Eagle Pharmaceuticals' Upcoming Catalysts Provide Support For Medium-Term Play

Summary

• Eagle Pharmaceuticals awaits FDA decision for Ryanodex by the end of this month.
• The company expects another FDA decision for pemetrexed in October.
• The stock saw a slump following a steep rise earlier this year, providing a good entry point.

By S. Mitra, MBA (ISB)

Eagle Pharmaceuticals Inc. (NASDAQ:EGRX) is a specialty pharmaceutical company focused on developing and commercializing injectable products for oncology and critical care segments. The company has a strong portfolio of drugs such as Bendeka and Ryanodex. The company is currently focusing on expanding label indications for its drugs. The stock offers a good short term and medium term opportunity with two FDA decisions coming up in July and October. The company also has solid operational and financial position to support long term value as well.

The company’s upcoming catalyst is in the form of Ryanodex, which is designed for treating External Heat stroke. The FDA is expected to deliver its decision on July 23. Earlier this year, Ryanodex was given the priority review status and thus a shorter review period of six months. Eagle is looking at a potentially lucrative market as there is currently no approved treatment for external heat stroke. The company thus has a strong shot at carving a niche for itself in the market. The treatment is expected to be targeted at athletes and outdoor workers, although it is also going to have more generic applications as well since heat stroke can strike anyone. According to the company’s own estimates, there has been consistent rise in extertional heat related injuries and the annual toll is close to 75,000 cases.

The company’s application has been supported by preclinical data from animal studies and safety and efficacy data from a controlled clinical trial in EHS patients. The drug, used along with body cooling, showed demonstrably better results in treating patients, than body cooling alone. The data shows that the drug has very high chance of getting the FDA approval by the end of this month. Eagle seems to have high expectation of getting the approval as well as the company has already set up the marketing plan in action. The company has reportedly banded together a team of 50 salespeople for managing the distribution of the drug. Ryanodex is already approved for treating malignant hyperthermia and the company plans to expand the drug indication to include Drug Induced Hyperthermia. For the quarter ended on March 31, 2017, Ryanodex reported $4.4 million in revenue, up from $1.9 million it had earned in the first quarter of the previous year. The drug is expected to continue its growth rate with expanded label.

Eagle has a few other catalysts coming up later in the year as well. The company expects the FDA decision on its New Drug Application for its Pemetrexed injectable drug in October. The injection product is designed for treating Locally Advanced or Metastatic Nonsquamous Non-Small Cell Lung Cancer, and Mesothelioma. The drug is administered through an IV. Its liquid formulation offers many benefits over other generic versions of pemetrexed as it is convenient to administer, taking less time for preparation than the current powder form of the drug. Additionally, it is also safer for patients and healthcare professionals, as the powder form also poses the risk of accidental inhalation by healthcare providers. Until 2016, pemetrexed was patented to Eli Lilly and the exclusivity expired in 2016. With its liquid formula, Eagle is in position to differentiate its product from competitions. The company has valued the generic pemetrexed market to the north of $1 billion.

Eagle ended the quarter with cash and cash equivalents worth $27.7 million while its Accounts Receivables stood at $84.7 million. The company is in good liquidity position as it added $17.4 million in cash and cash equivalents during the quarter. Its liquidity position is expected to be further boosted by increasing revenue from Bendeka and Ryanodex, giving the company a smooth runway ahead. The company also has no debts, which further fortifies its liquidity position.

However, with five drug candidates in the various stages of development, the company’s cash requirements are set to grow as well. Investors need to keep this in mind. The company has certain other issues to address as well including its reliance on Bendeka and Ryanodex to generate revenue. However, with the upcoming FDA decisions, Eagle will be in a position to diversify its revenue streams.

The company is in a solid financial position as well. For its first quarter the company had reported its earnings at $22.92 million, up from $0.9 million net loss it had incurred for the corresponding quarter of the previous year. It also improved its net margin to 29.85 percent, owing to better cost management. While the company seems to be a solid investment proposition, there are some associated reservations as well. While the company’s revenue and net margins showed improvement on year over year basis, both of these metrics declined on Quarter over Quarter basis. However, the company explained that the increase in its expenses was partially due to expenditure incurred for the upcoming launch of Ryanodex.

The company stock provides a good opportunity for short to mid term investment as the company awaits two catalysts within a short span of time. While the stock had an impressive run in the beginning of the year, it saw a deep slump in the month of May. Currently, trading about 16 percent below its 52 weeks high of $97.15, the stock has a decent runway up. However, the upcoming FDA decision by the end of the month is expected to provide additional boost to the stock and is likely to yield good returns. Investors may have a second rally near the month of October as the FDA date for generic pemetrexed comes up. Both catalysts, in my opinion, present strong reasons to invest.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in EGRX over 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.