Catalyst Pharmaceuticals (NASDAQ:CPRX) and Novavax (NASDAQ:NVAX) have both had an absolutely terrible May so far. Each company has shed a significant chunk of its value in just the first two weeks of the month.

Beaten-down biopharma stocks, though, can recover in the blink of an eye. Should bargain hunters flock to these two names with the hope of a quick recovery? Let's examine what's driving their stories to find out.

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Catalyst: The FDA's unwelcome surprise

Catalyst, a small-cap orphan drugmaker, had been one of the hottest biotech stocks in the entire market earlier this year. The reason was that Firdapse, the company's FDA-approved treatment for Lambert-Eaton myasthenic syndrome (LEMS), quickly cornered the market following its launch. Based on the drug's impressive early start, it was on track to eventually rack up annual sales of several hundred million at peak. That's a really big deal for a company with a market cap of less than $400 million. 

However, Catalyst's decision to price Firdapse at $375,000 per year also caused a political firestorm. That pricing looked particularly outrageous because Jacobus Pharma had for decades offered a highly similar drug, Ruzurgi, for free off-label to most patients under the FDA's compassionate use program. And other patients were able to get the chemical (also known as 3,4-DAP) at compounding pharmacies for at most $6,000 a year. The public outrage and political blow back over Firdapse's cost ultimately culminated with the FDA's approval of Ruzurgi for pediatric LEMS patients earlier this month -- an event that caused Catalyst's shares to lose over half their value in just two days.  

Can Catalyst adapt and overcome? The good news is that the company does have some options to protect Firdapse's competitive position. In brief, the biotech could argue in court that Ruzurgi's approval infringes upon Firdapse's orphan drug exclusivity in LEMS. It's far from certain that it would prevail in such a case, but there's at least a chance that Catalyst can blunt the impact of this surprise move by the FDA.   

Should investors bet on a positive outcome? This is, quite frankly, uncharted territory. So, despite Catalyst's enormous potential to profit if this headwind dissipates, this beaten-down biotech stock is probably best viewed as a watchlist candidate right now. 

Novavax: Is the storm over? 

Novavax's shares have been getting pummeled this month for three interrelated reasons:

  • The biotech's respiratory syncytial virus vaccine candidate, ResVax, recently failed in a late-stage clinical trial. That miss, announced in late February, caused its shares to sink to under $1 a share.
  • As a result, Novavax had to enact a reverse stock split of its common stock at a ratio of 1-for-20 earlier this month to remain listed on the Nasdaq. 
  • Novavax doesn't appear to have the capital necessary to fully fund the development of its experimental flu vaccine, NanoFlu. Therefore, the biotech may have to raise capital from a position of weakness.  

These three issues clearly gave short-sellers plenty of ammunition to work with over the past few weeks. On a positive note, however, the company did put at least some of its biggest headaches in the rear view mirror with its reverse split. So can Novavax now start to mount a recovery? 

One reason for optimism is that ResVax did show some signs of efficacy in its latest maternal immunization study, which is a rare occurrence for a preventative RSV treatment. So, there's an off chance that regulators may look past its disappointing top-line results. Secondly, Novavax is also pursing an accelerated approval pathway for NanoFlu. That's a big plus that could lead the company to a faster-than-expected recovery. 

Even so, Novavax remains a long shot at this stage. The odds are against a ResVax approval in any high-value market like the U.S., and NanoFlu isn't exactly a slam dunk, either. Bargain hunters, therefore, might want to cross this name off their list for now.