Risks in the Pharma Sector: Amarin, VIVUS and Arena Pharmaceuticals

It has been interesting to note with great fascination the crazy unpredictability in the pharmaceutical sector of the market, most notably Amarin (NASDAQ:AMRN), Arena Pharmaceuticals (NASDAQ:ARNA) and VIVUS (NASDAQ:VVUS), which have all had drugs recently approved by the Food and Drug Administration – yet their stocks have gone down since, rather than setting all-time highs as would normally be expected.

Amarin Corporation plc (ADR) (NASDAQ:AMRN)

The reasons for these wild swings are varied among the companies and the approved drugs, but essentially investors have been concerned with regulatory issues in the past, possible future problems or a lack of exclusivity in the market. Arena Pharmaceuticals and its obesity drug, Belviq, were apprently dealing with some stricter conditions on its drug than for general use, which spooked investors. VIVUS’ Qsymia has had a numbe of other issues having to do with regulation, plus there was some question with the results of the data about the drug. Now the new one in this battle is Amarin and its triglyceride-abetting drug Vascepa, which apparently did not get market exclusivity approval from the FDA, which have given Amarin a monopoly on the market for a period of time. Without this approval, it opens Vascepa to competition from other drug companies, which likely will affect sales and margins for the drug, and that sent Amarin’s stock steadily lower ever since Vascepa was approved a week ago.

It has been interesting to see the turnaround of these companies’ stocks, in the opposite direction from where they were supposedly headed when FDA approval came down the pike. It still is a question whether these drops are structural in terms of the companies or their drugs, or whether it’s about the restrictions on the drugs reducing the perceived potential of these drugs that has gotten investors so jumpy. It may still be a few weeks to figure all this out, but with these drugs now approved, it’s possible that these three companies my be good long positions at their current prices – especially if they can overcome the obstacles in marketing and marketplace that seem to be ahead of them in the short-term.