After the PHASE III results for AMR-101, Amarin shares (AMRN) traded at almost twenty dollars a share amidst the speculation that a major pharmaceutical company would acquire Amarin. When that event failed to occur, the shares dropped in price, briefly touching the high six dollar range.
Now, Amarin has received FDA approval for the drug, now known as Vascepa, and many investors are once again pondering the potential suitors for this small pharmaceutical company. Many names have been tossed into the hat, but one that has not received as much talk as I might have suspected is GlaxoSmithKline (GSK).
On December 19, 2007, GSK closed a deal to purchase Reliant pharmaceuticals in an all-cash transaction valued at approximately $1.65 billion. One of the driving forces behind this deal was the drug Lovaza, the first FDA approved "fish oil" product for the treatment of very high triglycerides. The transaction has proven beneficial for GSK, as sales of Lovaza have topped $1 billion in the United States.
Why then, after purchasing Reliant and Lovaza, would GSK now want to purchase Amarin and Vascepa? There are many reasons, and they all point towards GSK being a major player in any acquisition discussion.
First, Vascepa as approved relegates GSK to second-in-class status for the treatment of very high triglycerides, also known as severe hypertriglyceridemia. Vascepa has a better side effect profile, is more efficacious, does not raise LDL-cholesterol (due likely to being EPA only), and a host of other benefits that do not exist with Lovaza. In essence, assuming equal tier coverage and a decent marketing campaign, Vascepa makes Lovaza obsolete, as doctors will for the aforementioned reasons prescribe Vascepa instead. The GSK sales force already has the background to sell a triglyceride lowering drug, and they would also have the credibility to sell the new best-in-class therapy, making Vascepa easy to bring to market for GSK.
Beyond Vascepa's superiority, GSK has another problem with Lovaza - a looming patent expiration in September of 2012, and likely generics on the market no later than 2015 via a deal with Apotex (although when it comes to patent litigation, it is hard to predict exactly). The problem for GSK with Lovaza overall is that with its limited number of patents (high-trigs with no LDL-elevation population) combined with the generic competition effectively means the revenue from Lovaza cannot be counted on much longer, a fact which GSK is most certainly very aware of. Combine this expected loss of revenue and Vascepa's superiority with the fact that GSK's last quarter showed earnings per share down by 11% and you realize that GSK needs a blockbuster drug to both offset the loss of Lovaza sales and to help the company in general - and this is where Vascepa and Amarin come into play.
Amarin's current market cap is approximately $1.57 billion, and with the current label indications Vascepa can be expected to at least equal Lovaza sales. However, to play it safe for the doubters, I'll discount Vascepa as indicated down by 20% to reflect second-in-class Lovaza and generic competition, and say that Vascepa will sell $800 million annually.
Based on those numbers, the granting of NCE status for five year exclusivity plus the robust patent portfolio would make Amarin worth acquiring for anything under a heavily discounted $4 billion in expected sales over those five years - over twice the current market cap.
However, as this article is intended to deal with naysayers, let's assume Vascepa does not get NCE status, and instead only gets three years of exclusivity and all the patents are held invalid - 3 times the heavily discounted $800 million still surpasses the current market cap, albeit it only slightly and not enough to provide a nice shareholder premium. So the question is then, if we consider this discounted scenario with no NCE status, would GSK still want to buy Amarin? The answer is "Absolutely."
Despite those who decided to cry wolf about the Vascepa label, the fact of the matter is that the ANCHOR trial population was never supposed to be on the original Vascepa label - instead, the plan was to file the SNDA for this population after the FDA approval of the MARINE trial population indication for very high triglycerides. Assuming that Vascepa is able to add to its market the roughly ten times larger patient population with high triglycerides upon FDA approval of the SNDA, continuing our calculations using our same discount model, an interesting revelation comes to light. Suddenly Vascepa's sales even without NCE status are up to $24 billion (assuming proper marketing, correct inventories, etc).
Even if we discount that number further down, giving Vascepa half of the Lovaza sales for the very high triglyceride patient population and then multiplying by a factor of 10 to account for the high triglyceride patient population, the numbers are still a staggering $5 billion annually. GSK is sure to realize that the worst case scenario for Vascepa with no NCE, but with the addition of the ANCHOR indication, makes Amarin worth paying $3.8 billion for, or approximately $27 per share - at the very least.
Now that I've dealt with the naysayers, let's talk about the best case scenario for Vascepa. Let's assume that the five year NCE exclusivity is granted, that Amarin continues to obtain patents (which looks extremely likely based on the USPTO website) that add to the strong portfolio in place, the ANCHOR indication is granted for the label, and that Vascepa sales pre-ANCHOR equal Lovaza at $1 billion per year.
The value of owning Vascepa is then likely $50-70 billion in the unlikely circumstance that the patent litigation went poorly, up to anywhere as high as $200 billion if the patents held up for 20 years. The GSK board of directors and shareholders must be salivating at the thought of this potential revenue stream.
These positive numbers also ignore two potentially huge possibilities - the REDUCE-IT outcomes study and a combination statin-Vascepa drug. If Vascepa is shown to reduce cardiovascular events, or is effectively combined with a Lipitor or Crestor, these numbers would go even higher. The Jelis Study leads me to believe that the REDUCE-IT study will show this reduction in events, and the possibility of a combination drug just makes sense in terms of both patient treatment and revenues, so these are both likely in my opinion. The revenues would be enormous if either were to take place.
In the end, I do not know who will purchase Amarin, but I do believe that even in the worst case scenario a purchase makes sense for big pharma. In the best case scenario, the acquirer can laugh all the way to the bank for many years to come. Shareholders should expect no less than $27 per share, and perhaps even more as the patents continue to be granted, the label indications expand, and the full value of Vascepa is realized.
Obviously these numbers are the result of some objectivity mixed with a good dose of subjectivity, and thus all readers should do their own due diligence and consider the potential markets for Vascepa - those currently on the label, and all of the other opportunities that appear to be on the horizon.
Disclosure: I am long AMRN.