With all the patent craze surrounding Amarin (AMRN) that has occurred over the past several weeks, you have to ask yourself, what has changed to get the stock price back up to higher levels? Well, nothing has really changed (fundamentals) ... yet everything has changed. Here is what you need to know.
Fundamentals have not changed:
The benefits of the company's new drug AMR-101 have not changed. Phase 3 clinical trial data released in 2011 pretty much indicate that AMR-101 is a blockbuster to lower very high, high and mixed levels of triglycerides, while keeping negative side effects out of the equation. The lack of negative effects on good cholesterol levels or harmful side effects is a first for any cholesterol related drug, including Omega-3 competitor Lovaza. To be clear, the results of both studies blew away expectations in the most positive way. With substantial efficacy and great safety profile, the consensus is AMR-101 gets FDA approval by end of July.
The market is still a huge multi-billion dollar jackpot, with the drug provenand able to address very high, high and mixed levels of triglycerides. This does not even factor in cardiovascular events or off-label indications.
FDA approval timing is still July 26 this year (or earlier given that no FDA panel is required) on the Lovaza type indication. Look for 2013 for the expanded mixed level indication, although a filing could occur as early as Q4 2012.
The company possesses some expiring or narrowly defined IP and is in the process of executing "well over 16" additional patents. In addition, the company announced last year that they have locked up supply agreements for the special grade of mainly EPA fish oil. In addition, trade secrets prevent potential me-to drugs from nailing the "secret sauce". It would be virtually impossible to duplicate AMR-101's profile in order to produce the exact same clinical results that Amarin achieved in their Anchor and Marine studies. I have evaluated the supply situation and I am confident that allocation, pricing and trade secret barriers would prevent a generic or "me-to" drug.
The company is still not set up to sell one drop of AMR-101. No sales, no marketing, just a few key executives and some R&D and quality people. Could be a partner play, but an offer over $25 should fix that given the employee compensation agreements currently in place.
But, everything has changed:
Uninformed investors got nervous recently when questions about one of Amarin's patents (the 998) received a non-final rejection notice from the USPTO. (A non-final rejection is part of the process. Lovaza for example, got several non-final and final rejections before ultimately being approved.) The result was downward pressure on the stock, getting it to levels nearly as low as before the positive clinical data was released in 2011. Large institutional investors moved out of the stock knowing they could get back in at lower levels due to the patent panic, which seemed to have excited the situation. Savvy investors would have noticed the relatively low volume moves to the downside to call the head fake.
Fast forward just a week or so and the USPTO has informed Amarin that the key 598 formula patent will be granted, protecting the company up to 2022. There has also been an update office action from USPTO on patent 977, another strong composition of matter patent directly related to treatment of heart conditions. In addition, the company has a good shot of NCE status with its upcoming potential FDA approval, protection that would span up to 7 years by itself. Amarin's goal is to build enough IP and trade protection to secure billion dollar revenues through at least 2030.
So, a dramatic shift has occurred. The company's one and only drug is safe, effective and unique - and now it has protection. A potential suitor could reap all the rewards from a multi-billion revenue generating drug, without direct generic threat for at least 10 years, possibly up to 17 or 23 depending on how other IP scenarios play out.
As far as value, I am not a financial analyst but have looked at all the models from the firms covering the stock. My area of experience is more on the market analysis side. Many models seem too conservative and my bet is the price targets will increase in the near future based on the 598 issuance. My belief is that a conservative approach to value the company should be based on the Lovaza indication + incremental revenue generated from the mixed triglyceride level market (8-10X). Jefferie's and Leerink's analysts are well respected in the investment community and both firms are very up to date in terms of Amaring IP situation (Leerink hosted an investor call with top patent attorneys recently). Research notes indicate that with buyout, price targets go from the mid $20s to $29 (due to acquisition premium). I generally agree with this, however should a battle emerge over who acquires the company, $30s become a possibility. Also, it should be noted that if Amarin takes the less likely route of going it alone, successful execution could lead to higher long-term values, as the company could benefit from the additional market size of the second indication.
Things can get quite interesting because there should be several interested parties, from Pfizer (PFE) to GlaxoSmithKline (GSK) ... GSK potentially able to market AMR-101 as the "new improved" Lovaza. That alone could secure a hefty premium for Amarin investors, and would be a great strategic move by GSK.
By Steve Rosenman
Disclosure: I am long AMRN.
No comments:
Post a Comment