Why PTC Therapeutics Stock Is Crashing Today

By George Budwell Markets Fool.com

What happened

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Shares of the rare-disease drugmakerPTC Therapeutics (NASDAQ: PTCT) are getting pummeled today on the news that it scooped upMarathon Pharmaceuticals'politically divisive Duchenne muscular dystrophy (DMD) drugEmflaza, in a deal valued at $140 million in upfront payments, plus royalties on annual sales. PTC's stock was down by over 17% as of 2:15 p.m. EDT.

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So what

Marathon drew a wave of criticism for pricingEmflaza at a whopping $89,000 per year following its Food and Drug Administration (FDA) approval for treating DMD last month. The reason being is thatEmflaza is nothing more than thegeneric steroid deflazacort, which costs around $1,200 a year outside of the United States.

Unfortunately for PTC and its shareholders, this pricing controversy isn't exactly fading into the background. Multiple lawmakers, after all, are now calling the drug's price into question and even the necessity of an FDA approval.

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Now what

Point blank: PTC may have just got duped by Marathon. The ongoing political storm will almost certainly force PTC into slashing Emflaza's price tag sometime soon, perhaps by unprecedented levels for a newly approved prescription medicine. And the fact of the matter is that the drug is readily available online at a fraction of the cost -- although this route may not be a viable solution for many patients due to the potential legal ramifications.

In all, this double-digit sell-off is probably warranted in light ofEmflaza's uncertain commercial potential, as well as the fact that PTC appears to have grossly overpaid to gain access to this controversial drug. That's why investors may want to take a step back from this specialty drugmaker today, and simply wait for the smoke to clear before deciding whether or not this pullback represents a compelling buying opportunity.

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George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.