Is Amicus Therapeutics a Bad-News Buy?

Amicus Therapeutics (NASDAQ: FOLD)recently reported that the FDA will require an additional study before it will agree to review an application to approve its Fabry disease drug, Galafold.

Because investors had hoped that Galafold, which is already available in Europe, could be considered without the time and expense associated with an additional study, Amicus Therapeutics'shares fell hard on the news.

Has Amicus Therapeutics' share price dropped to levels where investors can consider it a bad-news buy? In this clip from The Motley Fool's Industry Focus: Healthcare podcast, analyst Michael Douglass is joined by contributor Todd Campbell to discuss what the future may have in store for Amicus Therapeutics' investors.

A full transcript follows the video.

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This podcast was recorded on Nov. 30, 2016.

Todd Campbell: It's a little bit of a mixed bag this week this time, unfortunately. We have two stocks that are reminding us as investors that we need to diversify, especially when we're talking about biotech. One of the stocks we're talking about here is Amicus. Amicus is a rare-disease drug developer that already has one drug that's on the market, Galafold, for use in a very rare condition called Fabry disease. But that drug is only available in Europe right now. Many investors had hoped that it would soon become available in the United States.

Michael Douglass:But instead, the FDA is requiring another trial, and Amicus has guided that that's a good three-year delay for the drug. Chances are good, if all goes well, we still won't see the drug on the market in the U.S. until 2019 or later.

Campbell:Yeah, this is a real bummer for investors. Developing these drugs is not easy, and it's expensive. The fact that the EU [European Union] approved the drug, and it's been on the market there since earlier this year, had a lot of people thinking: If the FDA had been a little friendlier in 2016, maybe they'll allow Amicus to get its drug on the market here, too. While this isn't a huge patient population, you're still talking about a quarter to a third of the global Fabry disease population residing here in America. So, getting approved here, for this drug -- which is an expensive drug, Michael, $200,000 price tag -- every additional patient can help move the needle for this company.

Douglass:Yeah. And with the trial not being completed until 2019, and no FDA decision until 2020, it's a long delay. When you're looking at a company like this, one of my immediate questions is: OK, cool, what does their cash position look like, and what does cash burn look like? Put a different way, are they going to have to dilute or do something to raise more cash between now and when we'll get this news? The answer for Amicus looks like absolutely, yes. Their cash position is about $212 million. Operating cash burn over the trailing twelve-month has been about $150 million. It's not hard to do that math and see potential issues with funding, and the possibility that they'll have to access the equity markets and dilute current shareholders to keep things going until 2020 or later.

Campbell:Yeah, you make a great point there, Michael. The big question is going to be, how quickly can sales ramp overseas? And, what kind of pricing reimbursement are they negotiating in each of these EU member countries? Typically speaking, EU countries are a little bit more reluctant to pay as much for drugs as the U.S., historically speaking. In the third quarter, Amicus had said, "We have approval for reimbursement in five EU member countries, we have about 50 patients right now that are on Galafold." That translated into about $2 million in sales: kind of a rounding error right now. Theoretically, as more countries sign on, and as doctors get more comfortable using Galafold, sales could grow meaningfully.

To put that opportunity into perspective for investors, the two drugs that are on the market that treat this condition: one is made byShire, the other bySanofi. Both of those drugs bring in over $100 million a quarter. And one of those drugs, Replagel -- which is made by Shire -- that's only available in Europe, too. There's still a nine-figure opportunity here, but the big question is: How quickly can sales of Galafold in the EU grow, and will they grow quick enough to prevent the need of, like you said, a dilutive offering? This is definitely going to be one of those stories we need to watch over the next couple quarters, especially now that expenses are going to go higher because of this new trial.

Douglass:Right. And, also, there's marketing expense and things like that. Personally, I'm not confident that they will be able to contain things differently to avoid accessing the equity markets. But of course, we don't have crystal balls, we can't predict the future. For me, this is, obviously, very bad news. For me, it's a little bit too risky for my blood. But you actually own Amicus, don't you?

Campbell:I do. Unfortunately, I have lost some money on it.

Douglass:(laughs) Right.

Campbell:(laughs) That's one of the reasons I think it's always important to Foolishly invest, we spread that risk across a number of names. You're going to have some winners and losers in biotech. This one right now is a loser for me. We'll see how this plays out over time. I have no plans of selling it right now, but I definitely want to watch the next couple of quarters to see what the pace is of the acceleration of sales in Europe. So, I wouldn't recommend anyone buying it right now, until they get better clarity into what that sales trajectory looks like.

Douglass:Yeah, not necessarily a "bad-news buy."

Michael Douglass has no position in any stocks mentioned. Todd Campbell owns shares of Amicus Therapeutics. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.