Yesterday, Catalyst Pharmaceuticals (CPRX +3.47%) announced that its flagship drug, Firdapse (amifampridine phosphate), failed to meet the primary endpoint of a late-stage trial as a treatment for congenital myasthenic syndrome, a genetically based muscle disorder that can lead to a person having difficulty breathing. The drugmaker's stock, in turn, shed 13% of its value during Wednesday's trading session.
Should investors run for the hills in the wake of this clinical setback, or does yesterday's sell-off represent a compelling entry point for long-term-oriented investors? Let's break down the consequences of this late-stage failure in regards to Catalyst's long-term value proposition to find out.
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How big of a deal is this clinical setback?
Catalyst's original plan was to develop Firdapse for four rare neuromuscular disorders: Lambert-Eaton myasthenic syndrome, congenital myasthenic syndromes, MuSK-positive myasthenia gravis, and type 3 spinal muscular atrophy. The FDA approved the drug for use as a treatment for adults with Lambert-Eaton myasthenic syndrome in November 2018. The company was thus hoping to tack on a second indication with congenital myasthenic syndromes in early 2020, but that plan is obviously now kaput following this late-stage miss.
What's the financial impact of this clinical setback? Catalyst estimates that there are 1,000 to 1,500 individuals with congenital myasthenic syndromes in the United States. So, with Firdapse's average current list price of $375,000 per year, this indication was worth anywhere from $90 million to upwards of $200 million in annual sales at peak, depending on the drug's penetration rate. That's certainly not an insignificant commercial opportunity for a company with a market cap of $510 million. Hence, this double-digit drop in Catalyst's shares was indeed justified.
Can Catalyst rebound? Next year the company expects to unveil top-line data from Firdapse's pivotal MuSK-positive myasthenia trial. If this trial works out and the FDA subsequently approves a label expansion, EvaluatePharma thinks this indication could bring in $191 million in sales at its commercial peak. Unfortunately, in this space Catalyst would be up against the orphan drug king Alexion Pharmaceuticals, meaning Firdapse could have a particularly difficult time at capturing market share.
Catalyst, in turn, arguably needs to maximize Firdapse's commercial opportunity in Lambert-Eaton myasthenic syndrome in order to boost its share price in the near term. The elephant in the room, however, is that Catalyst has already admitted that it's starting to see some market share erosion stemming from the approval of Jacobus Pharma's rival medication Ruzurgi last May. Investors are slated to learn the magnitude of this competitive threat when Catalyst reports third-quarter earnings next month.
Should investors buy this dip?
With a significant commercial opportunity wiped off the table and the uncertainty over Ruzurgi's ultimate impact looming large, Catalyst's risk-to-reward ratio no longer appears to be nearly as compelling as it was only a few weeks ago. The company could still win the ongoing legal battle with the FDA over Ruzurgi's approval, but the bigger issue is that Catalyst no longer has a solid backup plan in the event things don't work out in court. As such, this small-cap biotech stock might have trouble mounting a comeback anytime soon. That means that only the most aggressive of investors should consider buying shares on this dip.
