What happened
Amarin (AMRN 1.72%) lost a staggering 72.7% of its value in March, according to data from S&P Global Market Intelligence. The drugmaker's shares collapsed late in the month following an adverse patent ruling for its prescription omega-3 treatment, Vascepa.
This somewhat surprising patent decision by the U.S. District Court for the District of Nevada paves the way for generics to enter the all-important U.S. market. The company said it will file an immediate injunction to block the launch of a generic upon approval. Amarin also plans on appealing the decision.
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So what
If generics do enter the U.S. market, Vascepa's sales may take a big hit. How big of a hit isn't entirely clear, because the drug is already reasonably priced -- meaning that generic manufacturers probably won't be able to sharply undercut Vascepa on price. But the more important issue is that Amarin won't be able to take advantage of regular price increases in the U.S. to boost sales. Without that added revenue, Vascepa is unlikely to ever achieve megablockbuster sales -- that is, annual sales exceeding $5 billion per year.
Now what
There are some reasons for Amarin's shareholders to be optimistic, however. There is a chance this patent decision could be overturned upon appeal. What's more, there are no generics set to launch in the U.S. anytime soon, and Vascepa's international IP is unaffected by this ruling. So, in all, Amarin should still be able to generate upwards of at least $1 billion in annual sales by this time next year. Therefore, this small-cap biotech stock might be grossly undervalued after this sharp decline in March.
