Another Day, Another Buy Rating for Amarin (AMRN) Stock

Wall Street loves growth stocks — and for good reason. In 2018, according to Bank of America, “growth” oriented  mutual funds outperformed “value” mutual funds by a factor of 59 to 32. And yet, as it turns out, sometimes Wall Street can’t pass up the prospect of a good bargain either.

Luckily for investors in Amarin (AMRN), their stock is a little bit of both — a stock with the potential for high sales growth, and a stock currently trading at a depressed price.

Last week we told you about Stifel Nicolaus analyst Derek Archila, and how a recent blow to Amarin’s stock price had only increased his love for the stock. Amarin, as you will recall, had just received unexpected news from the Food and Drug Administration. Despite all indications to the contrary, the FDA had elected to set up an Advisory Committee to review results from Amarin’s recent “REDUCE-IT” study of Vascepa’s suitability for reducing “borderline” to “high” levels of triglycerides in patients at risk of cardiovascular disease.

Amarin’s stock price immediately tumbled more than 17% in response to the news, and has continued falling — now down about 20% from its value before the news broke. In Archila’s view, though, this made the stock only more attractive — and as it turns out, Archila isn’t the only analyst thinking along these lines.

Yesterday, analyst Ami Fadia at investment banker SVB Leerink published yet another note of support for Amarin stock, rating the stock “outperform” with a $25 price target. And once again, Amarin’s stock price was a big draw. Thanks to the and “-20% stock reaction,” Fadia believes there’s now the potential for a positive decision on Amarin’s supplemental New Drug Application for Vascepa to “drive >20% upside to the stock.”

Why does Fadia think Vascepa will be approved?

As the analyst explains, “the most likely reason for the AdCom [being called] is to review the impact of the mineral oil placebo to the 25% relative risk reduction (RRR) demonstrated in the REDUCE-IT study.” This has been a point of some contention — whether using mineral oil for the control group resulted in inflated “risk reductions” (relative to the control group) in the group of patients treated with Vascepa.

But Fadia doesn’t think this will be a big issue. For one thing, the FDA was well aware of Amarin’s intention to “treat” control patients with mineral oil rather than some other inert substance, yet never raised any objection to this during the study itself. For another, while it sounds like the control group may have had somewhat elevated risk, making the group treated with Vascepa look somewhat better by comparison, Fadia doesn’t think the elevated risk cancels out more than perhaps five percentage points of Vascepa’s 25-point reduction in risk.

So in a nutshell, whether or not mineral oil skewed the results, there was a pretty clear and convincing reduction in risk from treatment with Vascepa in any case. For this reason, Fadia believes Vascepa will eventually win the FDA’s approval, perhaps as early as December.

And here’s the best part: Once that happens, an expanded “label” permitting Vascepa to be used to treat triglyceride levels below 500 mg/dL could increase the total addressable market for the drug from about 600,000 patients per year to 10 million, “leading to peak US sales >$4B” per year.

In the nearer term, Fadia is predicting 2019 sales for Amarin will leap nearly 75% over 2018 levels, to $399.7 million, then jump a further 60% in 2020 — pretty impressive near-term growth en route to that $4 billion-a-year prediction. Moreover, the analyst expects to see Amarin turn at least pro forma-profitable in 2020, a nice contrast to the $0.33 per diluted share Amarin lost last year.

After 15 straight years of losing money, it looks like things could finally be turning around for Amarin.

All in all, Wall Street’s analysts have been nothing but bullish on Amarin stock over the past three months. Out of 7 analysts, all 7 are bullish on the stock. With a return potential of about 115%, the stock’s consensus target price stands at $31.17. (See AMRN’s price targets and analyst ratings on TipRanks)


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