Should A Generic Lovaza Worry Amarin Longs?

| About: Amarin Corporation (AMRN)

A Generic Lovaza is Coming - Should Amarin Longs Care?

Amarin (NASDAQ:AMRN) plummeted on Thursday afternoon this week, on the heels of a U.S. appeals court reversing an earlier established ruling on generic Lovaza [GlaxoSmithKline's (NYSE:GSK) semi-competitor to Amarin's Vascepa]. The court found in favor of Teva (NYSE:TEVA) and Par Pharmaceuticals (NYSE:PRX), and it's a ruling that is likely to clear the path for a generic version of Lovaza.

The original ruling from May 30, 2012 stated:

GlaxoSmithKline announced that a US district court ruled in favour of partner Pronova BioPharma in patent litigation with Teva and Par Pharmaceutical related to the high-dose omega-3 prescription product Lovaza. Shares in Pronova, which licensed rights to Lovaza to GlaxoSmithKline in the US and Puerto Rico, jumped as much as 28 percent Wednesday on the news.

The court ruled that Pronova's patent claims are valid and would be infringed by Teva and Par. The two patents in the case are scheduled to expire in 2013 and 2017. According to GlaxoSmithKline, Pronova filed the infringement lawsuit against Teva and Par in 2009 after the two companies filed applications with the FDA to market generic versions of the product to treat very high triglyceride levels.

And then the appeals case, as reported by the Wall Street Journal on Thursday:

Par Pharmaceuticals Cos. and Teva Pharmaceuticals Industries Ltd. (TEVA, TEVA.TV) won an appeals court ruling in Delaware that could allow the companies to bring generic versions of heart drug Lovaza to market.

The news sent shares of Amarin Corp. lower Thursday, as it could open up competition for the company's fish-oil cholesterol pill Vascepa. Amarin was recently down 7.1% to $6.66.

The Delaware court overturned a ruling that had been in favor of Pronova BioPharma ASA, which was acquired earlier this year by German chemicals company BASF SE (BASFY, BAS.XE). In that prior ruling, two patents for Lovaza were upheld, preventing Par Pharmaceutical and Teva from selling generic versions of Lovaza.

Lovaza, derived from Omega-3 fatty acids, lowers very high levels of triglycerides in the bloodstream.

In 2009, Pronova alleged patent infringement against Par Pharmaceutical and Teva after they both filed abbreviated new drug applications with the U.S. Food and Drug Administration to bring generic versions of Lovaza to the market to treat very high triglyceride levels. The cases were consolidated.

And, there was much panicking, confusion, and numerous Seeking Alpha articles containing "diverse" opinions as to how this is going to potentially affect Amarin longs going forward.

The news comes on the heels of a good momentum run up for Amarin that started at the beginning of August and has continued through early September.

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The purpose of this article is to take the analysis provided thus far from analysts and contributors, lay out both the bearish and bullish arguments surrounding this news, and then to deliver my own analysis of the situation and how it would affect my trading in AMRN if I were an investor at this level.

Amarin opened Friday steady around the $6.50 level, leading investors to ponder whether the shakeout from the news of the day prior is already over and done with.

Amarin Bulls Say:

1. Generic Lovaza was going to be on its way by 2015 anyway. Apotex had agreed in 2011 to hold off on making a generic version of Lovaza in an agreement with Provova until the year 2015. (source)

2. Amarin's 30 patents do well enough to set the drug apart from Lovaza and potentially prevent generic Vascepa's from emerging further down the line.

3. Leerink Swann analyst Joseph Schwartz came out in an investor note and stated that he didn't believe Vascepa & Lovaza competed on price - and that Vascepa was likely to be favored by physicians based on its efficacy. He also noted that he expects the FDA panel meeting in October to approve Vascepa's ANCHOR indication.

4. All of the things that set Vascepa apart from Lovaza to begin with (including Vascepa generally being more effective) are all items that will serve to add to the distance between Lovaza's generic's impact on Vascepa. In other words, since Vascepa is generally regarded as the more effective medication between the two, it's likely to be prescribed over Lovaza's generic.

5. Another analyst, John Boris at Sun Trust wrote last week that he expects FDA approval of Vascepa for the ANCHOR indication, and that "if the outcomes study accomplishes its goal, Vascepa could be marketed to one of three US adults, compared with one out of 50 that might Lovaza might reach."

Amarin Bears Say:

1. At the end of the day, you have two fish oil pills, generally interchangeable to the public. One is going to introduce a generic, which is going to, very simply, dilute the amount of drugs available to treat high triglycerides - regardless of how much better Vascepa is, there's a risk of getting clipped by this.

2. Summer Street is bearish (big surprise), stating that unless Amarin is approved for the ANCHOR indication and shows favorable results from its REDUCE-IT trial, it's likely to struggle against GSK's Lovaza and its generic equivalent.

3. SA Contributor The Specialist points out that Amarin's 10-K specifically states that its main risks lie in generic versions coming to market, and the fact that "the pharmaceutical industry is highly competitive and many of our competitors have greater experience and resources than we have."

QTR's Analysis

Well, at the end of the day, this is anything but really good news for Amarin. But, the question is going to lie in whether or not this is as big of a deal as the market is making it.

Vascepa is a drug that wants to stand on its efficacy versus Lovaza - and also the fact that it has less fishy side effects. In essence, Vascepa is really a Lovaza 2.0.

The question is going to similar to that of what Microsoft faced when they released Windows Vista and everyone promptly switched back to Windows XP. How many people are going to stay with what they know simply because it's just generally easier to do than to implement change?

The key is here is going to be how many physicians are prescribing based on efficacy versus what's generally accepted, lobbied towards, and available.

There's no doubt Amarin has the better of the two drugs, it's all going to rely on the execution of the company to make that well known and push physicians to lean towards Vascepa.

The FDA had announced a committee meeting for Amarin's sNDA on October 16th. In addition to this event which is likely to move the stock, Amarin has a scheduled PDUFA date for its ANCHOR indication on December 20th of this year.

Of course, that will be considerably easier should Vascepa be approved for its ANCHOR indication - which is a catalyst that QTR thinks could actually be somewhat of a knockout punch for Vascepa in its battle against the big, bad, GSK. The ANCHOR indication makes it so that there's almost no choice that Vascepa has to keep on keeping on - and if approved, even if it doesn't take off immediately, Amarin is likely to find the financing and resources necessary to go forward for Vascepa. Dare I say it, but if approved for ANCHOR, there's still a small chance for an Amarin buyout.

On the heels of prescription data continuing to trend upward, QTR strongly believes that Amarin is going to carry its momentum upwards into the second half of this year.

However - all of that is information that's forthcoming. As I've argued in the past, I do still think there's going to be an emotional price run up heading into October - one that, regardless of outcome, makes this current dip in Amarin a buying opportunity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.