Even though Forward Pharma only has a single drug in the pipeline and none on the market, it doesn't present the same kinds of risks as your typical pharma IPOIn most cases, pharmaceutical companies without any drugs on the market are the very definition of a risky investment; it's entirely possible that the company will fizzle out without generating any revenue. So when Seth Klarman's Baupost Group, known for defending principal and making deep value investments, takes an 11.7% stake in Forward Pharma NASDAQGS:FWP you know that there must be more to the story for more behind Baupost’s pharma investing see Klarman’s Q2 letter here. As it turns out, Forward Pharma, with the potential blockbuster FP187, prevents a completely different kind of risk than your typical pharma IPO. Sign up for our free daily newsletter. Baupost Group Forward Pharma's potential blockbuster is nearly the same as Biogen's Tecfidera Just to be clear, investing in Forward Pharma NASDAQGS:FWP is a pure bet on FP187, a drug that is meant to treat psoriasis and multiple sclerosis. "We have invested almost all of our efforts and financial resources in the development of FP187. As a result, our business and future success is almost entirely dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize FP187, which has completed Phase 1 testing in healthy volunteers for release characteristics and tolerability, as well as a Phase 2 trial in moderate to severe psoriasis patients, and is being prepared for Phase 3 trials for RRMS and psoriasis," the company wrote in its prospectus. The reason investors have some certainty that the drug will make through clinical trials is that almost exactly the same drug, Biogen Idec Inc.'s ( BIIB) Tecfidera, is already a big hit. Tecfidera, which went on the market in 2013, uses a compound called dimethyl fumarate as its active ingredient, the same ingredient as Forward Pharma's NASDAQGS:FWP FP187, and Biogen has filed for patents to protect its product. As you would expect, they're also disputing Forward Pharma's patent applications in the EU. "Both of our European patents have been opposed by third parties before the EPO. Multiple parties, including Biogen, are opposing before the EPO our patents EP2316430 and EP2379063. The EPO may determine that one or more, possibly all, of our claims are invalid and/or may require us to narrow the scope of the claims to avoid a finding of invalidity. Narrowing the scope of the claims may result in FP187 being outside the scope of such claims," the company writes.