Even As Impatience Grows, Amarin Likely To See NCE Designation

As one of the most watched names in the biotech sector, it’s difficult for the market to ignore any news about Amarin Corporation (AMRN) and their ultra-refined “fish oil” product Vascepa. Although it’s been referenced as a “fish oil pill” by a large number of sources, there’s a little more to it. Vascepa is a >96% eicosapentaenoic acid (EPA) pill, which is manufactured in a specific process that has been patent-protected by Amarin. This isn’t your ordinary over-the-counter fish oil pill, although the FDA has been unsure as to whether or not it is a unique enough derivative of fish oil to be considered a “New Chemical Entity” (or NCE).

The controversy over the NCE decision has been a big factor in recent Wall Street bearishness over Amarin, on top of a reduction in the intense M&A speculation that has surrounded the stock all year. It’s apparent that many analysts were expecting some sort of partnership between Amarin and a larger pharmaceutical company for the marketing of Vascepa right after (or soon after) the FDA approval for the drug. Vascepa was approved on July 26th 2012, which means that the company hasn’t officially announced a deal of any kind after almost three months. Analysts like Wedbush claim that the likelihood of a partnership or acquisition is diminishing as time goes on, although many AMRN investors remain focused on the market potential for Vascepa and the possibility that Amarin is being very stubborn with its pricing during any talks that may occur behind closed doors.

Although the speculation over Amarin (and Vascepa) deal activity is mostly based on just rumor (at this point), there are a few things we can observe about the situation. According to company statements, we know that Amarin would definitely prefer to initiate a strategic partnership for Vascepa, or an outright sale of the company itself in the near future rather than an lone entry into the triglyceride-lowering drug market. Entering the market alone would require Amarin to hire a competent sales team that could cut into competing market share quickly enough to justify the company’s valuation.

The hypertriglyceridemia (high-cholesterol) drug market is currently dominated by GlaxoSmithKline’s Lovaza, which generates roughly $1 billion in annual revenue. Lovaza capsures are also derived from fish oil (specifically the omega-3 fatty acids), but the key difference with Amarin’s Vascepa has to do with cholesterol. Lovaza lowers triglyceride levels, but actually raises “bad cholesterol” (DHA – or Docosahexaenoic acid) levels in patients, since Lovaza itself contains DHA. This is essentially a trade-off between one negative and another in the world of cardiovascular health, and makes Lovaza an easy target for a less dangerous drug that can match its performance with triglyceride level reduction. In clinical trials, Vascepa was found just as capable at lowering triglyceride levels while demonstrating the ability to actually lower DHA/bad cholesterol levels in the bloodstream.

This not only makes Vascepa a superior option for doctors that have patients with high triglyceride levels, but presents the opportunity for Vascepa to be marketed as a bad cholesterol lowering drug. Possibilities for Vascepa to become a cholesterol drug too are being explored in phase III trials (called “REDUCE-IT”, which some Amarin investors are extremely optimistic about.) The triglyceride-related takeaway is that Vascepa’s domination of Lovaza’s current market share, due to Lovaza’s flaws, should be as easy as shooting fish in a barrel (no pun intended.)

Updates on Vascepa’s NCE status, other than Amarin’s announcement of indecision by the FDA, have been nonexistent until last week. Last Thursday (October 18th) , Dr. Marvin Goldenberg published a “pharmaceutical approval update” that claimed that the FDA considers Vascepa a New Chemical Entity based on the fact that its exact composition (96% EPA and no DHA, unlike Lovaza) was never submitted to the FDA for NCE consideration. This is not an official decision, but you can clearly see from last Thursday’s (October 18th) trading that this was the green light confirmation that many investors needed to buy shares of Amarin. If you look at the chart, you can see that AMRN gave back all its gains on October 19th, but judging by the extremely bearish activity we saw in the broader market that day we can infer that AMRN selling was not reflecting news that the NCE status was in jeopardy again. At this point Vascepa looks much more likely to see NCE designation, which guarantees five (instead of three) years of exclusivity once it hits the market and increases the attractiveness of Amarin as a buyout target. Trade accordingly.