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What: Shares of Aegerion Pharmaceuticals (NASDAQ:AEGR), a biopharmaceutical company focused on developing drugs to treat rare diseases, collapsed in October and lost 40% of their value, based on data from S&P Capital IQ, after the company reported its third-quarter earnings results and offered up a much weaker than expected full-year forecast.

So what: For the quarter, Aegerion, the developer of Juxtapid (known as Lojuxta in ex.-U.S. countries), an orphan drug designed to treat homozygous familial hypercholesterolemia that costs around $295,000 in the U.S., reported $43.7 million in net product sales. This represents an 18% increase over the sequential second quarter and was comprised of 91% U.S. sales and 9% international sales. Profit for the quarter amounted to an adjusted $0.12 per share, with Aegerion generating $8.7 million in positive cash flow. Comparatively speaking, Wall Street was expecting revenue to be much higher at $48.3 million.

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Aegerion Pharmaceuticals Q3 presentation slide. Source: Aegerion Pharmaceuticals.

The real problem emerged when Aegerion readjusted its full-year forecast. Aegerion now sees full-year revenue of $150 million-$160 million versus a prior range of $180 million-$200 million and well below the $172.4 million consensus on the Street. Aegerion also announced that its 2015 full-year revenue should improve by 30%-40% over its fiscal 2014 revenue. The implication here, using the midpoint of both ranges, would be $209.3 million in sales in 2015 which, as you might have guessed, is well below the $292 million Wall Street was banking on next year.

Following its earnings report Aegerion faced a wave of Wall Street downgrades from the likes of Deutsche Bank, FBR Capital, JPMorgan Chase, Bank of America/Merrill Lynch, and Jefferies.

Now what: Some investors have been wondering whether or not a 40% shellacking following a 20%-25% reduction in full-year revenue is really that fair considering that Aegerion was still profitable on a non-GAAP basis. The answer, I suspect, is yes.

The reasoning I believe this unfortunate beat-down is justified relates to the recent success of Amgen's (NASDAQ:AMGN) experimental HoFH drug evolocumab, which met its primary endpoint in phase 3 studies and looks poised to threaten about a third of Aegerion's revenue stream. Normally orphan diseases don't have a lot of competition, but Aegerion is finding out the hard way that sometimes this isn't the always the case.

At this point it would appear that Aegerion's downside could be limited by the forecast of full-year adjusted profitability next year. However, that forecast has itself been falling quickly over the past three months. Even at 40 times 2015's EPS estimates Aegerion may prove too much of a gamble with its sales growth slowing and the company struggling in ex-U.S. markets to get its reimbursement issue kinks worked out. Long story short, while Aegerion may look like a compelling value after its swan dive last week, I'd suggest holding off on this stock for at least another quarter.

Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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