Background And Full Disclosure First
This is my first SA post and I'm a newbie in the biotech / health care space so please be gentle :-)
I stumbled upon Amarin by chance some weeks before the REDUCE-IT topline results and thought "great of course EPA is going to be good for CV patients, that's common knowledge and this is a no brainer I'm buying before this binary event". And I haven't sold yet so I'm still long.
So by sheer dumb luck this holding went from a fairly insignificant lottery ticket to a more significant holding that demands more attention and I've been reading up fast but there are still many blanks that I hope the excellent SA community can fill in.
However, I'm still trying to add significant value to the discussion here on SA in order to try and answer some fundamental questions that other people also might be having.
I'm going to analyze this situation according to my current knowledge and abilities and it's up to the AMRN followers to shoot down or confirm my arguments in the comments. Any factual errors will be corrected if SA will allow me to edit this post after having published it, and analysis depending on factual errors will be updated too.
Basic Premises Based On My Current Knowledge
1.) Amarin has protection until 2029 on icosapent ethyl (brand name Vascepa) which to my understanding is the equivalent of a biosimilar to icosapentaenoic acid (EPA).
2.) Amarin does not have any kind of protection preventing other companies from making pure icosapentaenoic acid supplements which will happen now that REDUCE-IT has without a doubt shown that having DHA in the mix is not a good thing.
3.) In the eyes of the FDA REDUCE-IT connects the beneficial effects to Vascepa (icosapent ethyl) and nothing else.
4.) The above FDA "fact" results in a situation where insurers will only cover Vascepa as no other form of EPA has been clinically proven to reduce adverse CV events like Vascepa has.
5.) The FDA will approve Vascepa for expanded indication in (or before) January 2019.
6.) As far as I can tell the presentation at the Scientific Sessions of the American Heart Association (AHA) on November 10 is a non event that will not affect the market cap of Amarin in a significant way, at least not in the medium to long term.
7.) It is unclear how big the non-US sales will ultimately be due to different regulations, systems and rules.
8.) Epanova and other EPA based products represent inferior competition as they contain DHA.
9.) Vascepa is sold for $2,000 per year (that's the rough number that I've seen mentioned).
10.) People put weight on the fact that Vascepa is a slightly different molecule to normal EPA and that that is a factor in its effectiveness.
Projections For The US
Due to premise #3, #4 and #5 above, success in the US market should be a sure thing, the stock price also validates this, if there were any uncertainties here at all the stock would not have gone from 3 to 20 in 2 weeks.
That leaves us with #6, let's assume that Vascepa has a bias towards preventing the risk of unstable angina requiring hospitalization (UARH [my acronym]), that only means that Vascepa can't prevent MI in patients that are already in a bad shape, ie it can't reverse the CVD. We still have proof without a doubt though that it will prevent the CVD from progressing and that fact in itself should be enough to drive demand from patients, prescribing health professionals and insurers. In other words, pretend you suffered from CVD, would you reject Vascepa because it "only" prevented your condition from worsening? Of course not.
Let's back that up with some numbers (see links below), total direct cost of CVD if we exclude high blood pressure is $250 billion in the US per year and there are 15 million people with CVD. That gives us a cost of $16,666 per person per year. Vascepa shaves off 25% off of that number which is roughly $4,000 and it costs $2,000 per year so we're looking at a 50% "discount" for private insurers. The US govt. on the other hand should be more interested in the total cost which is $500+ billion so for Medicare / Medicaid we're looking at an even better deal.
I haven't been able to find any direct numbers for MI and UARH, sure an MI will be much more expensive than an UARH but UARHs are probably happening more often so the aggregate cost per person should be different than the cost per incident.
But even if UARH is much less costly it should not matter, health care professionals are after all caring more for their patients / customers than the insurers and they're not going to prescribe less of Vascepa just because UARHs aren't as expensive as more serious MIs. And insurers are not going to not cover Vascepa if it is prescribed to CVD patients as it is much cheaper than alternatives such as Praluent.
Due to rules and regulations in the US new cheap supplements containing only EPA can not compete with Vascepa in a direct way, only indirectly by being taken as a supplement that prevents CVD and hence the whole scenario where Vascepa gets prescribed. Unfortunately this threat is very hard to gauge or quantify but is possibly irrelevant in the time period up to 2029.
When it comes to sales I feel more sanguine than others here on the SA boards given the attention that REDUCE-IT already has gotten, combined with the low price point and high safety the drug should sell itself to a large extent, at least in the US. TV commercials touting the results from REDUCE-IT could also be more effective than expensive sales reps running around.
A conservative market penetration of 10% then gives us gross proceeds of 1,500,000 * 2,000 = 3,000,000,000, a 50% margin on that is not impossible for a total of 1.5 billion / year on average and a total cash dividend of 15 billion over 10 years from US sales.
The above reasoning applies if the company doesn't get bought out and doesn't do anything else than trying to rake in as much cash as possible from Vascpea until the inevitable winding down of operations in 2029. If they on the other hand try to do new R&D or acquire new assets for commercialisation all bets are off as to where the stock might go and is out of scope here, could be hugely positive or negative for the market cap, it all depends on management execution.
Projections For Europe
When it comes to Europe the situation is more fragmented, it all depends on how various national health systems choose to view Vascepa, they might be willing to pony up $2000 per year per patient as it's a good deal, the math does change a bit as hospitalizations are cheaper in Europe but on the other hand we're looking at govt. "insurers" here so they should be more aware of the total cost which is still very high, not the immediate cost (see reasoning above).
Or they might just recommend people to take the new EPA only supplements that will soon hit the market instead of the brand name Vascepa, this is where I simply have no clue about the facts, rules and regulations regarding biosimilars etc in Europe. Basically what is viewed as interchangeable even though it's not exactly the same molecule. If enough health systems decide that Vascepa is not the same thing as generic EPA then Europe could become a nice surprise (see #10).
Rest Of The World And Pure Direct Sales
I believe that the greatest consequence of REDUCE-IT is that a significant portion (1-10%) of the world population will start taking pure EPA as a supplement, given the benefits it would be idiotic not to if you can afford it.
So for the next 10 years you're going to have the uncovered brand name Vascepa competing against much cheaper supplements, in that scenario it all boils down to marketing to the people who have enough money to afford Vascepa and that Vascepa is worth the extra money, the fact that REDUCE-IT was done with Vascepa and not any other form of EPA should help here too (see #10).
If we assume a total value for the world ex US of roughly equal to that of the US we're looking at a total lifetime cash value, in the form of dividends, of Vascepa of $30 billion, compared with a current market cap of $6 billion.
With that in mind I agree with the other pundits here that the best way to extract value from Vascepa is for a BP to aquire Amarin. I don't think it's unreasonable for a BP to be able to double the total lifetime value to $60 billion, possibly even more. A selling price of $15-20 billion feels reasonable which translates to roughly 60-80 per share.
The follow on conclusion to that is that if management does decide not to sell they have to try and acquire new assets or do new R&D in order to secure additional growth with the help of the Vascepa income. To just milk the cow would equal incompetence bordering on the criminal as a BP could do that much much more efficiently.
Disclosure: I am/we are long AMRN.