The bear thesis surrounding Amarin (AMRN) is constantly changing over time, but this is not because of new or credible evidence damning the company. No, rather it changes because the previous bear rationalizations have been constantly and consistently wrong or full of holes. In the following, I've mapped (mostly from memory) the progressive bear thesis that has littered the ground around this stock leaving a rather putrid scent for would-be investors, forcing longs to possibly abandon the stock and consider another path.
This is the earliest bear thesis I can remember. Simply put, 'There is no market for Amarin's Vascepa or prescription grade fish oil in general' (EPA to be more precise). This thesis was shot down early as GlaxoSmithKline's (GSK) Lovaza had already surpassed $1B in yearly sales. 2011 - Now Lovaza has stayed within the top 70 best selling prescription drugs each quarter. It peaked during this time period in Q4 2012 reaching a sales rank of 51. Keep in mind the majority of sales for Lovaza are off label use (TGs 500), a market Vascepa should be APPROVED for by year-end.
This bear argument is really in two sections that bears will always revert to if challenged. First, bears were saying that Amarin doesn't have any patents and after the first rejection of a patent bears were saying Vascepa would never get the patents approved. Fast forward only a short time and Amarin has 23 patent applications now either issued or allowed with the USPTO and over 30 additional applications pending in the United States. The second section relates to "weak" or "useless" patents. Vascepa's patents are worded similarly to Lovaza's. To put this in perspective, Lovaza with far less patents has defeated every challenge brought forward. The 23 existing patents are often being scrutinized because NCE status remains an overhang.
New Chemical Entity status has remained a contested topic. Regardless of your stance, bear or bull, there has been no designation on NCE to date. There is no right or wrong party…yet. The delay is a gift that keeps on giving to positioned bears. For every NCE delay for the past 10 months there has been a 3%+ drop when the orange book page is updated (not always sustained). Some bears argued that Amarin was lobbying the FDA and threatening to sue if they were not granted NCE status. Others have argued the delay is in one-way-shape-or-form Amarin's fault. The truth is Vascepa is not the only drug that's awaiting designation and it won't be the last as the FDA changes and molds its standards to fit and protect innovation and patient health. I personally think Amarin will be granted NCE status. It is metabolized differently than Lovaza and the mechanism of action was not properly defined when Lovaza was granted NCE. If the answer were so straightforward as some bears believe, the FDA would not be taking so long rendering a decision. This is strictly my opinion of course.
The decrease in Lovaza script means there's no market/Clinicians won't prescribe Vascepa
Matthew Herper had written this article detailing how cardiologists are less likely to prescribe Vascepa because of niacin failures. While I do agree to a certain extent, comparing the two drugs or even OTC fish oil and Lovaza to Vascepa is grossly unjust. Niacin's safety profile is nowhere near that of Vascepa. Sure some doctors, like the cardiologist quoted, will wait for Reduce-it's CV results. However, the information available goes well beyond just LDL, HDL and TGs. Unless the medical community is ready to overlook CV biomarkers across the board and rewrite most of what we know about cardiovascular events (including inflammation), most doctors will prescribe Vascepa for the appropriate indications when necessary. Just wait for the combo results (leading statins+Vascepa) to hit. Interesting tidbit, when asked if he thought the Reduce-it trials would fail and he refused to say yes or no, Matthew convolutedly answered:
Yet again we have another article by Adam Feuerstein that attempted to mark Vascepa as a failure so early in the launch. Joseph Schwartz of Leerink Swann stated the launch is actually tracking in line with other CV medications launched including Bristol-Myers Squibb's (BMY) Eliquis and Johnson & Johnson's (JNJ) Xarelto. Keep in mind these companies are also launching with a sales force much larger (3x+) than Amarin's 275 sales reps. As we now know, Amarin's current scripts are increasing at a rate to achieve 100M by the end of the year. There are no guarantees, though, in the biotech field.
OTC will kill Vascepa
In this article Adam Feuerstein claims an OTC supplier contacted him lauding his coverage of Vascepa. This had bears ready to claim an early victory. That is until some basic math was done. Pharmepa's EPA 1g supplements consist of only 560mg EPA with tons of filler. A 60-pill bottle costs $24.99. To match Vascepa 1:1 you'd need to take 2:1 pills. Vascepa is twice daily, two 1g pills. So you'd need to take 8 Pharmepa pills every day. (60/8=7.5days covered/bottle @ ~4weeks/month = 4x24.99= ~99.96/month) So roughly $100 out of pocket per month for Pharmepa or $25 co-pay for Vascepa. That really is a hard decision to make (yes, that was riddled with obvious snarky sarcasm).
AMRN will not get NCE or NME
Adam Feuerstein teased days ahead stating "what happens to a 4-leg chair when 1 leg is broken/missing?" before he wrote this article. In the article he argued that Amarin would receive neither NCE nor NME for the Marine indication, leaving a hole for generics to enter (never mind the 23 existing patents though). Bears lapped it up. I personally could rip into this opinion with facts and logical reasoning, but I think Bond Wells did a great job of that here. No sense in beating a dead horse.
The Q1 expenses mean Amarin could be broke before year-end!
Yes, Amarin burned some heavy cash in Q1; however, from the Q1 conference call:
Amarin's purchases of API from the supplier in 2012 and early 2013 are at a higher cost for retail and expected for future purchases from the supplier. The unusually high cost of goods as a percentage of revenue is attributable to another things including start-up costs, geography, discount to wholesalers, exchange rate exposures, lower volume and less favorable economic terms than those with other manufacturers.
Meaning the coming quarters will be at a lower burn rate. With $201.8M cash on hand, Amarin is far from broke this year. Amarin can last until Q2 2014 at expected forward burn rates. I will admit, cash on hand does mean partnership, dilution (in my opinion unlikely), or buyout when the larger Anchor indication is approved at year-end.
Fish oil study showed no benefit
Wait, I thought generics were going to target this! Now generics are going to target a prescription grade of something that doesn't work to begin with? See where this is going? The fish oil study published in the New England Journal of Medicine showed no statistical benefit in mortality or CV events for the 12,513 people enrolled in the study. However, as previously mentioned, OTC cannot be directly transferred to a prescription dose containing XXX% more EPA, no DHA and little to no filler. The dosing issue at hand is similar to taking 1/10th an ibuprofen and believing the pain relief should be the same as the prescribed dose.
Dr. Eric Topol who was rigorously quoted on social media by bears, had previously stated:
Fish oil does nothing, and we cannot continue to argue about either "the right dose" or "the right preparation. It's a "nada effect."
Flash forward to June 4th and he now has this to say:
These patients were not enrolled on the basis of significant hypertriglyceridemia. It remains to be seen if such patients are studied and treated with effective doses of fish oil whether a protective effect-and subsequent reduction of cardiovascular events-could be demonstrated. This is a scenario which could be plausible.
It amazes me still, even after all the direct lines being broken tying Vascepa to this study, bears still insist this study is valid on a one to one basis. What's more, Pfizer (PFE) funded this study. This is the very same Pfizer that is rumored to have bid $15/share back in 2011.
AstraZeneca bought Omthera, nobody wants Vascepa
Omthera was just purchased by AstraZeneca (AZN) for $323M (12.70/share) with an additional 4.70/share if it is able to achieve other milestones with its lead product, Epanova. Bears like Adam Feuerstein have used this deal with AZN to relentlessly attack AMRN with claims of a theoretical "price ceiling" equaling 4.50/share. It's funny how this purchase contradicts a previous bear thesis of a no fish oil market.
Just a quick USPTO search shows that Omthera has just 2 patent applications, and no patents awarded. The bulk of the patents being used for Epanova are currently licensed from Chrysalis with an expiration date of 2025. Prospects for Epanova to obtain NCE are about as wide as its patent portfolio, in my opinion, slim and none. So what exactly did AstraZeneca buy besides a slightly lighter wallet, an inferior product, and little/no IP? Do I really need to explain the differences in completed trials, approved product, marketed product, general IP, etc.?
We also know that in fact other large pharmaceutical companies have scouted Amarin. Elan Corporation (ELN) for instance has looked into acquiring Vascepa. During a shareholder meeting on May 30th, Elan disclosed they were/are in talks with Amarin (31:30 mark). Elan's Kelly Martin went as far as to compliment the progress of management stating "they have done a fantastic job... they are in a very good position from an asset point of view."
FDA will not approve Anchor indication
Why would the FDA use prerequisites of enrollment (SPA- Special Protocol Assessment) as a requirement for the sNDA submission with a PDUFA date of December 20th, 2013 if they plan to deny it outright before the outcome's study is completed in 2016 (or sooner)? The company has been in contact with the FDA every step along the way for the Anchor indication. SummerStreet recently posted a note claiming an 'insider' stated there is no reason to prescribe Vascepa for the Anchor population. Even to management, these claims must have hit a tender spot to produce such a timely response in its FAQs. If it is not any of the former mentioned, then bears must be suggesting the company is holding back material information from stockholders, a serious allegation.
AdCom panel spells trouble for Anchor
Adam Feuerstein in this article states that a potential AdCom panel later this year would convene with safety concerns of GlaxoSmithKline's Avandia and Merck's (MRK) Tredaptive fresh on their minds. First of all, on June 6th John Thero (CFO at Amarin) stated at the Jefferies 2013 Global Healthcare Conference (mark 16:00):
We are anticipating that there will be an Advisory Committee for this drug. We have not yet been informed by FDA of that or the timing of that, but because it is the first drug in the class for this indication we are anticipating that we will have an Advisory Committee for that indication.
To be clear, Avandia and Tredaptive have safety issues that weigh their risk/benefit. There are currently no known safety issues related to Vascepa both in clinical trials and thus far on the market. In clinical trials it was comparable to placebo, safety-wise. Can you think of any other drug that is required to perform outcomes studies prior to market yet AFTER another clinical trial required for that indication where the FDA already accepted their sNDA?
The FDA requiring the outcomes study would unjustly place financial burden on the company and set a dangerous precedent. What company in its right mind would enter the cardiovascular realm if CV outcomes were required for every drug before it could be marketed? Patents don't last forever and the years of outcomes studies thereby reduce market time before generics. That in turn would only increase the cost of cardiovascular medications.
Just look at the stock since July, the bears were right!
I'll leave this one up to you, the reader, to decide. Has the stock been damaged unfairly because of an NCE overhang on valuation pertaining to a partnership or buyout? Or is this where Amarin deserves to be launching a fish oil pill?
So what argument is it next, bears? The arguments change more on this drug than any other drug I've seen. You can try to control the narrative with conflicting bear theses but eventually the truth prevails. Bear traps are out there littering the stomping grounds, bright and glistening for the glancing eye. However, if you closely examine these bear "traps," you'll soon realize that sheen and trap is nothing more than excrement. Simply wade through the river of filth and come out clean on the other side, Andy Dufresne. (Shawshank Redemption reference for those that didn't get it)
As three final side notes:
- Citigroup put out an alert (4/28) with a "buy on weakness" note signaling its DCF-derived price target of $13.
- During this first half of '13 Amarin is expected to release its combo results (Vascepa+ leading statins); a timetable that is quickly coming to an end. Bears may begin and should begin to cover the closer these data become. Especially given the current price per share and the leap that could follow such news.
- Lastly, if you assume the company hits exactly the $10M target for Q2, the month/month growth has to be ~37% in Q3+4 to hit the 100M consensus revenue target for 2013. Average month/month growth so far is tracking above that.
Chart Courtesy StockTwits' Bullrunner
Additional disclosure: My father is long AMRN as well.