A Buyout In Amarin Is Imminent!

Terry is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

All throughout Wall Street we keep hearing about Amarin (NASDAQ: AMRN) being bought out by some type of Big Pharma company in the future.  It's all rumors circling around, but it's one of the most talked about biotech topics on other popular stock trading websites. Amarin, though, in my opinion will be bought out eventually, because the market that the company targets is huge. That market is people that have high Triglycerides and need a pill to lower it, and the company has developed a drug named Vascepa that targets patients with high levels of Triglycerides.

Triglycerides profit in the making

There is big opportunity for the high Triglycerides market, as there are an estimated 70 million adults that have high levels of Triglycerides in the United States. So what does this mean for  patients that suffer with this ailment? Simply enough, the drug helps to lower high levels of Triglycerides, and most importantly the drug does this without raising bad cholesterol. With most Americans eating a lot of junk foods like fries, potato chips, and burgers, the number of potential patients will grow in the future, and the profits from Vascepa will increase over the years into the billions. 

Big pharma scoping out Vascepa

So with Amarin targeting such a huge market with it's drug Vascepa, a market that is expected to grow substantially, and patent cliffs for many big pharma companies looming in the coming years, I feel that Amarin is an obvious buyout target. Some of the companies that are probably looking at Amarin are Glaxosmithkline (NYSE: GSK) and Pfizer (NYSE: PFE). Both companies are seeing a lot of their patents expiring and need acquisitions to help bolster their portfolios to keep their revenue churning in. Glaxosmithkline has a few years until it gets desperate, but it needs to align itself with more drugs to stay on the top end of the spectrum. One of it's drugs, "Avodart," is used to treat an enlarged prostate gland in men, and it goes off patent in 2015. Glaxosmithkline reported sales in 2010 to be $937 million dollars, so Amarin's Vascepa might be a nice fit to fill that void.

Pfizer has it's share of upcoming patent expirations as well.  Pfizer's "Celebrex" is used to treat osteoarthtritis, rheumatoid arthritis, and acute pain. It would make more sense for Pfizer to acquire Amarin because sales of "Celebrex" in 2011 were $2.5 billion and the patent on it expires in 2014. So Pfizer seems to be more in need as it would take a bigger loss with the patent expiration. That's not to say that the other big pharma aren't looking at Amarin as well, considering that Vascepa could bring in billions for any one of these companies--it's a matter of what big pharma will win the race to taking Amarin over! Pfizer has $23 bilion in cash, while Glaxosmithkline has $24.3 billion cash on hand. So cash is not a problem for these big pharma companies, and I'm willing to bet that we will see some buyout offers for Amarin sooner rather than later. 

Stock value seems off

If you have been holding the stock long term now, then in your mind you're probably thinking is "oh my God it's the end of the world" because it has fallen from it's highs of $12 a share all the way down to around $8 a share now. But even though most of us have been taught to never hold companies for a buyout , I would say you would have to make an exception for this one. Amarin is primed for a buyout and whether that buyout happens now or happens a few months from now, patience will pay off. I feel that with biotech companies you have to have long term thinking in mind and not worry about short term fluctuations, because there will always be speculators in the stock that will move it incrementally up or down in the short term. Over the long term the value of the stock will grow as more people get diagnosed with high Triglycerides and pharma companies see more of an incentive to buy Amarin. Another important thing to remember is that the stock market isn't always rational, so the stock value will sometimes not be where it should be at. But if you know what you are holding and you know the true value, this is where you have the advantage, and patience is all that is needed. 

NCE status important or not?

So the question here is whether or not NCE (new chemical entity) status given to Amarin will make it more attractive as a takeover target by big pharma. In my opinion , if Amarin is granted NCE status it will make it more valuable as the takeover will happen a lot sooner than most expect, but being denied NCE status will not effect it that much. I say this because if you think about it, with patent cliffs on the way, do you think desperate companies will dictate their buyout on NCE status? I think not; I think big pharma will base it off the potential drug market of Vascepa and the billions they will make in the market.

Patience will win in the end 

Overall I think that Amarin will be taken out for a higher price than the current value of $8 and way above it's high's many months ago when it was trading at around $12 a share. There are those that will dump Amarin and there will be those who will be patient until the end. I think many people believe that a buyout will happen in 2013, but that remains to be seen. In the end those who are patient will stick it out and be rewarded.


Rennrunn has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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