaceuticals (AEGR) and Acadia Pharmaceuticals (NASDAQ:ACAD). See, "Strong Comps Indicate Catalyst Pharmaceutical Partners Outstanding Value Proposition."
On October 18th, Catalyst's rocket ride came to a temporary halt when a negative article published by "The Street" sent shares tumbling to $1.40. The article unfairly blasted Catalyst for being greedy, and alleged that their drug Firdapse was the same as, and no better than Jacobus Pharmaceuticals' version of Firdapse called 3,4 Dap. The article praised Jacobus as a Robin Hood because they were giving away their version of Catalysts' Firdapse for free but what the author failed to mention was that fact that Jacobus cannot legally charge for their drug. Since 3,4 Dap is not approved by the FDA it must be given away for free. In fact, there were several things not mentioned that tended to mislead the reader.
The article had a serious impact on Catalyst shares, but it also backfired on Jacobus by bringing to light the fact that they are manufacturing their drugs in an abandoned Nuclear Reactor Test Site and that they have been repeatedly cited by the FDA for #483 manufacturing safety violations. A closer look into the two companies reveals that Jacobus is only in a Phase II trial for 3, 4 Dap while Catalyst's Firdapse is in a final Phase III trial. It has also been revealed that 3, 4 Dap is not the same as Firdapse as it is Free Base and Firdapse is Phosphate salt. Firdapse has a stable shelf life and 3,4 Dap does not. The dose for 3,4 Dap is not known and the dose for Firdapse is known. And most significant, Firdapse is already approved and selling in Europe.
Seeing an opportunity to take advantage of the steep decline in Catalyst's share price, a number of law firms publicly announced they filed class action lawsuits and seek to find a lead plaintiff to step forward that feels they were damaged by Catalyst. These frivolous lawsuits are usually wasteful but if anyone should be sued for damages, the author admits responsibility in his recent blog "6 Charts Explain An Ugly October for Biotech Stocks" where he brags, "I probably had something to do with the Catalyst sell off." It's unlikely this matter will ever get to court, but if it does, it would not be surprising to see any and all claims against Catalyst dismissed. There have been comments on Catalyst's message board on Yahoo about unhappy shareholders commencing a lawsuit against the author.
Now that investors and traders have learned that Jacobus is not the savior nor the threat they were portrayed to be, the heavy selling has abated and trading volume has dried up to only a small fraction of the normal daily volume of 2.7 million shares. Four days ago, Jacobus was exposed in a surprising blog showing official government documents called 483's demonstrating large numbers of FDA violations by Jacobus. The expose' of Jacobus is spreading fast as another article appeared in Pharmalot today titled, "Calalyst Pharma Fights Greed Charges Over An Orphan Drug." Since Jacobus has had orphan designation of 3,4 Dap for over 20 years and still has no approval, one has to ask, "just how serious can they be?"
Now that both sides of the story are out and on the table, the stock plunge is over and traders are regrouping and rethinking as shares are putting in a bottom. Based on facts and not speculation, it's easy to understand why Catalyst shares have been soaring and why they will continue hitting new highs as soon as traders realize they have been mislead by a single article. Consider that insiders are buying and not selling. Consider that only recently the FDA designated Catalyst's orphan drug Firdapse a "Breakthrough Therapy" for the treatment of LEMS disease, Lambert Eaton Myasthenic Syndrome. Consider that Catalyst raised $15 million at $1.70 per share in September and is adequately financed to complete the current phase III Firdapse trial. Consider that only a few weeks ago, based on positive data, an independent Data Monitoring Committee recommended continuation of the phase III pivotal trial for Firdapse. And to repeat, Firdpase is already approved and commercially available in Europe and therefore has a very high probability of being approved in the United States where Catalyst owns the North American rights.
If that's not enough, even more reasons Catalyst is getting ready to fly again are; top line results from the Firdapse trial are expected as soon in H1 2014; results from a small study of CPP109 (CPP115) on Tourette's Syndrome are expected in the coming months; CPP 115 is a potential blockbuster drug for several indications including epilepsy, refractory epilepsy, infantile spasms, Tourette's Syndrome and movement disorders and was designed by the well-known Dr. Richard Silverman who also created the blockbusters Lyrica and Neurontin for Pfizer (NYSE:PFE). If results are positive, this could send shares flying to new highs. And finally, consider the persistent buyout rumors that BioMarin (NASDAQ:BMRN) who has already purchased 17% of Catalyst may make bid for the balance before the price gets too high. BioMarin has a reputation of buying companies like Catalyst when they are cheap and that can add valuable drugs to their pipeline like Firdapse and CPP115.
Like every small cap pharma company, Catalyst Pharmaceutical Partners has risk of failed clinical trials, risk of inability to raise adequate capital to remain an ongoing concern, risk that the market may not accept their drugs, risk of inadequate pricing, and risk that a major event in the stock market may have an adverse impact on shares.
Unlike many other small-cap pharma companies, Catalyst is close to multiple milestone achievements and is poised to resume flying to new highs soon. The recent selloff offers a second chance for those who missed the boat last summer and it won't take long for traders and investors to realize that this is the same high growth company that it was before "The Street" article appeared. The lawsuits are frivolous and without merit, and nothing has changed except the company continues to get closer to its milestone achievements.
I believe the current selloff represents a timely and excellent buying opportunity.
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.