Sunday, December 16, 2018

A Current AIM Program Small Cap Equity Holding: Eagle Pharmaceuticals (EGRX) by: Erik Olson. "Still Learning to Fly"

Eagle Pharmaceuticals (EGRX, $49.85): “Still Learning to Fly”
By: Erik Olson, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Eagle Pharmaceuticals (NASDAQ: EGRX) specializes in the development and of injectable treatments concentrating on products related to critical care, oncology, and orphan diseases.

• Eagle Pharmaceuticals ceased the development of their fulvestrant formulation and will focus on other pipeline drugs.

• The outlook for their exertional heat stroke drug RYANODEX® looks promising although there have been some speed bumps related to testing. A new government partnership should help the drug stay on track and remain relevant.

• A new patent in the BENDEKA® family of drugs brings the total patent count for BENDEKA® up to 16.

• Stock buybacks prove managements optimism about the future.

Key points:

Eagle Pharmaceuticals recently announced that their fulvestrant formulation did not meet the bioequivalence endpoints necessary when compared to FASLODEX® in a study conducted. The original goal was to have one injection as compared to two injections with FASLODEX® and in much less time. The new injection also contained no castor oil and was administered through a needle that was 25% thinner than the needle required to administer FASLODEX®. It was at this time that the company announced that they planned to no longer proceed with testing and that they are going to focus on other drugs in their pipeline.

The company has been making advancements with its drug RYANODEX® which recently completed it second clinical study. This study was to evaluate the safety and efficiency of RYANODEX® when treating exertional heat strokes. Eagle Pharmaceuticals also entered into an agreement with the United States Army Medical Research Institute of Chemical Defense. The goal is to evaluate the neuroprotective effects of the drug. It is believed that the official launch will be in 2020 and not 2019 as previously assumed.

Progress has been made on the drug BENDEKA® which is for treating chronic lymphocytic leukemia (CLL) and non-Hodgkin's lymphoma (NHL). The USPTO issued a new patent for BENDEKA® which brings the count up to 16 patents that have been issued or allowed in the BENDEKA® family expiring between 2026 and 2033. Additionally, third quarter revenue included a $12.5 million milestone payment for BENDEKA®.

Eagle has $45 million in debt, $91.2 million in cash and cash equivalents, and accounts receivable of $78.5 million. They have also expanded their share repurchase program to $150 million. Recently, Eagle repurchased $50 million of common stock which goes to show management’s confidence in future prosperous performance. As of November 1, 2018, Eagle has repurchased $154 million of common stock without taking on debt to do so.

What has the stock done lately?

On August 30, 2018, Eagle reported on a study conducted in Saudi Arabia for the exertional heat stroke drug. The goal was to enroll 70 severely ill EHS patients but only had 7 enrolled for the study. The stock tumbled over 15% on August 30th and has since continued to slide as much as 41% since the high of $80 on that date. Good news is surely needed to help recover some of the losses Eagle has accumulated since late August.

Past Year Performance:

Eagle has decreased 14.35% in value over the past year. This leaves more room for improvement as they continue to develop new drugs and cease efforts on inefficient projects. While efforts may not have panned out as expected this year, management’s confidence in future performance is seen as they continue to buyback shares. Additionally, with low debt and a lot of cash, they are positioned well to invest in projects they believe will be profitable without having to worry about financing them with debt.

Source: FactSet

My Takeaway:

While Eagle Pharmaceuticals’ 1-year performance may not be that stellar, the company does have room to grow in the future. Removing their fulvestrant formulation from the pipeline certainly will hurt their valuation. However, Eagle has numerous other drugs in their pipeline that appear quite promising. The stock is currently trading about $2.50 away from the 52-week low and outlook for the next three months is certainly greater than the previous three months performance. With proper direction from management, this stock should be flying high in no time.

Source: FactSet