Amarin (AMRN) reported preliminary Q2 net sales of $97 million to $101 million and the company increased the full-year guidance from more than $350 million to a $380 million to $420 million range. Amarin also announced a plan to double the sales force from 400 to 800 reps by October 2019. The update is certainly bullish, but not surprising considering the company’s execution to date compared to the very conservative initial full-year net sales guidance. And the sales force expansion coincides with the expected sNDA approval for Vascepa to include REDUCE-IT results.
Amarin has been a big winner for the Growth Stock Forum and its members. I added the stock to our model portfolio in December 2016 and added to the position along the way. The stock approximately 650% from the average purchase price, but I continue to believe Amarin is well positioned to drive additional shareholder value and that it remains one of the most attractive takeover targets in the industry.
Q2 sales exceed Street consensus, and so does the full-year sales guidance, but the guidance still appears conservative
Amarin expects Vascepa net sales in Q2 between $97 million and $101 million, representing an 84% to 92% Y/Y increase. The preliminary Q2 net sales are above the Street consensus of $88.2 million and the highest Street estimate of $95.3 million. It is also important to note that the beat was not driven by a change in wholesaler inventory levels, which the company said remained largely unchanged.
Amarin managed to increase Vascepa’s uptake significantly since reporting the REDUCE-IT results in late September 2018. Vascepa’s Y/Y net sales growth has accelerated from 17% in Q3 2018 to 43%, 67% and 84-92% in the next three quarters, respectively.
Source: Amarin earnings reports
Amarin also increased the full year guidance for Vascepa from more than $350 million to a $380 million to $420 million range. The analyst consensus for 2019 currently stands at $364.8 million with the highest full-year estimate of $379 million. However, I think real investor expectations are higher.
I argued previously that $350 million was a too conservative number and while the increased guidance is very bullish, it still seems conservative considering the year-to-date growth trends. The low end which suggests very modest sequential net sales growth compared to the second quarter sales of $97-101 million. Based on the current prescription growth trends, I believe Amarin is on track to generate full-year net sales at least at the high end of the company’s guidance range, and possibly, significantly above it, especially if Vascepa’s label is expanded in late September.
Sales force expansion to coincide with label expansion
Amarin has accelerated plans to further expand its sales force. The company intends to increase the size of the U.S. sales force from 400 to approximately 800 sales reps and expects to have the expanded team hired, trained and deployed by October 2019. The deployment of the expanded sales team coincides with the PDUFA date and I believe sales growth will further accelerate in the fourth quarter, driven by the company’s complete freedom to communicate REDUCE-IT results with physicians and by the significantly expanded sales team.
The direct-to-consumer (‘DTC’) campaign is also dependent on the label expansion and, assuming Vascepa sNDA is approved in late September, Amarin intends to launch the DTC campaign in Q2 2020. The launch of the DTC campaign is subject to review by the FDA’s Office of Prescription Drug Promotion (‘OPDP’), hence the delay between the potential sNDA approval and the launch of the DTC campaign. The DTC campaign should be another considerable tailwind for Vascepa’s prescription growth in 2020 and beyond.
Amarin is more than well-funded to execute the sales force expansion and the DTC campaign. The company’s cash balance rose from $211 million in Q1 2019 to $221 million at the end of Q2, a $10 million increase. And the increase does not appear to be driven by decreased inventories or accounts receivable.
September 28 is the most important date of the year for Amarin (assuming news do come out that day). The sNDA approval represents the most important near-term catalyst for Amarin and it is also the main near-term risk to the thesis. Vascepa’s prescriptions and net sales should continue to grow even if the FDA rejects the sNDA for some reason, but there are no real issues to suggest the FDA will reject the sNDA:
- Vascepa is already approved and millions of prescriptions have been dispensed. This suggests the FDA won’t find CMC (Chemistry, Manufacturing, and Controls) issues which often tend to be an approval issue.
- The REDUCE-IT trial was conducted under a Special Protocol Assessment (‘SPA’) agreement with the FDA and the agreement has been reaffirmed in 2016.
- REDUCE-IT results are robust and highly statistically significant with no real issues or safety concerns. And no, I do not consider the mineral oil issue a real approval issue – I’ve discussed this issue at length last year.
No outcome is 100% certain, but I believe Vascepa’s probability of approval is high – in excess of 90%.
The second risk, as some investors see it, is the FDA convening and Advisory Committee (‘AdCom’) meeting. The company noted in today’s press release that the FDA had not communicated whether it intends to hold an AdCom or not and as time passes, the probability of an AdCom being convened drops considerably. I would still not exclude an AdCom, but don’t consider it a real risk for the thesis – but a volatile event for traders. If there are issues with the submission or the data, the AdCom would merely point them out in advance. The FDA is completely capable of going through the data and finding issues on its own and it is entirely possible and likely that such issues are identified without an AdCom and the FDA could very well reject the sNDA even without convening an outcome.
The third near-term risk is Vascepa sales not growing as high as expected, but Amarin has been very successful at managing expectations and its beat-and-raise policy is designed to lead expectations below Vascepa’s actual growth prospects.
Looking into 2020 and assuming Vascepa’s label is expanded, the litigation with generic manufacturers would be the only remaining big risk for the thesis on Amarin. The court case is scheduled for early 2020 and a decision should be made a few months later. Amarin has asserted more than a dozen patents against the generic filers and a generic Vascepa in 2020 seems highly unlikely. As a reminder, Teva had already settled and can launch a generic Vascepa in August 2029, and settlements with the two existing filers before 2020 are possible as well and would represent a catalyst for the stock as they would eliminate an important risk factor for Amarin and make it a more desirable buyout candidate.
Amarin continues to execute very well. The company’s decision to issue very conservative guidance at the start of 2019 proved a prudent decision – while it led to a temporary drop in the share price, the company set a low bar for Vascepa and allowed the company to beat expectations and increase the guidance at the mid-point of the year. The PDUFA date is less than three months away now and I expect Vascepa to be approved and expect sales growth to accelerate in Q4 and in 2020.
I also believe that Amarin remains one of the most attractive buyout targets in the industry. Some investors see (and I agree to some extent) that the FDA is a gating factor for the deal to be consummated – acquirers either want a significant discount on the fact Vascepa is not approved yet for cardiovascular prevention or that they don’t want to make an offer before Vascepa’s label is expanded. I think the approval in September raises the probability of Amarin being acquired by the end of 2019 or in early 2020. The second potential gating factor for a buyout is the litigation with the two generic filers and that issue should be resolved by mid-2020 if settlements don’t happen in the meantime.
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Disclosure: I am/we are long AMRN.
Additional disclosure: This article reflects the author's personal opinion and should not be regarded as a buy or sell recommendation or investment advice in any way.