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Can Eagle Pharma Fly through its Oncology Trials?

05/08/2019 5:00 am EST


Douglas Gerlach

President, ICLUBcentral, Inc.

Since we began covering Eagle Pharmaceuticals (EGRX) in January 2018, the company has made progress in its portfolio of critical care and oncology treatments, but its share price has not reflected those gains. We believe there is upside potential making the stock worth reconsidering.

Eagle is a specialty pharmaceutical company. Its focus is injectable products primarily in critical care and oncology, including breast, non-small cell lung, prostate, head, and neck cancers/gastric adenocarcinoma; chronic lymphocytic leukemia and indolent B-cell non-Hodgkin's lymphoma; lung cancer and mesothelioma; breast cancer; and heat stroke.

Eagle’s Ryanodex drug is currently used as a treatment for malignant hyperthermia, but the company is exploring new, including for exertional heat stroke, nerve agent exposure, and acute radiation syndrome.

A contract with the U.S. Army has been signed to study the effects of Ryanodex for nerve agent exposure, and eight U.S. patents have been received for Ryanodex with expirations from 2022 to 2025.

Another key drug is its bendamustine compound, marketed as Bendeka and Treanda. Bendeka could reach 97% market share and the company has FDA approval to build a second manufacturing site.

We continue to watch a lawsuit filed by Eli Lilly (LLY) over Eagle’s Pemetrexed. The FDA tentatively approved Eagle’s RTD Pemfexy in October 2017, but Lilly sued Eagle in August 2017 in Indiana in a case that was dismissed.

Lilly then sued Eagle in Delaware in October 2017, and trial is scheduled to begin in September 2019. Eagle believes its product appears to be differentiated from other drug makers who were sued by Lilly for patent infringement of the same compound.

Since 2012, Eagle Pharmaceuticals’ revenues have grown at a 113.9% average annual rate, reaching $213.3 million in 2018. The company became profitable in 2015, posting earnings per share of $0.16 in that year and growing to an adjusted $3.87 in fiscal 2018.

Total revenue for the fourth quarter ended December 31, 2018, was $56.1 million, compared to $46.8 million in the fourth quarter of 2017, a gain of 19.9%. GAAP EPS was $0.86 and adjusted non- GAAP EPS was $1.20, up 103.4%.

For the full 2018 fiscal year, revenues were $213.3 million, compared to $236.7 million in 2017 including $37.5 million in milestone payments for Bendeka, reflecting revenue growth of 7% when excluding milestone payments. GAAP EPS was $2.09 and adjusted non-GAAP net income was $3.87.

We use 15% annual growth in our study for both revenues and EPS, in line with analysts’ long-term expectations for the company.

On the downside, a low P/E of 10 times the EPS for fiscal 2018 of $3.87 provides a downside price of $39. If Eagle Pharmaceuticals can achieve 15% growth of EPS and sales, then a high P/E ratio of 20 can be supported, and would deliver a high price of $156 in five years.

We see this as a very conservative selection. From the recent price of $53.43, given the above assumptions, Eagle Pharmaceuticals could deliver a 23.8% annual return with an upside/ downside ratio of 6.9 to 1.

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