Amicus Therapeutics Stock: A Compelling Investment in the Rare Disease Biotech Sector

Amicus Therapeutics, Inc. (NASDAQ: FOLD) focuses on rare and orphan diseases, especially Fabry and Pompe. The company’s portfolio includes Galafold and Pombiliti. In particular, Galafold is an oral treatment that appears to be effective for Fabry by stabilizing the dysfunctional enzyme alpha-Gal A. FOLD’s Pombilitis is a combination therapy with Opfolda, indicated for Pompe disease. Pombiliti replaces and stabilizes deficient or dysfunctional GAA enzymes needed to break down glycogen, helping with muscle causes of weakness and atrophy. So far, these two drugs are FOLD’s main value drivers and I believe they remain well positioned for future growth. Despite some revenue concentration risks, FOLD’s outlook remains largely favorable. Therefore, I rate the stock a “Strong Buy” for investors who understand the biotech’s inherent risks.

Fabry and Pompe: Business Overview

Amicus Therapeutics is a commercial biotechnology company based in Princeton, New Jersey. It was founded in 2002 and went public in 2007. FOLD is now developing therapies for rare and orphan diseases. its IP the portfolio includes two FDA-approved products Galafold (migalastat) and Pombiliti (cipaglucosidase alfa-atga). Galafold targets Fabry disease therapy, while Pombiliti can be combined with Opfolda (miglustat) to treat late-onset Pompe disease.

For context, Galafold is an oral drug used to treat adults diagnosed with Fabry disease with adaptive GLA gene variants. This rare genetic disease is characterized by an accumulation of fat called globotriaosylceramide (GL-3) in the tissues due to a dysfunctional enzyme, alpha-Gal A. Thus, Galafold works by stabilizing this enzyme, allowing the breakdown of the accumulated fat that causes Fabry’s disease . symptoms. This is how Galafold can help alleviate some of the symptoms of Fabry disease, such as pain in the hands and feet, skin lesions, sweating abnormalities, gastrointestinal problems and progressive damage to the kidneys and heart. Unfortunately, Fabry is relatively underdiagnosed and has an estimated prevalence of between 1 in 40,000 and 1 in 117,000 men.

On the other hand, FOLD also has Pombiliti in combination with Opfolda to treat late-onset Pompe disease, which usually occurs in adolescence or adulthood. This condition arises from mutations in the GAA gene, producing a deficiency of the acid alpha-glucosidase (GAA) enzyme. When there is a GAA deficiency, the body has trouble breaking down glycogen into glucose. As glycogen is stored in the muscles, this leads to muscle weakness and atrophy. Thus, Pompe can be particularly severe when it affects the diaphragm or intercostal muscles, making it life-threatening due to respiratory failure. FOLD’s Pombiliti therefore acts as an enzyme replacement therapy (ERT) using a version of the GAA enzyme through DNA technology. Thus, Pombiliti is an enzyme replacement therapy that provides a recombinant form of the enzyme GAA to help break down glycogen into glucose. GAA can then be harvested and processed as a remedy for Pompe disease because it helps break down glycogen into glucose. Opfolda is key because it stabilizes the recombinant enzyme, preventing its degradation.

It is also worth mentioning that FOLD’s pipeline includes preclinical candidates for the treatment of Fabry and Pompe diseases. They are also developing companion therapies to stabilize dysfunctional proteins, particularly the enzyme α-Gal A. This could lead FOLD to better clinical outcomes for Fabry disease. The company is also working on an open-label study of Rosella for childhood-onset Pompe disease to address this unmet medical need.

Secular Winds: Revenue Outlook

However, I think Galafold and Pombiliti are obviously the main value drivers of the company. During FOLD’s last earnings call, management emphasized Galafold’s significant role in revenue growth. The company initially projected growth of 11-16% at constant exchange rates (CER), but this was later revised to 14-18% due to Galafold’s strong performance.

This outperformance benefited from the sizable market for Fabry disease, which is expected to reach $2.3 billion in 2024. This market will reach $4.5 billion by 2033, giving Galafold considerable secular headwinds. Management noted that the subpopulation of patients with susceptible mutations is expected to reach $1.0 billion by the end of the decade. Notably, Galafold has captured over 60% of the susceptible global market and has a share of 85-90% in mature markets such as the US. More importantly, FOLD expects Galafold to achieve similar global market shares, largely due to its competitive advantage as the only oral treatment option.

Additionally, since the launch of FOLD’s Pombiliti in 2023, it has seen favorable adoption in the US as a combination therapy with Opfolda. Management noted that some patients switch from other drugs such as Nexviazym to Pombiliti after health care providers evaluate performance, but also because of positive word-of-mouth testimonials. This suggests that Pombiliti is resonating well with both patients and care providers, which I think is incredibly promising for the future adoption curve in the market. For example, Pombiliti entered new countries such as Spain, Germany, Austria, Great Britain and Switzerland. Executives noted that those jurisdictions are also seeing positive results with Pombiliti.

In February 2024, FOLD announced that the WORLDSymposium awarded Pombiliti and Opfolda the 2024 New Treatment Award. These drugs are the first and only two-component treatment approved by the FDA for late-onset Pompe disease, targeting patients who do not improve with other ERT. More recently, on June 4, 2024, this combination therapy also received the Prix Galien UK 2024 Award for Best Pharmaceutical Product. Thus, I believe Pombiliti also has a valuable foothold in Pompe disease, a market expected to grow to over $2.0 billion by 2030.

In addition, FOLD has pending regulatory applications in Australia, Canada and Japan before the end of 2024. FOLD’s progress in securing access to reimbursement has also been particularly encouraging. Medicare and Medicaid approvals typically occur in about 30 days, which is key to increasing revenue. Overall, the company is clearly focused on Europe and the US, but its drugs also have global potential. So, I think its IP is well positioned for sustained revenue growth over the long term.

Reasonable GARP: Valuation Analysis

From a valuation perspective, FOLD trades at a market cap of $3.5 billion, making it a mid-sized biotech in its sector. Its balance sheet holds $209.3 million in cash and cash equivalents and $50.7 million in marketable securities. This amounts to $260.1 million in available short-term liquidity versus $388.9 million in long-term debt. Overall, the company’s book value is $132.5 million, indicating a P/B multiple of 26.4, which is undoubtedly high. For context, its sector’s median P/B is 2.4, so FOLD appears to be trading at a considerable premium to its peers.

However, we estimate that its last quarter generated positive cash flow of $21.6 million by adding CFOs and net CAPEX. This suggests an annual cash flow rate of approximately $86.4 million. However, it’s worth noting that according to FOLD’s Seeking Alpha dashboard, the company is projected to reach $640.1 million in revenue by 2025, up 23.9% from last year. Thus, the company appears to be transitioning towards providing strong cash flow to shareholders, making it self-sustainable going forward.

In the earnings call, management noted that the upper end of 2024 operating expense guidance is now $360.0 million. If we assume that they support those levels through 2025 and use current quarterly gross margins of 91.1%, then that implies $223.1M in full-year EBIT for 2025. I estimate its EV to be around $3.6B adding market cap and debt minus available short-term liquidity. This would price the FOLD at a more reasonable price forEV/EBIT section of 16.3. For comparison, its sector’s median forward EV/EBIT ratio is 17.0, so FOLD actually looks cheap from that perspective. Thus, I think FOLD trades at a compelling valuation, assuming the expected top-line growth materializes, so I’m bullish on the stock.

Investment Warnings: Risk Analysis

In my opinion, FOLD’s case is relatively safe because it is based on two drugs with a solid competitive profile. However, the company seems too dependent on Galafold in particular. In Q2 2024, this drug accounted for 87.5% of the company’s total quarterly product revenue. One positive aspect of its revenue mix is ​​that only 39.6% of its revenue came from the US, which provides some geographic diversification. However, FOLD is undoubtedly largely a bet on Galafold. So if another superior competitor emerges, it could derail the GARP bull thesis presented in this article. This could reprice the stock at a lower multiple and result in shareholder losses.

Apart from that, if regulators cause repayment complications for Galafold, it could also derail its promising revenue growth trajectory. But overall, I think it’s reasonable to be bullish on the stock, as its upsides seem to outweigh its potential risks. Therefore, I consider FOLD a “Strong Buy” for investors who understand the aforementioned risks.

Strong Buy: Conclusion

In conclusion, I think FOLD is a compelling investment at these levels. Its two main drugs are Galafold and Pombiliti, both of which have relatively strong competitive profiles in their respective markets. Moreover, if the company’s current growth trajectory continues, it appears to be reasonably priced as a GARP biotech stock. While I accept some revenue concentration risks, the broader outlook for FOLD is largely favorable. Therefore, I rate the stock a “strong buy” for investors who understand the risks inherent in biotech.