Ever since it peaked at $26.12 in December 2019, Amarin (NASDAQ:AMRN) stock got caught up in selling pressure. Bears are very much in control again and have a short float of 14.4%. Even though the supplier of medicinal fish oil raised its yearly guidance, the buying volume in Amarin stock is absent.
Why are investors so afraid of holding shares? Amarin will put pressure on profits as it increases its operating expense forecast and doubles its inventory purchases to $250 million. But those investments will pay off.
It also said revenue will come in the high end. For the fiscal year 2020, Amarin forecast total net revenue in the range of $650 million to $700 million. This is due mostly to sales of Vascepa in the U.S. It is also a sharp increase from the FY 2019 net revenue of $410 million to $425 million.
New Paradigm in Cardiovascular Disease Management
Whenever a company claims to offer a new “paradigm” in disease management, investors may want to run away. That is how Amarin presented Vascepa at a JPMorgan healthcare conference. And yet the REDUCE-IT study provided evidence that it reduced cardiovascular events, including death. So investors really should consider Amarin’s strong prospects.
To quickly satisfy the unmet need for treating more patients with cardiovascular (CV) disease, the U.S. Food and Drug Administration (FDA) approved Vascepa. It is the first and only drug for reducing CV risk beyond statin therapy. Amarin will double its sales team to 800 staff. In doing so, it may help millions of patients. The company expects the market to bring in billions of dollars in revenue in the next few years. As health insurers give formulary coverage, more patients will take the drug.
To build brand awareness, Amarin has direct-to-consumer promotional activity accelerating through to mid-2020. This is timed to the FDA’s Office of Prescription Drug Promotion (OPDP) approval. In the first quarter, the company said to expect seasonal effects and quarterly variability holding back results.
Revenue Growth Potential
Vascepa has the potential to treat more than just CV disease. CEO John Thero said that “This is a unique molecule. It’s been deemed a new chemical entity by the FDA. It is — it has multiple effects that have not been shown for any other molecule.” Investors may speculate that Vascepa may be used as an adjunct therapy to treat various forms of cancer. It might offer patients alternatives to nonsteroidal anti-inflammatory drugs.
In Europe, Amarin is seeking approval and if granted, would get regulatory exclusivity for 10 years. It already has many patents with the earliest one expiring in 2033.
On its balance sheet, Amarin has over $600 million in cash. This means that it will have enough liquidity to support expanded commercialization. Plus, it has over $800 million in loss carryforwards which will help it lower its tax bill.
Price Target and My Takeaway on Amarin Stock
From the 10 analysts covering Amarin stock, the price target range is $13.00 to $51.00. The average price target is just below $30. Do-it-yourself investors may crunch their own revenue assumptions in a 10-year discounted cash flow revenue exit model.
Assuming the following metrics, Amarin stock has a fair value of at least $25:
|Terminal Revenue Multiple||8.8x-9.8x||9.3x|
At a market capitalization in the $6.5 billion range, Amarin is not an overly expensive stock. But bears are in control of the selling. This could increase the discount on the stock and create a better entry point for investors who missed the last big rally.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.