Aegerion Remains Attractive, but Biotech Looks Vulnerable Print E-mail
By Brian Wilson-Lead Contributor   
Monday, 07 October 2013 07:41
Despite some easing of the hyper-bullish sentiment in the currently bloated specialty pharmaceuticals sector, Aegerion Pharmaceuticals (NASDAQ: AEGR) looks ready to finally breach the psychological $100/share mark. Despite some concerns over the small number of patients with HoFH (Homozygous familial hypercholesterolemia), Aegerion’s drug Juxtapid (lomitapide) was able to achieve incredibly high reimbursement payment for the drug – at $295,000 per patient. This pricing creates the opportunity for Juxtapid to become a $1.5-2 BB drug after it reaches its peak sales in the United States and the European Union. 

Juxtapid is an inhibitor of the microsomal transfer protein (MTP) – a protein that is involved in the assembly of the lipoproteins that correlate directly with low-density lipoprotein (LDL) levels. Patients with HoFH have a genetic mutation that interferes with their natural ability to lower LDL in the body when necessary, which makes heavy reduction of LDL necessary for long-term patient survival.

Although the competing drug Kynamro is cheaper at $176,000 per patient, it has a comparable toxicity profile to Juxtapid and offers less efficacy as measured by raw LDL reduction. The severity of HoFH makes the pricing of the drugs less important, and the efficacy far more important.

So Aegerion basically has the luxury of commercializing the most efficacious drug in the indication, based on late-stage clinical trial data. The drug has already had a good start in the United States, and looks poised to continue in the EU and Japan under orphan designation.

The drug also received approval in the EU as of August 1st, 2013, and will be marketed under the name Lojuxta. This basically doubles the size of lomitapide’s market, and sends the company into a bigger launch and subsequent “ramp-up” period as we head into 2014. This basically means that the investors following the stock will put a lot of emphasis on third party prescription data (if available), or on statistics and comments offered in quarterly earnings calls. These will be used to judge whether or not Juxtapid succeeds in the HoFH indication to the extent that Wall Street analysts are expecting.

Although the vast majority of investor returns have already been made on Aegerion, the company remains inexpensive and may see some upside next year based on the progress of the drug in both US and ex-US markets. It is also worth noting that the company’s overhead expenses will be quite low, which makes an earnings-based valuation of AEGR even more bullish.

Kynamro, which is owned by ISIS Pharmaceuticals (NASDAQ: ISIS), is not as straightforward of a play into HoFH. Much of ISIS’ valuation is now built on partnerships outside the indication, which makes the market’s intrinsic valuation of the Kynamro program difficult to gauge at best. Kynamro is also expected to be far less popular despite its pricing for the reasons listed above.

We believe that the biotech names are vulnerable to selling in the next few months, although Aegerion’s fundamentals support a valuation closer to the $120-140 range. This makes AEGR a compelling investment in the event that the market sees any major selling in the near term, since the fundamentals of the company remain unchanged so long as the reimbursement for Juxtapid holds.

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