For Now, Amarin Stock Is a Gamble on FDA Approval

AMRN is difficult to predict while approval remains uncertain

Amarin (NASDAQ:AMRN) stock has seen its prospects dramatically improve. Vascepa, an omega-3-based treatment approved by the Food and Drug Administration (FDA), helped Amarin stock spike in September 2018 when it showed the potential to reduce cardiovascular (CV) disease.

For Now, Amarin Stock Is a Gamble on FDA Approval
Source: Pavel Kapysh /

However, since that time, Amarin stock has traded in a range as the company awaits FDA approval to sell the drug for purposes of CV disease reduction. Predicting whether the FDA will approve or deny an application is a risky prospect.

Moreover, while denial would almost certainly send the stock plunging, approval does not guarantee AMRN will move higher. For these reasons, traders should avoid AMRN stock until they know whether the FDA approves the further use of Vascepa.

Amarin Higher on Increased Sales Prospects for Vascepa

Upstart pharma companies can change their story — and the trajectory of their stock — with one blockbuster drug. Such is the case with Amarin. Its CV drug, Vascepa, has proven successful. It first received approval in 2012. Not only does it compete with GlaxoSmithKline’s (NYSE:GSK) Lovaza, it has FDA approval to treat patients with triglycerides between 200 mg/dL and 500 mg/dL.

However, last year, test results showed a 30% reduction in cardiac events from taking Vascepa. Consequently, Amarin applied for FDA approval to sell Vascepa for this purpose.

Vascepa’s success has helped take AMRN from penny stock status less than 18 months ago to the current AMRN stock price of $21.63 today. Now trading at more than 21-times sales, Amarin now trades at a premium.

Analysts project that the company will turn profitable as early as next year. They also see revenue growing by 79% this year and 59.5% in fiscal 2020.

However, since results from its landmark CV study sent Amarin stock surging in September 2018, it has traded in a range. More specifically, since that time, it has sold off from the low-to-mid $20s range on four separate occasions.

AMRN a Gamble on FDA Approval

For these reasons, I would advise traders to wait for the FDA results before buying. I think Amarin stock is either too high or too low to buy at these levels.

Unfortunately, the wait makes Amarin stock in large part a gamble on FDA approval. Should the FDA delay or deny Amarin’s application, this could devastate AMRN stock.

History indicates it has pulled back to the $13 to $17 per share range after trading above $20 per share. A denial could mean that that floor breaks. Also, even if the FDA approves the application, that could become a “sell the news” event as easily as it could become a stock price catalyst. Moreover, as Josh Enomoto states, AstraZeneca’s (NYSE:AZN) Epanova may become a competitive threat.

At this point, investors should remember that Vascepa drives strong growth for its currently approved purpose. I would see such a fall as a buying opportunity. However, an approval that drives Amarin stock above the $25 per share level would also indicate a buy point as that probably means a broken price ceiling.

Endorsements for Vascepa, like the one from the American Diabetes Association, strongly indicate that approval will come. However, until we know for sure, Amarin stock is more of a gamble than an investment.

Final Thoughts on Amarin Stock

Investors should wait for FDA approval to expand the scope of Vascepa before buying Amarin stock. As the company’s only drug, the fate of AMRN depends entirely on Vascepa. Its potential to reduce CV disease sent the stock rocketing higher in the fall of 2018. Now, it trades in a range as Vascepa awaits FDA acceptance for this other purpose.

Still, even if the prospects for approval look promising, Amarin stock remains a bet on a green light from the FDA. A delay or denial could create a buying opportunity in this fast-growing company. However, approval will not break AMRN out of its range if this announcement from the FDA prompts traders to sell the news.

Amarin stock appears headed for a bright, long-term future. However, until Vascepa can receive this latest FDA approval, AMRN stock is more of a gamble than an investment.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.

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