What happened

Shares of Irish biotech Amarin (NASDAQ:AMRN) fell 19.4% in August, according to data from S&P Global Market Intelligence. For context, the S&P 500, including dividends, edged down 1.6% last month. 

Despite the August drop, Amarin stock -- which has climbed back 8.8% so far in September -- is still up a whopping 418% over the one-year period through Sept. 10, versus the broader market's 5.9% return over this period. That makes it one of the top-performing biotech stocks over the last year. 

A pile of six see-through, light-gold capsules on a flat surface.

Image source: Getty Images.

So what

We can attribute Amarin stock's poor performance last month to the company's Aug. 9 announcement that the Food and Drug Administration (FDA) has "decided to convene an advisory committee meeting to discuss the company's proposed label expansion for the prescription omega-3 [fatty-acid] pill Vascepa," as my colleague George Budwell reported at the time. Shares plunged 17.1% following this news.

As background, Vascepa, which is derived from fish oil, is currently approved to treat patients with high triglyceride levels. The company and investors alike had been anxiously awaiting the FDA decision on what amounts to a huge label expansion to include the treatment of patients at risk for major adverse cardiovascular events, including heart attacks or strokes. This decision was expected in late September.

Just a week before the news came out about the FDA advisory committee, Amarin's management had said that it believed that such a meeting was no longer likely because the label expansion decision date was less than two months away. So, there can be little doubt that many investors and Amarin management were blindsided by the Aug. 9 news.

The issue? The company didn't release details in its press release, but we can probably safely assume that the reason for the advisory committee is Amarin's use of mineral oil as a placebo in the Reduce-It cardiovascular outcomes trial. Patients in the placebo group experienced an increase in bad cholesterol levels, which means that Vascepa's measured protective benefits may have been overstated. The study showed that Vascepa reduced the risk of major adverse cardiovascular events by 25% in patients already taking statin drugs, compared to those receiving a placebo. In other words, had an inert placebo been used, that 25% might be some number less than 25%. 

Now what

The FDA's advisory committee meeting on Vascepa is tentatively scheduled for Nov. 14. It's possible that the regulatory body could decide to make Amarin redo the Reduce-It trial using another placebo. Look for the stock to take a big hit if that happens.

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.