Reasons to Buy This Pharmaceutical Company: Amarin Corporation plc (AMRN)

The small pharmaceutical companies have a number of weaknesses when compared to big pharmaceuticals. While they usually have competent management that can effectively oversee the development of a drug candidate, it is extremely rare that they also possess the resources to effectively market their own product. This is the very reason small pharmaceuticals are such attractive acquisition plays. If a company has managed to develop an interesting candidate it is highly likely big pharmaceutical companies would come in for an acquisition. There is also willingness from the one being acquired because they understand that they do not have the resources to commercialize their own product.

Amarin Corporation plc (ADR) (NASDAQ:AMRN)Amarin Pharmaceuticals

Amarin Corporation plc (ADR) (NASDAQ:AMRN) has faced investor wrath due to this very reason. The company was supposed to be acquired soon after the approval of Vascepa but failed to find a buyer due to uncertainty surrounding its New Chemical Entity Status (NCE) and sadly for Amarin investors there is still no clarity on the NCE status of Vascepa. If the company does achieve the NCE status it will get patent protection for 5 years and only 2 years if there is no NCE status.

Despite these obstacles Amarin is a strong buy and has the potential to totally replace GlaxoSmithKline plc (ADR) (NYSE: GSK)’s Lovaza. There are also drawbacks of an investment in Amarin such as its weak marketing ability and potential competition from upcoming drugs such as Neptune Technologies & Bioressources-Ord (NASDAQ: NEPT)’s CaPre.

Commercialization

Due to the NCE setback the company has been forced to commercialize Vascepa. The stock has gone into a free fall due to bad market sentiment about these efforts. Last week Amarin officially launched its drug Vascepa® (icosapent ethyl) capsules in the United States. The drug will target the population with a very high triglyceride or VHTG, through physician prescription. There is a huge target market for Vascepa as there are approximately 4 million adults in the US alone with VHTG.

The drug will compete directly with GlaxoSmithKline’s Lovaza. GSK had acquired the maker of Lovaza Reliant Pharmaceuticals for approximately $1.65 billion and the drug generates sales of more than billion dollars every year. This launch of Vascepa can have an adverse effect on GSK which is already suffering from expiring patents. Vascepa can take away the sales of Lovaza because it reduces triglycerides without increasing LDL levels. There is also evidence that Vascepa can significantly lower LDL levels in patients which makes it easily the first choice for doctors.

Recent News

In recent news the company has received a Notice of Allowance for Amarin’s U.S. Patent Application Serial Number 12/815,569 based on the results of Phase III of Amarin’s Anchor Study. According to company disclosures this would cover the use of 4 grams per day of highly pure icosapent ethyl, or EPA, including Vascepa, to lower triglycerides and LDL-C. The company is all set to file a Supplemental New Drug Application for the Vascepa ANCHOR indication with FDA by the end of this month.

Valuations

Amarin is currently trading at a 60% discount to its mean sell side target price of $19.5 and at a 45% discount to its 52 weeks high. Research reveals that Vascepa can be a blockbuster product and can have a billion dollar sales potential from the US market alone. According to sell side estimates there are approximately 75 million people in the United States with triglycerides above 150 mg/dL. A very small percentage of these are being treated for VHTG. A primary reason for this low percentage is the doctor hesitation to prescribe medicines such as Lovaza that increase LDL levels. This is the reason I believe Vascepa can be such a big hit because it would be easier for doctors to prescribe Vascepa, enabling it to target an even larger market than Lovaza. The approval of supplement drug application based on Anchor results can significantly improve Amarin valuations.  I believe the stock can double once the FDA decision comes through making this an ideal entry point.

Risks

The main risk with an Amarin investment is its limited ability to market Vascepa. This can mean a slow start to Vascepa sales but this should not be a major concern for the long run. Another major concern is entry of new market players with their own omega-3 products. An interesting newcomer in this regard is Neptune’ CaPre. The candidate is a krill oil based drug being developed by Acasti, a subsidiary of Neptune. It is currently in Phase II trials and it’s too soon to determine the level of threat it can pose for Vascepa.

The article Reasons to Buy This Pharmaceutical Company originally appeared on Fool.com and is written by Mohsin Saeed.

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