An expensive distraction strategy for Aegerion
After the punishment the markets have meted out to Aegerion in the wake of missed revenue forecasts and an investment banker’s divorce case that has implicated its chief executive, the company needed to do something fast.
But today’s purchase of Myalept from AstraZeneca for $325m is a costly way to get an asset with poor sales expectations and questionable economic viability, the NPV of whose consensus forecasts amounts to barely half the price tag. As such Aegerion has found an expensive distraction from its more pressing problems.
Myalept was until recently a moribund asset that had failed in obesity and diabetes. It was only the recent discovery of its promise in the rare disease lipodystrophy that prevented it from being canned (Lipodystrophy could give metreleptin a new lease of life, May 7, 2013).
Myalept (metreleptin) was discovered by Rockefeller University and was licensed from Amgen to Amylin, the company later bought out by AstraZeneca and Bristol-Myers Squibb for its diabetes portfolio; Astra later bought out Bristol’s share. US approval for leptin deficiency in lipodystrophy was granted in February.
Sellside consensus is uninspiring, EvaluatePharma has sales forecasts of just $10m this year and $92m in 2020, equivalent to $158m of NPV.
True, banks covering Astra did not pay the product much attention, but their forecasts are likely to be more realistic than those that Aegerion analysts might now pencil in as they try to justify the $325m price tag.
The drug’s economic viability is one concern; Myalept has just two more years of patent life, though orphan status and data exclusivity extend to 2021 and 2026 respectively. Another is Aegerion’s ability to maintain its high price – $53,000 per patient per month, according to the US healthcare insurer ISHN – in the face of Merck KGaA’s relatively cheap Egrifta.
On a call today Aegerion said it expected Myalept to generate peak sales of $200-250m – a forecast that assumes annual price increases. The group also accepted that it would now have to comply with a commitment to run no fewer than seven postmarketing studies, but insisted that it had done enough due diligence and understands the risks.
Management was clearly under pressure to act. There were already major signs that its flagship drug, Juxtapid for homozygous familial hypercholesterolaemia, was struggling, and Aegerion stock crashed 41% last Friday when the group cut Juxtapid’s full-year sales forecasts from $145-155m to $135-145m.
Prescriptions have been light, and the expected launch of anti-PCSK9 agents could result in 2015 being the peak year of sales. Allegations over the role of its chief executive, Marc Beer, in a Jefferies banker’s divorce case have not helped.
Mr Beer has denied these, though his judgement has been called into question before: witness an earlier FDA warning letter and Department of Justice investigation over Juxtapid’s marketing.
And even more alarming than the $325m price tag is the means by which the company came to have enough cash to afford it: a $325m 2% convertible loan maturing in 2019.
As most hardened biotech investors know, convertible offerings rarely play out well for equity holders. Including certain derivative agreements this one is convertible at $53.38; Aegerion stock was up 14% to $23.21 in early trade today.
A separate consideration is the possibility of future earnouts to any of a number of Myalept’s previous owners. True, new indications could boost sales – an investigator-sponsored phase II NASH study has not passed unnoticed – but just to tread water Aegerion must hope that payers will stomach a price hike and its sales force performs some magic.
Myalept is an unloved product that has been passed from pillar to post and was never a central focus of Astra and Bristol’s buyout of the Amylin business. The UK company has got a good deal. The same cannot be said of Aegerion.