Amarin Corp Plc (AMRN)

[sts66]

That's not the full Stifel report - and the complete one isn't exactly high on AMRN prospects - says FDA will go after MO and LDL-C issue full bore at an Adcom, and his predicted peak sales of $2.5B is pitifully small, market penetration would be minimal. He also assumes no priority review, but he's got to be wrong in predicting an Adcom in 2020 - that's way past the 10 month approval deadline, means it would take over a year for FDA to decide whether to approve sNDA or not. So if he has that so blatantly wrong, what does that say about the rest of his opinions?

March 21, 2019 Biotechnology Takeout Or Bust? Initiating Coverage With a Buy Rating and a $27 Target Price

Summary

We believe Vascepa's REDUCE-IT study results are impressive and based on our physician survey, will most certainly lead to robust growth, likely above management's 2019 guidance. With that said, our call here does run counter to the prevailing sentiment that AMRN will be acquired in the near term and believe the outcome of an advisory committee discussing the REDUCE-IT results and controversies around them will be needed before a takeout can occur. Our diligence with regulatory experts get us comfortable with an FDA approval for a Vascepa label expansion to include reduction in CV risk based on the REDUCE-IT results in early 2020, which should effectively increase its addressable market size by a factor of 20. From a valuation perspective, we use a blended methodology given the takeout premium in the stock and arrive at a $27 target price.

Key Points

There is no doubt the REDUCE-IT data are already having a positive impact on Vascepa scripts and based on our physician survey and discussion with physicians at the American College of Cardiology (ACC) meeting earlier this week, we think 2019 guidance is probably beatable. REDUCE- IT demonstrated an outstanding ~25% relative risk reduction on 5-part MACE in patients with high triglycerides with controlled LDL-C. Already, IQVIA scripts have seen robust growth since the REDUCE-IT study results were published in the NEJM in January 2019 and we believe that momentum will continue. Our survey of current and non-prescribers of Vascepa suggests: (1) among current prescribers (n=63) we surveyed (PCPs, Endos and Cardiologists), ~95% expect to increase utilization in the next 12 months particularly in patients with triglycerides of >150mg/dL - <500mg/dL where they expect ~10-25% of their patients to be put on therapy in 2019, ahead of sNDA approval; (2) after the REDUCE-IT results, ~80% of physicians who currently do not prescribe Vascepa (n=39) said they plan to prescribe, with PCPs the most bullish on its usage. Our 2019 forecast of ~$370 million is ahead of management's guidance of ~$350 million and consensus estimates of ~$362 million. We forecast ~$2.5 billion in stand alone US peak sales in 2029.

Controversies centering on the use of mineral oil as a placebo in the REDUCE-IT study remain a key question which is unlikely to be settled until a potential advisory committee in early 2020, but we think it ultimately goes AMRN's way. Our discussions with a former FDA Medical Officer from the Division of Metabolism and Endocrinology (pg. 42) and former panel member from Vascepa's ANCHOR advisory committee (pg. 43) suggest: (1) the 10% increase in LDL-C and the meaningful rise in hsCRP in the control group in REDUCE-IT will certainly be a case for the FDA to convene an advisory committee; (2) the FDA will likely use a statistical approach to determine the mineral oil effect, which, when looking at the linear relationship between LDL-C and CV risk, is likely modest and unlikely to make REDUCE-IT a failed study given how robust Vascepa's benefit was. We come away with the belief that there is a better chance than not Vascepa's soon to be filed sNDA will be approved. With that said, the resolution of this controversy may not occur until 2020, which could disappoint investors hoping for a near-term takeout since would-be acquirers may prefer to await the outcome. If no advisory committee is scheduled, we'd view this as a positive sign.

We try to take a thoughtful approach using a blended valuation methodology given the takeout premium in the stock. On a stand alone basis using a probability-weighted DCF (~50% of valuation) between 2019-2037, we arrive at a $17 valuation. Recall, AMRN has already settled with TEVA (NC, $16.86) for generic entry in August 2029 for both its 1g and 0.5g presentations. We believe this valuation serves as a floor for the stock and think on takeout (~50% of valuation), AMRN could sell for ~6x EV/peak sales translating to a $37 target price, which assumes an acquirer can achieve greater peak sales than AMRN standalone.