You can’t fight the government: I’ve emphasized this investing principle repeatedly. If the government gives a company its stamp of approval, that’s typically your signal to get in — and that’s doubly true in the case of a pharmaceutical play like Amarin (NASDAQ:AMRN) stock.
It’s also a nice bonus when you’re taking a stake in a company that’s promoting health and could even save lives. Shares of Amarin stock received a boost from a recent Food and Drug Administration approval, but they’ve pulled back since that time. Could this be your chance to buy and hold on for healthy gains?
Big News for At-Risk Patients and AMRN Stock
FDA approval, or the lack thereof, tends to be a make-or-break binary event for pharmaceutical companies like Amarin. This company’s flagship product is known as Vascepa, a prescription drug that’s basically a capsule containing omega-3 fatty acids. According to the official website for this drug, Vascepa “is the first and only prescription EPA treatment approved by the FDA to lower very high triglycerides (without raising bad cholesterol),” with the objective of reducing “the risk of heart attack, stroke and certain types of heart issues requiring hospitalization in adults with heart (cardiovascular) disease, or diabetes and 2 or more additional risk factors for heart disease.”
This drug had already been approved in 2012 but only for patients with severely elevated levels of triglycerides. The U.S. Food and Drug Administration’s Dec. 13 announcement that patients with just “elevated” (and not necessarily “severely elevated”) triglyceride levels could now be prescribed Vascepa was encouraging for patients and shareholders alike, though there were a couple of provisos:
“The U.S. Food and Drug Administration today approved the use of Vascepa (icosapent ethyl) as an adjunctive (secondary) therapy to reduce the risk of cardiovascular events among adults with elevated triglyceride levels (a type of fat in the blood) of 150 milligrams per deciliter or higher. Patients must also have either established cardiovascular disease or diabetes and two or more additional risk factors for cardiovascular disease.”
From a medical point of view at least, this should be viewed as a milestone. John Sharretts, M.D., explains the significance: “Today’s approval will give patients with elevated triglycerides and other important risk factors, including heart disease, stroke and diabetes, an adjunctive treatment option that can help decrease their risk of cardiovascular events.”
Traders evidently saw the event’s significance as well, as they bid up the AMRN stock price, but only temporarily. Within a few days, Amarin stock coughed up its post-announcement gains. What gives?
Stifel Stifles the Rally
I probably shouldn’t be surprised when this happens, but it still amazes me how much influence an analyst’s downgrade can have on stock prices. In the case of Amarin stock, all it took was a statement and a downgrade from Stifel’s Derek Archila to scare traders away from AMRN.
Demonstrating that the pen is indeed mightier than the sword, Archila lowered his rating on AMRN stock from buy to hold while declaring, “We are taking profits post approval and heading to the sidelines.” Yet, he raised his price target from $26 to $28, suggesting an approximate 20% increase from the share price at that time.
Evidently the trading community prefers to read words and ignore math, as they’ve dumped their AMRN shares and elected not to participate in this apparent 20% upside (if Archila and company are to be believed). Thankfully, Amarin has evidently ignored this analyst and moved forward with its commitment to doubling its sales force to 800 sales representatives in early 2020.
Moreover, in light of its breakthrough moment, Amarin now expects its net revenues to total $650 million to $700 million next year. U.S.-based Vascepa sales will drive this revenue increase, though Europe may be the next target for this breakthrough drug.
The Takeaway on Amarin Stock
Call me callous, but I’m actually glad that the AMRN stock price dipped upon the Stifel analyst’s downgrade. In time, and as more doctors begin to prescribe Vascepa, I expect the share price to regain its former peak and more. After all, I don’t need any analyst’s approval to recommend Amarin stock — the government’s approval is good enough for me.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.