Seeking Alpha
Special situations, micro-cap, biotech, healthcare
Profile| Send Message|
( followers)  

In an article I put out earlier this month, I noted that Amarin (NASDAQ: AMRN) was beginning to receive some fresh attention from the market following the US commercial launch of Vascepa. While I generally like to see additional coverage of the biotech stocks that I follow closely (AMRN being one of them), it seems that the speculative battleground for AMRN is becoming more simplistic and bias-driven than ever.

In this article, I will attempt to provide some clarity on an uneducated bearish argument, and perspective on a bullish argument that has been repeated far too often.

Bears: OTC fish oil pills compete with Vascepa

This is a very common argument made against Amarin, and has quite an effect on many investors due to the inability for many to tell the difference between refined eicosapentaenoic acid capsules and fish oil capsules.

Prescription drugs like GlaxoSmithKline's (NYSE: GSK) Lovaza and Vascepa are refined chemicals with virtually no byproduct, while OTC fish oil capsules are only refined enough to bypass the lax FDA regulations on supplement products. There is a giant gap in quality between OTC fish oil, and extensively refined prescription fish oil like Lovaza.

The commercial success of Lovaza (a whopping $1 billion per year in sales revenue) is additional proof that OTC fish oil pills are simply not on the level of prescription-grade products like Lovaza. Doctors realize that the refining process significantly limits negative side effects associated with standard fish oil. Highly-refined omega-3 acid capsultes have also proven cheap enough to justify reimbursement by healthcare insurers.

Additionally, Vascepa takes it a step further than Lovaza by removing docosahexaenoic acid (DHA) from the standard omega-3 in fish oil. While there is major controversy over the claim, DHA is believed to increase LDL cholesterol.

Bulls: Amarin is on the verge of a buyout

While there is evidence suggesting that big pharma companies have been considering Amarin for an acquisition (especially in the last year or so), the notion that the company is "on the verge of a buyout" causes false hope and has no basis other than random speculation. It was the extreme confidence in a buyout of AMRN that made me sell covered calls on my AMRN position in November and December of 2012, which turned out to be the right call (no pun intended).

For an example, take this recent article published on The Motley Fool, entitled "A Buyout On Amarin Is Imminent!" Talk about sensationalism.

Quoted from the article:

"So with Amarin targeting such a huge market with its drug Vascepa, a market that is expected to grow substantially, and patent cliffs for many big pharma companies looming in the coming years, I feel that Amarin is an obvious buyout target. Some of the companies that are probably looking at Amarin are Glaxosmithkline and Pfizer (NYSE: PFE)."

It's possible that the author selected these companies after performing due diligence, although it seems more likely that these companies were chosen out of a hat. The choice of GlaxoSmithKline was particularly interesting, since an acquisition of Amarin by GSK would result in cannibalism of their Lovaza sales.

While I embrace the possibility that Amarin could be bought by a large pharmaceutical company a few minutes after this article ends up getting published, I'd advise AMRN investors to stay away from the rumor mill.

Source: 2 Misguided Points For (And Against) Amarin

Additional disclosure: I also have my AMRN covered with call options above the market price