Please ensure Javascript is enabled for purposes of website accessibility

Why Eagle Pharmaceuticals, Inc. Skyrocketed 27.8% Today

By Todd Campbell – Jun 10, 2016 at 3:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A positive decision on a key patent has investors bullish about the company's future.

Image source: Flickr user Steve Jurvetson.

What: News of a positive court decision that could support sales growth led to shares in Eagle Pharmaceuticals (EGRX -7.62%) spiking 27.8% earlier today. 

So what: Following the licensing of its Bendeka to Teva Pharmaceutical (TEVA 3.20%), 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.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Teva Pharmaceutical Industries Limited Stock Quote
Teva Pharmaceutical Industries Limited
$8.07 (3.20%) $0.25
Eagle Pharmaceuticals, Inc. Stock Quote
Eagle Pharmaceuticals, Inc.
$26.42 (-7.62%) $-2.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.