Most market participants that follow the healthcare and biotechnology sector are familiar with Amarin's (AMRN) AMR101. AMR101 is an ultra pure prescription-grade omega 3 fatty-acid. AMR101 has been developed to treat patients with high triglyceride levels; which, according to Amarin's estimates, is over 40 million people in the U.S.
Instead of discussing the viability of AMR101, I will simply take a look at the near perfect chart that has formed in 2012. It will be inevitable to avoid a brief discussion regarding AMR101 in the end, but I will try to keep it brief. It is important to discuss Amarin's chart because it can be used to determine the short and medium term potential of Amarin's stock price regardless of the pending FDA decision.
First off, by taking a broad view of Amarin's chart you can see that the stock price has very systematically eclipsed higher highs and higher lows since bottoming out in late 2011. It is more important to note the fact that Amarin's stock has not broken down below a previous short term low thus far in 2012. This is important because I expect this trend to continue for the next 4-6 weeks, which will be very rewarding for investors and traders. Also of note, Amarin's stock price currently has a floor at 10.34, which is the previous low point.
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(Source: Chart courtesy of StockCharts.com. Trend lines courtesy of StopETFs.com.)
Tightening up the chart, we can see the pattern from above. But more importantly, we also see an ascending triangle forming. Without looking at the chart, an ascending triangle makes perfect sense for this situation. For one, Amarin is in the middle of a longer term uptrend and there should be retracements. Also, since Amarin's share price is based upon the speculation that the FDA will rule in favor of AMR101, then it should be expected that we see a solid ceiling until news surfaces that gives investors and traders a reason to buy.
(Click to enlarge)
(Source: Chart courtesy of StockCharts.com. Trend lines courtesy of StopETFs.com.)
As you can see from above, Amarin's share price has soared up to the 12.80 region twice prior to dropping to a new short term low. Another important note to make is that Amarin's volume has decreased recently and this will set up a possible bullish break higher.
How high will the stock go? Well that depends. There are a few important notes to make that are not chart related that have a deep impact on the chart. The first is that there seems to be a consensus that AMR101 will be approved. However, there is some debate as to when it will be approved. Many feel that the FDA will delay the approval date up to three months due to the sheer amount of data presented by Amarin; while others are confident the FDA will issue an approval on or before July 26th.
In fact, based upon the calendar, the next break out in Amarin's stock price may simply occur because the pending PDUFA is approaching. This is more often than not a comical characteristic of technical analysis. For instance, several technical points may indicate Amarin's share price is ready to surge higher, but, if let's say, late this week Amarin presents new data that shows AMR101 works better than expected then the stock will surge higher based on the news. Which will in turn make any technical assumption correct.
Nevertheless, at the end of the day Amarin has not had any form of revenue for at least four years. AMR101 has been Amarin's child for years and all that work will soon turn out to be successful or a beautiful failure. I for one am expecting a positive ruling from the FDA, hence my disclosure.
With that said, it is also important to keep in mind that Amarin's market value is currently $1.6 billion. Amarin's market value is important because if investors and traders do not believe that AMR101 can penetrate the market very well then the upside from here may not be worth the risk.
On that note, Leerink Swann is quite optimistic regarding the sales potential as the firm believes AMR101 will reach a peak of $3.2 billion in annual sales over the next decade. In comparison, Lovaza [by GlaxoSmithKline (GSK)] achieved over 569 million British pounds (~$880 million) in sales in 2011, which is about 7% growth on a year over year basis. Therefore, Amarin will need a much larger patient pool in order to reach the $3 billion mark in less than a decade while competing with Lovaza and possibly other generics that may come out.
Traveling back to today, Amarin's stock is looking very strong. The firm is on the right path to its first FDA approved drug that will provide at least $200-$300 million in sales its first year. And with the stock currently in a consolidation phase prior to a substantial new short term high then it appears Amarin is ripe for the picking. But always keep in mind that the FDA can deliver a variable month delay (usually three months) and/or a CRL, which would be a much more serious and decisive delay.
Disclosure: I am long AMRN.
