Even though I'm an unabashed bull for Amarin (AMRN +1.21%), I've never bought a single share of this promising biotech stock. The reason is that I've been waiting for a specific buying opportunity. Namely, the company's upcoming advisory committee meeting for its prescription omega-3 pill, Vascepa, tentatively scheduled for Nov. 14.
The key issue is that Amarin's shares are almost certain to nosedive on the accompanying briefing documents for this regulatory hearing. The options market is exhibiting a healthy level of interest in Amarin's Nov. 15 $9 strike price. Such a massive dip might sound alarmist, but the truth is that most biotech stocks wildly overreact to the Food and Drug Administration's (FDA) briefing docs for keystone products like Vascepa, thereby creating a tremendous buying opportunity for risk-tolerant investors.
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Why is the FDA even holding an advisory committee meeting?
At first glance, this regulatory meeting may seem unnecessary. Vascepa exhibited a whopping 25% relative risk reduction in terms of cardiovascular events in patients on statin therapy. That's an outstanding clinical benefit, which paved the way for the results to be published in the highly esteemed New England Journal of Medicine. But there is more than meets the eye when it comes to Vascepa.
My take is that the FDA is playing the long game with this drug. Vascepa's cardiovascular outcomes trial has a small defect in that the placebo used -- mineral oil -- may have not been totally inert. Therefore, the drug's clinical benefit might have been overstated to a degree. While this issue shouldn't turn out to be a showstopper, it does give the FDA leverage in terms of labeling -- and that's a big deal.
Long story short, the FDA and Wall Street analysts alike are well aware of the buyout interest in Amarin. Amgen, Pfizer, and Novartis have all been rumored to have interest in buying Amarin -- pending Vascepa's proposed label expansion. The FDA, for its part, surely knows that a high-dollar buyout would likely result in steady increases to Vascepa's price tag in the years ahead.
Underscoring this point, Amarin CEO John Thero recently noted that Wall Street is massively underestimating Vascepa's commercial potential -- a strong indication that the company and its probable suitors are eyeing stately price increases following a label expansion. The FDA, in turn, is probably aiming to dampen this possibility by challenging the drug's real-world clinical benefit during this advisory committee meeting.
Again, this claim may sound outlandish at first glance, but you only have to look at some of the agency's recent actions to realize that the FDA has taken a keen interest in the drug-pricing debate.
Bottom line
Amarin's shares may dip in a significant manner upon the release of the briefing documents for Vascepa's advisory committee meeting. These documents, after all, rarely contain good news. However, I'd view any pullback as a compelling buying opportunity in this case. The long and short of it is that Vascepa should ultimately get the green light from FDA for this proposed label expansion -- even if the agency does decide to challenge the magnitude of the drug's cardioprotective benefit for purely scientific reasons or otherwise (ahem, long-term pricing).
