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Amicus Therapeutics: Strong Catalyst Trade With GlaxoSmithKline And Heavy Insider Buying

August 2, 2012 -

By Scott Matusow, Contributor

I like to invest in and trade companies with strong corporate structures that are also equipped with upcoming short term catalysts.
One company that has been receiving some interest in the investment community demonstrates both. As an added bonus, we see heavy insider and institutional support recently. This may help bring some added stability and a good chance for another upswing in stock price as a new group of longs discovers the stock. Today, I write about the firm's technology, with an investment in the company from a huge winner in the industry, and the goals of Amicus Therapeutics, Inc. (NASDAQ:FOLD).Amicus Therapeutics focuses on the discovery, development, and commercialization of orally-administered, small molecule drugs for the treatment of various human genetic diseases.
Overview of technology:
Certain human diseases result from mutations in specific genes that, in many cases, lead to the production of proteins with reduced stability. Proteins with these mutations may not achieve their correct three-dimensional shape and are generally referred to as mis-folded proteins. Mis-folded proteins are often recognized by cells as having defects and, as a result, are eliminated prior to reaching their intended location in the cell. The reduced or completely absent biological activity of these proteins leads to impaired cellular function and ultimately to disease.
Amicus' approach to the treatment of human genetic diseases consists of using a new type of drug, which they refer to as a pharmacological chaperone, which selectively binds to the target protein. This increases the stability of the protein and helps it fold into the correct three-dimensional shape. This restores appropriate trafficking of the protein, thereby increasing protein activity, improving cellular function, and reducing stress on cells.
Lysosomal storage disorders, such as Fabry disease, Gaucher disease, and Pompe disease, are just a few examples of diseases in which a protein folding defect is the primary cause of the pathology.
Large pharmas have recently shown a strong interest in entering into the Lysosomal storage disorders segment, as demonstrated by Pfizer's (NYSE:PFE)collaboration In April of 2011 with Zacharon Pharma to develop drugs for orphan diseases including lysosomal storage disorders. The potential value of the collaboration to Zacharon is approximately $210 million. The firms did not divulge how much will be given up front and how much is attributed to funding and milestones.
Amicus' unique pharmacological chaperone technology represents a next-generation approach to the treatment of genetic diseases and offers the potential to improve treatment options for patients.
Amicus is focused on three key strategic priorities. One is the phase III development of their AT1001 for the treatment of Fabry disease. This is where the catalyst exists since the results of this are supposed to be announced in the third quarter of this year.
Fabry Disease is a rare X-linked (inherited) lysosomal storage disease, which can cause a wide range of systemic symptoms. It is a form of sphingolipidosis, as it involves dysfunctional metabolism of sphingolipids. The disease is named after one of its discoverers, Johannes Fabry.
Biotech writers like Adam Feuerstein seem to like Amicus, as he wrote in early July that he plans to give the company more positive coverage--which should also attract more buying as Adam, like him or not, Adam does have a lot of influence as a top writer in the Biotech industry.
On July 30th, Canaccord Genuity reiterated a 'Buy' on Amicus Therapeutics with a price target of $11.00. Analyst Ritu Baral remarked:
""I Reiterate rating and price target on potential positive migalastat pivotal Fabry monoTx data Q3/12, chaperone/ERT comboTx for Fabry, Pompe. We think Q3 pivotal migalastat Fabry monoTx '011 trial data will be a strong positive catalyst and that the trial has a high chance of success. We also expect positive full Ph2 AT2220/ERT Pompe combo data in Q3/12...We see excellent risk/reward: $5+ upside on success, but only $2-3 downside given floor valuation from comboTx program.""
GlaxoSmithKline (NYSE:GSK) has made a big impact to help out Amicus in the development of this technology as well as financially. GSK recently bought close to 3,000,000 additional shares to bring their ownership stake up to 19.9% of Amicus . Additionally, they paid a 7% premium on fifteen day average price which amounted to $6.30/share. I like the confidence this shows in the technology and leadership that Amicus displays. Obviously, people have to do their own due diligence but this can help provide some assurance when you see a very successful company buying up a portion of a company at a premium.
Marc Dunoyer, Global Head of GSK Rare Diseases remarked:
""We have strengthened our relationship with Amicus through the expanded Fabry collaboration and additional equity investment in the Company.""
Some additional notes from this updated arrangement:
Amicus will commercialize all formulations of migalastat HCl in the US,while GSK will commercialize in the rest of the world.
Amicus and GSK will continue to share research and development costs for all formulations of migalastat HCl, with Amicus funding 25% and GSK funding 75% of these costs for monotherapy and co-administration during the remainder of 2012. Amicus and GSK will be responsible for 40% and 60% of these costs, respectively, for co-formulation immediately and for all formulations in 2013 and beyond.
Amicus will receive a $3.5 million cash payment from GSK this quarter to reflect Amicus' achievement of a clinical development milestone during the second quarter 2012.
Amicus is also working on a pharmacological chaperone Duvoglustat, (AT2220) for the treatment of Pompe Disease, another lysosomal storage disease. The drug is being used in combination with enzyme replacement therapies (ERT).
Duvoglustat is currently being evaluated in a Phase II Clinical Trial (Study 010). Last month, the Company reported preliminary results from an ongoing Phase 2 trial ( ID NCT01380743) evaluating four ascending doses co-administered with ERT (Myozyme or Lumizyme) for the metabolic disorder Pompe disease. It expects to present full results during 4Q12, along with initial results expected this quarter for ongoing lab-based drug interaction studies with ERT.
Lysosomal storage diseases are a group of approximately 50 rare inherited metabolic disorders that result from defects in lysosomal function. Lysosomal storage diseases result when the lysosome - a specific organelle in the body's cells - malfunctions.
As a group, the incidence of these diseases is about 1:5,000 - 1:10,000. The lysosome is commonly referred to as the cell's recycling center because it processes unwanted material into substances that the cell can utilize. Lysosomes break down this unwanted matter via enzymes, highly specialized proteins essential for survival. Lysosomal disorders are triggered when a particular enzyme exists in too small an amount or is missing altogether. When this happens, substances accumulate in the cell. In other words, when the lysosome doesn't function normally, excess products destined for breakdown and recycling are stored in the cell.
Like other genetic diseases, individuals inherit lysosomal storage diseases from their parents. Although each disorder results from different gene mutations that translate into a deficiency in enzyme activity, they all share a common biochemical characteristic - all lysosomal disorders originate from an abnormal accumulation of substances inside the lysosome.
Lysosomal storage diseases affect mostly children and they often die at a young and unpredictable age, many within a few months or years of birth. Many other children die of this disease following years of suffering from various symptoms of their particular disorder. Hearing things like this really makes people hope for treatments for these types of diseases. Amicus has a big opportunity if they can do something about these indications especially if they have a company like GlaxoSmithKline in their corner to provide financial support as well as knowledge from their Rare Diseases Division. Shire PLC (NASDAQ:SHPG) and BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) are two companies Amicus/GSK will be competing with as they also develop drugs for these types of diseases. Of course, with a large group of complex diseases such as this, there is room for several companies to make significant contributions.
As well, Amicus is focused on the advancement of its lead pre-clinical programs that utilize its pharmacological chaperone technology for the treatment of diseases of neurodegeneration.
Neurodegeneration is the umbrella term for the progressive loss of structure or function of neurons, including death of neurons. Many neurodegenerative diseases including Parkinson's, Alzheimer's, and Huntington's occur as a result of neurodegenerative processes. As research progresses, many similarities appear which relate these diseases to one another on a sub-cellular level. Discovering these similarities offers hope for therapeutic advances that could ameliorate many diseases simultaneously. There are many parallels between different neurodegenerative disorders including atypical protein assemblies as well as induced cell death. Neurodegeneration can be found in many different levels of neuronal circuitry ranging from molecular to systemic.
Stock highlights:
The net institutional purchases in the current quarter are at 11.7M shares, about 48.11% of the company's float of 24.32M shares. Over the last six months, insiders were net buyers of 1,140,000 shares, representing about 4.69% of the company's 24.32M share float. Especially in the institutional area, this represents a huge increase in buying and once again, a more solid core of new investors that should hold for awhile and create stability.
Recent Insider Transactions Report
Jul 16, 2012 GLAXOSMITHKLINE PLC Beneficial Owner (10% or more) 2,949,581 Indirect Purchase at $6.30 per share. 18,582,360
Mar 29, 2012 CROWLEY JOHN F Officer 49,931 Direct Option Exercise at $0.64 per share. 31,955
Mar 6, 2012 NEW ENTERPRISE ASSOCIATES 11 LP Beneficial Owner (10% or more) 925,154 Direct Purchase at $5.70 per share. 5,273,377
Mar 6, 2012 NEWHALL CHARLES W III Beneficial Owner (10% or more) 1,140,000 Indirect Purchase at $5.70 per share. 6,498,000
Mar 6, 2012 BARRIS PETER J Beneficial Owner (10% or more) 1,140,000 Indirect Purchase at $5.70 per share. 6,498,000
Mar 6, 2012 PERRY MARK W Beneficial Owner (10% or more) 1,140,000 Indirect Purchase at $5.70 per share. 6,498,000
Mar 6, 2012 BARRETT M JAMES Director 925,154 Indirect Purchase at $5.70 per share. 5,273,377
Mar 6, 2012 KRAMLICH C RICHARD Beneficial Owner (10% or more) 1,140,000 Indirect Purchase at $5.70 per share. 6,498,000
GSK and other are certainly buying up a lot of shares lately. Obviously, there is always a risk that the phase III data could turn out bad, but I would think that these massive insider buys--especially those of GSK show a heck of a lot of confidence that the results will be very good. Because GSK has a large position in Amicus stock, an eventual GSK buy-out of the company is certainly a strong possibility.
I expect to see the release of the phase III data sometime in late August/early September, so their might be a good opportunity for a catalyst run-up here.
After the expansion with GSK, ThinkEquity wrote in the linked report above that it believes this expansion validates the Amicus' technology. Additionally, it allows several significant concessions, including full United States rights in Fabry, plus $18.6 million in cash. The analyst restates its price target of $9, and its Buy rating.
Additional share stats:
Share Statistics
Avg Vol (3 month): 233,894
Avg Vol (10 day): 570,225
Shares Outstanding: 46.38M
Float: 21.37M
% Held by Insiders: 30.85%
% Held by Institutions: 63.60%
Shares Short (as of Jul 13, 2012): 1.75M
Short Ratio (as of Jul 13, 2012): 6.40
Short % of Float (as of Jul 13, 2012): 9.40%
Shares Short (prior month): 1.86M
One thing I notice is the short shares as a percentage of float is close to 2,000,000 shares. This could provide a nice boost to the price if any good news 'squeezes' the shorts to cover. If the phase III results are positive for Amicus, I like FOLD as a longer term trade/investment, with a price pop likely to be closing in on $8 a share.
Balance Sheet
Total Cash (mrq): 108.20M
Total Cash Per Share (mrq): 2.33
Total Debt (mrq): 1.73M
Total Debt/Equity (mrq): 2.14
Current Ratio (mrq): 6.49
Book Value Per Share (mrq): 1.74
Amicus has an abundance of cash, so dilution does not seem to be on the table here.
Price Target opinions: $8 a share on a positive Phase III report, $12 a share on eventual FDA approval. A negative Phase III report would likely send the stock down to near $4 a share.
Other smaller cap BioPharmas with strong insider buying to keep an eye on are:
EnteroMedics, Inc. (ETRM): Focuses on the design and development of devices that use neuroblocking technology to treat obesity and associated co-morbidities, and other gastrointestinal disorders. Performance over the last quarter at 31.58%-- over the last six months, insiders were net buyers of 2,164,479 shares, which represent about 14.83% of the company's 14.60M share float.
Synta Pharmaceuticals Corp. (SNTA): Focuses on the discovery, development, and commercialization of small molecule drug candidates for treating severe medical conditions, including cancer and chronic inflammatory diseases--performance over the last quarter at 60.84%. Over the last six months, insiders were net buyers of 1,243,920 shares, which represent about 3.37% of the company's 36.91M share float.
Repros Therapeutics Inc. (RPRX): Performance over the last quarter at 103.45%. Over the last six months, insiders were net buyers of 562,500 shares, which represent about 5.88% of the company's 9.57M share float.
Wright Medical Group Inc. (WMGI): Engages in the design, manufacture, and marketing of devices and biologic products for the extremity, hip, and knee repair and reconstruction. Over the last six months, insiders were net buyers of 1,649,234 shares, which represent about 5.59% of the company's 29.49M share float.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Family Member holds a position in FOLD.

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