Shares of Aegerion Pharmaceuticals Inc. (AEGR) shot up 14% amidst a down market on Wednesday after JP Morgan announced a price target (PT) increase from $48 to $69. Canaccord also raised their PT to a staggering $90, up from $54. The price as of market closing on May 29 was $69.28, very close to JP Morgan's new PT. The JPMorgan announcement comes off the heals of other analysts making the same decision to raise their PT. Deutsche Bank -- $52 to $85 (5/16/13), Leerink -- $50 to $65 (5/16/13), and Lazard Capital -- $65 to $77 (5/20/13). This fever is not without merit, and the major catalyst driving these increased expectations seems to be a May 16th announcement by Aegerion to raise the price of their FDA approved drug for the treatment of a rare disease. Shares increased over 30% the day of the announcement, which was made at the 2013 Bank of America Conference. Aegerion is making a great case for the recent momentum, and despite being a single drug company, solid execution going forward may allow Aegerion to live up to its hype.
Aegerion's FDA approved drug, Juxtapid, treats patients with a rare genetic disorder called homozygous familial hypercholesterolemia (HoFH). These patients have unusually high levels of low-density lipoproteins (LDL) that circulate within the blood and can lead to cardiovascular disease at an early age. The current standard treatment for HoFH involves high doses of statins, which are not particularly effective. In contrast, Juxtapid, is a highly effective treatment that received FDA approval in December of 2012. Estimates for the prevalence of HoFH worldwide suggest that 1 in 1 million people, roughly 300 in the US, are effected making Juxtapid seem rather unattractive. Three hundred patients is hardly a market that would excite analysts; however, four factors are described below that make an orphan drug like Juxtapid seem worthy of the recent buzz.
Due to the orphan drug status of Juxtapid and the lack of effective treatments for HoFH, Aegerion was able to set initial pricing of the drug at $235,000 per year. That is not a typo. The Company announced a price increase on May 16, 2013 to $290,000 per year. The price increase not only signals to investors that they should expect more revenue per patient, but also that insurance companies are willing to accept a $55,000 increase per year on an already very expensive drug. The fact that there are no other treatment options available for HoFH patients coupled with the potential for staggering future costs associated with hospital visits from heart attacks and other medical care that these patients will require means that, at least for now, this price point can be tolerated.
Obviously a company selling a drug to treat HoFH would suggest that HoFH is more prevalent than previously thought, and that's exactly what Aegerion has been saying. Aegerion estimates that there are closer to 3,000 HoFH patients in the US alone, not 300. While this is a factor of 10 greater than other estimates, the company claims that their estimates are being reinforced as they undergo the drug launch. Aegerion has reported that 185 prescriptions were written globally thus far, with 75 patients actually on therapy. These numbers are very encouraging, and assuming that most of those prescriptions were coming from US patients, writing half of the theoretical prescription number (using the 300 estimate) for HoFH in 4 months would be incredible. My feeling is that the number of HoFH patients is not 300 or 3,000, but somewhere in between. Exactly where that number lies is very important for Aegerion and investors, since every 1,000 patients on Juxtapid will bring in close to $300 million in revenue per year. Additionally, Aegerion also estimates a similar number of patients with HoFH in Europe, which will become important later this year when the European Medicine Agency (EMA) makes a decision on Juxtapid.
Juxtapid is an adjunct treatment, and is not directly competing with other lipid-lowering treatments that patients may be taking. There is one direct competitor, which was approved one month following Juxtapid. The competitor is Kynamro, marketed by Genzyme, a subsidiary of Sanofi (SNY), and is significantly cheaper than Juxtapid at $176,000 per year. However, for patients with HoFH, cost may not be the major issue, especially if insurance is covering the drug. Safety concerns should not help differentiate either drug as both drugs suffer from boxed warnings related to liver concerns. Importantly, Juxtapid already won a critical battle with Kynamro on the efficacy front. The pivotal clinical trials for both drugs were relatively similar, enrolling patients with HoFH, and monitoring the change in LDL-C from baseline to the end of treatment. Juxtapid treatment led to a 40% decrease in LDL-C levels whereas Kynamro treatment resulted in a more modest 25% reduction. With price tags in the hundreds of thousands, the superior efficacy of Juxtapid should be a key differentiator for patients and medical professionals.
Aegerion's single focus is managing the launch and expansion of Juxtapid, something they might consider themselves to be doing well. There is potential in the US to saturate the market, but the company is still waiting for a decision by the EMA for marketing approval in Europe, expected sometime mid-year. US sales growth should continue through 2014 and into 2015, and if the EU approves Juxtapid, I would expect sales in Europe to start ramping up as sales in the US reach a plateau. Europe is expected to be a more difficult market to penetrate, as reimbursement will need to be gained on a country by country basis. However, with solid sales potential for the next several years, there is plenty of time for Aegerion to focus on a successful launch of Juxtapid without worrying about an extensive pipeline.
Aegerion has a solid financial foundation, with $66.7 million in cash and cash equivalents as of the end of 1Q 2013, and an additional $74 million in marketable securities. Debt is low at $12.3 million, and revenues are expected to grow over the course of 2013 and beyond. Aegerion had $19 million in operating expenses last quarter. $13.2 million in expenses were SG&A, way up from $5.1 in the first quarter of 2012. These costs are to be expected given the additional activities associated with the launch of a product. Aegerion expects operating expenses for all of 2013 to be $75-$85 million, up from $60.6 million in 2012. Future revenues in 2014 and 2015 may allow the company to fully fund operations using sales. Whether revenues and cash are sufficient to maintain operations through 2013 remains to be seen and the company may need one additional round of financing.
Aegerion is a potentially dominant player in a rare disease market that is withstanding a high price tag for effective treatments. The momentum for this company is strong, pushing the stock up 123% already this year, and causing analysts to reconsider their price targets. Investors should closely watch sales numbers this year, and decide if Aegerion is worth the nearly $2 billion market cap it enjoys today.