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What: Shares of Retrophin (NASDAQ:RTRX), a small-cap biopharmaceutical company focused primarily on treating rare diseases, were down by as much as 10% as of 11:00 a.m. EST Wednesday after news broke that there is could be new competition on the horizon for one of its key drugs. The shares have since bounced back.

So what: Compounding pharmaceutical company Imprimis Pharmaceuticals announced on Wednesday it will be offering a delayed release formulation that will compete directly with Retrophin's Thiola, a drug used to treat cystinuria. Imprimis's CEO said the the aim of the introduction is to give patients a lower cost therapeutic alternative. The formulations is expected to be available in April.

Imprimis' is able to bring this product to market quickly because it is a compounding pharmacy. Unlike drug manufactures that have to go through the FDA approval process when they want to introduce new drugs, compounding pharmacies bypass that step by customizing pre-approved drug compounds for individual patient use.

Imprimis Pharmaceuticals CEO Mark Baum stated "All we're doing is offering competition to those drugs that the FDA under oath has said publicly will not have generic competition."

Now what: Cystinuria is a chronic, rare disease that affects roughly 10,000 Americans and is chronic disease that causes patient's bodies to turn amino acid into stones primarily in the kidney, ureter, and bladder. Retrophin's Thiola helps to prevent the formation of the stones and around half the patients with the disease in the U.S. are currently candidates using the drug.

Thiola has an interesting history as it wasn't a home grown compound created by Retrophin. Instead it was acquired in 2014 while none other than Martin Shkreli was still in charge. After getting a hold of the drug Shkreli immediately raised the price of Thiola 2,000%, causing some patients with cystinuria to suddenly be facing therapy costs of up to $100,000 per year.

Shkreli's has since been throw out of the top seat at Retrophin and the company went so far as to sue him for $65 million, but it has not lowered the price of the Thiola at all.

It's unclear what kind of financial impact this move could have on Retrophin's financials if patients and providers do opt to use the compounded version of Thiola in 2016.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.