It's no secret that investors flock to biotech stocks for exposure to moonshot returns. For instance, if you invested in Catalyst Pharmaceuticals (CPRX -1.21%) around five years ago, you are sitting with a gain of about 239% compared to the market's total return of near 87%.

There's reason to believe the company just might do something similar over the next five years -- but you'll need to tolerate quite a lot of uncertainty along the way. Let's take a look at Catalyst's prospects ahead.

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A focus on drugs for rare diseases

Catalyst's objective is to develop drugs for rare diseases with the exception of rare cancers. That implies that the biotech will be targeting diseases where there are unlikely to be many (or even any) competitors with medicines on the market. Therefore, if it succeeds in commercializing a therapy, its returns will only be limited by the relatively small size of the market for that condition, which it would be able to penetrate well. 

Right now, it has one medicine that's approved for sale. Firdapse, which treats Lambert-Eaton myasthenic syndrome (LEMS), hit the market in early 2019. LEMS is a condition in which the immune system attacks the neuromuscular junctions where nerves and muscles connect, and it's often associated with cases of small cell lung cancer. Importantly, Firdapse was actually developed by BioMarin Pharmaceutical and licensed for sale by Catalyst, so the company doesn't necessarily have deep experience in drug development for LEMS. Still, the drug is predicted to bring Catalyst up to $205 million in sales this year, up by about 45% compared to 2021's $141 million.

Since the launch, Catalyst estimates that it has treated about 25% of the 3,000 people in the U.S. with LEMS annually. After concluding an ongoing phase 3 clinical trial, it'll commence with seeking Firdapse's approval in Japan, which should help to increase its global addressable market by a significant amount, driving more revenue growth in the process.

There's not much that's visible on the horizon

While it has a product on the market that is profitable and a balance sheet that is practically debt-free, Catalyst is still a risky biotech stock -- and it has very little to do with its financials. Its pipeline is quite sparse, featuring only two programs: an early stage trial investigating a longer-acting form of Firdapse and a late-stage trial which is testing whether Firdapse is safe and effective for children.

Both of those programs are quite conservative in their aims. Rather than attempting to make medicines to try to enter new rare disease markets, focusing so much on LEMS means that the success of its programs will add only incremental amounts of revenue. There are only an estimated 30 pediatric LEMS patients per year in the U.S.

It's entirely possible that the company will be able to secure years of profitable growth by expanding the approved indications and capabilities of Firdapse. But given how small a patient population the biotech is targeting, it's also possible that it'll fully penetrate the LEMS market and be at a loss for further room to grow. That would leave the business' future dependent on licensing additional drug products, finishing their development, and commercializing them. 

Waiting for the next move

Management recently said that potentially licensing or acquiring new pharmaceutical assets is a priority, so investors should expect such actions to broaden the company's scope and introduce more upside potential for investors. If its work with Firdapse is any indication, the company will look for opportunities that could yield revenue for years with a minimum of additional investment in research and development (R&D) before commercialization. 

The trouble is, investors won't have any warning before a new program is purchased or licensed, and the thinness of Catalyst's pipeline means it takes a large leap of faith to buy it. There's no telling how long it might be before the pipeline gets an addition, so it's hard to predict where the business will be in three years.

Nonetheless, shareholders can count on a combination of revenue from Firdapse sales and share buybacks in the meantime. Since March 2021, it has spent $14.6 million on buybacks, and more are likely on the way, especially if its shares remain at current levels.

If you have a high risk tolerance, this stock could be a good fit for you. As difficult as it may be to invest without a clear idea of what will drive growth in the long term, management has proven that it can successfully license and commercialize Firdapse, which could bode well for doing the same thing again with a different asset.