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Down 40% in 6 Months, Is Aimmune Therapeutics a Buy?

By Prosper Junior Bakiny – Jun 18, 2020 at 8:10AM

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Armed with the recent approval of Palforzia, the first FDA-approved treatment for peanut allergy, could Aimmune Therapeutics turn things around?

Aimmune Therapeutics (AIMT) has performed significantly worse than the broader market of late. The company's stock fell by more than 50% during the first quarter of the year, and even though it has rebounded somewhat, Aimmune's shares are still down by 43% year to date. If Aimmune can stage a strong comeback in the coming months, now may be an excellent time to purchase shares of this biotech stock for a discount.

The company's ability to turn things around will depend on what is arguably its main claim to fame: Earlier this year, Aimmune's drug Palforzia became the first treatment for peanut allergies to be approved by the U.S. Food and Drug Administration (FDA). Aimmune made quite a few headlines as a result of this achievement, but can this milestone help the company recover from its recent slump? 

Stock chart

Image source: YCharts.

Could Palforzia become a blockbuster drug?

Palforzia does not treat allergic reactions, but the drug works by increasing patients' tolerance to peanuts over time. Palforzia was shown to reduce accidental exposure to peanuts requiring treatment in clinical trials, and the drug also "increased the probability of tolerating any dose of peanut protein by 95%." Palforzia has an exciting market opportunity both in the U.S. and abroad. In the U.S., incidences of peanut allergy soared by 205% between 2001 and 2017, and it remains the most common food allergy in the country. 

The most severe allergic reactions to peanuts can lead to death in some cases. According to Aimmune, roughly one patient out of four with peanut allergy visits the ER every year, and this condition costs the U.S. approximately $4 billion in medical expenses annually. In other words, peanut allergy is a serious condition, and instead of constantly worrying about accidental exposure to peanuts, patients now have the option to increase their tolerance to peanuts thanks to Palforzia. 

Pills forming a question mark.

Image source: Getty Images.

The market opportunity for Palforzia in Europe is similarly attractive. Peanut allergy is the most common food allergy in Europe -- where it affects about 17 million people -- and the prevalence of this condition doubled between 2005 and 2015 in Europe. Aimmune submitted a Marketing Authorization Application to the European Medicines Agency in June 2019, and the company is expecting an answer from the health regulatory agency later this year. Palforzia could exceed $1 billion in sales at its peak, especially if it doesn't encounter competition. 

However, the peanut allergy drug could face competition in the U.S. soon. DBV Technologies (DBVT -2.89%) is a biotech company currently trying to tap into this market. In August 2019, DBV Technologies submitted a Biologics License Application to the FDA for Viaskin, a potential treatment for peanut allergy. Viaskin is a "peanut patch" that aims to stimulate patients' immune systems by gradually exposing them to increased amounts of peanut protein. In a clinical trial, about 76% of children treated with Viaskin increased their tolerance to peanuts after three years. With Viaskin likely to earn FDA approval, Aimmune's opportunity for Palforzia is at least slightly less enticing. 

Looking forward

Aimmune is going after other targets, still within the allergy space. The company is planning on developing a treatment for egg allergy, and another for tree nut allergy. However, both of these programs are currently in their early stages, and there's no reason to expect Aimmune to launch these products anytime soon. For now, the company will have to rely on Palforzia to deliver strong financial results. But that is going to be a problem, since the COVID-19 pandemic halted the commercial launch of Palforzia, according to Aimmune. During the first quarter, the biotech company recorded $575,000 in revenue and a net loss of $86.4 million.

Aimmune also had $371.6 million in cash, cash equivalents, and investments, and the company said it was "implementing numerous cash-preservation measures." Aimmune boasts several other sources of capital, and the company looks likely to ride out the current crisis relatively well. Still, I think an investment in Aimmune remains risky. The company's peanut allergy treatment will probably face competition in the U.S., and its other programs won't be of any help to its top line anytime soon, and could even run into regulatory roadblocks. While I think Aimmune is a biotech stock worth keeping an eye on, I don't think it is a stock worth buying today.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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