2023-05-15 05:40:53 ET
Summary
- Amylyx Pharmaceuticals, a biotech firm focusing on neurodegenerative disorders, has seen impressive Q1 2023 financial performance despite clinical uncertainties around its flagship product, Relyvrio.
- Relyvrio, an ALS treatment drug, generated $71.4 million in revenue, bolstering predictions of annual revenues surpassing $1 billion.
- The company's share price has dropped 9% since the initial "Sell" recommendation, suggesting an undervalued market capitalization and prompting an upgrade to "Buy".
- Despite promising developments, investors should anticipate potential fluctuations and ongoing discussions about Amylyx's stock until full regulatory approval, possibly not until late 2024.
Introduction
Amylyx ( AMLX ) is a commercial-stage biotech company committed to developing innovative therapies aimed at alleviating the burden of neurodegenerative disorders. Their flagship product, Relyvrio (sodium phenylbutyrate and taurursodiol), previously known as AMX0035, has received authorization (as of September 2022) for the treatment of Amyotrophic Lateral Sclerosis (ALS) in adults in the United States and Canada. Currently, the company is actively seeking regulatory approval for Relyvrio in Europe while simultaneously focusing on its global development and marketing efforts.
After conducting my initial analysis of Amylyx, I observed them as a dedicated company with a focus on addressing neurodegenerative diseases. Although their primary drug, Relyvrio, initially demonstrated promise, I expressed concerns about its long-term viability due to uncertainties surrounding the confirmatory PHOENIX trial, which involves more advanced ALS patients and a longer timeframe. Despite these uncertainties, I anticipated that Relyvrio would perform well on the market, projecting median potential annual revenues of $1.1 billion. However, considering the uncertainties associated with the PHOENIX trial, I recommended selling Amylyx shares. Since issuing my "Sell" recommendation, Amylyx shares have declined by 9%, while the biotech sector ( XBI ) has risen by 15%.
Recent Update: On May 11th, Amylyx announced first-quarter revenue of $71.4 million for Relyviro, surpassing estimates by more than $11 million.
The following article aims to provide investors with an update following the earnings beat.
Amylyx Financials
Let's first take a deeper look into the earnings beat . In the first quarter ending March 31, 2023, the net product revenue reached $71.4 million, with the cost of sales amounting to $5.3 million. These figures were tied to the sales of Relyvrio in the U.S. and Albrioza in Canada, marking a significant change from the same period in 2022 when there were no product revenues or sales costs.
The company's research and development expenses increased to $24.2 million in the first quarter of 2023, up from $21.5 million in the same period of 2022. This rise was largely due to the growth in personnel-related expenses as the company expanded its team to boost research and development.
Selling, general, and administrative expenses also rose to $44.0 million in Q1 2023, up from $26.3 million in Q1 2022, primarily due to higher personnel-related costs and commercialization initiatives supporting the company's growth.
In Q1 2023, the company recorded a net income of $1.6 million or $0.02 per share, a significant improvement from a net loss of $47.8 million or $0.93 per share in Q1 2022.
The company's cash, cash equivalents, and short-term investments stood at $345.7 million as of March 31, 2023, slightly down from $346.9 million at the end of December 2022.
My Analysis & Recommendation
A thorough examination of Amylyx Pharmaceuticals' recent progress and trajectory prompts a re-evaluation of the existing investment outlook. The company's key product, Relyvrio, has shown resilience amid clinical uncertainties and maintains an ambitious plan for global market expansion.
Amylyx's financial performance in Q1 2023 has been remarkable. Despite being in the early stages of market entry, Relyvrio generated an impressive $71.4 million in revenue. This strong performance signifies not only a positive ALS market reception but also supports my medium-to-high estimates of annual revenues surpassing $1 billion.
Moreover, the recent decision by the Advisory Committee (ADCOM) to support Sarepta Therapeutics' gene therapy, despite inconclusive data, could indicate a continued inclusive risk/benefit assessment for pharmaceuticals targeting rare and severe diseases. This development has the potential to pave the way for a more favorable evaluation of Relyvrio, even if the PHOENIX trial fails to meet its primary endpoint. Additionally, upon further reflection, I realize that my original analysis of Reata ( RETA ) fell short by underestimating the FDA's willingness to approve drugs for rare diseases, even in the absence of strong data (as exemplified by Skyclarys for Friedreich's ataxia). I anticipate a similar narrative may unfold with Amylyx and by the time PHOENIX data arrives, Relyvrio may already be deeply embedded in ALS treatment, making it difficult for the FDA to pull the drug unless there is a safety concern or a clear lack of efficacy.
Moreover, the 9% drop in Amylyx's share price since the initial "Sell" recommendation highlights the necessity for an updated investment position. As the company approaches cash-flow positive operations and boasts a market capitalization of $1.86 billion, which seems undervalued, it is reasonable that the investment rating be upgraded from "Sell" to "Buy."
However, investors should prepare for significant fluctuations and ongoing discussions about Amylyx's stock until the company achieves full regulatory approval, possibly not until late 2024.
Assuming a maximum annual revenue of $1 billion and a current enterprise value (EV) of around $1.5 billion, Amylyx's valuation could potentially triple, given increased market penetration in the ALS sector and full regulatory approval. This estimation is based on a 4-5x peak annual sales projection. Given Amylyx's current valuation and substantial short interest, investors might be underestimating Relyvrio's clinical, regulatory, and commercial potential. I maintain that Relyvrio's market performance will surpass expectations, justifying a positive re-evaluation of Amylyx's valuation. This presents an appealing opportunity for investors, although it comes with inherent risks due to the company's development stage and the volatile nature of the biotech industry. Mid-2024 confirmatory data will necessitate close monitoring, and depending on Amylyx stock's performance, a change in strategy (e.g., purchasing stock options to hedge one's position) might be needed. As a result, a cautious approach is recommended when exploring this investment landscape.
Risks to Thesis
When the facts change, I change my mind.
While my bullish outlook on Amylyx Pharmaceuticals may be supported by a series of promising developments, it's crucial to consider potential risks that could undermine this perspective. Here are a few key areas of concern:
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Clinical Trial Risks: While Relyvrio has shown promise, the uncertainties surrounding the PHOENIX trial can't be ignored. If this trial does not meet its primary endpoint, it could significantly hinder the drug's prospects for broad acceptance and regulatory approval, which would subsequently impact the company's revenue projections.
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Regulatory Hurdles: Amylyx is currently awaiting regulatory approval for Relyvrio in Europe. There's a risk that this approval may be delayed or not granted, which would undoubtedly affect the company's global expansion plans and its ability to meet projected revenues.
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Market Acceptance and Penetration: While initial revenues from Relyvrio have been strong, the drug is still in the early stages of market introduction. Its long-term market acceptance and the degree of market penetration it can achieve are yet to be determined. Any failure to meet market expectations could adversely affect the company's financials.
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Competition: The biotech industry is characterized by intense competition, with many companies developing treatments for neurodegenerative diseases like ALS. The emergence of a more effective or better-tolerated treatment could negatively impact the demand for Relyvrio.
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Financial Stability: Despite the recent earnings beat, the company's financial stability could be a concern. Increased R&D expenses and other costs associated with commercialization could impact the company's profitability, especially if revenue growth doesn't keep pace. The decline in cash reserves, albeit slight, could also indicate potential future liquidity issues.
For further details see:
Amylyx: A Biotech Underdog's Resilient Performance And Promising Market Potential