No Launch Yet for AMRN’s Vascepa is Good News; NCE Decision Is The Next Key Event

Earnings for Amarin Corp. (NASDAQ:AMRN) were primarily focused on the company’s strategy for the launch of Vascepa, as well as the FDA’s decision on whether the newly approved product will have either NCE or NPE exclusivity  (5-year or 3-year regulatory exclusivity, respectively). (See PropThink’s prior story.) Shares are trading higher Friday morning as the company indicated on its earnings call last night that it is holding back on launching the drug so that it can finalize discussions with large cap drug companies, which are potential Vascepa marketing partners or acquirers of the business. Investors were pleased to see that the company will not launch the drug on its own, at least for now, which was the risk going into the earnings call. The relief rally today is likely due to some short covering after the earnings call.

NCE status is key, according to the company.
Still, there is risk on the approaching NCE/NPE decision, and while the company has significantly increased its intellectual property around Vascepa with multiple new patents protecting the drug out to ~2030, management admitted on its earnings call that the FDA decision is a gating factor in discussions with potential strategic partners/acquirers. We believe NCE has importance, not so much for the exclusivity protection, but because FDA determining that Vascepa is truly a New Chemical Entity (NCE) strengthens the overall patent estate on the drug. Without it, Vascepa’s intellectual property position is weaker and is subject to earlier generic company patent challenges. The next update by the FDA for its ‘Orange Book’ is expected on or about November 16th, and that is when we expect to find out whether or not Vascepa has been designated NCE or NPE exclusivity. Notably, AMRN stated in its 10-Q  that the FDA has drafted a response to the NCE request, and that response is being circulated around the agency for final decision.

Long bias on AMRN; using options to hedge can help offset the binary risk in the stock. Expect AMRN to end the day higher, but the risk of the NCE decision could cap the upside. The expectations of investors we spoke with suggest that AMRN could trade as high as $16-$18 if Vascepa gains NCE exclusivity, on speculation that an acquisition will occur before year-end (the Street’s $23 price target is indicative of the value of a real take-out offer). On the other hand, if the FDA grants NPE status (New Product Exclusivity), AMRN could trade down to the $7.00-$8.00 range, as investors will assume that no deal is coming and that the company will have to launch the drug itself, a costly and risk-laden endeavor. The range of volatility around this key issue means that using an options strategy around a core position in AMRN makes the most sense, as we have stated in the past. Our view is that NCE status will be granted, and the FDA taking more time in making its decision appears to favor that view. Nevertheless, the decision is a binary risk and investors should proceed accordingly.