A Winning Biotechnology Bet

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

Amarin (NASDAQ: AMRN) has recently launched its primary product candidate Vascepa into the market. The drug is an omega-3 fatty acid eicosapentaenoic which has been approved by the FDA for treatment of high levels of TGT. 

A market launch of Vascepa was never part of the plan, investors expected Amarin to cut a multi-billion acquisition deal instead, so everyone could go back home with pockets full of cash.

However, the delay in the NCE (New Chemical Entity) status announcement has been the primary culprit behind the lack of buyers. An NCE status would increase the patent protection of Vacepa, automatically increasing the drugs value to any potential buyer. Therefore, the lack of an NCE status makes it pretty hard for any interested party to value the company.

In a recent move, AstraZeneca (NYSE: AZN) has acquired Omthera Pharmaceuticals (NASDAQ: OMTH). The acquisition is targeted at controlling Epanova, a product pretty similar to Vascepa. This multi-million deal sheds light on the huge potential of Vascepa and should restore investor confidence in Amarin. 

Scripts

Vascepa is already available in the market, and investors have the scripts data from the first few months.. Although this data is not conclusive to the long term potential of Vascepa, but it’s a valid indicator of medium-term share price trends.

The table below shows Vascepa script data for the last four months. While the figures are not extraordinary by means, they do show a consistent rise in sales. This slow start should be expected because any small biotechnology company, trying to commercialize its own drug, always faces a lot of difficulties.

<table> <thead> <tr><th> <p><strong>February</strong></p> </th><th> <p><strong>March</strong></p> </th><th> <p><strong>April</strong></p> </th><th> <p><strong>May</strong></p> </th></tr> </thead> <tbody> <tr> <td> <p>3,224</p> </td> <td> <p>7,260</p> </td> <td> <p>11,768</p> </td> <td> <p>12,664</p> </td> </tr> </tbody> </table>

Figure: Vascepa Scripts

The primary rival of Vascepa is a drug manufactured by GSK, branded as Lovaza. GSK acquired the drug from Reliant Pharmaceutical. The Current CEO of Amarin, Joseph S. Zakrzewski marketed the drug for Reliant Pharmaceuticals. The initial sales of Lovaza were not blockbuster, but over the years it has become a billion dollar product. Under the same team, Vascepa has the potential to grow into a blockbuster drug.

The Acquisition

In a highly anticipated move, AstraZeneca has made its first major acquisition for the year. The company recently acquired Omthera Pharmaceuticals for a whopping $ 443 million. The British pharmaceutical giants aims to bolster its cardiovascular portfolio with Omthera’s fish oil product, Epanova. According to the company, it plans to combine Crestor with Epanova. A series of trials will be conducted to test the effectiveness of this combination.

There are mixed views on effect of this acquisition on valuations of Amarin. Some argue that the acquisition proves the multi-billion potential of Amarin’s Vascepa while other consider Epanova in the hands of AstraZeneca a threat of Vascepa sales.

EPA vs. DHA

Epanova is pretty similar to Lovaza in terms of chemical nature as both drugs are a combination of EPA (eicosapentaenoic acid) and DHA (docosahexaenoic acid). On the other hand, Vascepa only contains the EPA. Epanova takes the lead on both Lovaza and Vascepa when it comes to the patient’s ability to absorb the compound. Unlike Vascepa and Lovaza, patients on a low fat diet can easily absorb the drug. This high absorption means that approximately a 5 times lower dose of Epanova is required as compared to Lovaza.

It has long been rumored that EPA is superior to DHA, as the latter is held responsible for a rise in non-HDL cholesterol. HDL (High-density lipoprotein) is the good cholesterol which ensures the reduction in LDL (Low-density lipoprotein). LDL cholesterol circulates your arteries and can build up plaques, which makes arteries narrow and less flexible. 

However, the Phase III trial "ESPIRIT" shows that Epanova reduces non-HDL cholesterol levels by almost 7%. Vascepa still has a clear advantage in its control of LDL levels, compared to Epanova and Lovaza. Amarin is also undertaking the ‘REDUCE-IT’ trial to assess the effects of Vascepa on cholesterol levels of patients.

Bottom-line

The acquisition of Epanova should be good news for investors of Amarin. This is another testament to the huge potential of Vascepa. The initial sales data on Vascepa is hopeful and can get another big-pharmaceutical player interested in the drug.

Vascepa has already shown its ability to treat multiple levels of Triglycerides, along with a number of other health benefits. Research shows that EPA can help in type 2 diabetes and some cardiovascular complications created by the disease, such as thickening of carotid arteries and coronary artery disease.

AstraZeneca has paid an 88% premium to the market price of Omthera. If Amarin finds a buyer, the premium can go even higher, especially if we take in to account the wider applications of Vascepa as compared to Epanova. The street expects Vascepa sales to rise to $271 million by the end of 2014. If Amarin goes for a premium in the same range as Omthera, we can get a target price of $13 for the company.


Mohsin Saeed 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!

blog comments powered by Disqus