Handicapping Amarin's Delay

Amarin gets another delay from the FDA. Thanks AbbVie and Merck.

Jan 16, 2014 at 8:47PM

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 The FDA decided that the SPA was no longer valid, which made it unlikely the FDA would approve Vascepa for patients with moderately high triglyceride levels.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.

Our top pick in 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers