The Most Annoying Story in Biotech

In many cases, biotech investors are forced to have a short-term focus. In the following roundtable discussion, our analysts discuss a stock that is scrutinized day in and day out by investors.

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Transcript:

Brenton Flynn: Turning to another company that already is a one-trick pony -- Vertex appears to be turning into more and more of one -- that's Amarin.

Max Macaluso: I'm going to go on the line here and say that this was probably the biggest unknowing overhang of the year. Of course, that's Vascepa's NCE, or New Chemical Entity, status. I'm not a shareholder in Amarin, but frankly I'm exhausted with talking about NCE every month.

Brenton: You are? I thought you loved it.

Max: I hate it. I hate it. The drug was approved in July, right? Everyone expected NCE to be assigned or denied in August. It's had August, September, October, November, December; we still don't have a decision from the FDA, so for shareholders it must be agonizing.

We've seen shares slowly erode over that time period too, as investors and Wall Street gets impatient. Of course, everyone thought that everyone was going to be bought out. AstraZeneca was mentioned as a possible acquirer, also Teva.

But a couple weeks ago, Amarin just said that they're going to stick to their original timeline, commercialize the drug in the first quarter of 2013, and they're going to hire a sales force.

I think the management team has a good background. It's the same group of guys that commercialized GSK's Lovaza, and they have a focused sales force of 250-300 people. I also like that Vascepa has, potentially, another indication coming with a much wider patient population, but this NCE status hopefully will get settled in January, and then the company can set a long-term strategy for its drug.

David Williamson: Because you can't get bought out if you can't value the company. It's a significant difference as far as exclusivity.

Max: Right. It's three years, versus five years.

David: It's actually even more than five, because of the various delays that go along with it.

Brenton: You look at the current value, it's a $1.3 billion company right now. If we just look at what Lovaza -- what was its peak sales?

Max: Last year, it was $910 million. It's a big market.

David: It doesn't have, what could potentially be, is the anchor indication, which expands it so it's really only playing in the shallowest end of the pool, and it's almost a blockbuster.

Brenton: Yeah, so is the bear argument more, "This isn't going to get NCE, and therefore it's not nearly as valuable a company?" Or is it that "This is going to be a commercial flop because they're trying to do it on their own?"

Max: That's a good question. I think it's a little bit of both. We've seen other players like VIVUS try to commercialize this drug. Of course, it's not an apples-to-apples comparison because VIVUS is doing obesity drugs, and that's a riskier market because we haven't had a drug in that space in over a decade.

David: And there are serious safety issues with Qsymia as well, and those don't really exist for Vascepa.

Max: That's the thing. Vascepa has a great safety profile. It does what it needs to do and, unlike Lovaza, it doesn't raise bad cholesterol so I think, as a product, it's a superior product. In the near term, however, this NCE status is really... I even hate saying it.

Brenton: It's like Days of Our Lives.

Max: It is.

David: Or the Groundhog Day movie.

Max: I think this is potentially a great takeover target for some of the big pharma companies suffering from the patent cliff, but unless the status is determined, I don't think we're going to see a takeover anytime soon.


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