Shares of biotechnology company Amarin (NASDAQ:AMRN) are up 61% this year. This is an impressive feat in its own right. However, even more so considering the stock tumbled nearly 10% last week.
Last week’s slide very could be a sign that plenty of investors are already dumping Amarin following the Food and Drug Administration’s (FDA) approval of Vascepa, a fish oil-based treatment used to reduce a patient’s chance of falling victim to major cardiovascular issues, such as heart attacks and strokes.
Wall Street widely expected the Vascepa approval, although Amarin has offered up decent revenue projections for the drugs. Sales are expected to be $410 million to $425 million this year before climbing to $650 million to $700 million in 2020, according to the company.
As Amarin notes, there’s certainly ready-made demand for drugs that do what Vascepa does.
“Despite current treatment options, in the United States, there is one stroke and one heart attack each occurring on average every 40 seconds, and one cardiovascular death occurring on average every 38 seconds, or, in aggregate one such cardiovascular event every 14 seconds,” said the company. “Cardiovascular disease costs in the United States are in excess of $500 billion each year, making it the nation’s most expensive disease.”
Collectively, that’s the big question investors still holding Amarin stock need to ponder. Particularly, if they’re considering sticking with the name. A strong case can be made that much of the near-term good news is baked into the stock; That much was evident last week. After the stock broke through the $26 area — near the consensus price target of $29.60 — sellers largely stepped in.
On the immediate horizon, Amarin has to deal with a patent trial that starts in mid-January. It is one that pits the company against several generic rivals; And that could be an overhang for the stock going forward. But, if a settlement is reached — avoiding costly, protracted court proceedings — that could be an assist for the stock.
“We believe Amarin has a strong upper hand on patent validity, but on patent infringement through inducement, while we believe it has a lead, we cannot say that it is by an overwhelming margin,” said Leerink analyst Ami Fadia in a recent note to clients.
Another issue to consider with Amarin is competition for cardiovascular pharmaceuticals. Pfizer’s (NYSE:PFE) is one of the dominant drugs in this arena and at least three companies — AstraZeneca (NYSE:AZN), Acasti Pharma (NASDAQ:ACST) and Matinas BioPharma (NYSEAMERICAN:MTNB) — are working on potential rivals to Vascepa.
It’s hard to know what the FDA will do next. However, it is clear that the regulatory body has been approving new drugs and treatments at a faster-than-usual pace this year. Recently, that has been a boon for biotechnology assets. But, if a Vascepa rival receives approval over the near-term, that would certainly take more blush off the Amarin rose.
Bottom Line on Amarin
Even after last week’s tumble, Amarin isn’t a cheap stock. In fact, it’s downright expensive. Sure, biotechnology stocks usually trade at premiums to broader equity benchmarks. That’s the price investors pay to access the group’s growth.
However, due to some sluggishness in the first three quarters of this year, biotech stocks — broadly speaking — are attractively valued relative to historical norms. At 227.27 times next year’s earnings and 19.48 times sales, Amarin is pricey and will be cash flow negative this year.
Yes, there’s speculation that Amarin is a takeover target, but it’s just that: speculation. With a lack of imminent near-term catalysts, investors may want to consider two options. If they currently own the stock, take profits in it. Or, if they’re not involved with Amarin, look at other biotech fare.
As of this writing, Todd Shriber did not own any of the aforementioned securities.