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Medhanie
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Former finance consultant primarily in valuation (assets, equity, and options), M&A, and reporting. BA - SFSU, MBA - NYU Stern School. There is no value in linear thinking.
  • Amarin: Likelihood of Approval and Market Outlook 0 comments
    Feb 7, 2011 11:59 PM | about stocks: AMRN, GSK

     

    There has been a great deal of chatter about Amarin Corp (AMRN).  The chatter has been mixed - some good and some bad.  The stock price’s volatility reflects these mixed feelings.  Prices have retreated about 12% over the past month and is down 22% from its 52-week high - this despite very positive results for its phase III clinical trials.  Moreover, the company recently completed an offering valued at about $105 million - 13.8 million shares at $7.60 per share.  And although there has been some institution selling including about 50,000 shares sold by the CEO, there seems to be substantially more positive than negative news.  Then what explains the jitters?

    After patiently hearing and reading all sides (and virtually every publication by the firm or otherwise, blogs, 10K, presentations, conference calls and other propaganda), I figure my two cents may actually be worth two cents.  Here is my bottom line on Amarin:  It is a very good buy.  AMR101, which is the company's flagship product, has the potential to be a blockbuster by exploiting a very big market that has very few and weak players.   

    Amr101 is a cholesterol drug that targets triglycerides. For those that don’t know (and don’t worry -I used to be one of you), triglycerides are one of the three fatty proteins found in the blood stream. The other two are LDL (bad cholesterol) and HDL (good cholesterol). Although triglycerides are not as sexy or receive the attention of LDL, they can be equally dangerous. In fact according to a recent CDC research as reported by CNNHealth, one third of American (about 100 million people) are either in the danger zone or have dangerously high triglycerides.  

     

    Although you do need some triglycerides for a healthy life, there are a number of lifestyle choices as well as some genetic factors that can lead to increased and dangerous levels. High triglycerides can raise your risk for heart disease, stroke and metabolic syndrome (combination of high blood sugar, high blood pressure, and obesity).

     

    According to WebMD, a simple blood test measures your triglycerides levels:

    • Normal is less than 150.
    • Borderline-high is 150 to 199.
    • High is 200 to 499.
    • Very high is 500 or higher.

    The causes for high triglycerides are usually as follows:

    • Obesity.
    • Poorly controlled diabetes.
    • An underactive thyroid (hypothyroidism).
    • Kidney disease.
    • High calorie and high fat diet.
    • Heavy consumption of alcohol.
    • In addition to the above, many common medications can also raise triglycerides.

    So, how big is the problem and market potential? Again according to CNNHealth and CDC research, 33.1 percent of Americans have triglyceride levels above 150 milligrams, including 17.9 percent with levels above 200 milligrams, 1.7 percent with levels of 500 to 1,000 milligrams, and 0.4 percent with levels higher than 1,000 milligrams. Roughly 100 million Americans are at the very least in the danger zone for high triglycerides. This is a big problem with very few good medical solutions.  Of course, those with high triglycerides can cut their risk by simple lifestyle changes such as exercising, eating healthy, quitting cigarette smoke, and cutting down the amount of alcohol they consume. But if we could do that, then Amarin Corp would probably not need to exist.   We’re American’s; we like our cake and eating it too.

     

    Currently, treatment for high triglycerides include Fibrates, Nicotinic acid, Statins, and Omega -3 fatty acids. However despite this number of treatment options, each comes with a heavy burden making all of them difficult choices. 

    Fibrates, can lower triglycerides by 25% to 50%, but increase HDL by 10% to 35%.  Nicotinic acid is the most successful of the bunch. It can lower LDL by 5% to 25%, increase HDL 15% to 35%, and lower triglycerides by 20% to 50%. However despite Nicotinic acid's success in reducing bad cholesterol and increasing good cholesterol, it frequently come with negative side effects such as liver problems (hepatotoxicity), high blood sugar (hyperglycemia), increased uric acid (hyperuricemia - gout), gastrointestinal problems, and irregular heartbeat.


    There are also Statins such as Lipitor. These are a class of drugs known to be effective in reducing the risk for heart attack, stroke, and death from heart disease. They do this by lowering LDL cholesterol and with few side effects. However according to the American Heart Association Statins have a “modest” effect on triglycerides.    They are primarily designed and prescribed to comeback LDL. Moreover while there are few side effects with Statins when taken alone, there could be life threatening consequences when they interact with other drugs.

     

    That leaves Omega -3 fatty acids. According to the National Institutes of Health, fish oil can reduce triglyceride levels by 20% to 50%.  However to get the full benefit of fish oil, the American Heart Association (AHA) recommends 2 to 4 grams of fish oil per day. That may seem small, but it’s not. For instance, to get just 1 gram of omega-3 fatty acids, you would need to eat one to two servings of salmon, four to seven servings of cod, or four servings of shrimp per day. What about fish oil supplements? The Center for Science in the Public Interest recommends that you “Stick with fish or fish oil for best heart-health benefits.” Supplements are an unregulated industry that just about all the time make unsubstantiated claims. Even if you were to believe what they claim, you would still need to take anywhere between two to fifteen big soft gels a day to meet the AHA’s recommended dose. That too is a lot.


    Bottom line is that this is a big and life-threatening problem that affects 100 million Americans. It also has very few good solutions that your doctor can prescribe. Therefore if a company were to develop a solution that is able to provide relief with few side effects, that company has the potential to be also big. That’s where Amarin Corp comes in. 

     

    According to Amarin Corp. Amr101 is able to effectively reduce triglycerides without the side effects of other treatment options. Amr101 has already cleared one phase III trial. Moreover, all of the company’s data suggest that Amr101 is on the fast track for FDA approval. It is highly effective with very few side affects. But most important of all is that Amr101 is not an original drug. There is a version of Amr101 that has been sold and consumed in Japan for many years. Its efficacy and tolerance has been proven both in the lab and in the real world.   With that said, I can’t find a credible reason for the FDA not to approve Amr101. 


    But wait - there is more.  Another reason I am confident of Amr101's likely approval is
    GlaxoSmithKline's (GSK) Lovazza. Lovazza, which like Amr101 is a purified form of fish-oil (although not as pure as Amr101), has already been approved by the FDA to lower triglycerides. It is a prescription medication that has demonstrated good efficacy and generates more than a $1 billion per year.
     

    At this point, the question for me is not whether Amr101 will get approval (I have already made that bet). The question is whether Amr101 will live up to the hype. How does Amr101 stack up against Lovazza, a proven product that the market likes very much? Can Amr101 carve its own niche or will it have to take marketshare from Lovazza? And if it does have to compete with Lovazza, what is its likelihood for success? The answer to those questions is the next blog entry.



    Disclosure: I am long AMRN.
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