Why Catalyst Pharmaceuticals gets crushed today – The Motley Fool

What happened

Actions of Catalyst Pharmaceuticals (NASDAQ: CPRX) are in disarray this morning after the announcement that the Food and Drug Administration (FDA) has surprisingly approved Jacobus PharmaThe Lambert-Eaton Myasthenic Syndrome (LEMS) drug, Ruzurgi, for patients aged six to 17 years old.

Although Firdapse FDA-approved Catalyst is indicated in adult patients with SMET, doctors are free to prescribe Ruzurgi to drugs that do not comply with label guidelines, for patients of any age. At 10:34 am Eastern Standard Time, Catalyst shares were down 37%, four times higher than the average daily volume, as a result of this unexpected development.

So what

With an annual Firdapse price of $ 375,000 per patient, and in the absence of competition, Catalyst was poised to reap the benefits of its first major FDA approval. In fact, the pharmacist's shares had already risen earlier this year after Firdapse's initial scripts were well above expectations, thanks to the weak resistance of third-party payers in most of the United States.

This new rival could however upset the basket of apples. Jacobus is likely to cost his LEMS drug at a fraction of Firdapse. Although Catalyst can argue to insurance companies that only Firdapse is FDA approved for adults, payers are almost certain to use Ruzurgi as leverage in future negotiations.

Now what

Is this sale justified? Yes. The heart of the problem is that Firdapse's premium pricing structure is now seriously under threat. Insurance companies do not usually reimburse drugs for untagged use, but the price of Ruzurgi should be more reasonable than Firdapse's.

Fortunately, Catalyst is about to release its first quarter results on Monday, May 13th. This next report on the results should give the company a user-friendly platform for telling its version of the story. Until then, investors may want to support this small-cap biotech.