Seven months have elapsed since the FDA approved Amarin's (AMRN) Vascepa drug for the "Marine" indication for people with very high triglycerides. Still, no sign of new chemical entity (NCE) status by FDA; no partnership or buyout has materialized; and the stock is hovering near pre-clinical trial result levels.
However, before being too short-sided, let's quickly review some of AMRN's strengths from the not too distant past that help support the strong fundamentals going forward:
- Marine and Anchor clinical trials exceeded expectations
- On-time filing and approval of Marine NDA, to address $1B market
- 18 patents allowed and/or awarded for composition of matter and composition of use through at least 2030
- Overcame non-final rejections on all-important 520 patents in order to secure notice of allowance, protecting Vascepa through at least 2030
- Secured supply chain and created solid barriers to entry for both branded and generic Rx competitors
In addition, important external developments in the recent past should add to the favorable fundamentals:
- Omthera Pharmaceutical's drug candidate Epanova, a potential free fatty acid Omega-3 competitor failed to impress (vs. Vascepa) with its Phase III clinical; it is distant not only in terms of efficacy but also in terms of regulatory pathway and legal protection. There is no other Rx Omega-3 candidate on the horizon that has been shown to exert efficacy on a dose proportion basis, as Vascepa has. You can review the data against Vascepa and Lovaza and decide for yourself.
- Attempts at Krill oil for Rx use within the next 5-years are pipe dreams in reality. Presently, krill oil cannot be standardized to meet the quality requirements of the FDA and has no upper limit safety studies. Without better designed human clinical trials, outcome studies, safety data and an actual product that can remain stable, there is no chance FDA will allow the material as an Rx.
- Niacin had a terrible downside surprise as Merck's (MRK) drug Tredaptive recently failed an outcomes study for cardiovascular events when combined with other cardiovascular drugs. Niacin Rx has a completely different method of action than the anti-inflammatory properties of Rx grade Omega-3. Therefore, drugs like Vascepa may move to frontline treatments in the future, and certainly be stronger candidates for tier 2 or better coverage (vs. tier 3).
- GlaxoSmithKline's (GSK) Lovaza was required to put an additional warning statement on its label in 2012. This is an addition to the already known side effects of measurable rise in LDL, and regimen drawbacks of fishy taste, pill fatigue and stomach acid reaction. Lovaza is still a $1B drug.
(Click to enlarge)
In addition, members of AMRN's management team launched Lovaza as Reliant in the past, and posses essential competitive intelligence on Lovaza's science, pricing, and distribution strategies. This is a competitive advantage not to be overlooked during the Marine launch. These factors combined with Vascepa's attributes are the Lovaza-killer in my view.
OMEGA-3 LEADING NEW PARADIGM
- Take it from someone entrenched in the U.S. nutritional and healthcare space: Omega-3 use is up, way up. The data speaks for itself. All the syndicated POS data (I typically reference Nielsen and IRI) we have at our disposal shows American consumers need it, want it and are buying it. The retail fish oil use is fueled to some extent by doctors that generalize by recommending patients to take "fish oil" and not writing scripts.
However, the bulk of OTC sales are driven by two main factors: 1) People that do not go to their doctor at all; rather the media suggests that Omega-3 fish oil is good, so they buy it at their local store. 2) People that have cholesterol/triglyceride problems but don't have levels => 500 mg/dL. In this case, doctors may prescribe Lovaza, but most insurance companies will not cover this off-label use, and if they do, it is at the highest possible coverage tier. Hint: That, along with Lovaza's side effects is why Lovaza scripts have flattened.
Dr. Rae in the Cooper University Healthcare System explains that Lovaza is typically prescribed for patients with elevated triglycerides. However, Rae notes that all too often the patient may not qualify for medical coverage due to being at levels less than 500 mg/dL. When they complain about lack of coverage, OTC fish oil becomes an option, but not a preferred one. If there was an indication for patients with moderate to high levels, "I'd prescribe the drug."
- The majority of people "at risk" that visit their doctors are the ones exposed to the Rx side. It is important to note that the majority of people diagnosed with elevated triglyceride levels are just as likely to be prescribed Rx by their primary care physician than a specialist/cardiologist. What you will be surprised to learn is that just like when women learn they are pregnant, they shift to Rx solutions vs. OTC or retail products. A good example would be Rx prenatal supplements vs. the stuff you find on retail shelves. Both markets are growing, but Rx is leading the way. It is driven by doctor prescriptions and the consumer perception that if it is important for a specific health concern, it must be clinically proven and must be Rx. This is aided by insurance coverage. Given the tremendous high triglyceride market size, chances are that the people not taking fish oil at all or people taking OTC options will actually shift over to Rx use, as the problems grow and they get into their doctors.
- Serious consolidation has occurred within the raw materials supply chain on fish oil, more specifically for high grade fish oil used for Rx products. After using resources at my disposal on the raw materials side of things I believe the supply chain can be just as effective of a tool in securing exclusivity for AMRN's Vascepa as its patents, or even NCE. AMRN believes this as well, and has communicated this fact to investors many times.
So, what do we make of AMRN? The company previously announced that it will launch the drug under the "Marine" indication during early Q1 2013 and has executed that commitment. The company previously communicated that its sNDA filing was to be submitted for FDA acceptance by end of February, and it has. All this in addition to the delivered promises of successful, on-time clinical results, granting/allowances of key patents, (18 and counting) including a successful outcome on the 520. The point here is that we have an experienced management team executing its objectives.
In more recent conference calls, the CEO has commented that despite self-launch for "Marine," investors would be wrong to assume other strategic options/plans are not being considered. Given AMRN's past promises and subsequent patterns of success, I strongly believe it is wise to assume that the "Anchor" indication will come with a set of catalysts that will ignite a frenzy of new institutional ownership.
How will it Quadruple in 2013?
First, it is important to reference a financial model to support the investment thesis at-hand and going forward. This author has at his disposal research reports from each covering analyst and will be choosing the Aegis Capital report. While referencing a model clearly out of current PT range may be bold, I have had to discount most other models for four main reasons:
- A few analysts dropped price targets but maintained "buy" rating after only three weeks of reports IMS data. Three weeks, really? Any experienced analyst in the sector knows and understands that three weeks of data is far too early to draw conclusions, or even suggest a "fogginess." Heck, it takes a good three months in the nutritional space to get a true flavor for a product launch.
- Many of those same analysts were late to the game to even get involved in AMRN, so quick price target shifts erode credibility.
- The Aegis analyst has high credibility and was recommending AMRN very early in the game.
- The other models do not properly account for Anchor, if at all.
Let's focus on #3 and #4 above. First, not to be overlooked #3, Raghuram Selvaraju, PhD (Aegis Capital) is a heavy-hitter in the "smarts" department with academic qualifications including Bachelor of Science in Biological Sciences and Technical Writing from Carnegie Mellon University, a Doctorate in Cell Biology and Neuroscience, a Master's of Science in molecular biology from the University of Geneva in Switzerland, and an M.B.A. from Cornell University. In fact, Dr. Selvaraju has also published articles in leading peer-reviewed journals and is a co-inventor on several drug development patents. In my view, no other analyst in his peer group comes close to the ability and qualifications to comment on the issues at hand for AMRN; clinical efficacy and differentiation vs. other therapeutic options; molecular compounds; potential outcomes on a patient population. In addition, he has taken a stance and has not waffled. I believe just a few months out from FDA approval of Marine, this is the proper stance to take.
I had the opportunity to interview Dr. Selvaraju on March 4th to gain some first-hand insight on AMRN's situation and address some concerns raised by the investor community, here is the playback (quotes) of that interview:
SR: Thank you for taking the time to offer some perspective on Amarin Dr. Selvaraju. It's clear from clinical trials that Amarin has something special in Vascepa, but what about generic competition?
Dr. RS: I don't believe that any generics company, regardless of size, will want to launch at-risk with this being such a high-profile product. AMRN will have the 520 patent application issuance behind them, among other patents. Even if generics firms did elect to launch at-risk, the compound is extremely complex to manufacture and so I believe that generic drug makers are unlikely to be able to figure out how to make it successfully.
SR: Right, a company can be put out of business in a hurry given high mandatory damages of willful infringement.
Dr. RS: That's right.
SR: What about the NCE situation? I know it's hard to predict the FDA's actions and you have to respect their process.
Dr. RS: In this regard, AMRN uses pure EPA, vs. Lovaza's complex mixture of mainly DHA with some EPA and other fatty acids. There are precedents, which lead us to believe that NCE is likely.
SR: Are these precedents related to the argument about a single enantiomer not considered to be the same active ingredient as that contained in an approved racemic drug?
Dr. RS: Yes, there are some solid precedents in that regard, such as the case of Nexium (esomeprazole), which is an enantiomer of Prilosec (omeprazole), and Levaquin (levofloxacin), which is an enantiomer of Floxin (ofloxacin). Clearly, if Nexium and Levaquin were given NCE status, Vascepa should be considered an NCE as well.
SR: It seems that everyone was counting on an acquisition that did not occur in 2012. Your thoughts?
Dr. RS: It's not a question of if, it's a question of when. What I can say is that if AMRN gets approval for Vascepa in mixed dyslipidemia based on the ANCHOR Phase 3 data, pharmaceutical companies will have to make bids for AMRN to get their hands on the asset. These are companies with thousands of sales reps on the sideline and billions of dollars in patent cliffs eroding as we speak. They cannot afford to wait. Even worse, they cannot allow one of their competitors to take control of this drug. We still expect that a bidding war could break out over AMRN.
Now for #4: The Aegis buy model lists a $35 12-month price target. To be clear, this target bakes in patents (achieved); NCE granted (not determined by FDA yet); and Anchor approval (FDA determination expected around Q3 2013). The issue with other analyst reports are that they are not baking in Anchor properly, if at all. For Marine, $15-$20 is a reasonable target. If we were several years out and still required a clinical study for Anchor, I'd agree not to bake it in now. But, with a sNDA filed and approval likely in 2013, we are only months away from a potential game-changing blockbuster. Approval is likely under special protocol assessment from FDA, outcome trials approved and enrolled and a highly successful Phase III trial.
For reference, here is the Aegis financial model supporting a $35PT, permission given by Aegis to use projections from analyst report:
My view is that there are 5 core catalysts/events that should reverse the stock price, stabilize the short interest and cause positive momentum toward new highs:
- Launch data for "Marine"
- Regulatory options for "Anchor"
- Launch planning for Anchor
- NCE determination
- Additional patents
Launch Data for Marine
Rightly so, a few weeks of sales data does not decide a new drug's fate. If that was the case, AMRN stock should trade higher. Weekly scripts are increasing at an exponential rate, even when considering freebies are not recorded at all. In addition, on the latest quarterly investor conference call, the company guided that the first few weeks of Vascepa sales exceeded Lovaza's. Again though, let's not read too much into a few weeks of data. Besides, the investment thesis above $20 is not about Marine, it's about Anchor -- which is why investors should not be as concerned with the self-launch for Marine.
Regulatory Pathway for Anchor
I expect Anchor to receive FDA approval in 2013, likely in Q3. I do not believe any additional outcome data will be required for approval. NCE is tied to the first NDA, so no, AMRN does not go through NCE again for Anchor. When Anchor is approved, a major paradigm shift in lipid management will begin. A company source not wishing to be identified recently commented, "We don't comment on past or current discussions - we are focused on increasing the awareness about the advantages [of Vascepa] over others [approved treatments] within the medical community and we are focused on getting Anchor approved."
Let's recap again, the investment in AMRN is really all about Anchor (and beyond). The anchor population represents a tremendous market in the U.S. and throughout the world. In the U.S. alone the market size is 8-10X that of Lovaza.
Launch Options for Anchor
AMRN has publicly commented that a third party (through partner or acquisition of Amarin) would be the right way to launch the much larger Anchor indication. To maximize the Anchor population, a much larger sales force would be required. In addition, with the potential to include statins in the future, there is a high level of strategic relevance to some of the big cardiovascular players. This area is actually where most of the analysts agree... That a larger-scale acquisition will eventually occur by a larger pharmaceutical company.
Unlike the actual regulatory status, two things are certain regarding NCE for Vascepa.
- It is far less material than it was before the 520 notice of allowance, taking a back seat to issued patents.
- It still is a psychological over-hang for investors, and possibly suitors.
Uncertainty is never good, so it's likely that even a "no" determination will bring some resolve and send the stock price higher. The over-hang would be removed. A "yes" would be perceived as a strong positive, worth several dollars in the short-term. Longer-term I am completely in the camp that patents are the protective driver, coupled with manufacturing and supply barriers to entry. I use none other than Lovaza as an example. Lovaza was granted NCE which has aged past the point of future protection. Do we see any Lovaza generics in this billion dollar market? Not at all. We saw some past challenges, but the courts upheld regulatory and legal barriers to entry. Lovaza has some patent protection, but it is far weaker than Amarin's intellectual property position, yet Lovaza's has been well-served by theirs.
The AMRN NCE delay is likely due to FDA process. FDA announced in 2012 a new committee would be enacted to determine NCE for new drugs. This approach offers a more thorough review of data to prevent inconsistencies in FDA process when it comes to novel compounds and active moieties of drugs. We have already seen several new drugs impacted by multi-month NCE delays, so AMRN is not alone. You should also know that the legal firm that successfully petitioned a win on the 520 patent is the same firm representing AMRN on NCE. In the case of AMRN, Vascepa uses pure EPA, a different compound than found in Lovaza. Lovaza uses DHA with some EPA and other fatty acids, among other things. The fact remains that Pure EPA has a different method of action than any of the elements found in Lovaza, and no active compound found in Vascepa is a molecular carbon copy of the compound found to have efficacy in Lovaza's complex mixture.
Amarin has additional patents with notice of allowance and filed for review. Together, AMRN anticipates having no less than 30 patent shields. I expect a flurry of granted and allowable patents through 2013. One of the most important patents for the future would be the IP associated with combining Vascepa with one or more statins. This piece of IP has a direct and serious impact for large pharma companies and takes the treatment paradigm one step further. Note that any price targets currently do not take Reduce-It in consideration. While a few years out, this indication, if successful, would double the highest price target today. We cite the Japanese JELIS study to be a good outcome indicator for Reduce-It and note that the Reduce-It population is even more prone to see efficacy than JELIS since the population in Reduce-It is not accustomed to the Omega-3 fatty acids typically found in a high fish Japanese diet, such as consumer by JELIS participants.
My view is that AMRN is trading at pre-Phase III levels and near two-year lows, yet the company has executed all major milestones (NCE undecided is an FDA issue) and continues to strengthen the case for blockbuster status on Vascepa. The potential payoff is just around the corner, not years away like many biotech opportunities. At very least, AMRN is quite possibly the greatest risk-mitigated opportunity currently in the biotech sector. A quadruple within the short term (short-term being less than 12-months) should be a target for those holding or investing in AMRN shares today.
Business disclosure: Mr. Rosenman does not receive ANY form of compensation from (including Seeking Alpha) to write this article, and has no affiliation with any party mentioned within.
Disclosure: I am long AMRN.