Shares of Amarin Corporation PLC (NASDAQ:AMRN) appear to be attractively priced ahead of several major developments that could move the stock price in the coming month. We outline herein what may be moving the stock in the coming weeks and suggest strategies to trade these events.
When we last worte about AMRN, we suggested that AMRN's stock price would trend lower with a target range between $12.50 and $12. This price range was hit yesterday and signals an entry point for investors wishing to speculate on the NCE decision and a buyout or partnership as AMRN's go-forward plan for Vascepa.
Patience on Patents
In our last article, we expressed a view that, since FDA has twice deferred the Vascepa new chemical entity (NCE) decision, AMRN's evolving patent situation may be affecting the decision favorably. In the following days, analysts like John LeCroy of MKM partners and Jason Napodano of Zack's Investment Research expressed similar views on this matter.
The table below summarizes changes in the AMRN patent situation to date
Amarin: Status of Pending Patents as of 9/26
|Application Number||Status||Status Date|
|12/702,889||Final Data Capture||9/25/12|
|13/282,145||Remanded to TC/Printer Rush||9/26/12|
|13/349,153||Final Data Capture||9/25/12|
|13/284,408||Application Ready for Issue||9/19/12|
|12/769,885||Final Data Capture||9/19/12|
Applications '145 and '408 are further behind than the other 3. Final data capture is the phase where notice of issuance is generated and sent to the applicant. Note that, application '885 was sent to final data capture twice - first on 9/7 and again on 9/19. It is unclear from available information exactly why the application was sent twice.
The final data capture phase generally takes 5 weeks until formal patent issuance. However, usually within 7 to 10 days (within the first 2 weeks), the applicant is sent the patent issue notification containing the pertinent data that AMRN would need to submit information to FDA for inclusion in the orange book.
We expect the '885 patent issue notification to be sent out sometime between now and October 5th. Issue notifications for the '889 and '153 patents could also be sent in the same time frame; however, this is less certain due to their later advancement to final data capture.
Amarin management canceled an appearance at the UBS Global Life Sciences Conference last week. The market briefly took this as a sign that buyout negotiations were in advanced stages. According to some reports, the company has indicated that they are currently in a self-imposed quiet period until the NCE decision is finalized. We find this explanation regarding the company's reticence to be a stretch. The NCE decision is not an event normally justifying a quiet period. In our view, there are two scenarios under which it would make sense for the company to go silent because of the pending NCE decision:
1) If the NCE decision does indeed hinge upon AMRN's evolving patent situation, and if the company is aware of this, they may wish to remain silent to avoid questions now that several analysts (including us) have expressed this view.
2) If buyout negotiations are in an advanced stage and a final announcement is awaiting the NCE decision, once again, a quiet period makes sense.
AMRN also recently chose atorvastatin (Lipitor) as the specific statin for their Vascepa+statin combination patent application. See the USPTO PAIR system and look for patent number 12/888,994. While some speculate that this may have implications regarding a Pfizer and Amarin business relationship, a more likely explanation is that if the '944 patent is granted, AMRN will have a patent consisting of their triglyceride lowering drug and the most widely prescribed statin on the planet.
Trading the NCE Decision
Traders wishing to speculate on the NCE decision once again should look for an entry point within the next few trading sessions. If the stock continues to decline, watch for key support at recent lows of $11.80 and at the 200 day exponential moving average of $11.69. We expect a reversal and upward move when news of issuance of any of the pending patents hits the market as long as this occurs prior to the next orange book update.
Traders should note that, this month, AMRN issued an 8-K stating that they did not expect NCE status to be determined 5 days before the orange book update as we predicted in an article published earlier that same day. Traders should not rely on the October 12th orange book date since the company could put out news earlier just as they did this month. Instead, if the thesis of the trade is the NCE decision, exit points based on price movements should be decided. We maintain our suggested exit range of $14.80 to $15 ahead of the NCE decision under this scenario.
Trading the Go-Forward Plan
We expect that the go-forward commercialization strategy for Vascepa will be announced sometime in the next month. While the company has not given a formal date for such an announcement, indications from their last conference call suggest that if the company pursues self commercialization, sales force hiring or contracting would begin in October to meet a Q1 2013 launch timeframe.
We reiterate our position that, although Vascepa has prospects to be a commercial success, even a blockbuster, a buyout after FDA approval and before proven sales is a rarity. Investors speculating on a buyout as the go-forward plan should prepare for market sentiment to turn negative if no further news regarding a buyout or partnership comes about by mid to late October.
At the present time we have no view on which go-forward plan the company will end up pursuing. Investors on the sidelines looking to trade the go-forward decision would do well to look at option straddles with expiration dates beyond October.
For investors already long the stock who wish to hedge against a self-commercialzation scenario, the November puts, or a long dated covered call strategy are worth consideration. AMRN's next quarterly conference call will occur in the first week of November. The November puts would potentially capture any market reaction to news of the company's go-forward plan for Vascepa; however, keep in mind that come November, these options will experience strong time decay.