On August 8th, Amarin Corp. (AMRN) informed investors that the FDA NOW plans to hold an advisory committee AdCom, which is scheduled for November 14th in order to review the sNDA for expansion of Vascepa labeling grounded on the REDUCE-IT cardiovascular outcomes study. Unfortunately, a November AdCom should push the PDUFA date back till December or January, which is obviously a setback for both the company and AMRN investors. I have to imagine Amarin management is fuming over this communication because the FDA "had been silent as to whether it would convene an AdCom in connection with its review of the REDUCE-IT sNDA" for months. Now, less than two months away from a monumental PDUFA date in September, they schedule an AdCom? According to Amarin, the FDA stated that November 14th is "the earliest date on which it could hold an AdCom due to scheduling constraints for such a meeting."
The company held a conference call to communicate the proceedings and answer questions regarding the FDA's decision. CEO John Thero read a letter that the management sent to their employees explaining the situation and what the next steps are for the company. I have listened to John Thero speak on conference calls and investor presentations numerous times, but I could feel his frustration about the FDA's decision during this call.
Personally, I was expecting the FDA to schedule an AdCom at some point in August…not November. The FDA's decision to schedule one this late in the game has me cycling through various scenarios, reasons, and reactions to this news. To add insult to injury, the share price was pummeled in after-hours trading down over 20% to the $13 handle. I made a quick decision to add to my position due to the company's strong Q2 earnings report, but I fear AMRN will be subject to increased selling pressure in the coming months as we approach the AdCom date.
I intend to review some of the key aspects of the AdCom press release and why the earnings report should instill confidence that Amarin is still a buy. I lay out why longstanding AMRN investors should see these numbers as confirmation that the company can be successful without a big pharma partner.
AdCom and PDUFA Extension
Amarin submitted their Vascepa sNDA to the FDA at the end of March to expand the label for cardiovascular risk outcomes. The sNDA was granted the Priority Review based on positive results of their REDUCE-IT study. If approved, Vascepa will be the first drug labeled "to reduce residual cardiovascular risk in patients with statin-managed LDL-C cholesterol, but persistently elevated triglycerides." Cardiovascular disease is the number one cause of death for U.S. men and women, so Vascepa could be promoted to a large portion of the U.S. population.
Considering these points above, I was expecting the FDA to schedule an Advisory Committee "AdCom" for Vascepa due to the potential broad label expansion. However, the FDA has not communicated to Amarin that they were going to schedule an AdCom to evaluate Vascepa's sNDA. With the PDUFA date less than two months away, I didn't expect an AdCom to be scheduled. I had mixed views about the lack of an AdCom…on one hand, I believe the clinical data and anecdotal accounts will generate a positive vote to support approval. On the other hand, I would like to hear key opinion leaders and professional provide their own views about the prospects of Vascepa in this setting. The lack of AdCom also removed a strong catalyst for the stock ahead of the PDUFA date at the end of September.
Now? I wished they went without one.
As a result of the AdCom date, Amarin does not anticipate the FDA to take action on the original PDUFA date of September 28th. However, Amarin did not receive an announcement of a PDUFA date extension, but they are expecting a three-month extension, which will move the PDUFA date to late December 2019. Unfortunately, losing three to four months of revenues and commercial progress is a major blow to the company and has been reflected in the share price.
Even so, investors should understand that Vascepa's sNDA was under a priority review that shortened the review cycle to September. Without that designation, Vascepa's PDUFA would have been in January 2020. Yes, this delay is not helping Amarin but it certainly is not a critical blow to Vascepa. The company has been preparing for AdCom and I expect them to come ready to highlight the breakthrough REDUCE-IT data and how Vascepa should be a mainstay treatment of cardiovascular disease. Although the AdCom is setting the timelines back a few months, it could be a great opportunity to hear key opinion leaders discuss Vascepa and the REDUCE-IT data. In addition, a positive vote in favor of approval will be a major catalyst for the stock.
Despite the setback, Amarin plans to keep moving forward with its commercial plans to double the size of the sales force ahead of Vascepa's expanded label launch. Amarin aims to have the newly hired sales reps to join the company's present sales team and will market the drug under its current approved indication. This will allow these fresh recruits to establish relationship with prescribers, which will hopefully lead to a strong launch numbers and boosted Q4 revenues from off-label scripts.
Overall, I see why there was a sell-off but I am confident in Vascepa's chances for a positive AdCom vote and subsequent FDA approval. Why am I confident? I point to the company's recent Q2 earnings report.
On July 31st, Amarin Corp., announced their Q2 earnings report and delivered an update on the company's actions ahead of Vascepa's PDUFA date of September 28th. Amarin reported $100.8M in total revenue a Q2 which was a 91% increase over the $52.5M in Q2 2018. The $100.8M was close outperforming the $97M and $101M guidance announced earlier in July. Overall, the company beat the street's revenue expectations by $1.25M and EPS by $0.03. This news generated a strong spike in the share price to $19.97 per share in the pre-market session. Although the bullish momentum didn't transition into a record day after the opening bell and the stock has experienced strong selling pressure ever since.
Figure 1: AMRN Revenue Growth (Source AMRN)
Vascepa Script Numbers
According to the press release, Vascepa's script growth in Q2 spawned from both previous prescribers and new prescribers. Vascepa scripts amplified by roughly 76% in Q2 compared to Q2 of last year. In addition, normalized Vascepa prescriptions came around 756K which is a noticeable increase over the roughly 600K in Q1 (Figure 2).
Figure 2: Vascepa Script Q2 (Source AMRN)
Interestingly, the company noted that there has been a positive trend in the number of 90-day prescriptions vs. 30-day prescriptions, which may not be revealed in the script reporting. Although the script numbers are going up, we don't have a clear picture of whether these scripts cover 1 month or 3 months of Vascepa for the patient. Hopefully, the company can provide us with an update on these specifics in the coming months.
When looking at Vascepa's script growth over the past 6 years (Figure 2), we see steady growth with some signs of weakness from Q4 to Q1 in some years, which is most likely due to deductible resets. However, the trend has started to show exponential-like growth since REDUCE-IT results were publicized in November of last year. Since then, the quarter-over-quarter growth has surged with Q2 scripts almost doubling the number of scripts of Q2 of 2018. This was accomplished without the expanded label and with only 400 sales reps…and without a big pharma partner.
Preparing for Label Expansion
If Vascepa's label expansion is approved, Amarin's objective is to be already prepared to launch a marketing campaign aimed at educating providers and patients about Vascepa. One of the key highlights will be the results of the REDUCE-IT study and how Vascepa can be employed to support the health of their patients.
At the moment, the company believes "the vast majority of healthcare professionals have little knowledge of Vascepa." Amarin sees these professionals to be an opportunity to be exploited if the company is granted expanded Vascepa promotion. If Vascepa is approved, Amarin will tap into their fresh funds from their secondary to deploy a "surround sound" promotion of Vascepa. The surround sound promotion will consist of an increase in sales reps, digital marketing, education, scientific presentations, and DTC advertising.
As I mentioned in the previous AMRN, sales reps and face-to-face marketing take up the lion's share of the marketing expenses (Figure 3), which will cause a strong surge in SG&A.
Figure 3: Marketing Expenditure (Source Drugwatch.com)
However, the company's recent progress has provided management with the confidence to double the size of their sales force, which the company expects to complete by early October. As a result, the company expects to increase the number of called physicians from ~50K to 70K-80K.
As for DTC marketing, the company plans to launch an expanded label DTC campaign in the second quarter of 2020.
On July 24th, the Institute for Clinical and Economic Review "ICER", publicized a positive report covering the clinical and economic benefits of Vascepa. ICER determined that Vascepa is cost-effective based on its quality-adjusted life year "QALY" metrics. Amarin believes that this report should provide support for why medical insurance should cover Vascepa and could help in negotiations in order to expand its coverage.
Of course, insurance companies do not have to agree with ICER's report but it should provide investors with some assurance that Vascepa is viewed as being economical and the company has decided on an acceptable price point for payers.
Additional Downside Risks
In addition to the potential loss in revenue, the scheduling of the AdCom and delayed PDUFA has now moved the next catalyst for the stock from September to November, which would most likely be the Q3 Earnings. This gap in catalysts will allow shorts to keep their position open for an extended period of time. If the share price continues to sell-off, I have to imagine some of the pre-REDUCE IT results investors would feel the pressure take some profits and will look to reduce some risk ahead of a pivotal FDA verdict.
Personally, I wouldn't recommend shorting AMRN but there isn't any planned catalyst or reason for AMRN to climb above its all-time highs unless there is an announcement about the company being acquired or a legitimate acquisition rumor starts. Therefore, I suspect shorts will most likely keep their positions open going into the AdCom and potentially the PDUFA in hopes that Vascepa gets a negative vote or a CRL and the share price drops over 50%.
Indeed, the AdCom news did take the wind of the sails, however, Amarin has made tremendous progress in the first half of 2019, including achieving a record $100M in quarterly revenue due to strong Vascepa sales. Amarin believes this is just the beginning for Vascepa and its claim a significant commercial opportunity, which will be multiplied if the company receives an expanded indication in December. Looking ahead, the company needs to focus and prepare for AdCom while also organizing to launch Vascepa into that expanded indication. This won't be an easy task transitioning Vascepa from a niche patient population to one of the broadest patient populations in the United States, but, the rewards will be a blockbuster drug and change in the cardiac treatment paradigm.
Is AMRN a Buy? I believe the recent earnings report revealed that the company has what it takes to make Vascepa a blockbuster drugs without the need for big pharma. I know many investors would like to see Amarin partner in the U.S. or be acquired by a big pharma…and so do I. However, it is reassuring the company is showing their ability to go-it-alone, which will allow the company to negotiate from a position of strength in potential partnership or acquisition discussions. Considering the recent 20% drop in share price, earnings beat, and the market potential for Vascepa, I still see AMRN as Buy at these fresh discounted prices.
What's My Plan? Although I already decided to add to my position directly after the press release, I am going to hold off on adding to my position due to the prolonged wait before a Q3 earnings and expected selling pressure. I don't anticipate the share price to hit an all-time high at some point in the next few weeks, so I will sit back and see if the market will provide me with another buying opportunity if the share price drops below $12.00 per share. However, if the share price can remain above $12.00 per share, I will wait for the share price to reestablish a new trading range before adding to my position ahead of a Q3 earnings report.
Figure 4: AMRN Daily (Source Trendspider)
In addition, I am looking to employ some call and put options to take advantage of the expected volatility as the PDUFA date approaches.
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.