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Amarin (AMRN), an Ireland-based company, is primarily focused on the development and commercialization of therapeutics to improve cardiovascular health. Amarin recently got approval for its drug Vascepa on July 27, 2012, which is useful for reducing levels of blood fat; thereby decreasing the chances of heart disease and stroke. Vascepa, previously known as AMR 101, is essentially a fish oil pill. In its clinical trials, Vascepa decreased triglyceride levels by 33 percent more than patients taking the Placebo. Vascepa has the potential to bring in revenues of up to $1.3 billion a year. There is a big market for the drug inside the USA, where there are currently about 40 million people with high triglyceride levels.

High triglyceride levels carry the very substantial risk of coronary artery disease. Many big Pharma companies are on the verge of losing patents on their medicines. In addition, competition from generic and lower priced medicine has started to eat into the revenues of the companies. Vascepa is a unique drug, in that it carries a higher efficacy and better safety profile than its competitors. If provided exclusivity, the drug will become a blockbuster and will be an attractive acquisition target.

Amarin management is currently considering the future of the drug. The company is considering three possible avenues:

  • A strategic partnership, where the company turns the rights over marketing and distribution over to a bigger company with marketing experience. This company could be one of the big pharmaceutical companies, but the key attribute of the candidate chosen would be expertise in marketing and distributing similar products.
  • Amarin could sell the company entirely, thereby passing on the responsibility for marketing and distributing the drug.
  • Amarin could itself market and distribute the drug. In this case, the company would need to hire a sales team soon, especially since they hope to launch the drug in the first quarter of 2013.

At the present moment, a potential takeover is probably the best option of Amarin. Vascepa is Amarin's first drug to be approved. The company therefore has no experience in marketing drugs, so selling would actually be the wise decision. A company that itself has a strong portfolio of heart disease drugs will be most interested in the buyout. In order to attract potential buyers, it will be vital that Amarin offer the prospect of exclusive ownership of Vascepa.

Recently, big Pharma has paid a premium for acquisitions as high as 160 percent. Here, I look at some possible candidates who may be interested in acquiring Amarin. Discussed below are also possible acquisition prices for the company.

AstraZeneca (AZN) currently has a cholesterol medication of their own, Crestor, which could be used in conjunction with the Amarin drug. Last year, Crestor generated sales of $6.6 billion, so AstraZeneca might be tempted to buy Vascepa to strengthen their portfolio.

Pfizer (PFE) is another possible candidate, since they will likely lose patents for Lipitor due to competition from generic medicines. Such competition could ultimately cost them revenues of up to $9.6 billion. Vascepa could reduce the severity of such losses. Amarin would be a positive addition to Pfizer's existing portfolio.

Expected stock price:

In light of the possibility that Amarin might be bought by big Pharma, I have considered what prices might be discussed in such a deal. The stock price evaluation model utilized here has considered three recent acquisitions in BioPharma sector: Amylin Pharmaceuticals (AMLN) by Bristol-Myers Squibb (BMY), AstraZeneca's takeover of Ardea Biosciences, and GSK's acquisition of Human Genome Sciences (HGSI). These recent transactions provide a good foundation from which it is possible to draw comparisons and estimate the expected deal price.

My model's methodology is based on comparables. The estimated prices have been based on P/B, P/Cash and P/Sales measures.

Comparable Transactions

Multiples

Amarin

Amylin

Human Genome Sciences

Ardea Biosciences Inc

Deal Price per share

31

14.25

32

Book Value Per Share

0.1

0.05

1.5

5.47

Cash Per Share

1.79

1.86

2.36

2.4

Sales Per Share

0

4.43

0.94

0.18

The table above shows the comparable transactions with associated deal prices and measures necessary to calculating relative values.

Relative Value Measure based on Deal Price

Multiples

Amylin

Human Genome Sciences

Ardea Biosciences Inc

Mean

P/B

620.00

9.50

5.85

211.78

P/CF

16.67

6.04

13.33

12.01

P/Sales

7.00

15.16

177.78

66.65

This table shows the relative value measures of the three transactions considered in this model. These relative value measures are based on the deal prices. The last column of the table shows the mean value for each measure; the mean value will be used to calculate the deal price for Amarin.

Estimated Target Value for Amarin

Company Measure

Amarin

Relative value measure

Mean relative value measure

Stock price based on relative valuation

Book Value per share

0.2

P/B

211.78

42.36

Cash Per Share

1.79

P/C

12.01

21.50

Sales Per Share

0

P/Sales

66.65

0.00

Mean stock price based on relative value measures

21.28

According to this simple model, Amarin stock should sell for $21.28, in the case of a takeover. The takeover price calculated here represents a premium of about 95 percent for Amarin shareholders.

It must be mentioned that this model by no means indicates or implicates that the stock price will certainly be $21 in case of a takeover; this price is only a guess. However, I do believe that Amarin will get significant premium if it decides to sell the company. Vascepa is a unique drug that will surely capture a lot of market shares from its competitors when it is released.

Source: Amarin Has Significant Upside Potential