EGRX - Eagle Pharmaceuticals: Going Through A Transition

2023-08-03 14:13:02 ET

Summary

• Today, we are circling back on Eagle Pharmaceuticals for the first time in a while as the shares are down big since the start of 2022.
• The company is managing to stay profitable as it manages through a period of sales declines.
• Management did just upwardly revised full year earnings guidance and is on the hunt for an accretive acquisition.
• Is that enough to buy the dip in the shares?  An investment analysis on Eagle Pharmaceuticals follows in the paragraphs below.

The eyesight for an eagle is what thought is to a man .”? Dejan Stojanovic

Recently I got a question from a Seeking Alpha follower on a biopharma name I haven't held or written about in many moons. As can be seen below, it has been a tough go for the company's shareholders since the start of 2022. However, the firm is still nicely profitable and has seen a bit of rebound lately. Can the rally continue? An analysis follows below.

Company Overview

Eagle Pharmaceuticals, Inc. ( EGRX ) is based in New Jersey. The company is focused on developing and commercializing product candidates to treat diseases of the central nervous system or metabolic critical care, and oncology. The stock currently trades around $21.00 a share and sports an approximate market cap of $275 million.

Eagle Pharmaceuticals has several products on the market. It offers Belrapzo and Bendeka for chronic lymphocytic leukemia and indolent B-cell non-Hodgkin's lymphoma. Combined they have approximately 90% of the overall bendamustine U.S. market share. Earlier this year, Eagle Pharmaceuticals reached a settlement agreement with Dr. Reddy’s Laboratories ( RDY ) , under which the latter has the right to market a generic version of Bendeka beginning late in 2027. The settlement follows previously announced settlements with Hospira and Accord Healthcare related to their new drug applications referencing BENDEKA.

Eagle also offers PEMFEXY, a ready-to-use/dilute liquid form of pemetrexed for non-small cell lung cancer and mesothelioma. The company recently acquired the rights to Barhemsys and Byfavo for its wholly owned subsidiary Acacia Pharma.

First Quarter Results

On May 9th, the company posted its first quarter numbers . Eagle produced a non-GAAP profit of $1.26 a share in the first quarter, better than a quarter above the consensus. Net income was $5.8 million for the quarter or 44 cents a share reflecting the recent settlement with Dr. Reddy, a bit drop from Eagle's net income of $44.1 million in 1Q2022. Overall revenue also fell nearly 43% on a year-over-year basis to $66.3 million, which was a couple of million dollars above expectations.

Most of the sales decline relates to Eagle's vasopressin product. Sales came in at just $3.5 million in the first quarter compared to $34.3 million in the same period a year ago. Eagle decided to withdraw from the vasopressin market earlier this year and is in the process of selling off its remaining inventory.

PEMFEXY net product sales also fell to $22.9 million in the quarter, compared to $37.2 million in 1Q2022. However, management stated full year sales or PEMFEXY should still surpass that of FY2022 ($67 million of sales) and that the product has now garnered 15% of the overall market. The company's royalty revenue also dropped from $25.8 million the first quarter of 2022 to $20.1 million this quarter.

RYANODEX® net product sales did rise to $8.8 million from $6.6 million in the prior year period while BELRAPZO net product sales rose $500,000 to $6.4 million.

Management issued guidance calling for full year non-GAAP earnings per share in FY2023 of between $4.20 to $4.53. Leadership also expects to produce adjusted EBITDA of between $74 million to $80 million. At the end of July, management lifted FY2023 guidance as it now believes Eagle will make non-GAAP earnings per share of between $4.40 to $4.70 as well as new guidance for $78 million to $84 million in adjusted EBITDA.

Analyst Commentary & Balance Sheet

William Blair reissued a Buy rating early this year. Since then, both Cantor Fitzgerald ($33 price target, down from $37 previously) and Piper Sandler have reiterated Hold ratings on the shares. This is the only analyst firm activity I can find on Eagle Pharmaceuticals so far this year.

Approximately six percent of the outstanding float is currently held short. The company's CEO sold just under 50,000 shares worth of stock in mid-May. That has been the only insider activity in the stock so far in 2023.

Management mentioned on its first quarter earnings press release that they were ' currently working with lenders to secure financing to support a potential accretive acquisition '. The company ended the first quarter with just under $22 million in cash and marketable securities on its balance as well as $115 million in net accounts receivable. Eagle Pharmaceuticals had $77.5 million in total debt as of March 31st, 2023 as well.

Verdict

Eagle Pharmaceuticals posted earnings of $7.79 a share in FY2022 on revenues of $316.6 million. The current analyst firm consensus has overall sales falling just over 20% in FY203 and profits dropping to $4.34 a share. Sales declines are expected to slow to just over 10% in FY2024 with profits projected to decline further to a bit over three bucks a share.

Management is doing a decent job to maintain profitability in line of a significant sales decline. The company continues to have positive cash flow despite falling sales, and most likely to continue do so for the foreseeable future, which takes the need to raise any additional capital (outside for an acquisition) off the table. The shares also sell for under three times what the company made in FY2022 and around seven times what the company is expected to make in FY2024.

The main risk for potential shareholders is the stock is likely to be range bound at best until a sales growth turnaround happens. The company does have some assets in its pipeline, such as CAL02 , an investigational therapy for bacterial pneumonia. The company also has a marketing application submitted for a product called Landiolol for the short-term reduction of ventricular rate in patients with super ventricular tachycardia.

However, sales growth resumption is likely dependent on if the company can make an accretive acquisition, as least over the short term. Eagle Pharmaceuticals has indicated a desire to do and is currently in the process of putting funding options together should a strategic acquisition target emerge. Until that happens, there is not a lot of reasons to own EGRX even after the significant decline in its stock price since the beginning of 2022.

Eagles don't live in a chicken coop .”? Tamerlan Kuzgov

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