There are two key components to the drug development process: creating, testing, and getting a drug approved by the Food and Drug Administration; and the commercialization and subsequent launch of that drug.
In previous years -- before the Patient Protection and Affordable Care Act became law and competition among biotechnology and pharmaceutical stocks was far less fierce -- the latter didn't matter as much. With the drug approval process much slower in the past, simply getting a drug approved gave it a pretty good chance of success. That isn't the case anymore.
Today, having the right marketing team and strategy -- as well as properly pricing your drug to encourage insurance companies to pick up the tab and encourage potential patients to inquire about the treatment with their physician -- is just as important as the drug approval itself.
Marco... Polo... fish out of water!
Thus far, the promise of Amarin's (NASDAQ: AMRN ) LDL-reducing fish oil capsule, Vascepa, has failed to live up to the latter part of the bargain.
Let me preface this by saying that we're in about the second inning of a nine-inning game, so my call is certainly going to be seen as a bit premature. But if Amarin doesn't get its act together quickly, it may find itself left in the deep end of the pool by itself while its peers swim away.
Last night, Amarin delivered its second-quarter results to investors which were, based on Wall Street's expectations, mixed. The Street had been calling for an EPS loss of $0.40 with revenue projected at $8.2 million. What Amarin delivered was a much smaller loss of $0.26, but just $5.5 million in product revenue. Before you go trumpeting Amarin's smaller-than-expected loss, consider that its $5.5 million in product revenue, while 135% more than it delivered in the first quarter, still fell $500,000 below the lowest of nine Wall Street revenue estimates. There were obvious positives as you might expect from a recently launched drug, including a more than quadrupling of prescriptions written to 47,335 from 10,484, but it nonetheless was another quarter of missed revenue expectations.
Amarin needs an "Anchor"
The biggest current growth driver for Amarin is its ongoing Anchor study, which looks to expand Vascepa's indication beyond just treating patients with hypertriglyceridemia and into treating patients with mixed dyslipidemia with triglyceride levels between 200 mg/dL and 499 mg/dL. This expanded drug approval, which in trials has shown promise, is the key for Amarin to greatly expand its target audience.
The question is even with Amarin filing for a supplemental new drug application and getting a PDUFA date in December, will it be able to capitalize on a new approval given how weak sales of Vascepa have been to patients with high triglyceride levels thus far? The company certainly has a large marketing team -- 275 strong -- but competition and skepticism over the effectiveness of fish oil supplements is growing.
A sea of worry
Having recently completed a hefty secondary offering, which helped raise nearly $122 million for the company, its cash situation has never been brighter. What stands as the biggest worries for Amarin and Vascepa are staunch existing and upcoming fish oil drugs, as well as growing skepticism as to the long-term effects of fish oil on cardiovascular well-being.
On one hand, Vascepa will have to go up against longtime fish oil market share leader GlaxoSmithKline (NYSE: GSK ) , whose Lovaza accounted for more than $920 million in sales last year. After nearly two full quarters since its launch, Vascepa hasn't even reached 1% of Lovaza's full-year totals despite Glaxo running into austerity-induced weakness in Europe.
In the other corner, we have AstraZeneca (NYSE: AZN ) , which recently agreed to purchase Omthera Pharmaceuticals (NASDAQ: OMTH ) for $323 million with the possibility of an additional $120 million in milestone incentives. The reason for this purchase was to get a hold of epanova, Omthera's late-stage fish oil candidate. Early last month, Omthera filed for a new drug application for epanova, meaning that Vascepa's FDA-approved competition may be about to increase in just a matter of months.
Perhaps the biggest worry, though, has been numerous studies -- including a meta-analysis of 20 clinical studies published in the Journal of the American Medical Association -- that omega-3 fatty acids provided little benefit to reducing heart attack, stroke, or risk of death. A more recent study from the Fred Hutchinson Cancer Research Center even purported a link between patients who took omega-3 fish oil supplements and an elevated risk of getting more aggressive forms of prostate cancer.
What's a shareholder to do?
There are really two ways to approach this: as an existing shareholder or as a prospective investor on the outside looking in.
If you're a current shareholder, the primary investing thesis for buying into Amarin hasn't changed. Although its launch has been somewhere between blah and mediocre, the market potential of an indication expansion, as well as the broad audience potential of fish oil drugs is too large to ignore. Even with the ongoing losses and negativity surrounding some of the aforementioned studies, the chances of your long-term investment thesis being disrupted by the past two quarterly reports is likely very small.
However, if you're a prospective investor on the outside looking in, I would suggest that your best course of action might be to take the middle road and wait patiently for an FDA decision on its sNDA application. An expansion of Vascepa's indications isn't a sure thing -- nor is its ability to greatly improve its quarter-over-quarter product sales growth. As physicians write more prescriptions for Vascepa, Amarin's production costs for bulk orders will drop and its margins should rise, reducing its loss per share. The big concern is ultimately whether Amarin can stand up to investors' lofty expectations. So far, that's two quarters in a row that it hasn't.
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