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Amarin (NASDAQ:AMRN) has had a good run this year and the stock has yielded a one year return of ~40%. Amarin's flagship product Vascepa (icosapent ethyl) was approved in July this year and is an ultra-pure omega-3 fatty acid, comprising at least 96% EPA (icosapent ethyl). Amarin expects to launch the product in early 2013. What does the drug do? It treats hypertriglyceridemia i.e. it lowers elevated triglyceride levels (TG >500mg/DL) in adult patients. Elevated triglyceride levels in the bloodstream is associated with increased risk of heart attack and stroke, especially when the patients also exhibit low levels of HDL-C (good cholesterol) and high levels of LDL-C (bad cholesterol).

Potential market for Vascepa is huge with 4 million people in the U.S. estimated to have severe hypertriglyceridemia (TG >500 mg/dL). Over 40 million adults in the U.S. have elevated triglycerides levels i.e. TG>200 mg/dL. Although currently the drug is approved to treat severe hypertriglyceridemia (TG >500 mg/dL), positive results from other trials (explained later in the article) will expand the total addressable market for Vascepa. Regardless of whether Amarin strikes a deal with a large pharmaceutical, Vascepa's good safety profile and the large addressable market makes me bullish on the stock.

Existing Medicines And How Vascepa Is Different

Existing triglyceride lowering drug classes include:

· Fenofibrates

· Niacin

· Omega-3

GlaxoSmithKline's (NYSE:GSK) Lovaza was the first Omega-3 drug to be approved to lower high levels of triglycerides. Lovaza is a derivate of fish oil and is highly refined by removing toxins, impurities and fat.

Fenofibrates and niacin, apart from some safety concerns, have not been proven to reduce cardiovascular risk. The Action to Control Cardiovascular Risk in Diabetes (ACCORD) trial in 2010 concluded that "findings do not support the use of combination fibrate-statin therapy, rather than statin therapy alone, to reduce cardiovascular risk in the majority of patients with type 2 diabetes who are at high risk for cardiovascular disease". In other words, the addition of fenofibrates to statins does not reduce cardiovascular risk more than statins alone. In another study it was found that adding niacin to statin treatment did not reduce the risk of heart attack and stroke either.

GSK's Lovaza has a better safety profile than fenofibrates and niacin but Lovaza has been indicated to increase, with varying degrees, bad cholesterol (NYSE:LDL) in patients. Vascepa, unlike Lovaza, does not increase bad cholesterol. Moreover, Vascepa's interaction with statin, unlike the interaction of fenofibrates and niacin with statin, creates a compounded beneficial effect on the patient. I believe Vascepa's safety profile and its interaction with statin makes it the most superior drug for the reduction of triglycerides.

NCE Status

Much uncertainty surrounds the coveted status of New Chemical Entity (NCE) for Vascepa. A NCE status would grant Vascepa a 5-year marketing exclusivity while its absence would mean a standard exclusivity of 3 years. The indecision by the FDA has certainly created some difficulty in placing an exact value on the sales potential of the drug. Potential buyers of Amarin would probably want to wait till a definitive decision by the FDA has been announced before making a move.

But does the NCE status matter that much? It does grant an added layer of protection for the drug, but the numerous patents that Amarin has acquired should be enough to ward off generic competition for the foreseeable future.

What About Sales?

Amarin has announced that it will go ahead with the launch of Vascepa alone and has initiated the hiring of a sales team who will market the drug to physicians. It is a costly move and investors were hoping that Amarin would partner up with a large pharmaceutical which has a larger pool of sales reps and experience in marketing drugs. Although I believe that a partnership would have definitely helped Amarin achieve wider promotion of the drug in a short amount of time, going alone is not end of the world. However, Amarin would need to expand its sales force beyond the initial expected range of 250-300 to market the drug more effectively. Amarin has also raised $100bn in debt financing from the investment firm Pharmakon Advisors.

Currently, Vascepa is approved for the treatment of severe hypertriglyceridemia (TG >500 mg/dL) based on the MARINE trial. This is the same indication for which Lovaza is approved. Amarin is expected to file a sNDA in February 2013 based on the outcome of the ANCHOR trial which will expand Vascepa's indication and include patients with high triglyceride levels (TG > 200 mg/dL and <500 mg/dL). The expected PDUFA date is during the end of 2013.

Lovaza, which is approved for triglyceride levels of <500 mg/dL, achieved a peak sales figure of $1bn. If Vascepa is approved to treat triglycerides levels of <200mg/dL and <500mg/dL in addition to severe hypertriglyceridemia, the potential market for the drug will be substantially expanded. Also, the REDUCE-IT trial, with a target group of patients with triglyceride levels of >150mg/dL and <200 mg/dL, is expected to be completed by 2016 and could further expand the total addressable market for the drug.

Risks

I believe the most prominent risk relates to the ability of Amarin to effectively launch the product with its own sales force. An ineffective marketing would not allow Vascepa to reach its potential sales target.

Omthera's Epanova is a potential competitor to Vascepa. Epanova is an ultra-pure mixture of the free fatty acid forms of eicosapentaenoic acid (EPA) and docosahexaenoic acid (DHA). Epanova has a good safety and tolerability profile but has been indicated to increase bad cholesterol.

Conclusion

Although a partnership with a large pharmaceutical would definitely be the ideal way to move forward, Amarin has a winner drug even if it has decided to launch it on its own. The market for the reduction of triglyceride levels remains large and since current medications exhibit certain shortcomings, Amarin can build on its strong safety profile. The question of NCE status has created pressure on the stock and an announcement by the FDA on the matter will be the short term catalyst for AMRN.

Analyst mean price target is $21 which translates into an upside potential of ~134%. Given the facts and my expectations, I believe the stock is a solid buy.

Source: Amarin: A Look Into The Future