What happened

Catalyst Pharmaceuticals (CPRX -1.37%), an orphan-drug specialist, saw its shares open up 10.2% higher on sky-high volume this morning. What event provided the spark?

Catalyst reported stronger-than-expected first-quarter earnings prior to the opening bell today. Although the company handily beat Wall Street's consensus estimates for both earnings per share and revenue for the three-month period, the company couldn't provide any clear answers regarding the sustainability of its growth trajectory. As a result, the drugmaker's shares have sharply reversed course since the opening bell, falling by a noteworthy 4.1%, as of 12:08 p.m EDT.   

A man in a suit drawing an upward trending curve with his index finger.

Image source: Getty Images.

So what

Strong quarterly numbers are always welcome news for investors. But Catalyst's shareholders are arguably far more concerned about the Food and Drug Administration's (FDA) surprise approval of Jacobus Pharma's Lambert-Eaton myasthenic syndrome (LEMS) drug, Ruzurgi, last week. This unexpected FDA approval is a major competitive threat to Catalyst's newly approved LEMS medication Firdapse, which could turn out be seriously bad news for the company.

After all, Firdapse's blistering commercial trajectory was the singular reason for the company's stellar first-quarter numbers. Catalyst's stock, in turn, could be in for some hard times if Firdapse starts to fade as a result of Ruzurgi's sudden entrance into the market.  

Now what

Given the unprecedented nature of this regulatory approval by the FDA, it's certainly understandable that Catalyst is taking some time to assess options. However, the market probably won't remain patient much longer. The company built its entire value proposition around Firdapse's success and that thesis is at risk of falling apart completely right now. Thus, it might be a good idea to watch this developing story from the safety of the sidelines for the time being.