Amarin: Explosive Volatility Expected from ANCHOR Catalysts Print E-mail
By Brian Wilson-Lead Contributor   
Friday, 13 September 2013 07:30

  Shares of Amarin (NASDAQ: AMRN) took a $.57 hit yesterday after Teva Pharmaceuticals received a favorable ruling over its ability to commercialize a generic version of Lovaza with partner company Par Pharmaceuticals.

This selloff put an immediate stop to an impressive recovery/runup rally that AMRN had been staging since the stock hit a 52-week low of $5.12/share in early August. Short interest has eased just a bit on AMRN, although 23.7 M / 172.6 (~13%) shares remained short as of August 30th, 2013 according to NASDAQ.

 

 

Lovaza, a refined prescription-grade omega-3 drug, is a hugely successful drug that was bought and later commercialized by GlaxoSmithKline. Many have inaccurately labeled the drug as a fish oil pill, although it is accurate to say that the active ingredients of the drug - Docosahexaenoic acid (DHA) and Eicosapentaenoic acid (EPA) – are found in fish oil. Vascepa is a highly refined EPA capsule.

While the introduction of generic Lovaza could later put mild pricing pressure on Vascepa in the current “MARINE” indication, it’s important to note that ANCHOR is a much more important indication. In fact, it should be the only indication that matters for Amarin from Wall Street’s perspective.

From a previous note:

Recently, the FDA announced the scheduling of an Advisory Committee for the sNDA submitted by Amarin earlier in the year. An approved for this would expand Vascepa’s hypertriglyceridemia indication into the 200-500 mg/dL range, and would add “mixed dyslipidemia” to the Vascepa label (this is also referred to as the “ANCHOR” indication). While this is not as expansive as the REDUCE-IT (cardiovascular risk) indication, it is a huge step forward for the drug and allows the company to market to ~40 M patients in the United States as opposed to the current ~4 M.

The AdCom will take place on October 16th, 2013 and the PDUFA goal date for the ANCHOR sNDA is December 20th, 2013.

While Lovaza demonstrated that there is some potential in selling prescription omega-3 products to patients with extremely high levels of triglycerides, the real target are the huge number of Americans that have more “average” figures for cardiovascular disease. Typically these patients will already be on statin therapy, which is why Amarin is enrolling patients into a huge Phase III trial (REDUCE-IT) to demonstrate the benefits of a combined Vascepa and statin therapy.

Expansion into the ANCHOR indication would basically give Vascepa the ability to target non-Lovaza territory throughout 2014.

The current valuation of Amarin roughly reflects the estimated potential for Vascepa in the MARINE indication after some discounts are made for the balance sheet. The valuation of Amarin at the start of 2014 is expected to be drastically different. For an idea of what traders are thinking, we will take a look at options prices from September 12th – after the bell:


 

Data from OptionsHouse (link)

Looking at the prices in calls versus puts, we can see that a number of bullish traders are expecting a truly enormous rally in AMRN given that the ANCHOR sNDA is approved. Conversely, we see some interest in pretty expensive put options that anticipate a possible >50% drop in Amarin in the next few months. Many options sellers should be expecting the ANCHOR decision to make a smaller-than-expected impact on AMRN. Others may be hedging larger positions.

At-the-money premiums indicate that >30% move is coming between now and then, although most traders are expecting much more volatility from this event. Due to the sheer size of the ANCHOR indication and the “spring-loaded” nature of AMRN at this point in time, a >100% move to the upside should not be surprising if Vascepa is successful. The chances of this are close to ¼.

Expectations about the downside are not proportionate, although a retreat to $5/share seems to be as likely as a >100% rally from the current price.

This ties in with the valuation theory provided above. Vascepa in the MARINE indication is worth ~$5-6 in its current state, while Vascepa in the ANCHOR indication is worth at least the same amount right off the bat.

It will be very interesting to see how this plays out. There is clearly an appetite for the ANCHOR catalyst from both sides of the Amarin trade, although the bulls seem much  more aggressive as we get close.




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