Is Aegerion Pharmaceuticals, Inc. (AEGR) Now a Sell?

Aegerion is a “Sell” the News

Based on my estimates, using an average market size from both the FDA and Aegerion combined with a shared market between two drugs, I believe that Juxtapid has “peak” sales of just $250 million. As I mentioned above, no drug ever commands its total market, and I think Aegerion will face a lot of bumps in the road because of its market size. If the company reaches its goal of having 300 patients on Juxtapid by the end of the year, it would create a revenue run-rate of $88.50 million for 2014, and at that point I don’t believe the company can continue to create explosive penetration into this market (as the number of patients begin to diminish).

With all things considered, I would not invest in this company. Currently, it is trading at seven times (my) peak sales, and almost 20 times next year’s sales. In my opinion, this is way too expensive for a company that has so many questions. I prefer a company such as ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), a $1 billion company with a product in a market that has no established size, due to it being a large unmet need. Its drug Primavanserin treats Parkinson’s disease psychosis, which represents 40% of those with Parkinson’s disease, thus having peak sales estimates of $1 billion (with both on and off-label uses).

In my book Taking Charge With Value Investing (McGraw-Hill, 2013) I discuss assessing companies in biotechnology based on future sales relative to market capitalization, combined with outlook for success. In the case of ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), it ranks high on my list, trading at just one times peak sales. When you consider ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD)’s valuation, you can really see the premium placed on Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR), seven times peak sales; a premium that I consider way too expensive for a company that simply faces too many questions.

The article Too Many Questions Make This Thursday Mover a Sell originally appeared on Fool.com and is written by Brian Nichols.

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