Amarin: In Good Position To Capitalize On Exceptional REDUCE-IT Results

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About: Amarin Corporation PLC (AMRN)
by: Elephant Analytics
Summary

Amarin's equity offering took place at $17.575 per share, resulting in minimal dilution.

The dilution would reduce Amarin's upside by 1.4% (assuming a target price of $30 per share before).

Vascepa saw a healthy boost of around 12.5% in weekly NRx after the presentation of the detailed REDUCE-IT results, bringing it to 30% higher than before the topline results.

Even if the mineral oil placebo affected the control group, REDUCE-IT's adjusted RRR would still be considered exceptional.

I'm looking for compound weekly NRx growth to average 2%-plus during 2019.

Amarin (AMRN) appears to be in a good position post REDUCE-IT results. It has bolstered its cash balance at the cost of only a minimal amount of dilution. As well, Vascepa's weekly NRx saw another jump after the presentation of detailed REDUCE-IT results. Going forward, I would expect to see continuing smaller increases in Vascepa's weekly NRx as Amarin's expanded sales team starts to have an impact.

Dilution

I had discussed Amarin's equity offering before and noted that the dilution from that offering appeared to be minimal. Those calculations were done before the actual offering price was known, so I used an offering price of $16.83 per share along with $200 million in gross proceeds ($230 million with the exercise of the underwriters' option).

The actual offering price was $17.575 per share and the gross proceeds would be $195 million ($225 million with the exercise of the underwriters' option), which results in slightly less dilution that I had calculated before. If the underwriters' option is exercised, then Amarin will add 12,777,778 shares/ADSs, or around 3.4% additional shares.

In terms of the effect on Amarin's upside, if its upside was $30 per share before the offering, the additional shares and $224 million in net proceeds would result in its new upside being around $29.59 per share or a 1.4% reduction from before.

Share Price Share Count (Million) Market Cap ($ Million)
$30.00 374.4 $11,232
$29.59 387.2 $11,456

Another Boost To NRx

I noted before that Vascepa's NRx had increased from nearly 11,000 per week before the topline REDUCE-IT results were released to over 12,500 per week after the topline results were released.

Although there's a limited amount of data from after the Nov. 10 presentation of detailed results, NRx for the week ending Nov. 30 ended up at over 14,100. This is a roughly 12.5% increase from October levels and around 30% higher than NRx levels from before the topline results were released.

The pattern in late 2018 has been for Vascepa's NRx to take a substantial step up on major news items such as the release of topline results and the presentation of the detailed results. I'd expect Vascepa's NRx growth to be more consistent and steady in 2019 as it will be Amarin's expanded sales team largely driving growth from visits to doctors rather than individual news items.

I would consider a compound weekly growth rate of 2% to be decent growth for Vascepa's weekly NRx over the next year or so. That growth rate would result in an weekly NRx of around 43,000 by the end of 2019, which is around triple current levels. A higher growth rate would be even better of course, but that 2% compound weekly growth rate would be acceptable in my opinion.

Mineral Oil Issue

I don't really see the mineral oil as placebo issue as being a huge impediment to Vascepa sales. There's some debate over whether the rise in LDL and hsCRP levels among the control group was caused by the mineral oil or was just natural changes over time with a high-risk population.

However, even if the mineral oil placebo made the control group's health worse, the effect would have been fairly limited (estimated at around 5% to 7% on RRR). This would still leave Vascepa's impact as an 18% to 20% RRR.

Cantor Fitzgerald noted in August that surveyed physicians believed that a 20% RRR would be an exceptional result for Vascepa. Thus, the view on REDUCE-IT's results may be adjusted to merely exceptional from beyond exceptional. This may make the higher-end estimates of Amarin's value (such as $50-plus) more challenging to achieve, but I still believe that the results are strong enough for it to have significant upside from its current share price.

The placebo issue could have been a much bigger issue if REDUCE-IT's results were significantly weaker. A 5% to 7% downward adjustment in RRR from 10% would have changed the result from something that would have been seen as meeting the bar for success by physicians to a failure with minimal RRR.

Conclusion

Amarin appears to be progressing well post REDUCE-IT. It has bolstered its cash position by $224 million (assuming the exercise of the underwriters' option) at the cost of a minimal amount of dilution. Vascepa's weekly NRx also increased by approximately 12.5% since the presentation of the detailed results (and now up around 30% since before the topline results were released).

It's now up to the expanded sales team to use REDUCE-IT's results to help educate physicians about Vascepa. This is unlikely to result in the close to 10% week-over-week jumps in NRx that happened after the major events of the topline results and detailed results. However, if a compound weekly growth rate of 2%-plus can be achieved, Vascepa will be on a healthy trajectory.

Disclosure: I am/we are long AMRN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.