Jason Napodano, CFA · @JNapodano
1st Aug 2012 from Twitlonger
Spent the past hour or so reading up on $AMRN and the Vascepa label. I've come to the following conclusions:
1- The current label for Vascepa includes key differentiators to $1B drug Lovaza, such as superior TG lowering, LCL-C neutrality, reduction in ApoB, and super clean safety. Even without ANCHOR, this is a superior drug to Lovaza and should take 70% of the NRx within 6-9 months post-launch. Depending on the marketing partner, I think the total Rx "fish oil" market will grow by 50% once Vascepa launches, so the company will benefit two-fold: dominating NRx and growing TRx.
2- The ANCHOR sNDA should be filed late Q4-12, so with 6-month review that puts another fun PDUFA in June 2013! The label should be expanded at that time, raising peak US sales on the drug from $750M to around $2-3B. Can you say, AMRN-RunUp Part-Deux?
3- NCE (decision expected 8/17) is important, as it protects from immediate paragraph-4 filings, but less important than the current "twittersphere" thinks because of the growing IP estate around the molecule. Worse-base scenario, no NCE and paragraph-4 filings come 1H-2013. Generic company-A claims non-infringment and plans to launch 2015 (after 3-years of NME). AMRN surely files an injunction. AMRN and Generic-Co-A settle on an authorized generic sometime around 2022.
Under this scenario, the stock is worth $20 via DCF, which assume they secure a marketing partner with deep pockets. I have not re-worked my model to see what the company is worth if they "go alone" (basically because I'm too lazy), but if they do I would expect the hiring of 250-300 reps, a dilutive offering later this year to fund that, significantly higher upside in terms of revenues in the later years, but higher share count and much higher operating expenses so the risk around those FCF's would be greater. I'd have to jack-up my discount rate as a result, so just guessing, the DCF would probably come in between $16 and 22 per share (it all depends on when you model terminal growth).
On a side note, I think AZN makes the most sense. A Vascepa-Crestor combo would be a crazy-effective product. Almost a nuclear bomb for dysplipidemia. They would need the 2g dose for this though, as it might be viewed as too powerful. I think PFE, ABT, SNY, BMY, and LLY make sense as well. I do not think GSK makes sense at all, and I think MRK is too conservative to be a bidder.
4- Best-case scenario for the company is NCE and ANCHOR sNDA approval mid-2013, along with a marketing partner. NCE protects from paragraph-4's until 2017, so I would expect settlements in the 2025-2027 timeframe. I think the stock is easily worth $28 per share if this happens. But I would not expect to see this level until after ANCHOR approval, so keep that in mind.
5- I do not think AMRN gets taken out until after the outcome study is completed. I think they can secure a nice partnership later this year - after NCE is known - but I simply do not see a buy-out until after the outcome study. Big pharma is not going to spend that kind of money unless they know the outcome claims can be marketed. But hey, that's just my take. I would never invest in a name hoping for a buy-out.
6- A marketing partner is not contingent on NCE. Big pharma would like to see NCE, but it's not a deal-breaker if they don't get it. What is a deal-breaker is the unknown. Once NCE is approved or rejected big pharma can begin to value the asset. Once ANCHOR is approved, the value goes up. Big pharma hates uncertainty. Not getting NCE is a bummer, but it does not prohibit a deal.
At $12 per share the stock is very attractive. There will be volatility around the NCE decision on August 17th, however, even without NCE I think the stock is 65% under-valued. You're not going to see generics on the market before 2020 regardless, so keep that in mind.
I sold 1/2 my shares pre-PDUFA at $15.70. I plan to hold the other 1/2 at this level, and will consider buying back if it gets uglier.
GLTA,
Jason