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Amarin Corporation plc (ADR) (AMRN), GlaxoSmithKline plc (ADR) (GSK), Teva Pharmaceutical Industries Ltd (ADR) (TEVA): Will This Fishy Biotech Go Belly Up?

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There are plenty of biotech companies that put all of their eggs in one basket these days. For speculative traders, these stocks can lead to exciting trading opportunities based on market approvals or rejections. For most investors, however, buying these stocks on the basis of lofty promises can be playing with fire.

One such cautionary tale is the story of Amarin Corporation plc (ADR) (NASDAQ:AMRN), a company that has pegged all of its hopes and dreams on a single drug — Vascepa (AMR-101).

Can this fish swim much further?

Vascepa, which was approved last July and launched in the United States in January, is an omega3 fish oil treatment for patients with severe (500 mg/dL or more) triglyceride levels, which can cause metabolic syndrome — a combination of high blood pressure, blood glucose levels, obesity, low levels of HDL (“good”) cholesterol, and high triglycerides. Metabolic syndrome can also cause heart disease, diabetes, and stroke. Vascepa generated $5.5 million in sales last quarter, with normalized prescriptions rising from 10,484 in the first quarter to 47,335 in the second quarter.

Amarin Corporation plc (ADR) (NASDAQ:AMRN)

Vascepa uses the omega3 fatty acid EPA to decrease the liver’s production of triglycerides, leading to the breakdown of triglycerides in the bloodstream.

During clinical studies of patients with high triglyceride levels, Vascepa reduced triglyceride levels by 27% while the placebo group’s triglyceride levels actually increased by 10%. The studies also indicated that Vascepa did not raise LDL (“bad” cholesterol) levels — a problem reported by other omega fatty acid products including its main competitor, Lovaza.

Omega fatty acid treatments are considered an alternative treatment to traditional ones like statins (Pfizer‘s Lipitor) and niacin (AbbVie‘s Niaspan).

A fish called Lovaza is followed by a school of generic fish

Amarin Corporation plc (ADR) (NASDAQ:AMRN) had thought that Vascepa’s only real competition would be Lovaza, another omega3 fatty acid treatment patented by Pronova BioPharma (now owned by German pharmaceutical company BASF SE (ADR) (OTCBB:BASFY)) and licensed by GlaxoSmithKline plc (ADR) (NYSE:GSK).

That false sense of security was built upon two previous events. The first was a court ruling made in favor of Pronova and Glaxo in 2009 that blocked Par Pharmaceuticals and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) from making generic versions of Lovaza. The second was Pronova’s 2011 deal with another competitor, Apotex, which allows the latter to start making generic Lovaza in 2015 instead of manufacturing generic versions immediately. The first patent for Lovaza expired in March, and the second one is set to expire in 2017.

That deal convinced investors, and perhaps Amarin Corporation plc (ADR) (NASDAQ:AMRN), that Pronova and GlaxoSmithKline plc (ADR) (NYSE:GSK) would reach similar deals with other generic companies and keep the market relatively uncrowded for at least two more years. A Delaware appeals court recently reversed the 2009 decision, however, possibly clearing the way for Par and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) to start selling generic Lovaza as early as this year.

This means that the market that Amarin Corporation plc (ADR) (NASDAQ:AMRN) thought would be split between itself and Pronova(BASF)/GlaxoSmithKline plc (ADR) (NYSE:GSK) could actually be much more fragmented. Amarin also has no major backers in the pharmaceutical industry. As a result, shares of Amarin plunged on Sept. 12 after the ruling was reversed. Shares of BASF SE (ADR) (OTCBB:BASFY) and GlaxoSmithKline plc (ADR) (NYSE:GSK) were hardly affected, however.

Will Amarin really go belly up along with its fish oil treatment?

Although things certainly look bleak for Amarin Corporation plc (ADR) (NASDAQ:AMRN), are investors overreacting to the news about Lovaza? On the surface, it appears that Vascepa’s story is about to end before it has even started.

Analysts at Aegis Capital called the sell-off “unwarranted,” however, since the appeals court decision does not automatically allow Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Par to start marketing generic Lovaza in the United States. Instead, the case was remanded back to a lower district court which ruled in favor of Pronova back in May 2012.

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