Shares of Aegerion Pharmaceuticals (NASDAQ: AEGR) rocketed 33% higher in last Thursday's trading after the company reported that it would increase the price of flagship product Juxtapid (lomitapide) from $235,000 per patient to $295,000 beginning June 1st. This significantly increases Wall Street's expectations of the company's top and bottom-line growth going into the next year. While many pharmaceutical companies struggle with the pricing power of their branded drugs for any number of reasons, it seems that Aegerion has found an extremely lucrative niche in hypercholesterolemia. Yesrterday shares pulled back a tad as some shareholders looked to take profits after such a violent move to the upside, but AEGR is expected to hold most (if not all) of the ground based on the long term financial effects of this pricing confirmation.
Investors are also anticipating a positive CHMP decision on the therapy. Expansion into Europe provides significant growth potential for Juxtapid prescriptions going into the end of 2013 and 2014 (depending on the timing of the company's launch). Specifically, Juxtapid was recently approved as a HoFH treatment (Homozygous familiar hypercholesterolemia), and targets the hypercholesterolemia patients that have the most severe cases of the disease due to two mutated genes (one from each parent) that affect the function of their low-density lipoprotein (NYSE:LDL) receptors. Since there are a very limited number of patients in the United States (and the world) within this indication, Aegerion is only able to justify its valuation given that it can charge enormous amounts of money for its drug, although up to this point the company has had no problems doing so.
The primary competitor to Aegerion is Genzyme and ISIS Pharmaceuticals' (NASDAQ: ISIS) Kynamro, has a competitive price advantage (it costs roughly $176,000 per patient) although it was not able to match the sheer efficacy of lomitapide in late stage clinical trials. Although we know that both of these drugs can be dangerous given their liver toxicity profiles, additional data from ongoing studies may be better able to judge the relative safety of these drugs.
Analysts are generally fond of Aegerion, and expectations have been adjusted (drastically) in light of Juxtapid's recent display of pricing power. Two notable price target swings (to the upside) were seen from Janney ($47 to $71 per share) and Deutsche Bank ($52 to $85 per share).
Despite the stock's momentum, investors should treat this as a very calculated play based on the momentum of a drug that has a known price and a niche market only threatened by Kynamro, which had an inferior efficacy profile. In its Q1 2013 results, the company reported a total of 185 Juxtapid prescriptions written, and 75 patients that were on the therapy at the time. The company reported $1.2M in net product sales for the quarter ended March 31st, 2013, implying that we should see an enormous spike in revenues and earnings when the company reports Q2 2013 results later this summer.
Particularly interesting with regards to Aegerion's business model is its ability to keep its costs extremely low while targeting an extremely lucrative drug indication. The company's SG&A expenses did rise to $13.2M for Q1 2013 relative to $5.1M reported in Q1 2012, although this reflected the costs of a market launch for Juxtapid more so than a trend that investors should be worried about. Aegerion can keep its costs relatively low due to the small size of the HoFH market, and should see extremely high profit margins.