What This FDA Decision Means for Amarin Investors

Throughout 2012 and 2013, one of the biggest overhangs Amarin investors were debating was the new chemical entity, or NCE, status of the company's lead drug Vascepa. The FDA has finally decided, after mulling over the issue for more than a year, that the compound doesn't merit the NCE designation  and the five-year market exclusivity that the status would have conferred on it. Instead, the compound has just been granted the standard three year exclusivity. Once considered a major catalyst for the stock, the NCE issue has taken a back seat to Amarin's more pressing concerns with short-term survival.

A look back
The NCE denial is a painful addition to a long line of disappointments Amarin has faced recently, including disappointingly slow uptake of the drug in the market following its 2012 approval. In October, The FDA's Endocrinologic and Metabolic Drugs Advisory Committee voted against approval of Vascepa  in a critical supplemental indication, and asked instead for results of an expensive ongoing cardiovascular outcomes trial.

Shares of Amarin plummeted over 60% on Oct. 15, 2013 after this vote was revealed, and the stock hasn't recovered. That was only the latest of a series of hits the stock has taken since its glory days trading over $20 per share in 2011.

Vascepa is already approved for reduction of triglycerides in adults with severe hypertriglyceridemia based on its MARINE clinical trial program. Amarin's strategy all along has been to supplement that niche indication with a much larger indication—mixed dyslipidemia. Severe hypertriglyceridemia is relatively uncommon (affecting 1 in 50 adults) compared to the widespread prevalence of mixed dyslipidemia.

The company''s ANCHOR clinical trial program was designed to demonstrate the benefits of Vascepa in that broader indication, which would have helped the company realize the drug's early promise as a potential blockbuster.

The EMDAC's slapdown of the ANCHOR indication—unprecedented for a trial carried out under Special Protocol Assessment—has essentially overshadowed any other possible news related to the company and its stock. Amarin has spent the past four months in damage control from that event. First, a reduction in staff, including is sales force, which was cut by half. Then legal actions appealing the FDA's withdrawal of its Special Protocol Assessment. Decisions by the FDA on that appeal, and on approval of the supplemental drug application have been postponed with no new PDUFA date issued.

Meanwhile, Amarin is pressing forward with the costly REDUCE-IT cardiovascular outcomes trial, which will attempt to link the lipid-lowering benefits of the drug to concrete reductions in the risk of cardiovascular events in 8000 patients, rather than relying on surrogate biomarkers, as the shorter term studies have. Results of REDUCE-IT will not be available until 2017.

Amarin needs better sales numbers yesterday
Denial of NCE status for Vascepa is a distant problem compared to the urgency of increasing sales of the drug in the near term. The drug will still have three years' exclusivity (although the clock started in 2012 when it was approved), with the possibility for extension with legal action by Amarin upon filing of competing generics. Meanwhile, Amarin has real problems, now, in 2014.

In an investor conference related to the company's quarterly earnings, Amarin's CEO John Thero outlined plans to continue growing sales of Vascepa, which were $26.4 million in 2013. Amarin will try to make the most of its reduced sales force by targeting "high potential" prescribers and driving home the message of its differentiation from Lovaza, GlaxoSmithKline's (NYSE: GSK) competing product. Although both drugs lower triglycerides, Amarin would like to make prescribers aware that Lovaza has been shown to raise LDL-C, the "bad cholesterol," while Vascepa lowers LDL-C.

If it can win over physicians—Vascepa has not been an immediate smash hit thus far—the company will combine the prescription growth with a freeze on inventory growth to maintain a net cash burn of less than $80 million, putting the company into positive cash flow in most scenarios, including no ANCHOR indication.

However, with $191.5 million in cash on hand, cash burn of $80 million, a $100 million or more clinical study to complete in the next three years, and much legal wrangling with the FDA ahead of it, Amarin's bottomed out stock is as unlikely to move up as down.

Amarin's appeal process, if successful, could give the company a boost. It carried out the ANCHOR program under special protocol assessment, which obligates the agency to approve the drug as long as the trial is carried out as agreed. The FDA dealt with the problem by revoking Amarin's SPA, and it will be challenging for Amarin to make progress with its case.

Looking more broadly at this market, the EMDAC's decision marked a shift in the agency's beliefs about surrogate cardiovascular endpoints, but it may have chosen the wrong place to make that stand. If Amarin can prevail in its legal challenge and reinstate the ANCHOR SPA, it may still pull off the label expansion that could make the difference between barely scraping by and wildly profitable. But investors would be wise not to count on this happening.