What: News of a positive court decision that could support sales growth led to shares in Eagle Pharmaceuticals (NASDAQ:EGRX) spiking 27.8% earlier today.
So what: Following the licensing of its Bendeka to Teva Pharmaceutical (NYSE:TEVA), Eagle Pharmaceuticals was one of healthcare's top performers last year.
Teva Pharmaceutical paid $30 million up front and agreed to pay up to $90 million in milestone payments, plus royalties on sales, to lock up Bendeka, a rapid-acting reformulation of Teva Pharmaceutical's Treanda, a drug used to treat people with chronic lymphocytic leukemia and indolent B-cell non-Hodgkin lymphoma. Because Bendeka is dosed more rapidly than Treanda, Teva Pharmaceutical licensed it in order to convert existing patients to it and, thus, protect its Treanda market share.
However, Bendeka's peak sales potential had been called into question because of a patent challenge launched by generic drugmakers against Treanda. If successful, this patent challenge could have resulted in generic competitors to Treanda that could have stolen away significant market share.
Fortunately for Teva Pharmaceutical and Eagle Pharmaceuticals, the patent court has validated Treanda's patents, providing it patent protection that stretches until 2026.
Now what: The favorable patent ruling for Treanda removes an overhang that has been weighing on Eagle Pharmaceuticals. Now that Treanda's patents are confirmed, the company should benefit from aggressive transitioning of patients to Bendeka from Treanda.
Since Treanda hauled in $741 million last year, and Eagle Pharmaceuticals reported product revenue of only $14.1 million in Q1, Bendeka's impact could be significant.
Overall, the company hopes to convert 90% of Treanda patients to Bendeka, and as a result, industry watchers think Eagle Pharmaceuticals' EPS will jump to $5.69 in 2017 from an estimated $4.56 this year. Based on those estimates, Eagle Pharmaceuticals has a forward P/E of about 9, and that's not a lot to pay for a company that could see a dramatic spike in sales and profit.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter, where he goes by the handle @ebcapital to see more articles like this. The Motley Fool recommends Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days.