Amarin And The Universal Biotech Catastrophe Playbook

| About: Amarin Corporation (AMRN)

Amarin (NASDAQ:AMRN) is a company that I've been following at length over the span of this year. They've received FDA approval on Vascepa, a prescription fish oil pill that's supposed to be going head to head with GlaxoSmithKline's (NYSE:GSK) Lovaza. Although the efficacy and safety were found to be effective in Vascepa, Amarin has had a hard road since the FDA's initial approval.

After approval, many insiders sold off their Amarin stock, as Amarin began the search for a buyout or big pharmaceutical partner. After bearing no fruit in this regard, the company went it alone, financing hundreds of millions and hiring their own sales staff to try and market Vascepa to physicians and patients themselves. What looked like an otherwise great start to moving Vascepa came to an ugly halt last week, when the FDA's ADCOM panel recommended against approving Vascepa for an indication that would have significantly increased its patient population.

Amarin had been trading in the $5 to $6 range leading up to the ADCOM panel, which took place last Wednesday. The stock was halted all day Wednesday, and when it reopened the next morning, Amarin stock had been crushed 60% down to the $2 region. Such is the volatile world of biotech stocks and the ensuing FDA decisions.

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The ADCOM vote for Vascepa's ANCHOR indication was considered to almost be a do or die event for the company - the definition of a binary event. The ADCOM panel voted 9 to 2 against recommending Vascepa for ANCHOR, and Amarin saw its market share reduced by $500 million plus.

Not unlike the FBI in the movie Die Hard, who "had the universal terrorist playbook, and were running it step by step", Amarin has begun the mundane, ugly, and obligatory steps to start working through the Universal Biotech Catastrophe Playbook. The UBCP is the playbook that you don't hear about much, because it's usually in play after a botched FDA approval, poor Phase III results, or other similar bad news situations stemming from biotech binary events.

As anyone who has watched some biotechs go through the tough times that Amarin and its investors are now going through, they know there's usually a "standard route" that these company go down to hunker down after a major catastrophe. First, major cuts and layoffs to control costs. Secondly, financing that's likely to include dilution. Thirdly, potential mergers and acquisitions. Even then, only sometimes after that, there's salvage of the company - sometimes, it just doesn't work out.

Amarin yesterday announced, step 1 in the Universal Biotech Catastrophe Handbook - layoffs:

As part of the reduction in staffing the company will retain approximately half of its highest performing sales professionals in targeted geographical areas and pursue continued prescription growth of Vascepa in the current approved indication. This optimized team will cover the target base of physicians responsible for the vast majority of Vascepa prescription volume and growth since its launch in early 2013. With this optimization and resulting target base coverage, Amarin anticipates continued Vascepa revenue growth over time.

As of September 30, 2013, Amarin had cash, cash equivalents of approximately $226 million. Amarin anticipates approximately $3 million in restructuring expense in association with this reduction in staffing. The company currently expects its cash burn for 2014 to be less than $80 million. The company has no plans for raising additional capital at this time. Amarin intends to continue its evaluation of priorities, opportunities and savings opportunities, including clinical trial costs. The company plans to provide additional details of its future spending and operational expectations in connection with its upcoming quarterly report.

Amarin was off 5% in pre-market trading on Wednesday, following the announcement.

Although, at this point, this was expected, it should hardly be taken as a sign that the company is in any way. shape or form in good shape or moving in the right direction. Although they are anticipating a cash burn of less than $80 million for 2014, it's both a far cry from what they've posted in recent quarters, and is an awful lot of forward looking guidance that doesn't consider all the variables of 14 coming months. Who knows what could happen by then?

The company also says it has no plans for raising capital. As J.C. Penney (NYSE:JCP) just showed us, saying this means absolutely nothing; and I'm predicting that, especially if the company wants to continue its REDUCE-IT study and see it through to the end - they're likely to need more capital.

Where the corporate strategy goes from there, only Amarin knows right now. Investors will likely have to wait until the company's next quarterly disclosure to figure out what the "master plan" is for the company - as Amarin's CEO didn't really seem to have any type of contingency plan when he spoke on the very brief conference call following the ADCOM panel result. I wasn't long Amarin at the time, but I feel for people that were - they were owed a bit more color and editorializing from the executives on that call.

Having covered that, I'd like to reemphasize that there is really no reason to invest in Amarin here. With most of the upside potential of the company now in the rear view mirror with ANCHOR, Amarin remains a story I will watch from the sidelines - and I recommend you do the same.

As always, best of luck to all investors.

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.

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