Handicapping Amarin's Delay

It's a good thing that Amarin's (NASDAQ: AMRN  ) investors are used to waiting because the Food and Drug Administration delayed another decision.

Last month, the agency told Amarin that it was delaying a decision on whether to expand the use of its lipid-lowering drug, Vascepa, and would make a decision January 15 on the biotech's appeal of the FDA's decision to rescind Amarin's Special Protocol Assessment.

The SPA is supposed to make it easier for biotechs to get their drugs approved by getting the FDA's requirements for approval in writing before the clinical trial begins. Amarin lived up to its end of the bargain -- proving that Vascepa lowers triglycerides and substantially enrolling an outcomes study -- but the FDA said trials run on AbbVie's (NYSE: ABBV  ) Tricor, Merck's (NYSE: MRK  ) Cordaptive, and others showed it was possible for a drug to lower triglyceride levels without improving cardiovascular outcomes. The FDA decided that the SPA was no longer valid, which made it unlikely the FDA would approve Vascepa for patients with moderately high triglyceride levels.

On Wednesday, the FDA told Amarin that it wasn't ready to make a decision. When might it be ready? The FDA has wised up and didn't give Amarin a date.

This is good news
Because it was the FDA that made the decision, and the FDA that will make a decision on the appeal, I figured the agency would respond with a quick, "Yep, we were right." The fact that the agency is taking longer means there's actually a chance the FDA could change its mind.

The skeptic could argue that the decision to reject the appeal could already be made, but there's an advantage to taking longer to announce the decision because it makes the agency look less authoritarian.

But shares are down?
Compared to yesterday's close, they are, but I think that has more to do to with short-term traders exiting since the date of the binary event is unknown. Amarin has been on a nice run since the FDA said it was still considering the appeal.

AMRN Chart

AMRN data by YCharts

Of course, if you zoom out a little more to before it became clear the FDA would cancel the SPA, the chart gets really ugly.

AMRN Chart

AMRN data by YCharts

Handicapping the decision
While the decision didn't happen yesterday, the FDA will eventually make a decision about the SPA and the expanded approval for Vascepa. We can use Amarin's 52-week highs and lows as likely prices after the binary event to see how likely investors think it is that the FDA will change its mind.

52-week high * likelihood of approval + 52-week low * likelihood of rejection = current price

Note: The likelihood of rejection is equal to (1-likelihood of approval). If there's a 60% chance of approval, there's a 40% chance of rejection, making it possible to solve for the likelihood of approval. Isn't binary event math grand?

Solving for the likelihood of approval we get:

Likelihood of approval = (current price-52-week low) / (52-week high-52-week low)

Or likelihood of approval = (current price-1.36) / 6.79

At today's closing price of 2.26, investors are giving Amarin about an 11% chance of getting an approval. If you think there's a greater chance of approval, Amarin is a good buy at that price according to my calculations.

I should note that the 52-week high is a little conservative, because even when it hit that level, there wasn't a 100% guarantee of an approval; but let's call it a margin for error. There's no guarantees the 52-week low will hold if the FDA rejects the appeal.

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  • Report this Comment On January 18, 2014, at 12:54 PM, CappinQ wrote:

    Brian, there is a clue*** to be had, but the delay by the FDA is NOT a clue.

    The delay does not indicate anything. We have seen many times where the FDA has delayed decisions without any motivation except "time" (or lack of it). Remember, this Appeal is something that was thrown into their busy schedule. They are fine with their current decision on Vascepa and they are busy with their already packed calendar. So, they see it as no big deal to move the Appeal decision date back. So the delay simply indicates that they haven't gotten to it yet.

    Notice how (this time) they did not give an anticipated decision date? THAT is your clue.***

    They don't know when they will be able to get to AMRN's appeal. That is why they delay. Not because they are considering anything, or researching further or having a spirited debate on which way to go. They simply haven't gotten to it yet and don't know when they will.

    I bet the AMRN appeal is setting on a side table, unread by those who need to decide the appeal.

    I'm sure there are coffee rings on the top page and dust is beginning to gather.

    Regarding the FDA's decision to rescind the SPA.

    There are many problems with their logic, but

    one thing I think people tend to forget about is that reducing triglycerides matters less when the beginning trig level of the patient population is lower.

    So, if you lower your triglycerides from the severe level, you will see health benefits that you will not see when lowering them from borderline or normal levels. Same goes for High triglyceride levels.

    The studies that the FDA considered for SPA termination had many major problems, but one that I think is the biggest issue is that the patient population's starting triglyceride levels were ridiculously different than ANCHOR's population. So much so that at first glance, nobody in their right mind would equate their results to ANCHOR's potential results.

    Relative changes matter.

    Consider a 5' 10" man (couch potato) losing 35 pounds. Is losing 35 pounds going to result in measurable, improved health?

    If he started at 500 pounds, then no health benefits would be found after he dropped 35 pounds. Right? 500 or 465 at 5" 10" makes no difference.

    But, does this mean that losing 35 pounds has no health benefits?

    Consider if that man starts from 210 pounds and trims down to 175. You would see all sorts of health improvements. He would be a changed man.

    So what I am saying is, the starting point of the triglyceride levels of your study population makes all the difference in being able to measure health benefits and/or cv event lowering.

    The studies used to terminate Amarin's SPA were (logically) equivalent to the 500 pound fat man losing 35 pounds. Amarin is looking to treat the 210 pound man, so it does no good to point to a 465 pound Fat Albert and say, "It sure looks like losing 35 pounds does not do anything at all to improve your health. Let's not help advance the study on the 210 pound guys looking to lose 35 pounds."

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