Have any of you thought about making money shorting AMRN? The goal of investing in AMRN is to show a positive ROI, right? You feel that AMRN is an excellent long play, that it will be acquired probably for multiples of its current pps. That is certainly a good basis for a long investment.
But what can happen before the sNDA is approved (if it is)? An AC meeting announcement would most probably cause a sell-off, and an announcement one way or the other is coming soon. We think the behavior of the FDA towards Amarin, as revealed by the CEO at multiple conferences, portends that there will likely be an AC meeting (>80% likely). There is this smaller but ever-present risk that EVAPORATE will be placed on clinical hold, and if that occurs the stock price will fall precipitously, perhaps to <$10. The AC meeting itself could expose unfavorable briefing docs and return an unfavorable result. And/or, within one month to even just before a decision on 9/28 there could be a PR from Amarin that FDA had previously requested information that Amarin submitted and as a result of that submission considered it a major amendment to the sNDA, and thus is extending the PUFA date to Dec 28. There could still be no settlement by mid Dec in patent cases, causing the likelihood of bench trial to be very high (ANDA filers win these overwhelming majority of time).
OR, it's clear sailing to late Sept.
But what is the risk:reward here until late Sept? In our view, the situation Amarin currently finds itself in is extremely skewed to the "risk" side. The market is behaving as if it is 1:5, when it is probably more like 5:1.
Why not only hold puts? And wait until we at least get to mid Sept before deciding to go long again? Let's look at an example:
-Your cost basis in AMRN is $11/share.
-You sell all shares of AMRN at $22, locking in a 100% gain.
-You purchase $14, $15, and $16 strike puts, expiring Jan 2020, with 15% of your above total sold position (15% of basis+profit)
Then two things happen:
-You lose 70% of put value when mid Sept comes and stock is still >$20.
-At this point you still hold those puts as hedge, but go long with the 85% in cash still sitting on the sidelines, losing about 10% overall but avoiding any heavy losses.
or
-The stock suffers from the above risks coming to fruition, and your put position is currently up 300% -- equivalent to a 45% gain in your long share position.
-You still like your chances despite negative info in briefing docs and negative AdComm vote, so go long your 85% cash sitting on the sidelines, buying at $9 and getting nearly twice the shares you sold from $22. You maintain your put positions as hedge in case PDUFA extended and/or CRL comes.
-OR, because of all of the negative catalysts, increase your put position--OR close it out and lock in 45% gain on top of your already 100% gain.
It doesn't seem logical at all to do anything other than sell all shares and buy puts here. You can always adjust later after the risks pass by.
However, this is not investment advice, and is for informational purposes only; you should seek the advice of a registered investment advisor before doing any of the above.
Regards,
-MRC
