In its third-quarter report, Amarin (NASDAQ:AMRN) topped FactSet's consensus revenue estimate ($112.4 million versus $110.04 million) and non-GAAP adjusted earnings-per-share forecast ($0.01, versus a $0.04 loss). Even so, Amarin's shares still hit the skids during Tuesday's trading session. Specifically, the biopharma's stock sank by as much as 6.3% on heavy volume, before rebounding to finish down by a more modest 0.69%.

Should investors take advantage of this post-earnings weakness, or is it better to stick the sidelines with this high-risk, high-reward biopharma stock? Let's dissect Amarin's near- and long-term outlook to find out.

A series of rolled U.S. dollar bills stacked in a manner that implies an upward trend.

Image source: Getty Images.

Keep your eye on the prize

First, we need to examine why Amarin's shares slumped Tuesday, despite a record-breaking third-quarter earnings report. Heading into Amarin's Q3 earnings release, social media rumors were swirling that the company might smash Wall Street's revenue estimate by as much as 9%.

Day traders, in kind, bid the biopharma's stock up by a healthy 12.3% over the past three weeks in the hope of catching lightning in a bottle come earnings time. So when Amarin's Q3 revenue failed to meet the lofty expectation, day traders seemingly decided to hit the exits. The point is that this post-earnings volatility shouldn't concern Amarin's long-term shareholders in the least. 

What should concern investors is the upcoming advisory committee meeting for Amarin's prescription omega-3 pill Vascepa, to be held on Nov. 14. If this advisory committee supports Vascepa's label expansion as a cardioprotective treatment for patients with elevated triglyceride levels despite being on statin therapy, Amarin's shares should perform exceptionally well in the months ahead.

If not, the converse might be true. The bottom line is that this landmark regulatory meeting next week -- followed by the FDA's subsequent decision on Vascepa's label expansion slated for Dec. 28 -- is all that really matters for Amarin and its shareholders at this point. Amarin's long-term outlook, after all, hinges on this critical regulatory decision.

What's next?

The good news is that Vascepa stands a strong chance of passing this advisory committee meeting with a favorable vote from panel members, paving the way for a positive regulatory outcome by the end of the year. That's the global picture that investors should keep firmly in their minds over the next few weeks. 

The bad news is that there could be some noticeable turbulence along the way. The FDA will probably publicly release the briefing documents for this advisory committee meeting next Tuesday. As FDA reviewers almost always take an adversarial tone in these documents, and with questions about the appropriateness of using mineral oil as a placebo in the drug's REDUCE-IT trial, Amarin's stock could be in for some wild swings over the next few days. 

What's the payoff? Wall Street's consensus 12-month price target implies that Amarin's shares could rise by as much as 68% from here. Investors, though, shouldn't expect the company's stock to realize all of these gains simply from a positive advisory committee meeting. The reality is that most of this upside potential is predicated on a buyout sometime in 2020.

Cutting to the chase, Amarin's market cap would more than likely revisit its all-time high following a positive advisory committee vote. That means Amarin's shares would probably see about a 30% jump from current levels, if things go according to plan. Such a move would have Amarin's shares trading at over 12 times next year's consensus sales estimate. That's a rich premium, but one that Vascepa's long-term commercial potential more than justifies. 

More to the point, Amarin's shares aren't going to double -- or triple -- immediately in the wake of this regulatory catalyst. The company, in effect, will need a formal buyout offer to a hit a whopping 16 to 18 sales multiple in 2020. So if you're hunting for a massive return on capital in a short period of time, Amarin probably isn't the place to be right now. That said, this mid-cap biopharma stock does offer a healthy upside potential for investors willing to hold their shares for the long haul. 

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.