This Tiny Biotech Worries Sanofi and Shire, and Vexes GlaxoSmithKline

Source: Amicus Therapeutics.

Doctors may soon have a new therapy to use when treating patients with Fabry Disease, a rare genetic disease that can result in kidney failure. That's because emerging biotech stock Amicus Therapeutics plans to file for approval of its Fabry treatment next year.

If regulators give the company a go-ahead, Amicus could be battling Sanofi and Shire for Fabry prescription market share as early as 2016. If so, GlaxoSmithKline will likely be kicking itself for returning its co-commercialization rights to the drug back to Amicus last year, and for selling its equity stake in Amicus this past October.

First, a bit of backgroundFabry disease is an inherited disorder that results in the buildup of a particular type of fat in the body's cells. It's an uncommon disease, affecting just one in every 40,000-60,000 males; but it can be life threatening given that these fatty buildups can damage vital organs including the kidney and the heart. Overall, the average male with Fabry disease lives to 58.2 years of age versus 74.7 years for the general population.

Currently, most Fabry patients are treated with enzyme replacement therapies. The first to win FDA approval was Sanofi's Fabrazyme, an ultra-pricey twice-weekly injection that costs patients around $200,000 per year. Overseas, Shire markets Replagal, another enzyme replacement therapy; however, Replagal has not been approved for use in the United States.

Jumping shipIn 2010, GlaxoSmithKline paid Amicus' $60 million upfront to land the ex-U.S. rights to migalastat, and GlaxoSmithKline followed that deal up by taking a 20% equity stake in Amicus in 2012. However, Amicus and GlaxoSmithKline reported late in 2012 that a phase 3 trial of migalastat failed to reach its primary endpoint of statistical significance, causing Amicus shares to topple more than 40%.

Six months later, Amicus reported that it would delay filing for U.S. approval of migalastat until it had both 24-month phase 3 data and trial data from another late-stage study in hand. Facing migalastat's efficacy concerns, delays for a potential filing, and mounting pressure to lower costs to offset patent expiration, GlaxoSmithKline returned its rights to migalastat back to Amicus in November of 2013 in exchange for milestone payments and double-digit royalties.

This past October, GlaxoSmithKline sold all of its 11.3 million share ownership stake in Amicus for just $5.29 per share.As a result, GlaxoSmithKline doesn't stand to benefit nearly as much as it once did from any potential migalastat revenue, but it could still get those milestone and royalty payments.

Carving out a nicheFollowing its phase 3 stumble, Amicus discovered that Fabry patients with a particular gene mutation responded better to the drug than other patients. As a result, the company chose to focus on treating those patients, which account for between 30% and 40% of all diagnosed Fabry cases.

During phase 3 trials that pitted migalastat head-to-head against Sanofi's Fabrazyme and Shire's Replagal, migalastat showed that it performed just as well as those drugs in terms of kidney function. Those results may suggest that, if migalastat is approved, it could win away patients because its dosed as a pill, rather than as an injection.

How much that market could eventually be worth to Amicus is uncertain. But sales for both Fabrazyme and Replagal total in the hundreds of millions per year. In the first nine months of 2014, Fabrazyme's sales were more than $417 million, and sales of Shire's Replagal reached $380 million.

Work to be doneAmicus' market cap is just $632 million. Even if the drug's peak annual sales total a third of its competitors, its shares may offer a compelling opportunity. However, before investors get too excited, they should remember that Amicus is an emerging company with no products on the market.

While migalastat may win over regulators, there's no guarantee, especially given the drug's prior stumble. Since the EU won't issue its decision until 2016 at the earliest, it will be a while before we know whether or not Amicus has a commercial winner on its hands. For these reasons, Amicus shares might be best suited for speculative investors willing to take on some risk.

The article This Tiny Biotech Worries Sanofi and Shire, and Vexes GlaxoSmithKline originally appeared on

Todd Campbell is long Amicus. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. 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.

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