Regardless of Anchor, Things Are Looking Up!
It has been a rough year for Amarin Corporation plc (ADR) (NASDAQ:AMRN) and its long-term investors. The stock has lost more than 40% of its value over the last year following the approval and launch of its drug Vascepa.
Prior to Vascepa’s FDA approval it was touted as a blockbuster drug in the treatment of high triglycerides. However, after a slower-than-expected launch; no buyout or launch partner; its largest indication ANCHOR still being six months from an FDA decision; its initial costs being too high; and its prescription trends being disappointing, the outlook for this drug has rapidly changed.
On Thursday, the tide turned, and Amarin Corporation plc (ADR) (NASDAQ:AMRN) rallied 9% in response to the following news:
1. A bearish research report by Summer Street came into question after the cited physician said that he was “misquoted” and that he did not indicate that the FDA wouldn’t approved the company’s ANCHOR indication. The research firm was attempting to prove that upside for Vasepa is limited – but apparently used incorrect and misleading information.
2. The company issued a press release showing that Vascepa worked better when used on Statin-treated patients. The company is currently testing Vascepa with a Statin to determine if the combination can reduce the risk of cardiovascular events.
When all the speculation is put to rest, the bottom line is that patients with high triglycerides represent a large chunk of the U.S. adult population. Vascepa is currently being used to treat those with levels of <500 mg/dL. If ANCHOR is approved, Vacepa will be used on patients with levels below 500 mg/dL.
Currently, Vascepa is still in the early phases of launch, and I’ve been impressed. Amarin Corporation plc (ADR) (NASDAQ:AMRN) had to hire a sales team and launch the drug alone. Therefore, a 7.5% week-over-week rise in total scripts, combined with weekly scripts approaching 3,500, is quite strong.
With Amarin Corporation plc (ADR) (NASDAQ:AMRN) trading with a market cap of $1 billion, I think now is the time to buy. It is trading near 52-week lows – and even if ANCHOR is not approved, Amarin is trading at just two times Vascepa’s peak sales. If ANCHOR is approved, then Vascepa could reach sales north of $1.5 billion. Thus, Amarin Corporation plc (ADR) (NASDAQ:AMRN) would be trading at less than one times peak sales, which never happens in this industry.
This Quiet Stock Rallies, But Is It a Buy?
Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) is a $1.2 billion company, trading at $2.40, that saw its valuation rise 7.5% on Thursday following a “Buy” rating from Jefferies and a price target of $3.50
Jefferies’ bullish call is in response to the company’s lead product, LX4211 – as the firm called LX4211, “a best-in-class SGLT inhibitor with potential benefits on efficacy, cardiovascular effects, renal safety, and infection risk relative to other SGLT inhibitors.” Basically, Jefferies is calling LX4211 the best of the SGLT bunch.
In 2013, Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX)’s YTD gains are what the stock created on Thursday, it has traded higher by about 7%. The reason for this lack of performance has been due to a lack of catalysts throughout the year. Back in late 2012, its candidate LX1033 for irritable bowel syndrome received fast-track status – but since then the company has been relatively quiet.
LX1033 is in the company’s pipeline, but Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX)’s LX4211 is without question the bread and butter of this company. Without being too complex with medical jargon, the anti-diabetes drug has already shown solid efficacy and encouraging safety data. Yet, despite this fact, I am not buying the stock.
Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) is preparing to enter a Phase 3 study for LX4211. The company had previously mentioned that it was seeking a partner for the Phase 3 study. However, the number of potential partners is falling fast.
Last month Pfizer Inc. (NYSE:PFE) and Merck & Co., Inc. (NYSE:MRK) announced a partnership to develop Pfizer’s SGLT inhibitor. Johnson & Johnson (NYSE:JNJ) already has an approved drug of this caliber, Invokana – as does Bristol Myers Squibb Co. (NYSE:BMY) and AstraZeneca plc (ADR) (NYSE:AZN) with Forxiga. Therefore, it is going to be difficult to find a partner to swallow the costs associated with the drug’s development.
In 2012, Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) posted a loss from operating activities of almost $100 million and has an accumulated deficit of nearly $1 billion. In biotechnology, especially for a candidate in early Phase 3 development, these costs are very expensive. Furthermore, there is no guarantee that it will ever earn an FDA approval – and if it does – the market for diabetes might be too congested for it to produce large sales.
Final Thoughts
With all things considered, I choose a stock with an approved drug that could reach blockbuster status over a company that is 20% more expensive that is still year(s) from entering the market (if successful).
Lexicon has cash of almost $200 million, although significant, it will not be large enough to complete the Phase 3 trial and then enter the market. Thus, if the company does not find a large partner it will have to raise money with an offering of sorts.
Amarin Corporation plc (ADR) (NASDAQ:AMRN) is financially stable. The company has the same $200 million in cash but its product has already launched. Therefore, I view Amarin as the safer investment choice, without question, with the highest amount of short-term and long-term upside.
Brian Nichols is long AMRN. The Motley Fool has no position in any of the stocks mentioned. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Which of These Billion-Dollar Biotechs Is a Buy? originally appeared on Fool.com and is written by Brian Nichols.
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