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We saw Aegerion Pharmaceuticals (NASDAQ:AEGR) break a new 52-week high Wednesday, Oct. 17, on a very favorable review from the Endocrinologic and Metabolic Drugs Advisory committee (EDMAC) of the FDA, regarding the drug lomitapide. Lomitapide is a treatment for genetics-caused hypercholesterolemia, and finished a pivotal Phase III trial earlier in the year successfully, meeting its primary endpoint. Lomitapide acts through an interesting mechanism that inhibits the synthesis of lipids (it's something that is known as an "MTP inhibitor").

As of now, Aegerion has submitted an NDA to the FDA with a PDUFA action date of Dec. 29, 2012, and a MAA to the European Medicines Agency (EMA). The EDMAC vote was in favor of approval by 13-2, which virtually guarantees that the FDA will give lomitapide a green light on Dec. 29. Generally, the EMA will be more inclined to accept a drug that the FDA has accepted as well.

After its recent rally, shares of Aegerion have been brought to a new market cap just under $500 million, which prices in an approval for lomitapide and a valuation of the drug that implies a relatively low market penetration into the $30 billion cholesterol drug market. This makes perfect sense, because we're not expecting lomitapide to challenge biggest players in the cholesterol drug market right off the bat. The blockbuster statins that make up the bulk of the cholesterol lowering drug market, like Pfizer's now-generic Lipitor (atorvastatin) and AstraZeneca's Crestor (rosuvastatin), are still going to retain market share for the vast majority of patients with high cholesterol who are looking to reduce the likelihood of cardiovascular events.

Lomitapide, on the other hand, is specifically targeting a niche market full of patients who can link their extremely high levels of cholesterol to genetics due to a condition known as Homozygous Familial Hypercholesterolemia (referred to as HoFH). There is a less severe type of familial hypercholesterolemia that is "heterozygous" (meaning that patients have only one copy of the gene that causes abnormally high levels of cholesterol), but the homozygous version is particularly hard to treat and more deadly.

Until lomitapide hits the market, doctors don't have any drug-based choices outside of conventional cholesterol-lowering treatments (statins). They also have the option of bile-acid sequestration, or the usage of nicotinic acids which has lipid-modulating action. There is also LDL apheresis, which would filter a patient's blood through a medical device that would remove cholesterol in an attempt to lower overall concentration in the bloodstream.

Still, HoFH is a very rare disorder that doesn't provide a very big drug market on its own (with only one case of HoFH per ~1 million births). This is why lomitapide was granted orphan drug status (something that will give the drug seven years of exclusivity in the U.S. drug market as opposed to the standard five). It is also generally agreed that orphan drugs are more likely to have their NDAs accepted by the FDA on their first try, which makes Dec. 29 a very likely FDA approval date indeed. The only problem is that FDA approvals are not always reflected properly in the stock market.

Even if an FDA acceptance would guarantee lomitapide the bragging rights to being the first approved MTP inhibitor on the market, and the first real HoFH treatment (which means it would basically take the entire treatment market right off the bat), traders who bought into AEGR at an earlier stage may see the FDA approval as a good time to throw in the towel and take profits. The patient population targeted by lomitapide is quite limited in size, and it's unlikely that the drug will see much use outside of HoFH despite its unique mechanism of action. Long-term investors who are interested in the stock may actually be better off waiting for the FDA approval to see whether or not AEGR will be oversold.

Source: Processing Aegerion Pharmaceuticals' Recent Rally