MSMM believes Catalyst Pharmaceuticals (Nasdaq: CPRX $2.88) is a good swing-move for the remainder of November of 2018. The company has a PDUFA action date on November 28th for its lead product candidate Firdapse. If approved, it will be the first commercial treatment in the U.S for Lambert-Eaton Myasthenic Syndrome (LEMS). On top of regulatory perks associated with orphan drug designation and breakthrough therapy designation CPRX has been granted priority review by the FDA. This means it is not far fetched to think the FDA’s decision could be handed down sooner than the 28th. If that was the case and the FDA green-lighted a commercial launch shareholders would be in for a pleasant surprise. Although, on the flip side, if FDA issued a CRL then the stock would take a hit undoubtedly.
While we think Firdapse approval is likely based on extensive clinical data supporting the drugs efficacy and safety and the fact it’s been administered in a compassionate care capacity for decades, we recommend exercising caution. For instance, if the stock gains 20-30% in the next few weeks we will be taking profits and moving on to the next move. Our philosophy is it’s not a profitable long-term strategy to hold positions through binary events like PDUFA dates. Even when drugs are approved biotech stocks generally sell off within a few days. If you are skeptical just look where ADMP, VSTM, and ACRX are trading compared to price target speculations prior to drug approvals.
CPRX specializes in developing treatments for rare diseases meaning the prevalences are extremely low. At the same time there are none to few treatment options available. Approximately 1 in 100,000 people have LEMS, yet the true number is hard to quantify and is probably higher because of diagnosis difficulties. The full estimated $300-900 million market value for Firdapse assumes CPRX will successfully expand the label to include additional indications. Namely Congenital Myasthenic Syndromes (CMS) and MuSK-Myasthenia Gravis (MuSK-MG) both of which are in phase 3 of development.
Realistically it’ll be a year or two before either CMS or MuSK-MG indications are approved. In the meantime the company has considerable financial obligation related to Firdapse commercialization. In accordance with a license agreement with Biomarin Pharmaceuticals CPRX will pay them 7% of sales up to $100 million and 10% of sales over $100 million annually for seven years. They also must pay royalties to a third party licensor per the agreement at rate of 7% of annual net-sales. Additionally, CPRX agreed to pay this third party $3 million after unconditional FDA approval of Firdapse on top of the $150,000 paid after NDA acceptance. There are two very real potential litigation threats that could manifest as well between CPRX and Huxley stockholders and CPRX and Northwestern University. The point of this is that profitability is still a ways off, but certainly achievable. From our perspective the best move is capture a 20-30% return on investment in the coming weeks.
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