The market continues to scrutinize every headline that is released about Amarin Corporation (NASDAQ: AMRN), looking for hints about its upcoming launch of Vascepa (isosapent ethyl) in Q1 2013 and high possibility that the company will be acquired in the very near future.
Vascepa, formerly known as AMR101, is a drug that was approved for patients with extremely high levels of triglycerides (specifically those with greater than 500 mg/dL). Vascepa is a highly concentrated capsule containing a specific compound – EPA (eicosapentaenoic acid), that is derived from fish oil. The current prescription “fish oil pill” that dominates the high triglyceride patient population is Lovaza, although the key difference is that it contains both eicosapentaenoic acid and docosahexaenoic acid (DHA).
According to recent statistical data provided by Amarin, their current NDA designation for Vascepa will target up to 4 million in the United States alone, and many more abroad. Lovaza is already targeting this same patient population with great success (bringing in about $1 billion per year for GlaxoSmithKline), which implies that Amarin could be severely undervalued with its current market capitalization of $1.6 billion granted that Vascepa could achieve peak sales on par (or better) than Lovaza in that super-high triglyceride level patient population.
Still, the biggest value potential for Vascepa likes in the patient population with high triglyceride levels that don’t reach the 500 mg/dL threshold. More specifically, these ~36 million patients have triglycerides between 200-500 mg/dL – high, but not high enough to be officially eligible for Lovaza.
While it’s not all that rare to see a biotech stock drop after FDA approval from all the profit-taking, the price action in shares of AMRN was particularly unusual and bearish since the approval date of July 26, 2012. After AMRN made a new 52-week high of $15.96/share in July, the stock reversed dramatically going into August, and failed a recovery rally attempt in September. AMRN never really recovered from the post-approval downward momentum.
The two biggest reasons that the market has soured on Amarin stock recently are simple, but difficult to price into to the actual valuation of the company on the NASDAQ. First, there is the NCE (New Chemical Entity) status of Vascepa – something that the FDA has yet to provide. If Vascepa were designated as a NCE by the FDA it would receive 5 years instead of 3 years of exclusivity on the market.
Since generic competition can be extremely detrimental to the sales revenue of any drug, two years of exclusivity is a big deal. The second major reason that AMRN started going bearish has to do with the widely held belief that Amarin itself was going to be bought by a larger pharmaceutical company following the FDA approval of Vascepa.
We got confirmation in Amarin’s recent third quarter earnings conference call that there is indeed a connection between the NCE status of Vascepa and the potential buyout of Amarin. Due to the uncertainty of Vascepa’s designation by the FDA, and the implications it could have, Amarin and its buyers probably had difficulty setting a potential buyout price.
Many analysts say that the assumption that Vascepa can meet or surpass Lovaza sales once it reaches the market would justify a buyout price of at least $20/share (a minimum of an 85% premium to the current price of the shares), although others are citing much higher potential figures ($30/share or more) given Vascepa’s potential in the much larger 200-500 mg/dL hypertriglyceridemia patient population and its unexplored potential in the lowering of bad cholesterols.
As patient as Amarin investors have been throughout the NCE ordeal, and in anticipation of a buyout of the company, we still have no official word form the FDA. On the bright side, we do know that there are pharmaceutical companies that are still very interested in the acquisition of Amarin. AstraZeneca was one name that popped up weeks ago, and we recently heard that Teva Pharmaceuticals was talking to Amarin as well. Both of these pharmaceutical companies are cash-rich, but are suffering from weakness in their pipelines. This would make Vascepa a perfect addition for them due to its price, and enormous potential in a drug market that is expected to grow due to an aging of the US population.
Investors who buy AMRN can hope for a buyout at premium prices in the near term, although they must also grapple with the possibility that Amarin will market Vascepa alone. Wall Street steeply discounts AMRN due to the high chance that Vascepa will launch under Amarin’s management in the expected timeframe (some time in Q1 2013), although it’s also true that Vascepa’s entry into the market does not eliminate the possibility of an acquisition. This doesn’t mention that possibility that Amarin finds its own success without any help in due time.