In the field of amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig's disease, there aren't yet any approved treatments that address the disease itself. This will most likely change by the end of September. A panel of independent advisors to the Food and Drug Administration, meeting for the second time to discuss an experimental new ALS drug from Amylyx Pharmaceuticals (AMLX -1.51%), recently gave it a thumbs-up.
Does the potential approval of Amylyx's first drug make this biotech stock a smart buy right now? Let's weigh reasons to be bullish for Amylyx against reasons to remain cautious for now.
Reasons to buy Amylyx now
Amylyx is a pre-commercial biotech company in the U.S., and its lead candidate AMX0035 is currently in a phase 3 trial expected to read out top-line results late next year. Obviously, the company would like to start selling AMX0035 to ALS patients before phase 3 data is ready. It has a chance of earning accelerated approval based on the successful results of a phase 2 trial that wrapped up in 2020.
The stock looks like a buy because ALS currently lacks effective treatment options. Every year an estimated 6,000 Americans are diagnosed with this degenerative neurological disorder after complaining about muscle weakness. Rates of decline vary, but most patients lose the use of their limbs and ability to breathe independently in just three to five years after symptoms appear.
Recently, a panel of independent advisors voted 7 to 2 in favor of accelerated approval of AMX0035. This is downright shocking because the same panel voted 6 to 4 against accelerated approval of the drug in March. The FDA doesn't have to follow the recommendations of its independent advisors, but it usually lands on the same page. Based on the panel's new stance, it's extremely likely the agency will grant accelerated approval to AMX0035 for the treatment of ALS near the end of September.
First-time drug launches from small companies don't always meet expectations, but this one has a better-than-average chance of becoming a blockbuster drug. There's a lot of pent-up demand for the first disease-modifying ALS drug, and it could drive annual sales past the $1 billion mark in a few short years.
Image source: Getty Images.
Reasons to remain cautious
The FDA's advisory panel supported the accelerated approval of Amylyx's drug based on a small smattering of new data, plus a big promise from Amylyx management. In a nutshell, the company promised to immediately end the commercial launch of AMX0035 if its confirmatory trial delivers disappointing data in late 2023.
Drugmakers that receive accelerated approvals tend to drag out the confirmation process as long as possible. Nobody said it in so few words, but a key reason the panel was willing to vote in favor of an accelerated approval was the unusual commitment Amylyx made to the FDA.
An ongoing 600-patient phase 3 study of AMX0035 in ALS patients is expected to read out top-line results in November 2023, and success is far from guaranteed. The primary outcome measurement will be a change in the ALS functional rating scale after 48 weeks of treatment. In a shorter phase 2 trial with fewer patients, those treated with AMX0035 declined at a significantly slower rate than the placebo group. With a p-value of 0.03, though, the success was hardly a slam dunk. (Higher p-values indicate less reliable results. A p-value of 0.05 or higher would lead scientists to assume any difference measured is due to random chance and is not a benefit from the drug.)
A very cautious buy now
Amylyx Pharmaceuticals finished June with $207 million in cash after burning through $102 million in the first half of the year. It's currently recording sales from an ongoing launch of its drug in Canada under the brand name Albrioza, and a marketing authorization application is under review in Europe.
While Albrioza has a chance at succeeding, a disappointing result from the ongoing phase 3 trial next November could cause the stock to implode. That could be disastrous for shareholders, because Albrioza is the only drug the company has in clinical-stage development.
Amylyx Pharmaceuticals looks like a good biotech stock to buy now. Just make sure it's a small piece of a well-diversified portfolio.
