Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR) is a tough stock to assess, as its drug is priced around $300,000 annually, and the market size for Juxtapid is questionable at best. For example, the company claims $1 billion potential behind 3,000 domestic patients.
However, the FDA estimates the disease’s occurrence to be one in a million, or roughly 315 annual claims. Seeing as how Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR) already has 215 patients on Juxtapid, we can assume that the market is larger than 315 claims, but 3,000 is a tough stretch.
Hence, if Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR) can peak with 1,000 patients on Juxtapid, sales could reach $300 million annually. With a $2.65 billion market cap, this means that Aegerion is trading at 8.8 times peak sales, which means it’s overvalued in my opinion.
Now, some investors will point to the global market and stand behind the company’s claim of 3,000 domestic patients, but I think 1,000 patients is a safe number since Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR) faces competition. Sanofi’s Kynamro is cheaper and treats the same disease, and because of Sanofi’s marketing presence, we have to be believe that this market will be split.
Clearly ignoring peak sales
Raptor Pharmaceutical Corp. (NASDAQ:RPTP) has traded higher by 200% in the last year and now trades with a market cap of $850 million. The company’s FDA-approved drug Procysbi treats a rare disease called nephropathic cystinosis.
With just 500 patients in the U.S who have this disease, and peak sales of only $60 million for Procysbi, it appears as though shares of Raptor Pharmaceutical Corp. (NASDAQ:RPTP) have gotten ahead of the fundamentals. Currently, shares of Raptor are trading at 14.2 times peak sales, which is many times higher than the industry average.
The company is testing its product on both Huntington’s disease and a form of liver disease. However, we are yet to see any data, and it is difficult to determine whether these additional indications will succeed in clinical testing. Therefore, investors must assume that $60 million in sales is the peak, which shows that Raptor Pharmaceutical Corp. (NASDAQ:RPTP) is richly valued.
Final thoughts
Dendreon had a market cap more than $6.5 billion in 2011, as analysts projected peak sales of $1 billion for its drug Provenge. With problems during the drug’s commercialization, shares of Dendreon proved to be overvalued and have since fallen 90% as sales have not met expectations.
For such companies, like those discussed, the market places high expectations and when not met, significant loss can occur. As a result, these stocks must be considered as extremely risky, and investors should tread carefully when buying at these levels.
The article Have These 4 Biotechs Peaked? originally appeared on Fool.com and is written by Brian Nichols and is written by Brian Nichols.
Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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