Yesterday, Amarin (AMRN 5.79%) lost over 10% of its value in response to a rather harsh report by Oppenheimer analyst Leland Gershell. The key issue that triggered this double-digit sell-off appears to be Gershell's uberbearish prediction that Amarin's stock could drop by as much as 70% to a lowly $7 per share over the next year.
The analyst's reasoning is based on two underlying assumptions:
- Vascepa's sales will fall well short of expectations following its label expansion for patients at risk of cardiovascular disease. Amarin's stock has recently been trading at a price-to-sales ratio north of 20, so it's definitely fair to say that the market expects Vascepa's sales to grow by leaps and bounds soon. The current consensus estimate stands at $2.2 billion, according to EvaluatePharma. However, a broad label could easily double -- or perhaps quadruple -- this figure, given the sheer size of the market.
- Amarin's prospects as a buyout candidate will quickly fade due to the emergence of competition in the space from AstraZeneca's Epanova, Acasti Pharma's CaPre, Matinas BioPharma's MAT9001, among others.
Here's why investors shouldn't get overly worked up by this bearish analyst report.
Amarin: King of the omega-3 hill
While Gershell's take is certainly audacious, it simply doesn't line up with the facts on the ground. First off, Vascepa is the only omega-3 treatment in history to show a statistically significant cardiovascular benefit in a large, placebo-controlled trial. So while it's easy to point to the emergence of "superior competition" as a potential risk factor, the reality of the situation is that most -- if not all -- of these rival candidates could very well flop in terms of conveying a cardiovascular benefit. In fact, it would be rather surprising if any of these putative competitors emerged as a direct rival to Vascepa during the drug's prime years.
Keeping with this theme, the candidate with the best chance of knocking off Vascepa -- Acasti's CaPre -- probably wouldn't get through a full-on cardiovascular trial until Vascepa was in its twilight years from a patent protection standpoint. That's important because doctors aren't going to readily prescribe a medicine off-label for a wide swath of Americans just because it seems to stack up well against the standard of care. Eyeball tests don't fly when it comes to patient care. CaPre will have to complete a time-consuming cardiovascular outcomes trial before it will ever be prescribed in lieu of Vascepa, and that won't happen until almost the end of the next decade.
The take-home point is that Vascepa should easily grab the lion's share of the omega-3 treatment space for the whole of the next decade, thanks to its highly anticipated label expansion as an add-on to statin therapy in patients with elevated triglyceride levels.
Is Amarin still a strong buyout candidate?
On the buyout front, Amarin's prospects haven't changed whatsoever since Vascepa's positive adcom vote. Long story short, there is no logical reason to believe that Astra's Epanova is going to perform any better than its mixed fish oil predecessors, much less upstage Vascepa's unprecedented Reduce-It results. Moreover, the biggest competitive threats to Vascepa are upwards of a decade from truly materializing.
So, given the fact that there isn't a single product with a proven cardiovascular benefit currently being marketed by a small biopharma, it's more than reasonable to assume that Amarin does indeed have a huge target on its back right now. In other words, Amarin's shares have a much better chance of rocketing to $70 than crashing to $7 over the next 12 months.