One of the hottest areas to invest in biotech is the "orphan" sector. Orphan diseases, as defined by the FDA, are medical conditions that affect fewer than 200,000 people within the U.S. Due to the nature of these underserved indications, the FDA has incentivized development of drugs for these conditions by allowing orphan drugs higher pricing power, longer periods of patent protection, and lower cost for clinical trials.

One potentially overlooked biotech with the potential to offer jaw-dropping returns is Amicus Therapeutics (NASDAQ:FOLD). After a questionable FDA decision regarding the company's main drug last year, shares have finally recovered and could be on the verge of a major breakthrough. It's time for a deeper dive into this orphan all-star.

Money and drugs on a balance beam

Image source: Getty Images

Small drug, big dreams

Amicus' main drug is migalastat HCL, and is sold under the branded name Galafold. This drug was approved for commercialization in the EU in May of last year as treatment for a condition known as Fabry disease.

Fabry disease is an orphan genetic disorder which affects an estimated 5,000 patients worldwide. The bodies of patients who are affected by Fabry disease create unstable versions of alpha-galactosidase A, an enzyme colloquially known as "alpha-Gal A." The job of alpha-Gal A is to remove a certain type of fat from the body's blood vessels and organs. As a result of the body being unable to synthesize alpha-Gal A, this fat accumulates and results in irreversible organ damage as the patient ages.

Galafold is a targeted, oral therapy designed to bind to and stabilize a patient's alpha-Gal A. In doing so, Fabry disease patients who take Galafold are able to use their own body's alpha-Gal A in order to remove accumulated fat from their organs.

Potential U.S. expansion

While, as mentioned earlier, Galafold was approved in all member countries of the EU in May of last year, the drug has not yet been approved by the FDA. In October of 2015, in a pre-new-drug-application (NDA) meeting with the FDA, the regulator announced that they would need additional clinical data in order to support Galafold's U.S. approval.

To this end, the company has announced a new, 35 patient pivotal study which is set to begin enrollment sometime this year with topline data expected in 2019.

Rollout has been progressing well

While investors will have to wait until at least 2019 to hear word on a U.S. approval, Galafold has been making steady progress in other countries. The company has secured pricing and reimbursement policies in 11 countries and is working on developing further partnerships with 27. As of April, the company had 101 total patients on Galafold and had announced a target of 300 patients by year's end.

In addition, the company has been progressing well on its Japanese rollout of Galafold. As Japan has the 2nd largest market for Fabry disease treatment in the world, the company expects to submit an application for approval sometime in the second quarter of this year.

Multiple shots on goal

Finally, it must be said that while Galafold is currently Amicus' only approved commercial product, this company is no one-shot wonder. The company is also progressing a product known as SD-101 into phase 3 trials for an orphan condition known as epidermolysis bullosa (EB).

This orphan condition, which affects between 30,000 and 40,000 patients in major worldwide markets, is a genetic connective tissue disorder characterized by extremely fragile skin that blisters and tears from very mild trauma. Children born with this condition are colloquially described as "butterfly children" because their skin is as fragile as "the wings of a butterfly." There is currently no treatment or cure for this indication.

The product has already proved its effectiveness in phase 2 trials and was moved into phase 3 in March of 2015. Should SD-101 succeed, this could be a major catalyst for Amicus, as the global population for EB is six to eight times larger than the global population for Fabry disease -- and SD-101 would be the only approved product. In total, management believes the EB market to be worth upwards of $1 billion. The company expects topline data from this study in the third quarter of this year.

The bear and the bull

While Amicus does have multiple tailwinds, wise investors should always consider the bear thesis. For one, this is an early stage biotech which is burning through more cash than it is earning. In its most recently reported quarter, Amicus reported revenues just north of $4 million while reporting a net loss of approximately $55 million. For this reason shareholders should be cautious regarding the risk of a potential equity raise -- which would dilute existing shareholders.

In addition, while Galafold has been approved in the EU, there is no guarantee that the product will reach the same outcome in Japan and the U.S., so while an eventual approval is expected, for now they are both two birds in the bush.

Finally, and possibly most troubling, while an approval for SD-101 would be huge for Amicus, the phase 2 data, while positive, was less than stellar. In the drug's phase 2a study, 41% of the placebo group experienced complete wound healing at one month, while 53% of patients taking SD-101 reached that primary endpoint. While this result was statistically significant, the "lower dose" version of SD-101 displayed a complete wound healing percentage of 38% -- which fails to demonstrate that SD-101 is dose-dependent.

Putting it all together

Overall, while there are risks to any investment, I believe that Amicus shows an attractive risk-reward profile. With the launch of Galafold in the EU, Amicus has proved the viability of its platform as a rare disease specialist. In total, Amicus' management believes that they are targeting a $3 billion opportunity with Galafold and pipeline products. For a company trading at just over $1 billion, I believe shares have significantly more room to run from here. For the risk-tolerant, long-term investor, I see Amicus a buy at today's levels.

David Liang has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.