Seeking Alpha
Profile| Send Message| ()  

In its most recent conference call, Amarin (AMRN) CEO Joseph Zakrzewski made it clear that management's top priority is to sell the company. Thursday morning, the Economic Times reported that TEVA and AstraZeneca are seeking to buy Amarin. The questions that remain are if and when a deal will happen. The next two weeks will be critical for Amarin, as the company awaits the FDA's determination on Vascepa's New Chemical Entity (NCE) exclusivity status. This event will also influence the company's decision over whether to hire a sales force to market Vascepa by the end of November. Here, we lay out a few scenarios to value AMRN's stock price. Based on our analysis, AMRN's current stock price has limited downside risk. On the other hand, the stock has significant upside potential going forward that could drive the stock price much higher, based on several possible events: positive news on a NDA filing for a second indication, the launch of Vascepa, or the acquisition of the company, to name a few.

We've written several articles about Amarin thus far, the most recent discussing those positive events in more detail (Amarin's Dilemma: Sell Vascepa Or Sell Itself?). There are several upcoming catalyst events for Amarin that could move the stock price, including a corporate decision on the direction of the company, the FDA's NCE status determination, a NDA filing for Vascepa in combination with statin on mid- to high triglyceride patients before year end and the launch of Vascepa in Q1 2013.

We performed a scenario analysis on AMRN based on our previous valuation model (Amarin valuation before FDA action).

Indication

Pharma Partner

Fair Value (3-yr market exclusivity)

Fair Value (5-yr market exclusivity)

1 indication (high TG)

No

$10

$12

1 indication (high TG)

Yes

$17

$19

2 indications (high, medium TG)

No

$16

$17

2 indications (high, medium TG)

Yes

$25

$27

Scenario I: If Amarin launches Vascepa alone for just one indication, i.e. the high triglyceride (TG) population, its revenue growth is estimated to be $90M to $400M from 2013 to 2016. Its fair value would be ~$10, based on the discounted cash flow model, and with a 5-year marketing exclusivity, its fair value would be $12.

Scenario II: If Amarin launches Vascepa with a large pharma partner, it could increase revenues more rapidly from $100M to $700M in the 4 year span. This would place fair value at ~$17 and $19 for 3- or 5-years of marketing exclusivity, respectively.

Scenario III: Amarin files a new NDA for a second indication for Vascepa in early 2013. If this indication is approved by the end of 2013, Vascepa sales would expand starting 2014. In this case, its fair value would be ~$16 and $17 for 3- or 5-years of marketing exclusivity, respectively.

Scenario IV: If Vascepa is approved for two indications and has a pharma partner to help sell the product, AMRN's fair value could be $25 and $27, depending on years of exclusivity.

So, our conclusion is that it is in Amarin's best interest to seek a pharma partner to commercialize its Vascepa product. Naturally, the best scenario for the company is an acquisition by another large pharmaceutical company, though it is uncertain when and whether such an acquisition would occur anytime soon. Nonetheless, our valuations indicate that the stock is currently traded at a significant discount, even assuming the company has no partner to sell its product. In any event, the situation could change rapidly, as any news from or about the company will clarify the situation and likely drive the stock price higher.

Source: Amarin: Limited Downside With Significant Upside