Yesterday, Amarin's (NASDAQ:AMRN) shares jumped by a whopping 20.9% during normal trading hours. The spark behind this eye-catching move northward was the release of the U.S. Food and Drug Administration's (FDA) briefing materials for the company's upcoming advisory-committee meeting set for this Thursday.

Come Thursday, Amarin and the FDA's panel of experts will mull over the putative cardioprotective benefits of the company's prescription omega-3 treatment known as Vascepa. The big deal is that Vascepa's addressable market would expand to upwards of around 9.5 million Americans who are currently on statin therapy but still suffer from elevated triglyceride levels.

Businessman holding risk and rewards blocks.

Image Source: Getty Images.

That's a $15 billion per-year commercial opportunity right now -- based on the drug's estimated annual net price of $1,625, per the cost-effectiveness watchdog ICER. Future price hikes, combined with the continued growth of this target market as a whole, though, could push Vascepa's sales into truly rarefied air. 

Keeping with this theme, Vascepa has the potential to generate annual sales larger than those of Pfizer's (NYSE:PFE) megablockbuster cholesterol medicine Lipitor, as well as AbbVie's anti-inflammatory behemoth Humira. For those new to the world of biopharma, Lipitor and Humira are the two bestselling pharmaceutical products of all time. That's just how big of a deal Vascepa's proposed cardioprotective indication is from a commercial standpoint.   

With this background in mind, it's arguably the perfect time to consider if Amarin's stock can climb even higher in the days and weeks ahead. Here's a look at Amarin's potential risks and rewards in light of yesterday's market-moving event.   

Amarin: The risks and rewards

Amarin's stock sports two clear-cut risk factors: the regulatory risk associated with Vascepa's proposed label expansion and the company's real world ability to fully capitalize on this ginormous commercial opportunity, post-approval. 

Now, the risk emanating from the upcoming label-expansion decision appears to be minimal in the wake of yesterday's briefing-document release. The most critical issue heading into this advisory-committee meeting was the potentially confounding effect of the mineral oil placebo on the magnitude of Vascepa's observed cardioprotective benefit in the Reduce-It trial. However, the FDA's own reviewers admitted that they couldn't explain away Vascepa's cardioprotective benefit simply as a function of a non-inert placebo.

Two key statements in the briefing documents made this point crystal clear:

FDA analyses attempting to differentiate whether increases in LDL-C and other biomarkers were due to the mineral oil placebo are inconclusive...

FDA's exploratory analyses to assess the effect of these markers suggested that the difference in LDLC between the study groups could not account for the positive CV outcomes. 

So, unless something truly extraordinary happens at Thursday's meeting, the FDA will more than likely approve Vascepa's label expansion. 

Amarin's key risk thus boils down to the company's ability to maximize Vascepa's commercial potential. Although Amarin is planning on significantly beefing up its sales force once the FDA formally approves this label expansion, the reality of the situation is that the company simply cannot tackle this vast market by itself.

Amarin doesn't have the commercial infrastructure or the marketing clout to cover all the bases, so to speak. There's an inherent structure reason, after all, why all the bestselling drugs in the world are either marketed directly by a pharma titan or at least partnered with one of the industry's biggest names. 

What this means is that Vascepa's peak sales would probably top out at the $2 billion mark under a go-it-alone approach and could take several years to reach this high-water mark. In that case, Amarin's shares would arguably be fairly valued at something along the lines of $27.8 per share (five times peak sales), representing a 33% upside potential from current levels.

For the uber-bulls out there, the plain truth is that Amarin's shares would almost certainly be trading at much higher levels if the market thought the company could realistically push Vascepa's sales significantly beyond the $2 billion mark within the next four years. So $2 billion does appear to be the market's working peak sales estimate -- at least as things stand now. 

The wildcard 

There is a wildcard at play here, however. Amarin's management hasn't even attempted to build out a broader clinical pipeline to complement Vascepa, and that's a big tell in regards to the company's value-creation strategy. Cutting to the chase, Amarin has probably already fielded a few tender offers in the event the FDA greenlights Vascepa's Reduce-It indication.

Amgen (NASDAQ:AMGN) and Pfizer have both been rumored to have interest in Amarin in the recent past, after all. Making this situation even more intriguing is that both Amgen and Pfizer have been been gobbling up high-value assets of late in order to finally move beyond the patent cliff. Vascepa, for its part, could turn into a crown jewel of the pharma industry under the umbrella of either Amgen or Pfizer, making it a highly desirable asset for these titans of the industry

How much could Amarin fetch in a buyout? With two gold-star players vying for Vascepa, Amarin's buyout price could easily range from $36 to $42 per share (assuming a tender offer in the range of $13 billion to $15 billion). Now, if a bidding war broke out -- a scenario that played out when AbbVie had to pay top dollar to acquire Imbruvica, the low $50s might even be possible. 

When would a buyout most likely occur? Big pharma has a tendency to announce needle-moving business development moves early in the year -- frequently in January around the time of the J.P. Morgan Healthcare Conference. The reason is that these early-year announcements help to set the stage for investors' expectations for the full year. 

Final thoughts

The big picture is that investors shouldn't be surprised if Amarin indeed gets this all-important label expansion for Vascepa before the end of the year, and this regulatory win, in turn, leads to a buyout at a healthy premium within the first quarter of 2020. From a more conservative viewpoint, Amarin's shares should at least appreciate by another 10% to 20% before the end of 2019, especially with its biggest risk factor -- a complete response letter -- seemingly off the table.