Right Drug Class, Wrong Company

We've been speculating for almost a year that Amarin would be purchased by AstraZeneca . The large pharma sells cholesterol-lowering drug Crestor, which would be a perfect fit with Amarin's lipid-lowering fish oil Vascepa.

Right drug class. Wrong company.

Instead, AstraZeneca purchased Amarin's competitor Omthera Pharmaceuticals , which has a fish oil product, Epanova, similar to Vascepa. Omthera expects to file a marketing application with the Food and Drug Administration within a few months for the same indication that Vascepa is currently approved for.

Why Omthera over Amarin? Here are three possibilities:

Omthera's technology allows for better absorption, which allows for once-daily dosing without food. Vascepa is taken twice a day with food. It may not seem like a lot, but patients prefer the more convenient dosing, and when all things are equal, doctors will prescribe the once-daily drug because they know they'll get better adherence from the patient.

Without being able to patent the fish oil itself -- a composition-of-matter patent -- Amarin and Omthera have to rely on patents on how their drugs are made. I'm not a patent lawyer nor do I play one on the Internet, but a formulation that changes the dosing might be more defendable than Amarin's war chest of patents. We'll know in a few years when the generic-drug vultures to come in.

This seems like the most obvious reason. Amarin ended last week with a market cap around $1 billion. AstaZeneca is paying about $323 million for Omthera and could give shareholders an additional $120 million in development and sales milestone payments.

With an approved drug and an outcomes study well under way, Amarin is arguably worth more than Omthera, but there's a long way between $443 million and $1 billion. Amarin's shares are rightfully seeing pressure today as they adjust to the reality check on what big pharma is willing to pay.

Poor Amarin?
Don't feel too sorry for the company. Vascepa still has a solid head start and could have an expanded approval for patients with moderately high triglyceride levels by the end of the year -- before Epanova is even approved for patients with extremely high triglyceride levels.

At this point, I doubt Amarin gets a buyout above $1 billion. A more likely scenario is finding a partner willing to market Vascepa that might make a purchase down the line. Amarin is clearly worth more than $1 billion if doctors will prescribe Vascepa for moderately high triglyceride levels, but they may not do that in large numbers until the outcomes study proves that Vascepa decreases heart attacks and strokes.

Now that AstraZeneca is out of the picture, Merck seems like the most obvious choice as a partner. The pharma sells Zetia, which lowers cholesterol, so there are the same synergies that AstraZeneca will see with Epanova. Merck might even be interested in developing a combination product containing Vascepa and a statin like it has done with Zetia to make Vytorin and Liptruzet.

Craving more info on Amarin?
In our new premium research report, The Motley Fool's top biotech analyst offers an in-depth look at Amarin's upcoming opportunities, along with reasons to buy and sell this stock today. To find out more simply click here now to claim your copy.

The article Right Drug Class, Wrong Company originally appeared on Fool.com.

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story