The Food and Drug Administration’s approval of a drug for use in cardiovascular events sent Amarin (NASDAQ:AMRN) higher last month. Even though the stock pulled back sharply, investors who believe the use of Vascepa (icosapent ethyl) will grow strongly from here should watch Amarin stock.
Its sales prospects are the number one positive catalyst in giving AMRN stock price the lift it saw last month. So, how much potential sales does Vascepa have?
The FDA approved Vascepa 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 need to have two or more risk factors for cardiovascular disease or established disease. Yet since this disease is so prevalent in our society today, the addressable market for Vascepa is enormous. There were at least 11 million people who are candidates.
The total addressable market metric gives a rough estimate of the market’s revenue potential. But market penetration will matter more. Investors should watch out for Amarin’s market capture rate in the next few quarters. If it increases, it will show up in the company’s revenue numbers from its quarterly report.
“The FDA approval of icosapent ethyl as an addition to statin therapy to reduce the risk of cardiovascular events is a major milestone in cardiovascular prevention,” said Deepak Bhatt, Executive Director of Interventional Cardiovascular Programs
Professor, Harvard Medical School. “Nothing this significant has happened in the world of cardiovascular prevention since the introduction of statins nearly three decades ago. Many patients stand to benefit from this historic advance in care.”
Fortunately for investors not yet holding AMRN stock, the profit-taking takes removes some of the premium. It also discounts the possibility that Amarin and the health industry is slow in advertising Vascapa’s merits for preventing cardiovascular disease.
At a market capitalization of almost $8 billion, Amarin is a modest-sized firm that could be ripe for a takeover. Drug companies that make statins, such as Pfizer (NYSE:PFE), Merck (NYSE:MRK), and AstraZeneca (NYSE:AZN) may express interest in buying Amarin.
Strong Quarterly Results
Before the Vascepa news, Amarin already reported record prescription so of the drug in the third quarter. Revenue grew 103% from last year to $112.4 million. With FDA approval, the company will increase its sales force size to support the new launch in 2020.
The value investor should expect Amarin’s operating costs rising sharply in the near-term. So even if revenue rises, profits may sink as the company invests in the business. After 6-9 months, the sales team’s effectiveness should result in a sharp increase in sales.
To model the scenario of revenue growing at least 50% in the next five years, use a DCF Revenue Exit model. At a discount rate of 9.5%, AMRN stock is worth ~$37 a share. Analysts are bullish but have a more conservative price target of $29.56 (per Tipranks).
SimplyWall.St is even more optimistic on the fair value of AMRN stock. Based on its future cash flow from Vascepa sales, the stock could be worth over $50 a share.
Chances are very high that Amarin’s annual revenue will grow at a healthy pace. Add a stock premium to account for a buyout scenario and suddenly the Amarin stock price may trend upward throughout the year.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.