Seeking Alpha
Long/short equity, contrarian, special situations, wild cards
Profile| Send Message| ()  

Introduction

I've been getting tons of messages from Amarin (AMRN) longs who are none too pleased with the articles that I've been penning on Amarin over the last few months. I've gone into Amarin's Vascepa launch with a considerable amount of skepticism and, after doing a couple months worth the investigating, took on a short position recently. I'm convinced I did the right thing, and I'm adding to my position accordingly.

From its website, "Amarin Corporation is a biopharmaceutical company focused on the commercialization and development of therapeutics to improve cardiovascular health. Amarin's product development program leverages its extensive experience in lipid science and the potential therapeutic benefits of polyunsaturated fatty acids. Vascepa® (icosapent ethyl) is Amarin's first FDA approved product and is available in the United States by prescription."


(Click to enlarge)

After the drug's approval, the company decided to forego any massive pharmaceutical partnerships, bring on their own sales staff, and have a go at launching their one product on their own.

What's New

What's new with Amarin? Amarin longs have been flooding my inbox and comments section, wondering why I'm not short the company. So, last week, I took a short position and bought puts. Today, I bought more.

I woke up this morning to another great piece by Adam Feuerstein on Amarin. Feuerstein points out some potential haymakers with regards to Vascepa being able to win marketing exclusivity as a New Chemical Entity (NCE) or a New Molecular Entity (NME). Feuerstein comments:

By now, most people believe FDA is unwilling to grant NCE status to Vascepa because its active moiety, or active ingredient, is the same as GlaxoSmithKline's (GSK) Lovaza. But my investor source believes FDA is also refusing to grant Vascepa three years of marketing exclusivity as an NME because Vascepa is approved for the same indication -- triglyceride reduction in patients with very high ( >500mg/dl) hypertriglyceridemia -- previously awarded to Lovaza. (These are the patients who encompassed Amarin's "Marine" phase III trial.)

FDA could grant Vascepa NME status and three years of marketing exclusivity for the larger, mixed dyslipidemia "Anchor" indication. Lovaza is not approved for these patients so there is no overlap.

But here's where Amarin runs into big trouble even if Vascepa wins three years of marketing exclusivity for the "Anchor" indication. The absence of NME exclusivity for the "Marine" patients makes it easier for generic versions of Vascepa to reach the market. And if a generic Vascepa is approved -- assuming a label for "Marine" very high triglyceride patients only -- doctors (with the encouragement of insurance companies) will be able to prescribe the less expensive generic for all patients, including the mixed dyslipidemia "Anchor" patients.

There is a substantial amount of information in the article, which I suggest getting a full read on. Feuerstein starts to toss around the idea that the poor intellectual property behind the drug may be one of the ideas that big pharma passed on it in the first place.

Vascepa's success (and subsequently Amarin's) is going to be predicated on Vascepa being the best drug of its kind. Longs have cited the many advantages that Vascepa has to GSK's Lovaza, but that all becomes moot if:

  • they can't market well enough
  • they can't sell well enough
  • they can't move enough prescriptions
  • they have to face the unanticipated challenge of a generic being introduced

So, what we're looking at, in essence, is one massive overlooked caveat that nobody from the long camp really noticed. If generics are approved, as Feuerstein says, Amarin will be essentially doing their advertising for them.

Prescription data continues to be everything but convincing, as well. IMS Health reported that for the week ended April 12, prescriptions totaled 1,870, up 15% from the previous week.

This growth is anything but convincing for me, still. With a prescription that's supposed to have a serious niche, we should be seeing consistent prescription gains each week well upwards of a mere 15%. Again, if script data starts to decelerate in growth this early in the launch, Amarin is going to have some serious problems. As I've said in the past, a $500 million market cap puts this stock trading a around $3.50. That's a quick shave that I think Amarin is in for if script data remains pedestrian and stale.

What I've Previously Reported on Amarin

On February 20th, I wrote an article covering Adam Feuerstein's feud with (now retired?) SA contributor Alex Heisenberg. The feud starting with Feuerstein defending Amarin as Heisenberg took shots at it, calling it a "one trick pony" at one point. I laid out an introductory "Bullish" and "Bearish" case for the company based on the two bloggers' arguments with each other and I also noted on how I would invest in Amarin at the time.

Then, on March 1st of this year, I listened to and wrote about the company's unconvincing Q4 conference call. I took a relatively neutral stance and pointed out some of the good sentiments I heard from the call, as well as some of the items that struck me as odd. I reiterated that at the end of the day, the call left a "fishy taste" in my mouth, and offered up why I was short term bearish and long-term undecided:

The fact of the matter here is regardless of how Vascepa performs in the long term, Amarin stock is going to continue to fall without any type of sales data, which looks to be a few months off at best. It also appears that the company isn't excited about delivering initial data or margins due to the massive costs incurred with initial setup, so it'll likely be months from then when we are offered true, objective insight.

For the long term, I'm still on the fence. It's going to be a "show me the money" situation for Vascepa. But, in the short term, Amarin looks to this investor to be a safe stock to short. Best of luck.

On March 26th, I changed my tune a bit more to the bearish side, coming to the realization that Amarin's traction and lack of bullish sentiment thus far in regards to the Vascepa launch was making it a pretty big risk to go long in. I noted that the initial prescription data, although argued as "adequate" by longs, was a far cry from the aggressive growth I would be looking for in a brand new drug. I stated:

In light of this new prescription information, the case for a long position in Amarin right now is off the table. Unless the company can start to show acceleration in growth of its prescriptions again, this becomes an extremely risky place to invest.

A $1 billion market cap at this point is completely insane. Yes, the approval has been over and done with and the drug is ready to go, but Amarin has way more to prove before commanding a market cap that large. At this point, this company's future growth is extremely speculative, and $1 billion market caps are for companies that command it; companies with serious proven growth or proven growth potential.

If you're at a profit in Amarin, meaning you've bought and held since 2010-2011, it's in my opinion that it's time to take some money off the table. If you're long already and don't want to sell, why not pick up some cheap $6 puts that expire in '14 or '15 to hedge your position. If things pick up, you can write calls against your position and pocket the premiums and the difference between today's price and the strike price.

How I'm Trading It

There's simply way too many caveats here with Amarin, including the newly introduced caveat of a possible generic being introduced; which could be crippling. The stock opened up Monday before paring gains before noon.

There's simply no upward momentum here behind Amarin. That, in addition to the data contained in Feuerstein's article this morning, made it easy for me to pull the trigger on more puts, adding to my short position.

If you're long, why not consider a 2014 options spread? By then, we'll surely have the major answers that we're looking for about the company. If there was ever a reason to hedge or use caution against a long position, this is it. Amarin is a company built solely around Vascepa. If one fails, so does the other.

No matter position you take, this investor wishes you the best of luck.

Source: Why I'm Adding To My Amarin Short Position

Additional disclosure: I own Amarin puts. I owned puts before today and own more now.