The Latest On Amarin - How Will The Investment Pay Off?

| About: Amarin Corporation (AMRN)

While the waiting game on word from the FDA on Amarin's (NASDAQ:AMRN) NCE status continues, a recent management conference call along with medical and raw material conferences have shed some more light on the current situation. After many requests for an update, here are some research notes that may help investors understand the current situation, and their investment in the company.

On November 8th, 2012 AMRN hosted a conference call at 4:30pm eastern. The transcript can be found here.

The conference call highlights were:

  • No sales force has been hired and they are delaying this decision until the end of November
  • No new news on NCE, but yes or no answer needed to move buyout discussion forward (obviously short-term valuation issue)
  • As previously stated, material run-up and key management positions are go-forward regardless of three strategic options still in play
  • Three options are: go it alone, possibly with third party; partnership; acquisition of AMRN
  • Epanova results were actually worse than top-line reported a few months back, with significantly less efficacy on a dose elevation basis, LDL and ApoB and with substantial side effects, worse than current therapies, including Lovaza
  • There is no chance for Epanova to get NCE
  • Amarin is in active talks with big pharma
  • Amarin expected to file sNDA by year's end
  • The company will announce additional supply partners and barriers to entry by end of year
  • Vascepa's patent estate is impressive and growing

So, with all the encouraging signs from a positive conference call, why the questionable headline for this article?

Well, quite frankly, AMRN investors may not realize the full value of Vascepa and their applications for both Anchor and Marine, and eventually Reduce-It. These indications combined easily generate $8-12 billion in revenue, much more with Reduce-It. With these projections, stock values over $60 are conservative and the Cannacord and JP Morgan financial models support these ideas. Should Amarin be acquired, a valuation factoring in the following would occur: Anchor with or without NCE, Marine, and Reduce-It trial substantially engaged. These assets seem to present $32-$38 worth of value to a potential marketing partner/suitor--less than the "full-monty" that some investors may be hoping for a year or two down the road, but significantly higher than yesterday's closing price.

What about NCE?

Not material in the long-term due to an impressive patent portfolio out until at least 2030, but vital for valuation of a short term buyout...Meaning very important if you believe a buyout is in the works. We should hear this week from FDA, but keep in mind a few things:

  • There has been no official ruling yet, this is not an appeal
  • There is no process or guidelines of when a ruling must be made, or anything regarding delays
  • No formal appeal process exists, so the suggestion by some writers that this is what is going on is 100% inaccurate
  • Continuing with having to shoot down the opinions (not facts) made by other media contributors, patent data and information is ABSOLUTELY 100% considered by FDA when examining chemical entities, especially when they are comparing different products head to head -- whether for or against NCE, this data is essential. If AMRN has additional patent data, it would be considered if they allow to accept it. The FDA meetings were therefore encouraging and a doctor that has advised on the topic actually wrote commentary that was published to NIH. It can be found here and mirrors my argument for why NCE deserves to be granted.

Generic Competition Issue

Some interesting and surprising developments in this area. After recently hearing from contacts that would potentially be offering a generic Vascepa in the future, it is clear that Amarin's patent estate is scaring the life out of them. One candidate suggests 5-7 years would be the earliest they would attempt to enter, regardless of NCE determination. I also have the notion that these "generic AMRN" projects are being prioritized much less than just 6 months ago. Something has changed, and it is clearly the patent protection.

The fact of the matter is that there are only two generic paths: fragmented smaller players or the likes of Teva. Smaller players just won't enter, they can't. You see, if they challenge AMRN's patents and fail it is not the court costs at risk. It is the 10-15X (mandatory) damages handed out from willful infringement should they enter. This would bankrupt any company if AMRN claims both NDAs. For larger players, like Teva, it's just too risky and Teva only takes calculated risks. The fact that Lovaza's one relatively weak patent is standing up is not good news for generics that wish to go after AMRN.

I'd also like to point out AMRN has coverage for composition of EPA at 96% or higher and should get further reinforcement of this idea from some refreshed language in the 520 patent. Since AMRN proved through clinical trials the specific EPA method of action, no other Omega 3 treatments will come about, at least with efficacy and safety as good as AMRN. Unfortunately, Epanova is one company a day late and data short.

I'm not a "trader". This is not my area of expertise. However, I can say with confidence that Amarin's management could probably make millions of dollars off of the near heart attacks that have been caused by the erratic trading in the stock. Many of these people will likely need Vascepa after this is all over. In all seriousness though, the individual investor needs to understand that there are ups and downs in this space, often controlled beyond our means. This is exacerbated when there are science, legal and regulatory questions/concerns. This is not easy to understand unless you do a deep dive and are close to all factors involved. One analyst's downgrade is one hedge funds black Friday sale. An investor way smarter than me and with a solid background in economics warns me to watch analyst action -- often a precursor not meant to benefit the individual investor. Hopefully, you catch my drift.

Final Action

Once the overhang of regulatory exclusivity is handled, that should lead the way to a focus back to valuation based on he filed and approved indication(s), the legal exclusivity (patents) and the value of a best-in-class therapy that has shown promise with statins. AMRN investors should get excited, but do need to manage expectations. While $30-40 is quite reasonable for a buyout, $50+ would only occur should they partner up or go-it alone, and that would require more time, money and risk. One (including myself) could argue Joe Z and his team would be the ones to make it happen, they did so before - and history does tend to repeat itself...

Disclosure: I am long AMRN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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