Known for its flagship drug Vascepa, pharmaceutical firm Amarin (NASDAQ:AMRN) gets plenty of love from its advocates. Admittedly, it’s not for unjustified reasons. According to Amarin’s website, cardiovascular disease is the leading cause of death in the U.S. Subsequently, high triglyceride levels, which Vascepa addresses, increases the risk of cardiovascular disease. And circumstances that may cause high trig levels include smoking, lack of exercise, and writing bearish articles about Amarin stock.
In all seriousness, Amarin stock has attracted substantial attention since skyrocketing in late 2018. Since then, several factors have moved positively in Amarin’s direction. One of the key developments is that the Food and Drug Administration unanimously approved Vascepa. Further, the pharmaceutical firm practically stands alone in the fish-oil derived drug space at this juncture.
In the run up to the FDA’s approval, Amarin faced a wave of competition. But a particularly worrisome rival was pharma giant AstraZeneca (NYSE:AZN). Its Epanova also purported to lower trig levels for high-trig patients that have not responded well to statin therapy. Last month, though, AstraZeneca said it will cancel Epanova’s large-scale Phase 3 clinical trial due to a low probability of success.
Theoretically, that’s a huge boost for Amarin stock. However, reality has a way of disrupting the best of theories. Since the FDA gave the green light to Vascepa, AMRN hasn’t looked too hot. For instance, shares are down 19% year-to-date at time of writing.
Despite my general misgivings about risky pharmaceutical names, Amarin clearly has succeeded where others have not. So, why isn’t Wall Street giving Amarin stock the benefit of the doubt?
Both Nearer- and Longer-term Issues Cloud Amarin Stock
As I briefly mentioned above, Vascepa is derived from fish oil. While that’s not necessarily a big issue per say, it does leave the door open to competition. After all, fish oil isn’t exactly a proprietary ingredient.
More critically, Vascepa has generic competitors. InvestorPlace contributor Thomas Niel explained as follows:
Two major generic drug-makers, Dr. Reddy’s (NYSE:RDY) and Hikma (OTCMKTS:HKMPF) have generics in their pipeline similar to Vascepa. As I wrote in my prior Amarin stock analysis, both generic makers challenged Vascepa’s patent. The uncertainty of this litigation is largely what’s keeping Amarin shares from heading higher.
And as my colleague Dana Blankenhorn noted, Vascepa’s success won’t just hinge on its efficacy in real world settings. Rather, Amarin must have a strong marketing machinery to drive hype and ultimately revenues.
These are nearer- to intermediate-term risks that should give investors pause before diving into Amarin stock. Another factor to consider is the longer-term challenges.
Specifically, some studies indicate that millennials are more physically fit than prior generations. From a national health perspective, that’s a huge relief given the predilection for young people to live a sedentary lifestyle (i.e. streaming, video games, web browsing, etc.).
Of course, that’s not necessarily good news for AMRN stock and similar investments. A young and burgeoning demographic of healthy living workers would collectively have little need for Vascepa. Further, scientific data indicates that men and women ages 20 to 39 have seen significant case reductions related to high trig levels from 2001 to 2012.
And it’s not just young people. Men and women of all ages, and those who are over 60 – a key demographic for Vascepa – witnessed long term declines in elevated trig levels. If this trend continues, the future addressable market for Vascepa would decline.
AMRN May Be a Contrarian Trade
Personally, I’m not a big fan of Amarin stock. If you are, that’s fine – please stop writing. Currently, my view is aligned with Blankenhorn’s, who warns that there are too many unknowns with AMRN. I might call it dynamic variability. These shares have the potential to make you rich just as much as it could make you poor if you’re not careful.
And you know what? Even if you are careful, risky pharmaceutical names can bite you in the rear without warning. Look at the situation with Acasti Pharma’s (NASDAQ:ACST) krill-oil-based drug CaPre, which may not be more effective than a placebo. That revelation sent shares down in a hurry.
However, I can understand the appeal of Amarin stock. If you can handle the risk, perhaps this discount is an attractive entry point. Just be prepared for a possibly wild ride.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights to the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.