Buy, Sell, or Hold: Amarin

When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether it's possible upside outweighs its risks. Let's take a look at Amarin (Nasdaq: AMRN  ) today and see why you might want to buy, sell, or hold it.

A good time to have bought into the Ireland-based late-stage, cardiovascular-focused biopharmaceutical company Amarin was early 2011, when its stock traded for less than $2 per share. It has recently been above $14, and though it has risen some 14% over the past year, it has averaged 27% annual gains over the past five years (and a 6% annual loss over the past decade). It now has a market capitalization near $2 billion. Let's take a closer look.

Buy
One reason to want to buy Amarin is its business, biotechnology. Our global population now tops 7 billion people and is still growing. Life expectancy is growing, too, at particularly brisk rates in developing nations. All these people living longer will have health issues during their lives, and especially in old age. Thus, new and better medications and treatments will be needed.

With any biotech company, you need to assess its pipeline, as up-and-coming products are the key to the future. Amarin has mainly one product to recommend itself -- AMR101, a fish-oil-based triglyceride reducer that was expected by many to gain FDA approval. Now known as Vascepa, the formula just received approval Thursday night.

Amarin shares surged before approval, when the U.S. Patent and Trademark Office posted a "Reasons for Allowance" for multiple patents related to Vascepa. That's good, meaning that generic copies could be delayed until 2030.

Meanwhile, some investors like Amarin because it could be bought out by a bigger company. That would likely deliver a nice pop to the share price -- but it would also limit further upside for investors. Some have suggested that AstraZeneca (NYSE: AZN  ) and Merck (NYSE: MRK  ) , with their cholesterol-fighting drugs, would be good fits. Pfizer has also been suggested as a company that might want Vascepa in its arsenal.

Despite the stock's recent run-up, its future is very promising, with many expecting it to dominate a multibillion-dollar market. Shares took a hit when approval was limited to patients with very high triglyceride counts, but if the drug gets approval for a wider audience, that could serve as a promising catalyst. The recent share slide is also a reason to consider buying, as the stock is now cheaper.

Sell
Despite all there is to like about Amarin, remember that it's extremely dependent on one drug, Vascepa. The patent office ruling should protect the drug from generic competition, but not all competition. GlaxoSmithKline (NYSE: GSK  ) has a fish-oil drug, too, Lovaza, which will likely contend with generic competition from Apotex starting in 2015. That will be competition for Amarin, as well. Generic competition from Teva Pharmaceuticals  (NYSE: TEVA  ) and Par Pharmaceutical are likely to appear several years later, because of patent protections.

Vascepa is expected to be the best in its class, but that's not necessarily enough, as Lovaza will have the deep-pocketed marketing strength of GlaxoSmithKline behind it and eventually cheaper generics undercutting it on price.

Hold (off)
Given the reasons to buy or sell Amarin, it's not unreasonable to decide to just hold off. You might wait for Vascepa to begin selling well. You might want to wait for the drug to get its label expanded to a wider population. You might want to see if the drug is classified by the FDA as a "new chemical entity," granting it extended protection from competition, in August.

You might conceivably want to wait for a lower entry price as well. 

The verdict

I think I'll be holding off on Amarin, at least for now. It may well perform spectacularly in the coming years, but there are plenty of compelling stocks out there with more certain futures. Still, everyone's investment calculations are different; do your own digging and see what you think.

If the biotech arena seems a little too risky to you, learn about another huge market in the making in our free report "The Next Trillion-Dollar Revolution." Get your free copy.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Teva Pharmaceutical Industries, but she holds no other position in any company mentioned. Check out her holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Pfizer. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 29, 2012, at 3:28 PM, sharinky wrote:

    Please repost my comment from earlier today.

  • Report this Comment On July 29, 2012, at 3:30 PM, sharinky wrote:

    When Amarin submitted their request for approval they only submitted information requesting approval for people with tryglycerides greater than 500. The study information for patients with tryglycerides under 500 was even finalized at that time and was not submitted until later. The FDA has not looked at that data yet. No one who understands the process was expecting the FDA to rule on information that was not reviewed yet. It is just one of the next steps in the process.

    Lovaza is not even in the same class as Vascepa. Vascepa lowers triglycerides while lowering LDL. Lovaza lowers triglycerides while raising LDL. Any physician will tell you that Vascepa will be the clear choice.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1962860, ~/Articles/ArticleHandler.aspx, 11/22/2014 8:34:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement