Amarin (NASDAQ:AMRN) got excellent news Monday that sent AMRN stock up by more than 5% in early trading.
AstraZeneca (NYSE:AZN) announced that it would stop a sizeable clinical study of its fish-oil-derived heart drug, Epanova, concluding that it was unlikely to benefit patients. This decision eliminates a potential competitor to Amarin’s heart drug Vascepa, the only option derived from fish oil approved for retail by the Food and Drug Administration.
For longtime investors in Amarin, the news ought to reduce some of the volatility surrounding the company’s only commercial product. Over the past 52 weeks, AMRN stock has traded above $22 on four separate occasions and below $15 twice.
AstraZeneca’s loss is Amarin’s gain. The question is whether the news is enough to push its stock to $30 in 2020.
Here are the arguments for and against AMRN hitting the $30 target by Christmas.
Amarin Stock Will Hit $30
In December, I discussed how strategic buyers could be willing to pay as much as $56 a share, or $20 billion, for Amarin’s stock. While paying a massive 180% premium on current prices seems crazy, the fact that AstraZeneca has dropped out of competition leaves Amarin in a much stronger bargaining position.
Estimates put Vascepa’s future peak sales as high as $4 billion. That’s 10 times the company’s sales in 2019. Yet despite the tremendous potential, AMRN stock has lost about a fifth of its value since hitting a 52-week high of $26.12 on Dec. 16.
InvestorPlace’s Thomas Niel recently pointed out that Israeli-based Teva (NYSE:TEVA) has the right to begin selling a generic version of Vascepa in 2029, one year before Amarin’s patent protection runs out.
But until somebody else comes up with a drug to compete with Vascepa, Amarin has the field to itself. At least a few big drug companies will be interested in capturing Vascepa’s growth runway for the next decade.
Sure, it might not get taken out at $56, but I’m confident several candidates are willing to pay between $30-$40 in the next 12-18 months.
The question is whether management and the board would be interested in selling at this stage of the game. In the meantime, with sales growing at 75%-100% a year, it will take Amarin three or four years to hit an estimated peak of $4 billion in sales.
In four years, this growth rate could make $56 look like a rounding error. That said, I’m not suggesting Amarin stock is going to $560 or something ridiculously high. I am saying that it has almost certainly got enough in the pipeline to move its share price to $30 over the remainder of the year.
The Stock Won’t Make It Past Mid-$20s
My InvestorPlace colleague isn’t wrong to suggest a lot of the good news is already priced into the stock’s valuation. In 2019, Amarin gained 59%, an excellent performance by any standard, but it’s hardly a biotech superstar. By comparison, Acadia Pharmaceuticals (NASDAQ:ACAD) more than doubled in 2019.
I don’t think the valuation card is the argument to make if you believe Amarin stock won’t get past the mid-$20s in 2020.
For me, the two best arguments are that Amarin will continue to lose money in 2020 and secondly, that some of the generic manufacturers will successfully challenge its patents in court, reducing the attractiveness of its 2030 patent protection.
That said, the company’s third-quarter results show that profits are just around the corner — in Q3 2019, it lost $3.5 million, a fraction of the $24.5 million loss a year ago — which suggests the only thing holding Amarin back from $30 in 2020 could be a successful court challenge by either Dr. Reddy’s (NYSE:RDY) or Hikma Pharmaceuticals (OTCMKTS:HKMPF).
The Bottom Line
With AstraZeneca out of the way, I find it hard to believe that Amarin’s not going to have a good year, both in terms of Vascepa’s sales and the AMRN stock price.
Assuming it becomes profitable in fiscal 2020, I don’t see the headwinds necessary to stop it from getting to $30 by Christmas.
In my opinion, Amarin’s a buy at $20.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
