Shares of Amarin (AMRN) dropped in morning trading after Oppenheimer analyst Leland Gershell initiated the biopharmaceutical company with an Underperform rating and a price target of $7, citing a "stale" M&A thesis. The rating, a split from other bullish analysts, comes as Citi analyst Joel Beatty told investors that he prefers Amarin shares to those of The Medicines Co (MDCO) after this week's divergence in the two stocks.
AMARIN'S VALUATION 'RICH," M&A THESIS 'STALE': Oppenheimer analyst Leland Gershell initiated coverage of Amarin on Tuesday with an Underperform rating and $7 price target. Amarin's current valuation reflects expectations that, following near-term label expansion of sole omega-3 product Vascepa, the company's sales will inflect and grow to $2B-plus by 2024 and its operating margins will meaningfully improve, Gershell told investors in a research note. The analyst, however, forecasts Amarin's sales growth to "underwhelm" and that "heavy selling costs" will impede its profitability. Furthermore, a 12-month stream of late-stage competitor data starting next month will increasingly weigh on shares as these products will offer superior profiles, adds Gershell. He views Amarin's valuation as "rich" and the M&A thesis as "stale," adding that "while some may regard Amarin as a probable M&A target, we see the likelihood of this outcome as only shrinking with time."
Gershell says his bearish view is supported by sizable current off-label use that dampens growth potential following label expansion for Vascepa, as well as results from his firm's physician survey, indicating moderate patient adherence, hurdles to reimbursement, and a wide-ranging outlook on future prescribing. He also stated that he forecasts selling expense escalation for Vascepa above Street projections as Amarin struggles to meet revenue estimates in a category fraught with omega-3 generics, dietary supplements and foreseeable competition. "Competitive clouds are fast approaching," Gershell further said, stating that Epanova's N~13K STRENGTH trial threatens Vascepa's distinction among omega-3s of cardiovascular outcomes benefit.
As far as M&A goes, Gershell said he thinks the "ripest" time for Amarin to be acquired has already passed. From here, the analyst said he increasingly discounts this outcome as emerging competition layers onto a "murky" intellectual property position.
JEFFERIES, CANTOR MORE BULLISH: Following the data presented at the American Heart Association and last week's successful FDA panel vote, there are three-to-four potential drivers for Amarin shares over the next few months, Jefferies analyst Michael Yee said. He added that while some investors do not like the risk/reward debate on the December 28 potential FDA approval and label wording, he's not too concerned about the exact wording. Based on commentary by the FDA at the end of the panel, Yee thinks the agency "might be broader on the label than some investors expect." The analyst still expects Amarin to rise toward $30 per share based on these catalysts. Cantor Fitzgerald analyst Louise Chen said the most interesting takeaway from the conference call discussing its three presentations at the American Heart Association meeting was the physicians' viewpoint regarding the "outdated" paradigm of primary versus secondary risk patients. With a blurring of the line between these two cohorts, Chen thinks physicians will see a place for Vascepa in both patient types, regardless of label language. She continues to think the peak sales potential of Vascepa is underappreciated and that upward earnings revisions should drive Amarin shares higher.
CITI PREFERS AMARIN OVER THE MEDICINES CO: Amarin shares have declined 5% this week, while The Medicines Co. stock is up 35%, which has brought The Medicines Co.'s enterprise value to $7.5B, exceeding Amarin's enterprise value of $7.4B, Citi analyst Joel Beatty noted. The analyst said he does not see anything fundamental having changed that would support this "drastic of a change in the relative valuation of the two companies," and while keeping a Neutral rating on both stocks, he prefers owning Amarin over The Medicines Co. at this time. The Medicines Co. now looks expensive relative to Amarin, he contended, adding that that Bloomberg's report this week of Novartis (NVS) having expressed interest in The Medicines Co. does not provide new evidence that the company is attractive from a valuation standpoint to potential acquirers.
The analyst said he views the data presented at AHA over the weekend as "incrementally favorable" for Amarin.
PRICE ACTION: In morning trading, shares of Amarin are down about 8% to $20.91.
