Will AMRN Buy Me a $40 Million Mansion?

MANSIONS AND BRIDGES

Which is better:

(a) Build a $40 million mansion – which is a very nice thing for a rich person to have.

(b) Build a $30 million mansion – still nice – and put $10 million into repairing a bridge that thousands of people use every day?

That’s essentially the choice we make when we decide what the top tax bracket should be on income, dividends, and capital gains for the very wealthy. The Republican Party answers (a) while the Democratic Party answers (b).

For all I know, you choose (a). I just don’t understand why.

DON’T SELL YOUR AMRN?

So we bought it March 25 at $7.10 – albeit only with money we could truly afford to lose, because they don’t all work out this way! – and at $17.10 three weeks later I was quoting Guru making the case for a target of $25 or more. (The stock closed last night at $16.20.)

Yesterday, I posted John’s argument that people won’t take such big pills and that, in any event, fish oil is fish oil . . . followed by Guru’s I-thought-persuasive response.

But I am privileged to have some very smart readers – you, for example – and one of them (Wedgewood Communications’ Scott Koppa) responded to that with his own long analysis, most of which soared so high above my head it didn’t even collide with all the other stuff whizzing by:

AMRN is really just a marketing play. Hate to say it, but it is. (This is what I do for a living). In the long run — like when they actually go to sell this stuff — it will need a very strong marketing campaign to convince any doc there’s a difference here. And you’re going against Glaxo.

So, problems with the marketing campaign:

First and foremost, if you’re going to say that EPA alone is better than EPA/DHA, you better have a head to head study. And they’ll never do it, because there is a very real chance that the difference between the two products won’t be significant, especially when coupled with statins. If you look at the Lovaza data on their website, you’ll see the following in the (what would be comparable) statin combination study:

[Here, he pastes Table 3, which makes no sense to me and wouldn’t format legibly on this page anyway, so I’ll spare you. Indeed, if I were you, I’d skip anything else that’s not bolded.]

Now, you cannot compare PI to PI, so a sales rep can never say any of this. But look at the LDL-C line. The change is 0.7% with the combo. Not great, but not horrible. Note that the end of treatment (EOT) median was 88 mg/dL, which is below the current standard of 100 (that’s one hundred) for patients with a prior cardiac event or multiple risk factors for MI. I have attached a copy of the current guidelines FYI. I think you can see that these patients were comfortably below that level.

I do want to read the study (which I have to find) to explain how the median EOT value is reduced below the baseline value while reporting a median % increase, but this is their label, and it’s what the docs will read. And, as a business guy who I’m sure has taken way more stats than me, I know you know that 0.05 is a barely significant difference. Frankly, clinically, it means nothing. I can’t stress that enough.

Furthermore, in patients with really high triglycerides, the issue is raising HDL more than lowering LDL, as LDL will be lowered by the statin you’ll use (and they will use a statin). Crestor or Lipitor would do way better than these numbers. You can see, tho, that Lovaza significantly raised HDL above the level you’re getting from the statin, and simva is a pretty good statin for raising HDL.

I saw nothing in the release about how the Amarin product affects HDL. This is important too. If you don’t improve HDL, and their HDL is low, the doc will likely combine statins with fibrates, like gemfibrozil (cheap generic) or Tricor. Those also reduce trigs dramatically and bump HDL (their side effect profile is more complex than fish oil, however, particularly when combined with statins, which is why these agents have a spot). But it is important to realize that it ain’t all about lowering LDL, particularly when the whole profile is considered (ie, trigs/chylomicrons, VLDL, IDL, HDL and total cholesterol).

There’s more, but again, they will have to displace a standing product with data that won’t support a switch. So, pricing play? Duke it out with Glaxo or go to OTCs. Docs will run labs on their patients anyway, and I gotta tell you, 3 grams of EPA/DHA a day drops trigs like a stone. Prescription or no, combined product or single malt. Clinically, it simply won’t matter what you’re taking.

It’s all marketing, man.

Also, there’s a danger here. If you’re saying that EPA alone has a different pharmacologic effect than the combo of EPA/DHA, what effect does that have on all the beneficial ancillary effects of the oil, such as the antiinflammatory and anticoagulant effects? FDA might require that these be studied as well — phase III or if they’re lucky, a phase IV postmarketing study. That may be a Pandora’s box that they don’t want opened. FDA would likely require a head-to-head, and you wouldn’t want to run that trial as a noninferiority trial, which is what Amarin did here. It might show that both products were not significantly different for any of the primary or secondary endpoints to be studied. Then they’re second to market with a bigger debt burden and no niche to crawl to. Meanwhile, Lovaza just keeps selling as the only prescription product available.

☞ Guru responds . . .

Lovaza was unable to get a “claim” for reduction of triglycerides in patients between 200 and 500. (You can go to the FDA website to see all the details.) The data led the FDA to determine that there was a statistically significant increase in LDL from Lovaza, so the FDA did not give them a “claim.” Without a “claim” on the label, Glaxo is unable to advertise Lovaza to patients between 200 and 500 or they risk a serious fine from the FDA. Glaxo also has a harder time get reimbursement.

Amarin has SPAs from the FDA for patients greater than 500 and 200-500. They have satisfied the FDA parameters to be able to get a “claim” that they lower triglycerides in both groups without raising LDL. AMRN will be able to advertise that their product benefits patients between 200 and 500: Glaxo is unable to do so. AMRN will get a big corporate partner (Pfizer, Astra Zeneca, lots of possibilities).

So ultimately, your reader is correct: it is all about marketing. AMRN will be able to market their drug as effective for all patients with elevated triglycerides, while Glaxo can market only for the small group of patients over 500. Those are the rules.

☞ So who is right? I asked Aristides’ Chris Brown to read both comments and make his own:

Guru is right. That’s why I added to our position the other day. The indication is going to be broader than Lovaza.

Your reader is also considerably right. My wife (who is an endocrinologist), would be more inclined to agree with the assessment that HDL-raising is hard to come by, whereas LDL-lowering can be fairly easily achieved with a statin, so given a choice of a drug that lowers TGs and raises HDL but raises LDL slightly (this is Lovaza) or a drug that lowers TGs and lowers LDL and has presumably no significant effect on HDL (AMRN), she would actually be inclined to choose Lovaza. Now, that’s a practice pattern from fellowship. It may or may not agree with the fine details of the guidelines (I suspect it probably doesn’t agree, but I’m not going to spend time looking something up to disagree with the Dr./Mrs. – I know better than that.) So, some physicians will prefer Lovaza. The indications will be broader for AMRN’s drug. The great thing about these drugs is that there’s a selling point for each one, so probably the class as a whole indeed expands, and a price war is unlikely.

As an investment… Lovaza is on track for $1 bil in revenue. AMRN’s product is going to be more broadly indicated, and the class will grow. AMRN’s valuation is easily justified here. I agree with guru’s investment thesis.

☞ Please note that I’m not suggesting you buy AMRN at $16.20 – just that if you bought it last month at $7.10 you not necessarily rush to sell all of it.