What: Shares of Amarin (NASDAQ:AMRN), a biopharmaceutical company focused on developing therapies to address treatments for cardiovascular diseases, soared 48% in February per S&P Capital IQ data after receiving a very generous upgrade from a Wall Street firm and announcing a licensing agreement for its drug Vascepa in China.
So what: The first big pop for Amarin came mid-month when SunTrust Bank upgraded the company to "buy" from "neutral" and set an aggressive $6 price target on the stock, implying almost 500% upside. The reasoning behind SunTrust's upgrade is its belief that triglyceride-lowering drug Vascepa's sales will continue to increase modestly in the coming years, but that the company will get its long-awaited label expansion into a larger patient pool for Vascepa later this decade.
Also, last Thursday Amarin announced a licensing agreement with Eddingpharm in China to develop and commercialize Vascepa within the country. Under the terms of the agreement, Eddingpharm will handle the development and commercialization activities and expenses in China, while Amarin will mostly support Eddingpharm's efforts. Amarin nets $15 million upfront from the deal, as well as the potential to earn up to $154 million more in development, regulatory, and milestone payments.
Now what: After hovering dangerously close to $1 per share for months, the rally in February is a welcome sight for shareholders. Although the upgrade was nice, the news with substance is Amarin's deal with Eddingpharm. While Amarin may not have netted the best terms, considering its current predicament, adding $15 million in cash is what investors are clearly pleased about.
However, Amarin's cash burn remains a serious concern. The Food and Drug Administration rejected Vascepa's label expansion into high, but not exceptionally high, triglyceride patients in 2013 (those with 200 mg/dL to 499 mg/dL triglyceride levels) and is requiring a long-term (and expensive) cardiovascular outcomes study known as REDUCE-IT to demonstrate that Vascepa is safe and effective. Only then will the FDA consider a label expansion of the product. Unfortunately, by 2018 when the REDUCE-IT results are released, new competitors may have hit the market, and Amarin will likely have continued to burn through its cash on hand.
While shareholders do have a reason to celebrate in February, their joy appears to be short-lived with Vascepa's current indication limited and unlikely to make the company profitable. This is a stock I'd suggest adding to your watchlist, but avoiding with your actual money for potentially the next couple of years.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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