Question

Irish pharmaceutical company, Amarin Corporation, has experienced dramatic price appreciation over the last six months. (real time 2019) How much more "buy" potential does it have? What is the likelihood that the company and stock will actually acheive that upside and "buy" recommendation?

Answer 1

Amarin (NASDAQ:AMRN) is in a holding pattern. As promised, the company submitted the supplemental New Drug Application for its prescription fish oil pill, Vascepa, last month, but its shares failed to respond to this news. In fact, the biopharma's stock has essentially trended in line with the broader pharmaceutical space since this key event took place on March 28.

Why is Amarin's stock in the doldrums? Despite the megablockbuster opportunity presented by Vascepa's Reduce-It indication as an add-on to statin therapy in patients with elevated cardiovascular risk, there are a handful of outstanding issues that might not sit well with regulators at the Food and Drug Administration. And until this key regulatory risk dissipates, Amarin's shares will probably have trouble pushing higher.

Given this ongoing tug-of-war between bulls and bears, it's arguably a perfect time to consider whether this battleground stock is worth buying -- or perhaps avoiding -- ahead of this landmark regulatory event. Let's break down both sides of the argument to find out.  

The bear case

Reduce-It stands out as being one of the only studies to support the notion that omega-3 supplementation significantly reduces the risk of adverse outcomes, such as cardiovascular death, nonfatal myocardial infarction, and/or nonfatal stroke.

Skeptics, however, have advanced the idea that Reduce-It's reported 25% relative risk reduction of cardiovascular events was amplified by the study's use of mineral oil as a placebo. In brief, the placebo arm of the study showed a noticeable increase in LDL levels (that's bad cholesterol) over the study period, which might have caused a concomitant increase in serious cardiovascular events among patients receiving the placebo.

Amarin, for its part, has argued that this mineral oil issue is a red herring. To drive this point home, a more detailed analysis of the data revealed a similar rate of cardiovascular events across patients on placebo regardless of their LDL levels over the course of the study period. In short, Amarin believes that this 25% relative risk reduction in cardiovascular events cannot be attributed to a rise in LDL levels in the placebo arm.

Next up, Vascepa's purported cardioprotective mechanism is a huge mystery following the Reduce-It readout. While Vascepa is designed to lower triglycerides, patients in this study reportedly benefited from treatment irrespective of their triglyceride levels. Amarin has tried to explain this counterintuitive finding by noting that Vascepa improves a host of cardiovascular parameters, not just triglycerides.

Finally, Vascepa did produce a minor safety signal in Reduce-It. Patients in the Vascepa-plus-statin arm exhibited an increase in atrial fibrillation compared with the placebo wing of the study. Amarin's medical experts later downplayed this concern by pointing out that the numbers weren't high enough to be a cause for concern.

What this all boils down to is that the FDA will probably hold an advisory committee to adjudicate these issues before making a formal decision on Vascepa's proposed label expansion. That's not necessarily a bad thing, but it is one more hoop Amarin will have to pass through.

The bull case

The bull case for Amarin is quite simple. With Reduce-It's label expansion in hand, Vascepa's sales should grow exponentially from this point forward. Wall Street thinks the drug will do at least $2 billion per year at peak, but the company has laid out a solid case for a much larger figure.

Point blank: Vascepa might one day generate sales of over $10 billion per year. That estimate may sound far-fetched at first, but the fact is that the obesity epidemic continues to drive a sharp increase in cardiovascular deaths worldwide. The bottom line is that Vascepa's Reduce-It indication would unlock a multibillion-dollar-a-year marketplace -- one that continues to grow larger with every passing year.

This staggeringly large commercial opportunity will also probably attract a healthy number of suitors to Amarin's doorstep within the coming months. After all, Vascepa has the potential to be a one-of-a-kind cardiovascular treatment. That's the kind of high-end revenue stream that tends to draw big pharma and blue-chip biotechs to the bargaining table.  

Verdict

Regulatory reviews are always unpredictable. Drugs with seemingly rock-solid late-stage data have been outright rejected in the past, while therapies with questionable efficacy and safety profiles have breezed past the FDA. That's the background against which investors need to play their proverbial cards when it comes to Vascepa's upcoming regulatory review. In short, the stock's sudden slowdown, after a blistering ride over the past few months, is arguably justified in light of the regulatory risk involved.

However, the bulls do have a rather compelling case. The FDA has become more lenient in recent years, so it's hard to imagine regulators will reject Vascepa's proposed label expansion for any of the issues outlined here. Moreover, the mineral oil placebo might have had a role in ramping up Vascepa's perceived cardiovascular benefit, but this singular factor simply can't explain away all of Reduce-It's impressive top-line results. So barring an unforeseen or undisclosed piece of the puzzle, Vascepa should get an OK from the FDA for its Reduce-It indication.

Is Amarin a buy? Although a rejection is still a possibility, the odds arguably favor Vascepa based on all the available information today. Aggressive investors, in kind, might want to take advantage of this quiet period to start to build a position ahead of Vascepa's next major catalyst. This battleground biotech stock, after all, could explode higher on a positive regulatory decision slated for early next year.

Cardiovascular disease is the world's biggest killer by a wide margin. According to the World Health Organization, for instance, heart attacks and strokes contributed to over a quarter of all fatalities across the globe in 2016.

This raging epidemic also reportedly costs the U.S. healthcare system a staggering $555 billion per year at present, and this astronomical expense is forecast to double within the next 20 years. Stated simply, there is a clear need for new ways to treat cardiovascular disease that can both lower costs and mortality rates simultaneously. And that's where the Irish biopharma Amarin Corporation(NASDAQ:AMRN) could end up making a major impact on the course of this deadly condition in the not-so-distant future.

A little background

Amarin is the manufacturer of the highly refined prescription fish oil pill Vascepa. In two phase 3 studies, Vascepa significantly lowered triglyceride levels and improved other biomarkers associated with cardiovascular events like heart attack and stroke, compared to patients receiving a placebo. The drug is now set for its biggest test to date, however.

Namely, investors and patients alike are awaiting for the results of Vascepa's seven-year cardiovascular outcomes trial called Reduce-It. The point of Reduce-It is to assess Vascepa's ability to lower the rates of serious cardiovascular events in patients with persistently high triglycerides despite being on statin therapy. And with the last patient visit now in the books, Amarin expects the study's top-line results to hit the wires by no later than the end of September of this year.

The big deal is that this top-line readout will undoubtedly be a major market-moving event in the company's life cycle regardless of the outcome. If positive, Amarin believes that Reduce-It should exponentially expand Vascepa's market, as well as its market share of the multi-billion dollar lipid-lowering drug arena.

After all, the drug is currently approved only for patients with severely elevated triglyceride levels. So, a positive Reduce-It outcome would open the door to a lucrative label expansion that would include about a quarter of all patients on statin therapy -- a market estimated to be as large as 9.5 million patients in the U.S. alone. That figure should translate into a multibillion-dollar commercial opportunity. Of course, the flip side is that a negative outcome may dampen Vascepa's recent commercial momentum, and perhaps keep the company from ever becoming profitable.

Amarin's risk-to-reward ratio

Wall Street has Amarin's 12-month price target pegged at $7.60, implying a 165% upside potential from current levels. And other analysts have been even more generous by doling out a noteworthy $10 price target on this stock. So this speculative biotech play definitely offers a rather healthy upside potential in the event that everything works out.

Wall Street might be a little too optimistic, though. A recent meta analysis of 10 studies covering 77,917 individuals found zero evidence that omega-3 supplementation positively impacts the fate of patients with cardiovascular disease. Worse still, a sub-group analysis also failed to find any support for using omega-3 supplements as an add-on to statin therapy.

Having said that, this comprehensive review does fly in the face of some individual studies that detected a clinically meaningful effect of omega-3 supplementation on cardiovascular outcomes, and the authors did note that they were unable to explain away this discrepancy. As another aside, this review examined patients who were generally taking far smaller doses of omega-3 supplements than those in the Reduce-It trial. So there's a chance that this elevated dosing regimen could produce a more clinically meaningful outcome, relative to the bulk of studies conducted thus far.

However, the fact remains that Vascepa is swimming against the current in many ways, and a negative outcome will probably result in a sizable drop in prescriptions from current levels. How steep of a drop is anyone's guess, but it's safe to say that Amarin's share price will suffer mightily if things don't go as planned.  

Investing takeaway

Given Amarin's potential to produce enormous returns on capital in a short period of time, this stock has likely captured the imagination of numerous investors looking for a quick profit. However, it's important to understand that the science behind omega-3 supplementation has produced highly conflicting results to date. In other words, there's simply no way to handicap Reduce-It's odds of producing a positive outcome. That's not a knock against Amarin or Vascepa -- just a statement of fact regarding how murky the clinical data have been thus far.

Summing up, Amarin is arguably worth putting on your watchlist if you're on the lookout for high-growth opportunities. But it's probably best to wait until Reduce-It is a known quantity before buying shares. If Reduce-It works out, after all, there should still be significant upside remaining in the stock after the initial surge higher and far less risk to boot.

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