Right Drug Class, Wrong Company

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We've been speculating for almost a year that Amarin (NASDAQ: AMRN  ) would be purchased by AstraZeneca (NYSE: AZN  ) . The large pharma sells cholesterol-lowering drug Crestor, which would be a perfect fit with Amarin's lipid-lowering fish oil Vascepa.

Right drug class. Wrong company.

Instead, AstraZeneca purchased Amarin's competitor Omthera Pharmaceuticals (UNKNOWN: OMTH.DL  ) , which has a fish oil product, Epanova, similar to Vascepa. Omthera expects to file a marketing application with the Food and Drug Administration within a few months for the same indication that Vascepa is currently approved for.

Why Omthera over Amarin? Here are three possibilities:

Omthera's technology allows for better absorption, which allows for once-daily dosing without food. Vascepa is taken twice a day with food. It may not seem like a lot, but patients prefer the more convenient dosing, and when all things are equal, doctors will prescribe the once-daily drug because they know they'll get better adherence from the patient.

Without being able to patent the fish oil itself -- a composition-of-matter patent -- Amarin and Omthera have to rely on patents on how their drugs are made. I'm not a patent lawyer nor do I play one on the Internet, but a formulation that changes the dosing might be more defendable than Amarin's war chest of patents. We'll know in a few years when the generic-drug vultures to come in.

This seems like the most obvious reason. Amarin ended last week with a market cap around $1 billion. AstaZeneca is paying about $323 million for Omthera and could give shareholders an additional $120 million in development and sales milestone payments.

With an approved drug and an outcomes study well under way, Amarin is arguably worth more than Omthera, but there's a long way between $443 million and $1 billion. Amarin's shares are rightfully seeing pressure today as they adjust to the reality check on what big pharma is willing to pay.

Poor Amarin?
Don't feel too sorry for the company. Vascepa still has a solid head start and could have an expanded approval for patients with moderately high triglyceride levels by the end of the year -- before Epanova is even approved for patients with extremely high triglyceride levels.

At this point, I doubt Amarin gets a buyout above $1 billion. A more likely scenario is finding a partner willing to market Vascepa that might make a purchase down the line. Amarin is clearly worth more than $1 billion if doctors will prescribe Vascepa for moderately high triglyceride levels, but they may not do that in large numbers until the outcomes study proves that Vascepa decreases heart attacks and strokes.

Now that AstraZeneca is out of the picture, Merck (NYSE: MRK  ) seems like the most obvious choice as a partner. The pharma sells Zetia, which lowers cholesterol, so there are the same synergies that AstraZeneca will see with Epanova. Merck might even be interested in developing a combination product containing Vascepa and a statin like it has done with Zetia to make Vytorin and Liptruzet.

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Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 28, 2013, at 9:46 PM, marzans wrote:

    To get approved for moderately high tg indication, why outcome study needs to be completed?? FDA does not require that. When did you guys become FDA??

  • Report this Comment On May 29, 2013, at 5:46 AM, marzans wrote:

    OMTH is not approved by FDA yet. It is still undergoing trials. You are comparing it with a FDA approved drug, V from AMRN. OMTH increases bad cholestrol. This causes heart problems. Lovaza has been asked to add more warning labels because of that. V does not increase bad cholestrol but reduces it. Also at the same time, it increases the good one. I guess OMTH will not be approved by FDA as FDA is already seeing problems with Lovaza.

  • Report this Comment On May 30, 2013, at 1:25 AM, Dawgpac wrote:

    The only conclusion that I draw is that AZN is not the partner in the combo pill that AMRN has hinted is on the way and has completed pharmacokinetic testing. There's your potential ANCHOR partner/buyout prospect.

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