Eagle Pharmaceuticals' Overlooked Asset

| About: Eagle Pharmaceuticals (EGRX)

Summary

Eagle Pharmaceuticals has had success in hematologic malignancies with the marketing of the mustard gas derivative bendamustine (Bendeka).

Recent patent rulings have allowed the company to maintain market exclusivity for Bendeka, allowing considerable stock appreciation.

Eagle Pharma has at least one big ace up its sleeve that I think could place it well north of its current valuation.

Lately, Eagle Pharmaceuticals (NASDAQ:EGRX) has been something of a biotech darling, with successful marketing of its drug bendamustine and a partnership with big pharma player Teva Pharmaceutical (NASDAQ:TEVA). This drug is an important treatment option for relapsed hematologic cancers like chronic lymphocytic leukemia (CLL) and other forms of non-Hodgkin lymphoma.

The company has been able to grow its revenues using only its previously approved products. In 2015, total revenue reached over $66 million. And this is projected to grow as bendamustine is introduced further into the market. The company sees a $700 million opportunity for this space, in particular.

The ace in the hole

The CLL and NHL space represents a major potential market for EGRX. However, it also has in development a formulation of another chemotherapeutic agent: pemetrexed.

Currently, pemetrexed is marketed by Eli Lilly (ELI); however, its patent exclusivity expires in July 2016, opening the door for generics. At this time, pemetrexed remains an important standard treatment option for patients with lung cancer. As such, it commands worldwide sales of around $2.5 billion.

Eagle differentiates its form of pemetrexed, called EP-5101, by more than just being a generic. It is also the first liquid formulation of the drug. This has two benefits:

1) Less time to prepare the drug for intravenous infusion. The currently approved form of pemetrexed is a powder that must be reconstituted, increasing the time the patient has to sit in the infusion clinic.

2) Less danger to patients and healthcare providers. The powder form of pemetrexed can be inhaled by those who have to work with it, creating a potential hazard. Moreover, because you're adding the extra step of needing to reconstitute it, you create more room for error. Granted, these are professionals working with chemotherapy, so errors should be quite rare. However, any measures that can be taken to improve the safety of these dangerous drugs are welcome.

According to its last annual filing, EGRX feels that the generic pemetrexed market represents a $1.2 billion valuation. It expects to file a 505(b)(2) NDA in late 2016 for EP-5101.

What's special about a 505(b)(2) NDA? Many generic agents are approved based on an "ANDA," an abbreviated form of the standard NDA in which the company basically has to show only bioequivalence. That is, the drug is essentially the same as the already-approved drug.

With the 505(b)(2), the company expects that the FDA will see some kind of improved formulation or other enhancement.

This means stricter regulations, but it also will allow EGRX to market the differences from the branded agent, placing it in a different class of generic pharmaceutical. As such, we may not see the 80%+ reduction in pricing and revenue stream that is often observed in other generic pharmaceuticals.

And that means that the projected market opportunity might not be totally out of whack, either. Pemetrexed could be worth more than Bendeka.

Potential challenges

Of course, approval of pemetrexed is not guaranteed. The company has advised that it will file the NDA in late 2016, so we should have an idea some time in 2017.

What's more, EGRX is not the only player in developing generic pemetrexed. Teva and APP Pharmaceuticals are also apparently pursuing generic forms of the drug.

Then there is the evolving standard of care for lung cancer. Pemetrexed is currently given as first-line and maintenance therapy for patients with non-squamous non-small cell lung cancer, as well as in combination with cisplatin for mesothelioma.

The recent introduction of immunotherapy has started to turn the management of lung cancer on its head, though. In the near future, we may see standard pemetrexed fall to the wayside in favor of less toxic options. This could eat into the market opportunity for a new formulation of pemetrexed.

Still, not every patient is going to be eligible to receive a drug like nivolumab or pembrolizumab, so pemetrexed will remain an important treatment option.

Conclusion

EGRX has the potential to diversify its portfolio with agents in the heme space and in lung cancer. With all the developments of new agents in these spaces, this diversification is crucial for ensuring the growth of EGRX revenue.

I feel that they are well on their way to achieving this goal, and investors should look carefully at the market opportunity that a new formulation of pemetrexed could mean for EGRX.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.