Amicus Therapeutics Should See a Big Upside Move On Positive Phase 3 Data

One company that has really received a ton of attention lately has been Sarepta Therapeutics (SRPT). Only a few weeks ago, the stock was trading in the $3 to $4 range. On 10/3/12, the company announced that it received positive phase IIb clinical data for its Duchenne muscular dystrophy drug eteplirsen.

Sarepta said eteplirsen slowed the progress of the disease and increased patients' levels of the protein dystrophin in an extension of a mid-stage trial. Low levels of that protein are the cause of Duchenne muscular dystrophy. The stock exploded from a prior day's closing price of $14.99 to an intra-day high the next trading session of $45.00 -- almost exactly a triple in the stock price. Is there another BioPharma stock out there that could see a similar move in its stock price soon?

Amicus Therapeutics, Inc. (FOLD) is definitely a company with the potential to be a triple soon, and I will give my reasoning in this write-up why I believe there is a good chance we will see that happen.

Amicus is utilizing a new technology in the development of treatments for genetic diseases. Pharmacological chaperone technology involves the use of small molecules that selectively bind to and stabilize proteins in cells, leading to improved protein folding and trafficking, and increased activity.

In its Fabry program, the company is investigating the use of AT1001 to bind to destabilized α-galactosidase A enzyme (α-GAL) and thereby restore its intended biological function.

Characteristics of Fabre Disease:

• Full body or localized pain to the extremities is common in patients with Fabry disease. This is believed to be related to damage of peripheral nerve fibers that transmit pain.

• Kidney complications are a common and serious effect of the disease; renal insufficiency and renal failure may worsen throughout life. End stage renal failure in males can typically occur in the third decade of life, and is a common cause of death due to the disease.

• Cardiac complications occur when glycolipids build up in different heart cells. This creates heart related effects which worsen with age and may lead to increased risk of heart disease. Hypertension (high blood pressure) and cardiomyopathy are also commonly observed.

A potentially big catalyst coming up for Amicus is the release of the phase III results related to its medication for Fabry disease. This is a disorder caused by the deficiency of an enzyme called α-galactosidase A (α-GAL). Reduced or absent levels of this enzyme's activity leads to the accumulation of a complex lipid in the affected tissues, including the central nervous system, heart, kidneys, and skin. This accumulation is believed to cause the various symptoms of Fabry disease including pain, kidney failure, and increased risk of heart attack and stroke.

There has been historic difficulty in finding successful treatments for rare genetic diseases. If Amicus can show successful phase III data here, it could very well be like a "kodak" moment in medicine's war against genetic diseases.

On September 6th, Amicus issued a press release to update the screening profiles related to this study. Labeled study 011, this is one of two ongoing Phase 3 studies of migalastat HCl monotherapy being conducted by Amicus and GlaxoSmithKline (GSK). The updated screening profiles included the following:

• A total of 180 Fabry patients (60 males and 120 females) were screened for Study 011. Prior to screening sites could have used genotype information when available to enrich for Fabry patients with amenable mutations who were more likely to be interested in participating.

• Approximately 86% (154/180) of patients screened had missense mutations (compared to a current estimate in the Fabry population of approximately 60%).

• Approximately 88% (136/154) of those patients, or 76% of patients screened, had alpha-galactosidase A mutations amenable to migalastat HCl monotherapy, and were potentially eligible for enrollment.

• Approximately 50% (67/136) of those patients, or 37% of all patients screened, enrolled in Study 011 upon meeting all entry criteria, including: 1) naïve to ERT or had not received ERT for at least 6 months prior to study entry; 2) genetic mutations amenable to chaperone monotherapy and; 3) for study purposes, urine globotriaosylceramide (GL-3) levels at least four-times the upper limit of normal at baseline.

The primary endpoint in Study 011 is a change in interstitial capillary GL-3 as measured in kidney biopsy at 6 months versus baseline. The six month primary treatment period in Study 011 was completed in the second quarter of 2012 and the six-month follow-up period is expected to complete in the fourth quarter 2012. Amicus and GSK will also un-blind and analyze data from the primary six month treatment at this time. Currently, both companies remain blinded to all results.

During the phase II trial, Amicus completed multiple phase II studies of AT1001 for the treatment of Fabry disease. In total, twenty-six male and female subjects were treated for either 12 or 24 weeks. Twenty-three of the twenty-six subjects continued to receive treatment in an ongoing Phase II Extension Study designed to evaluate the long-term safety and efficacy.

Results from the Phase II studies indicated no drug-related serious adverse events. The most common adverse events were headache, arthralgia, and diarrhea. In subjects identified as responders to AT1001, treatment resulted in increased levels of the target enzyme (α-Gal A), as measured in white blood cells and in the kidney, and reduced levels of the target substrate (GL-3), as measured in renal interstitial capillary cells from kidney biopsies and in urine.

In February 2010, the Company announced additional preliminary results from its ongoing Phase two extension study. This data indicated that eGFR remained stable 2-3 years out for all subjects continuing in the extension study.

As mentioned in a previous article, GlaxoSmithKline bought close to 3,000,000 additional shares to bring their ownership stake up to 19.9% of Amicus. Additionally, they paid a significant premium which amounted to $6.30/share. I like the confidence this shows in the technology and leadership that Amicus displays. Obviously, investors have to do their own due diligence but this can help provide some assurance when you see a very successful company buying up a portion of a company at a premium.

I believe Glaxo would not have such a significant percentage of Amicus stock if they didn't plan on a potential easy transition to fully acquire the company if the 011 phase III study shows successful data. Glaxo has been throwing quite a bit of money around lately, trying to invest in companies with unique products while looking for new ways to battle generic drug companies who have taken a chunk out of its profits. In recent months, the company fully acquired Cellzome and Human Genome Sciences in addition to increasing its investment in Theravance Inc. (THRX), which Glaxo is also partnered in with the drug fluticasone furoate "FF"/vilanterol "VI" (FF/VI) for patients with chronic obstructive pulmonary disease. On 9/26/12, both companies announced that the New Drug Application for the once-daily investigational medicine fluticasone furoate was accepted by the FDA. The Prescription Drug User Fee Act (PDUFA) goal date has also been confirmed for May 13th, 2013.

With deals and acquisitions appearing to be the growth strategy for Glaxo, this could pay off in a big way for shareholders of Amicus.

Glaxo's 20% stake in Amicus likely serves as a prelude for a takeover of the company as the pharma giant recently employed the same strategy before its acquisition of Human Genome Sciences -- there is just no way in my opinion Glaxo would have this high a stake in Amicus for any other reason.

In the above YouTube video we can see a good sell-off that occurred in July. This was a result of the following agreement between Amicus and Glaxo:

On July 17, 2012, Amicus and Glaxo entered into a Stock Purchase Agreement (SPA) pursuant to which Glaxo purchased 2,949,581 shares of unregistered Amicus common stock, par value $0.01 per share (the "shares"), at a price of $6.30 per share. The total purchase price for the Shares is $18,582,360 - the Company then received all proceeds from the sale of the Shares. The Shares were sold by Amicus to Glaxo in accordance with SEC Rule 506 and pursuant to Glaxo's qualification as an "accredited investor" under SEC Rule 501. The sale of the Shares closed on or about July 31, 2012.

It's clear to me that Glaxo hedged a few of those shares it bought, and many investors/traders sold their nice short term percentage gain which resulted in a sharp sell-off of the stock shortly afterwards -- in my opinion.

It makes perfect sense for Glaxo to have a small hedge here, as it is not 100% guaranteed the Phase III 011 study will show positive results -- Glaxo in small part is protecting its investment in Amicus. I also believe current warrant holders joined in the selling with retail profit takers and exercised many of their warrants with buying shares, then selling some of those shares.

I believe this makes for an interesting trading thesis here. Let's say the Phase III results have a problem -- Glaxo would sell off some of its long shares along with many retail sellers. At a certain point after selling out long positions, Glaxo would cover its hedge and cause a massive spike upwards from a depressed stock price I think could reach as low as $2.50. At this point, traders could quadruple their higher priced positions in order to average down, sell into the bottom bounce from short covering, then getting out of the trade even or possibly slightly ahead.

For an example how this strategy can work, Peregrine Pharmaceuticals (PPHM) recently saw a drastic decline in its share price when the company said it discovered "major discrepancies" involving patient test results in a mid-stage study of the experimental drug bavituximab. Peregrine blamed a vendor and said it's in the process of reviewing the problem. Meanwhile, the company's stock price plummeted from a prior trading session close of $5.39 to an open the next trading session on the bad news of $0.83.

Even with the horrid news, many investors got out of that situation in decent shape by doubling to quadrupling down at the market open low prices. Couple this with massive short covering, it became possible to get out of the trade even, or even ahead after the shorts covered to take profits. This resulted in the share price doubling from the lowest levels, seeing an intra-day high the same day of $1.57.

As we can see above, Amicus has a low trading float at a little over 24M shares. The outstanding shares come in at a little under 50M, which places the Amicus market cap near $246M, or roughly $5 a share which I believe is grossly undervalued, notwithstanding the company has other promising drugs in its clinical pipeline.

Amicus is burning about $11.2M of cash a quarter, but has an ample supply of cash on hand, coming in at about $96M. The company has a tiny debt of about $1.3M, which is basically nonexistent when compared to its current cash position.

UPDATED: Amicus now has an option chain for the stock. This is important as it provides traders an opinion to hedge their bets in case on the small chance phase 3 data fails for the 011 study.

While Fabry disease is not as widely known as what Sarpeta Pharama is trying to treat - Duchenne muscular dystrophy - is a serious potentially life threatening disease. Also, while Amicus will not see over $40 a share anytime soon like Sarpeta, it has the potential to see a similar percentage upside move in its price as Sarpeta recently has.

Price target opinions:

On positive Phase III data from study 011 (expected this quarter) I see a stock price between $8.50 - $9.50 a share.

Afterwards, I believe it's virtually certain that Glaxo acquires the company for a stock price between $12 - $14 a share

Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.