Following A Plan Doesn't Matter Anymore

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

There has been quite the fuss over Amarin (NASDAQ: AMRN) lately.  Investors have been hoping for the fish-oil drug maker to be bought out by a larger firm or, at the very least, receive some sort of marketing agreement for the firm’s only FDA approved drug, Vascepa.  Because of the lack of any material deal the stock has been a cliff jumper since its approval in late July.

More recently Amarin announced a non-equity financing deal with a fund managed by Pharmakon Advisors for $100 million.  The purpose for this financing is to hire up to 300 new sales specialists as well as other standard marketing preparations in order to give Vascepa the best possibility to succeed.  Subsequently Amarin’s share price plummeted about 25%.  In most equity financing situations the share price will adjust to the fair value that was agreed upon by the specific firm and the financing company.  However in this case a fair value for Amarin was not agreed upon because it is a non-equity transaction.  Therefore we ask who decided upon the fair value of Amarin and more importantly, why did investors and traders panic and sell?

“Because Amarin will market Vascepa alone”

This is the most common argument investors and biotech followers will give as to why the share price collapsed.  In fact, this is the conclusion the biotech guru Adam Feuerstein comes to regarding the situation.  However, we believe he makes an invalid statement when he writes: 

Launching any drug is hard. Launching a drug 133 days after it was approved is really hard. Yet that's the deep hole Amarin management has dug for itself after wasting precious time on a quixotic quest to land a BigPharma marketing partner (or even sillier) a takeout suitor.

Contrary to the above statement, from day one Amarin has been planning to launch Vascepa in the first quarter of 2013.  Therefore we ask how can you blame a firm and/or a CEO for following an initial plan?  Additionally, how can you blame a CEO for wanting to market their product at all?  This would be similar Apple deciding to wait for Google to buy them out before taking the iPod to market.  Talk about a ridiculous thought.

In fact, if Amarin decided to launch Vascepa immediately, as Mr. Feuerstein insinuates would have been the best choice and exactly as Dendreon (NASDAQ: DNDN) did with Provenge, then Vascepa would have struggled, just like Provenge.  To digress a bit, Provenge received FDA approval in April of 2010 and the firm immediately launched the cancer treatment.  After approval the stock jumped 40% and never eclipsed the 50 barrier again.  The stock essentially fluttered until Dendreon announced, on August 3, 2011, that Provenge was taking longer to reach potential patients than anticipated.  The reason for this was:

The primary issue affecting the dynamics of our launch is the reimbursement knowledge around PROVENGE. We anticipate the positive National Coverage Determination (NCD) and Q-code will have a significant impact on increased physician adoption. However, we believe this will take time, and for the remainder of 2011, the launch trajectory will reflect a more gradual adoption of PROVENGE as physicians gain confidence in this positive reimbursement landscape.

In other words due to a lack of preparations and sales information given to physicians, Provenge was unable to reach the full market potential and subsequently the share price has slumped over 85% since August 2011.  On the other hand, Amarin’s management is in the process of hiring and educating sales personnel in order to educate physicians and give Vascepa every possible opportunity to be successful.  And again, I must reiterate, why are investors and market followers punishing Amarin for taking these extra precautions?  If Amarin was not taking these precautions, it would be similar to HP’s irresponsible purchase of Autonomy that led to an $8.8 billion writedown due to a lack of due diligence by HP’s management.  In a sense, Amarin is doing their due diligence on the market and physicians in order to get the most out of Vascepa.

A positive immediate drug launch can be found by looking at Regeneron (NASDAQ: REGN).  After Regeneron’s November 18, 2011 approval of the firm’s wet-AMD treatment, Eylea, Regeneron made the treatment available to patients.  However, unlike Dendreon, Regeneron’s share price is up about 260% since the approval and with increased sales forecasts coming almost quarterly, we expect to see the stock continue to climb.  Nevertheless, it is important to note that Bayer helped develop Eylea and also markets Eylea outside of the U.S.  With that said, Regeneron has done the bulk of the work considering Eylea’s European and Australian approvals came on December 4, 2012 and March 8, 2012, respectively.  Therefore the argument can be made that Regeneron successfully launched Eylea single handedly.

Not all drugs are equal

There are some pretty stark differences between Provenge, Eylea, and Vascepa.  While Provenge is intended to treat advanced prostate cancer, Eylea treats a form of AMD.  Wet-AMD is extremely serious because it can lead to complete blindness.  On the other hand, Provenge is approved for advanced prostate cancer, which is great for men that reach the advanced stage, but many physicians are able to detect prostate cancer well before it reaches the advanced stage.  And as technology improves and more men get tested at an earlier age, it will make Provenge more of a life saver than a huge money maker.

Comparing these two treatments to Vascepa we get a different story.  Vascepa is approved as an adjunct to diet in order to reduce very high triglyceride levels.  Unfortunately for Amarin, the big money market is patients with high triglycerides, not very high levels.  However, in order to make Vascepa a more widely used drug, the firm is working on getting Vascepa approved for the treatment of high triglycerides (ANCHOR trial) and as a treatment for the reduction of cardiovascular events (REDUCE-IT trial).

The important note to take away from this is that, compared to Provenge, Vascepa’s market is greater.  Many will argue that Vascepa will ultimately be ran out of town by diet and exercise.  This is not true though.  Unfortunately we live in a society that thrives on recovery as opposed to prevention (think world debt problems as an example).  In other words, instead of taking action in order to avoid problems, it is in our nature to wait until the problem becomes serious and simply find a way to get passed it and survive; even if the answer will simply lead to more problems.  This is why Vascepa will succeed.  It is easier for the majority of the population to simply take a pill as opposed to exercising.  Vascepa will allow patients to continue living their same lives regardless of whether the patient has very high TG levels from genetic makeup or from bad lifestyle habits.

Vascepa will succeed

Contrary to popular belief, we believe that Amarin will successfully launch Vascepa towards the end of the first quarter of 2013; which is what the firm's management has been preparing for since the approval.  This would indicate that investors will get a look at Vascepa's sales during the firm’s first quarter earnings report.  The big knock will continue to be that Amarin has no experience in marketing.  While this is a great argument, we do not agree that you can punish the firm for following the original plan of hiring experienced sales personnel that do have experience.  After all, Amarin’s CEO will not be connecting with physicians himself, so why does he need marketing experience?  Doesn’t it seem more beneficial to hire others that specialize in this field?

At the end of the day Vascepa and Amarin have not done anything that should lead investors to believe either one will be an utter flop.  We believe Amarin should be given respect for not launching Vascepa immediately.  It would have been easy for Amarin to simply launch Vascepa and just see what happens.  After all, this is what Dendreon did and that has not ended well thus far.  Nonetheless, one the one hand it would be irresponsible to recommend buying Amarin as a short term investment because there is strong negative sentiment surrounding the stock.  However, on the other hand, as a long term investment we believe Amarin is a strong option because we are expecting Amarin's sales figures to surprise the expectations of most investors and market followers.

sbeefyk1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Dendreon, and Google. Motley Fool newsletter services recommend Apple and Google. 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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