Amarin (NASDAQ:AMRN) was one of the leading biopharmaceutical stocks in 2019. The reason for this was the company’s sole drug Vascepa received approval from the FDA to print an expanded label.
According to the Vascepa website, the new label gives the drug the following indicator:
VASCEPA is now approved, along with certain medicines (statins), to reduce 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.
Any time a drug manufacturer issues news that can increase its patient base, it’s generally good news for the company’s stock. And that may be the case with Amarin. However, after getting an initial lift from the expanded label, the stock has fallen to around the $20 level where it seems to be settling into a tight range.
This leads me to believe that rather than giving into FOMO (fear of missing out), investors may be taking a prudent, wait-and-see approach.
The Bullish Case for Amarin Stock
Amarin stock had a roller coaster year in 2019. However, the bull narrative seems to be getting a boost. It’s not that their share price is beating the broader market – it’s not. Technical analysts would point out that in the last few months, since the expanded label was a foregone conclusion, the stock looks to be trading in a more defined range. And while investors are not seeing higher highs, they are seeing higher lows.
If nothing else, the removal of uncertainty should create a higher floor for the stock. And it supports the bullish argument that Amarin will be a great stock over the next 10 years. And with Vascepa, like many drugs, it’s really only useful to look at the next 10 years.
Amarin has multiple patents on Vascepa, but patents don’t last forever. Nor will Amarin’s runway. But for now, the company has as much of a moat as it can have. Particularly when its two primary competitors AstraZeneca (NYSE:AZN) with Epanova and Acasit Pharma (NASDAQ:ACST) with CaPre are both having problems getting their drugs approved.
But that’s where the bullish case ends, because ultimately, the bullish case is based on hope. I’m not naïve about the reality of human behavior. Heart disease and the risk of cardiac events are serious. And as Americans, we have thrown in the towel on relying on wellness activities (i.e. diet and exercise) alone to treat our illnesses. If we can take a pill for it, we will.
However, what Vascepa provides in a capsule is available (albeit in a less concentrated form) in fish oil supplements or directly from fatty fish. This is at the core of the bearish case.
The Bearish Case for Amarin Stock
At its core, Vascepa is prescription-grade fish oil. That’s not to dismiss its effectiveness. Fish oil has been proven to have some effect at lowering triglyceride levels. And the argument goes if a little is good, a lot is better, particularly if taken in the concentrated, precise form that is available with Vascepa.
However, Vascepa as well as any omega-3 supplement, is an ancillary treatment that has an additive effect. It doesn’t take the place of other activities that can help lower triglyceride levels, one of which is to eat more fatty fish.
My InvestorPlace colleague Josh Enomoto cited Harvard Health Publishing chief medical editor Howard LeWine M.D. who cautioned that omega-3 may not be a wonder drug. Dr. LeWine writes:
Omega-3 fatty acids play important roles in brain function, normal growth and development, and inflammation. Deficiencies have been linked to a variety of health problems, including cardiovascular disease, some cancers, mood disorders, arthritis, and more. But that doesn’t mean taking high doses translates to better health and disease prevention.
And here’s one more thing to get you thinking. There is some speculation that Amarin may be the target of a takeover. This is because there is concern that the company would not be able to keep up with increased demand for Vascepa.
Why You Can Wait on Amarin Stock?
I’ve been bearish on Amarin stock, because I believe ultimately Dr. LeWine may be right. The simple fact is that hope and hype are not a sound investment strategy. Amarin will now have to prove it can deliver on the promise of the new label. If it can, then investors should not have to wait five years down the road to see results.
Analysts are giving Amarin a consensus price target that would be a 30% increase from current levels. However, the 12 analysts that offered ratings have a range of outcomes with a high of $51 per share and a low of $13 per share.
For many investors, the bullish case for Amarin is an open and shut case. It’s the same way for the bears. My response is, what does it hurt to wait on Amarin stock? The company is not projected to report earnings until Feb. 26. By then, investors should have a better sense of whether Vascepa will live up to the hype.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
