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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.
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.
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.
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.
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.
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