In my previous article, I stated that without a five year New Chemical Exclusivity (NCE), Amarin (AMRN) is a $6 stock and maybe as low as $5. It seems that the market is starting to come around to my way of thinking.
Yes, a huge chunk of Amarin's tumble last week was due to the fact that the CEO once again sounded enthusiastic and excited about the prospects of launching Vascepa. Vascepa (Amarin's only drug) was officially launched on January 8, 2013. During the Q4 conference call, the CEO, Joe Zakrzewski, discussed the launch, marketing strategy and his optimism for Vascepa. Again, no one wants to hear that. Investors are still eagerly waiting for the magic words of "We have received a $5 billion buyout offer from XYZ pharma." That didn't happen and it is unlikely to happen until Vascepa receives a five year NCE.
Every month the FDA's Orange Book is published and every month Amarin investors are disappointed. Why is this happening? When will long suffering Amarin investors get relief? Is there hope? Before answering these questions and for the sake of context, we need a little bit of history about the FDA.
For decades now, the FDA has operated as a brutalized ping pong between lawmakers and pharmaceutical companies. The FDA's core job is to regulate the food and drug industries and ensure safety and efficacy. That's it. It isn't like the FAA which in addition to safety and efficacy is also required by law to promote aviation as an industry. However despite this clear mandate, the FDA has been used by lawmakers to pacify angry voters as well as fatten the wallets of pharmaceutical and biotech companies. For example in order to quell loud demands from both the public and pharmas for more, the Congress had recently mandated that the FDA expedite the drug approval process as well as bring new obesity drugs to market. The result has been a record number of drug approvals and two obesity drugs with very dubious efficacy and safety being brought to market - i.e. Arena's (ARNA) Belviq and Vivus' (VVUS) Qsymia.
The FDA has had a long history of caving under the often relentless pressure of corporate lobbies, public demands, and spineless lawmakers. There are many examples of this, including the above. However, there is no better example of FDA's consistent caving than the NCE process. It has had a long history of giving undeserving companies five NCEs when all they did was reformulate existing chemicals and called it new.
According to the FDA, "new chemical entity means a drug that contains no active moiety that has been approved by FDA in any other application submitted." In the context of this definition, the FDA is comparing Vascepa to GSK's (GSK) Lovaza. The FDA is likely saying that Vascepa and Lovaza are effectively the same. They have the same active ingredients - a prescription-grade omega-3 fatty acid, comprising of ultra pure EPA (icosapent ethyl). It just happens that Amarin's version is purer than GSK's. That's really it. So, how does the FDA declare that Vascepa is a new chemical entity? Well, that is the controversy.
Right now, Amarin lawyers are writing letters, calling FDA regulators, calling their congressional representative, yelling, screaming, and placing every possible pressure on the FDA to get Vascepa a five year NCE. Don't be shocked; that's the game everyone plays. After all, the difference between a five and three year NCE is billions of dollars. If Vascepa is granted a five NCE, the company's buyout value is at least $2 billion but could be as much as $4 billion. If it gets a three year NCE, Amarin will likely be forced to market its only product on its own and see every pharmaceutical and biotech markets their version of Vascepa within four years. In other words, a three NCE could mean a crashing market value for both Amarin and Vascepa.
Although the three versus five year NCE debate may sound trivial, it has a significant impact beyond the two year difference. Per FDA rules if a pharma/biotech is awarded a five year NCE, then no other company can submit an application to gain market approval for a similar drug until the fourth year of that NCE. For Amarin, this means if Vascepa is awarded a five NCE for at least five years. More importantly, there are massive amounts of delay tactics that pharmas often employ in order to extend the five year period for up to eight (and beyond). These tactics include lawsuits, requesting the drug be re-designated as something else (i.e. an orphan drug); challenging a New Drug Application (NDA), and forcing the courts to make FDA decisions. They even sue to stop clinical trials, claiming infringement of patents, trade secrets, and whatever else a clever lawyer can come up with. This is all in addition to the approval process that the other pharmas have to go through, which in itself can take years. On the other hand with a three year NCE, other pharmas can immediately submit an application for approval on the day following the three year award. In other words with a three year exclusivity, other pharmas are likely to start selling their version of Vascepa immediately following the end of the three year period. This could mean billions of dollars of losses for Amarin.
The counter arguments that Amarin believers make is that patents will protect Vascepa. Not really. In this case, the patents primarily protect the manufacturing process - not the chemical itself. So, all GSK has to do in order to undercut Vascepa and once again reign supreme is find a creative way to purify fish oil to at least the same level as Vascepa and boom render Vascepa obsolete. Moreover, I can almost guarantee that GSK (and many other pharmas) will find a method that is faster and cheaper than Amarin's. So with this picture, what is Amarin's future?
The pressure that Amarin is inflicting on the FDA may work. The FDA may again cave and grant a five year NCE to Vascepa. But given the FDA's recent history and toggle with other pharma, I believe the FDA is taking a stand with Vascepa. It is saying, "No more; we will no longer be bullied into submission." For a very good history and analysis on recent FDA NCE controversies, click here.
Now that we know what is happening, I can say that I don't know when the suffering will end for Amarin investors. Other NCE battles have gone on for years; the FDA has even reversed NCE decisions in both directions. So this can be resolved in the next month or in the next five years. In the meantime, investors have to continue to sit on pins and needles. But there is hope. If for no other reason than there is always hope. Again, the FDA can cave, change its rules, or the Congress can step in and create another mandate. But until this issue is resolved in Amarin's favor, I still see Amarin's stock price continuing its descent to $6 and maybe even $5.