Amarin’s Vascepa (formerly AMR101) Approved; Initial Weakness Creates Buying Opportunity as Company Continues Strong Execution

Amarin Corp. (NASDAQ:AMRN) announced FDA approval of Vascepa last night, a milestone event for the company. Shares are trading lower in the pre-market, however, largely due to a run up before the decision. The company still awaits a decision by the FDA on potential to obtain New Chemical Entity status (NCE), which ensures no generic competition for at least 5 years. This sets up another important FDA event for the stock, which is putting pressure on shares today. The decision could be made sometime between mid-August and mid-September. Many believe the company needs NCE status to maximize its value in the event of a takeover, but the company has several U.S. and international patents issued and pending that protect the drug to at least 2030. While the NCE issue has some relevance it is by no means a showstopper.

Amarin’s management, meanwhile, has executed very well in terms of completing clinical trials early; realizing strong clinical trial results that can differentiate the product; obtaining patents on an accelerated basis; and receiving approval of Vascepa at the earliest possible time. The company also awaits approval of Vascepa in combination with a cholesterol-reducing statin drug, a much larger market. The decision to expand the drug’s market is expected before the end of the year, and with the initial approval obtained last night, the likelihood of a second approval is high.

Investors would next like to see a sale of the company. Given the CEO’s 20-year history in business development and recent track record, execution on this initiative seems likely. In order to prove its independence, the company maintains that it has three potential strategies to move forward with Vascepa: 1) selling the drug on its own, 2) partnering the drug, or 3) selling the company outright. The company is increasing supply of the drug and will be gearing up for the launch of Vascepa including hiring several hundred sales reps in the fourth quarter. As a result, today’s initial trade down is likely the a result of the market seeing no imminent deal. Amarin continues to be in dialogue with several pharmaceutical companies and given the market’s lack of approved products with blockbuster potential, a deal is highly probable. Analysts speculate that AstraZeneca (NYSE:AZN), which desperately needs a new growth driver, is the lead suitor because it has a branded statin drug that could be sold in combination with Vascepa.

Wall Street analysts have an average price target on AMRN of $25, implying a valuation of about $3.5 billion. If Vascepa can in fact be a product with $1-$2 billion in annual sales, as analysts predict, this valuation should be achievable given that acquisitions in the pharmaceutical industry average 3-5x peak sales. The de-risking event of Vascepa’s approval goes a long way toward an acquisition, and taking advantage of the weakness in the stock today may be the way to make money on AMRN.