leading into the interim readout event this year, we reiterate our buy rating and $10 price target.
We expect study to continue until completion. At this point, we reiterate our view that the probability of an early stop for efficacy is low: (1) for such a pivotal trial, it is likely that investigators will want to preserve their alpha for the full data analysis (i.e., the interim stopping rule is likely to be very stringent, in the more conservative case being the Peto stopping boundary of p<0.001, which will severely limit its conditional power); and (2) as the first-in-class CV outcomes trial with a skeptical regulatory panel, it is not clear that the magnitude and strength of an early benefit will outweigh the value of robust, full-study results. As a relevant historical example, the Ivabradine and Outcomes in Chronic Heart Failure (SHIFT) trial was not stopped early despite showing significant effect at the second interim analysis (endpoint of cardiovascular death and heart failure hospitalization HR=0.77, p<0.0001, crossed boundary of p<0.001), in part because a previous study (in a different population) was negative (Circ Heart Fail. 2012;5:294-302).
1Q16 in numbers. Reported yesterday, net product revenue for the first quarter was $25.3M. Management reiterates its guidance for FY16 sales revenue in the range of $105–150M. On the operating front: COGS were $6.9M (-18% QoQ), SG&A costs were $28M (+19% QoQ), R&D costs were $13.7M (+3% QoQ), driven by continued enrollment in REDUCE-IT. Under GAAP, Amarin reported a net loss of $29.8M, or basic and diluted loss per share of $0.16. The company exited the quarter with cash and cash equivalents of $81.4M.
Valuation and risks. Our price target of $10 is based on an equally-weighted composite of: (a) $10.20/share, as a 35x multiple of taxed and diluted FY22 GAAP EPS of $1.24 discounted back to FY16 at 25%; and (b) an NPV of $9.61/share (discount rate 12%, growth rate 2%). Risks to our investment thesis and target price include: (1) failure of the REDUCE-IT study; (2) Vascepa commercial ramp-up and/or peak sales not meeting our projections; (3) delay or failure of Vascepa to obtain FDA approval in the ANCHOR indication; and (4) further competitive disruption of the omega-3 market by generics and/or OTC supplements beyond our model.
