Amarin (NASDAQ:AMRN) is drawing significant attention based on encouraging news from the FDA.
The stock price recently reached an all-time high of over $26 per share, but that may be simply a new level of resistance. The stock has since dropped back to just under $22 per share, and even at that level, the stock is not cheap.
Earlier this month, the FDA gave Amarin permission to expand the label of their fish-oil derivative drug, Vascepa. Under the new labeling guidelines, Vascepa will be the first FDA approved drug that can market itself as an add-on drug to maximally tolerated statin therapy.
The new label allows the company to market Vascepa as having the potential to reduce the risk of cardiovascular events. Prior to the ruling, Amarin could only say that Vascepa may reduce extremely elevated triglyceride levels. The potential for blockbuster sales of Vascepa is fueling speculation that Amarin will be a target of M&A activity.
This is not a new position for Amarin to be in. But recently some investors have said that an Amarin deal could be worth more than $20 billion. Some potential buyers for Amarin are “big pharma” staples such as Pfizer (NYSE:PFE) and Amgen (NASDAQ:AMGN).
Hedge Fund Activity and M&A Interest
At least three hedge funds and institutional investors took large, new positions in Amarin during the third quarter.
Russell Investments Group Ltd. Purchased 20,790 shares valued at $315,000. Oppenheimer & Co. Inc. also increased its stake in Amarin. The company purchased 4,570 shares in the third quarter. That purchase increased its share volume to 27,779 (a 19.7% increase). The shares are valued at $421,000. In fact, hedge funds and other institutional investors own approximately 53% of the company’s stock.
To be fair, hedge funds can buy shares of a company for a variety of reasons. However, when there is a conspicuous increase in its position, a hedge fund is telegraphing that a big move for the stock may be in store. One of those catalysts may be that a company is about to be targeted for acquisition. While some analysts are skeptical of the M&A risk, as the saying goes where there’s smoke, there’s fire.
Vascepa Has a Long Runway
One potential obstacle to an Amarin acquisition is the ability of the company to protect its intellectual property (IP). However, according to Louise Chen, an analyst from Cantor Fitzgerald, these concerns may be overblown.
Amarin reached a settlement with TEVA in which the latter company will not begin selling a generic version of Vascepa until August 2029. That’s only six months before Vascepa’s expiring patents in 2030. Second, Amarin continues to file for patent applications to protect Vascepa.
The company has 64 patent applications as of June 2018 and has applications in for an additional 30 patents.
However, despite the company’s ability to protect its patent, it may be less successful at building a true moat for Vascepa. As my fellow InvestorPlace contributor Todd Shriber wrote, there are several other biotech companies including AstraZeneca (NYSE:AZN), Acasti Pharma (NASDAQ:ACST) and Matinas BioPharma (NYSEAMERICAN:MTNB) that are working on alternatives to Vascepa.
Can Amarin Go It Alone?
A key reason that M&A speculation surrounds Amarin is concern that the company will be unable to handle the additional volume from the label expansion.
Amarin is simply saying “we don’t comment on rumor and speculation.”
Of course, that’s not exactly a denial. But in July, Amarin CEO John Thero told investors the company was preparing to significantly expand its sales force.
This will allow the company to reach between 70,000 and 80,000 healthcare professionals. Thero also commented that the company is currently gaining larger-than-expected access to doctors.
In my opinion, therein lies the key for Amarin. The active ingredient in Vascepa is a fish oil derivative, albeit a proprietary version available only through prescription. However, fish oil supplements have long been marketed as an alternative treatment for heart health.
This puts Amarin in an unenviable position of defending itself against a supplement that consumers can buy over the counter for a significantly lower price.
In a prior article, I openly speculated if Amarin can successfully market Vascepa as being superior to a fish oil supplement. I’ll admit convincing doctors may be a key first step. But it’s fair to question if Amarin can do that without help.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.