Biotechnology investors seeking companies that target allergy treatments should look no further than Aimmune Therapeutics (NASDAQ:AIMT). The company is working on a drug to treat peanut allergies and if successful, it could change the lives of many.
Sure, allergists could treat patients with small doses of peanut flour to induce immunity to the allergen. But after the U.S. Food and Drug Administration approved Palforzia, AIMT stock could soar to new heights. There is currently no other drug company that may catch up to Aimmune.
So, what is this biotech company worth and when might investors get rewarded by holding AIMT shares?
Third-Quarter Results
Aimmune earned the FDA’s support for using Palforzia in children and teens with peanut allergies in the third quarter. It sent job offers to 80 practice account managers, so investors should expect operating costs leading to losses in the near term. Still, the company ended the period with $200.5 million in cash and cash equivalents. Through a loan agreement with KKR (NYSE:KKR), Aimmune may access another $130 million if needed.
Aimmune spent $30.6 million on research and development in the quarter. It lost $1.03 a share. General and administrative expenses were $34 million, up from $21.3 million last year. The higher costs are due to staff hiring. The company is able to sustain near-term losses because it has enough cash on hand. The cash balance suggests that the company will not need to sell shares, which would hurt existing shareholders.
The company’s revenue will start ramping up now that the FDA approved Palforzia as the first treatment for peanut allergies on Jan. 31. With 1.6 million children and teens allergic to peanuts, the drug will generate strong sales over time. The drug is “a complex biologic drug used with a structured dosing approach that builds on a century of oral immunotherapy (OIT) research.”
Dosing starts in small quantities, which are then gradually increased. When administered this way, the patient is less likely to have an allergic reaction. The dosing range is 0.5 milligrams to 300 milligrams.
Revenue Potential
Palforzia will cost $890 a month, so with 1.6 million potential patients, the addressable market is worth $1.4 billion a month. In reality, the drug may cost as low as $20 a month thanks to a company-offered assistance program. And of course, all of those children and teens with peanut allergies are unlikely to just start taking the drug.
On its conference call, Aimmune said the upper price range for the treatment was around $20,000. By comparison, other therapies out there that treat non-life threatening conditions cost $3,500. So, with the current price range, management has the flexibility to adjust pricing depending on demand levels.
Aimmune will target around 1,300 allergy clinics, divided into two broad categories. The first group of around 200 to 250 allergists have the experience of treating such patients. The second group is physicians who have an individual practice.
“… the two segments that make up this 1,300 are only the two segments who essentially are both willing and ready to initiate therapy now. They are largely high throughput skit centers and so their ability to do high volume immunotherapy procedures is already in place,” CEO Jayson Dallas said.
Valuation on AIMT Stock
Nine analysts who offer a one-year price target think the stock is worth $50.78. Building on the idea that Aimmune may offer a specialty pharmacy model, investors may estimate its future revenue. As it meets the risk evaluation and mitigation strategy (REMS) requirements, the company may have a fair value of $33.50.
Aimmune Therapeutics is a potential growth idea for the long term. The near-term risks are lower after the company gained approval for its allergy drug. As revenue increases, the stock should start to trend higher in 2020.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.
