Today, Amarin (AMRN) investors are scratching their heads as to why the stock tumbled following the announcement that the FDA has approved the label extension of the company’s fish oil drug, Vascepa. The FDA approval is a clear victory for Amarin, as it includes expanding use both for patients with established CV disease (secondary prevention), as well as for diabetic patients with more than 2 CV risk factors (primary prevention).
That’s good news for Amarin, but less good news for long-term investors. You see, according to the principle of “buy the rumor, sell the news,” the major catalyst for Amarin stock to rise has now been removed, and traders who were awaiting the FDA approval have now reaped all the gains they’re going to get from that particular catalyst. Hence, they’re selling the stock today.
One of these sellers, Stifel’s Derek Archila, wrote in a research note to clients, “We are taking profits post approval and heading to the sidelines.” Indeed, the analyst downgraded AMRN from Buy to Hold, while slightly raising the price target to $28 (from $26), which still implies about 20% upside from current levels. (To watch Archila’s track record, click here)
The analyst explained, “We think there is a great deal of commercial success priced in for Vascepa, given today’s valuation, and while we think there is a good chance AMRN will likely settle or potentially prevail in its ANDA litigation later this year/early 2020, the unpredictable nature of this type of litigation does present some risk. Further, Vascepa’s patent exclusivity is limited with at least Teva Pharmaceutical expected to enter the market in August 2029, and while residual value beyond this point would be upside to our model, we take a more conservative view. Looking at 2020, we think management’s announced guidance may prove conservative, but we are worried about overall execution as the company ratchets up spend to support the expanded label and the need to invest in DTC advertising.”
Attention now turns to Amarin’s upcoming trial against generic drugmakers regarding the drug’s patent, and to whether the company gets bought up by one of the industry’s bigger players. Furthermore, the European Medicines Agency (EMA) has recently validated the MAA for Vascepa, bringing the drug a step closer to European patients. The EMA review will be according to standard timelines, with an opinion of the Committee for Medicinal Products for Human Use (CHMP) expected to be completed before the end of 2020.
What does the street make of AMRN stock right now, then? With a breakdown of 5 Buys, 3 Holds and 1 Sell, the consensus on the Street is that Amarin is currently a Moderate Buy. The average price target is almost identical to Archila’s, coming in at $28.11. (See Amarin stock analysis on TipRanks)