Why is There No Halo Effect for Amarin Stock?

When a drug gets FDA approval for an expanded label, the company stock typically enjoys a “halo effect”. This is a period where the stock runs up on positive publicity.

Investors may have expected Amarin (NASDAQ:AMRN) stock to get the benefit of a halo effect after its drug, Vascepa, received FDA approval for an expanded label. But no such bounce has occurred. In fact, the stock is down nearly 20% in 2020 and is down nearly 10% over the last 12 months.

To be fair, the biopharmaceutical sector, in general, is not showing a tremendous amount of growth. One of the leading sector exchange-traded funds (ETFs) the iShares NASDAQ Biotechnology Index ETF (NASDAQ:IBB) is only posting a 2% gain for the year. 

Amarin is scheduled to report earnings on February 25 after the market closes. The earnings whisper number suggests that Amarin may post negative earnings of 4 cents a share which is below the consensus estimate for negative 3 cents per share.

What is Vascepa?

For those that are unfamiliar with Vascepa, it is derived from fish oil. While fish oil has been in existence as a supplement for years, Vascepa represents the first time it is being used in prescription-grade.

Initially Vascepa was approved as a supplemental treatment for high triglycerides in patients who don’t respond to statins. The expanded label allows Amarin to market Vascepa as being able to lower the risk of a “cardiac event” such as a heart attack or stroke.

For much of 2019, Amarin stock was bouncing up and down depending on how optimistic investors were about the company’s ability to get its label expanded. However, since the FDA approved the expanded label AMRN stock has not gotten the expected bounce. In fact, since reaching its all-time high after getting the FDA approval, the stock has dropped over 30%.

Why is Amarin’s stock stuck in neutral?

Amarin faces two near-term challenges to capitalize on its first-mover advantage. The first comes from the competition. Typically when a company receives approval for a drug, such as Vascepa, there is a period where the company has patent protection that prevents competitors from entering the market. This is particularly important because it can keep generic (and lower priced) equivalents from entering the market.

However, Amarin is already facing challenges from two companies who are challenging Vascepa’s patent. Dr. Reddy’s (NYSE:RDY) and Hikma (OTCMKTS:HKMPF) have taken Vascepa to court claiming they have generic drugs that are similar to Vascepa.

The judge that heard the case has said she will make her written ruling by March 31, 2020. At least one analyst, Michael Yee of Jefferies, believes the court will rule in favor of Amarin. However, as long as there is any uncertainty it will weigh on Amarin stock.

Second, the company faces a marketing challenge. Now that Vascepa is in the market, it needs to generate sales. That means either patients have to request it and/or doctors have to prescribe it. And both are based on Amarin’s ability to convince either or both parties that Vascepa is more effective than a far less expensive fish oil supplement.

Patients will pay $414 for 120 grams of Vascepa. The study that the company is basing its ad campaign had patients taking 4 grams per day. So 120 grams is a 30-day supply. Extend the math out and you have a year’s prescription costing nearly $5,000 per year. Vascepa is covered by most Medicate plans with a co-pay as low as $25 to as high as $328 after their deductible has been met.

I have seen commercials for Vascepa. And it sounds like they’ve been reading past articles I’ve written about the drug. Its primary challenge comes from fish oil supplements and perhaps the doctors that prescribe them.

Amarin conducted a study in 2016 that revealed out of 500 health care providers surveyed over a two-month period, 47% recommended fish oil supplements as an add-on treatment to statin therapy in patients that had a persistent CV risk.

So Amarin’s campaign has to accomplish two things. First, it has to present a case that fish oil supplements, even if effective, are potentially dangerous. And second that Vascepa is not only a safer, but a more effective, alternative. This will be particularly true for patients who may have tried fish oil supplements and did not experience significant benefits.

The bottom line on Amarin stock

Unless the company posts a blowout earnings number, the prudent thing to do is to hold for now. At the very least, the court ruling in March should provide some clarity on whether, and for how long, Vascepa will avoid generic competition.

I am personally skeptical about Amarin stock because I’m skeptical about Vascepa. That’s different than saying I don’t believe in fish oil or supplements in general, because I do. However, it seems that Amarin has other skeptics to be concerned about. And it’s up to them to prove their case. Until they do, there are other, better options in the biopharmaceutical space.