Seeking Alpha
Profile| Send Message| ()  

Edited By Adam Isaac

Amarin Corporation (AMRN) develops and commercializes therapeutics to improve cardiovascular health. Amarin got approval for its drug Vascepa on July 27, 2012, which is helpful for reducing levels of blood fat. Vascepa is claimed to decrease the probability of heart disease and stroke. Vascepa, formerly known as AMR 101, is fundamentally a fish oil pill. In its clinical trials, Vascepa reduced triglyceride levels by 33 percent more than patients taking the Placebo. Vascepa has the potential to fetch in revenues of up to $1.3 billion a year. There is a large market for the medicine inside the USA; where there are presently about 40 million people with high triglyceride levels.

In a recent article, I talked extensively about the NCE (New Chemical Entity) status and the patent protection for Vascepa. In case of failure in receiving NCE status, there also remains the possibility of Amarin receiving NPE status (New Product Exclusivity). Where NCE status will give the product exclusivity for five years, NPE status will only give protection to the product for three years. While there remains a strong possibility that the firm will be able to achieve NCE status for Vascepa, there has been no decision yet on the matter.

In fact, this could hint that the FDA might be looking to make a new policy on giving NCE status to Omega-3 drugs going forward. However, the decision by the FDA to delay the verdict about NCE status indicates that there is a strong possibility NCE status will be awarded. This is the second time FDA has postponed the decision on NCE status for Vascepa. I think the reluctance of FDA to announce any decision indicates that the agency is willing to give the drug NCE status. If, the agency did not think there was any way of allowing NCE status, it would have already rejected the application.

Therefore, I believe the agency has some evidence in the application which it deems worthy of NCE status, hence the lengthy time to ponder. However, if the firm is denied the NCE status, it is almost certain that the drug will receive NPE status. NCE or NPE status will make the company more confident, and it will give them a free run in the market without any competition from generic producers. Therefore, the prospect of adding a drug with no competition is far more attractive for the big pharma companies. However, the firm has already secured the intellectual property through patents till 2030. Overall, the firm has enough to attract a potential takeover. Even if the takeover does not happen, the company will still be able to generate a healthy return for its investors. Vascepa is an exceptional product which has exceptional efficacy profile. It might be a big hit once it enters the market.

Recently, Amarin received notifications about two patent applications from the U.S. Patent and Trademark Office (USPTO). The USPTO decided that patents can be issued for two main patent applications made by Amarin. With the issuance of two new patents, the total number of patents granted by USPTO will reach seven.

Stock Price Volatility Remains:

(click to enlarge)AMRN Chart

AMRN data by YCharts

Amarin stock has demonstrated a lot of volatility recently due to the uncertainty about the NCE status and rumored takeover by a big pharma company. However, one thing that the market is ignoring is the fact that the company currently stands in a very strong position regarding its patent protection. On the other hand, this recent decline in price is factoring in a loss of NCE status. The delay in a decision is taken by the market as a signal that the firm will be awarded NPE status. However, the current price gives investors the opportunity to take a position in a stock at a discounted price as I believe the firm will be awarded NCE status.

Takeover Prospects:

The key element about Amarin is that the company could be bought by a major pharmaceutical firm later this year at a considerable premium to its current price. Analyst price targets for AMRN average $26 per share, mainly based on the prospects of a takeout. Recently, a number of firms have changed their targets on Amarin based on the possibility of a takeover. Vascepa has an advantage of a safer profile and better efficacy over its closest rival, GlaxoSmithKline (GSK)'s Lovaza. In addition, there are many side effects associated with Lovaza. Amarin is a unique product which will be an essential addition to the portfolio of any big pharma company.

At the moment, a lot of companies face the prospect of losing patent protection for their drugs. Pfizer (PFE) currently faces drop in sales and earnings as generic rivals bite into its market share with cheaper alternatives of its drug Lipitor. Amarin can also be a fine addition to GSK's portfolio and consolidate its sales in the market by combining Lovaza with Vascepa. AstraZeneca (AZN) can also be tempted to acquire Amarin with its ominous patent situation cutting its sales. Amarin management has never been shy to talking about a takeover, and the decision by the company to pull out of the UBS Global Life Sciences Conference next week has further stoked the fires. The analyst community is taking this as a signal that the firm is currently in advanced talks with a big pharma company about the takeover.

Summary:

Amarin has developed a unique drug which has an extremely effective and safe profile. The firm is currently attracting a lot of interest from the big pharma companies. There is wide belief that the company will be acquired by one of the bigger players in the industry. In addition, a strong portfolio of patents indicates that the firm has a very solid force of scientists, an asset which can be extremely important for the firm. I think the management is focusing on the sale of the firm. There is a strong possibility that the firm will be taken over this year, and the price will include a significant premium. The mean target price of $25.4 suggests about 80% upside potential.

Source: Amarin: Watch For Big Moves