Tony Pelz's  Instablog

Amicus Therapeutics (Ticker: FOLD) may represent a decent medium term trade with good upside potential, an identified catalyst event and cash downside support on into Phase 3 results. 

FOLD is a small cap biotech company with one lead product candidate and several early stage product candidates⁽¹⁾.  The Company’s lead candidate, Amigal, targets Fabry disease and is currently in Phase 3 trials with top-line data expected by the first half of 2011. 

FOLD is currently trading at historic lows following a significant sell-off in October 2009 due to failed results on the Company’s early stage Guacher Disease drug candidate Plicara.  FOLD sold off from around $10 to $4 on the news, wiping out around $140 million in market value.  Since the sell-off, the Company has traded/consolidated into a very tight range between $4 and $3 a share.

The company currently has 27.6 million shares outstanding⁽²⁾.  FOLD recently completed a registered direct share offering of 4.95 million shares at a price of $3.74 to institutional investors raising around $18.5 million⁽³⁾.  The offering provides cash to further the Phase 3 program and may be indicative of sophisticated institutional investor confidence in the potential success of the drug candidate.   It should be noted that well known institutional investors Blackrock and Baker Brothers both maintain large positions in FOLD.

FOLD currently has net cash of around $92 million. This equates to cash per share of about $3.30 compared to the current share price of $3.22 implying that the present value of all FOLD product candidates is zero.  FOLD estimates 2010 cash burn at around $40 to $50 million and expects to have sufficient cash on hand to survive into the second half of 2011⁽⁴⁾ – this is around the same time top line results are expected for their Phase 3 candidate.  As Amigal is the only drug candidate with near term market potential, this is thus a “make or break” situation for FOLD. 

The Company states that the total market size for Fabry is approximately $670 million per year with an expected compound annual growth rate of 18%⁽⁵⁾.  Using a DCF valuation methodology with very conservative assumptions, and using Company market estimates, FOLD may trade north of $7.50 per share on positive results. 

Notes:

(1)    Source: Presentation at 28^th Annual J.P. Morgan Healthcare Conference, January 2010, page 3.  AT222 (Pompe Disease), Phase 1; Plicara (Gaucher Disease), Pre-clinical; several Pre-clinical drugs targeting Parkinson’s disease and Alzheimer’s disease.

(2)    Excludes dilution from 1.85 million $4.43 strike warrants in connection with registered direct offering. 

(3)    Announced February 25, 2010.

(4)    Source: Presentation at 28^th Annual J.P. Morgan Healthcare Conference, January 2010, page 22.

(5)    Source: Presentation at 28^th Annual J.P. Morgan Healthcare Conference, January 2010, page 9.