Amarin Confirms NCE Delay - What To Look For Now

| About: Amarin Corporation (AMRN)

Yesterday morning, we published an article about why we thought the New Chemical Entity (NCE) status for Amarin Corporation's (NASDAQ:AMRN) new drug Vascepa would not be finalized this month. In the evening, the company put out an 8-K disclosure confirming the call we made earlier in the day. The question now becomes - what happens next? We believe that AMRN's stock price is likely to revisit the $12 to $12.50 range before heading back towards the $15 level or higher in October.

Short-Term Factors Affecting AMRN Stock Price

AMRN's stock price will be affected by several factors in the short term, including: September options, momentum traders and frustrated longs seeking an exit due to the NCE delay, issuance of the '885 patent and possibly other patents in the '889 family, and potential company news regarding the go-forward commercialization strategy (buyout, partnership or self-commercialization).

How These Factors Play Out

Expect AMRN shares to trend toward the $12 - $12.50 range in the short term. If the '885 patent issues before September 21st (option expiration day), the dip to sub $13 levels will be fleeting; however, if the patent issues after 9/21, max pain is likely to pin AMRN's price to below $12.50 but above $12. To get the earliest word on the '885 patent issuance, check the USPTO patent applications information retreival system. Use the patent application number 12/769,885 and look for the phrase "Issue Notification Mailed" in the transaction history. AMRN's press release regarding issuance of this patent is likely to be the driver for the rebound in share price, and the USPTO site should have the info first.

Our view is that, if FDA wanted to deny NCE status based on a strict interpretation of whether or not the active moiety of Vascepa has ever been approved before, the case is clear-cut and NCE would already have been denied. The fact that the agency has now twice deferred making a determination on NCE status suggests that AMRN's soon to be granted patents will influence the NCE decision favorably.

After September options expire, ARMN's share price will begin to run-up again (if it has not already done so earlier) due to both the updated orange book database entry reflecting the '885 patent (patents are reflected immediately - NCE decision will still be in October), and the looming news of the company's go-forward plan. Management has indicated that they would be choosing one of their 3 possible commercialization plans "sometime in October."

During the last conference call, in answer to a question about hiring of a sales team, AMRN's CEO said, in part:

It's really the sales piece in general really cranks up, I would call in October if and when we get to that point.

This statement was taken by many as a signal that buyout talks are underway because of the "if and when we get to that point" phrasing.

News of a buyout or partnership would cause AMRN's share price to settle in to a new trading range based on the economics of the deal. Given Vascepa's market potential, expectations of $18 to $25 per share have been floated by analysts. If news of either a buyout or partnership does not come forth by mid to late October, expect the share price to suffer.

As we have indicated previously, a buyout now, after approval and before proven sales, would be an exception rather than the norm. While there are reasons to suggest that Vascepa should be successful in the marketplace due to Lovaza's proven sales and due to Lovaza's recent FDA label warning related to atrial fibrillation, investors are cautioned to set exit targets sometime in mid to late October if details of the company's go forward plan are not indicated by then. The cautionary tale of Savient Pharmaceuticals (OTC:SVNT) from its 2010 approval of KRYSTEXXA for treating gout and its eventual 50% haircut upon NOT getting bought out should be studied by AMRN holders who are counting on a buyout as their exit scenario.

Investors looking for a short-term trade would do well to buy in anywhere below $12.50 - with an exit point of $14.80 to $15 prior to the next NCE date. If one intends to hold beyond the NCE date, exit points should be judged based on how news of the go-forward plan emerges. Specifically, if the press release for the next earnings update still contains the "three possible commercialization strategies" language, expect a sell-off in the stock as the market interprets this to mean that no buyout is in the works.

Long-term investors would do well to buy on dips to lower their cost basis, but again keeping in mind that if market sentiment changes regarding AMRN's buyout prospects, the stock will suffer and may take several months to recover.

Disclosure: I am long OTC:SVNT. 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.

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