Amarin: E.U. Opportunity Alone Is Worth 2x Market Cap
Seeking Alpha Analyst Since 2019
- Amarin received preliminary regulatory approval to market Vascepa for cardiovascular risk reduction in the E.U. with distribution exclusivity for 10 years - unlocking a multi-billion-dollar opportunity.
- The market wholly underappreciates the value of the E.U. opportunity as a result of a misguided view of expected pricing.
- Intrinsic value is conservatively $20 to $30, but upside to $50 exists if U.S. legal strategy unfolds favorably.
On January 29th, AMRN received preliminary regulatory approval to market Vascepa for cardiovascular risk reduction in the E.U. with distribution exclusivity for 10 years, with pending patents to potentially extend exclusivity through 2039. This development clears the way for AMRN to self-commercialize this multi-billion growth opportunity or to sell the entire company to a strategic acquirer who could efficiently streamline E.U. distribution – the latter option could occur after AMRN substantiates reimbursement later this year. We estimate the E.U. growth opportunity is conservatively worth over 2x the current market cap – $15 to $25 per share, with the distribution of values being dependent on the duration of exclusivity provided by patents, degree of market penetration, and pricing.
We believe the market wholly underappreciates the value of the E.U. opportunity as a result of a misguided view of expected pricing. We expect AMRN to receive pricing parity, if not a premium, in the E.U. relative to the U.S., a contrarian viewpoint that is underpinned by the fact that AMRN will be entering the market with a cardiovascular risk reduction label, supported by clinical outcomes data (Reduce-It study), as opposed to the U.S. where its pricing was established under a narrower indication for hypertriglyceridemia, which confers less value to the healthcare system relative to cardiovascular risk, and without outcomes data. It’s important to highlight that Amarin secured premium pricing for Vascepa in Canada – a market where drug costs are on average 65% lower than in the U.S. – under a cardiovascular risk reduction label. With roughly 45mm people on statin therapy in the E.U. – considerably more than the U.S. at 38mm – we assume, in our upside case, that AMRN’s E.U. opportunity could represent $4bn to $6bn in peak sales, which, at pricing parity, would represent approx. 3mm treated people or just 6% of the total statin population. At a peak sales multiple of 2x, the E.U. could be worth $10bn or $25 per share. We expect the recent E.U. approval to represent a critical clearing event for the bull thesis that should catalyze renewed investor interest in the company.
While we largely ignore the potential for AMRN to preserve significant U.S. market share given the entry of generics, we highlight that generics do not have FDA approval for cardiovascular risk reduction, which accounts for over 90% of Vascepa sales, and thus could be found to willfully infringe the patent rights held by AMRN by prosecuting this market vis-à-vis a skinny label (GSK vs Teva establishes a legal precedent in favor of branded drug). AMRN has filed a lawsuit against Hikma (generic) as well as Health Net (insurer) claiming patent violation and has demanded a permanent injunction and financial remuneration. We appreciate the logical merits of AMRN’s argument against the generics and health insurers, but nonetheless consider the prospect for sustained protection of its U.S. franchise to be a low likelihood event. However, if AMRN is successful in constraining the generics to 10% of the U.S. market, we believe the stock would be on its way to $50 per share – providing investors a free call option at current levels. Our underwriting assumes the U.S. market is massively disrupted over time, but we still believe the U.S. commands a residual value of $2 to $4 per share since AMRN, as the lowest-cost provider, could participate in the market as an authorized generic.
Further value exists within AMRN’s RoW opportunity, with an expected launch in China (where there are 290mm people with cardiovascular disease) via a capital-light, distribution agreement with Eddingpharm in 2022. Under a wide set of conservative assumptions, AMRN’s China opportunity could be worth $2 to $6 per share – or nearly 50% of the current market cap at the mid-point of the sensitivity range. Additional growth opportunities could be unlocked if Vascepa is proven effective in treating against Covid-19 as an outpatient therapeutic, and we highlight that several ongoing studies (Prepare-It) should readout in 2021. Importantly, AMRN has $1.50 in net cash per share, no debt, and is modestly free cash flow positive despite headwinds from Covid-19 and upfront investments in E.U. commercial infrastructure.
In sum, we estimate AMRN’s NPV is $20 to $30 per share. However, this NPV likely understates the value that could be extracted by a global pharma company with established commercial infrastructure in the E.U. This is because AMRN will likely incur diseconomies of scale in self-commercializing its E.U. opportunity being a U.S.-based company. We believe this asset value will most likely be recognized through a sale of the company to a global pharmaceutical within 12-18 months. We note that CEO John Thero’s equity stake would be worth nearly $175mm at $25 per share – highlighting the considerable financial alignment between management and common shareholders.
Disclosure: Our firm and the author of this piece is/are long Amarin Corporation (AMRN). The following contains the opinions of the author at the time of writing and may contain factual errors. This report should not be considered investment advice.
Analyst's Disclosure: I am/we are long AMRN.
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