Biopharmaceutical company Amarin (NASDAQ:AMRN) released an update to its preliminary 2019 fiscal results several days ago. The company also provided additional guidance for 2020, based on the expected performance of its new cardiovascular drug, Vascepa. In both cases, there is good news for investors who own Amarin stock.
However, the launch of the new drug will require a hefty increase in operational expenses for 2020, and that has tempered market reaction somewhat. AMRN stock slid nearly 8% after the news was released, but has since begun to bounce back.
Amarin Revises Preliminary 2019 Results, 2020 Guidance
The FDA approval of Vascepa — the new fish oil-based drug to treat cardiovascular disease — is a game changer for Amarin. In the lead up to the approval, Peter Wilson, a professor of medicine at Emory University (and a member of the FDA advisory panel) noted:
“The panel felt very strongly that this fish oil product [Vascepa], taken in addition to statins, reduced cardiovascular disease.”
That statement and the subsequent FDA approval of Vascepa last December meant that Amarin had to take a look at the books again. On January 7, the company issued revised preliminary results for 2019. It is now expecting to hit or “slightly exceed” 2019 revenue at the upper end of its previous guidance, of between $410 million and $425 million. That would represent a revenue increase of about 85% over 2018.
It’s worth noting that AMRN had originally been expecting 2019 revenue in the $350 million range, but revised that upward in July.
In addition, the company issued guidance for 2020. With Vascepa sales ramping up in the U.S., Amarin is calling for revenue of between $650 million and $700 million. The big win for Amarin stock holders is the expectation that this is just the beginning. When Vascepa goes mainstream, AMRN anticipates that revenue for the drug will grow to “multiple billions of dollars.”
That doesn’t quite make Amarin another Merck (NYSE:MRK), but revenue at that level would certainly elevate AMRN’s ranking among global pharmaceutical companies.
You Have to Spend Money to Make Money
The expectation that Vascepa will be raking in billions of dollars in sales seems like nothing but upside for the company and its investors. So, why did the Amarin stock price drop after the updated financial information was released? It appears that the expenditures required to ramp up Vascepa sales have spooked some.
The company noted that it is doubling its U.S. sales force from 400 through most of 2019 to 800. The process of hiring, training and paying those additional employees is costly. In addition, Amarin says that because the sales of Vascepa will be tough to predict at first, it is doubling its expenditure on inventory this year compared to last year.
Doing so will ensure it will have enough of the new drug on hand to meet demand, even if it surges beyond predicted levels. In addition, the company is upping its spend on promotional and marketing activities.
Overall, Amarin estimates operating expenses in 2020 will increase by $200 million to $250 million over 2019. That number may have caused some concern among investors. The result? A drop in Amarin stock rather than the boost you might expect to see from those revised guidance numbers.
Outlook for Amarin Stock
The market for cardiovascular dugs is enormous, and growing. It’s on pace to hit $63.96 billion by 2026 — up from $47.29 billion in 2018 — and doctors are looking for new and more effective drugs for treatment. That puts AMRN in a good position, with Vascepa now approved for use. Where is Amarin stock going to end up as a result of the Vascepa rollout? InvestorPlace contributor Chris Lau had a look and found target valuations for AMRN ranging from $29.56 to over $50.
No matter how you measure it, at the current price of around $19, Amarin stock — powered by Vascepa — has significant upside for 2020.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
