Analyst Roundtable: Any Surprises in Amarin's Fourth Quarter?

Motley Fool health care analyst Max Macaluso and Fool contributor Brian Orelli sat down to discuss Amarin (AMRN -1.43%), a biotech that recently launched its first drug, Vascepa. Their conversation follows:

Max Macaluso: So, Brian, Amarin is a biotech company that we both follow very closely, and it reported its fourth-quarter results last week. To be honest, I found the conference call almost identical to the presentation management gave at the JPMorgan Healthcare Conference in January, and I actually found it a little boring. Were there any surprises in the report for you?

Brian Orelli: Not really. We knew we weren't going to get any sales figures since the launch started in the first quarter. I would have liked to see more quantitative rather than qualitative information from management. A few times they mentioned not disclosing information for competitive reasons. That's reasonable, but it doesn't help investors value the company.

About the only thing I found interesting is that management mentioned that there were well over 300 attendees on the call. I've never heard a company mention that before, and it seems awfully low to me. The average volume for Amarin is 4.5 million shares -- and only 300 people are listening on the call? Maybe that's only call-ins and not people on the webcast like I was.

Macaluso: That's an interesting point. I also agree that most investors weren't expecting any earth-shattering news to be released, so I'm wondering why shares were down more than 6% after the report came out. Why do you think the market is responded this way?

Orelli: Biotechs move in weird ways, so it's anyone's guess. I heard IMS released sales figures for January, so that could be part of it. But with just three or four days worth of prescriptions -- the launch happened on Jan. 28 -- it would only be stocking, which only tells you what retailers were guessing demand would be before the launch started, not what the actual demand is.

Macaluso: Why do you think management is playing the Vascepa launch so close to the chest? I realize that they don't want investors to have high expectations and then risk disappointing them when the initial results come in for Q1, but why not make conservative projections and offer reasonable guidance for 2013? Like you said, if it helps the market value the company more accurately, why not?

Orelli: If they're conservative, and we know they're conservative, what's the point? Celgene routinely offers conservative annual guidance at the JPMorgan Conference, and everyone just ignores it and tacks on a little extra. And that's a large biotech that can give accurate information. Amarin's guidance would be a guess at best.

Macaluso: Management seemed loath to talk about New Chemical Entity (NCE) status for Vascepa last night... and I'm not thrilled that we're still talking about it more than half a year after the drug was approved! But like it or not, this is still an important catalyst for the stock. Have you ever seen a situation like this, where a drug is approved and the FDA can't decide whether it's an NCE?

Orelli: I think there was one a few years ago that dragged on as long or longer than this, but I really don't see the NCE status as a big deal. The exclusivity is designed for drugs that don't have any patents. Amarin has patents that extend well beyond five years. Investors that think this is a catalyst are saying, by definition, that the patents might not be valid. If Vasepa is only going to have exclusivity for another 4.5 years, investors need to adjust their valuations.

But I agree that it would be nice for the FDA to just get it over with. If it's going to say no, just do it and let Amarin sue if it wants to. I'm certainly sick of writing articles about it.

Macaluso: The example you might be thinking of is Sanofi's Lovenox?

Orelli: I don't remember if the NCE status was delayed, but it's certainly a parallel to Vascepa: Lovenox is a purified heparin, which was previously approved, and Vascepa is a purified component of fish oil that was part of a previously approved product (GlaxoSmithKline's Lovaza).

Macaluso: We're in March now, so there's another chance for Vascepa's NCE status to be decided mid-month. Shakespeare wrote "beware the ides of March," but I wouldn't be surprised if another month passes by without a decision.

Orelli: Me neither.

Macaluso: Let's circle back to Vascepa's launch. This is one of many biotechs getting its newly approved drug on the market and, looking at launches historically, it's tremendously difficult for small companies to commercialize products without big pharma partners. Should investors see companies that are launching a drug as riskier investments than biotechs that are seeing FDA approval?

Orelli: It depends entirely on the size of the market. BioMarin Pharmaceuticals (BMRN -1.60%) and Alexion Pharmaceuticals (ALXN) don't need a big pharma to launch their orphan drugs. There just aren't that many doctors to cover since there aren't that many patients. For medium-sized markets like cancer drugs or Vascepa's current indication, I think smaller biotechs can make it work. Launches are likely slower than they would be with a big pharma partner, but the biotechs that remain independent retain more of the economies of scale as sales increase.

Amarin will certainly need a partner for the expanded indication they just applied for. I'm a little surprised they didn't get it done before launching. It should make investors worried that no big pharma partners have stepped up.

Macaluso: It was only a couple of months ago that investors were speculating that an acquisition by AstraZeneca or Teva Pharmaceuticals was just around the corner, and now those rumors have just disappeared. Interest has clearly died down, so it looks like the company just has to focus on sales right now.

Orelli: It seems reasonable to assume that there were potential partners taking a deeper look into Vascepa as a potential acquisition or licensing deal. The company said that it was exploring that option.

It kind of makes you wonder what they discovered. There are a lot of unknowns that can change the valuation: validity of patents, whether the FDA will approve the expansion into more patients, and whether the outcomes trial will come out positive.

Of course, it could be companies are interested and management is just driving a hard bargain. Hopefully it doesn't backfire.

Macaluso: Like any biotech, there are plenty of risks and lots of uncertainty up ahead for Amarin, but I'm cautiously optimistic about their chances given the product's efficacy and management's experience in this space. What are your thoughts?

Orelli: Management's experience with Lovaza shouldn't be discounted. But I circle back around to the lack of a partner. Potential partners are getting more information about the drug from Amarin than you or I have. If they're not willing to pull the trigger, that worries me.

Macaluso: That's a great point to keep in mind.

Orelli: I thought Amarin would be sold by now. In fact, I have a script that formats a company's name in the Fool format when I type in the ticker symbol. I never set up the shortcut for Amarin because I always figured it would get acquired soon.