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Amarin (NASDAQ: AMRN ) has traded higher over the last month, despite there being news of AstraZeneca's (NYSE: AZN ) new drug application (NDA) for its fish oil-based drug Epanova. This news complements a court ruling that will make way for generic Lovaza, another drug that will compete with Amarin's Vascepa. While Amarin investors are apparently ignoring this news, the reaction sounds very familiar, but perhaps worse for Amarin.
Just another round of bad news
Look, we could spend all day showing how initial sales of Vascepa have been far below expectations. We could talk about Amarin's new competition both being big pharma with more resources, or we could go the route of determining which fish oil works the best, and if prescription grade fish oil is considered superior to over-the-counter versions.
However, after a one-year 53% stock loss, it is very likely that Amarin has baked this bad news into its valuation. In the last month, Amarin's stock is higher by 9%, as investors anxiously await a regulatory decision that could increase Vascepa's patient population by several times. Thus, it seems reasonable that both a generic Lovaza and a new drug to the market is being overlooked.
Still, Amarin with a $1.1 billion market capitalization is not cheap. Sure, it is cheaper than it was last year, but the market still expects strong long-term sales of this drug, of at least $700 million . And up until this point, Amarin is yet to prove that Vascepa can in fact be a future blockbuster, as weekly sales at various points have actually dropped week-over-week.
Nonetheless, as I look at Amarin, take into account the news of future competing drugs, I start thinking about Spectrum Pharmaceuticals (NASDAQ: SPPI ) and its 25% loss in 2013. While this may sound like an unusual comparison, Spectrum is perhaps a good company to keep in mind when assessing Amarin.
How the two are similar
Clearly, Spectrum and Amarin are two completely different companies. Amarin markets one cardiovascular product while Spectrum markets several drugs in the field of oncology. However, what happened to Spectrum is a good example of what could happen to Amarin investors.
For those of you unfamiliar with Spectrum's fall, the stock fell 23% in 2012 despite revenue that was growing at 50% year-over-year. Investors were very worried about the company's best-selling drug Fusilev, because there was a generic form that had supply issues.
Investors knew that once supply issues were corrected, Fusilev sales could fall drastically. Yet, Spectrum maintained its bullishness, guiding for full-year 2013 revenue of nearly $300 million, which would imply year-over-year growth. Then, just a few months later (in March) following this update, Spectrum revised full-year revenue guidance to $170 million, far short of $297 million.
The reason for Spectrum's fall was generic Fusilev, a drug that created $204 million of the company's $267 million in full-year 2012 sales. The generic version was supplied, and there was nothing that Spectrum could do about it, except warn shareholders.
Now, how does this relate to Amarin? Well, generic Fusilev did not affect Spectrum at first, and there were countless Spectrum bulls claiming that its introduction would be minimally impactful to Spectrum's top line.
The same situation could play out with Amarin. It doesn't appear as bulls are taking the threat of generic Lovaza and the NDA for Epanova seriously. Sure, Vascepa may go on to produce large revenue, at first, and many might forget about these two threats, but bullish sentiment does not mean that future Vascepa sales won't be negatively affected. Already, the word from bullish Amarin analysts and investors sounds familiar of what Spectrum bulls initially thought about generic Fusilev.
First, Aegis came out with a note saying that a generic Lovaza (which treats the same indication as Vascepa) is of minimal relevance. The firm believes that Teva Pharmaceutical will have supply issues in accessing an adequate amount of fish oil. While this may be true, as Spectrum's situation was similar, what's to say that supply issues don't improve at some point in the near future? Then, if Vascepa's indication is not expanded, Amarin faces a real threat and a massive competitor in Teva with the resources and man power to market Lovaza with success.
Then, there's AstraZeneca's Epanova, and one thing Amarin investors can't say is that AstraZeneca won't aggressively market the drug. Earlier this year, AstraZeneca purchased Omthera for $443 million to boost its struggling cardiovascular business, as the company prepares to lose its patent for Crestcor. This acquisition included Epanova, which will directly compete with Vascepa. Moreover, Decision Resources' Paramjit Narang went on the record saying, "Epanova offers higher and most constant bioavailability (versus Vascepa), and arguably better efficacy." Also, Epanova does not produce the gastrointestinal side effects of Lovaza, meaning that Epanova could be the big winner of the three.
When you consider the size of AstraZeneca -- $26.5 billion in revenue over the last 12 months -- Epanova's peak sales of $1 billion is not going to drastically increase the company's market value. However, AstraZeneca's large and powerful marketing reach combined with a cheaper Lovaza from an equally dominant Teva, puts Amarin in a tough spot in future years to come.
So, while investors may believe that all bad news is baked into Amarin's stock, they may want to consider that $1.1 billion is not cheap for a biotechnology company. Amarin already has an accumulated deficit of $850 million and total debt of $236 million to compliment a heavily diluted stock. In other words, there could be some dark days for Amarin ahead, as Vascepa has yet to impress Wall Street and new competition could make Vascepa's sales that much more unimpressive.
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