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CAPScall of the Week: Amicus Therapeutics

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For years, satirical late-night-TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. congressional districts and its representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.

That's why I've made it a weekly tradition to examine one seldom-followed company within the Motley Fool CAPS database, and make a CAPScall of outperform or underperform on that company.

For this week's round of "Better Know a Stock," I'm taking a closer look at Amicus Therapeutics (NASDAQ: FOLD  ) .

What Amicus Therapeutics does
Amicus Therapeutics is a biopharmaceutical company focused on treating rare and orphan diseases. Specifically, it develops small molecules known as pharmacological chaperones targeted at lysosomal storage diseases, or LSDs -- such as Fabry, Pompe, and Gaucher diseases. The company currently has multiple mid- and late-stage trials ongoing for Fabry and Pompe diseases.

As Amicus is a completely clinical-stage company, it has no significant or recurring revenue to report. It did, however, update its full-year forecast last Monday to include a cash burn rate of $52 million to $58 million in 2013. According to management, Amicus' cash position of $99.1 million, as well as expected reimbursements from GlaxoSmithKline (NYSE: GSK  ) , should give Amicus enough cash on hand to extend its operations into the second half of 2014. 

Whom it competes against
The allure of rare orphan drugs -- like the type Amicus is developing -- is that they rarely have any competitors, often have accelerated FDA reviews that are guided hand in hand by the FDA, and are cheaper from a fee perspective. Unfortunately for Amicus, its LSD research doesn't place its treatments in an area that's anywhere near free of competitors.

Amicus' share price imploded last month after its late-stage, six-month study of Amigal to treat Fabry disease failed to meet its clinical endpoint by reducing a targeted type of fat in kidney blood vessels. Amigal, developed in conjunction with Glaxo, would have faced a good amount of competition, including Sanofi's (NYSE: SNY  ) Fabryzyme and Renagal, which are the current standards in treating Fabry disease. Abroad, Shire (NASDAQ: SHPG  ) pulled its bid to bring its Fabry drug, Replagal, to the U.S. back in May -- for now at least. Keep in mind that just 5,000 to 10,000 people are affected by Fabry disease worldwide, so the market is limited and crowded!

On the bright side, Amicus reported positive mid-stage trial results for AT-2220, which is co-administered with enzyme replacement therapy, for Pompe disease. In Amicus' proof-of-concept trials, AT-2220 when administered with ERT increased GAA enzyme activity and reduced glycogen buildup in tissue.

The call
After carefully reviewing the prospects for Amicus Therapeutics, I've decided to enter a CAPScall of underperform on the company.

It's difficult to deny that a biotech company with $2.15 in cash per share and a pipeline full of orphan candidates won't have a shot at success, but Amicus' history and the limited patient landscape speak to little chance of success from my perspective.

In 2009, Amicus' Plicera failed to meet its clinical endpoint in mid-stage trials for Gaucher disease. Considering the length of time it takes for rare oprhan drugs like Protalix BioTherapeutics' (NYSEMKT: PLX  ) Elelyso, targeted at Gaucher disease, to be developed and gain FDA approval , this probably wasn't a huge loss for Amicus. It took Protalix more than a year from receiving its complete response letter on Elelyso to actually gaining FDA approval -- and on top of that, the market for Gaucher disease is relegated to only 8,000-10,000 people worldwide!

Amicus' recent late-stage failure of Amigal, however, is devastating. The company now finds the remainder of its pipeline without a development or licensing partner, and it places all of the remaining trial costs squarely on its shoulders. Orphan drugs take 10-15 years from concept to market to develop, so we're talking still another two or three years before we'd even see a drug hitting a very crowded Fabry or Pompe market. Unless the company can find a very desperate big pharmaceutical company willing to take a risk, Amicus shareholders can expect more dilution and big losses even if a drug does find its way into the good graces of the FDA.

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