Amarin Is Still A Buy, Despite NCE Indecision

| About: Amarin Corporation (AMRN)

Share prices of Irish clinical-stage biopharmaceutical company Amarin Corporation (NASDAQ:AMRN) fell on Tuesday after it announced that the FDA had failed to give a definitive statement on its only approved drug Vascepa's New Chemical Entity (NCE) status. The stock now trades at $13.3, having fallen ~9 % post the news. The coveted status could grant Vascepa the standard five years of marketing exclusivity.

Vascepa is a fish oil drug, which was approved in July for the treatment of high levels of triglycerides in the blood. The MARINE study, conducted in 2010, which treated patients with very high levels of triglycerides showed reduced levels of triglycerides, and furthermore, also indicated little signs of increased low-density lipoprotein (LDL-C), unlike GlaxoSmithKline's (NYSE:GSK) Lovaza, which raised it 40-50 percent.

We recommend the stock as a buy (as in our initial recommendation), given that the drug has the potential to be a blockbuster, and despite the fact that Amarin could possibly launch the product on its own, we believe a big pharma acquisition would bode well for the company.

Will NCE Indecision hold Amarin Corporation Back?

The latest indecision by the FDA only increased the uncertainty surrounding Vascepa's status, and the stock price will continue to be volatile in the short term. The NCE status will be bestowed upon Vascepa once the FDA concludes that the drug's active molecule is not already being used by an earlier FDA-approved drug. NCE exclusivity is different from patent protection, and does not last as long as a patent protection.

Also, knowing the exact status of the drug will allow potential buyers to calculate the exact value of the drug. But this hyped up issue of the NCE should not have much of a bearing on our initial thesis of being long on the stock. NCE will definitely be an added bonus, but the protective patent wall that Vascepa is building will be enough to protect it from generic competition, and provide the most value for the potential acquirer. Some even believe that the delay in the decision by the FDA could essentially be good news. What the delay could imply is that the FDA is at least considering the case being forwarded by Amarin Corporation.

Analysts at JPMorgan see Vascepa as a potential $1-billion-plus opportunity. Vascepa clearly has demonstrated its superiority over Lovaza in regards to the level of LDL-C in the bloodstream. Reduced LDL-C levels were also found in the ANCHOR study in 2012, which targeted subjects with triglycerides levels of 200ml/dl to less than 500ml/dl.

Consequently and uniquely for Vascepa, it was given the nod for the patient population with the aforementioned triglycerides levels, something it's rival Lovaza was not approved for. Vascepa also has superiority on Apo B and VLDL-C. Lovaza, in fact, warns of increases in LDL-C and highlights no significant advantage on Apo B. Analysts at JPMorgan Chase (JPM) also expect further label expansion for Vascepa, which will bring an additional 36mn patients in the second half of 2013.


Analysts at JPM have calculated a valuation of $39 per share, using the discounted cash flow model, but are more conservative with their formal price target of $27. Mean EPS estimates for FY2015 are $1.49. Based on a P/E multiple of 20x, we estimate a price target of $30. Given the potential billion plus sales and an average P/S multiple of 4x (industry average), we estimate a price target of $27, in line with the target provided by JPM.

AstraZeneca (NYSE:AZN), with its rapid patent losses, is often cited as the number one contender for the acquisition of Amarin; however, GSK too has its eye on Amarin. As highlighted in our previous article on Amarin, the current CEO is Joseph S. Zakrzewski, who oversaw the development and sale of Lovaza to GSK (through the acquisition of Reliant Pharmaceutical).

We reiterate our initial buy recommendation for the stock, and maintain that the short-term volatility caused by the anticipated decision by the FDA on the drug's NCE status should not overshadow the long-term implications of a drug with a great potential. If anything, the recent depreciation of the price, following the news, only provides an attractive entry point in the stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by Qineqt's Healthcare Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.