Legg Mason's renowned, high-performing "Opportunity Trust" fund manager Bill Miller stated in an October 1, 2013 CNBC interview that the U.S economy is mainly fairly priced and that the 50, 100 and 200 percent gainer stocks are going to be hard to come by over the next year. I agree with his sentiment, which is why it will become increasingly important to find those 'special' opportunities. The biotech sector is known to be a sea of opportunity for developing companies that can deliver high returns. However, these returns often come with high risk. While seeking the "big fish" I continue to focus on a stock that presents itself as the most risk-mitigated, high-return opportunity in biotech. With near-term catalysts approaching, the season to profit may be near.
The picture is not all caviar dreams though. Amarin Pharma, Inc. (AMRN) has not been loved by Wall Street over the past 12-months. The company elected to launch its first medical indication without the help of a larger partner and many investors hoped for a buyout transaction that failed to materialize. Despite a rise over the past month, the stock has disappointed in 2013.
If you carefully review and properly comprehend the science, legal, regulatory and market situations surrounding AMRN's Vascepa, you may come to the conclusion that investors simply do not understand the current state of AMRN. AMRN had done a terrific job executing on key scientific, legal and regulatory milestones up to FDA approval for their first indication(Marine). However, there have been some complex and unresolved issues that emerged during 2013 that may certainly be adding to confusion and uncertainty. So, let's go fishing...
Quick background on the science and to clarify the type of material we are dealing with here: AMRN's drug is not the fish oil you can purchase in drug stores, online or even consume through food sources. It is also unlike any other FDA approved (Lovaza) or developmental (Epanova) Omega-3 class drug known to science. Vascepa, (known as AMR-101 by medical journals and the scientific community) is derived from a highly purified form of fish oil, and lab modified to ethyl esters in order to concentrate out the active ingredient. This ingredient is specifically identified by AMRN and confirmed by FDA as EPA, icosapent ethyl. This very much technically, and on its face, is unlike GlaxoSmithKline's (GSK) Lovaza, which is an uncharacterized combination of Omega-3 Ethyl Esters--so says FDA and GSK.
It's the only EPA-only option. EPA reduces hepatic very low-density lipoprotein triglycerides (VLDL-TG) synthesis and enhances TG clearance from circulating VLDL particles. While Omega-3s are generally known to be anti-inflammatory in nature, EPA can also help inhibit acyl-CoA:1,2-diacylglycerol acyltransferase (DGAT); decrease lipogenesis in the liver; and increase plasma lipoprotein lipase activity. Yes, it's a mouthful but know that preparations with DHA and other Omega-3 fatty acids have not clinically demonstrated all these potential actions. In fact, the Japanese JELIS study suggests EPA has statistically significant positive effects on CV outcomes. Note that JELIS was done on a population already on a high level fish diet. So, AMRN's massive Reduce-It study on western subjects should demonstrate clear and significantly higher benefits.
The Anchor Is About To Drop: The FDA already approved Vascepa last summer for subjects with severe hypertriglyceridemia. This means baseline TG levels between 500 and 2,000 mg/dL. This indication serves a sizable market of $1-2 billion annually. Several drug therapies exist in this space, including Niacin and GlaksoSmithKline's Lovaza Omega-3.
AMRN is now up for regulatory evaluation on their next drug application for Vascepa in the expanded 'Anchor' indication, the treatment of patients with high triglycerides (>200 mg/dL and <500 mg/dL) With Mixed Dyslipidemia. The Prescription Drug User Fee Act (PDUFA) date is December 20, 2013 and a FDA decision should be expected on that date.
The importance of this decision cannot be under-stated or over-looked. The Anchor population comprises no less than 1/3 of the American public, likely far more, with market values 10x that of the Marine indication.
Like Marine, the anchor Phase III trials were a major success. Best of all, the trial was done under SPA, or special protocol assessment agreed to in writing by the FDA. You can learn more about that topic in a recent AMRN press release here. This SPA, along with the safety and efficacy profile of the drug should be a home run at the advisory panel prior to the PDFUA decision. I remind readers that this panel is required by FDA due to the first-in-class status of Vascepa in a new patient population. I also point out that these panels primarily focus on safety, only go outside of the scope of the indicated use if safety is a concern (read into this that Reduce-It outcomes not a factor), and that FDA has not informed AMRN about any topics that would be out of the realm related to their sNDA marketing claims (record of "clean" communication by FDA to AMRN) on the advisory panel. I further call out that if weight loss drugs with serious harmful and life threatening side effects like Vivus's (VVUS) Qsymia and Orexigan's (OREX) Contrave can be approved for marketing without concluded outcomes studies than it's best you be on the side of AMRN come panel-time. You can even look to the FDA's recent panel reviews for existing drugs asking for new indications -- in each case they went through advisory board reviews.
There has been some uncertainty surrounding whether the October 16th advisory review panel for AMRN would be delayed in light of the government shut down. This fear was speculative at best and the FDA has confirmed on their website that the Adcom panel will be conducted as expected with no delay.
NCE remains in cloudy waters, but the patents are the treasure: AMRN has an astonishing amount of granted IP related to composition of matter, and methods of treating, both broad and narrow. FDA recognizes 19 granted AMRN patents. In contrast, Lovaza has three patents, only one which really affords any level of regulatory protection, and it was quite broad. So broad in fact that a recent appeals court opinion reverses a prior ruling about the ability of generic firms to produce Lovaza. That story can be found here. Long and short is that this decision should come as no surprise. It was actually a surprise within the industry (I'm in the industry) that the patents were not thrown out in the past as being too broad. Still, Lovaza prevailed all this time and the fight is not over. Consider, by the time generics can even source the material (if they can even get it) and conduct their studies and documentation, Lovaza IP protection would have been over anyway.
Many investors perceived the recent ruling as a potential negative, as it can mean more competition in the Marine indication space. A better way to interpret this turn of events would be that Teva (TEVA), AZN and GSK now have vested interests in the Omega-3 drug class space. More later on that.
Nobody saw a 12-month plus delay on NCE decision, including me. I have always maintained AMRN will achieve NCE and I still do. I have evaluated (with 3rd party sources) the science side, the regulatory side and the legal side and my conclusion is the delay is related to FDA process. The topic is moot now with all the patents, but still would provide a psychological thumbs up and additional upside to the stock (probably $2-3 worth).
Analysts took on water with their Marine uptick forecasts: No new drug launch to the medical community comes out of the gate to be a blockbuster overnight. In retail alone, we need a good 3-6 months of clean POS data, meaning data that comes 3 months after initial launch (6-9 months total). For Rx, double that, even triple it with a smaller sales force. AMRN is steadily increasing scripts by 3-5% incrementally per week and has achieved over 6,000 (not including 20% under-reporting) on weeklies as of the time I am writing this article. IMS data indicates it's coming at the share loss of its prime competitor, Lovaza.
The better indicator of future performance would be recent health insurance coverage progress. At the end of the first quarter, management stated that it had secured formulary access for the drug in plans covering more than 190 million people. At first, none of those plans included Vascepa in their tier 2 category. However, during April and May, Amarin said that health plans covering 40 million individuals switched the drug to tier 2. By the end of the second quarter, Amarin announced that 72 million people had access to Vascepa as a tier 2 drug -- more than twice the amount at the end of the first quarter. We are now observing sales increases really starting to respond to the additional coverage.
Reduce-It indication would offer whole new ocean of possibilities: Old news, but to recap Vascepa can be the blockbuster of blockbusters when Anchor is approved late this year. The future potential of Reduce-It doubles that market again, if outcomes prove positive later in the 2016 timeframe. Reduce is the study that would conclusively determine whether CV events are reduced by Vascepa.
Look at past trading currents: If you evaluate the movements and actions of the big money funds around catalyst events for AMRN, you see sudden spikes, followed by some upward momentum. Healthcare investors are risk adverse and will not go in until reasonably sure that a return can be made. Time is money and it's not to be wasted waiting around. Catalysts are coming, and so is the money.
New developments and upcoming FDA-related catalysts signals AMRN a fresh catch for big pharma: Adding additional perspective and credence to my consistent view that an acquisition is the end game for AMRN is the recent generic ruling buzz on Lovaza. Many people have been asking if this will negatively affect AMRN. Let me be clear: There are only two companies that it will negatively impact, GSK and AstraZeneca (AZN). If the court ruling stands (and regardless, in the future when Lovaza IP expires), Lovaza will become meaningless as there will be generic options. Not so with AMRN's Vascepa. As a best-in-class therapy for Marine indication, it will be the one that docs prescribe and insurance companies will pay for. Therefore, if GSK wants to be in the game, it needs to offer Vascepa as soon as possible.
AZN purchased Epanova primarily for use with their statin, but probably thought it could pay for the trial expenses with sales of Epanova in the very high triglyceride market. Big mistake and big lesson learned. Epanova, even if approved by FDA is unlikely to be prescribed by doctors (given side effects similar to Lovaza), and will not be covered by health insurance now that Vascepa is on the market and generics will be an option in the future. Great case study and acquisition 101 class for CEOs that look to do transactions on the cheap. You get what you pay for. So, given the Epanova drug is a complete waste of time and money as a primary and adjunct triglyceride therapy, AZN is likely back in the market, and if not, they should be. Finally, if you believe in the generics story for Lovaza, you have to believe Teva would be interested in making a play for AMRN in order to own the entire space and control pricing (for brands and generics). Admittedly, this is not my preferred or most logical way things play out. Would be brilliant for Teva, and I know a bunch of brilliant people there ... AMRN's supply agreements prevent access by other companies and provide price protection over generic companies, which is a major reason Teva would need to own the whole deal.
Then, there is Pfizer (PFE), the company with the most executive ties back to AMRN, the company with deep pockets and a wanting pipeline for its flagship cardio segment, and the company with the most popular statin, the statin named in AMRN's combination trial...Lipitor.
Add to the list the many large pharma companies that have consolidated, laid-off employees to save money and publicly stated that their pipelines are running thin (Merck the latest), and there may be more dancers than ABC's Dancing with the Stars flirting with AMRN in Q4 2013.
Buyout the best option after Anchor approved, as management's financial and strategic credibility sinking: There are two things I caution about the AMRN situation, and this is a major reason for stock price pressure. 1) Additional financing came at a time that did not make sense 2) It's now October and still no clear strategy communicated on Anchor launch strategies. As for the financing, it was done from a position of weakness at low price level. The reason given (to remove overhang for larger institutional investors) did not confirm either--otherwise price and volume would have loaded up. As for the strategy, I don't want to see A) another too close for comfort Marine launch B)additional financing C) go it alone for such a larger market.
This particular management team excels at locking down the science and IP. They have experience delivering value on those skills and I would expect investor returns to be maximized shortly. In fact, the AMRN management team still holds nearly 95% of their stock awards and options--a dramatic win for them, but only if the share price rises. They have a very vested interest in the company's success.
The catalysts will come steady and quickly throughout the rest of 2013. AMRN has corrected more than 100% in the past on binary events, and I would expect a similar correction through December well up into the teens, with additional payoffs coming dependent on Anchor launch strategy and strategic dealings. A double or triple on the December stock price (should Anchor receive favorable approval) is fair catch and reasonable for a biotech asset covering this many potential lives. In my view, the only potential downside that can get AMRN's current stock price in more hot water than it currently is would be an outright FDA denial of Anchor. So cast away, before there is no bait left.