Glaxo/Amicus' Fabry Drug Disappoints

GlaxoSmithKline (GSK - Analyst Report) and partner Amicus Therapeutics (FOLD - Snapshot Report) recently presented disappointing top-line six-month primary treatment period data from the first phase III global registration monotherapy study (011: n=67) of Fabry disease candidate, migalastat HCl.

The study is evaluating the oral version of the candidate for treating patients suffering from Fabry disease. The evaluated patients had genetic mutations identified as amenable to migalastat in a cell-based assay.

Data from the randomized, double-blind study revealed that that 41% patients in the migalastat arm demonstrated a 50% or greater reduction in kidney interstitial capillary GL-3 as opposed to 28% in the placebo arm. The study failed to achieve its primary endpoint and the difference was not statistically significant.

In July 2012, Glaxo and Amicus expanded their existing agreement related to the development and commercialization of migalastat for Fabry disease.

As per the terms of the expanded deal, Glaxo and Amicus will jointly develop all formulations of migalastat for Fabry disease. Regarding the commercialization of migalastat, Amicus possess the rights in the US while Glaxo has the rights to market the drug in the rest of the world.

Additionally, Glaxo hiked its stake in Amicus to 19.9%. Glaxo made an investment of $18.6 million and bought 2,949,581 shares of Amicus at $6.30 per share. We note that as of March 31, 2012, Glaxo’s holding in Amicus was 14.8%, representing an equity investment of $31 million. We believe that Glaxo’s increased holding in Amicus reflects its confidence in Amicus’ pipeline.

Our Recommendation

We currently have a Neutral recommendation on Glaxo. The stock carries a Zacks #3 Rank (Hold) in the short run.

Several products in Glaxo’s portfolio including Valtrex, Arixtra, Evoclin, Lamictal, Imitrex, Requip, Combivir and Epivir are facing declining sales due to intense generic competition. We expect the company's top line and gross margins to remain under pressure in the coming quarters. EU pricing pressure will continue to affect sales as well.

Glaxo is aiming to maximize the potential return from its pipeline. The company is looking to drive growth through deals and acquisitions. Further, the company is focusing on increasing the rights on its partnered products and promising pipeline candidates, so that it stands to benefit more from their success.

Glaxo’s acquisition of Cellzome and Human Genome Sciences, increasing investment in Theravance Inc. (THRX - Analyst Report) and Amicus and amended agreement between ViiV Healthcare and Shionogi indicate its efforts to expand the pipeline.

Apart from this, Glaxo continues to progress on its cost-cutting initiative, which should help reduce the impact of increasing generic competition over the next few years and boost earnings.

Large-cap pharma stocks currently holding a Zacks #2 Rank include companies like Novo-Nordisk (NVO - Analyst Report).