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TheStreet Open House

Catalyst Pharma: Orphan Drug Poseur, Profiteer

CORAL GABLES, Fla. ( TheStreet) -- Catalyst Pharmaceuticals Partners (CPRX) is considered an orphan drug stock because that's the story management spins. Dig deeper into Catalyst and you'll discover allegations of profiteering off a small group of vulnerable, sick patients and a ton of clinical and regulatory risk.

Investors have fallen in love with orphan drug stocks this year because the business model prints money. Aegerion Pharmaceuticals (AEGR), Alexion Pharmaceuticals (ALXN), NPS Pharmaceuticals (NPSP) and others develop drugs for serious and rare diseases afflicting small numbers of patients. In exchange for spending the time and money to develop drugs for diseases that might ordinarily be ignored, these companies get to charge sky-high prices -- $400,000 or more in some cases. Insurance companies generally pick up the tab without complaints because there are so few patients who need these expensive drugs.

There are a lot of great orphan drug companies. I mentioned some above. But there are also some companies who will take shortcuts or push the orphan drug formula too far. Catalyst fits into the latter category.

The company's lead drug candidate is Firdapse for the treatment of Lambert-Eaton Myasthenic Syndrome (LEMS) -- a rare, neuromuscular disease which causes progressive muscle weakness. Untreated, LEMS patients -- usually in their 40s or 50s -- lose mobility and suffer other complications which can lead to shortened life expectancy. About half of LEMS diagnoses are associated with small cell lung cancer, the rest from autoimmune disease.

There are only a few thousand LEMS patients in the U.S. so the disease qualifies for orphan status. Firdapse is already approved in Europe where it is marketed by Biomarin Pharmaceuticals (BMRN). Catalyst licensed Firdapse from Biomarin for the U.S. market. The drug is not FDA approved here, so Catalyst is conducting a phase III study in LEMS patients (Biomarin started the study, Catalyst took it over) with top-line results expected in the middle of 2014. If the Firdapse study is positive (high odds, see Europe), Catalyst plans to submit the drug for U.S. approval in 2015 and start selling it in 2016.

The company has not disclosed Firdapse pricing, but some analysts guesstimate a price tag exceeding $60,000 per year. Even with "moderate" orphan drug pricing, Firdapse could generate $200-500 million in peak sales, the company claims. This includes treating another 2,000 patients or so with rare diseases similar to LEMS.

This "We're an orphan drug company, too!" pitch that Catalyst makes to investors has been effective. The stock's performance this year is stellar: CPRX Chart CPRX data by YCharts

There is another, troubling side to the Catalyst story.

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