Aegerion's Current Valuations Demand Attention

| About: Novelion Therapeutics, (NVLN)
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Summary

The shares of Aegerion have plummeted due to the disappointing sales performance of Juxtapid.

The drug while being superior in trials has not been able to compete with Kynamro on cost.

With the lower expectations priced in, the shares are trading below true value.

Aegerion Pharmaceuticals (AEGR) is a biopharmaceutical company which focuses on developing and commercializing innovative therapies for rare diseases. Currently it has one product, Juxtapid, in the market. After last year's approval, the market had expected high sales of the drug which drove share prices to all-time high. The primary reason behind these expectations was the superior trial performance of Juxtapid compared to its only competitor Sanofi's (NYSE:SNY) Kynamro. However, the sales performance of Juxtapid has been disappointing to say the least. A combination of unrealistic expectations (in terms of market potential) and inability to compete on cost has been the downfall of Juxtapid.

The Fall

After trading in the $90 to $100 range last year, shares of the company have taken a major tumble. The reason for this tumble has been profit taking by hedge funds and inability of Juxtapid to live up to its promises. Where Kynamro costs around $176, 000, treatment with Juxtapid can cost up to as much as $290,000. Competition on cost and unrealistic expectations of market potential has forced the company to cut its sales estimates from a range of $180-$200 million to $150-$160 million. With estimated total patients at 3,000 in the United States, this would come to a total market share of only 16% (533 patients).

Company Description

Aegerion Pharmaceuticals is a biopharmaceutical company focused on the development and commercialization of innovative therapies for patients with debilitating rare diseases. It creates products that are used to treat severe lipid disorders. It was founded in 2005 and is headquartered in Cambridge, Massachusetts. It went public in 2010.

The main focus of the firm is research and development and the core customer segments include large biotechnology and pharmaceutical firms and hospitals. Currently Aegerion Pharmaceuticals has one medicine in the market, Juxtapid.

Juxtapid is a microsomal triglyceride transfer protein (MTP) inhibitor indicated as an adjunct to low fat diet and other lipid lowering treatments including LDL apheresis where available, to reduce low-density lipoprotein cholesterol (LDL-C), total cholesterol (TC), Apo lipoprotein B (apo B) and non-high-density lipoprotein cholesterol (non-HDL-C) in patients with homozygous familial hypercholesterolemia (HoFH).

Thesis and Catalyst

Aegerion financial results for the third quarter were pretty disappointing; the losses were higher than expected. With only a single product in the market, the entire valuations are dependent on Juxtapid's sales revenue. For the recently concluded quarter, Aegerion Pharmaceuticals had sales of about $43.67 million as opposed to estimates of $48.60. The sell side is expecting the company to generate sales of around $157 million for current year and $225 million for 2015, growth of around 45%.

Aegerion has a bad record when it comes to meeting analyst earnings estimates. Losses have been greater than anticipated in the last few quarters. According to the company, the unexpected losses can be blamed on the increasing number of employees in the organization and resulting increase in selling and administrative expenses. The continuous rise in R&D expenses also contributed to a poor bottom line. The R&D expense touched $10.4 million in the previously concluded quarter, which is a 32.3% increase year over year.

Sales Estimates

Aegerion Pharmaceuticals has lowered the juxtapid sales estimates from $180-200 million to $150-160 million. The main question to ponder over here is whether the company will be able to sustain its sales or not. Its competitor, Genzyme Corporation (Sanofi), is currently expanding its marketing efforts to popularize its product and compete on cost.

New Acquisitions

AEGR has recently announced that it has signed an agreement with AstraZeneca to acquire its Myalept injection. Aegerion Pharmaceuticals is paying $325 million to get the rights to develop, manufacture and commercialize Myalept. This acquisition will reduce the pressure on Juxtapid by diversifying the company's revenues.

Valuation

The share price performance of Aegerion has been disappointing to say the least. The company has been missing earnings estimates and has lowered sales expectations for its only marketed product. The mean sell side target price is $34, 41% upside on current price levels. The sell side is expecting sales to be around $157 million for 2014 and grow 43% to be 225 million in 2015. The current cash balance is around $315 million which reduces the risk of any immediate dilution.

Company Management

Marc Beer is the Chief Executive Officer of Aegerion Pharmaceuticals, who brings along about 20 years of experience in development and commercialization in biotechnology, pharmaceuticals and diagnostics. Prior to Aegerion, Beer was the CEO of VIAC, a biotechnology company. Massimo Boriero was appointed as the president, EMEA, in 2012. Prior to joining Aegerion he was the Senior Vice President at Genzyme Corporation and was responsible for coordinating all business activities across southern Europe.

Bottom line

Aegerion has been a huge disappointment for its post lunch investors. The shareholders have seen their wealth go down the drain as the shares plummeted from around $90 to below $30. However, that disappointment has nothing to do with the viability of Aegerion as an investment right now. The sell side is expecting sales to grow by around 45% by the end of next year. The addition of a new product to the portfolio will only improve the viability of Aegerion as a long-term investment. Therefore, I believe that the shares have been oversold and at current valuations, the company is an attractive buy with around 50% upside potential (mean sell side target price of $30).

Variant View

While Aegerion is trying to diversify its drug portfolio, the company is still dependent on Juxtapid for valuations. Therefore, launch or approval of another drug targeting this small target market will negatively affect Aegerion's valuations.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.