I'm going to be taking a look at orphan drugs and their underlying companies all throughout the month of February, which will result in a number of write-ups with one specific theme: orphan drug investing. In the US, Orphan drugs are drugs that target diseases that affect less than 200,000 people. Europeans use an incidence rate threshold, which is 5/10,000. Orphan drugs are given certain benefits to encourage their production, including extended exclusivity periods on the drug market (7 in the US and 10 in Europe). These can be attractive investments due to their pricing power, extended market exclusivity, and their generally easier approval process.
A Brief Overview Of Amicus And Fabry Disease
The last time I took a look at the orphan drug specialist Amicus Therapeutics (NASDAQ: FOLD), we were all waiting on the phase III results for their flagship drug Migalastat HCL (which was formerly known as AT1001 and/or Amigal). This is a treatment for a very rare disease known as "Fabry Disease," and also makes the drug an orphan drug.
Fabry disease is one of the many progressive genetic diseases caused by a mutation which causes a deficiency in a vital protein - in this case in an enzyme that is used to metabolize lipids. Fabry disease is also known as "alpha-galactosidase-A deficiency," which names the specific enzyme that is missing due to the genetic mutation in these patients. Since Fabry patients have a mutated form of this enzyme, they are basically unable to process lipids as they are meant to, lywhich leads to severe problems.
Excessively high levels of lipids are extreme dangerous to many of the body's systems, but this is particularly true for the cardiovascular system. Ultra high lipid levels due to a deficiency of alpha-galactosidase-A causes symptoms in patients from an early age, with worsening conditions going into adulthood. Patients at the ages of 30-45 generally begin to see worsening function of the kidneys or the heart, which can lead to strokes and organ failure.
Fabrazyme (agalsidase beta)
Patients who have the disease do have a treatment option - an alpha-galactosidase replacement therapy called Fabrazyme which is being marketed by Genzyme - a subsidiary of Sanofi (SNY). Fabrazyme drew recent attention due to its recent rise in sales volume after years of subpar performance. An article from 2012 on FiercePharma outlined just how well Fabrazyme has been performing.
In Q3 2012, Genzyme reported an impressive total €87 million (which is $118 million using the very latest EUR/USD rate). The United States made more than half of this revenue, which isn't surprising because of how lucrative the US market is with our health insurance system.
Amicus Analysis (the fun part)
FOLD, with a market capitalization of about $190 million after its drop in December 2012, is discounting the potential of a successful Fabry disease treatment by a decent amount (especially when you add in the value of the remainder of its pipeline). Why has it gotten cheaper?
Again, we go back to points outlined in my previous article on FOLD. FOLD was trading in a predictable trading range for most of 2012 until phase III results for migalastat HCl were released. At the end of the last article, I mentioned the following:
"Top-line results for Study 011 are due before the end of this year (which means that we could see the press release any day now). Because of the huge reaction that Wall Street had to other clinical trial data releases for orphan drugs this year, there is expectation that positive top-line results from Study 011 could cause a massive rally based on the notion that orphan drugs with successful phase II/III results have extremely high chances of approval."
I was right about the "huge reaction" to the phase III data that was ultimately released for migalastat, although I was expecting better results than what we got. Because of that phase III trial, FOLD dropped from $5.77/share on December 19th all the way to $3.06/share the next day. This is a 47% drop that occurred in a single trading session, which is quite a traumatizing thing to see.
This press release, which details the top line results from migalastat's phase III trial - Study 011, explains how the primary endpoint was specified as a 50% or greater reduction in kidney insterstitial capillary GL-3 after the 6-month treatment period for migalastat. GL-3 is the name of the glycolipid that is accumulated within blood vessels in patients with Fabry disease, and its buildup in the kidneys looks a bit like this:
(A) Baseline biopsy, pre-treatment. GL-3 is present near endothelial nuclei and around the perimeter of the capillaries. ((B)) Post-treatment biopsy. Capillaries are clear of GL-3 (magnification of A and B, 100 objective). (source)
41% of the migalastat arm was able to demonstrate over 50% reduction in GL-3 in the kidneys versus 28% of the placebo arm, although this was not statistically significant (p=.3) because of the large number of patients who were not evaluable. The overall percentage change in GL-3 in the migalastat arm, after 6 months, was 41% while the placebo arm was 6%. This shows that migalastat seems to work, although it wasn't proven with statistical significance with current data. I think that this can be fixed if the company lowers the bar for migalastat's 6-month performance and makes the trial bigger. Also, since migalastat is not a simple hormone replacement (and works through a different mechanism), I think that the FDA might have some lenience on the drug.
The FDA has also indicated that it will consider 12-month results for a potential FDA approval, which indicates that this trial may add more to a migalastat NDA submission than the market originally thought. This should be further discussed in a presentation that Amicus will be making at the Lysosomal Disease Network WORLD Symposium (LDN WORLD) event in Orlando, Florida between February 12-15. Since further analysis on patient renal function will be addressed, I think we could see some interesting news.
There's no doubt that FOLD has been a terrible investment in the last few months, but migalastat might recoup the losses (and then some) if the clinical trial situation can be turned around. This is hinged around the success of the secondary endpoints in Study 011, which should be further analyzed very soon.
At the same time, there are risks involved. Clearly there is some question about the efficacy profile of migalastat, which should naturally keep FOLD away from inflated price for quite some time. There is also the fact that Amicus has partnered with GlaxoSmithKline (NYSE: GSK) for the development of migalastat, which means that the company is limited to the drug's market potential within the United States alone. This means that they will only be able to target about 3,000 patients. Still, this can be a surprisingly big market if you consider how much pricing power Amicus has with a necessary Fabry treatment.