What Happened?
Amarin (AMRN) was down 20% in aftermarket trading yesterday upon announcing that the FDA will hold an advisory committee meeting (ADCOM) on November 14. The FDA wants to discuss whether AMRN’s heart- disease drug Vascepa's label should be expanded.
This FDA decision came by surprise and will likely mean a 3-month delay (from initial Sept date to December) in the decision on Vascepta’s label expansion. The stock has bounced back a little this morning, now trading in the $15 range.
Although investors are worried that the FDA might raise concerns about Amarin’s clinical data, we think the after-hour move was an overreaction. We think any price in $15 range is a great buying opportunity.
Amarin is asking the FDA to expand Vascepa's label to reflect clinical trial results indicating the drug reduces the risk of heart attacks, strokes and deaths in certain high-risk patients by 25% (read details here). Label expansion would greatly amplify Vascepa’s target market and make it a blockbuster drug.
The Placebo Concern
The main concern seems to surround Amarin’s use of mineral oil as placebo. In Amarin’s cardiovascular study, the study the company is relying on for label expansion, placebo arm showed that:
- LDL (“bad cholesterol) levels rose by 10%
- C-reactive protein (hsCRP), a measure used to calculate heart risk, rose by 30%
- Median APO-B levels, a predictor of CV risk, rose by 8%
This raised many concerns because blood test results on the placebo arm are not supposed to rise, especially when considering that these patients were all on statin therapy. Statins have shown to lowerLDL & APO-B, yet in REDUCE-IT placebo they increased. Now, people doubt whether the mineral oil placebo might be interfering with the background statin therapy and if placebo made Vascepa’s benefit appear larger than it really is.
We think the FDA is being cautious because they want expert feedback on the use of mineral oil capsules as the control agent in REDUCE-IT trials. If/when approved, Vascepa will be a mass market drug with multi-billion potential. It makes sense why the FDA is taking it’s time before Vascepa is prescribed to millions. It’s a breakthrough for the cardiovascular space, albeit in a simple fish oil solution.
What’s The Trade?
If you’re bullish about Vascepa, we think selling $20 January 2020 PUTS makes sense. You can collect ~$5 in premium, as of this morning.
If Amarin trades below $15 by January, you will be at a loss. If by January the stock trades higher than $20, you will keep the $5 premium. With an expected PDUFA date in December, playing January options seems like a safe bet to know whether Vascepa will receive expanded label or not. We are of the idea that Vascepa is a breakthrough and will be granted expanded label. We may also consider going LONG the stock in near future. We’ll keep you posted.
NOTE: If you’re more comfortable with equity, you can also just buy Amarin stock in $15 range.
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