Amarin Corp Plc (AMRN)

[SonamKapoor]

JT: World Fish Oil. That's correct - still anchovies, sardines, mackerels, menhaden, pilchard, sandeel, norway pout, blue whiting, pollock. There are other species, but these are some of the main ones. Anchovies, sardines and mackerel are the big 3.

There are about 40 countries that produce viable commercial quantities.

Top 13 Fish Oil Producing Countries 2017 (,000 mt)
Peru 98.7 mt
Chile 120.2 mt
USA 76.6 mt
China, PR 50 mt
Japan 78 mt
Norway 53.6 mt
Vietnam 68 mt
Denmark 53.1 mt
Morocco 39.5 mt
Iceland 37.7 mt
India 49.6 mt
Mexico 33 mt
Ecuador 26 mt

Every fish has a different fatty acid profile (FAP). Some yield a lot more EPA + DHA than others. And some yield a lot more EPA than DHA (tuna heads and trimmings used in Morocco for example are mostly eyes - and what are eyes and brains? Mostly DHA - so about a 5:25 ratio). Even within a species their FAP changes depending on what they are eating, what time of the year it is - are the fish post-spawn?, the water temps, where they store their fat (in their muscle like salmon or in their livers like cod a demersal fish or do you usually get a lot of oil from the copapods in their stomachs of the larger pelagic species?) JL is right - DPA doesn't comprise much in a typical fish FAP, so it would be hard to get large volumes.

Here's an example of what can happen. Remember the BP oil spill? The oil yields in the menhaden fishery in the Gulf of Mexico cratered and weren't normal for around 3 years - menhaden juvenile recruitment appeared to be normal, but the oil yielded from landings was not. This may give you another reason to pay attention to red algae blooms in the Gulf and the fish die-offs that wash ashore on Florida's east coast beaches that the park rangers clean up so tourists can still enjoy the beaches like Lovers Key SP.

Peru governmental agency responsible for managing their fisheries is called IMARPE- IMARPE I use Chrome - but if you have the Google translate gadget then it will translate the website into English and it's pretty good. From there, you can see catches, historical catch, etc. They have 2 quota seasons. Nov-end of Jan. And then again from April to July. Peru tries really hard to do a good job managing their fishery stocks and have come a long way - next year estimates are for about 5 million mt of quota. This is not official - just an estimate. They will do a research trawl survey in November and based off of that will set the quota for Nov '18- Jan '19.

What happens in Peru is like following OPEC for regular crude (2017 was low because they were still coming off an el nino). Peru would be like Saudi Arabia. And Chile - I don't know, you pick Iraq or Iran? It's like thinking in terms of world crude fish oil reserves - only it's renewable assuming we maintain the health of our planet at current levels.

If AMRN mgt comes out and says our co-mans (CMOs) are sourcing & refining EPA from Euglena, the short attacks will follow.

I can't imagine if Exxon came out and said we're sourcing all our refinery inputs, not from known oil and gas reserves, but from research and pilot projects then my guess is shareholders just like for Exxon would be like WTF?!

Long term - absolutely I believe alt-sources will become viable. Whether it's 3-5 or 10 years out is anybody's guess.

So, digging into more on Euglena, chlorella, spirulina, Volvox colonies and the like, etc it's probably OK if you want, for these reasons 1) if it helps reduce personal anxiety over "supply" issues mentioned in the financials 2) to research new early stage candidates to invest in or 3) to feel hopeful about life in general from biotech advancements. I'd say #2 is the most reasonable as there are better ways to address 1 and 3. I personally am not putting much by way of research efforts into it because commercialization is too far out.

In the agri-business space, the ABCD group as they are called has had lackluster growth for years. Food commodities haven't been that exciting since 2008-9 with some regionalized food panics. Partly since they are so big that to show growth is hard, because it takes a lot to move the dial. Think of them more like dividend payer types - fairly safe moves to basics like Hershey or Con Agra when everything else seems too risky to you. Further remember, that depending on which data set you are using (->like everything in life), at least 30% of equity market returns come from dividends - some parsing of the data shows 50+%.

So back to the ABCDs, that's

Archer-Daniels Midland (ADM)
Bunge (BG)
Cargill (private)
Louis Dreyfus

So, if you look at Cargill's investment say in Calysta Feedkind through this prism of just a microscopically small position for them to see if it turns into anything then you'll understand it's probably really risky to run and chase these types of ideas unless you are OK with having money sit around for a long while and spread the bets. The VF's in SF are in that position. Same thing with BASF/Evonik or Corbion/DHA Algaprime (bought from Bunge/Terravia) etc. They have so much money they can dribble it around and see which ideas sprout.

Has the board done all its homework to truly understand AMRN's environment though before looking to the next big source of EPA? I mean more than "big pharma" is going to buy AMRN. They may. Or it may take awhile and they do another share offering soon to finance the ramp-up in SGA next year. Who knows; I know I don't. I'm still trying to assess how much of a grind 2019-20 will be.

Supply issues that I see being more of an immediate potential concern than barren oceans = the master service agreements & AMR101 volumes from the CMOs (what is EACH plant's annual production capacity & based off what species of feedstock and which methods/reagents/solvents, etc? You can be sure if the CMOs end up not thinking they are compensated enough for AMR101 then there will be "supply" issues - they may blame sourcing feedstock, but is it really?? They'll come back in 2020 with higher manufacturing costs at a minimum = my own COGS calc goes from 24-25% on the recent June 2018 10Q on pg 41-42 to ? say another 2-4% increase then? Somebody could recheck that 10Q with me...). With rising interest rates, the dollar should remain strong though - so that will work in AMRN's favor. Also, these wouldn't be outlandish COGS for bio-tech, high - but, the CMOs are dealing with a naturally-sourced product. Will Wall St care to drill down? Or will they just look at "top-line" ratios...so my thought is you end up needing long term holders that truly understand these waters.

Still perhaps, the scarcity effect could be like for new Apple Iphones - it drives yet more demand because of all the free press regarding the "shortages." Then more people will call their doctors and ask about it thinking it must be a good thing so they want it, too. From a cold market perspective, this is for all intents and purposes a product re-launch polished up by the science.

We all have varying degrees of what makes us comfortable usually based either off our personal knowledge base or people we decide to put our faith in as a proxy for that personal knowledge.

The beauty of a group, such as this AMRN board (part of why I have been enjoying it so much), is that humans almost ALWAYS make better forecasts as a group and definitely when they work toward accuracy specifically in a Bayesian way. One of my favorite books is "Superforecasting: the art and science of prediction." By Philip Tetlock (there's a cheat sheet version off the HBS website as well and he runs a forecasting tournament as part of an ongoing experiment). Another "Thinking Fast and Slow" by Daniel Kahneman. Finally, "Diffusion of Innovations" by Everett Rogers. I'm always trying to improve my thinking, and have a long ways to go.

I live on Main Street so I'm mindful of Wall Street as if they were a door-to-door salesman, knowing their favorite adage "when the ducks quack, feed them" is not meant in a complimentary fashion. We're the ducks. I went to see Kevin O'Leary last week at the Seattle Center mainly so that I could tell my daughter since we like "The Shark Tank." She still laughs whenever she repeats "booby pack" from that one episode. Mr. Wonderful's speech was the same as what you could find on YouTube, with one difference where his slide deck wasn't updated - he said he's now moved from 30% in fixed income assets to 50%. He may not be worth Mark Cuban's $3.5B, but at $400m - its still interesting to me to hear what he's doing as a market indicator.

Long answer, eh?! -SK