AstraZeneca's (AZN -0.55%) problems, which I discussed in a previous article, are well documented. Generic competition for the antipsychotic Seroquel and the antacid Nexium have taken a bite out of its top line, and the upcoming patent expiration of its cholesterol drug, Crestor, threatens to exacerbate its losses.
To offset these top line declines, AstraZeneca is reaching out into other therapies. An interesting one is Epanova, a fish oil treatment for very high levels of fatty triglycerides in the blood. High levels of triglycerides, defined as levels of over 500 mg/dL, can cause high blood pressure, high blood glucose levels, obesity, and low levels of HDL ("good") cholesterol -- leading to the increased risk of heart disease, diabetes, and stroke.
Last month, AstraZeneca announced that the Food and Drug Administration had accepted Epanova for review, with a final decision expected by next May. AstraZeneca acquired Epanova from Omthera Pharmaceuticals, which it acquired earlier this year for $443 million. Decision Resources analyst Paramjit Narang believes that Epanova has blockbuster potential and could hit peak sales of $1 billion.
Could Epanova be one of the new drugs that could help balance out AstraZeneca's drug portfolio, or will this be another pipeline failure to pile on top of its failed rheumatoid arthritis treatment, prostate cancer drug, and experimental antidepressant?
Let's take a look at the key facts and figures.
Understanding the fish oil market
The market for fish oil treatments for high triglycerides is a narrow one at the moment, dominated by GlaxoSmithKline's (GSK 0.90%) Lovaza, which was approved in 2004 and generated revenue of $970 million in 2012. Lovaza has a key weakness, however -- it raises LDL ("bad") cholesterol levels as it lowers triglycerides. In addition, a recent decision in Delaware reversed a critical court ruling from 2009 that had blocked Par Pharmaceutical and Teva Pharmaceutical (TEVA 1.56%) from manufacturing generic versions of Lovaza. As a result, Par and Teva could soon start selling generic Lovaza, and cause the price of fish oil treatments to fall.
Amarin (AMRN -3.12%), whose sole marketed product is the competing fish oil treatment Vascepa, is another company to watch. Vascepa, which was approved last July, doesn't increase LDL cholesterol levels like Lovaza and Epanova. Vascepa is also being tested on patients with lower levels of triglycerides (higher than 200 mg/dL but lower than 500 mg/dL), which could expand the market for the drug to an additional 36 million patients. Unfortunately, a recent FDA report prompted Amarin to disclose that the eagerly anticipated results from this trial would not be available until 2016. Shares plunged 20% after the announcement on Oct. 11.
Source: YCharts.
Lovaza and Vascepa are both currently approved for patients with "very high" triglyceride levels higher than 500 mg/dL -- the same market that AstraZeneca is targeting with Epanova.
Although analysts had originally projected peak sales of $1.5 billion for Vascepa, the drug only generated $5.5 million in sales for Amarin last quarter. The major problem is that Amarin lacks a larger pharmaceutical partner to help it market the drug. With a proper partner, Citi Investment Research believes that sales of Vascepa could hit $2.6 billion. However, that figure looks silly considering the challenges it could face from Lovaza and upcoming generic versions.
How does Epanova fit into AstraZeneca's strategy?
In a phase 3 study, Epanova notably lowered levels of non-HDL cholesterol when administered with a cholesterol-lowering statin treatment (such as AstraZeneca's own Crestor). Non-HDL cholesterol consists of LDL and VLDL cholesterol, both "bad" types of cholesterol. When combined with a statin, Epanova reduced levels of VLDL cholesterol by 14% to 22%, based on the dosage, whereas the increase in LDL levels dropped from 5% to 1% on the same dosage. By itself, Epanova raises LDL levels, just like Lovaza.
AstraZeneca believes that with this study, it could win regulatory approval for a fixed-dose combination of Epanova with Crestor, which will lose patent exclusivity in 2016. Crestor is one of AstraZeneca's remaining pillars of revenue, achieving peak sales of $7 billion in 2011 and generating $6.3 billion in sales last year.
Crestor is the last blockbuster statin treatment that is still patent protected. The past decade was considered a golden age for statin-based cholesterol treatments, such as Pfizer's Lipitor and Merck's Zocor. These treatments generated billions of dollars in annual revenue for both companies before their market shares were swallowed up by generic competition.
However, AstraZeneca's attempt to combine a fish oil treatment with a statin could yield unpredictable results, considering statins' long list of side effects, which include muscle and liver damage, digestive problems, elevated blood sugar, and diabetes. However, AstraZeneca knows that a Crestor-Epanova combo is really its only way to penetrate the fish oil market, since the market could be saturated with generic Lovaza from Teva and Par by the time the FDA reaches a decision to approve Epanova next May.
A Foolish final thought
In my opinion, Epanova or a Crestor-Epanova treatment will not be the game-changing treatment that AstraZeneca hopes it will be.
GlaxoSmithKline's Lovaza will probably never exceed the $1 billion blockbuster threshold, due to Teva and Par's inevitable generic versions. Those generics will flatten pricing across a narrow market. Meanwhile, Amarin's Vascepa might be a safer treatment, but it is neglected by larger companies, and doesn't have the marketing muscle to compete against the likes of GlaxoSmithKline, Teva, and Par. The potential indication of Vascepa for patients with high triglyceride levels is now pushed back to 2016 -- which renders it completely irrelevant as far as investors are concerned.
Therefore, AstraZeneca is diving into a very crowded fish bowl of fish oil treatments, which is on the verge of cracking. Investors should be concerned, and not excited, about the amount of money and time AstraZeneca is investing in this project, which simply appears to be a way to extend the life of Crestor.
