Will a DOJ Subpoena Derail Aegerion's Growth in 2014?

Orphan drug maker Aegerion recently plunged on the announcement that the DOJ had started investigating its marketing practices. Does this drop represent a rare buying opportunity for the high-flying stock, or is it a falling knife that should be avoided at all costs?

Jan 10, 2014 at 12:47PM

Aegerion Pharmaceuticals (NASDAQ:AEGR) could face some tough days ahead.

On January 9, the company disclosed that it had received a subpoena from the U.S. Department of Justice over the marketing of its cholesterol disorder drug Juxtapid. Aegerion stock plunged 13% after hours on Thursday after the announcement.

Is Aegerion's 168% rally over the past 12 months now officially over, or is the recent drop an ideal buying opportunity for new investors?

AEGR Chart

Source: YCharts.

Let's take a closer look at Aegerion, and how it will measure up to its primary industry rivals, Sanofi (NYSE:SNY) and Isis Pharmaceuticals (NASDAQ:IONS), in 2014.

Juxtapid by the numbers
Aegerion's only marketed product, Juxtapid, is the first approved treatment for an extremely rare inherited condition called homozygous familial hypercholesterolemia (HoFH), which causes elevated levels of "bad" LDL cholesterol.

Since HoFH only affects one in a million people, Juxtapid was approved as an orphan drug by the FDA in December 2012, granting it seven years of market exclusivity without the need for additional patents. It was approved in the EU in February 2013 for the same indication. There are currently an estimated 3,000 HoFH patients in the U.S and another 3,000 in the EU.

Aegerion started recognizing Juxtapid revenue since the first quarter of 2013. Over the past three quarters, Juxtapid has generated $24.1 million in revenue. Analysts believe that the drug could respectively generate $240 million and $180 million in annual sales in the U.S. and Europe, with a combined peak sales potential of $420 million.

The potential pitfalls
Aegerion might have brought the first HoFH drug to the market, but it doesn't mean that Juxtapid is the only available treatment.

In January 2013, Isis Pharmaceuticals and Sanofi's Genzyme unit gained FDA approval for their competing HoFH treatment, Kynamro.

The biggest threat that Kynamro poses to Juxtapid is its pricing -- the former costs $176,000 per year compared to the latter's $235,000 to $290,000 price tag. Juxtapid's key advantage is that it is a pill, whereas Kynamro is injected subcutaneously. In addition, Kynamro has not gained EU approval yet. Both drugs, however, carry the risk of liver toxicity.

Peak sales estimates for Kynamro are also around $400 million, and Sanofi will pay Isis 30% to 50% of the profits, based on overall drug sales.

What regulatory problems could Aegerion face?
The big problem now is that the DOJ has requested that Aegerion turn over its documents regarding the marketing of Juxtapid.

While the exact nature of the investigation is unclear, investors should remember that Aegerion was already slapped with a warning letter from the FDA last November, after CEO Marc Beer exaggerated Juxtapid's effects and promoted the drug for off-label uses during an interview on CNBC. It's highly likely that the DOJ subpoena is related to those issues originally raised by the FDA.

Moreover, the DOJ has been clamping down on off-label marketing practices in the United States. Last November, Johnson & Johnson (NYSE:JNJ) agreed to pay $2.2 billion to settle allegations that it employed off-label marketing to boost sales of the antipsychotic drugs Risperdal and Invega and its heart drug Natrecor.

However, whereas $2.2 billion was merely a slap on the wrist for J&J, which finished last quarter with $25.2 billion in cash and equivalents, Aegerion might not be as lucky. Aegerion only has $126 million in cash, but has $8 million in debt and a negative operating cash flow of $50 million -- which means that any major fine or settlement could force Aegerion to revise its full-year guidance.

The road ahead
Looking forward, Aegerion expects to generate $190 million to $210 million in 2014 revenue, in line with the Bloomberg consensus estimate of $204.1 million.

That estimate represents a huge jump from the $24.1 million in revenue it has generated so far in fiscal 2013, and could be a tough goal to reach due to the launch of Kynamro and possible regulatory problems.

Another problem is that Juxtapid is Aegerion's only egg in its basket. Its main hope for future growth is a possible market approval of Juxtapid in Japan for pediatric and adolescent HoFH patients. It does not have any other experimental drugs in its pipeline.

The Foolish takeaway
At this point, Aegerion is a tough stock to recommend. Although it has rallied by the triple digits over the past 12 months, I think it's time for a reality check with these three burning questions:

  • Will Aegerion be forced to lower Juxtapid's price to stay competitive with Kynamro?

  • Can Aegerion seriously generate $200 million in Juxtapid sales next year?

  • Will the DOJ investigation into its marketing practices cause ongoing bad PR for the drug and result in a fine?

If investors have a tough time answering those three questions, I think it's best to stick with more conservative and diversified rare-disease plays like Sanofi instead.

Another top stock to watch
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Fool contributor Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Isis Pharmaceuticals. It recommends and owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers