Investing in biotech stocks can feel like a rollercoaster ride. Positive clinical trial results, drug approvals, or lucrative partnership announcements can send stocks soaring. These stocks can just as easily get eviscerated on drug failures, regulatory setbacks, and patent challenges. To raise the stakes, look for biotechs that rely heavily on a single drug.
Investors in both Amarin (AMRN 2.48%) and Aurinia Pharmaceuticals (AUPH 3.06%) needed to buckle in tight to ride out the wild stock gyrations. In the past year, the two companies' stock prices have essentially swapped places between $6 and the mid-teens. Here we will explore what's behind these swings to see which provides a better investment.
Amarin's wild swings
Amarin became the talk of the biotech industry when, on March 30, a U.S. district court ruled a key patent invalid on the grounds of "obviousness." The decision paved the way for generic competition of its fish-oil-derived cardiovascular drug, Vascepa. Investors dumped the stock, lopping 70% off of the company's value within hours.
Was it an overreaction or an opportunity for a dead cat bounce? Those savvy enough to buy shares around the $4-per-share low have already gained more than 50%. The stock trades above $6 currently.
What's next for Amarin?
Amarin will appeal the district court's decision. While the Federal Circuit could render a decision by the end of the year, it is unclear if the current COVID-19 pandemic will cause additional delays for the court.
While the path may be cleared at least temporarily for a generic competitor, neither Dr. Reddy's Laboratories nor Hikma Pharmaceuticals, the two challengers of Amarin's patent, have received Food and Drug Administration (FDA) approval for a generic alternative.
In the meantime, Amarin can continue to sell Vascepa. The drug hit $429.8 million in sales last year, and the company expects that to grow to $650 million to $700 million this year. One caveat: Those projections predated the shelter-in-place mandates due to the coronavirus outbreak. It is unclear how significant this will impact sales.
The patent ruling only applies to the U.S.; international markets remain intact and Amarin expects to receive an approval decision in Europe by the end of this year. It further states that it will seek a partner to commercialize in Europe.
Aurinia takes off
Aurinia's stock hummed along for most of 2019 with a stock price in the mid-single digits. Then, its stock price skyrocketed 150% in December on positive results from a pivotal trial. Aurinia's drug voclosporin performed better than the comparator arm across the primary and multiple secondary endpoints in patients with lupus nephritis (LN).
LN results in inflammation and swelling of the kidneys and can lead to serious damage. It affects approximately 40% of patients with the autoimmune disease systemic lupus erythematous. The rate of LN is higher in patients with childhood-onset lupus compared to adult-onset.
Following the positive news, Aurinia announced it plans to submit a rolling New Drug Application (NDA) for approval by the FDA in the first half of 2020. On March 16, the company announced the submission of the Nonclinical Module. The remaining Clinical Module and the Chemistry, Manufacturing, and Controls Module will be submitted this quarter. Aurinia requested a priority review for the application which could shave the review time to six months.
This is a tough one. Amarin and Aurinia are effectively one-product companies. Thus, any snags, as we saw with Amarin, can wreak havoc for investors.
Amarin boasts an approved drug that can potentially help tens of millions of individuals. Furthermore, its international sales could begin to take off if it gains approval in Europe later this year. So, today's investors get to enjoy sales of Vascepa until a generic enters the U.S. market, exposure to the drug's international expansion, and huge upside if the Federal Circuit rules in favor of Amarin's appeal.
Aurinia touts an exciting drug, raised nearly $192 million in December, and could see a drug approval by the end of the year. Aurinia will spend 2020 finishing the NDA submission and laying the groundwork for a commercial launch in 2021.
While I like the prospects of both companies and believe they are top buyout candidates, I give a slim edge to Aurinia. I think there are fewer risks in the near-term unless, for some reason, the FDA does not accept the NDA filing.