More Good News for Amarin

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

Last year, a number of drugs received FDA approval. The drug authority has rolled out one approval after another, maybe to compensate for the patent cliff most large pharmaceuticals are facing. These approvals have a significant impact on single drug companies, such as Amarin (NASDAQ: AMRN). The company's stock has traded as high as $19.50 on positive expectations from its star drug Vascepa. Small biopharmaceuticals with approved candidates are an ideal target for big pharmaceuticals. This is because buying a company with an already approved drug allows them to evade the risk of R&D and also avoid investor speculation on approvals.

If we take into account the patent cliff, one would consider Amarin an ideal takeover target. Sadly for Amarin investors this eventuality has still not transpired due to an inherent difficulty in valuing Amarin. A lack of NCE classification is the primary reason for this as the the lack of such a classification increases the uncertainty for any potential acquirers. One would assume that even if it doesn’t get the NCE classification, a target price can be calculated on the basis of 3 year exclusivity. I believe this has still not happened because the executive management of Amarin doesn’t want a penny less than Vascepa’s true potential.

Commercialization

Due to these issues Amarin has decided to commercialize its drug and has already launched Vascepa in the United States. The most recent quarterly results and the conference call that followed gave investors more insight into Vascepa’s commercialization efforts. A major obstacle for in-house commercialization especially without support from an established partner is a lack of trained sales persons. Amarin has been lucky in this regard because a number of major drugs, such as Lipitor, are facing expiring patents leading to huge sales force layoffs.  According to company disclosures, 275 sales representatives have been trained and are already in the field. I think the commercialization efforts for Vascepa have been a success. The IMS data shows that Vascepa is selling better than GlaxoSmithKline’ (NYSE: GSK) Lovaza at the same point in time.

Quarterly results

The company has once again easily beaten the street’s earnings estimates. The street was expecting Amarin to report an EPS of $-0.28, but the company reported a net loss of only $10.6 million or $0.07, comprehensively beating estimates. More importantly the results indicate that the cash position of Amarin has significantly improved with the company ending the quarter with cash and equivalents of $260.2 million. The total outflows during the quarter were $55.4 million. This includes a significant $12.1 million payout to the shareholders of Laxdale and $16 million to suppliers to build up an inventory level for Vascepa’s commercial launch. The company has spent $12.1 million more on SG&A expenses to prepare for the commercial launch of Vascepa.

Competition

The competition in this industry is still not that severe with the only major competitor being GSK’s Lovaza. The drug generates sales of approximately $1 billion per year and is the leader in its industry. Trials have shown that Lovaza is an inferior drug to Amarin’s product because Vascepa has the ability to lower LDL levels while treating TGTs. This will make it much easier for doctors to prescribe the drug because patients will not face the risk of increasing LDL. If we consider that Lovaza will lose most of its market share with the launch of Vascepa, the net sales loss to GSK comes down to $0.41/share (using approx. figure of $1 billion). The P/S of GSK is 2.41, which means that a super successful launch of Vascepa can have a $0.99 share price impact on GSK share price.

Amarin can also face future competition from Neptune Pharmaceuticals’ CaPre. This still seems a farfetched threat because the drug is still far away from an FDA approval. The ability of Neptune to keep on financing the development is also questionable as the company has been facing a severe financial crisis due to a recent explosion at its plant.

Bottom line

The recent financial release has given investors another reason to invest in Amarin. The initial commercialization efforts have been good with the IMS data showing that sales have been even better than Lovaza at the same stage in commercialization. The company has successfully filled sNDA (supplemental New Drug Application) based on Anchor trial results. Based on this analysis I believe Amarin stock is finally all set to breakout and provides an excellent buying opportunity.


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