The valuations of listed biotech companies have reached this year to heights not seen since before the global financial crisis and economic recession. For full-year 2012, the Nasdaq Biotechnology Index (NBI) improved by 32 percent compared to the previous calendar term. The impressive growth has continued through 2013 for companies of all sizes and market values. The FDA approved for marketing about 40 novel biologic or small-molecule agents during 2012, which represent the highest amount of FDA approvals for novel drugs since 1997.
This week, I asked Dr. Kimberly Lee, a Managing Director and senior biotechnology analyst at Janney Montgomery Scott, to bring us her insight on two biotech stocks she covers, which are worth considering as investments. Dr. Lee has more than 12 years of biotechnology equity research experience. Prior to joining Janney in 2012, she was a senior analyst at ThinkEquity. Formerly, she was also a Managing Director at Global Hunter Securities where she was a founding member of the healthcare practice, Vice President at Wedbush Securities and an associate at Jefferies and Co. and Stephens Inc. Dr. Lee was recognized by StarMine with four stars for EPS accuracy in 2008 and 2009 for her biotechnology coverage. She is a trained physician and received her BS in Biological Sciences from Stanford University and her DO from the Kirksville College of Osteopathic Medicine.
The first one is Amicus Therapeutics (FOLD), a biopharmaceutical company which developing novel, first-in-class treatments for a broad range of human genetic diseases, with a focus on delivering new benefits to individuals with lysosomal storage diseases. Amicus' lead programs include the small molecule pharmacological chaperones migalastat HCl as a monotherapy and in combination with enzyme replacement therapy (ERT) for Fabry disease; and AT2220 (duvoglustat HCl) in combination with ERT for Pompe disease.
Ben Yoffe: Dr. Lee, since migalastat did not meet the primary and the secondary goals in its Phase 3 Fabry monotherapy study, do you think there is still a chance that the company could get this product to the market?
Dr. Lee: Yes, we do. Although migalastat missed the primary endpoint in Part 1 of Study 011, management believes the 12-month dataset should be supportive of a potential approval. At minimum, we expect a favorable outcome if the data from patients who crossed over to drug from placebo after Month 6 look similar to the data from Part 1 of Study 011 and if patients who were on drug for twelve months demonstrate a positive trend in clinical benefit. As a reminder, no single endpoint from Part 2 of Study 011 will be determinative as the FDA will make its decision based on the entirety of Study 011 data. We see two regulatory strategic options. First, the company could file for U.S. approval based on 6- and 12-month data from Study 011, assuming the latter dataset is positive. In this case, we project an NDA filing following Study 011 data release in 3Q. If 12-month data is negative, we believe the company may need to incorporate data from the EU Study 012 in the NDA filing. In this scenario, we estimate an NDA filing could occur in 3Q14.
Yoffe: What is the commercial opportunity for migalastat in Fabry disease?
Dr. Lee: The global commercial opportunity for migalastat as monotherapy for patients with Fabry disease is approximately $200 million, in our view.
Yoffe: In case of bad news, what is the value of the rest of Amicus' pipeline?
Dr. Lee: We estimate that the Pompe as well as the Fabry combination therapy programs are worth at least 3x-4x of the value of the Fabry monotherapy program.
Yoffe: Will the company be looking for funding as it goes forward?
Dr. Lee: Yes, we believe additional cash inflows will be needed to support the rest of the pipeline. The company ended 1Q13 with approximately $84.8 million in cash and equivalents, which should last until 1Q14, per our estimates.
Yoffe: What is your rating and price target for FOLD?
Dr. Lee: We rate FOLD as a Buy and have a $7 fair value estimate, which is based on a discounted cash flow analysis through 2020. We view FOLD as an undervalued investment based on our view that there remains a high probability of success for migalastat combination therapy, meaningful market opportunities, a solid technology platform, significant upcoming milestones and compelling valuation.
The second one is Corcept Therapeutics (CORT), a pharmaceutical company engaged in the discovery, development and commercialization of drugs for the treatment of severe metabolic and psychiatric disorders. Korlym, a first generation GR-II antagonist, is the company's first FDA-approved medication. The company has a phase 3 trial underway for mifepristone for treatment of the psychotic features of psychotic depression and a portfolio of selective GR-II antagonists that block the effects of cortisol but not progesterone. It owns extensive intellectual property covering the use of GR-II antagonists, including mifepristone, in the treatment of a wide variety of metabolic and psychiatric disorders. It also holds composition of matter patents for its selective GR-II antagonists.
Yoffe: Korlym has not been a big commercial success so far and had disappointing sales in the U.S. What is your impression?
Dr. Lee: Unfortunately, when Korlym received U.S. approval in February 2012 and launched the drug in April 2012, the company did not have the entire sales force in place to market the drug. As a result, the company was at a slight marketing disadvantage at launch. In addition, one of the issues facing the company is the fact that many of the Cushing's patients are found outside of the centers of excellence so the challenge has been in identifying these patients and educating physicians who may not see many Cushing's patients. With a 10-person sales force, we believe the company may eventually need to expand its sales force to broaden the marketing effort.
Yoffe: Korlym is now set to face increased competition from Novartis' Signifor, which gained FDA approval in December last year. How do you think it will influence on Korlym sales?
Dr. Lee: With Novartis' marketing power, we believe Signifor's entrance into the marketplace could help expand the market opportunity in Cushing's syndrome and increase patient and physician awareness to the disease. As such, this could catalyze Korlym sales in the long term. In the near term, we believe Korlym has first-mover advantage over Signifor.
Yoffe: What are the next catalysts for the company?
Dr. Lee: Upcoming milestones include 2Q earnings and completion of patient enrollment in the Phase III Korlym study for patients with psychotic depression by year-end. In addition, we anticipate updates on the EU regulatory front in 2H13/early 2014.
Yoffe: Corcept have the funding needed to move ahead?
Dr. Lee: The company ended 1Q with approximately $81.5 million in cash and equivalents, which is enough to sustain operations until 2Q14, per our estimates. Given CORT's plan to ramp up the Phase III psychotic depression study, we forecast that additional cash inflows will be necessary to support advancement of CORT's pipeline.
Yoffe: What is your rating and price target for CORT?
Dr. Lee: We rate CORT as a Buy and have a $3 fair value estimate, which only includes value from Korlym in Cushing's syndrome. Our rating is based on our physician due diligence, meaningful market opportunity for the company's first marketed product, Korlym, and compelling valuation.