Buying Amarin For Acquisition Potential And Value

| About: Amarin Corporation (AMRN)
This article is now exclusive for PRO subscribers.

Amarin Corporation (NASDAQ: AMRN), the company that is bringing Vascepa to the cardiovascular drug market, is looking exciting as we enter the last quarter of 2012. After receiving FDA approval for Vascepa for the treatment of hypertriglyceridemia in patients with extremely high concentrations of triglycerides (>500 mg/dL), we are looking at a sNDA submission for the mid-range patients with anywhere between 200 mg/dL and 500 due to the successful completion of the phase III "ANCHOR" trials which demonstrated Vascepa's efficacy and safety in mid-range hypertriglyceridemia patients.

This is a big deal for the stock, because intrinsic value of Vascepa (and hence Amarin itself) is largely locked away in that 200-500 mg/dL range patient population due to the sheer number of patients that meet the description. There is also huge potential for Vascepa's treatment as a preemptive medication to stop heart attacks, which is being studied in "REDUCE-IT". The annoying thing is that we will have to wait as long as four years before Amarin submits the NDA for cardiovascular disease prevention.

Amarin expects to market Vascepa for the treatment of >500 mg/dL patients in the first quarter of 2013, and expects a PDUFA action date (an approval date) halfway through next year (2013) for the 200-500 treatment. If everything plays out smoothly, we will see Vascepa's sales start to take off quickly by the fourth quarter next year while the company continues to develop the product as a heart-attack prevention medication through the REDUCE-IT trials.

There is one drag, however, and it has a lot to do with marketing. Even though Amarin has demonstrated the superiority of Vascepa over the generic fish oil pills that are sold in pharmacies, marketing in the pharmaceutical industry is a tricky and expensive business. Larger firms, like competitor GlaxoSmithKline (NYSE: GSK), would be able to help due to their larger budget and extensive experience in the field through Lovaza.

While GSK is indeed marketing a direct competitor to Vascepa, it may be more beneficial for them to side with the drug that is intrinsically superior to their own product earlier rather than later. The possible cannibalization of their own market share in cardio drugs would be a consequence of the action, although they would be able to get a piece of the action. The alternative would be to use Lovaza to fight Vascepa directly, although this seems like an uphill battle given Lovaza's poor safety profile.

Despite its potential, some investors are growing concerned that the launch might not go as smoothly as AMRN followers are hoping. Big disappointments in the past, like Dendreon's (NASDAQ:DNDN) Provenge (which undoubtedly left scars on many biotech investors), can occur when a drug isn't introduced properly to the market after FDA approvals. Provenge, for instance, had strong clinical data supporting its efficacy but had an extremely hard time due to the costs of the therapy and the inefficient structure by which it was offered. Amarin's refined fish oil pills are obviously much simpler to market than something like Provenge but as a smaller company with smaller budgets, Amarin will have to find creative ways to reach doctors that would potentially prescribe Vascepa.

Based on recent trading, Vascepa is roughly valued at $2 billion or so. Amarin is about even in assets and liabilities, so we can assume that the company value is just from patents/rights to Vascepa (which is where I got the number from). If Lovaza makes nearly $1 billion/year despite studies that prove it's dangerous side effects, it's a no brainer to at least consider full rights to Vascepa for just over $2.5, or maybe $3 billion (if it could be arranged easily). Luckily, as smaller fish, we would be able to gain significantly if we bought now and waited for a whale of a company to snatch AMRN before it begins its entry into the cardiovascular drug market.

It's worth noting that Amarin has expressed interest in finding a partner, or even a buyer for Vascepa. If AMRN experiences any sudden dips, it may be a green light for investors to grab what they can in the hopes that a large pharmaceutical company is about to pull the trigger (GlaxoSmithKline would make a lot of sense). We don't know exactly which firms are watching AMRN right now, but we can infer that Wall Street's infatuation with Amarin's drug is reflective of the industry as a whole.

Even if no deals are made, AMRN is a terrific value play for the long haul and will probably give the drug a solid launch next year. Even if it's a possibility, I'd expect that Amarin could pull a successful launch of Vascepa next year even if they go at it alone.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AMRN over the next 72 hours. 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.