Biotech stocks are synonymous with risk. So, it is always exciting to talk about a company with little to no risk hurdles in the way of therapeutic efficacy and patient safety. In short, Amarin's (AMRN) two highly successful phase III clinical trials (Anchor and Marine) pretty much turned AMRN stock certificates into winning lottery tickets. But, what is the jackpot paying? Amarin reached nearly $20 in 2011, only to decline to near pre-phase III levels over the past few months. Investors have been getting back into Amarin, pushing shares higher recently. What's next for Amarin and the lucky lottery winners that have invested in the company?
If you have been following AMRN you probably understand the very near term opportunity to go against GlaxoSmithKline's (GSK) prescription drug Lovaza. What you may not understand (and clearly many investors do not, seeing that AMRN's stock price is under $15), is that the Lovaza opportunity is minute in comparison to other indications that AMRN can and will go after. You may not understand the patent issues either--or if the company will go it alone or sell out to big pharma. To answer the question of 'how much is the jackpot paying,' we need to understand all these topics.
Indications
Lovaza is GlaxoSmithKline's billion dollar fish oil drug for very high triglycerides. This drug addresses a 3.8 million person market. This market size is actually quite small since many health care plans won't cover Lovaza due to potential side effects. In fact, only 3.6% of the potential population are currently treated with products like Lovaza. Amarin is going after this indication and expects FDA approval sometime in July 2012, although it could be earlier as the FDA just informed AMRN that no advisory panel is required. This is good news for a clean, quick approval. History has already proven that fish oil is safe and effective. AMRN developed a specific fish oil that differentiates it from Lovaza and potential generic competitors because it is mainly EPA and does not have the negative side effects of Lovaza. Not only should AMRN put Lovaza out of business in a short amount of time, but the safety profile should help to expand the market size. All data points seem to favor protected IP and NCE status on this unique EPA material. There have been debates about AMRN's IP position, but third party legal analysis and recently communication with the USPTO indicates they are in a very strong IP position. Some of this detail was provided on the most recent company conference call. Supply agreements are also in place to further provide barriers to entry and this press release was made in 2011. On this indication alone, AMRN's payout is $17.
But wait, with favorable phase III trials, AMRN can serve the 'mixed' triglyceride levels market - estimated to be nearly 10X the size of the 'very high' market. You get the picture? The company will pursue this indication with the FDA in 2013, perhaps before the end of 2012. More work needs to be done (outcomes study continues) before the product hits the market, but the heavy lifting and major investments have already been done. This indication would put the stock between $27-30.
The holy grail though is addressing the unmet 34-million person market for cardiovascular events. AMRN believes it can do more than influence triglyceride levels in the blood. They are 3-5 years away from proving their case, but looking at the profiles of their AMR-101 drug, odds are in their favor. Again, experts in the nutritional field saw this coming years ago from Omega-3 studies. Safe to say a safe and effective oral therapeutic solution to prevent heart attacks would command a $50 price tag.
Management
So far, the CEO has given mixed messages to the investment community in terms of company sale vs. go-it-alone strategy. Every time he speaks, investors now get nervous. What we know for a fact is that the CEO and many members of his management team have been successful in the past by selling companies, not building them. I encourage you to check out some of the executive bios. Their compensation packages support a sale of the company, and at very high numbers to boot. AMR-101 is facing drug approval this year and yet no sales/marketing forces have been assembled. I actually believe what the CEO originally stated in an interview, "offer me $15 I'm holding, but offer $30, 50, (or more) and we'll talk." I believe Joe has been talking and will continue to talk, and I like his $50 number.
So what's the answer, how much will AMRN pay out? If you are asking yourself this question, you may still not completely understand AMRN...for the real question should be 'how much will big pharma pay for AMRN?'
