What happened

Shares of Catalyst Pharmaceuticals (CPRX -2.31%), a small-cap rare-disease specialist, fell by as much as 22% on nearly seven times the average daily volume today. What triggered this hefty sell-off?

Oddly enough, Catalyst's shares are sliding in response to a positive material event. Namely, the Food and Drug Administration reportedly green-lighted the company's Lambert-Eaton Myasthenic Syndrome (LEMS) drug candidate, Firdapse, for approval yesterday. 

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Catalyst obtained Firdapse's North American rights in 2012 from orphan-drug giant BioMarin (BMRN 0.38%). BioMarin currently manages the drug's European launch, where it has been on the market since 2009.   

So what

LEMS is a rare autoimmune disorder reportedly affecting one in every 300,000 people. The condition's main symptoms are severe muscle weakness in the limbs, stemming from the insufficient release of a key neurotransmitter (acetylcholine) at the point where the nerve meets the muscle.

Despite the rarity of LEMS in the general population, however, Wall Street expects the drug to generate peak sales of $375 million by 2025 -- thanks in no small part to its projected wholesale price of around $300,000 per patient per year. And that's just for its first approved indication.

If the drug's ongoing trials for other neuromuscular disorders like congenital myasthenic syndromes and MuSK antibody positive Myasthenia Gravis pan out, Wall Street thinks Firdapse's sales can surpass $490 million within the next six years. That would be quite a haul for a company that currently sports a market cap of only $288 million.  

Now what

So why is the market selling this encouraging news? Two reasons. First and foremost, Catalyst arguably needs to raise additional cash soon to support Firdapse's commercial launch and carry on with the drug's broader clinical development. The company, after all, ended the most recent quarter with a paltry $66.7 million in cash and cash equivalents. 

Next up, Catalyst is probably going to have to prove to investors that Firdapse really can generate hundreds in million in sales every year. BioMarin is no slouch when it comes to launching rare-disease products, yet Firdapse has only raked in about $15 million in revenue through the first nine months of the year over in the EU. That's not to say that Catalyst isn't facing a more favorable commercial landscape in the U.S., but investors will likely want to see a few quarters of sales before buying into these lofty projections.