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Talk about betting the entire ship on fish oil.

New Jersey's Amarin Corporation (NASDAQ: AMRN) braves the global biopharmaceutical industry with only one product: Vascepa (codenamed AMR-101), a prescription grade omega-3 fatty acid drug for cardiovascular disease. Since Vascepa's launch in January 2013, Amarin has seen a steep rise in the total number of prescriptions, rising by as much as 62% (from more than 7,200 to over 11,700) from March to April alone.

Medical superiority

But Vascepa already has a rival: Lovaza, another fish oil-based anti-cholesterol drug by GlaxoSmithKline (GSK). It's Lovaza which currently dominates this corner of the market, simply because GSK was there first.

To make things even more challenging, fish oil drugs took a hit from a recent study (the "Italian Risk and Prevention Study") published in The New England Journal of Medicine which tested the effects of omega-3 fatty acids.

The study lasted 5 years. During that time, 12,513 patients with existing heart disease (but no heart attacks) or multiple cardiovascular risks were divided into two groups. Half of them were given only 1 gram per day of omega-3 fatty acids, while the rest were given placebos. In the end, 11.7% of patients who took the drug either died or were still hospitalized due to cardiovascular disease; while 11.9% of those who didn't ended up the same way. The mere 0.2% difference made the researchers conclude omega-3 fatty acids provided no significant benefits.

Realistically, the study had questionable limitations. It was performed on patients from Italy, a country with a significantly healthier dietary tradition from that of the United States (where both GSK and Amarin primarily market their drugs). Participants were administered only 1 gram of the acids each, instead of the 2- to 4-gram dose usually prescribed. Also, many of the patients were already using heart disease controlling-statins (e.g., Pfizer's Lipitor), thus skewing the measurement of the effect of omega-3 fatty acids.

Nevertheless, the study cast doubts on Vascepa and Amarin's ability to overcome its uphill market battle versus GSK. Well-known cardiologists like Eric Topol of the Scripps Clinic even bluntly commented (on TheHeart.org), "Fish oil does nothing."

Amarin is still banking on Vascepa being the superior drug. And it looks like they're right.

Just like Lovaza, Amarin has been approved by the U.S. Food and Drug Administration (FDA) for patients with a seriously high level of triglyceride in their blood (500 mg / dL). But Lovaza utilizes both EPA and DHA fish oil, and this combination has some documented undesirable side effects like an increase in LDL ("bad cholesterol"). The U.S. Food and Drug Administration (FDA) has limited Lovada's use for very high triglyceride level cases (500 mg/dL), and only as prescribed by a doctor.

In contrast, Vascepa's 100% purified fish oil EPA is reputed to have no such side effects, yet just as effective. Long before the rather biased Italian study, Vascepa had already passed its 2011 "MARINE" Phase 3 clinical trials (for very high triglyceride cases) -the favorable results of which were presented to the European Society of Cardiology (ESC) and published in The American Journal of Cardiology.

"The data from the publication and those presented at ESC suggest that pure EPA therapy not reduces triglyceride levels, but also improves additional non-lipid parameters," says Amarin CEO Joseph Zarkrzewski.

The data also implies Vascepa is safe enough for less extreme heart disease cases, which are more common. As of April 2013, the FDA has accepted a new supplemental drug application for Vascepa from Amarin, this time for patients with moderate to high triglyceride levels (greater than 200 mg / dL but lower than 500 mg / dL - nicknamed the "ANCHOR" indication). If approved (which is likely), Vascepa's potential patient population will be bigger.

Strategy more critical to share value

Amarin shares were up approximately 6% during the first week of May 2013, thanks to the new FDA application, 2.34 million in first quarter product revenues, and steadily-growing prescriptions. If the rate of increasing prescriptions is maintained all the way to June, Amarin can expect a total of about 62,000 prescriptions by that time.

While the initial sales numbers look great, the truth is 62,000 prescriptions translates into only about $14 million in sales ($220 per prescription). Moreover, when and if the FDA finally approves the lower-triglyceride application for Vascepa-which isn't likely to be done within 2013-the average value per prescription will likely drop, because moderate cases naturally require a smaller dosage of the drug.

Amarin is presently in the throws of employing a strategy of reaching as many potential customers as possible. For a small pharmaceutical company new to the commercial side of the market, this means trying to target a population that is nearly ten times larger than its current market in terms of sales. That is a major task for a company with limited experience launching a drug, making it clear that Amarin will need to form a partnership with a big pharma in order to reach the maximum commercial potential of Vascepa.

Without a partnership, Amarin shares may have trouble should sustaining their post launch rally, and have indeed begun to fall in recent trading sessions. Based on the uncertainty of a partnership in the near future, I believe short-term investors should thus look elsewhere. For investors with a longer outlook (2-3), however, AMRN's current market cap (approximately $1 B) compared to the value proposition of Vascepa makes it an intriguing speculative buy. Simply put, the sales of Vascepa are strong given the limited commercial experience of the company, showing the consumer demand for such a drug. Over the next few years, it's very possible sales of Vascepa will top $100 M, and could go much higher if a big pharma takes the lead on the commercialization front. Overall, AMRN will likely be volatile in the short term but it does present an interesting long term value proposition.

Source: Amarin: It's The Strategy, Not The Science

Additional disclosure: This article was written by Stacey Baterina, a financial analyst with EPE.