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Is Amarin Stock a Buy?

Yesterday, Amarin Corp. (NASDAQ: AMRN) lost 70% of its value in a single trading session. The biopharma's shares collapsed after the U.S. District Court for the District of Nevada invalidated Vascepa's patent firewall against generic competitors inside the United States.

Vascepa is a highly refined omega-3 treatment approved by the U.S. Food and Drug Administration for patients with high triglyceride levels who are at risk for cardiovascular disease, despite being on statin therapy. The drug was widely expected by Wall Street analysts and industry insiders to achieve megablockbuster status (greater than $5 billion in annual sales) before the end of the decade. But this adverse patent ruling puts that enormous peak sales figure in serious jeopardy.

Image source: Getty Images.

Did investors overreact to this news? Let's break down the company's near-term outlook to find out.

Is Amarin's stock cheap?

After yesterday's bloodbath, Amarin's market cap now stands at $1.44 billion. Amarin is therefore trading at just a little over two times its last stated cash position. Under normal circumstances, commercial-stage biopharmas trade at no less than three times cash on hand. So, from this point of view, Amarin's stock is definitely in bargain territory.

What about the company's near-term top-line outlook? We already know that Amarin's first-quarter numbers weren't going to be great thanks to the COVID-19 pandemic grounding its sales force, and the company's Q2 sales will likely take a big hit as well.

So assuming no generic magically pops up in 2020 (no generic is approved, and Amarin has legal options to stop one from entering the market while an appeal is under review), Amarin should thus haul in somewhere between $450 million and $650 million in annual sales this year. That's a wide range to be sure, but there's no way to accurately gauge how much growth the company can generate during a viral pandemic, or how this pandemic will impact patients filling their prescriptions in the months ahead.

The key takeaway, though, is that Amarin's shares are most likely trading at under three times 2020 sales right now. That definitely qualifies as bargain territory for a commercial-stage biopharma stock.

What's next?

The big unknown -- and arguably the main reason Amarin's stock plunged yesterday -- is Vascepa's commercial opportunity in 2021 and beyond. The bad news is that these patent decisions are rarely overturned on appeal -- a point echoed by multiple analysts yesterday in the wake of this unexpected ruling. So generics in the all-important U.S. market are probably going to come into play by the summer of 2021.

There is a silver lining, however. This patent ruling doesn't impact the drug's international IP, and there is no generic litigation pending outside the United States. So once Amarin gains widespread approval for Vascepa outside of the U.S., the drug should still be able to generate a decent amount of sales overall. What's more, Vascepa won't lose all of its U.S. market share to generics.

What this all boils down to that Vascepa is likely going to end up as a fringe blockbuster ($1 billion in annual sales) after this devastating blow to its IP in the United States. Stated bluntly, Vascepa's megablockbuster aspirations are probably out the window, and so too are Amarin's prospects as a buyout candidate. That's the new reality, barring a miracle on the legal front.

The good news is that Amarin's shares are undeniably undervalued on the heels of this emotionally charged downturn. In short, this biopharma should eventually rebound to the $8 range (about three times peak sales), which is roughly double from where it closed Tuesday. Driving this point home, Amarin's shares are now trading as if Vascepa won't perform well internationally and it will eventually lose around 90% of its U.S. market share. Neither of those dire outcomes is likely for a long list of reasons.

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George Budwell owns shares of Amarin. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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