For under-the-radar companies, it's important to make sure any positive news finds its way to the eyes or ears of investors. The first quarter of 2021 is evidence of that for one small player dedicated to treating rare diseases in the pharmaceutical market. Catalyst Pharmaceuticals (NASDAQ:CPRX) recently announced strong year-end results and followed that up with an announcement related to a stock repurchase program in March, which, when combined, should get that desired attention from investors.

A foil packet of medication on a paper with an FDA stamp of approval.

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More than five years after securing the marketing rights for the drug Firdapse to treat adults suffering from Lambert-Eaton myasthenic syndrome (LEMS) -- a rare disease that impacts the signals sent between nerves and muscles, resulting in muscle weakness -- Catalyst submitted a new drug application and received approval from the U.S. Food and Drug Administration (FDA) in 2018. By 2020, the company started seeing incremental improvements in revenue as well as earnings.

In its fourth-quarter earnings call for 2020, the company reported full-year revenue growth of 16% year over year, reaching $119.1 million. Q4 revenue was 3% growth above the prior-year quarter. Stable expenses led to net income and profit margin each up 38% for the quarter and 137% net income for the year. With a full bank account of $140.3 million in cash and no funded debt to end the year, the company announced a stock repurchase program for up to $40 million in late March.

Building on momentum

As some companies look to rebound in 2021 after a challenging 2020, Catalyst is moving forward with plans to build on its momentum. Its primary strategy is based on expansion. The company plans to expand its U.S. commercialization of Firdapse, seek marketing authorization in Japan, and further expand its product portfolio. With cash on hand, it's ready to build greater value in the near and long-term outlook of the company.

One way it plans to expand the product portfolio is to acquire or in-license technology platforms and earlier-stage programs, while expanding the therapeutic categories it focuses on. But with new technology and new markets on the horizon, it will also require expertise in those areas. The company has initiated a national hiring search for a new executive team member with vast experience in innovative drug technology, who will be responsible for the direction of clinical research and development. 

Not without obstacles

Whoever the company brings in, they will not be coming into a company free of challenges. In 2019, the FDA approved a similar drug, Ruzurgi, for Jacobus Pharmaceuticals. Although Ruzurgi is labeled for use by patients between 6 and 17 years old, as opposed to adults, it has opened a pathway for adults with LEMS to obtain the drug off-label. This means adults can get it from a source other than Catalyst for an unapproved indication or unapproved age group.

There has also been debate regarding Catalyst's price tag for Firdapse as, prior to FDA approval, it was offered for free under the FDA's compassionate use program. Today, the price tag on Firdapse is about $23,000 for a supply of 120 (10 mg). Firdapse is recommended with a starting dosage of 15 mg to 30 mg daily, and clinical studies show that the average daily dosage for a patient is 60 mg, with a range of 30 mg to 80 mg, or three to eight tablets per day. When we calculate that out for a full year, an average patient is purchasing 18 orders that cover 20 days each, for a total of $400,000. By comparison, it was once free under the compassionate use program, which led Bernie Sanders to write a letter to Catalyst in 2019, asking the company to lay out the financial and non-financial factors that led it to set the list price at $375,000.    

In response to the competitor products infringing on the exclusivity that Catalyst believes it is entitled to, the company has made appeals to the rulings as set forth by the U.S. District Court. These rulings have allowed for Ruzurgi to remain available as intended for patients between the ages of six and sixteen. The downside for investors in Catalyst is that they may not see results from those appeals for months. And if appeals are not successful, it may lead to additional setbacks.

Catalyst is also facing the challenge of a potential first-quarter decline in earnings of 11% -- on an estimated increase in revenue of 10.3% -- as recently suggested by analysts. But it is worth noting that the results for each of the past four quarters have all beaten consensus estimates. The most recent being the fourth quarter of 2020, which called for $0.09 estimated EPS vs $0.11 reported, resulting in a 22% surprise.

When the road clears

Facing pricing and distribution challenges is practically inevitable for growing pharma companies, but I think that Catalyst's future still looks promising on the whole. The LEMS drug market is expected to grow at a compound annual growth rate (CAGR) of 6.7% through 2027, and analysts estimate that Firdapse can bring in as much as $325 million in annual revenue by 2025. After realizing total annual revenue of $119 million in 2020, that leaves over $200 million -- a potential increase of 173% in annual revenue by 2025 -- for Catalyst to capture.

With a current stock price sitting around $4.70 -- a P/E ratio of only 6.62 -- and analysts' 12-month price targets averaging $6 -- a high of $8 -- it gives reason to believe there is a bit more room to run during 2021 and possibly beyond. Even if the company does experience a potential setback during the first quarter, the potential of Catalyst, due to its position in the market, strategic plans, and the size of its market opportunity, is there to make investors some money.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.