What happened

Shares of Amarin (NASDAQ:AMRN) were tumbling 5.5% lower as of 10:40 a.m. EDT on Wednesday after falling as much as 7.2% earlier in the session. The decline came after Goldman Sachs downgraded the biotech stock from a neutral rating to sell and slashed its price target by $1 to $5 per share.

So what

Investors shouldn't overreact to analysts' downgrades and price-target cuts. However, it's always a good idea to understand the rationale behind them.

In this case, Goldman Sachs analyst Paul Choi thinks that Amarin will experience significant pressure on U.S. Vascepa sales due to generic competition. Choi's view was based on conversations with physicians in the U.S.

Man wearing a sportscoat holding his thumb down

Image source: Getty Images.

This isn't a surprising take at all. Amarin itself reported relatively flat sales for Vascepa in the first quarter. The drugmaker also said that the introduction of generic rivals in the U.S. "created disruption" to Vascepa's growth. 

Now what

The main thing to watch with Amarin going forward is its rollout of Vascepa in Europe (where the drug will be marketed as Vazkepa). Amarin plans to launch the drug in Germany before the end of the third quarter of this year. It's negotiating pricing in Europe on a country-by-country basis. 

Editor's note: A previous version of this article incorrectly stated that the new Goldman Sachs price target for Amarin was $1 instead of the price target being cut by $1 to $5. The Fool regrets the error.

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.