What happened

In response to management announcing mixed third-quarter results and sharing tepid guidance, shares of Catalyst Pharmaceuticals (NASDAQ:CPRX), a commercial-stage biopharma focused on rare diseases, dropped 12% as of 11:03 a.m. EST on Wednesday.

So what

Here are some headline numbers from the quarter:

  • Product revenue from Firdapse -- the company's treatment for adults with Lambert-Eaton myasthenic syndrome (LEMS) -- was $30.9 million. That was behind the $34 million that Wall Street was expecting.
  • Net income was $13.6 million, or $0.13 per share. That was higher than the $0.11 consensus estimate in the analyst community.
  • The cash balance at quarter-end was $81.6 million.
Blue pills sitting on top of a pile of cash.

Image source: Getty Images.

Catalyst's CEO Patrick McEnany commented:

While the U.S. launch of Firdapse remains our primary focus, we have made significant progress on our other strategic priorities. These include our recent filing of a New Drug Submission (NDS) for Firdapse with Health Canada, for which we have been granted a Priority Review. In addition, we recently met with Japanese regulatory authorities about registration requirements to obtain approval of Firdapse for Japan. Our team has done an excellent job in executing our business plan this year, and we are on track to meet all of our goals and objectives for 2019 as we move into the new year.

Management also provided investors with revenue guidance for fiscal years 2019 and 2020.

For 2019, the company expects to generate about $100 million in total revenue. That's well below the $111 million that Wall Street was expecting. For 2020, management projects revenue to land between $135 million and $155 million. That's also short of the $166 million that analysts had modeled.

Given the weaker-than-expected revenue and guidance, it's no surprise to see the share price getting hit today.

Now what

There are positive and negative takeaways from this report.

The good news is that Catalyst is growing the top line and generating profits. That's rare given that Catalyst is still a small-cap pharmaceutical company. The balance sheet is in great shape, too.

The bad news is that management is doing a poor job of managing Wall Street's expectations. Part of the disappointing guidance could be a result of rising competition, which isn't great news for investors.

My view is that Catalyst is an intriguing business, but it's still very risky. My plan is to root for this company's success from the safety of the sidelines.