Seeking Alpha
Growth, momentum, contrarian, bonds
Profile| Send Message|
( followers)  

The bull argument for Amarin's (NASDAQ:AMRN) Vascepa is simple: it works better than Lovaza, it doesn't have the negative aspects, it doesn't have an atrial fibrillation warning, it is applying for (and should receive) approval to be marketed to a ten times larger patient population, and the combo drug (Vascepa+statin) looks to be the best treatment for hyperlipidemia ever created, per the patent application image below.

(click to enlarge)Figure 4

The bear argument has boiled down to these two ideas: the launch is going poorly, and the drug will not be able to defend itself from generic competition. In this article, we'll examine why neither of these are correct. Let's start by debunking the top arguments around Amarin's Vascepa exclusivity:

1. "Amarin has not even received NME status for Vascepa yet. They must not be getting any exclusivity granted at all!"

Let's disregard the patent portfolio for a moment. NME is never decided until a decision is made on NCE. It's simple: an NME is only granted to a drug that contains a previously approved active moiety. If the FDA hasn't yet determined whether Vascepa is or isn't an NCE (a new active moiety), how can they decide whether it qualifies for NME? Talk about trying to spook the uninformed. Here's the Code of Federal Regulations regarding NME:

(4) If an application:

(1) Was submitted under section 505(b) of the act;
(2) Was approved after September 24, 1984;
(3) Was for a drug product that contains an active moiety that has been previously approved in another application under section 505(b) of the act; and
(4) Contained reports of new clinical investigations (other than bioavailability studies) conducted or sponsored by the applicant that were essential to approval of the application, the agency will not make effective for a period of 3 years after the date of approval of the application the approval of a 505(b)(2) application or an abbreviated new drug application for the conditions of approval of the original application, or an abbreviated new drug application submitted pursuant to an approved petition under section 505(j)(2)(C) of the act that relies on the information supporting the conditions of approval of an original new drug application.

The CFR can be found here. So, this entire argument means nothing. It is a fact that Amarin conducted studies beyond simply bioavailability to get the MARINE NDA approved, so if they don't get NCE, they get NME. This is not up for discussion; it is a fact.

Also, the approval of the ANCHOR sNDA will result in NME exclusivity of three years from the date of approval for the ANCHOR indication. See the above link, read it for yourself. (To be clear, this "new" NME would only apply to the ANCHOR indication.)

2. "Generic drug companies will find a workaround to Amarin's patents on Vascepa!"

Let's approach this with a healthy dose of logic. For a company to work around the patents, they would have to create a drug that is not the same as Vascepa. If it's not the same as Vascepa... it's not a generic! If it's not a generic, it can't be approved under a 505(j) application... meaning the generic drug producer would have to do a full 505(b) NDA, requiring new trials, etc.

Quick business lesson. Why do generics pose such a threat to big pharmas? Because they sell for cheaper due to the generic producer not having to recoup any costs for R&D, trials, marketing, sales, etc. If a company wanted to create a 95% EPA/0.1% DHA drug (i.e., NOT Vascepa), they'd have to go through the entire 505(b) approval process. What's the point of that? It'd be a worse drug, the same cost (if not more due to API issues), and Amarin could probably sue them successfully for the obvious rip-off. Does that sound like something that is going to happen? Better yet, if it were that easy, why did Teva have to sue to try and invalidate Lovaza's patents instead of just slightly altering the EPA to DHA ratio? Answer: Because it's not that easy.

3. "Generic drug companies will have the patents invalidated!"

Take a look at the exclusivity information for Lovaza.

Now, take a look at the exclusivity information for Vascepa.

That's correct, Vascepa has four times the patents of Lovaza. If you review the claims in the patents, you'll notice that they are somewhat similarly worded - but different enough that the USPTO agreed that Vascepa is worthy of patent approval. I bring up the similarities because Lovaza's patents have already been tried, and upheld! See for yourself.

4. "The draft bioequivalence information that the FDA put out for Vascepa is a roadmap for generics!"

First, here's the draft guidance.

Now that you've all read that document in its entirety, here's my response:

"Obviously."

Every FDA drug has a bioequivalence guide that demonstrates the requirements for a company to create a generic. Here's Lovaza's.

That looks like a roadmap for generic Lovaza! That's because it is. That doesn't mean the NME/NCE/patents are invalidated, it just means that the FDA a) has set forth solid requirements, and b) loves doing paperwork.

Bottom line on bioequivalence: Most folks don't realize that BE requirements are created for every drug. Some bloggers used that information to try and scare them. The particular requirements for generic Vascepa fall under the protection of their patents.

5. Final Thought on Exclusivity

Vascepa's exclusivity is nearly beyond reproach.

Oh, and before I forget... Amarin has exclusive supplier agreements with all the major producers of the API required. Guess Teva, et al, better start buying fishing boats.

Enough of that talk. Let's talk about the Vascepa launch.

First year sales for Lovaza totaled around $100MM. Many bears make the assertion that the Vascepa launch has been slow. So, let's take a look at the script numbers YTD, along with projections for what the chart needs to look like for Vascepa to reach the $100MM mark:

(click to enlarge)Sales

(Credit to StockTwits member BullRunner for the chart.)

I'm not an expert chartist, but it looks to me like Vascepa is tracking perfectly to match first year sales for its main competitor. Not to mention, these script numbers are admittedly underreported due to lack of total market capture. Let's put that in perspective - they are entering a space currently dominated by Lovaza with a small sales force (to be fair, Lovaza was initially launched by a small company, but then again, they didn't have to go up against Lovaza), they have an accepted supplemental NDA to expand the current approved patient population by 1000%, and they are patenting the most powerful combination drug ever created for treating hyperlipidemia.

Bloomberg has a consensus of $114MM in sales for CY13, and it certainly looks achievable. So, if the sell-side consensus is in sight, and the average one-year price target is $17, I'm most definitely a bull - and it looks like the options market is, too. Check out the basic options analysis from MyOptionsGeek.com:

Bottom line:

The majority of the risk in Amarin is behind it, and any potential negative catalysts are priced in at this point. Looking forward, I see nothing but reasons for the stock to go up in value - continued success in the launch, ANCHOR approval, REDUCE-IT results, combo study data, increased clarity around exclusivity, and, perhaps most importantly, a reduction in short interest as they close or are squeezed out of their positions.

Source: Amarin: The Bull Argument (Or How I Learned To Stop Worrying And Love Vascepa)