TAK - Amicus Therapeutics: The Right Play Now

2023-10-31 12:24:58 ET

Summary

• Amicus Therapeutics, Inc. is a commercial-stage biotech company focused on developing therapies for rare diseases.
• The company recently received FDA approval for its combination therapy Pombiliti + Opfolda for Pompe disease.
• Amicus Therapeutics is expected to move into profitability in the near future but faces challenges from potential generic competition and somewhat limited market positioning.
• The right investing move around Amicus Therapeutics is discussed in the paragraphs below.

The more often a stupidity is repeated, the more it gets the appearance of wisdom ."? Voltaire.

Today, we revisit a familiar mid-cap commercial stage biotech name for the first time in a while. The stock has been a good ' rinse, wash, and repeat ' covered call candidate for years. The company also recently garnered its second FDA approval. This is a company I get the occasional question on from Seeking Alpha followers. An updated analysis follows below.

Company Overview

Amicus Therapeutics, Inc. ( FOLD ) is a Philadelphia-based commercial-stage biopharmaceutical concern focused on the development of therapies for the treatment of rare diseases. With the recent approval of combination therapy Pombiliti (cipaglucosidase alfa) + Opfolda (miglustat) for Pompe disease, the company has two products for sale, anchored by Galafold (migalastat) for the treatment of Fabry disease. It also is advancing one early-stage program, although it will not be discussed below. Amicus was incorporated in 2002 and went public in 2007, raising net proceeds of $68.1 million at $15 per share. The stock trades just below $11.00 a share, translating to an approximate market cap of $3.2 billion.

Until recently, the company's only revenue generating asset had been Galafold, an oral monotherapy designed to bind and stabilize endogenous alpha-galactosidase A (alpha-Gal A) enzyme - encoded by the GLA gene - in patients with amenable genetic variants as a treatment for Fabry disease. It was first approved for use in the EU in 2016 for 1,384 mutations (approximately half the total patient population). It received accelerated approval from the FDA in 2018 for 350 GLA variants.

Fabry disease is a rare X-linked disorder caused by a mutation of the GLA gene, resulting in many misfolded alpha-Gal A enzymes, leaving a deficit or absence of functioning ones. Alpha-Gal A is responsible for the degradation of lipid substrate globotriaosylceramide in the lysosome. In Fabry disease patients, the substrate's buildup promotes progressive irreversible organ damage, usually to the nervous, cardiac, and renal systems. The dreadful lysosomal disorder is believed to afflict ~1 in 5,000. Amicus' therapy attempts to increase the activity of alpha-Gal A.

In addition to Galafold monotherapy, which management believes could benefit 35% to 50% of the patient population, Fabry disease is treated with intravenously administered therapies that replace the alpha-Gal A enzyme, specifically Sanofi's ( SNY ) Fabrazyme (agalsidase beta) and Takeda Pharmaceutical Company Limited 's ( TAK ) Replagal (agalsidase alfa), although the former, which was approved by the FDA in 2003, enjoys a dominant portion of a $1.9 billion market (2022), with ~$1 billion in sales. Replagal is not approved in the U.S., but generated FY22 sales of $385 million. Galafold is third, accounting for FY22 sales of $329 million, which represents approximately half its addressable market thanks in large measure to its over 90% adherence rates. Management believes it can surpass $1 million in revenue by FY28.

That said, Protalix BioTherapeutics, Inc. ( PLX ) and Chiesi's enzyme replacement therapy ((ERT)) Elfabrio (pegunigalsidase alfa) was approved by the FDA in May 2023. Furthermore, three companies have filed Abbreviated New Drug Applications for generic versions of Galafold with the likeliest earliest entry date August 2025, if Amicus is unsuccessful in its efforts to thwart their forays.

Pombiliti + Opfolda

Galafold is no longer the company's sole commercial asset after the combination of Pombiliti and Opfolda was approved by the FDA for adults with late onset Pompe disease ((LOPD)) who are not responding to ERT therapy on September 28, 2023. It was approved by the EC in June 2023 and in the UK in August 2023. LOPD is another horrible lysosomal disorder brought on by a deficiency of enzyme acid alpha-glucosidase [GAA] that retards the body's ability to break down glycogen, manifesting in muscle and organ damage. The malady afflicts ~5,000 to ~10,000 globally, although Amicus believes the disease is significantly underdiagnosed. Until the FDA green-lighted the company's combo therapy, the only approved treatments were two ERTs from Sanofi: Nexviazyme (avalglucosidase alfa) and Myozyme (alglucosidase alfa), which together accounted for FY22 sales of ~$1.2 billion.

Amicus' Pombiliti is an intravenously administered ERT, whereas Opfolda is an oral enzyme stabilizer. In a 117-patient Phase 3 study ((PROPEL)), the combo did not achieve statistical significance on its primary endpoint with combo patients (n=85) waking on average 21 meters farther at 52 weeks versus 7 meters for those treated with standard of care Myozyme (n=37) (p=0.072). However, it did demonstrate superiority to Myozyme on secondary endpoint forced vital capacity [FVC] (p=0.023). Ironically, Nexviazyme was approved by the FDA in 2021 after it flunked its primary endpoint of superiority to Myozyme in FVC but demonstrated superiority on the same six-minute walk test, which was its key secondary endpoint. Owing to this interesting twist and likely to the fact that FVC is the more important endpoint as the declines in FVC are more correlated with mortality, the combo was approved by the FDA but with a limited label (i.e., only those who are not responding to standard-of-care ERT therapy). As such, news of the approval was met with selling, although essentially flat prior to Amicus telegraphing its approval in an updated corporate presentation on September 27, 2023.

Q2 2023 Update

With revenue only still derived from Galafold and the UK and U.S. approvals of its Pompe combo still pending, the company reported solid financials on August 8, 2023, losing $0.08 a share (non-GAAP) on net product sales of $94.5 million versus a loss of $0.17 a share (non-GAAP) on net product sales of $80.7 million in Q2 2022, representing a top-line increase of 17% year-over-year that bested Street consensus by $4.6 million.

On the back of this strong quarter, management raised its net product sales guidance to a midpoint of 16% (up from 14.5%) and lowered its non-GAAP expenses from a midpoint of $350 million to $340 million. Amicus also stated that it anticipates going into the black on a non-GAAP basis in 2H23.

Balance Sheet & Analyst Commentary

That should leave the company's cash reserves, which stood at $221.3 million on June 30, 2023, relatively intact. Debt stood at $393.4 million, the interest on which amounts to ~$50 million annually. It should be noted that accounts payable and accrued expenses increased $31.6 million to $138.4 million in the quarter due to activities associated with the launch of the combo and increases in rebates on sales of Galafold. The company announced earlier this month that it planned to secure $430 million in additional funding through a loan arrangement and an equity offering via Blackstone.

The Street is mixed on Amicus, with seven buy or outperform ratings against five holds, although both Bank of America and JP Morgan raised their price targets to $19 post-FDA approval of the combination. The current mean price objective is $17.50. On average, they expect the company to lose $0.44 a share on net product sales of $395.4 million, followed by a profit of $0.15 a share on net product sales of $538.4 million in FY24.

Verdict

Even though Amicus is scheduled to move into the black by the end of FY24, the market has considerable expectations for both Galafold's growth and the launch of the Pombiliti + Opfolda combination.

Given that Galafold has achieved net product sales approximately equal to half its total addressable market ("TAM") and the label for the combo is limited - putting it third in the pecking order behind Sanofi's two entrenched therapies - out year expectations appear too optimistic, especially when factoring in potential generic competition nipping at its cornerstone therapy. In today's inflationary environment, Amicus' current valuation suggests peak sales of ~$1 billion, which seems fair to hopeful. However, with Amicus Therapeutics, Inc. moving into the black in 2H23, its downside is truncated, making it still a solid covered call candidate.

With all sensations and experiences, time and repetition remove all but the deepest discomfort or fear. "? Yasmine Millett.

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