SNY - Amicus Therapeutics: Limited Label For Pombiliti And Opfolda And Why It May Not Matter

2023-09-29 11:00:14 ET

Summary

• Shares of Amicus Therapeutics declined after FDA approval of Pombiliti and Opfolda for late-onset Pompe disease due to a worse-than-expected label.
• The label states that only patients not improving on existing treatments are eligible for Pombiliti and Opfolda.
• The label should not change the outlook for the combination product as it was likely to be used as the label describes it anyway.
• The launch of Pombiliti and Opfolda should lead to topline growth acceleration in the following quarters and Amicus should become profitable within a few quarters.

Shares of Amicus Therapeutics ( FOLD ) declined after the company announced the FDA approval of Pombiliti and Opfolda (which was called AT-GAA), which is the third treatment approved for the treatment of late-onset Pompe disease. The decline was most likely driven by a worse-than-expected label that says only patients who are not improving on existing treatments, Sanofi’s ( SNY ) Myozyme and Nexviazyme, are eligible for treatment with Pombiliti and Opfolda.

I do not believe this is a significant setback for Amicus as I expected the drug combination to be used in this setting to begin with, considering the disappointing data it generated back in 2021 when I removed the stock from our model portfolio. The newly diagnosed market for Pompe disease patients is very small, and most patients are already being treated with Myozyme and Nexviazyme.

The addressable market is currently $1.3 billion and Amicus expects it to grow to more than $1.8 billion by 2027 and the company expects Pombiliti and Opfolda to generate more than $1 billion in peak annual revenue. I disagree and expect annual sales to be in the $300 million range, plus or minus $50 million due to the lack of a significant treatment difference compared to Myozyme in the phase 3 trial and the availability of Nexviazyme which did beat Myozyme on both the pulmonary function and the 6-minute walk test. So, any of Amicus’ superiority claims over Myozyme do not really apply to Nexviazyme.

Sanofi is also in a much better position as it currently controls approximately 90% of the market and the other 10% are clinical trial patients on Pombiliti and Opfolda. The launch of Nexviazyme also shows how difficult is to switch patients to a better treatment option. Nexviazyme generated approximately $110 million in net sales in the second quarter versus Myozyme's $230 million, and Amicus says that the split between Nexviazyme and Myozyme in the U.S. is now 50:50 and that it is still 30:70 in Europe (in favor of Myozyme), and this is two years after Nexviazyme’s approval and Sanofi’s complete promotional control and motivation to switch patients as fast as possible.

The low-hanging fruit for Amicus is the clinical trial and expanded access patients in both the U.S. and the EU. Management says there are approximately 100 patients taking the combination product and that they expect a relatively quick conversion. Considering the estimated annual list price of $650,000 per patient, this should lead to a decent start for the combination product, and we should see total revenue growth accelerate in the following quarters.

But the situation gets a lot harder from there and I would expect Nexviazyme to be the treatment of choice for the majority of patients who are not improving on Myozyme and for Pombiliti and Opfolda to be the third option for patients who stop doing well on Nexviazyme. For these reasons, I expect Pombiliti and Opfolda to capture up to 20% of the estimated $1.8 billion market by 2027.

Back in 2021, my valuation range on Amicus was $12 to $14 per share, and it was based on Galafold, AT-GAA (now called Pombiliti and Opfolda), and a minor contribution of $1 for the expected stake in Caritas Therapeutics, the gene therapy spinoff that was since scrapped. Since 2021, Amicus made significant efforts to improve the cost structure, which should result in higher cash flows and profits later this decade. This, along with the passage of time and regulatory de-risking adjustments, increases my valuation range to $16.50 at the low end and $18 at the high end of the range, and it now excludes the $1 contribution from the gene therapy spinoff. I assign no value to the gene therapy pipeline at this time, as it is really unclear whether or when any of the candidates will reach the market.

Conclusion

While shares of Amicus Therapeutics declined after the FDA approval of Pombiliti and Opfolda due to a worse-than-expected label, I do not believe it changes the outlook for the combination product as it was going to be used as the label describes anyway. The company now looks better-positioned to deliver shareholder value due to the cost cuts that will significantly improve cash flow and profitability without seriously impacting the growth prospects, and the availability of Pombiliti and Opfolda should lead to reacceleration of topline growth in the following quarters and years, bringing the company to profitability within a few quarters.

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