Amarin (AMRN) has been one of my favorites companies from the booming biotechnology industry and I have defended the company in my previous updates. Amarin has received FDA approval for its product Vascepa based on the MARINE indication. It is further testing Vascepa in two studies, ANCHOR trial for high TGT and REDUCE-IT trial for testing Vascepa as an addition to Statin therapy. However, a lot has changed since my last update on Amarin. The company stock has plummeted to the $5-$6 and many staunch supporters of this investment have backed down. I believe that Amarin is still an excellent investment and is gearing up for a major rally.
Despite a lot potential, the company shares have declined approximately 50% in the last 52-weeks. The primary reasons behind this decline are the changing perception of Vascepa's potential and the frustrating delay in NCE classification. After Vascepa approval, investors were considering Amarin a solid acquisition target, but lack of an NCE classification has thwarted any such hopes.
Another major reason behind this decline has been the poor performance of the fish oil market. Growth of GlaxoSmithKline's (GSK) Lovaza is slowing down. Prescriptions of the drug saw only 2% growth in 2011 and declined 9% in 2012 . As the table below shows, the sales growth has also come down from 18% in 2010 to 7% in preceding years.
These figures have spawned fears that doctors no longer believe that fish oils have any long term health benefits and are no longer interested in prescribing them. However, despite these reservations Lovaza is still generating sales of around a $1 billion.
Amarin's valuations have suffered due to 'lackluster performance' of Vascepa. As the table shows the drug's prescriptions have grown to 18,367 in June from 3,224 in February, growing by approximately 80%. The company has also disclosed that until now approximately 7300 clinicians have written prescriptions for Vascepa.
The sell side expects Vascepa sales to reach $28 million by the end of December and grow to $222 million by the end of 2014. Now let's look at the only other comparable data we have to assess the initial market performance of Vascepa. Reliant Pharmaceutical launched Omacor (later renamed Lovaza) in 2004, and by 2007, the drug has generated $200 million in sales. Let's not forget that Lovaza didn't receive any competition from any existing players in the market. On the other hand, Vascepa is facing tough competition from Lovaza which is being pushed by a health care giant GlaxoSmithKline. Amarin simply doesn't have recourse to compete with the marketing might of GSK and still the drug is poised to exceed $200 million sales mark, a year earlier than Lovaza.
In a highly anticipated move, AstraZeneca (NYSE: AZN) has acquiredOmthera Pharmaceuticals(NASDAQ: OMTH) for $443 million. AstraZeneca has made this acquisition for Epanova, a product pretty similar to GSK's Lovaza. They are a combination of EPA (eicosapentaenoic acid) and DHA (docosahexaenoic acid); Vascepa contains only EPA. This acquisition is more proof that there is still a sizable market for fish oils and is also a testament to Amarin's acquisition potential.
AstraZeneca plans to test the combination of Crestor and Epanova. Amarin is already conducting trials to assess the effectiveness of statin-Lovaza combination in reducing the risk of cardiovascular disease. The results of this REDUCE-IT trial will be out by the end of 2016, and FDA approval for this indication can massively increase Vascepa's potential.
AstraZeneca's marketing ability can make Epanova a hot seller but the drug will be competing with Lovaza and not Vascepa, due to the different chemical composition. Vascepa still has the edge over both drugs because it lowers TGT levels without an increase in LDL levels.
Amarin investors have been going through tough times during the last few months. The stock fell from above $14 to under $5.5. The institutional investors also lost faith in the company; evident by the sale of approximately 29 million shares in the last quarter. This reduces institutional holdings of Amarin by approximately 45%.
However, the shares have started to rally and have risen approximately 35% in the last one month. I believe this positive momentum will continue in the coming month as we near FDA review of Vascepa under the Anchor indication. If approved under this indication, the potential of Vascepa will be increased from 4 million patients to 40 million. This is still without the REDUCE-IT trial which can have a mammoth impact on Vascepa's potential.
The market has punished Amarin for failing to find a suitable commercialization partner or a buyer. Vascepa sales have not blown off the roof, but they have not been poor either, especially if we take into account the lack of a major commercialization partner. The biggest hurdle is still the delay in NCE classification which makes it pretty difficult to value the company for acquisition. Vascepa has also been 'bashed' on the perceived weakness in the fish oil market. However, as the statistics given above show Lovaza is still going strong in terms of sales. There has been a slowdown in scripts growth but that too is due to unfavorable side effects of Lovaza and not due to industry wide issues.
The results from REDUCE-IT and FDA approval for ANCHOR indication can be the next major catalyst for Amarin's valuations. Therefore, I believe Amarin has a lot of potential and still presents a good long term investment opportunity.