Will Amarin Win Investors' Hearts?

Nov.13.12 | About: Amarin Corporation (AMRN)

Company profile

Amarin Corporation (NASDAQ:AMRN) is an Ireland-based biopharmaceutical company that was incorporated on March 1, 1989. Its flagship product Vascepa is meant to be used for treating patients that suffer from extremely high triglycerides levels. Triglycerides are blood fats that cause various types of heart diseases in combination with cholesterol. Vascepa, which contains omega-3 fatty acids, targets triglycerides by drastically cutting the fat content in patient's blood.

In late July 2012, the firm announced that the U.S. FDA had finally approved Vascepa (formerly known under the name of "AMR101" during trial periods) for treatment on human patients. Amarin's Vascepa is now a strong competitor to Lovaza, the best-selling product from GlaxoSmithKline (NYSE:GSK).

This positive announcement sent the company's stock shooting upward, closing up more than 5% on the day of the announcement. Curiously though, the late July announcement came a week after the company erroneously made the same disclosure (of FDA approval for AMR101) that also sent its shares skyrocketing over 9%.

Tracking Financials

Based on its Q3 2012 SEC 10-Q filings, the company reported a net loss for the quarter ending September 30, 2012 of $26.4M, which translated to a diluted loss per share of $0.18. Similar to the past 4 quarterly filings, the company did not report any earnings, which is understandable given that it has not yet gone commercial with its recently FDA-approved product. However, of significant note is the decline in Selling/General & Administrative expenses ($13.4M) by $0.23M. This has been an encouraging trend over the last 4 quarterly results.

In Q3 2012, the company saw an uptrend of $6.84M in its Research & Development expenditure ($20.91M) compared to the previous quarter. However, R&D spending declined sharply when comparing Q1 Vs Q2 results, which saw an increase of R&D dollars by over $9M. This trend may be understandably explained by the fact that Vascepa was in late-stage approval phase during most of Q3 2012, which would justify lower R&D spending.

Given the fact that the company has not yet commenced commercial production and sale of its product, it should not be surprising that it has reported yet another consecutive quarter of operating losses ($34.31). However, operating losses increased by only approximately $7M from Q2 2012, which had seen a nearly $9M increase over Q1 2012 operating losses.

A note of concern still remains the company's high debt levels, with a Debt/Equity ratio of 3,460. The company did however end Q3 2012 with a strong cash balance of $215.11M, and a optimistic prediction of commercialization of its drug by Q1 2013.

Stock Performance

Based on Morningstar information available on November 13, 2012, the stock has been performing at a 52-week range of between $5.99 and $15.96 (which it attained on July 19th 2012 as a result of its premature release of the FDA announcement), and is trading at a significant Price/Book value of 274. It saw a jump of 9.27% on Nov 9th 2012 following the release of its Q3 2012 earnings. This price spike may be yet another positive reaction to the July 26th FDA approval of Vascepa, but is likely a result of the forward-looking statement that Amarin is keeping various options open on the future of the company, including its eventual sale.

Click to enlarge

As evidenced from the chart above, AMRN has been trading significantly above leading indexes, including the S&P 500 and the Dow Jones Industrial Average. Interestingly however is its performance against GlaxoSmithKline since mid-2010, but most notably since late 2010. This can be attributed to a number of positive reports on the testing of Vascepa and its eventual FAD status, and the fact that GSK will now likely face stiff competition from AMRN in the health care space to develop therapeutics to improve cardiovascular health.

What Does the Future Hold?

The future of bio-pharmaceuticals like Amarin greatly depend on the strength and longevity of their patents. With 8 patents either allowed or issued by the U.S. Patent and Trademark Office, and with more than 30 other applications for U.S. patents pending, the company is on track to accumulate an invaluable portfolio of high-quality patents.

In his commentary to the company's Q3 2012 results, Joseph Zakrzewski, Amarin's Chairman and Chief Executive Officer reiterated that all was on track for successful commercialization of Vascepa in Q1 2013. To this end, Amarin has taken important steps to prepare for launch, through managed care outreach, participation in trade shows and beefing up its management team. Also encouraging was the fact that Mr. Zakrzewski has signaled the company's openness in the future to either going it alone, in partnership or through acquisition of the company to ensure timely commercialization targets are met.

Make or Break For Investors?

Two events of significance, that will determine how investors perceive Amarin as an investment opportunity, relate to the FDA's determination of either a 3-year or a 5-year regulatory exclusivity for Vascepa, and whether the company is able to carry through its successful commercialization of the product in Q1 2013. While the former is not entirely within the control of the management team, the latter is entirely within their purview to make happen.

Investors should carefully keep an eye out for any signs - positive or negative - related to either or both of these milestone events. The potential, however strong or weak that may be, for Vascepa to be designated a new chemical entity under the provisions of the Hatch-Waxman Act, or any signs of another partner acquiring Amarin in a strategic takeover, would definitely bode well for investors. Earnings announcements for the current quarter, Q4 2012, should shed some insight into these events.

Bottom Line

Based on the information provided above, and popular analyst outlook, I maintain a buy recommendation for AMRN.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.