Catalyst Pharmaceuticals: A Potential Double In 2020

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Summary

General Background

Founded in 2002, Catalyst Pharmaceuticals (CPRX) specializes in obtaining treatments for rare diseases, many of which have no FDA-approved treatment options. Much of this article focuses on the current status of the company, with particular emphasis on the many catalysts for this upcoming year. There are also many references to important statements made by management during the November, 13, 2019 conference call. Overall, with the stock trading at $4.50-4.75 and with the company projected to become profitable this year, Catalyst is likely a great value play. Cantor Fitzgerald has a price target of $10-12 and SunTrust Banks have a price target of $11.

2019 Firdapse Launch and Financials

Firdapse (amifampridine), approved in November 2018, was Catalyst’s first FDA-approved product in the United States for adults with Lambert-Eaton myasthenic syndrome (LEMS). There are an estimated 3,000 people with LEMS in the US. To have a successful launch of Firdapse in 2019, Catalyst had to transition hundreds of patients from its FDA study to insurance-covered patients. According to Catalyst during its November 13, 2019 conference call, the “average co-pay across all patients in September stood at $1.66 per month,” which equates to less than $20 per year.

Catalyst earned $12 million in 1Q, $29 million in 2Q, $31 million in 3Q, and it is estimated that Q4 should be around $33 million. As such, the company will be earning over $100 million in 2019, making it a profitable company. According to an Oppenheimer analyst, Catalyst should report earnings of $1.04 per share for 2019.

At the current price of $4.50 with 103 million shares outstanding, Catalyst has a market cap of approximately $463 million. With the projected $100 million+ in earnings for 2019, it has a price/earnings (P/E) ratio of 4.6. By comparison, many biotech companies have P/E ratios over 15, which means Catalyst stock price is low by comparison.

Firdapse Sales for LEMS in 2020

Some controversy arose earlier this year when the FDA approved Jacobus Pharmaceutical’s drug, Ruzurgi (amifampridine), for pediatric patients. Jacobus used Ruzurgi during its “compassionate use study” for LEMS. Compassionate use programs assist patients in obtaining investigational drugs that are not FDA-approved. The market became concerned that approval of Ruzurgi could potentially hurt Catalyst sales in the event physicians write off label prescriptions for adults, and the stock price declined sharply. Catalyst filed suit against the FDA because the company was promised orphan drug status with 7 years' exclusivity.

During the November 13, 2019, Catalyst conference call, management stated that there was a small group of patients that switched to Ruzurgi. However, virtually all of those patients had a prior relationship with Jacobus during its compassionate use study.

Despite the Ruzurgi approval, Catalyst's earnings thus far are only slightly less than what was originally forecasted for 2019. Management has publicly stated that Catalyst worked with hundreds of LEMS patients during the trials, so it developed a relationship with those patients, and the company is actively involved in the LEMS community. Catalyst has also publicly stated that it now contributes to 4 LEMS charitable foundations.

During the November 13, 2019 conference call, Catalyst stated that it did a 280-patient survey of its patients on Firdapse, and the patients gave a 4.8 out of 5 approval rating. The company also stated that 95% of its LEMS patients get insurance approval within 7-14 days. One can reasonably surmise that patients switching to Ruzurgi is not a formidable threat to Catalyst. The market’s concerns about Ruzurgi’s approval most likely was overblown. A new, in-development version of Firdapse, discussed below, may even give them less reason to worry.

Improved Version of Firdapse for LEMS

As part of Catalyst’s services to its patients on Firdapse, it has been working on an improved version. During the company's November 13, 2019 conference call, it stated: “Patients have requested a long acting version of Firdapse in order to eliminate the need to plan their daily activities around multiple doses of Firdapse. We are now actively developing this new product and will provide updates in the future when the product characteristics have been finalized. At this stage of the development program, candidate formulations are being developed and their drug release properties are being studied in order to optimize the long acting symptomatic treatment of LEMS.” Catalyst clearly has a very close relationship with its patients. More importantly, once the company completes this improved version of Firdapse, it should have an even greater advantage over Jacobus.

2020 Plan for Increasing Firdapse Sales in the US for LEMS

Again from the November 13, 2019 conference call, Catalyst is looking to expand its LEMS patient base in the US. The company is expected to hire 10 regional account managers in addition to 7-10 inside contract sales representatives. These new sales representative “will be targeting the roughly 9,000 neurology and neuromuscular healthcare providers that might be treating an adult LEMS patient that could benefit from Firdapse.” To further expedite the diagnosis of LEMS and offer Firdapse as a treatment option, Catalyst is now offering “a new free LEMS antibody testing program for patients suspected to have LEMS.” These free antibody test kits are being forward to neurologists and neuromuscular healthcare providers in the US. This business strategy should significantly increase its patient base.

2020 Plan for Global Sales of Firdapse for LEMS

CANADA - Catalyst announced during its November 13, 2019 conference call that its strategic priority is to “expand their commercial footprint globally.” The company went on to say that it has already filed its New Drug Submission (NDS) with Canada and has been granted a priority review. A priority review means its application should be reviewed within 6 months. The company also stated during its conference call that its commercial plan for Canada will be either to “partner with a Canadian firm or launch with an effective and efficient Catalyst team.” Based on the aforesaid, Catalyst may have approval to start selling Firdapse in Canada in 2Q 2020.

JAPAN - Catalyst announced during its November 13, 2019 conference call that it has “met with the Japanese regulatory authorities including the Ministry of Health, Labor and Welfare, as well as the Pharmaceuticals and Medical Device Agency to discuss existing data and understand was additional data may be required to submit a new drug application for Firdapse in Japan.” The company went on to say that, “We've also recently applied for orphan drug designation, which if granted, would give us a nine-month priority review, 10 years of market exclusivity against generics and certain tax credits. We anticipate meeting with the PMDA in the first quarter of next year to hopefully finalize a plan to register Firdapse in Japan.” Furthermore, it stated, “we've been conducting market research there and as the second largest economy in the free world, we believe that Japan can be very strategic for us and offers a very promising opportunity to expand our global footprint.”

Additional Territories - The cinoabt also announced on May 30, 2019 that in addition to Japan, “upon the achievement of a certain milestone in Japan, Catalyst will have the option to expand the territory further to include most of Asian and Central and South America.”

Based on the aforesaid, Catalyst is aggressively looking to expand its global sales for LEMS.

CMS Phase 3 Study

On October 30, 2019, the company announced that its Phase 3 study for Congenital Myasthenic Syndrome (CMS) did not meet its primary endpoint.

Firdapse (amifampridine) has actually been used to treat CMS for many years, so, needless to say, not meeting top line results was a surprise. What is unusual about CMS is that there are many different sub-categories. Amifampridine was effective in treating some of the sub-categories but not all, so the Phase 3 study attempted to limit the sub-categories the best it could. Information on the CMS sub-categories can be found here.

During the November 13, 2019 conference call, Catalyst stated that there are over 50 different possible genetic defect categories in CMS. “This wide range of genetic defects produces a broad spectrum of clinical presentations of the disease and variations in response to therapy.” The company also went on to say that many of the CMS patients were children, so there understandably was concern among parents about being in a clinical study.

Despite the outcome, the company is continuing to review the data, and it is scheduled to meet with the FDA by the end of the year to discuss the results. Catalyst also said during the aforementioned conference call that “we remain encouraged by the response of some individual patients to treatment.” Given the lack of treatment options for CMS, the fact that some patients clearly showed therapeutic benefit, and the fact that Catalyst is holding off on releasing the data from the CMS study, there may be a chance that the FDA still approves Firdapse for particular sub-categories of CMS.

PHASE 3 results of Firdapse for MuSK-MG

Without a doubt, another big milestone for Catalyst will be the Phase 3 results of Firdapse for MuSK-positive myasthenia gravis (MuSK-MG) expected to be released 1H2020. Firdapse (amifampridine) has been prescribed for MuSK-MG for many years despite no FDA studies being performed until now. Catalyst also has orphan drug exclusivity for MuSK-MG.

The phase 2 results of the study were overwhelmingly favorable. The report detailing those results stated: “A total of 20 patients were originally planned to be enrolled for this study between February 2016 and June 2017, but the recruitment was halted after 10 patients because there was a clear beneficial effect on muscle strength and fatigability due to one of the two treatments.” It further stated, “Despite the small number of patients, the trial reported significantly positive results as both the primary and secondary endpoints were met. This was particularly relevant from a clinical standpoint considering that all recruited patients were affected with bulbar symptoms. Overall, the side effects were minimal and there were no study withdrawals because of AEs.”

During the November 13, 2019 conference call, management also explained how MuSK-MG is much more similar to LEMS than CMS. Management specifically stated, “As described previously, the CMS trial had a lot of variability due to many genetic defects involved resulting in a very heterogeneous patient population and variation in response to treatment. However, MuSK-MG like LEMS is caused by a single antibody to a single protein in the neuromuscular junction resulting in a more homogeneous patient population which should exhibit consistency in response to treatment between patients, sites and across multiple trials.” Based on Catalyst’s representation and the very favorable Phase 2 data, it appears as though there is a very good chance the Phase 3 data meets its primary endpoints.

If MuSK-MG meets its primary endpoints, Catalyst will already have an established sales force in the US with additional sales territories potentially opening in Canada, Japan and others.

Proof of Concept Study for Spinal Muscular Atrophy (SMA), Type 3

Catalyst is also performing a proof of concept study for Spinal Muscular Atrophy (SMA) in Italy and Eastern Europe. Management stated during their November 13, 2019 conference call that it is evaluating the safety, tolerability and potential efficacy of amifampridine and ambulatory patients diagnosed with SMA Type 3. These results are expected 1H 2020.

Additional Pipeline Products

Catalyst also stated during its November 13 conference call that “we have begun the process for assessing and evaluating external drug development programs that are late-stage as well as potential drug acquisitions that we believe may have a clear path to value creation through their impact on unmet medical needs for patients suffering from rare debilitating disease.” Based on that statement, the company may be further expanding its pipeline.

Is There A Potential For Stock Dilution?

A concern for many investors for small-cap stocks is whether there is a risk of stock dilution with an equity offering. According to Catalyst, during its November 13, 2019 conference call, “as we reported yesterday, we ended the third quarter with approximately $81.6 million in cash and investments and no funded debt. Our cash continues to build quarterly and near-term we see no need for a sale of our common stock. Further, we believe that if we have access to alternative forms of nondilutive financing such as a term loan from conventional bank lenders in the event that we source a promising acquisition or product opportunity.” Based on Catalyst’s representation, its current cash position, the fact that its cash position continues to build quarterly, and the company's access to financing, it is highly unlikely there will be stock dilution.

Catalyst's lawsuit with the FDA

A potential risk for investing in Catalyst is if the company loses its lawsuit against the FDA for approving Ruzurgi. A loss clearly wouldn't be to Catalyst’s benefit. However, objectively, what would the actual impact be? Ruzurgi would still only be approved for pediatric patients, so physicians would need to write off-label for adults. Patients would also still need to get approval from their insurance company for off-label approval.

As stated above, Catalyst is very active in the LEMS community and has a close relationship with its patients. Most of the company’s patients are already covered by insurance with only an average $20 co-pay. To date, only a very small amount of patients have switched to Ruzurgi, and those are primarily patients that had a prior relationship with Jacobus. Ruzurgi’s formula requires refrigeration whereas Catalyst’s does not. Most importantly, Catalyst is actively working on an improved Firdapse formula to provide an improved therapeutic benefit. It would be great for Catalyst to win the FDA lawsuit, however, even with the Ruzurgi approval, clearly most patients still prefer Firdapse.

Forecasted Sales

Catalyst provided revenue guidance of $135-$155 million for 2020 but further stated, “as we continue to gain more experience next year, we’ll look to tighten the range of forecast for 2020.” As stated above, the company should be generating over $100 million for sales of Firdapse for LEMS in 2019. Catalyst is currently generating over $30 million+ a quarter, so assuming its patient base remains the same, 2020 Firdapse sales for LEMS (without any increase or decrease in patients) should be $120 million. If the increased Firdapse sales force is successful with its distribution of the free LEMS antibody tests to neurologists, and the sales force can attract more patients, revenues should be significantly higher. If Firdapse gets approved in Canada (1H 2020), that approval could equate to another significant revenue stream in 2020. Depending on when the P3 results for MuSK-MG comes out, and assuming a successful study, the potential revenues from that product will most likely be Q4 2020. Assuming Japanese approval within the next 9 months, that revenue stream most likely would be realized in 2021. All in all, there is a lot of potential for Catalyst to significantly increase its revenue stream over the next year.

Summary of catalysts for the next 12 months

  1. Catalyst is increasing its sales force in the United States in addition to providing free LEMS antibody test kits to over 9,000 neurologists. This could potentially increase LEMS sales. With a 7-14 day turnaround for insurance approval, this could significantly increase sales in the United States.
  2. Within 6 months, Catalyst could have approval of Firdapse for LEMS in Canada. This opens up another huge market to increase sales.
  3. The company is working on getting approval to sell Firdapse for LEMS in Japan. This too opens up another huge market to increase sales.
  4. As publicly stated, Catalyst has the potential to sell Firdapse for LEMS for most of Asian and Central and South America. Again, these additional locations opens up great sales opportunities.
  5. The company is working on improving its version of Firdapse so it is a longer-acting and more stable formula to provide better therapeutic benefit.
  6. Phase 3 data for MuSK-MG is expected in 1H2020, which could potentially open up another huge market for Catalyst in the United States, and other countries thereafter.
  7. The Proof on Concept study for SMA 1H 2020 could provide another viable pipeline product for the company.
  8. Catalyst is meeting with the FDA before years end to discuss the Phase 3 results of Firdapse for specific sub-categories of CMS. Although the study did not meet its primary endpoints given the 50 broad sub-categories, according to Catalyst, Firdapse did provide therapeutic benefit to some of the sub-categories. Perhaps the company can make an argument that the FDA should approve Firdapse for those sub-categories where there was therapeutic benefit considering the lack of treatment options for CMS patients.
  9. Catalyst publicly announced it is considering a potential late-stage drug acquisition to expand its pipeline.
  10. It has filed a lawsuit against the FDA, but even if the company loses the lawsuit, the impact may be negligible.

Summary

Although Catalyst did have some controversy earlier this year, it had a successful launch of Firdapse in the United States, transitioning it into a profitable company. The company is aggressively working on increasing sales for LEMS in both the United States and globally. It is working on improving its Firdapse formula at the request of its patients to maintain its high approval rating and to ensure Firdapse remains the preferred treatment for LEMS. The company is also working on expanding its pipeline and may have additional products for sale in the near future. At the current price, I believe Catalyst is a strong buy and has a price target of $10 within the next 12 months. This price target is a conservative estimate compared to Cantor Fitzgerald's price target of $10-12 and SunTrust Banks' price target of $11.

Disclosure: I am/we are long CPRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.