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:ISIS), 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.

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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.

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