We previously wrote a report on Amarin Corporation PLC (AMRN) ahead of a highly anticipated FDA action on its drug AMR101 (Vascepa), which treats people with extremely high triglyceride levels (>500 mg/dL). The company indeed received FDA approval for this product on July 26, 2012, in a major achievement for any mid-cap pharmaceutical company.
The stock traded as high as $15.39 on July 27, but declined sharply below $12 in the following weeks, primarily due to profit-taking by investors. The stock has recently regained momentum, climbing 23% to its current $14.7 (as of 9/7/2012). One factor that may have triggered this recent stock move is that Amarin recently received Notifications of Allowance from the USPTO for several patents.
Furthermore, investors are waiting another FDA decision on whether to grant Vascepa a New Chemical Entity (NCE) status, which could come within weeks. Such a designation would allow Vascepa exclusive marketing rights for five years, instead of three. The question is whether this decision will impact the stock price in the short term.
We previously derived a target price of $18 for AMRN by the end of 2012. Our valuation model did not factor in the market exclusivity issue, and in fact considered competition from multiple sources at product launch. Thus, we now believe that the $18 target price is a conservative estimate: any marketing exclusivity would only enhance Amarin's intrinsic value by providing Amarin with a monopoly to expand its market share.
Based on our valuation model, we derived AMRN's intrinsic value under two scenarios.
Scenario 1 (3-year exclusivity): With three years of exclusivity and increasing sales, AMRN's intrinsic value at the end of 2012 is $21 per share.
Scenario 2 (5-year exclusivity): With five years of exclusivity and increasing sales, AMRN's intrinsic value at the end of 2012 is $24 per share.
While integrating new information since July 2012, we observed several factors that suggest that Amarin is positioning itself as a takeover target.
First, the FDA's approval of Vascepa for treatment of hyperglycemia in patients with extremely high triglyceride levels is an important milestone.
Second, the company will submit a supplemental NDA (SNDA) to further expand the use of Vascepa in patients with medium to high triglyceride levels who are also on a statin regimen, based on the ANCHOR trial data (AMRN Q2 2012 report, AMRN Q2-2012 financial results). A FDA decision is likely to be in Q3 2013.
Based on that clinical trial, we believe that the probability of approval is approximately 90%. The expansion of Vascepa to a broader patient population will certainly increase AMRN's revenues and its intrinsic stock price to $32.
Third, the company has not yet announced a definitive plan for distribution and marketing of Vascepa, a sign that it is seeking partner to undertake this role. Furthermore, the company has no other products in its research pipeline, further suggesting that it is aimed for a sale.
Fourth, the company has recently been granted several patents by the USPTO. Combined with a determination of exclusivity, AMRN could fend off competition in the US for several years. According to AMRN's CEO during its Q2 2012 conference call (AMRN Q2 2012 report):
"Amarin has made significant progress towards supporting the commercial exclusivity of Vascepa with seven patents in play, either issued, allowed or in progress states of prosecution with the USPTO. This [is] in addition to the 25 patent applications that are currently on file with the USPTO."
As of this writing, four patents (145, 889, 153, and 408) received Notification of Patent Allowance from the USPTO in early September. Thus, Amarin has made significant progress in its efforts to expand its patent protection for Vascepa in the United States.
Fifth, the company has started recruiting participants for its REDUCE-IT trial in December 2011. This will be a large scale five-year phase III trial, likely involving more than 18,000 participants and at an estimated cost of $50-150 million. Amarin's recent financial report indicated that it had $250 million in cash or cash equivalents (AMRN Q2-2012 financial results). The company has several options in order to fund such a large trial: AMRN could issue debt or equity, the latter will result in diluting existing shareholders' ownership. AMRN could also partner or merge with another pharmaceutical company.
Companies which could have an interest in acquiring AMRN include Pfizer (PFE), AstraZeneca (AZN), Merck (MRK), Eli Lilly (LLY), GlaxoSmithKline (GSK), and Abbott Labs (ABT). These companies have strong cardiovascular drug programs, but are beginning to face patent cliffs and therefore have strong incentives to acquire new products to sustain revenue growth. Of course, any partnership or acquisition news would certainly move the stock price higher.