Big Expected Move in Aegerion Pharma from Q3 Earnings Print E-mail
By Brian Wilson-Lead Contributor   
Wednesday, 23 October 2013 08:11
In anticipation of an earnings release next week, implied volatility (IV) has increased quite significantly for Aegerion Pharmaceuticals (NASDAQ: AEGR). The stock has been a huge winner this year, up 230% despite a big pullback in recent trading.

Based on the AEGR options chain (expiration November 15, 2013), our statistical model suggests that the market is anticipating a average $7.00/share move in either direction in reaction to the upcoming earnings report. Based on contracts that have already traded, it quite clear that there is more interest on the bullish side of the trade (the call side) – implying that a large pool of speculative money is betting on an overwhelmingly positive market reaction to Q3 earnings. Having said this, note that there is open interest in AEGR puts (bearish bets) that extend as low as $50/share.

Note that Aegerion’s drug Juxtapid (lomitapide) – aka Lojuxta in the EU - was able to achieve incredibly high US 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. The orphan drug status will also create prolonged exclusivity in these regions, although patent extensions can protect the revenue stream for a longer period of time.

This has created quite a bit of excitement for the company due to the fact that the company should also have an extremely low overhead going forward, since Aegerion will only need a few dozen sales reps to market the drug in the US and Europe. This implies that AEGR may be worth more (perhaps $200/share) based purely on theoretical price-to-earning valuation.

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.

Q3 2013 earnings are expected to arrive on October 30th, 2013 (Wednesday) before the bell. This means that investors who want to be in either direction for this anticipated move would want to make their trade by October 29th. The market should have a fairly good idea of its impression of the AEGR report by the time the bell opens next Wednesday.

In Q2 2013, the company reported net sales of $6.5 million, which represented a fraction of the revenue that is expected from the 215 patient population that is already on Juxtapid therapy. This enrollment number is expected to jump quite dramatically in Q3, which should coincide with a big jump in product revenues as well. Comparable expenses are expected for Q3 2013, although increased revenues should bring the company deep into the profitability zone this quarter.

The bias seems to be on the upside, although biotechnology stocks frequently disappoint or underwhelm investors. It’s certainly possible that sales of Juxtapid in the last 3 months will be seen as “underwhelming”. Investors have already studied the science of lomitapide at this point, and it seems quite clear that the drug is the most efficacious drug available for patients with HoFH. The bulk of the remaining uncertainty is in the commercialization process for the drug, which may still provide some currently-unseen hurdles.

Disclosure: Short Puts AEGR

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