Amarin: Headwinds Persist Both In The United States And Europe (NASDAQ:AMRN)

Company Profile

Amarin Corp. PLC (NASDAQ:AMRN) is a biopharmaceutical company focused on the commercialization and development of therapeutics to improve cardiovascular health. The company was founded by Geoffrey W. Guy in and is headquartered in Dublin, Ireland.

Amarin still has only one commercialized drug on the market, the cardiovascular treatment drug – Vascepa (branded Vazkepa in Europe). Vascepa no longer enjoys patent exclusivity, as a judge struck down its key patents in 2020. The company is being hammered by competing for generic products. The management, in a recent earnings release, stated that a third generic drug has recently entered the marketplace, exacerbating the problem for the company in the United States. The increase in generic competition has meant lower volume and price for the company’s product which is reflecting in the recent financial statements of Amarin.

Amarin released a restructuring plan in June that will cut its U.S. headcount by 65%. This is to make up for the loss of market share caused by more generic competition. The cost-cutting effort was expected to save about $100 million over the span of a year, and during their Q3 transcript, they said they have started to achieve that.

Investment Thesis

AMRN’s valuation has seen a steep decline over the past year; from a valuation of approximately $2.14 b­illion in August 2021, the company is now trading at a valuation of approximately $0.48 billion. AMRN has faced significant headwinds in both U.S. and Europe. The pricing and volume pressure observed in the U.S. could potentially become worse as generic competition is starting to erode market share, and in Europe AMRN, the company may struggle to achieve its goal of getting reimbursement and its planned launch in multiple countries without compromising on price.

AMRN continues to execute launch and reimbursement initiatives outside the United States; however, the near-term European revenue growth will not be enough to fully offset the U.S. revenue decline. Hence, I believe the overhang of U.S. generic competition coupled with a relatively slow country-by-country E.U. launch will limit near-term performance for AMRN; therefore, I maintain a sell rating on the company’s stock.

US Vascepa sales are falling

The last quarter’s result reflected the stiff challenges faced by the company in the current environment, with revenues down ~30% YoY. The company’s management said that the drop in revenue was caused by drops in volume and net selling price for Vascepa. This was because generic competition in the U.S. was still strong, and a third generic drug maker had just recently joined the market.

Vespa, a fish oil extract, won its original FDA approval in 2012 to reduce triglyceride levels in adults with severe hypertriglyceridemia. Then, in 2019, Amarin won a coveted label expansion to include high-risk patients with persistent cardiovascular risks. But in late 2020, a district judge struck down the drug’s key patents, and later Hikma’s generic entered the market causing further trouble for the company. Since then the company has been facing immense pricing pressure.

The increasing generic competition has prompted Amarin to change its strategy for Vascepa. The new strategy, dubbed “Go-to-Market,” relies on digital channels to boost prescriptions and expand Amarin’s network of practitioners. However, US Vascepa sales have continued to decrease, resulting from lower volumes as generics increased and a lower net selling price from higher rebates.

AMRN recently reduced its U.S. sales force by 90% (to 70-75 reps) compared to its pre-pandemic/pre-generic entry levels (~780 reps) as the company believes this is a necessary step to maintain positive margin contribution in the U.S. by generating $100 million in savings over the next 12 months (net of investments for Europe expansion). The management expects further volume declines in the near term, and pricing pressure may also potentially persist for a period of time before stabilizing.

The management did not deny the possibility of a fourth generic competitor entering the market, and I believe this is a significant risk for the company as more generic competition would challenge the company on pricing as its market share continues to erode. I believe the risk of new generic competitors in the market adds significant uncertainty to how long AMRN may be able to maintain a positive contribution margin from the U.S. and may prompt AMRN to further reduce costs in the future.

European Healthcare Budget Cuts: Growth Paralysis

I believe it is imperative for AMRN to score wins on reimbursement in Europe in the coming few quarters. The management reiterated that AMRN is committed to establishing prices in Europe that are at the same level or higher than in the U.S. and is willing to spend more time negotiating to secure the best price rather than give high discounts to access the market faster. AMRN continues making progress on reimbursement in Europe more broadly and has filed access dossiers in 9 countries, and has secured national reimbursement for Vazkepa in Sweden (anchor price of €160/bottle). However, headwinds for AMRN in the E.U persist with the management alluding to shrinking healthcare budgets in Germany. I believe these headwinds may not be limited to Germany and could potentially increase and spread if the conflict in Ukraine continues.

Vascepa’s efficacy is in question

Post hoc sub-analyses from the REDUCE-IT study on Vascepa’s trial outcomes have raised doubts about the efficacy of the drug, as it concluded that Vascepa had little impact on serum biomarkers for atherosclerotic disease. This has raised concerns among investors, with some experts advocating for a re-evaluation of the drug’s approval by the FDA. However, Amarin appeared optimistic and brushed off the results of the study. Nabil Abadir, Chief Medical Officer, stated in a press release:

“While exploratory biomarker sub-analyses are interesting scientifically, what is most clear and important clinically are the results of the cardiovascular outcome seen in the Reduce-It trial overall.”

Conclusion

Despite having an effective drug and a capable management team, AMRN is currently in a difficult situation, with eroding market share in the United States and significant barriers to expansion in Europe. The company’s plan for going to market is meant to protect it from generic competition in the U.S. while also speeding up plans for the drug’s launch in key European markets. However, I believe the reducing healthcare budgets due to austerity measures in Europe and the findings from the post hoc analysis could undermine the company’s efforts.

I see a difficult path ahead for the stock and believe it is better for the time being to sit out until there is definitive proof that the company’s marketing efforts are bearing fruit in both the U.S. and E.U. Therefore, for the reasons mentioned above, I maintain a ‘Sell’ rating on AMRN’s stock.