Amicus - One Final Biotech Catalyst For 2012?

| About: Amicus Therapeutics, (FOLD)

Investors looking for one last big biotech catalyst in 2012 - besides Celsion (NASDAQ:CLSN) that we wrote about in May - should be investigating Amicus Therapeutics (NASDAQ:FOLD) in advance of that firm's release of clinical trial data regarding its innovative new chaperone technology, Amigal (migalastat hydrochloride, AT1001), for Fabry disease. Top-line results for a Phase III trial of Amigal are slated for release in Q4 2012 and with days until the quarter's end dwindling, the announcement is imminent.

Earlier Phase II trial data of Amigal have been promising with excellent efficacy and minimal side-effects albeit in an extremely small sample size (nine patients, due to the rarity of the disease). Investors will be analyzing this month's Phase III data release closely on two fronts. First, they'll be looking at efficacy/safety data in line with the Phase II trials, auguring a likely approval. Secondly, they'll be seeking any early indications of the percentage of Fabry patients likely to respond to Amigal treatment (though more complete data on this may not be available until a full report on the trial in 2013) to better estimate future market size. Amigal, unlike the enzyme replacement therapy currently used to treat Fabry, functions by enhancing the patient's own enzymes. Consequently, Amigal is expected to show little to no efficacy in some portion of Fabry patients with forms of the enzyme incompatible with the drug. Unfortunately the percentage of patients for which Amigal will be ineffective is unknown with estimates ranging from 25%-90%. Clinical data supporting efficacy in a large percentage of patients would likely drive the share price substantially higher by year's end. In this report, we will be analyzing both the details of the Amigal chaperone technology and the market potential for this drug.

Despite the relative rarity of affected individuals (~4,000 patients receiving treatment worldwide), the market for the enzyme replacement therapy used to treat Fabry disease is in excess of $600M/year. If approved, Amigal, as a small molecule therapy, would be well positioned to replace these enormously expensive and difficult to administer enzyme replacement therapies for a significant proportion of Fabry patients. Given the company's currently cheap valuation of (enterprise value <$250M), positive data in this trial has the potential to make Amicus the year's final biotech success story.

Fabry: Disease and Treatment Options

Fabry, the target condition of Amigal, is a rare genetic disorder caused by inherited mutations in the gene that encodes α-galactosidase A (α-Gal A), a lysosomal enzyme involved in the breakdown of a fatty substance called globotriaosylceramide (GL-3). Nearly 500 disease-associated mutations in α-Gal A have been discovered. Mutant forms of α-Gal A are unstable and are often misfolded, leading to its degradation by the cell's quality control system. This results in the absence or reduced enzyme activity and the accumulation of GL-3 in cells of various tissues including heart, brain and kidney. Over time, fat buildup causes progressive tissue damage and ultimately leads to severe health problems including heart attack, stroke and kidney failure.

Current Treatment: ERT

Enzyme replacement therapy ERT, the current primary treatment for Fabry disease provides patients with a recombinant form of human α-Gal A (generated by expressing gene encoding the enzyme in CHO Chinese hamster ovary cell lines), via intravenous administration. After infusion, the recombinant α-Gal A enter the cells, breaking down GL-3 to stop or slow disease progression and alleviate disease symptoms. Genzyme's Fabrazyme and Shire's Replagal (not approved by FDA for use in the U.S.) are the two options for ERT currently available. Because ERT replaces the patient's deficient enzyme completely, all Fabry patients can be treated, regardless of the underlying mutation affecting Gal-A. However, there are some significant drawbacks: 1) The recombinant enzyme is unstable at neutral pH, thus the treatment has to be repeated bi-weekly, in a time-consuming procedure that requires up to 5-6 hours. 2) Drug distribution is incomplete in some cases. Due to their large size, recombinant enzymes used in ERT therapies have problems reaching some tissue sites, for example crossing the blood-brain barrier to reach the central nervous system. Accordingly, studies in Fabry patients have shown an inability of infused α-Gal A to reduce GL-3 in locations such as the heart and brain. Accumulation of GL-3 in these regions can lead to significant disease symptoms despite ongoing treatment. 3) Although ERT is safe, some treated individuals may develop reactions to the infusion, including fever, chest pain, headache, and nausea. 4) Concerns with drug availability - production of Fabrazyme was halted due to problems in quality control, causing supply shortages from 2009 to early 2012 and creating significant challenges for patients. While production has resumed, recombinant enzymes are difficult to manufacture and the risk of future supply interruption remains a serious concern for Fabry sufferers.

Amigal: A promising small molecule alternative to ERT

Amigal by Amicus Therapeutics represents a novel, alternative approach in Fabry treatment. It's a pharmacological chaperone, a small molecule that assists in the folding of other macromolecular structures. Pharmacological chaperones are rapidly becoming a proven technology - Tafamidis, developed by FoldRX a subsidiary of Pfizer (NYSE:PFE), for the treatment of familial amyloid polyneuropathy, was recently approved by the European Medicines Agency and is currently under consideration by the FDA. Amigal selectively binds to and stabilizes mutant α-Gal A to facilitate their proper folding and trafficking, restoring α-Gal A function in Fabry patients. As a small molecule drug, Amigal holds these key advantages over the conventional ERT treatment: 1) Amigal is orally available (150mg every other day), significantly alleviating patient burden when compared with infusion. 2) Amigal's low molecular weight enables it to have a broader tissue penetration and drug distribution than ERT, allowing for increased breakdown of GL-3 in the critical sites of the heart and CNS. 3) Rather than supplementing the body with exogenous α-Gal A that might not reach the site of action within cells (lysosomes), Amigal restores the proper folding and improves the stability of the native enzyme to ensure that its properly trafficked to lysosomes to breakdown the accumulated GL-3. 4) The manufacture of small molecule drugs is typically easier, cheaper, and more reliable than that of recombinant protein like that used in ERT. For these reasons, particularly the dramatically reduced patient burden resulting from a switch to oral dosing, we expect eligible patients will most likely switch from ERT to small molecule Amigal upon approval.

Amigal Developed Under Orphan Drug Designation

Amigal, like ERT for Fabry's, is designated as an orphan product by the FDA and the European Regulatory Commission because of the low prevalence of the disease and the desperate need for improved treatment. Orphan drug designation grants an increased period of enforced market exclusivity (seven years in U.S and 10 years in European Union).

One Significant Concern: Not All Patients are Eligible

Despite the substantial promise of Amigal therapy, there is one substantial drawback. Unlike ERT, which replaces the faulty α-Gal A in patients, Amigal enhances the patient's own α-Gal A. Consequently it 1) requires residual α-Gal A activity in patients and (2) does not work in all forms of α-Gal A mutations, only some cases of missense mutations (change in a single nucleotide) that prevents the proper folding of the enzyme. An in vitro study has shown up to 60% (49 out of 81) of missense mutations in α-Gal A responded to Amigal, however, in vitro results are not always reflected in vivo, due to the increase in contextual complexity. Current estimation of Fabry patients eligible for Amigal seems to vary greatly, ranging from 10% to as high as 60%, according to Amicus.

In addition to the upcoming Phase III study, Amicus is currently conducting a Phase II clinical study to examine the effects of Amigal co-administration with ERT. In mouse model of Fabry, the co-administration of Amigal with ERT was shown to stabilize the infused recombinant α-Gal A, further increasing its half-life by 2.5 fold and resulted in 30% greater GL-3 reduction compared with ERT alone. Although not every Fabry patient responds to Amigal monotherapy, Amigal have the potential to significantly improve ERT treatment when co-administered - which, if implemented could lead to a large increase in market share. Revenue under the co-administration model will be lower for Amicus than Amigal monotherapy [this is discussed further below as an element of the Amicus/GlaxoSmithKline (NYSE:GSK) partnership].

Clinical Trials: Critical Phase III Data Imminent

Amigal is currently being evaluated in four clinical trials, measuring the drug's safety and effectiveness by itself (monotherapy) as well as in conjunction with ERT (co-administration). This month's data release will be a preliminary report on the top-line results of the monotherapy Phase III trial Study 011. The study begins as a double blind comparison of drug and placebo, continues with all patients receiving the active drug (i.e., open-label), and will be completed with an optional 13-month drug trial extension in January of 2014. This particular study compares the safety and efficacy of Amigal to placebo treatment, so it cannot directly claim superiority over ERT, but will be an important measure of in-patient efficacy. Another Phase III study, 012, is directly comparing Amigal to ERT, but preliminary results are not due till late 2014.

Phase III details

Study 011 has enrolled 67 patients at 14 sites in the United States and another 24 sites worldwide, comparable with the number of patients in Phase III of the Fabrazyme ERT studies though much more widely distributed geographically. This wide distribution may strengthen Amigal's marketing application both in the U.S. and abroad. Relevant in/exclusion criteria include a minimum four-fold increase in urine GL-3 over normal patients, no ERT over the preceding six months, and a mutation known to be amenable to AT1001, the tested formulation of Amigal. These criteria appear to include many patients with milder forms of the disease; an internal Amicus study of 18 Phase II patients with missense mutations and partial GLA activity indicated mean urine GL-3 of 16.4, and study 011 patients were not actively taking the only effective enzyme-oriented therapy. It's main restriction - that the mutation be amenable to the drug - means that efficacy here will not indicate the fraction of all Fabry patients expected to respond to the drug. Amicus reports that 76% of the 180 patients screened for the study were eligible based on mutation type, though it admits there might have been some genetic "pre-screening" at some centers. In previous cell-based studies associated with Phase II, α-Gal A activity was reported to increase in 60% of 81 mutant forms tested. The true fraction of responsive patients therefore continues to be difficult for Amicus or others to estimate, but 60%-70% appears to be the very upper limit. Investors will be closely monitoring the percentage of enrolled patients that respond to the Amigal therapy. If a high percentage of those enrolled based on in vitro Amigal sensitivity data do respond to the drug, it would both validate Amicus's in vitro screening protocol and suggest a potential market size in line with the company's aggressive estimates.

Outcome to Watch For: Kidney GL-3 Levels

To measure Amigal efficacy in Study 011, Amicus will use the buildup of the lipid GL-3 in the kidneys as the primary outcome measure. GL-3 accumulates in various organs in response to a severe reduction or absence of GLA activity, and is thought to cause the disease symptoms, including kidney failure, a common cause of Fabry patient death. This outcome measure was used in the past to convince the FDA of ERT efficacy, though the measurement technique used here is not directly comparable. We also note that kidney GL-3 reduction has not been directly shown to change disease progression, so, as is often the case, some level of clinical ambiguity exists. That said, because the distribution of the small molecule Amigal is thought to be more uniform than that of ERT, there is reason to suggest that Amigal will have a better overall GLA-inducing profile across diverse relevant organ systems, something that may provoke doctors to prescribe it over ERT in the absence of more information.

In study 011, patients will be identified as responsive with decrease in GL-3 of at least 50% in kidney tissues. This is a modest decrease compared with those seen in ERT trials as well as Amigal's Phase II (Phase II responders experienced a mean decrease of 78%). The Street's Adam Feuerstein reports that the study is powered to achieve statistical significance with as few as 9 more responders in Amigal-receiving patients compared with the placebo control. Previous ERT and Amigal Phase II trials suggest that patients in the placebo groups are very unlikely to experience significant decrease in these kidney Gl-3 levels, suggesting the experiment is unlikely to be marred by high control-group responses - a not insignificant concern in many small sample size trials. Overall, we believe the kidney GL-3 levels are well chosen as primary outcomes. This measure is objective, comparable (though not perfectly) to trials of primary competitor Fabrazyme, likely to highlight the strength of Amicus' small molecule approach, and were well supported in Amigal's Phase II trials. If the the efficacy data is strong by this measure, it will likely warrant FDA approval and be a persuasive piece of evidence for doctors and patients considering switching to Amigal therapy, even before the release of data directly comparing Amigal to ERT treatment.

Safety- Phase II Data is Encouraging

Regarding safety and side effects, no serious adverse events have been attributed to the study drug thus far, with fatigue and joint and back pain reported as minor adverse events. This side effects profile is quite mild compared with the common (and sometimes limiting) immune response triggered by ERT. The fact that it is available under the expanded access/compassionate use program suggests that, given these available safety data, the FDA sees the potential benefits of access outweighing the risks of taking an as-yet unproven drug. Overall, with better tolerability, oral dosing, and potential speculation on improved patient outcome, a GL-3 response anywhere near that of ERT would make Amigal an attractive alternative to ERT as a stand-alone drug.

Amigal-ERT Co-administration Trials Ongoing
Amigal is also being tested as an adjunct to ERT. Because ERT enzymes are degraded during the infusion and delivery procedure, co-delivery may lower levels of infused enzyme required for equivalent function. Phase III study 012 and Phase II study 013 are currently studying the effects of these drugs working in coordination. Preliminary results show an increase in ERT activity in plasma and skin, indicating drug-drug interaction in vivo, though the clinical significance of this is as yet unknown. No serious adverse effects attributable to Amigal were observed.

Market Analysis

One of the greatest challenges for Amicus investors is estimating the potential market size for Amigal, particularly given the uncertainty in estimates of both disease prevalence and percentage of patients eligible for Amigal treatment.

Fabry Prevalence Unknown

The TAM Total Available Market is hard to estimate as numbers found in literature range from 5000 to 2.53 million patients (prevalence of 1 in 3000) with Fabry disease worldwide. This confusing range comes is due to 1) the fact that Fabry disease is still heavily under diagnosed, and 2) multiple studies use different definitions of the disease. Not everybody who has a mutation in the gene that encodes α-galactosidase A will show the same severity of symptoms (which makes diagnosis even more difficult), and often a late onset of the symptoms can be observed. Median age at diagnosis is with 29 years, surprisingly high for a genetic disease. Novel genetic tests are now coming to the market that can diagnose 98% of all FD causing mutations. Thus, it is very likely that once these tests are in more frequent use, the diagnosed FD patient population will grow significantly in size. We therefore believe that the future potential market will be roughly 15,000 FD patients worldwide, which would be 50% higher than the current "upper bound estimate" of Amicus. However, just a fraction of those 15000 patients will actually benefit from the a treatment with a pharmacological chaperone. We call this estimate the SAM: Serviceable Available Market.

How many patients can be treated with Amigal monotherapy?

One of the main factors that will determine Amicus' future revenue is the percentage of Fabry patients that respond to Amigal monotherapy versus those who will just profit from an Amigal-ERT combination therapy. As we discuss above, many Fabry disease patients have a complete lack of the enzyme, therefore a small molecule that assists in folding of the protein would have no impact (there is nothing to fold). Estimates of Fabry patients that would benefit from Amigal range from 10% to up to 60%. Depending on which of the over 500 FD causing mutations a patient manifests, his/her response might range from no impact to a complete disappearance of the symptoms. However the outcome of study 011 will not enable us to perfectly estimate how many patients will benefit from Amigal monotherapy. This is due to the relatively strict trial inclusion criteria, which lead to a trial cohort that cannot be easily compared with the general Fabry population. However, strong efficacy in those patients identified by Amicus as likely responsive would validate the company's inclusion criteria and strength confidence in its high estimates of future market size.

Finally, we consider the number of patients that could actually be considered as potential buyers of Amigal, taking into account the competition Amicus/GSK will face in the market. We call this SOM: Serviceable Obtainable Market. Amigal's major competing technology will be ERT. Currently there are two major products on the market, treating slightly above 3000 fabry patients per year (assuming that 2800 patients correspond to 82% market share):

These numbers give an excellent baseline of those patients interested in Amigal treatment upon approval, even before a potential expansion of the patient pool with the increasing availability of Fabry genetic testing. Should Amicus's estimates that Amigal is compatible with of ~50-60% of patients, we might estimate a ceiling of ~1500 U.S, based Fabry patients shortly following drug approval.

ERT costs an average patient between 100,000 USD and 300,000 USD, depending on the patient's body weight, the regulatory environment, reimbursement policies etc. Although Fabrazyme runs out of patent protection on September 27, 2015, one can assume that this won't have any major influence its price as the manufacturing cost of biosimilars is usually almost as high as for novel biologics. Other analysts have suggested that Amicus will target a price of 150,000 USD/year, an estimate we find reasonable in light of market conditions. At this price and with a patient base of 1500, Amicus would be expected to have sales of ~$225M in the U.S., excluding royalties on worldwide sales (discussed further below)

Amicus Company Profile
With strong financial, IP, and supplementary pipeline positions in addition to lucrative partnership with GSK, Amicus is well prepared to capitalize on any positive clinical trial data from the Study 011. The company's Q3 financials report over $105M in cash, equivalents, and marketable securities compared to a burn rate of <$20M/quarter. Amicus has the financial resources to respond rapidly to positive data, an important consideration given the potential for an accelerated approval timeline. The IP portfolio is strong with granted patents and applications covering use and manufacture of pharmacological chaperones as well as methods of predicting pharmacological chaperone success in a given patient. Relevant patents relating to chaperone treatment of Fabry were published with USPTO in 2010 and 2012, though the earliest related patents will expire in 2018. Still, we are not concerned about early generic competition. As an orphan drug-designated clinical trial program, Amigal will be guaranteed seven years of U.S. market exclusivity if approved, and patent protection (including a likely Hatch-Waxman extension) will most probably extend years beyond that.

GSK Partnership: Monotherapy and ERT Co-administration
One significant contributor to Amicus's strong position is their partnership with Pharma giant GlaxoSmithKline. In late 2010, the two companies agreed to a partnership in which GSK was granted worldwide commercialization rights (excluding the U.S.) for Amigal monotherapy in Fabry treatment in exchange for $30M upfront, up to another $173.5M in milestone payments, double digit royalties on those worldwide sales, and 25% of development costs. GSK also purchased a 19.9% stake in the company for additional $30M. Of those potential milestone payments, there still remain ~80M tied to regulatory approval and ~80M related to Amigal worldwide sales targets.

Encouragingly, this relationship was expanded earlier this year. The expanded partnership was driven by an increased focus on the potential for Amigal + ERT co-administration therapy. GSK has agreed to shoulder 60% of costs associated with trials pairing Amigal with current ERT as well as a proprietary ERT licensed by GSK that is currently in preclinical development. U.S. sales rights for the co-admin therapy , like those of the monotherapy have been retained by FOLD, with remaining worldwide rights transferred to GSK. Additionally, if co-admin therapy is approved, GSK is eligible for ~$35M milestone payment and single-digit royalties on US sales.

Pipeline for Non-Fabry Therapeutics
Before the partnership with GSK, Amicus partnered with Shire Pharmaceuticals to develop Amigal as well as chaperone drugs Plicera for Gaucher disease and AT2220 for Pompe disease. The 2007 deal, worth up to $440M ($50M), was terminated following disappointing Phase II efficacy results for the Gaucher drug Plicera. In the wake of the Phase II trial data, development of Plicera was permanently discontinued. The other chaperone programs continued however. In addition to the GSK-partnered development of Amigal both alone and with ERT in the treatment of Fabry disease, Amicus has an independent clinical program evaluating the pharmacological chaperone, AT2220, co-administered with ERT in the treatment of Pompe disease. Pompe disease, like Fabry, is a rare genetic disorder resulting from poor enzyme function; in Pompe disease the faulty enzyme is known as GAA. Pompe disease incidence is approximately 5,000-10.000 affected individuals worldwide. Preliminary results in a Phase II open-label study (Study 010) of AT2220 +ERT showed a generally well-tolerated safety profile and increase in the patients GAA activity in plasma samples (one measure of drug efficacy). The sample sizes are very small however (16 patients) and another measure of efficacy, GAA activity in muscle biopsy, showed little change with AT2220 treatment. Amicus is performing higher-dose AT2220 trials and data is anticipated by year's end. AT2220 is an interesting therapy with moderate market potential limited by small patient size and the need for co-administration with ERT. Obviously, the success of another pharmacological chaperone, Amigal, in Phase III trials would significantly boost interest in the future prospects of AT2220 and chaperone molecules generally. Conversely, poor data in Amigal's Phase III would raise a significant hurdle in AT2220's development. ThoughtAmicus's strong financial position suggest the company wouldn't necessarily require additional funding to initiate Phase III trials for Pompe, ultimately such a project would face considerable headwind. We suspect Amicus would have difficulty finding additional funding to continue/complete trials from either the public markets or a corporate partner following a high-profile failure of chaperone technology in partnerships with both Shire and GSK. Should the Fabry trials fail, investors should not expect the Pompe program or any other element of Amicus's chaperone technology program to buoy share price significantly.

Conclusions/ Recommendation:

Any technology that has not yet passed Phase III trials carries a significant risk of failure, but Amigal appears well poised to receive positive data and experience a bump in share price in the very near term future. The Phase II data was promising from both a safety and efficacy perspective, though in a notably small sample of patients. Furthermore both in vitro data and the success of Pfizer's chaperone Tafamidis give us confidence that the scientific fundamentals of the drug are strong. Publicly available information about the Phase IIIs suggests that the trial was well designed with relevant, field-standard primary outcome criteria that are unlikely to be affected by high control-group signal. Most importantly, the small molecule technology of Amigal represents a substantial move forward for patients when compared to ERT infusions. For responsive patients, we anticipate Amigal will quickly replace ERT if approved.

Of perhaps greater concern than the trial's topline results is the ultimate number of patients which Amigal will serve in the long term. Unfortunately, the initial release of Phase III may not completely clarify this point. This is for two reasons. 1) It is not clear if on the initial data release, Amicus will reveal the total number of responders in the experimental group or merely advise whether a statistically significant number of patients were responders. 2) Even with the Phase III numbers, it will not yet be possible to accurately estimate the percentage of responders in the total population. Amicus has reported that ~75% of patients screened for the trial had mutations amenable to Amigal therapy. However, the company has also reported that some sites may have previously screened potential trial participants, enriching the pool for responders. We are particularly concerned by statements by Dr. Robert Hopkin of Cincinatti's Children's Hospital estimating approximately 10% of Fabry patients there will be suited for Amigal therapy. A strong response rate among Phase III participants would not completely alleviate those concerns due to the aforementioned possibility of prescreened trial participants but would add credence to Amicus's more generous estimates of responder percentage (as high as 60%). True numbers of potential Amigal patients will likely not be known until a much greater effort to screen the Fabry population has occurred, and possibly not until the drug is released. For this reason, we expect investors may approach even positive Phase III results with some caution as they wait for additional information to solidify estimates of eventual market size.

Despite this uncertainty, we believe the outlook for Amicus is strong. Buying in advance of clinical trial data release requires a high tolerance for risk and no drug's clinical success is guaranteed. Still, the scientific fundamentals and promising Phase II results of this technology present an appealing investment opportunity. Amicus investors and Fabry patients alike will be anxiously awaiting the release of these results with hopes of finishing 2012 on a very high note.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FOLD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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