Tuesday, July 29, 2014

AEGR CC, Two Elephants in the Room: AntiPCSK9 and DOJ investigation

Amgen's 2015 PCSK9 and the DOJ investigation: Aegerion runs out of road

The two biggest threats to Aegerion's growth narrative got no respect in Aegerion's 2nd Quarter conference call.
  • Amgen is set to submit its cheaper and safer Anti-PCSK9 drug for regulatory approval this next quarter: Q3 2014. It will compete for Aegerion's patients.
  • It is highly probable that most of Aegerion's patients are off-label, despite a very strict REMS ETASU specifically designed to prevent off-label sales.  The Department of Justice is investigating Aegerion for marketing practices.  This scrutiny, and perhaps action, could slow down, if not reverse, Aegerion's sales at some point in the near future.
AMGN's new blockbuster to stunt AEGR's growth and lower its price multiple

It is possible that Amgen's new drug could be available in 2015. It is much safer and cheaper than Aegerion's $300,000 drug.  Additionally, what Aegerion has been selling off-label, Amgen will be able to sell on-label.

This gives Aegerion a two-year limit to its current addressable market.  Given this serious threat in the future by a drug promising to be a blockbuster, how can Aegerion close the gap between its small revenue and the price that investors are paying for the whole company?

AEGR's true market is off-label non-HoFH patients

AntiPCSK9 poses a serious threat to Aegerion's market … which is not just the HoFH population. Contrary to popular belief, the greater part of Aegerion's market is probably non-HoFH, severe victims of high cholesterol. Of course, Aegerion's drug is supposed to be restricted to HoFH patients only and the FDA has required Aegerion to undergo the very strict REMS ETASU to guard against marketing abuses.

REMS ETASU stands for Risk Evaluation Mitigation Strategy with Elements to Assure Safe Use. In Aegerion's case it was put in place with the explicit purpose of restricting Aegerion's drug to HoFH patients, only. In fact, Doctors must sign an attestation with each prescription that the patient's diagnosis is consistent with HoFH. That attestation is faxed to Aegerion. This increases both Aegerion's and Doctors' liabilities.  

The probability however that Aegerion is thumbing its nose at FDA procedure follows from a deduction based upon credible premises:

  • AEGR's commercial management has been telling investors that there can be 3,000 HoFH patients in the United States.
  • AEGR's own science team and Nobel Prize winners say that there are only 300.
  • Aegerion's med team even left oral testimony with German regulators as recently as April 2014, stating that the prevalence rate for HoFH was 1:1,000,000 -- which would equate to 300 patients in the US.
  • Conclusion: If one accepts that the scientists are correct and that AEGR management is incentivized to  inflate the count, then AEGR's proactive attempt and success in surpassing the number 300 implies that AEGR is engaging in illegal off-label marketing.

Aegerion has been touting studies that claim a higher patient population for HoFH than has been traditionally held. First, the study they tout was funded by themselves and others in the industry which have a financial interest in finding a more expansive patient population. And second, the study does not find more HoFH, it proposes lowering the standard of diagnosis ... recommending that Doctors use a more lenient scoring system.  It would be an interesting case: Does funding and proposing lower standards of diagnosis which guarantee a higher proportion of off-label patients constitute off-label marketing in the eyes of regulators?  Similarly, we have already seen Aegerion prefer to focus on cardiologists rather than the lipidologists, who have the higher expertise in this area. 
Aegerion has taken credit for its marketing efforts.  How could there be an effective marketing effort, in excess of the 300 HoFH patients, without Aegerion being responsible for the off-label sales?  Ironically, beyond the patient population, the more sales they make the greater the risk to patients and investors that off-label sales are taking place.
It all adds up to the probability that Aegerion is marketing its drug off-label.  Indeed, the Department of Justice is currently investigating Aegerion's sales, marketing, and promotion practices. The DOJ has subpoenaed AEGR for documents in this matter.  There must be a reason for this investigation.

In fact, the percentage of Aegerion's patients who are not HoFH may exceed 90%.

If we accept the scientific community's number of 300 HoFH patients in the US, then we still must subtract from this total: 

  1. Those who are under 18.
  2. Those who opt for ISIS rival drug, "Kynamro" -- which is preferred and made a prerequisite by some insurers.
  3. Those who are presently enrolled in PCSK9 trials.
  4. Those who cannot tolerate the drug. The drop-out rate has been somewhere between 10 and 15%
  5. Those who test for liver toxicity.
  6. Those with statin interactions who prefer to stick with statins. 

So if AEGR has {fill-in-your-estimate} patients, and only {fill-in-your-estimate} are truly HoFH, what percentage off-label does this leave you? How serious are regulators with the REMS ETASU imposed upon Aegerion?  It was specifically designed to prevent off-label abuse.

AMGN to send AEGR to the dugout

Nonetheless, Amgen is poised to take away the off-label share of Aegerion's market.

Amgen's PCSK9 is safer and is better tolerated.

Amgen's drug will be cheaper … much cheaper.

Amgen will probably have a wider indication and thus will be able to legally market and promote to the extreme end of the HeFH population, unlike Aegerion.

Insurers are more likely to prefer that patients try PCSK9, as many do Kynamro, before trying AEGR's lomitapide.

Doctors will have less regulatory hurdles in prescribing the PCSK9 drugs than they currently do with AEGR's lomitapide. 

AEGR's Dr. Sumeray admitted that the company's patients would most likely try PCSK9. 

Even if Amgen's Evolocumab fails approval, which seems unlikely, or is significantly delayed, there are other anti-PCSK9 drugs in the works and thus there will be many swings at the plate … and it only takes one base hit to score at Aegerion's expense.  A simple web or news search for "PCSK9" will quickly bring up a host of studies and announcements about this highly regarded cholesterol treatment.

What this means is that there are two serious points of failure to Aegerion's growth narrative, one present and one future.  This will most likely crush Aegerion's price.

Aegerion has forecasted as much as $200 million in revenue for 2014. There are many obstacles to this goal; however, the two most serious are the current DOJ scrutiny and the oncoming competition with Amgen's potentially blockbuster anti-PCSK9. 

Why would Aegerion be valued higher than Amgen? Aegerion only has a single drug and no pipeline. Just one drug. AEGR is a binary event. If this one link in the chain breaks, AEGR  is finished. It has DOJ scrutiny precisely for its sales practices and investors have not yet received closure regarding the FDA warning.  There is strong evidence that investors have been lied to in a very big way in regards to the actual patient population of HoFH.  What's more Amgen is readying a potential blockbuster drug whose official indication will most likely extend all the way through both AEGR's off-label and on-label market.  And it is the loss of AEGR's off-label market that will hurt AEGR the most.

Compare this to Amgen which has multiple drugs, three of them very promising. Anti-PCSK9 is getting a lot of attention both from the press and from the scientific community. It is a direct and very credible threat to Aegerion's on and off-label markets.  So why would Amgen -- having the brighter future -- not have also a superior price-to-sales ratio indicative of future prospects?

Certainly the higher multiple should belong to the one with the greater prospects. 

This is a choice between purchasing $1 in revenue for $9 and purchasing $1 in revenue for $5, where the $5 purchase was the most likely to succeed in marketing and least likely to get caught up in the court system and where contrary to expectation, the more expensive stock was less likely to succeed.

All this spells out the fact that AEGR investors were misled and the price had been inflated with unrealistic presentations of Aegerion's addressable market.  

Friday, July 11, 2014

Response to Todd Campbell's The Motley Fool Article

Campbell: "With a market cap of just $850 million, shares are trading at between four and five times sales and, while that's not cheap, it's not out-of-control expensive either."
AEGR's price to sales is 11.4, not "4 or 5."
The article also fails to mention factors behind Aegerion's crash:
… The patient population contradictions between the CEO and the scientists that work on AEGR's drug, which is key to understanding the price drop. The CEO says there can be 3,000 HoFH patients in the US, while Dr. Sumeray of AEGR just left testimony in Germany that there are only 300. Dr. Rader and Dr. Cuchel -- both worked on AEGR's drug -- also use the number 300. With AEGR reporting +450 patients, there is a risk that many of these patients are off-label, despite a very strict REMS ETASU in place that was specifically designed to prevent off-label prescriptions.
… Indeed, the DOJ is conducting an investigation into AEGR's marketing practices.
… Another omission from this article: AMGN's antiPCSK9 drug threatens to upset AEGR's narrative later this year.