Will This Fishy Biotech Go Belly Up?

Will This Fishy Biotech Go Belly Up?

There are plenty of biotech companies that put all of their eggs in one basket these days. For speculative traders, these stocks can lead to exciting trading opportunities based on market approvals or rejections. For most investors, however, buying these stocks on the basis of lofty promises can be playing with fire.

One such cautionary tale is the story of Amarin , a company that has pegged all of its hopes and dreams on a single drug -- Vascepa (AMR-101).

Can this fish swim much further?
Vascepa, which was approved last July and launched in the United States in January, is an omega3 fish oil treatment for patients with severe (500 mg/dL or more) triglyceride levels, which can cause metabolic syndrome -- a combination of high blood pressure, blood glucose levels, obesity, low levels of HDL ("good") cholesterol, and high triglycerides. Metabolic syndrome can also cause heart disease, diabetes, and stroke. Vascepa generated $5.5 million in sales last quarter, with normalized prescriptions rising from 10,484 in the first quarter to 47,335 in the second quarter.

Vascepa uses the omega3 fatty acid EPA to decrease the liver's production of triglycerides, leading to the breakdown of triglycerides in the bloodstream.

During clinical studies of patients with high triglyceride levels, Vascepa reduced triglyceride levels by 27% while the placebo group's triglyceride levels actually increased by 10%. The studies also indicated that Vascepa did not raise LDL ("bad" cholesterol) levels -- a problem reported by other omega fatty acid products including its main competitor, Lovaza.

Omega fatty acid treatments are considered an alternative treatment to traditional ones like statins (Pfizer's Lipitor) and niacin (AbbVie's Niaspan).

A fish called Lovaza is followed by a school of generic fish
Amarin had thought that Vascepa's only real competition would be Lovaza, another omega3 fatty acid treatment patented by Pronova BioPharma (now owned by German pharmaceutical company BASF SE ) and licensed by GlaxoSmithKline .

That false sense of security was built upon two previous events. The first was a court ruling made in favor of Pronova and Glaxo in 2009 that blocked Par Pharmaceuticals and Teva Pharmaceuticals from making generic versions of Lovaza. The second was Pronova's 2011 deal with another competitor, Apotex, which allows the latter to start making generic Lovaza in 2015 instead of manufacturing generic versions immediately. The first patent for Lovaza expired in March, and the second one is set to expire in 2017.

That deal convinced investors, and perhaps Amarin, that Pronova and GSK would reach similar deals with other generic companies and keep the market relatively uncrowded for at least two more years. A Delaware appeals court recently reversed the 2009 decision, however, possibly clearing the way for Par and Teva to start selling generic Lovaza as early as this year.

This means that the market that Amarin thought would be split between itself and Pronova(BASF)/GSK could actually be much more fragmented. Amarin also has no major backers in the pharmaceutical industry. As a result, shares of Amarin plunged on Sept. 12 after the ruling was reversed. Shares of BASF and GSK were hardly affected, however.

Will Amarin really go belly up along with its fish oil treatment?
Although things certainly look bleak for Amarin, are investors overreacting to the news about Lovaza? On the surface, it appears that Vascepa's story is about to end before it has even started.

Analysts at Aegis Capital called the sell-off "unwarranted," however, since the appeals court decision does not automatically allow Teva and Par to start marketing generic Lovaza in the United States. Instead, the case was remanded back to a lower district court which ruled in favor of Pronova back in May 2012.

Aegis also believes that Teva could have trouble getting enough of a fish oil supply to produce generic Lovaza on a commercial scale, and that Amarin could soon win approval for the use of Vascepa to treat mixed dyslipidemia -- a combination of elevated LDL cholesterol and triglyceride exacerbated by decreased HDL cholesterol. Lovaza is unable to treat dyslipidemia due to its aforementioned tendency to raise LDL levels.

October could be the moment of truth for Amarin
Joseph Schwartz, an analyst at Leerink Swann, believes that Vascepa and Lovaza won't compete with each other on price, but rather through efficacy and safety profiles. In that regard, Vascepa has a notable advantage since it doesn't raise LDL levels.

Amarin faces an FDA advisory committee meeting next month to review Vascepa's possible use on patients with high triglycerides (200 mg/dL or more but less than 500 mg/dL), a market that is estimated to be ten times larger than its current market, and mixed dyslipidemia. This could lead to a favorable rating that could cancel out concerns about Lovaza generics.

Foolish bottom line
Even though investors could be overreacting to the recently reversed ruling about Lovaza, Amarin is still a very speculative stock. Even though its safety profile is better than Lovaza's, it's hard to gauge the effect of generics flooding the market later this year or in early 2014. A favorable opinion from the FDA advisory committee in October could be a near-term bullish catalyst, but an unfavorable one could cause this fish-oil stock to go belly up.

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The article Will This Fishy Biotech Go Belly Up? originally appeared on Fool.com.

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