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Here's Why Amarin Stock Tumbled Today

By Maxx Chatsko - Jul 18, 2019 at 1:47PM

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The company pulled the trigger on a massive public stock offering. And why not?

What happened

Shares of Amarin ( AMRN 0.00% ) fell as much as 10.5% today after the company announced a public stock offering worth up to $460 million. The commercial-stage pharmaceutical company intends to use the proceeds to support the expanding commercialization of Vascepa.

Although the drug product is currently prescribed to treat very high triglycerides, investors are expecting it to be approved by the U.S. Food and Drug Administration to reduce cardiovascular risks in certain patient populations. That approval could help the product achieve peak annual sales approaching $10 billion in the next decade or so.

As of 1:26 p.m. EDT, the stock had settled to a 10% loss. That appears to be a bit of an overreaction. While the stock offering will dilute shareholders by up to $460 million -- a large amount, to be sure -- the company has seen its market valuation drop by almost $700 million today.

A chart on a chalkboard showing a steady rise and then a sudden drop

Image source: Getty Images.

So what

The public stock offering announced today comes just weeks after Amarin provided a rosy mid-2019 business update that sent shares soaring. Management said it now expects Vascepa to achieve in the neighborhood of $400 million in sales this year, up from a previous midpoint of $350 million. Executives also told investors plans were underway to double the number of U.S. sales representatives to 800 by October. That would allow Amarin to hit the ground running should Vascepa earn an expanded approval on Sept. 28, as widely expected.

What investors apparently failed to realize in their excitement weeks ago was that ramping up sales will come at a steep cost (initially, anyway). That set the stage for today's massive stock offering.

Now what

Considering that before today, shares of Amarin had gained over 600% in the last year, management is wise to take advantage of the rising stock price to pad the balance sheet. Besides, if Vascepa lives up to the hype and achieves multibillion-dollar annual sales figures, then today's stock offering will hardly be remembered as a blip on the radar in the long run. Today's drop shouldn't change how investors view the business.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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