I am! I am!
I’m not mad that my Amarin (NASDAQ:AMRN) holdings have declined by more than 60 percent since their peak. I am not mad about the fact that the company has been behind its projected timeline for every stage of its development and new drug application. I am not even mad that its Mickey Mouse CEO thinks he can market the drug on his own. I am however fuming at the fact that the CEO and the Board (A.K.A. Mickey Mouse Club) have continually misled investors.
In a recent article on TheStreet.com, columnist Adam Feuerstein (who by the way is a good source for biotech info) says, “I can't decide if Amarin CEO Joe Zakrzewski is totally incompetent or just merely clueless.” That’s a good question, Adam. I can’t figure it either. However, I do have a third option: he is arrogant.
Since the whirlwind that erupted subsequent to the Phase III and anchor trial results, the CEO thinks he is Einstein and that we are all dummies who should be basking in his genius. Evidence for this you ask?
Exhibit 1: After the results were released, Joe started talking about marketing AMR101 himself instead of earnestly looking for a partner who can fully exploit its potential and reward its investors appropriately.
Exhibit 2: Amarin raised additional capital ($107 million) in the form of equity when additional capital wasn’t necessary. Investors were not terribly excited about the money. Many, including me, felt that the company had enough to get it through trials and the NDA process. Once approved, we wanted out – in form of selling to the highest bidder. Therefore, issuing more shares means that the value of our holdings was diluted downward. This was a curious move that left many confused. We weren’t happy, but we weren’t vocally angry either. We gave Joe the benefit of the doubt.
Exhibit 3: As patent rejection letters began to pile up, Joe decided that telling us lowly investors what was happening wasn’t a good use of his time. I’m not even sure why the Board thought it would be a good idea to file a patent. The company would be more valuable if it kept the purification process as a trade secret – assuming it was a secret. However trade secret versus patents notwithstanding, as each letter was released to the public there should have been a clear explanation by the CEO letting all of us know what was going on. He didn’t do that. Instead, he kept us in the dark and guessing about the future of our money.
Exhibit 4: In the 2012 letter to shareholders, Joe writes, “With respect to the marketing and sale of AMR101, there are three potential paths that we are considering: partnership, acquisition and self-commercialization (with 3rd party support).” After this sober moment of considering all options, Joe then goes on in essence to state options one and two are just not good; therefore, option three is the only real option (the option of launching it himself). Not only did this statement suggest hubris but it also signaled that Joe is not serious about talking to potential suitors. This is not what investors want to hear. In fact, investors quickly showed their disapproval by selling their shares and driving the stock price down for two days in a row. Furthermore after stating that launching it himself is really the best option, he provides a plan for the launch, including his plan to build a sales force of 250 to 300. Moreover, Joe reiterated the potential market value of AMR101 as being in excess of $1 billion. This does not make sense. He wants to sell a $1 billion worth of AMR101 with a sales force of 250 to 300? Mathematically, this does not work. Let’s assume a sales force of 300. This means that each representative is expected to sell $3.3 million dollars of AMR101 per year. The average pharmaceutical representative generates about $1 million per year. More importantly, this average revenue is usually for existing drugs with an existing market. AMR101 is brand new. In other words, Amarin will need a sales force of at least 1,000 to achieve $1 billion in sales. Maybe Joe thinks he is a better motivator than the average sales manager, or he is on some drug other than AMR101.
Exhibit 5: Joe incorporates a shell corporation called Corsicanto Limited and that company quickly raises $150 million of convertible debt, which is all fully guaranteed by Amarin Corp and its equity holders (i.e. me and you). Another curious move. Amarin still has a ton of money from its last round of ADS issuance; it’s very close to FDA approval, and presumably is still an attractive acquisition target. So, why is Joe raising all of this additional money? The answer is that he has no intention of selling the company or partnering with a third-party distributor. He is fully committed to launching AMR101 on his own. In other words, he lied to us. He led us to believe that he would do what was best for the investor - us.
Let’s be very clear. Joe does not have your and my best interest at heart. He is an egotistical CEO. He wants to be a big shot. He wants to be the genius CEO who built a billion-dollar company as opposed to the prudent CEO who rewarded his patient investors. I can’t help but feel there is an impending doom with Amarin Corp. There are many outstanding issues that still make it a risky investment. Will it get patent approvals? Will it get a new chemical exclusivity? Does it have a process that really provides it with a strong competitive advantage? Or can Lovazza simply improve on its process and achieve the same level of purity? Can another company or even GSK develop a new process that outdoes AMR101? Do doctors and healthcare providers really believe that high triglycerides are a danger worth treating with drugs? Is the market really worth $1 billion? The answer to all of these questions is uncertain.
In my last entry, I wrote that Amarin Corp is a strong buy. I no longer believe this. The biggest reason for the change in my perspective is the CEO’s behavior and lack of full disclosure. Joe has misled us. He led us to believe that he would maximize investor value. It doesn’t appear he is doing that. With that said, Amarin is still a good bet – not a great bet. Moreover if there is a change in leadership, it would become a better bet. For now, it is good speculative destination. Therefore, I will no longer buy the stock but I will buy the option.
Disclosure: I am long AMRN.