Patent Secured. Next Stop: Sale?

A drug loses value as it gets closer to its patent exclusivity; once generic drugs come on the market, sales of the branded drug plummet. You have to look no further than Eli Lilly (NYSE: LLY  ) and its epic patent cliff to see that phenomena on a grand scale: Revenue has gone up on average 9% annually over the last five years, but the value of its shares are down 23% over that time frame.

So, if a drug like Amarin's (Nasdaq: AMRN  ) triglyceride-reducer AMR101 were to be approved with minimal protection -- a five-year token award that everyone gets for a new chemical entity -- it wouldn't be worth a whole heck of a lot.

Fortunately for Amarin, that doesn't seem to be an issue anymore. The U.S. Patent and Trademark Office determined that the biotech's application for a patent on its formulation of AMR101 could be granted. The stock shot up 10%, a reasonable figure given the value of the longer protection, muted slightly by the fact that there are still 16 U.S. patents across 11 patent families pending with the USPTO (and shares had already run up nearly 50% since the start of last week).

AMR101 is a fish oil that's similar to GlaxoSmithKline's Lovaza, but more pure and with apparently better effects on cholesterol levels. In addition to patenting the formulation, Amarin might be able to get a patent on the purification, although those can be harder to defend.

With the patent situation clearer, the acquisition rumors can begin to fly again. Pfizer (NYSE: PFE  ) , AstraZeneca, Merck (NYSE: MRK  ) , and Abbott Labs (NYSE: ABT  ) would all be likely candidates given their interest in cholesterol and other heart drugs.

While I agree that Amarin will likely get taken out -- without any other pipeline drugs, it's an easy acquisition -- I wouldn't count on it happening before AMR101 gets approved around July 26. Think about it from the pharmaceutical executive's standpoint: Who wants to be the guy or gal that spent billions a few months ago to buy a drug that was just rejected by the FDA? Even with the chance of AMR101 getting turned down being minimal, it makes more sense for a pharmaceutical company to just wait for an approval and pay a little more than to be left holding the bag if an unexpected rejection comes.

Shares are twice what they were before I made a long call in CAPS over a year ago. I'm keeping that call on, but I'm fully aware that it could take another year to realize the full value of the CAPScall.

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Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Abbott Laboratories. Motley Fool newsletter services have recommended buying shares of Pfizer, GlaxoSmithKline, and Abbott Laboratories. 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.


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  • Report this Comment On March 21, 2012, at 11:36 AM, yazzbro wrote:

    I think GSK could be in the mix for buyers as well seeing AMRN-101 and Lovaza are both fish oils, it would be an easy transition for them in terms of marketing it(simply by calling it Lovaza 2 or something more clever than that.) Also, I think with the odds of AMRN-101 getting FDA approval are pretty high you might see someone make an offer before that.(especially if AMRN gets a couple more patents before then.) If you wait until after FDA approval it wouldn't shock me to see a bidding war between several large Pharm Co's which would be great for investors. I guess time will tell. Happy Trading.. Cheers!!!

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