Bio-pharmaceutical company Amarin (NASDAQ:AMRN) is expected to release Q4 financial results in the second half of February. Year-to-date, Amarin stock is down about 18%, and long-term investors are wondering if the recent fall in price provides a good entry point into the shares.
In recent months, investors received a range of positive news from the company, especially regarding its potential blockbuster drug Vascepa, which is also its only marketed drug.
Although I’m bullish on the stock in the long-run, there is likely to be increased volatility in the coming days. Therefore, investors could regard any potential dip in the share price as an opportunity to go long the company. Let’s take a closer look.
What to Expect from Q4 Earnings
When the Amarin released its Q3 earnings in November, it beat analyst estimates on revenue and profits. Net revenue was $112.4 million, an increase of 103% YoY.
This growth came primarily from Vascepa sales due to increased prescription volume from prior and new prescribers. The group also posted a small earnings-per-share (EPS) profit of 1 cent.
Although Vascepa is a fish oil derivative, it is not just a dietary supplement. In the company’s earlier history it was used to treat high triglyceride levels for close to a decade.
Then came the major breakthrough in 2019 when studies showed the the high potential to reduce the risk of cardiovascular disease (CV) events in at-risk patients. CV events include heart attack, stroke and cardiovascular death. Cardiovascular disease is the number one cause of death in the U.S. as one heart attack, stroke or CV death occurs every 14 seconds.
In December 2019, the U.S. Food and Drug Administration (FDA) approved “the use of Vascepa (icosapent ethyl) as an adjunctive (secondary) therapy 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.”
Therefore when Amaring releases Q4 earnings, analysts will look for any further updates regarding the potential of the drug. For example, in 2019 management had raised the 2019 guidance three times. If a similar positive guidance were to be announced in the coming days, the Street would likely reward Amarin stock.
Long-Term Catalysts Behind AMRN Stock
As a result of the FDA decision, Vascepa has now become the only drug approved in the U.S. for lowering CV risks in conjunction with statin therapy. And it is increasingly being more accepted by the medical community.
In Q3, management highlighted that it would be doubling its U.S. sales force to 800. The group now aims to reach 75,000 doctors across the country. It also plans to plans to increase its direct-to-consumer promotion of Vascepa.
However, investors should bear in mind that target patients in general see their medical doctors rather infrequently. Therefore, it will likely be several quarters before the number of patients who begin to use the drug will increase substantially.
Amarin management now expects total net revenue for the drug to be between $650-$700 million in 2020. And 2021 is likely to see sales of $1 billion. As the drug’s outreach for the treatment for high triglycerides expands to other countries outside the U.S., the sales number will potentially increase substantially, too.
Also as of the end of Q3, the company was free of debt, apart from from $64 million in royalty payments. In Feb. 2020, the number had already decreased to $52. Management expects that amount to be paid in full this year.
Nonetheless, operating expenses will likely rise as the group spends more to reach more doctors and patients. Thus, investors should keep an eye on the cash flow as well as expenses in the next earnings statement.
What Could Derail AMRN Share Short-Term?
Recently investors have been concerned about Vascepa face generic competition. The group is battling patent challenges from several generic drug makers, including Hikma Pharmaceuticals (OTCMKTS:HKMPY) and Dr. Reddy’s Laboratories (NYSE:RDY).
The Street is expecting these lawsuits to be resolved, possibly in favor of Amarin. Or quite possibly, management could decide to settle with these two companies, as it did with Teva (NYSE:TEVA) back in 2018. In the coming months, the stock will respond to the results of these legal developments.
On Dec. 16, 2019, AMRN reached an all-time high price of $26.12. It is currently hovering around $17 and has been flat for the past 12 months. In other words, the initial hype of the FDA approval is over and the Street has sold the news.
Finally, if you are an investor who also follows short-term technical charts, you may be interested to know that due to the recent decline in price, the technical picture is somewhat damaged. In other words, the stock will need to form a base, possibly between $15-$17.5 before it can make a new leg up.
Depending on your risk/return profile, you may want to ride any potential volatility around the earnings date. If you are experienced in hedging with options, you may also consider a March 20 ATM covered call. Such a hedge would offer both some downside protection and allow you to participate in an up move, too.
Bottom Line on Amarin Stock
Since Vascepa has received FDA product label expansion, long-term investors have become increasingly interested in adding AMRN stock into their portfolios.
In its Feb. 2020 investor presentation, management said that various international approvals were also in the pipeline. For example, regulatory review in Europe is expected to be completed in Q4’20. And the company is planning for European regulatory exclusivity for 10 years.
Although I expect the shares to go over $20 before too long, investors should appreciate that it is a high risk/high return stock. I’d look to be a buyer around $15-$16. Meanwhile, Amarin may also be acquired by another company in the industry.
As of this writing, the author did not hold a position in any of the aforementioned securities.