Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Amarin Corporation plc (NASDAQ:AMRN) rose more than 10% today after the company announced that it had signed a commercialization agreement that will allow its triglyceride-lowering drug Vascepa to be sold in China.
So what: Eddingpharm will pay Amarin $15 million up front and as much as an additional $154 million in development, regulatory, and sales based milestones to license Vascepa in China, Hong Kong, Macau, and Taiwan.
Eddingpharm also agreed to pay Amarin double-digit royalties on sales in those markets that could reach the high teens, depending on sales levels.
Although it's uncertain to what extent there will be for demand for Vascepa in Eddingpharm's markets, there are reasons for optimism. Over the past decade the pharmaceutical market has been expanding by 20% per year in China, making China the third largest market on the planet for prescription medicines. The market for drugs in China should continue to climb as its economy improves, people live longer, and its health care systems modernize.
If China's potential can be realized, it could mark an important victory for Amarin. The company has been embattled since 2013, when a key FDA advisory panel opted against expanding its label to address a larger patient population, asking instead for additional confirmatory results.
Because the FDA opted against label expansion, Vascepa's sales have been much smaller than hoped. In the third quarter, Vascepa revenue totaled just $14.1 million.
Now what: Amarin's confirmatory data for a label expansion won't likely be available for FDA review until 2018, so any news that could potentially move the sales needle and offset expensive trials is welcome by investors. However, there are just too many questions remaining for me to want to step in and buy shares.
One of the biggest reasons I'm content to sit on the sidelines is the company's cash burn. Through the first nine months of last year, its cash and equivalents sunk by $56 million to $135.4 million. Until we get more insight into just how much demand there is for Vascepa in China, this one remains too speculative for me.