Even Though It’s Risky, Amarin Stock Is a Worthwhile Buy

Amarin stock isn't a sure bet, but it's a good one

Amarin (NASDAQ:AMRN) first traded above $20 in October 2018 after the biopharmaceutical company released a study that showed its FDA-approved drug Vascepa reduced the risk of cardiovascular events by 25%. As a result, Amarin stock jumped by 313% in a single day on the news. 

Even Though It's Risky, Amarin Stock Is a Worthwhile Buy
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In the 17 months since then, Amarin’s share price has climbed above $20 on three separate occasions: March 2019, July 2019, and November 2019. On each occasion, it failed to hang on to those gains. 

As I write this, Amarin stock is down falling to around $17.50. 

In mid-January, I argued that AstraZeneca’s (NYSE:AZN) decision to end clinical trials of its fish-oil-derived heart drug, Epanova, provided Vascepa with a nice runway for growth. That could lead to as much as $4 billion in peak annual sales, 10 times their current level. 

Amarin Stock Fails to Lift Off

My argument in January was simple: There is a good 10 years of growth ahead for Vascepa, which meant that it would either become the object of a takeover or the drug’s 75%-100% growth in annual sales would naturally propel its share price to $30 before the end of the year.

With almost two months in the books, the coronavirus is not helping my cause. Until that gets under control, I doubt Amarin will breach $20, let alone $30. 

At this point, the markets being weaker should be enough to keep it from trending higher. However, the company reports its Q4 2019 results on February 24 after the markets close. Those results should give investors a better idea about its overall profitability.

In the third quarter, Amarin lost $3.5 million on a GAAP basis or $4.5 million on a non-GAAP basis, a significant improvement from a non-GAA loss of $17.8 million a year earlier. At the same time, its revenues increased 103% year over year to $112.3 million. 

In the third quarter, the number of Vascepa prescriptions increased by 89% to 865,000. Now that Vascepa has FDA approval for label expansion, which means it can now be used to reduce the risk of cardiovascular events in patients, it is doubling the number of sales representatives in the U.S. to 800 to meet the demand.

I’d expect based on Q3 2019 that the company will report strong revenue growth in the fourth quarter, but the real show will come in Q2 2020 and onward as Amarin’s expanded salesforce meets with doctors across the country. 

Add in future approvals in Europe, Canada, and elsewhere; it seems as though another big jump like we saw in late September and early October of 2018, is a real possibility in the second half of 2020. 

It All Comes Down to the Patents

At this point, the most significant factor keeping Amarin down has to do with the patent litigation that’s currently underway with both Dr. Reddy’s (NYSE:RDY) and Hikma Pharmaceuticals (OTCMKTS:HKMPF). Both generics manufacturers are trying to horn in on Amarin’s gold mine by challenging the patent protection. 

“The patent litigation trial remains a key make-or-break event for the stock, in our view,” SVB Leerink analyst Ami Fadia wrote in a note to investors. “We continue to believe that on patent validity, the generics will be fighting an uphill battle to demonstrate that previously cited prior art by the patent examiner will render the patents as obvious, and on patent infringement, we believe the Judge will find intuitively persuasive Amarin’s position with regard to the 12 weeks’ duration claim for inducement.”

While some analysts believe that Amarin will survive the litigation with its Vascepa exclusivity intact (Citigroup upgraded AMRN to a buy Feb. 18 with a $24 target price) others aren’t nearly as optimistic. 

Oppenheimer analyst Leland Gershall believes that the share price already reflects a favorable ruling for Vascepa in the courts. Should Amarin lose some of its exclusivity, Gershall sees potential suitors walking away. Also, because it’s adding heavily to its salesforce, its profitability won’t be nearly as attractive as investors think. 

For this reason, Oppenheimer has an underperform rating and a $13 target price. 

Who’s Right?

If you have a coin, I’ll do the honors, and give it a flip. 

Seriously, though, it’s easy to see why Amarin’s having a tough time staying above $20. A loss would almost certainly cripple its stock, possibly sending it lower than Gershall’s target price. 

I said Amarin was a buy at $20 in January. At $17, it’s still a buy. Just don’t bet the farm on it because there is still a chance it could lose in the courts.    

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/02/amarin-stock-worthwhile-buy/.

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