On Monday, Amarin (AMRN) announced that it has completed dosing and pharmacokinetic sampling, in a study to test a fixed-dose combination of Vascepa (icosapent ethyl) capsules and a leading statin. The new combination has been named AMR102. The company had already filed an investigational new drug (IND) application with the FDA. The primary aim of this study was to determine the bioavailability of the "EPA (eicosapentaenoic acid) and statin components when taken as a fixed-dose combination product, relative to the individual reference agents taken concomitantly." Amarin CEO Joseph Zakrzewski had the following to say:
This study is aimed at expanding the potential commercial application of Vascepa by leveraging the clinical successes of the MARINE and ANCHOR trials, namely effective triglyceride lowering without increasing LDL-C,
The company plans to release the results of this study to investors during the first half of 2013. Needless to say, this release would act as a catalyst for AMRN.
What Are the Acquisition Prospects?
In my last update on Amarin, I explained why I believe the company is still a major buyout target. After Amarin announced its intentions to raise non-equity financing and commercialize Vascepa, the stock depreciated 30%. I believe investor concerns are misplaced because Lovaza was already being commercialized in house before Glaxo Smith Kline (GSK) acquired Reliant Pharmaceuticals. The drug was not only being commercialized by Reliant, but was in fact showing an annual sales growth rate of more than 60%. Despite bright acquisition prospects, it remains a possibility that Amarin can sell Vascepa for a few quarters -- i.e., until a reasonable bid comes through. If there is no M&A before market launch of Vascepa, the sales performance of the drug would determine Amarin's value for any potential buyers and the market.
Patent Related Update
Last week, the U.S. Patent And Trademark Office published notification of a "notice of allowance" for a U.S. patent application intended to protect Amarin's claims with regard to Vasecpa, based on the recent MARINE clinical results. Explaining the importance of this notification, the company CEO said:
This allowance is significant in that it would broaden our currently issued MARINE method of use claims to cover the use of Vascepa (and other highly pure EPA formulations) without regard to LDL-C levels.
What Are Amarin's Commercialization Preparations?
Amarin kick started their commercialization efforts by acquiring $100 million in non-equity financing (non-dilutive), from Pharmakon Advisors' investment fund. Amarin will have to pay back the borrowed amount in a three-and-a-half-year period commencing November 2013. The company will hire 250-300 sales representatives, each with a minimum of three to five years of experience with a similar group of physicians that Amarin plans to target for Vascepa. The supply side of the manufacturing process would be handled by consortium of companies, led by Slanmhor Pharmaceuticals. This top of the notch consortium includes four of the world's leading omega-3 API manufacturers.
The delay of the new chemical entity status has also forced Amarin to put together a team that can ensure a smooth launch for Vascepa. I am very optimistic about the recent addition of David Stack to Amarin's board of directors. His addition would considerably improve Amarin's operational capabilities. He has more than 25 years of experience and is currently the president and CEO of Pacira Pharmaceuticals. Therefore, I believe the market is unreasonable in assuming that Vascepa will fail just because Big Pharma is not commercializing it. If this team could commercialize Lovaza successfully (prior to acquisition), it can be deduced that they have a very good chance of a successfully commercializing Vascepa.
How Much Is an In-House Commercialized Vascepa Worth?
Reliant pharmaceutical was acquired by GSK for $1.65 billion. The company had reported annualized sales of $454 million in 2007, which puts the acquisition at a multiple of 3.6x sales. Lovaza is the closest competitor to Vascepa and garnered sales of more than $1 billion last year. If we take into account that Vascepa has a far better efficacy profile and fewer side effects, Vascepa sales could far exceed this target. Even if we assume Vascepa sales to reach $1 billion, it can be value at $3.6 billion ($24 per share) using a 3.6x multiple. The consensus sell side target for AMRN is currently $21, which further validates our sales and multiple assumptions.
My sales-based multiple ensures that the stock is still trading at a major discount, even if we consider in-house commercilization of Vascepa. Using mean sell-side estimates -- i.e., $21 -- I have calculated a 140% upside. Using my sales multiple based price target of $24, we can calculate a 175% upside on current price levels. Therefore, I recommend investors buy Amarin, despite Vascepa commercialization.