Amarin Trades Super Bearish Ahead Of Vascepa Launch

| About: Amarin Corporation (AMRN)

I originally wanted to say that Amarin (NASDAQ: AMRN) was trading "shaky" ahead of its imminent Q1 2013 launch for Vascepa, but it's quite the understatement. After reaching a high of roughly $12.60/share on renewed acquisition hopes by AMRN investors at the start of December, the stock proceeded to drop quite relentlessly after this press release.

What essentially happened was that Amarin secured $100 million in non-equity financing in order to prepare for the launch of Vascepa in Q1 2013. While this was not dilutive, it did confirm many investors' worst fear - that Vascepa would be launched without the help of a larger pharmaceutical company. It also extinguished most hope of an acquisition of Amarin by a pharmaceutical company for the near-term.

Understandably, a large number of Amarin shareholders decided to sell on this news. The surprising thing was just how far south AMRN moved due to this effect. Even after a very recent recovery rally, AMRN is down 34% in the last month and trades at a market cap of roughly $1.25 billion (or $8.36/share). We can boil down the bearish movement into smaller components that can explain exactly why AMRN has been struggling so much following this news.

First, we know that the market is extremely disappointed in AMRN due to its apparent inability to secure a favorable partnership or acquisition by a pharma company. We know that Teva Pharmaceuticals (NYSE: TEVA) and AstraZeneca (NYSE: AZN) were very interested in the company, but it's easy to imagine their bids being below what Amarin management had in mind for their blockbuster Lovaza-killer.

Second, we know that there is quite a bit of skepticism over the drug itself as well as its implied prospects. I had the opportunity to interview Omthera Therapeutics on November 14th, which allowed them to provide some alternative perspectives on Vascepa. I was also notified about a competitor that hadn't really been part of the omega-3 discussion - Pivotal Therapeutics (OTCPK:PVTTF). They also sell refined omega-3, but their product is designated as a medical food. Since they do target the broader US population, which generally needs higher omega-3 concentrations, they are competitors too.

The real skepticism for Vascepa's prospects comes from the lack of an NCE (New Chemical Entity) status, and questions over Vascepa's potential to serve as a cholesterol-lowering medication. Since EPA, the active ingredient and main constituent of Vascepa, already exists in GlaxoSmithKline's (NYSE: GSK) Lovaza it's hard to make an NCE decision. Since we don't have the REDUCE-IT results yet, it's not so simple to say that Vascepa will be prescribed as a prevention for hypercholesterolemia.

Lastly (although this list is by no means exhaustive), the shorts have been piling onto AMRN with the expectation that the company will have a weak launch. There are roughly 24 million shares short AMRN, which equates to roughly 16% of floated shares. The bearish presence will likely remain strong until Amarin finds a way to scare the shorts away.

In conclusion, there is clearly reason that Amarin has been trading so bearishly ahead of the Vascepa launch, but I think that the bears have blown it quite out of proportion. Amarin should not really be trading below $10/share in my book. It's been doing everything it can to prepare for a successful launch for Vascepa.

Disclosure: I am long AMRN. 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.

Additional disclosure: I also trade AMRN options