Catalyst Pharmaceuticals (NASDAQ: CPRX) is having an incredibly rough day in the market today, giving up as much as 40% of its value early on after a competitor’s drug was approved.
The FDA approval was provided for Jacobus Pharmaceuticals’ Ruzurgi. The treatment has been indicated as an option for patients suffering with Lambert-Eaton myasthenic syndrome, also known as LEMS. The big news however is that the treatment has been indicated as an option for children, the first option on the market with this indication.
This is great news for the LEMS community, but not so good for CPRX investors. After all, the flagship treatment at Catalyst Pharmaceuticals is known as Firdapse, a drug that was approved for LEMS in adults in late 2018.
The big issue for Catalyst and its investors is the price war that’s likely to come of this. After all, the list price for Firdapse can be as high as $375,000, depending on dosing size. With no other options on the market, adults with LEMS had to either deal with this rare condition or pay more than the average price of a new house in the United States for treatment.
While Ruzurgi was approved for use in children, the truth of the matter is that if it can be used in children, it can be used in adults. So, this may offer patients and their healthcare professionals a workaround to the high price of Firdapse, leading to either the company having to lower its prices or face pain when it comes to sales.
Is The Market Overreacting Here?
An overreaction in the market would be nothing new. In fact, the market tends to move through a series overreactions both on the upside and downside. In my view, it’s clear that the 40% decline is a bit of an overreaction.
Sure, price competition will cause pain, but to erase 40% of value is a bit much. First and foremost, Ruzurgi is getting quite a bit of press about the fact that it is the first treatment to be approved for LEMS in children. While this is great news, the truth of the matter is that LEMS is incredibly rare in children, with only 11 affected children EVER being reported in literature.
Nonetheless, as mentioned above, treatments that can be used in children can generally be used in adults. Moreover, in clinical trials Ruzurgi was proven effective in adult patient populations. So, going off label and using Ruzurgi in adults wouldn’t be surprising.
What would be surprising would be if Ruzurgi’s pricing was meaningfully lower than that of Firdapse. Let’s not forget, Jacobus has not informed investors of what the price of Ruzurgi might be. Nonetheless, at the current price of Firdapse, there is definitely wiggle room for price competition while maintaining profit.
Sure, the CPRX decline is to be expected when competition hits the playing field. However, in this case, I believe that a decline of 15% or so would be more in line with the catalyst for the move. As a result, I’m expecting that once the company reports the initial results of its commercialization efforts, the stock will see a strong rally.
Investing in a stock that’s seeing declines is a scary idea. Nonetheless, with a market that tends to overreact and what I view as a clear overreaction here, CPRX may be highly undervalued as a result of today’s move. Let’s not forget, buying when fear is high is a strategy that has made millionaires.
Considering the fact that Ruzurgi pricing hasn’t been announced, a price that is near that of Firdapse would likely lead to a rally in Catalyst shares. Moreover, the company is expected to release first quarter revenue data, complete with initial commercialization results relatively soon. Should these results be positive, the stock could climb dramatically.
What Do You Think
Where do you think CPRX is headed moving forward? Join the discussion in the comments below!