Vascepa Launch Puts Amarin's Valuation To The Test

| About: Amarin Corporation (AMRN)

It seems as if the market is taking a relatively neutral stance on Amarin (NASDAQ:AMRN) while we wait for more details about the ongoing market launch of Vascepa. We're also seeing less speculation over the NCE status of the drug (especially due to another non-decision by the FDA last Friday), and continued discouragement from certain AMRN shareholders who are still waiting for the company to be bought by a larger pharmaceutical company.

Helping the market's neutral stance on AMRN, Adam Feuerstein published an article last Monday that suggested the earliest Vascepa prescription numbers are simply too small to form any decent opinions or sales trajectories on for the rest of the year. IMS and Symphony research suggests that purchases of weekly Vascepa prescriptions are coming in at rate of roughly 250 at this point, although we can infer that there are many more patients taking Vascepa than we think. That's because of the promotional program Amarin is offering for Vascepa, which allows patients to receive their first 30-day prescription for free while locking in $25/month Vascepa prescriptions for the rest of this year. While this significantly reduces the company's cash flow in the short run, I think it is the ideal strategy to help dislodge GlaxoSmithKline's (NYSE:GSK) Lovaza, which targets the exact same indication and patient population as Vascepa (patients with triglycerides over 500 mg/dL).

Feuerstein's article goes on to mention a Bloomberg survey of analysts who collectively estimated $114 million in 2013 sales revenue, although I think this could be a bit optimistic if you factor in how much Vascepa's promotional program may cut into top-line growth this year. If Amarin has to make $114 million by the end of the fiscal year, it will have to average close to $2.4 million in Vascepa weekly sales for the rest of the year. If Amarin is currently earning about $50,000 per week (the price of a 30-day prescription multiplied by the rate the company is selling it at), you can see that Amarin has a long way to go. We'll need to see the company multiply sales by fifty times or so before it starts to justify its valuation.

Although Amarin's financial data may end up unimpressive this year, the company should have a pretty strong base of Vascepa-taking patients by early 2014. That should put the company well into EPS-positive territory when the promotional program expires. This is when the value potential of the drug, and the company, would be unlocked. It's also around this time when we should have another PDUFA decision on Vascepa for its ANCHOR indication, which has the potential to expand the drug's hypertriglyceridemia indication tenfold in terms of patient population.

From an investment perspective, I think that $1.31 billion for Amarin looks decently undervalued. Even if the drug fails to gain approval for the ANCHOR indication (which is highly unlikely), Vascepa seems more than capable of justifying the market capitalization of its parent company through sales in its current FDA-approved indication alone. This would mean that Amarin has potential to appreciate substantially in valuation without an acquisition offer or anything of the sort.

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.