Introduction: Amarin Corporation plc (AMRN) is the ultimate turnaround drug company - if it can succeed at long last.
Its long-term chart is presented below. It has endured two reverse splits. Overall, the stock has lost 90%, then another 90%. I have gone long the stock, though, as part of the aggressive segment of my portfolio.
As discussed, I want to bring a different perspective to AMRN than you may have seen. I am going to discuss it as pharma executives (such as I have been) think: How can I induce doctors to move my merchandise?
Background: Amarin operates in the pharmaceutical field, with the strong influence of "nutraceuticals" added. It was spun off from the Irish controlled-release specialty company Elan (ELN), in the '90s, to let Elan become a single-focus drug-delivery company. The letters "marin" in the name relate to Amarin's focus on marine-derived drug products.
After years of failure in clinical trials, Amarin finally is in the game with an FDA-approved product.
It has begun marketing a lipid-modifier that could, and I emphasize could, produce immense multi-year returns for shareholders. (I am simply presenting my views herein. I am not an investment adviser and only seek to stimulate research into AMRN by readers. The only advice I will venture to give in this article is: please do not buy AMRN simply because of this article - not even for a day trade.)
The name Amarin suggests "marine." This is a clue to its long-sought FDA-approved drug product, a highly-purified form of fish oil, branded as Vascepa. This product was approved by FDA last summer, but only began being marketed a few weeks ago. This past Friday I purchased a small stake in AMRN, having as I said made a lot of money in it in 2001 and having performed a mildly-profitable round trip in it around $11 several months ago.
My background is both that of a prescribing cardiologist and a pharmaceutical industry consultant and executive.
Vascepa: The name of a product is more important than the public realizes. I believe that Vascepa starts off its product life with an important advantage: a very good brand name, and that this reflects well on what I expect will prove to be a talented and successful management team.
The main active "drug" in Vascepa is eicosapentanoic acid (aka icosapent ethyl). The italicized letters tell doctors via the -epa suffix in Vascepa that this product contains the essential fatty acid which they know as EPA from their (our) training. (An "essential" fatty acid is one which the body should have for healthy living but which it cannot synthesize on its own; it must be ingested to obtain it.) So that's good in doctors' minds. EPA is "essential." Nowadays, almost every doctor likes to give an essential natural product.
What I think is a great move is getting the FDA to allow this drug product to have the "Vasc-" prefix. This prefix "tells" the doctor that this product is good for the patient's heart and arteries. It is "vascular." So the doctor is being marketed a product that almost overtly contains an essential fatty acid that is good for the heart. Normally, "vasc" in a drug product's name indicates that it acts on the vasculature, such as the now-generic Pfizer drug Norvasc.
Amarin's marketing emphasizes that clinical trials show no side effects (unlike the competition).
So why not start with, or switch to, Vascepa? Thar will be the core message.
Why did I discuss the name prominently? Because it tells me that current Amarin management may be top-tier. FDA can block a name. Management came up with a name I like a lot and possibly slipped it past the FDA. There is to date nothing approaching proof that Amarin has created a vascular- or heart-protective product, or even a vascular-active product, so "Vascepa" is arguably a misleading name. But the FDA approved it, and that's that. It is not going to force a name change unless Vascepa gets confused with an existing drug product name.
The success of Vascepa is going to be all about management. Another aspect of management I really like comes from the company's description of its management team. Here's an example of a senior Amarin executive who has all the qualifications needed to help make Vascepa a hit product:
Paul Huff - SVP, Chief Commercial Officer
Mr. Huff joined Amarin in February 2011 as Chief Commercial Officer and brings over 25 years of cardiovascular-focused pharmaceutical marketing and sales experience, with a special emphasis on marketing lipid-modifying prescription pharmaceuticals. Mr. Huff has held senior-level sales and marketing positions with a number of pharmaceutical and biotechnology companies, including Reliant Pharmaceuticals, where as Vice President of Marketing, he played a pivotal role in the launch and successful commercialization of Lovaza, the leading prescription Omega-3 product for reducing triglycerides. Similarly, at Kos Pharmaceuticals Mr. Huff played an integral role in the launch and successful commercialization of Niaspan, the leading prescription drug for raising HDL cholesterol.
What is Lovaza, and what is (was) Reliant?
Lovaza is the incumbent marketed fish-derived FDA-approved product. It contains EPA plus other presumably-active ingredients. It is approved for treatment of very high triglycerides, over 500 mg/dL. While this is a smallish group of only perhaps 4 million Americans, and while over-the-counter fish oils compete with it, look at Lovaza's sales:
Q4 2012 266,067 1641
It's a billion dollar product. Now, typical gross margins for non-biotech branded drug products are 98%. Often, the container costs the company more than 30 pills or capsules cost. The marketer, which acquired Reliant, is GlaxoSmithKline (GSK). Ignoring marketing costs, GSK may be making one billion dollars a year from Lovaza pre-tax. From "fish oil." With no proven benefits of which I am aware in actually improving the health of anyone, just improvement of a number. Nice work if you can get it, yes?
Even better is that Mr. Huff played a key role in getting Reliant to this success with a very similar product to Vascepa:
He also played an important role in Kos Pharmaceuticals' Niaspan product. (KOS traded as KOSP until it was acquired by Abbott Labs (ABT), a deal announced in 2006.) Niaspan is similar to Lovaza and Vascepa in at least two ways. Both are natural-derived products. Niaspan's active ingredient is a high dose of niacin, an essential vitamin which cannot be synthesized by the body. Niaspan can be bought more cheaply from OTC sources, which also require no ongoing medical monitoring. Niaspan also had the dickens of a time getting managed care to reimburse for it. But the Kos team persisted, improved its product, showed it had fewer side effects than and more efficacy than other types of niacin, and then became a tremendous free cash flow generator.
So, both Kos and Reliant had uphill battles making Niaspan and later Lovaza into commercial successes (Note, Lovaza is branded as Omacor ex-US). Paul Huff looks like a superb person to help bring Vascepa to be a major success.
Also, the CEO of Amarin was Reliant's COO. The SVP for R&D is from Reliant. They know how Reliant positioned Lovaza to make a takeover from Big Pharma inevitable (at about 4X sales in December 2007).
My impression is that Amarin has an effective marketing strategy. I tore out a current Vascepa ad from a "throwaway" monthly, Cardiology Today, which I receive.
In the ad, Amarin emphasizes that:
Vascepa "significantly reduced TG (triglyceride) levels without increasing LDL-C".
I did not add that emphasis. You see, Lovaza cannot make that claim, at least not yet. In general, LDL is a calculated variable, and when TG is lowered by a drug, calculated LDL rises. The fact that Vascepa use does not lead to a measured rise in LDL while lowering TG a large percentage suggests to this cardiologist that it really lowers LDL (for more, see below).
Then the marketing says:
Vascepa demonstrated a tolerability and side-effect profile similar to placebo.
Great! Lovaza cannot say that. Lovaza both causes indigestion and also has a (modest) risk of a serious arrhythmia. (It is possible that Vascepa will have found to have that same arrhythmia risk as it gets used more, or that unsuspected side effects will pop up.)
This ad shows me that Team Amarin are expert marketers given their limited resources. One final nice touch, on the second page of this 3-page ad:
TG Therapy Redefined
VASCEPA significantly reduced TG levels without increasing LDL-C
VASCEP significantly improved multiple lipid parameters
Every word of this ad has been reviewed by FDA. This is government-approved advertising. Doctors believe every word of this ad.
In the real world, the doctors have seen the print ad, then see the same pitch on an iPad or physical document, the message hard-sold by an attractive young woman. This sales rep who says what the FDA won't let the company put it writing: Lovaza sucks, Vascepa is great.
Of course, they don't exactly say that. But they go as close to the line of what's acceptable to the FDA as management lets them. Basically, they will say that we have the new branded natural lipid-lowering drug on the block. They will get any sentient doctor to infer that Vascepa is both safer and more effective than Lovaza. They will point out that Vascepa is well-reimbursed already by insurance.
So my take is that even without the massive possible upside I am getting to next, Vascepa could get peak sales of, say, half Lovaza's sales (this is a guess) simply for the very high TG indication. If so, $500 M peak sales for Vascepa, if patent-protected until 2030 as Amarin expects, could easily lead to a double in the stock over the next few years. That would be good, but much better could be in the offing.
Amarin has data that will be filed this year with FDA that unlike Lovaza, which is and I think will be limited to the very high TG indication, Amarin anticipates that in the foreseeable future, Vascepa will gain FDA approval for a much larger and much more provably beneficial indication: moderately high TG in association with high enough cholesterol to be treated with a statin. From an American Journal of Cardiology (definitely not a throwaway journal) article titled Efficacy and Safety of Eicosapentaenoic Acid Ethyl Ester (AMR101) Therapy in Statin-Treated Patients With Persistent High Triglycerides (from the ANCHOR Study) published last July:
AMR101 was generally well tolerated, with safety profiles similar to placebo. In conclusion, AMR101 4 g/day significantly decreased median placebo-adjusted TG, non-HDL cholesterol, LDL cholesterol, apolipoprotein B, total cholesterol, very-low-density lipoprotein cholesterol, lipoprotein-associated phospholipase A2, and high-sensitivity C-reactive protein in statin-treated patients with residual TG elevations.
Translation: This drug product works.
FDA approval for this indication would, I believe, give Vascepa multi-billion dollar yearly potential. (All data are US-only; my research does not yet let me comment on international potential.)
The Vascepa story gets better. Per the latest investor presentation, an older Japanese study known as JELIS, has demonstrated mortality benefits from adding EPA to a statin. (Amarin has initiated a long-term study for this further indication.) Thus there is reason to believe that Vascepa really may be a legitimate life-saver.
Before discussing downside risks, there's one other point regarding investor concern about direct competition. It may not even be easy for competitors to obtain raw materials, strange to say, even if Amarin's patents proved not to be defensible. I raise this as a possibility because about two years ago, I was asked to consider being an angel investor in a small private company that was developing an algae-based technique to produce EPA. The goal was to become an alternate supplier to Amarin. The company had done its homework and was convinced that Vascepa would gain FDA approval and be a big seller, and would not go generic any time soon. This company advised me that it was really not so easy to get mass quantities of the right fish, and thus they hoped that Amarin would want an algae-based second source supplier.
To summarize the above, I have presented my views of Amarin, a one-product company operating in the lipid-lowering field, from the perspective of a dual-career veteran in cardiology (with a focus on preventative techniques) and the pharmaceutical industry. By doing so, I have laid out the case that Vascepa may succeed moderately well and might succeed extraordinarily well.
If I advance my investment in AMRN to more than its current rooting interest, which I may do next week, it will be because it operates in a field in which I believe that the efficient market does not apply to me, given my somewhat unique background. But I am under no illusions that, as the old Saturday Night Live line went, "I'm DoctoRx and Mr. Market's not." So-humility first and always with the markets.
Risks: What are the company-specific downsides about which Mr. Market has been obsessing and has lowered the trading price of AMRN by about 30% in the past several months?
I am aware of two. One is the (mostly) non-issue about whether the FDA provides any regulatory protection to Vascepa.
Briefly, for newbies to this technical field: There are two types of protection against generic competition for a drug product.
One is regulatory. For example, an "orphan drug" can have no patent protection but by statute, will have no generic competition for a minimum of 7 years from FDA marketing approval. The main types of brand product marketing are a 505(b)1 approval, which is for 5 years, or a 505(b)2 approval, which is for 3 years. However, a product can come to market and have no statutory-based protection from generics.
Vascepa has been approved for marketing by FDA, but a different department makes the above determination. The choice for that department is for zero, 3 or 5 years protection for Vascepa, so far as I know.
The reason Vascepa may have no regulatory protection from generics, as I understand it, is that EPA (icosapent ethyl) is already present in Lovaza, an approved drug product. Lovaza is a combination product. FDA has a difficult decision to make as shown by the delay in making one. Has icosapent ethyl already been approved, or not?
However, the second protection a drug product can have has nothing to do with FDA per se, though FDA takes note of it and publishes any issued patents in its "Orange Book" any issued patents a company wishes it to list. The patent protection a drug product has is usually more important than the regulatory protection. I have read most of both Vascepa's and Lovaza's patents that are listed in the Orange Book. Again, the FDA merely lists them; the patents are granted by the US Patent and Trademark Office. The FDA, however, grants a brand product substantial protection against a generic competitor launching a competing product "at risk" of being found to infringe a valid patent that has been listed in the Orange Book.
All I want to say in this article about this worry for Amarin investors is that I have been granted multiple patents in the US in the pharmaceutical field, and that I am comfortable enough at this point with the patent protection that Vascepa has to have purchased AMRN and to potentially purchase more as soon as Feb. 25. In fact, should FDA not grant Amarin any regulatory protection, I suspect that the expected selloff could provide a nice buy-the-dip opportunity.
The second issue that has bothered investors is that Amarin, a financially-weak player, has launched Vascepa without a stronger marketing partner. This is what it is; I will offer no comment. Likely there is a non-public behind-the-scenes story with which I have no familiarity. For now, I am comfortable with the Reliant Pharma success with Lovaza (and other products) as providing confidence that lightning may strike again with Vascepa.
Readers will likely have noted that because of the length of this piece, there is no financial analysis. The company is just now beginning to generate revenues. Readers who are interested in the upside potential of this speculative stock will certainly have equal or greater ability to me to analyze Amarin's capital structure.
Summary: Amarin Corporation is essentially a one-product company. A management team, including the CEO, is comprised of several key executives who took a similar but possibly inferior product to a level of success that GSK bought it out. The newly-launched Amarin product has potential to exceed the substantial success of the prior "fish oil" lipid-lowering product which GSK is now marketing. Substantial risks exist. Aggressive investors may consider researching AMRN for its long-term capital gains potential. My tentative multi-year upside goal, assuming that the expanded indication it anticipates seeking this year receives FDA's positive opinion, involves the potential for a five-fold or greater price gain, possibly via achieving a market cap of 3X sales of $3+ billion per year. Numerous risks of owning AMRN are present.
The above analysis is based on US potential only.
If I dig much deeper into the AMRN story, I intend to submit a follow-up piece to the SA editors reflecting any new knowledge or opinions I come to learn or hold.
Disclosure: I am long AMRN.