Amarin Stock Will Keep Powering Higher In 2020

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In late 2018, bio-pharmaceutical company Amarin (NASDAQ:AMRN) cracked the fish oil code. That is, the company finally developed a fish oil pill that actually reduces the risk of a cardiovascular event — something that big bio-pharma companies have been trying to do forever, but none of which have been successful in doing.

Amarin Stock Will Keep Powering Higher In 2020

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In response to cracking the fish oil code, Amarin has been on a huge, secular march higher. In 2018, Amarin stock rose 240%. Year-to-date, shares are up another 60% in 2019. What’s more, Wall Street doesn’t expect the rally to end anytime soon. Next year, the consensus sell-side price target on Amarin is $30, which represents about 40% upside from current levels.

In other words, Wall Street is saying that on the heels of a 240% up year and a 60% up year, Amarin stock is positioned for another 40% rally in 2020.

Will that really happen? I doubt it. Amarin marching toward $30 seems highly optimistic, and would put shares in an exceptionally richly valued territory. But, there is enough fundamental firepower here (and there are enough growth tailwinds in 2020) to justify Amarin moving higher in 2020 — just not by 40%.

In the big picture, then, Amarin stock will keep powering higher next year. It won’t win big like it won big in 2018 or 2019. But, it’ll still win, and by enough to justify holding onto shares for the time being.

Amarin Cracked the Code

Taking a step back for moment, Amarin cracked the fish oil code in late 2018, and that’s a huge deal in the enormous cardiovascular treatment world.

Cardiovascular health is arguably one of the biggest health problems in the world, with cardiovascular disease being the No. 1 killer of men and women globally. At present, the only solution out there aimed at fixing this massive health problem is something called statins, or medicine aimed at lowering blood cholesterol. Some 40 million Americans take statins. But, statins alone are insufficient to meaningfully reduce cardiovascular risk. Cardiovascular disease remains responsible for one out of every three deaths in the U.S.

A new solution is needed. In late 2018, Amarin came up with that solution. They developed the first fish oil pill which clinically reduces the risk of a cardiovascular event. Called Vascepa, this new treatment is being heralded as a revolutionary breakthrough in cardiovascular therapy.

That’s a big deal. The cardiovascular treatment industry in the U.S. is $500 billion alone. Of importance, Vascepa just won Food and Drug Administration approval in late 2019. That makes it the first and only FDA approved therapy for treating persistent CV risk beyond statin therapy. Also of importance, Vascepa’s intellectual property rights extend into the late 2020s, with some extending into the 2030s. And, no one else in the fish oil game is even close to rivaling the robust clinical success of Vascepa.

In other words, Amarin projects to run in open fields over the next few years, solely disrupting a $500 billion market without much competition. That’s exactly why Amarin stock has been so hot, and why it will remain hot for the foreseeable future.

Amarin Stock Can Move Higher

Amarin stock won’t rise another 50% in 2020. But, it does look like a solid bio-pharma investment for next year, as sustained robust domestic growth and international expansion will power a 10%-plus gain in shares.

The numbers here aren’t too hard to follow. Ever since Vascepa illustrated clinical success, Amarin’s growth trajectory has gone parabolic. Year-to-date, revenues are up 89%. And that’s before FDA approval (which just happened in late 2019) and international expansion (which should happen in 2020/21).

In other words, this growth narrative is just getting started. That’s why 2020 revenues are projected to rise another 65% to $700 million, while 2021 revenues are projected to rise more than 40% to over $1 billion, according to Wall Street estimates. This growth ramp won’t slow thereafter. The number being thrown around Wall Street is $2 billion, as most analysts feel that this is the peak sales potential of Vascepa by the mid-2020s.

Let’s assume that happens by 2025. Gross margins are closing in on 80%, about 10 points above the pharma industry average gross margin of 70%. Consequently, assuming similar opex rates, Amarin’s operating margins at scale should be about 10 points above the industry average operating margin of 25%, so around 35%. Assuming that margin profile on roughly $2 billion in sales, my modeling pegs Amarin’s 2025 earnings-per-share potential at somewhere around $2.25 per share.

Based on an exit multiple of 16-times forward earnings (which is the market average multiple), that equates to a 2024 price target for Amarin of $36. Discounted back by 10% per year, that implies a 2020 price target of nearly $25.

Bottom Line on Amarin Stock

Amarin has cracked the fish oil code in the CV industry. That guarantees the company robust revenue and profit growth over the next few years. A lot of that growth is already priced into the company’s stock. So, the days of 50%-plus annual gains are over. But, not all of it is priced in, and the long-term fundamentals imply that shares still have healthy upside potential in 2020.

As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/12/amarin-stock-will-keep-powering-higher/.

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