Amarin: Constantly Living In Interesting Times (NASDAQ:AMRN)

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Amarin (NASDAQ:AMRN) is back in the news again, with the latest being the mineral oil bogey being raised again from some corners, albeit with a fresh new heart attack angle. There is a host of other news, including from Sarissa, an earnings miss, a suspended guidance, downgrades, C-suite shuffle, restructuring – the usual Amarin curse of constantly living in interesting times. Net-net is that the stock dropped 50% in the end of May, and hasn’t recovered since.

Let’s start with the earnings miss. On May 4, the company reported Q1 earnings and lost a quarter of its value as it reported an earnings miss. Missing on both top and bottom lines, the quarter saw Amarin’s net loss widen more than 18 times to -$31.6M from -$1.6M in the year-ago period driven by a 34% decline in revenue to ​​~$94.6M. The decline was spurred on by the entry of a third generic drug in the market as a result of a questionable legal decision taken by some judge in Reno, Nevada 2 years back. The company was forced to suspend guidance due to uncertainties related to “the impact of COVID-19, the impact of generic Vascepa and challenges for drugs seeking market access in Europe.”

The earnings miss resulted in downgrades from two analysts. H.C. Wainwright downgraded AMRN ADRs from Buy to Neutral and reduced the price target from $10 to $3 citing “revenue uncertainty in both U.S. and overseas due to generic competition in the U.S. and the early European expansion for Vascepa.” JPMorgan also downgraded AMRN to underweight due to the same reasons.

This month, activist investor Sarissa Capital Management, which holds a 6% stake in AMRN, said it planned to seek representation on AMRN’s board of directors. I discussed some of this in an earlier article. Sarissa is owned by Alex Denner, who is most well-known for shaking up Biogen’s board with a 3% stake in that company, has also been involved in many multi-billion dollar sales of companies, including one which also had a cholesterol-lowering drug. This company, The Medicines Co, was sold to Novartis for nearly $10bn. Sarissa now has a 6% stake in AMRN, the largest of all, and it is also higher than Baker Bros’ stake of 5%, although Baker Bros was an earlier buyer when Amarin was trading much higher, so the value of its stake is nearly double of Sarissa’s, at $69mn.

In a recent filing, Sarissa says AMRN shares “continue to be significantly undervalued,” which makes me wonder if they should put their money where their mouth is and increase their stake. The last time they bought AMRN stock was when the stock was trading at nearly 3x its current price. So if they really believe what they are saying, they should be purchasing like crazy at these low prices. However, I doubt whether they will take that risk – the only way AMRN will gain value is if Sarissa can get on the board, work its thing, and sell the company – to someone who can stop generics from usurping Amarin’s CV label despite their own “skinny label.” However, like I said before, if Amarin decides not to play ball, Denner will have a tough time ahead getting a foot in the door:

However, if the company resists, it will be interesting to see how a proxy fight would play out for Sarissa. Amarin is incorporated in England and Wales, and its principal offices are in Ireland. They have unusual provisions including that at every annual general meeting, at least one-third of the directors shall retire from office. However, retiring directors are eligible for re-election so despite this provision, as of the last annual meeting, all seven directors had been on the board for at least seven years – with a majority on for at least 11 years. Moreover, the company only puts up two directors per year, so it would take at least two years for Sarissa to get significant board representation if this turns confrontational.

Amarin has had a C-suite reshuffle – following the resignation of Michael W. Kalb, Tom Reilly joined as Chief Financial Officer – which may or may not impact Denner’s efforts. John Thero left the company last year; besides being the CEO, he was also a director. Karim Mikhail is the new CEO, and he was inducted into the BoD in 2021. The latest addition to the BoD is Per Wold-Olsen, who joined in January. I was trying to look for points of historical contact between members of this board and Alex Denner – a very basic research in order to find who might support his bid to join the BoD – however, I don’t see much of anything. David Stack was CEO of The Medicines Co, but that was long before Denner’s involvement in that company.

In a recent filing, citing reasons for its “ABSTAIN” vote at the latest shareholder’s meeting, Sarissa noted:

Sarissa has discussed with the company our desire to add directors to the board. Although we are hopeful that the board will see the value that Sarissa brings as the largest shareholder and with a track record of creating shareholder value for cardiovascular disease focused companies, we are uncertain how our discussions regarding board representation will proceed. We note that despite a board refreshment process that began last October, the independent directors never proactively contacted Sarissa despite us being Amarin’s largest shareholder with a strong track record of value creation in cardiovascular care, such as The Medicines Company.

This seems to be turning into a protracted fight for Sarissa to gain entry into Amarin’s board. In an interesting conclusion to the above, Sarissa said:

In addition, we intend to vote “ABSTAIN” at the annual meeting because even though such a vote will not impact the outcome of the upcoming election of directors, the United Kingdom, the jurisdiction in which Amarin is domiciled, contains laws and rights that protect the shareholder franchise even after the annual meeting. For example, under UK law and Amarin’s articles, shareholders, like Sarissa, who own at least 5% of the outstanding shares can call a special meeting of shareholders to remove and replace directors AT ANY TIME. Therefore, immediately after the annual meeting, we could call a special meeting and seek to remove and replace some or all of the Amarin directors with the affirmative vote of the holders of a majority of the outstanding shares.

Karim Mikhail’s becoming CEO last year reflects the company’s last-ditch efforts to move away from the American fiasco and improve its efforts in Europe. Mr. Mikhail joined Amarin as Senior Vice President, Commercial Head, Europe, and his experience seems to be more focused around Europe. Thus, Amarin’s latest restructuring efforts are aimed at Europe; it is reducing 90% of its US commercial force and putting its money in Europe. This, the company says, will reduce $100mn in expenses as well. This follows Amarin’s increasing efforts to market Vazkepa (as it is known in Europe) in that continent, as the company announced a positive recommendation in the U.K. for reimbursement of Vazkepa. This year, Amarin expects to receive pricing decisions for Vazkepa in up to eight countries, with plans to launch the product in up to six European countries. Sweden was the first country to grant Vazkepa marketing authorization.

While all this is ongoing and very positive for Amarin, STAT came out with a report that raises new concerns about Vascepa’s efficacy in reducing cardiovascular risks. According to the report, “in the mineral oil group, levels of two proteins in the blood that raise the risk of heart attacks and strokes went up. They were low-density lipoprotein, or LDL, the so-called bad cholesterol, and C-reactive protein, or hsCRP, a measure of inflammation in the body.” [I do not have access to the STAT report. I got the above quote from a comment on Seeking Alpha, cited above]. This is the old mineral oil argument with a new twist. Earlier we saw this argument being used to call into question the trial design, and this was discussed thoroughly in old reports, including even in the advisory committee meeting. The new twist here is that STAT says, citing experts, that using mineral oil in the placebo group may have caused additional heart attacks in patients taking the placebo, and so the difference on the heart attack parameter between placebo and Vascepa may have been falsely equated.

I will end this discussion with Amarin’s latest scientific publication on June 30:

Amarin Corporation plc today announced an exploratory post hoc sub-analysis of REDUCE-IT serum samples that found statin-treated patients allocated to icosapent ethyl (IPE) had limited differences in certain lipid and inflammatory biomarkers compared with statin-treated patients allocated to mineral oil placebo. These findings are consistent with prior reported data and support previous analyses that demonstrated the majority of benefit from IPE was from achieved eicosapentaenoic acid (EPA) levels in REDUCE-IT. This sub-analysis was published online today in the journal Circulation.

What this means is that patients in the drug group had not much difference from those in the placebo group in terms of certain lipid and inflammatory biomarkers. So if there was any difference at the end of the trial, it must have been due to the drug – this is what is being said.

Finances

AMRN has a market cap of $591mn and a cash balance of $389mn. The company earned $94mn in revenue in the quarter. During the first quarter, the company reported operating expenses of $100mn, which really does not give them a long cash runway. However, the restructuring will save them some money, and increasing revenue stream from Europe, hopefully, will also be a lifesaver.

Bottom Line

Alex Denner did say that AMRN stock is undervalued. However, us long-time AMRN followers have heard that often. Yes, the price is low, but having been burned before, I am not planning to invest in AMRN right now.



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