In December 2019, Amarin Corporation (NASDAQ:AMRN) received FDA approval for Vascepa to reduce cardiovascular risk. Being the first and only drug approved by the FDA to reduce persistent cardiovascular risk, the news was big. However, Amarin stock movement was rather small.
Clearly, the approval was already discounted in the stock price, and investors resorted to “sell on news.” Now, Amarin stock is trading nearly 20% lower compared to the highs made just after the FDA approval. Furthermore, in past year, AMRN stock has moved higher by just about 9%.
If we understand the language of the markets, it’s telling us that all near-term positives have already put a discount in the stock. This includes the revenue guidance of $650 million to $700 million for 2020.
I want to mention that, even with a big addressable market and first-mover advantage, top-line growth will not be extraordinary. In their outlook for 2020, Amarin provides the reason:
“While Amarin anticipates revenue growth to be stimulated by such activities, it is common for patients who are candidates for Vascepa to visit their physicians only once, sometimes twice, annually. As a result, similar to the experience of other therapies for treating chronic conditions, we do not anticipate prescription rates for Vascepa to spike upwardly immediately.”
This is another reason for a rather muted market reaction to the FDA news. This is important for a stock that trades at a market capitalization of $6.6 billion, which is more than 10 times the 2020 sales guidance.
However, I am not bearish on Amarin. Some may consider sideways movement as an opportunity to accumulate the stock. And towards the end of 2020 or in 2021, Amarin stock is likely to have multiple upside triggers.
International Approvals Can Trigger Amarin Stock Upside
In the next 12-18 months, international approvals for Vascepa could take Amarin stock higher. In Canada, Amarin’s partner — HLS Therapeutics — has already received approval for Vascepa. With that, the drug will be likely be available around February 2020.
Additionally, a bigger market and stock upside trigger will be European approval. The European Medicines Agency has already accepted the marketing authorization application for review. The company expects the procedure to complete before the end of 2020.
According to company estimates, cardiovascular disease, including heart attacks and stroke, causes over 1.8 million deaths in the European Union. Therefore, there is a big addressable market.
It is also worth noting that in January 2018, Amarin commenced clinical trials for Vascepa in China. With that, the company expects trials to finish up within the next two years
So, with the FDA approval, it seems very likely that other approvals will follow.
Therefore, I believe that towards the end of 2020 or into 2021, Amarin stock will trend higher — with entry into big potential markets outside the U.S. being the upside trigger.
Another factor that will boost the company’s top-line prospects were the setbacks by competitors. As an example, AstraZeneca (NYSE:AZN) reported aborting trials for its Epanova drug. This is a positive for Amarin because this was a potential competitor for Vascepa.
In terms of numbers, Aegis analyst Nathan Weinstein believes that Vascepa can achieve sales “north of $2 billion a year” by 2025. However, I believe that this target can revise if the company makes inroads into Europe, China and the Middle East.
My Final Views on Amarin Stock
It is worth noting that since the drug launched in 2013, there have been more than 8 million prescriptions for Vascepa for a niche market. Therefore, there is potential and $2 billion annual revenue estimate by 2025 is conservative if the company can aggressively expand globally.
Amarin has $673 million in cash & equivalents as of Q3 2019. This gives the company financial flexibility for rapid expansion of its sales force and marketing efforts.
Therefore, there are plenty of reasons to be bullish for the long-term — and Vascepa has the potential to be a “blockbuster drug.” In the medium-term, U.S. and Canada will drive growth. In the long-term, Europe and China can support a healthy growth trajectory.
However, I remain neutral on Amarin stock with positive factors for the first few quarters of 2020 discounted in valuations. But, new geographic approvals will help valuations adjust on the upside after 2020.
As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.
