Amarin Corporation PLC (AMRN) just issued an 8-k stating, among other things, that they do not expect a decision from the FDA regarding the New Chemical Entity (NCE) Status of Vascepa in the September orange book update (to be issued on or about October 12th). The 8-K contained more details than the announcements made in September and August and the news is a bit troubling because it hints that management is not as confident about NCE status as previously believed and more importantly, because it puts a damper on buyout speculation in the near term.
Comparing the 8-K's
Here is, in part, the wording of the September 8-k:
As previously disclosed, on August 16, 2012, the FDA communicated to Amarin Corporation plc ("Amarin") that it had not yet made a determination with respect to the regulatory exclusivity of Vascepa and the July 2012 cumulative supplement to the Orange Book published on August 17, 2012 did not include an entry with respect to the regulatory exclusivity of Vascepa.
Here is the equivalent language from today's 8-K:
As previously disclosed, in each of mid-August and mid-September, the FDA communicated to Amarin Corporation plc ("Amarin") that it had not yet made a determination with respect to Amarin's pending request for five-year, new chemical entity ("NCE") exclusivity for Vascepa, and the cumulative supplements to the Orange Book published shortly thereafter, respectively, did not include an entry with respect to the regulatory exclusivity of Vascepa.
The highlighted sentences contain a subtle but important difference. The September 8-K (and similar language in the August 8-K) did not indicate that the NCE decision was a request by AMRN. Instead the language was neutral and hinted that the NCE decision was part of the standard new drug approval process. This month's 8-k clearly indicates that the company requested 5-year exclusivity. The logical implication of that statement is that FDA was leaning toward a denial of NCE status based on its usual guidelines, a position we suggested in our original piece about ARMN's NCE saga back in August where we wrote:
Our view is that NCE status for Vascepa is unlikely to be granted if the FDA sticks to the strict definition of active moiety as described on their website
This point shouldn't really come as a surprise. The company is being proactive in lobbying for the most commercial benefit for it's new product - which is a good thing; however, the manner in which the disclosure changed does a disservice to longs who may have inadvertently taken the previous neutral language as well as two previous NCE decision delays as signs that NCE was moving favorably due to AMRN's progress on patents. Indeed, we previously expressed a view that the AMRN patent situation was factoring positively in the NCE decision, in part, due to the twice deferred decision. The change in language in the 8-K this month is a cautionary note that AMRN management is unsure of the final outcome of the NCE status.
A More Troubling Sign
More troubling than the change in language is the fact that today's 8-K contains additional verbiage. Last month, and the month before, the 8-ks were short and to the point basically saying "We don't expect a decision - end of message" This month we have the following:
While Amarin continues to believe its arguments in support of an NCE determination for Vascepa are strong, the FDA may not agree with Amarin's arguments. Based on Amarin's dialogue with the FDA, Amarin does not know what determination the FDA will make on the pending Vascepa exclusivity request or when the FDA will make such determination. Accordingly, Amarin can make no assurance that Vascepa will be granted NCE exclusivity, or that the FDA will make a determination in a timely manner. If Vascepa is not awarded five-year marketing exclusivity, Amarin expects it will be awarded three-year marketing exclusivity.
In other words, AMRN is saying "FDA might not agree with us, and if not 5-years then at least we'll get 3-years exclusivity." As we stated in our August article (linked above), in practical terms for the marketing of Vascepa, the NCE status won't really make much difference; therefore, we do not see this statement as a negative for the long term; however, in the short term it will be taken as a negative sign. Indeed, as of this writing, AMRN is already trading down.
Quelling Buyout Speculation
The 8-k this month also contains some language about the go-forward plan:
As previously disclosed, Amarin continues to anticipate commercial launch of Vascepa in the first quarter of 2013, and continues to consider three potential paths for the marketing and sale of the product: an acquisition of Amarin, a strategic collaboration, or self-commercialization, the latter of which could include third-party support. As previously disclosed, Amarin is now focused on continued commercial preparations for Vascepa which includes, but is not limited to, finalizing the introduction of Vascepa to managed care plans to gain formulary access, building up inventory levels, hiring key personnel and coordinating other pre-launch marketing activities.
In a previous article we stated that:
... if the press release for the next earnings update still contains the "three possible commercialization strategies" language, expect a sell-off in the stock as the market interprets this to mean that no buyout is in the works.
While the 8-k today is not related to an earnings release, market sentiment about a buyout is likely to turn negative given that we are in the second week of October and the company is still using the "three possible paths for marketing" language.
While the orange book will definitely include AMRN's issued patents by next month, a positive NCE decision is looking more doubtful based on the company's own cautionary language in today's 8-K.
The continued use of the "three possible paths to marketing of Vascepa" language is a disappointing sign that may dampen buyout speculation. The market was looking for clarification of the go-forward plan this month. As we have consistently stated in the past, a buyout of AMRN now, after approval and before proven sales would be an exception rather than the norm. The 8-k indicates that hiring of key personnel is one of the preparatory steps the company is undertaking. Investors should keep in mind the possibility that the next press release or 8-k could contain language to the effect of "hiring of sales force" as another preparatory step.
Look for AMRN's shares to slide in the next few trading sessions, both because of the delayed NCE decision and because the 8-K suggests, in our view, that no buyout is imminent. Next month FDA's orange book update will issue on or about November 16th. Given that AMRN's Q3 earnings release is scheduled before then, the NCE decision is likely to become less of a factor in AMRN's share price compared to more definitive news of the go-forward plan.
Disclosure: I am long AMRN.
Additional disclosure: This article was written by Rajesh Patel, Ph.D., Red Acre's Managing Director for equities