The Price May Be Increasing For An Amarin Buyout

| About: Amarin Corporation (AMRN)

If you think the past several months have been volatile in Amarin (NASDAQ:AMRN) trading, just look what happened after hours on December 6th. The company Chairman & CEO Joseph Zakrzewski announced that the company would begin hiring a sales force, financed through existing cash on hand and through a $100 million non-dilutive debt instrument. The details on the announcement can be found here. This news was viewed as negative to short-term investors expecting a quick pop from a buyout before the close of 2012.

However, just before the close of after hours trading, word circulated that the all-important 520 Anchor patent was updated with reasons for allowance notice from the USPTO. The next official step is notice of allowance. On March 20, 2012 shares were impacted heavily by the non-final rejection letter on the 520. Once buttoned up this patent could become a key driver for AMRN shares.

Whether going it alone or ultimately being acquired, the price just went up for future AMRN shares. Here's why:

Go it alone:

While the announcement Thursday alluded to self-launch, don't come to that conclusion too soon, at all. First, the financing deal was quite creative. It provides access to $100MM but without diluting shareholder equity. And, the payment terms are geared toward payback as the company sells down product. Great for cash flow, great if you never even need to touch the funds. At the very least, it's considerate to current shareholders vs. other options, options that if it were a decided comprehensive self launch would need equity financing, and much more of it.

Could they go it alone? Why not, this management team has done it before and had been quite successful selling Lovaza to GlaxoSmithKline (NYSE:GSK). The difference here is that with the Anchor indication, the market is no less than 10X larger (up to 2/3 of the American adult population). Self promoting means higher profit and the ability to stay in the drug right through the Reduce-It trial, which could potentially expand the already expanded market by 8-10X more. The analyst targets in the $20s today would rise right through the $40s on a successful go it alone strategy. But, there are risks with this strategy:

  • Financing - Additional funding to support launch, infrastructure (which they have none of now), ongoing operations and large raw material purchases. For a period of time, dilution could occur, until the drug is self-sufficient, generating positive cash.
  • Performance - Although current management has a proven track record, there is no guarantee of success. Just look at the disappointing launch of Dendreon Corp (NASDAQ:DNDN). While the situations are quite different, DNDN shows an example of a failed self-launch.
  • Timing - Assuming success, timeliness for return on shareholder investment may be longer

Acquisition of Amarin:

On a 12/6 after hours conference call (can be replayed by dialing 1-877-660-6853 (United States and Canada) or 1-201-612-7415 (International), conference ID 405508, Chairman & CEO Joe Z stated twice that assuming that the hiring of sales reps would limit the company's flexibility or ongoing strategic discussions would be a mistake. I would agree and fully believe that an acquisition of Amarin is desired by management and not one, but several potential pharma suitors.

  • Amarin had stated all along that it would launch in Q1 2013 and that it may hire sales reps concurrent with ongoing strategic discussions. The recent Citi analyst report, seen here, supports this tactic.
  • There have been no recent stock sales by company management. The only sales have been tiny portions of their overall holdings right after FDA approval. Call it a congratulatory trade at the time, but whatever you call it, it was less than 5%. Me personally, 30% goes off the table to diversify immediately, but not this team.
  • Patents after patents have piled up. Marine is well covered. Anchor is next, and if the 520 is any indication of how things will go, investors may get some surprisingly nice incremental catalysts. The company is in a stronger bargaining position, with or without NCE.
  • The raw material situation is locked with supply agreements.
  • NCE...Very important, right? Well, maybe not in the manner originally thought. Today's move was...well, strange, but very telling. Why not wait for NCE determination within the next 15 days? For this contributor it signals a few things that must be considered...

1) Despite my original line of thinking, there is no offer on the table dependent on NCE in terms of major valuation difference. However, NCE or any regulatory exclusivity feedback could potentially move a deal along. You see, with no feedback at all from the FDA, there is uncertainty and overhang. If you think Wall Street doesn't like uncertainty, wait until you get a load of big pharma. NCE may be needed to seal a deal with a kiss, vs. be the cause major valuation swings like many (including myself) thought. No word from FDA means big pharma has to do their own digging, and that takes more time.

2) Joe Z and team are not playing. Just like they executed during clinical trials, they are staying on track and moving the plan forward. Prior performance is a future indicator of success.

  • Strategy: Actually, the next 2-3 weeks have now become more critical than even before the sales hiring announcement. If a potential suitor does not come forward now, they don't get to control the launch and the pricing. This can and does force hands.
  • Should the buyout strategy play out, the longer big pharma waits, the more they pay. Fact is, regardless of competitive Omega-3 treatments currently being sold or potentially coming to market, none have the Anchor indication, or could be potentially combined with statins. Each new patent, each new sNDA create more opportunity. Reminder that the Anchor sNDA will be filed by end of February but may come earlier per company guidance.

If you listen to what the company has communicated over the past year, and refresh your memory by listening to the 12/6 conference call, as obtuse as it may seem, the company does not consider the hiring of a salesforce as a go it alone approach. They expect to launch while progressing with strategic discussions, all three (go it alone, partner, buyout) are still on the table.

Just a few months ago Vascepa was approved for the reduction of very high triglycerides. If trading the stock on a daily basis, you may actually need to take some prescription blood pressure medicine. However, investors that wanted to gain from the Vascepa asset should feel well taken care of by a management team not looking to sell short.

Disclosure: I am long AMRN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am not paid in ANY way (including by Seekingalpha) for writing this report. I do not recommend stocks as I am not a financial advisor. Please remember to do your own due diligence before investing in the stock market.