July 28, 2021 - 7:02pm EST by
2021 2022
Price: 4.28 EPS 0 0
Shares Out. (in M): 395 P/E 0 0
Market Cap (in $M): 1,689 P/FCF 0 0
Net Debt (in $M): -539 EBIT 0 0
TEV (in $M): 1,150 TEV/EBIT 0 0

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Why Does This Opportunity Exist? The primary reason for the current undervaluation, is because some investors were hoping that AMRN would be acquired soon after they gained regulatory approval for Vascepa in Europe on 1/29/21. In the days following approval, the stock traded to a high of $9.25, with many analysts calling for a much higher fundamental and acquisition value. However, the stock started to trade down due to broad weakness in the sector, and then on 4/14/21, AMRN announced a CEO transition, with the voluntary resignation of the existing CEO (John Thero), and the appointment of Karim Mikhail as the new CEO, who is a veteran at commercializing drugs in Europe. The market took this news negatively, because some believed the appointment of a new CEO indicated AMRN is probably interested in taking more time building-out a Vascepa infrastructure in Europe, prior to an eventual sale of the company. I believe this CEO transition combined with a down market for small-cap biotech stocks, has caused a downward spiral in the stock, leading to the current undervaluation. Mr. Thero remains one of the company’s largest shareholders and has noted that he does not plan to sell shares at present. I think the CEO change made sense and welcome the opportunity to make a potentially much higher return in AMRN, which could be worth significantly more to an acquirer after Vascepa is built-out a little more in the EU. In my view, a sale of AMRN still remains very likely within 6-24 months, but Im happy to hold the stock without a sale, based on its strong fundamental value.
The Company: According to AMRN’s 10K, We are a pharmaceutical company with expertise in omega-fatty acids and lipid science focused on the commercialization and development of therapeutics to improve cardiovascular, or CV, health and reduce CV risk.
Our lead product, VASCEPA® (icosapent ethyl) was first approved by the United States Food and Drug Administration, or FDA, in July 2012 for use as an adjunct to diet to reduce triglyceride, or TG levels in adult patients with severe (TG ≥500 mg/dL) hypertriglyceridemia. We launched VASCEPA in the United States in January 2013. On December 13, 2019, the FDA approved a new indication and label expansion for VASCEPA based on the landmark results of our cardiovascular outcomes trial of VASCEPA, REDUCE-IT®, or Reduction of Cardiovascular Events with EPA Intervention Trial. VASCEPA is the first and only drug approved by the FDA as an adjunct to maximally tolerated statin therapy for reducing persistent cardiovascular risk in select high risk patients.
In August 2020, we announced our plans to launch icosapent ethyl under the brand name VAZKEPA®, hereinafter along with the U.S. brand name VASCEPA, collectively referred to as VASCEPA, in major markets in Europe through our own new European sales and marketing teams. On January 28, 2021, the
Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency adopted a positive opinion, recommending that a marketing authorization be granted to our drug, icosapent ethyl, in the European Union, for the reduction of risk of cardiovascular events in patients at high cardiovascular risk. The CHMP recommendation is now expected to be reviewed by the European Community, with a decision expected to take place within 67 days of the CHMP opinion. In Europe, ten years of market protection is anticipated as part of an EC approval of the pending application, in addition to pending patent protection that could extend into 2039. In Europe, launch of VAZKEPA in individual countries is gated by timing of achieving product reimbursement on a country-by-country
basis. Similar to our approach in launching VASCEPA in the United States, in Europe we have been building a core team of experienced professionals and a highly capable sales team and plan to leverage third-party relationships for various support activities. We commenced 2021 with approximately 50 professionals involved with pre-approval and pre-launch planning and other commercial preparation activities.
In November 2020, we announced statistically significant topline results from the Phase 3 clinical trial of VASCEPA conducted by our partner in China. On February 9, 2021, we announced that the regulatory review processes for approval of VASCEPA in Mainland China and Hong Kong have commenced. The Chinese National Medical Products Administration (NMPA) , has accepted for review the new drug application for VASCEPA, submitted by our partner in China, based on the results from the Phase 3 clinical trial and the results from our prior studies of VASCEPA. We expect to receive a decision from the NMPA in Mainland China near the end of 2021. The Hong Kong Department of Health is evaluating VASCEPA based on current approvals in the United States and Canada. The review process in Hong Kong
is expected to conclude near the end of 2021.
In addition to the United States, VASCEPA is currently available by prescription in Canada, Lebanon and the United Arab Emirates. In China and the Middle East, we are pursuing such regulatory approvals and subsequent commercialization of VASCEPA with commercial partners.
Since our inception, we have devoted substantial resources to our research and development efforts, most significantly our VASCEPA cardiovascular outcomes trial, REDUCE-IT. We announced topline results from REDUCE-IT on September 24, 2018. On November 10, 2018, we presented REDUCE-IT primary results at the 2018 Scientific Sessions of the American Heart Association, or AHA, and the results were concurrently published in The New England Journal of Medicine. REDUCE-IT met its primary endpoint demonstrating a 25% relative risk reduction, or RRR, to a high degree of statistical significance (p<0.001), in first occurrence of major adverse cardiovascular events, or MACE, in the intent-to-treat patient population with use of VASCEPA 4 grams/day as compared to placebo. REDUCE-IT also showed a 26% RRR in its key secondary composite endpoint of cardiovascular death, heart attacks and stroke (p<0.001). On March 18, 2019, we publicly presented the total cardiovascular events results, and the method of calculating such events, of the REDUCE-IT study at the American College of Cardiology’s 68th
Annual Scientific Session and such results and methods were concurrently published in the Journal of the American College of Cardiology. VASCEPA reduced total events (first and subsequent events) by 30% compared to placebo, reflecting that for every 1,000 patients treated for five years with VASCEPA versus placebo in this trial, approximately 159 MACE could be prevented with VASCEPA.
Based on REDUCE-IT results, 13 clinical treatment guidelines or position statements from medical societies have been updated recommending the use of icosapent ethyl in at-risk patients, including the following; 1) In March 2019, the American Diabetes Association issued important updates to the Standard of Medical Care in Diabetes for 2019, including a recommendation for the use of icosapent ethyl in treating at-risk patients based on the results of the REDUCE-IT cardiovascular outcomes study2) In August 2019, the AHA recognized the results of REDUCE-IT and recommended directing medical care away from unproven fish oil dietary supplements and to prescription drug therapy in patients with elevated TG levels; 3) In September 2019, the National Lipid Association issued a position statement recognizing the cardiovascular risk-lowering effects of icosapent ethyl based on the REDUCE-IT results; 4) In September 2019, the European Society of Cardiology and the European Atherosclerosis Society updated their Clinical Practice Guidelines for the Management of Dyslipidemias to incorporate findings from the REDUCE-IT study and in August 2020 the European Society of Cardiology expanded their guidelines to also cover patients with acute coronary syndrome; 5) In February 2020, the American Association of Clinical Endocrinologists and the American College of Endocrinology released a consensus statement on the comprehensive management of type 2 diabetes. The statement included new guidance for managing patients with established or high risk for cardiovascular disease who have triglyceride levels between 135 499 mg/dL with icosapent ethyl which has proven benefits to prevent the next adverse cardiovascular event; 6) In December 2020, the Guidelines for Primary Prevention of Cardiovascular Disease in China was published in the Chinese Journal of Cardiovascular Diseases, listing icosapent ethyl 2 grams twice a day, as studied in REDUCE-IT, as a treatment consideration to further lower atherosclerotic cardiovascular risk in at-risk patients.
When AMRN announced the US expanded label for Vascepa in 2018 for the reduction in MACE, the stock initially ran up to around $23, potentially on its way much higher. The company issued about 33M shares of equity during that time at about $17.50, giving them an additional cash hoard of around $570M. Their timing for the equity issuance was very favorable, because shortly after the bad news was released in March 2020, when AMRN unexpectedly lost US patent protection for Vascepa due to a hail-Mary lawsuit from competitors. I won’t go into any details on the case, but the decision seemed like travesty of justice and simply wrong. AMRN is attempting legal action to limit the impact of the ruling, but the company has lost in all appeals thus far. AMRN stock then dropped to a low of $3.36, before the market realized AMRN still had strong patent protection and/or the potential for regulatory exclusivity throughout the rest of the world, that was not jeopardized by the US ruling.
AMRN is now focused on rolling out Vascepa in the EU market, which is expected to grow into the larest market. In March 2021, Vascepa received final approval from the European Commission with a very broad label to reduce the risk of cardiovascular events in high-risk, statin-treated adult patients who have elevated triglycerides (≥150 mg/dL) and either established cardiovascular disease or diabetes and at least one additional cardiovascular risk factor. Europe will become AMRN’s largest market due to long-term regulatory exclusivity (10+ years), and patent protection that may be extended to 2039. AMRN is in the process of negotiating reimbursement rates on a country-by-country basis, and plans for an initial launch in Germany by year-end. Germany has a unique drug approval process where AMRN is authorized to declare pricing for the first year, while negotiating pricing going forward. AMRN also expects a final decision regarding approval for Vascepa in China by year, which seems like a slam dunk because in January, 2001 the Chinese Society of Cardiology included Vascepa in its updated guidance for the reduction in cardio-vascular disease. AMRN secured a partner in China in 2015 (Eddingpharm Macao Commercial Offshore Limited), who is fully funding development in China, where AMRN is eligible for mid-teens royalties plus incentive payments. I expect AMRN to announce additional global partnerships
and expansion of Vascepa in the coming months.
A huge driver of AMRN will be what reimbursement rate Vascepa receives in each European countryHowever, I think this risk is substantially mitigated by several factors including; 1) Vascepa delivers significant economic value for all participants through lowering MACE by 25-30%; 2) AMRN’s strategy has been to price Vascepa very reasonably, to benefit the most patients, and capture the huge TAM. Vascepa reimbursements in the US were initially set at around $1,800, which was before the label expansion for MACE, resulting in artificially low US pricing. Amarin also achieved premium pricing for Vascepa in Canada under a Cardiovascular (CV) risk reduction label, a market in which drug pricing on average is 65% lower than in the US; 3) The TAM for Vascepa is so enormous, that lower pricing will simply cause vastly higher adoption due to elasticity of demand, which would enable AMRN to generate huge amounts of cash-flow under any reasonable reimbursement scenario; 4) According to AMRN’s investor deck, management thinks Vascepa pricing in Europe is “positioned for potential net pricing at
least as good as in the US (as we achieved in Canada) supported by CVOT results that were not available when priced in US.”
Total Addressable Market (TAM) Potential: According to my estimates the global potential TAM for Vascepa is about $120 billion. The Reduce-It study indicated a substantial percentage of people on statins are suitable candidates for Vascepa. There are 44M people on statins in Europe, and 38M in the US.
Assuming European countries price Vascepa on parity with the US at $1,800, would mean the European opportunity alone is $79B. Under similar calculations the US TAM was $68B, prior to the loss of patent protection, so I now assume a US potential TAM of 13.7 mil, or an eventual 80% reduction based on lower pricing due to the entry of generics. In Canada there are 2.5M people on statins which equals a potential TAM of $4.5B. In China there are an additional 52M people with Cardio-vascular disease (CVD), although pricing will certainly be much lower in that market. There is also a reasonable chance Vascepa’s label could eventually be expanded to cover other groups of people that have a risk of CVD, or perhaps just to be taken prophylactically. For example, I am thinking of asking my doctor for an off-lable prescription for Vascepa if it has the potential to lower my chance of MACE by 25-30%. Vascepa is also currently in initial tests as a Covid-19 treatment, with the potential to protect people from the disease and/or severe cases of the disease. Even if my TAM is off by 90%, there is a big enough market for a multi-bagger for AMRN stock. There also seems to be no other drug that I am aware of that offers meaningful competition for Vascepa.
Intellectual Property: In Europe Vascepa was granted regulatory exclusivity for 10 years from the 3/26/21 approval, with a possible extension to 11 years. AMRN’s patents further protect Vascepa through 2033, and the company has filed additional patent applications that could extend protection into 2039. In Canada, Vacepa has the benefit of eight years of data protection afforded through Health Canada (until the end of 2027), in addition to separate patent protection with expiration dates that could be extended into 2039. In the US AMRN lost its patent protection, but for a variety of reasons the company anticipates much lower losses to generics than is typically the case. AMRN is the lowest cost producer of Vascepa in the US, and is prepared to offer a generic version if they determine its in their financial interests. For rest of world, regulatory exclusivity and patent protection varies by potential market.
Valuation: AMRN is vastly undervalued on every metric I use to determine the value of a biotechnology company, and I project the company is currently worth between $17-$29, with significant upside potential beyond this price in a bull-case scenario, or through an acquisition. I primarily base my valuation on a sum-of-the-parts discounted cash flow analysis. I value AMRN’s EU business at $12.50 per share, which I derive by assuming peak sales of $3 billion, and discount it back from 2033. I estimate undiscounted cash flow of about $16.5 bil during this period, and use a 10% discount rate.
My estimate of $3 bil in peak EU revenues only represents 4% of the potential TAM, so I believe this number could prove to be very conservation. I have seen several analyst estimates that range for $1.5-$6 bil. I then add in an additional $1 per share in value from the residual EU business once generics take hold in 2034. If AMRN can extend their patents in the EU until 2039, this would add another $10 per share in discounted value. To note, AMRN has an NOL of about $900 milwhich I factored into my valuation through a lower initial tax rate.
For the US business I assume $2 value using a DCF assuming eventual 90% penetration of generics. The US business is currently meaningful, with approximately $600M in FY20 revenues. This business is particularly difficult to forecast because Vascepa recently lost patent protection, and its unclear how rapidly generics will take share and lower pricing. AMRN believes for a variety of reasons generic erosion in the US market will take much longer than is typical, but I really don’t have a strong opinion either way, and think there is plenty of upside in AMRN even if the US business went away, which is not going to happen anytime in the foreseeable future. There will be an interesting revenue dynamic going on for AMRN over the next few quarters as generics enter the US market and the company ramps up sales in the EU. This dynamic may or may not lead AMRN to miss consensus estimates based on US generic erosion, but I don’t think this would mean much fundamentally, as the company will eventually drive tremendous revenue growth as they enter the EU market. The EU business also comprises the vast
portion of AMRN’s current value. I think the potential for a guidance reduction based on generic erosion is scaring some investors away, but I don’t care if they guide down given the fundamental value, driven by longer-term upside from the EU and rest of world. 
For the rest of world, I derive a value of $2 per share using a DCF. Finally, I add in net cash per share of $1.37. AMRN may of may not have to use all or some of its $539 mil in cash and investment to build-out Vascepa, depending on how aggressive they want to be with marketing, and the trajectory of declines of the US business. However, investors could feel very secure that there is no equity coming in the foreseeable future.
Catalysts: There are several catalysts for AMRN which include the following: 1) The first catalyst which could be mixed is when AMRN is expected to report 2Q results on 8/5/21. There is a decent chance the company reports revenue numbers below consensus due to Covid driven constraints on marketing Vascepa and generic erosion. However, I bought the stock in front of this report because the fundamental value is compelling, the US is no longer a meaningful portion of AMRN’s valuation, and I get the sense many investors are waiting for lower numbers to buy the stock; 2) China approval expected by year-end; 3) EU reimbursement announcements within the next few months; 4) the launch and revenue ramp of Vascepa in the EU; 5) tremendous long-term cash generation; 6) partnership announcements in other regions of the world; 7) potential label expansions; 8) potential positive results from AMRN’s Covid trial using Vascepa; and 9) a possible near-term or long-term sale of the company.
Risks: The primary risks for the company include the following: 1) Reimbursement levels for Vascepa in the EU which could be both a positive or negative catalyst; 2) rate of decline of US business; 3) rate of growth in the EU.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


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