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Amarin Stock’s Big Q4 Gains May Not Last as Big Dogs are Barking

InvestorPlace logo InvestorPlace 11/25/2019 Josh Enomoto
a black and silver phone: Amarin Stock's Big Q4 Gains May Not Last as Big Dogs are Barking© Source: Shutterstock Amarin Stock's Big Q4 Gains May Not Last as Big Dogs are Barking

On paper, pharmaceutical company Amarin (NASDAQ:AMRN) is enjoying a brilliant year. Since the opening volley in January, the AMRN stock price has jumped nearly 55%. Moreover, shares have been enjoying a stellar performance in the fourth calendar quarter, up over 40%.

a close up of a screen: Amarin Stock's Big Q4 Gains May Not Last as Big Dogs are Barking © Provided by InvestorPlace Media LLC Amarin Stock's Big Q4 Gains May Not Last as Big Dogs are Barking

Fundamentally as well, the market premium for Amarin stock appears well justified. Although a small player in the pharmaceutical business — the company only generated revenue of $229 million in 2018 – AMRN has been on a decisive sales uptrend. For instance, in 2017, the drug maker rang up $181 million. And in the trailing 12-month period, Amarin has produced sales totaling nearly $364 million.

All of the enthusiasm centers on the pharmaceutical’s sole marketed drug, Vascepa.

What is Vascepa? Addressing cardiovascular disease, Vascepa immediately enjoys one of the biggest patient bases among prescription therapies. According to the Centers for Disease Control and Prevention, “About 630,000 Americans die from heart disease each year — that’s 1 in every 4 deaths.”

Statistically, this translates to someone in the U.S. having a heart attack every 40 seconds. Further, “Each minute, more than one person in the United States dies from a heart disease-related event.” Suffice to say, anything that can reduce this scourge would represent a major breakthrough; hence, the hearty sentiment driving up the AMRN stock price.

Specifically, Vascepa is an omega-3-based (fish oil) drug that reduces triglyceride (a type of fat) levels in patients with severe hypertriglyceridemia. Typically, triglyceride builds up from poor dietary choices, leading to many heart-related problems. Vascepa has been tested as an effective prevention against heart attacks, leading to higher valuations for Amarin stock.

Still, are investors considering AMRN today late to the party?

Amarin Stock Vulnerable to Market Dynamics

In the investment markets, no one wants to hold the bag. But that’s the fear that an Oppenheimer report placed into the minds of prospective buyers of Amarin pharma stock.

In sharp contrast to Wall Street’s enthusiastic advocacy of the AMRN stock price, analysts at the brokerage firm suggested that Vascepa sales will fall short of Amarin’s forecast. By the year 2023 or 2024, Amarin expects Vascepa to exceed $2 billion in sales.

Oppenheimer notes that off-label use of the drug is already high, limiting future growth potential. Not only that, consistent usage of the drug by patients following the initial treatment is rather middling. Additionally, administrative issues related to the drug’s reimbursement process complicates the usage statistics.

More critically, though, Oppenheimer’s report states that the omega-3 basis of the drug is fertile ground for pharmaceutical innovations. Because of the relative newness of the field, both large and small competitors are moving into this subsegment. Such competition would likely apply pressure on the AMRN stock price, considering the underlying company’s dependence on Vascepa.

Plus, the big dogs are stirring. For instance, AstraZeneca (NYSE:AZN) has an omega-3 drug called Epanova. Worryingly for Amarin stock investors, Epanova addresses a similar patient profile to those who use Vascepa.

If the two pharmaceuticals want to get into any sort of contest, AstraZeneca wins hands down. Last year, the Anglo-Swedish firm booked more than $5.9 billion in research and development expenses. They probably spent more on test tubes than all of Amarin’s $56 million R&D expenditure.

That’s why I’m not surprised that Amarin stock has been volatile after peaking mid-November. It’s not just that shares were technically overheated. Rather, the longer-term narrative for the AMRN stock price has serious challenges.

AMRN Intrigues but is Technically Risky

In my mind, there’s no question that Amarin stock represents a crucial, humanitarian solution. Essentially, Vascepa gives millions a second chance at life.

However, with pharmaceutical companies — especially with the smaller variants — we must separate the underlying therapy and the investment thesis. Yes, Vascepa is impressive, but the big dogs are ready to spoil the party.

Furthermore, investors should consider that the AMRN stock price initially skyrocketed in September 2018, after Amarin released positive efficacy results for Vascepa. Some 14 months later, it’s possible that the party is over.

If you still want to buy Amarin stock, my idea would be to wait. Much of the recent good news has been baked into the share price. That suggests bearish concerns such as the Oppenheimer report have more leverage right now.

An alternative could be the VanEck Vectors Pharmaceutical ETF (NASDAQ:PPH) which includes AZN as its second-largest portfolio holding, at 5.14% weighting, and Amarin further down the roster, at a 3.11% weight among the fund’s 26 stocks.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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