Last week, anti-cholesterol drugmaker Amarin (AMRN) reported a better-than-expected $0.07-per-share loss on $73.3 million in sales — also better than expected, and up 67% year over year on strong sales of its Vascepa fish oil pill. And yet, the stock plunged nearly 6% after results came out.
Wall Street thinks that was a mistake — and perhaps, an opportunity.
To see why, let’s take a quick look at two reactions to the earnings report from two different Wall Street analysts. We’ll begin with Jefferies.
Jefferies analyst Michael Yee makes no bones about it: “Q1 was a beat.” And yet, the analyst notes that given strength in “scripts” written for Amarin products in Q1, some analysts were actually looking for Amarin to report even better sales than the $73 million it eventually reported — sales of as much as $75 million to $80 million. Yet, Yee argues that Q1 sales could in fact have reached “$75-80M” had Amarin had enough product on hand to meet demand. (The analyst cites inventory “drawdown” in the quarter as evidence that the company didn’t have enough product on hand to meet all the demand it encountered in Q1).
In fact, says Yee, “true ‘demand’ is more like $80-85M” and, once Amarin makes enough product to satisfy demand, as much as $10 million in additional sales could quickly materialize, pushing Q2 sales to something “more like $95M,” resulting in “a strong QQ jump … based on normalization of inventory.”
Jefferies peer Stifel is similarly optimistic — indeed, some of its comments sound even more optimistic than Yee, albeit Stifel’s Derek Archila‘s price target ($27 with a ‘buy’ rating) is a bit more conservative than Yee’s target of $30 (also with a ‘buy rating’). (To watch the analysts’ track records, click here)
As Archila notes, Q1 is a seasonally weak quarter for Amarin, yet “script data … over the first three weeks of the quarter” still showed RRx prescriptions up 52% year over year, TRx prescriptions up 62%, and NRx prescriptions growing 74%. Given the rapid rate of growth, Archila feels confident in raising its sales estimates for Amarin for this year to $375 million, and predicting 2020 sales of $600 million. Furthermore, the analyst raised its estimate for fiscal 2020 earnings — the year in which it expects Amarin to turn profitable — by 32%, to $0.45 per share.
“Vascepa is in the early innings of an accelerating growth phase,” argues the analyst, and “it has only been a short time since the REDUCE-IT data were published.” So the company’s best years of growth may still lie ahead. In this regard, Archila notes that Health Canada granted Vascepa priority review last week, and there’s still a chance the US Food and Drug Administration will follow suit.
Archila adds that the Institute for Clinical and Economic Review (ICER) is reviewing the potential for using Vascepa “on top of other cardiovascular disease therapies,” which could boost sales even further. While a positive outcome is not certain, Archila believes that given Vascepa’s “relatively low cost,” ICER could determine that administering Vascepa “is a highly cost-effective approach” to treating cardiovascular disease.
Such a conclusion could be just the thing to turn this week’s Amarin sellers into future buyers of the stock.
Additional regulatory endorsements of Amarin’s wares would make Archila’s predictions of $375 million in 2019 sales (64% YOY growth) and $600 million in 2020 sales 60% growth more likely. As economies of scale begin kicking in, that would make even more exponential growth in profits more likely.
At $18 a share and 40 times estimated earnings two-years-from-now, Amarin stock doesn’t look exactly cheap today. Still, with analysts predicting more than $2 a share in earnings by 2023, the stock’s valuation looks increasingly more palatable the farther out you look.
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