Trading The Triglyceride Players

After soaring about 120% higher since the start of the year, shares of the Irish pharmaceutical company Amarin Corporation (AMRN) are now trading in anticipation of the PDUFA action date of July 26, 2012. That's the date the FDA will either approve or reject the drug AMR101 for the treatment of high triglycerides. Although it is arguable whether or not FDA approval has already been priced into AMRN shares, we do know that July 26 will be a major event for the stock. A rejection is not generally expected, although ~15% of shares are short, indicating a significant amount of money betting on a surprise rejection.

Takeover Speculation
Adding to the enthusiasm over the company is Amarin’s patent protection on its novel AMR101 compound, which was granted a few weeks ago by the USPTO (shares have tacked on ~30% gains since). The patent is not set to expire until 2030. This has fueled a new round of takeover speculation from many analysts and continues to keep the stock in the limelight as the AMR101 NDA decision draws closer.

Despite the likelihood of a successful launch and the huge prospects of the massive triglyceride market, Amarin has become a rather expensive stock for what it is. Sitting at a market cap of about $2.1 billion -- and with a significant fraction (or more) of AMR101’s value already priced into the stock -- many would say that new buyers have missed the boat -- even if we see FDA approval.

Other Players
This should lead investors to other high-potential plays in the triglyceride drug market. One notable example that has recently emerged is Neptune Technologies & Bioressources, which is a more obscure pick capable of tapping the same demographic in the nutraceutical industry. This is a company that is developing NKO® (Neptune Krill Oil), which is very similar to AMR101 (it's 95% EPA without DHA refined from fish oil). NKO contains both of the Omega-3 fatty acids known as EPA and DHA (docosahexaenoic and eicosapentaenoic acid).

Based on the company’s claims, NKO has a few advantages against other similar compounds including its clinically-proven effects on joint and brain function in addition to cardiovascular health and safety studies. Neptune has also released some good financial figures. In the last quarter of the company’s fiscal 2012 year the company announced 15% year-on-year revenue growth and an astounding 136% improvement in net income (a total of $2,384,000 for the last four quarters).

On top of NKO, Neptune-owned pharmaceutical company Acasti is developing a compound known as CaPre for hypertriglyceridemia, which is in two phase-2 trials. The TRIFECTA study is the one to watch, since it was designed to focus exclusively on CaPre with regards to its effects in reducing triglycerides in blood plasma. For the most part, we are not worried about the safety data -- it’s about the efficacy and the supposed benefits it has on cholesterol levels.

So-Called 'Trifecta' Drug
The study was designed with three arms (two doses of CaPre versus a placebo) and has an estimated primary completion date of September 2012. What’s most interesting to the market is that pre-clinical studies implied that the drug induces lower LDL cholesterol levels (the bad cholesterol) and increases in HDL (the good one) on top of the intended reduction of triglycerides. No drug on the market has this “trifecta” of therapeutic benefit.

Time will tell whether or not CaPre can produce phase-2 studies that demonstrate the trifecta of therapeutic benefit, but until then we may see investors buying into Neptune simply due to its sales growth. It can also serve as a sort of substitute for Amarin's stock, which has become a bit expensive.

As of now, analysts are extremely bullish on Neptune, with some shooting as high as $10.30/share (a call by Roth Capital Partners). I expect the stock to rally until at least September 2012 based on its general undervaluation alone. $6/share seems attainable if the broader market doesn’t induce downward pressure in the biopharmaceutical sector.

When September does roll around, TRIFECTA data could induce significant rallying on CaPre-related hype if the cholesterol side-effect does show up again. This is one way that NEPT can reach the lofty price targets set by optimistic analysts. The other would be through more growth in the “nutraceutical” markets.

No matter how you slice it, NEPT looks like a strong buy-and-hold candidate that is extremely attractive on the meaningless dips. I’m keeping the stock on my watchlist.