Summary

• In this note, I detail some common elements of the bear thesis, as well as the counterarguments to this thesis.

• Low compliance serves as a risk to consensus estimates, which suggest high growth rates after label expansion approval

• Additionally, several competitors are expected to see trial readouts over the coming months

• Finally, ongoing patent litigation could pose a risk to longer-term estimates

• Bulls posit that compliance is not a significant issue, that competitors lack CV outcome results or a clean safety profile, and that patent litigation is in Amarin’s favor.

Bear Thesis Pops Recent Stock Gains Following Positive ADCOM Results

In this note, I'll focus primarily on the bear case for Amarin, which has been underrepresented online, but is now in focus after Oppenheimer initiated coverage with a sell rating. This initiation is the primary reason for the stock's recent weakness after reporting positive advisory committee results in the prior week.

The bear case is important to understand for all investors. The arguments put forth will stress-test your own views (in turn, either increasing your confidence in it, or weakening it), or serve as additional research to further develop your own view.

Importantly, it should be noted that I do not have a strong personal view on Amarin. If you are not familiar with my writing, my articles tend to focus on the debates between institutional investors (although, at times, I will throw out a personal opinion) and aim to raise the strongest arguments that I've seen put forth by both sides. As a result, I'll discuss counterarguments that have been raised to the bear thesis as well in the hopes of providing enough ammunition for readers to arrive at their own conclusions.

Note that I do not discuss what Amarin’s label will ultimately be, which is a widely-discussed topic currently for Amarin. While a narrow label (secondary prevention only) would be negative for the stock, and a broader label (both secondary and primary prevention) would be positive, it’s not crucial to the bear thesis, and as a result I will save the topic for a future discussion.

With that in mind, the key points to the bear thesis that I’ll detail are the following:

• High discontinuation rates, along with off-label usage, that could lead to slower-than-anticipated growth rates

• Potential competitive threats with upcoming readouts that pose risks to the stock both near-term and longer-term

• Pending patent litigation from Dr. Reddy's and Hikma

• M&A less likely at this point due to high valuation relative to the above-highlighted risks

Compliance Rates Suggest that Consensus Estimates Are Too High

Bears posit that compliance rates are worryingly low, and could move lower, once Amarin receives the expanded label (with or without primary prevention). Weighted average adherence rates for patients with triglycerides (TG) between 135-499 mg/dL and 500+ mg/dL was 52% and 65%, respectively. Additionally, some survey work has shown that discontinuation rates are high. Oppenheimer for example noted that 44% of surveyed physicians had patients that discontinued, and that 31% of patients had discontinued within 12 months. The primary culprit behind this appears to be pill burden, as patients are required to take large pills, ideally with a fat-rich meal, which can be discomforting and onerous on the patient.

With a high (and potentially growing) level of discontinuation and adherence, and high levels of off-label usage already, bears believe that Amarin may see sales growth below consensus expectations. The discontinuation and adherence rates alone require growth of 40%+ just to offset these headwinds. Overall, bears still see growth (as the label expansion will undoubtedly be positive), but the proper benchmark is investor expectations. Here, consensus estimates call for an acceleration in growth, with $400M in revenue in 2019, growing to $1.1 billion by 2021, and $2.4 billion by 2025.  

There are several counterarguments raised to this argument. First, some bulls disagree on the extent of the issue. There is disputing survey work that suggests that pill burden was not a significant complaint among patients. Additionally, growing sales seems to suggest that if this were an issue, it hasn't been significant enough to really slow the gains enough to date. Furthermore, all Omega-3s currently face pill burden issues due to the large dose requirements, and as a result, this issue is not exactly foreign to the class (although, as I'll note later, upcoming competition could potentially do better job with this than Vascepa).

Competitive Threats With Upcoming Readouts

Another often-raised concern is the threat of competition. In particular, there are three competing Omega-3s (OM3s) that should have readouts over the coming quarters: AstraZeneca's Epanova, Acasti Pharma's CaPre, and Matinas Biopharma's MAT9001.

For background, recall that there are 3 main OM3 fatty acids: eicosapentaenoic acid (EPA), docosahexaenoic acid (DHA), and α-linolenic acid (ALA). One of the ways Vascepa differentiates from other OM3s on the market is that it is mostly EPA. Amarin believes that DHA can be harmful to the body by increasing LDL-Cs.

AstraZeneca's Epanova. Epanova is an OM3 with EPA/DHA in free fatty acid form. The drug was approved in 2014 for patients with >500 mg/dL but has not yet been launched. AstraZeneca is currently running STRENGTH, a phase 3 trial studying Epanova + statin's impact on CV outcomes vs. statin alone in the high TG (HTG) population (180-499 mg/dL). Note that this is a large trial with over 13,000 patients enrolled.

Epanova is differentiated from Vascepa in a number of ways. First, the EPA/DHA mixture is different. Whereas Vascepa is primarily EPA, each 1g capsule of Epanova is 55% EPA and 20% DHA. Second, the OM3 is in free fatty acid form, which in theory has better bioavailability. The theory behind the drug is that prior OM3s failed were due to their low dose, so Epanova will test a higher dose with better bioavailability. Epanova also has the added benefit of being smaller, once-daily, and not needing to be taken with a meal. Given the pill burden issues mentioned earlier, this would be a strong alternative.

Additionally, the trial enrolled 50/50 primary/secondary prevention, which should allow Epanova to more easily achieve label expansion, assuming success in STRENGTH. If Epanova is able to find success in their trial, it could shift the narrative that Amarin has developed from EPA-focused to EPA/DHA mixtures.

Bulls would respond that the key caveat here is dependent on whether Epanova is able to show success in STRENGTH. Again, prior trials of EPA/DHA have failed, whereas trials with pure EPA have succeeded. Vascepa's REDUCE-IT demonstrated a high bar of 25% relative risk reduction (RRR), and is a noteworthy achievement compared to other CV outcome trials, let alone for the fish oil category. The working hypothesis among the pure EPA group is that DHA is the issue. If this is the case, then STRENGTH may not show the same degree of success as Vascepa.

Secondly, the safety profile for Vascepa so far looks better. Epanova had diarrhea (15%), nausea (6%), and ab pain (5%). Meanwhile, Vascepa only had arthralgia with higher rates than placebo.

Finally, STRENGTH results will be closely watched but is not expected to read out until 4Q20. As a result, Vascepa will still have an ~18 month head start with a positive readout.

Acasti Pharma's CaPre. CaPre is an OM3 with an EPA/DHA mixture from krill oil, which is thought to provide better absorption in patients. CaPre has already shown promising biomarker data, with the trifecta of lower TG, lower LDL, and higher HDL. Additionally, CaPre contains EPA and DHA free fatty acids, which again allows for a smaller pill and consumption outside of meals. CaPre is being studied in the very high TG (VHTG) population in the TRILOGY trials (TRILOGY1 and TRILOGY2), but management believes that they could achieve label expansion without additional clinical trials. Finally, subgroup analysis that would be provided in 2020 could potentially show HbA1c benefits as well, which would further differentiate the drug from other competitors.

The biggest pushback here from bulls is that biomarker data is not enough; CaPre needs cardiovascular (CV) outcomes data in order to gain traction among physicians. And they would need an additional trial to get CV outcomes on their label.

As a result, CaPre looks like it is still a ways away from being a bigger threat to Vascepa. However, biomarker data does show some promise. Topline results appear on track for a readout in December and January, and additional subgroup analysis could be provided in March, May, and June of next year.

Matinas Biopharma's MAT9001. Matinas Biopharma's MAT9001 is a prescription OM3 fatty acid. In a comparison study to Vascepa, MAT9001 was found to have higher EPA concentration and favorable reductions in TG, total cholesterol, VLDL-C, non-HDL-C, ApoC3, and PCSK9, and no meaningful increase in LDL. The company will begin a 28-day crossover study of MAT9001 and Vascepa evaluating biomarkers in HTG patients early next year.

The counter here is that again, biomarker data is not the same as outcome data. MAT9001 will need to show positive CV outcome data to represent a real threat to Vascepa. Until that happens, MAT9001 will also remain an interesting, but early stage, drug. MAT9001 is expected to read out results in 4Q20.

The Field. Overall, Epanova looks to be the most threatening competitor drug in the near-term, as it is the only competitor with a CV outcome trial expected over the next year. If Epanova is able to show positive results, the narrative could shift towards EPA/DHA. Additionally, AstraZeneca has a larger salesforce that would be able to push Epanova more aggressively, posing a larger commercial threat to Vascepa. Overall, with all competitors considered, there could be a number of headwinds over the next 12 months.

However, it's also important to keep in mind that Vascepa has what is likely an 18 month lead over any launched drug with a CV outcome on the label. Bulls would also posit that success from other OM3s would grow the category as a whole (i.e. a rising tide lifts all boats). In this scenario, bulls still see strong growth from Vascepa even in the face of competition, as positive readouts would draw more attention to OM3s.

Pending Patent Litigation Could Pose Further Risk

Amarin's Vascepa patents are currently in litigation with Dr. Reddy's and Hikma, and has settled with TEVA for generic entry in August, 2029. Dr. Reddy and Hikma are challenging key patents in the "Methods for treating hypertriglyceridemia" family, and one patent in the "Stable pharmaceutical composition and methods of using same" family. 

Bears have posited that there is some risk that Amarin could lose patent protection before 2029, and that the lack of recent disclosures is perhaps a sign of negative news.

Bulls would note that Amarin appears well positioned to uphold its patents. There were five terms under dispute at the Markman hearing, and the court ruled in favor of Amarin on 4 of them (with the 5th of LDL-C terms being deferred to a later date). Shortly after the hearing, TEVA chose to settle with Amarin. Bulls believe the timing of the settlement suggests that TEVA believed patent protection was likely to be upheld.

With that said, there is still a risk that patent protection could end sooner than 2029, as a favorable Markman ruling does not guarantee patents being upheld. The trial is set to begin in January 2020.

Will Amarin Be Bought Out?

One component of the bull thesis is that Amarin may be acquired by big pharma or by a large biotech company with an interest in the cardiovascular space. Although there have been rumors, this has yet to play out, and the bear thesis is that there may not be an acquiring bid due to the high share price, the relatively short patent life (maximum of 9 years with an expanded label before generic competition comes in), and limited visibility into ongoing patent litigation. 

However, with the right set of news in the coming months, an acquisition could start to look more favorable. Amarin's approval for the expanded label looks to be on the horizon (with a PDUFA of December 28), the patent trial will begin in January, and we will see a number of competitor readouts over a similar timeframe. Note that an acquisition by a larger, established pharma/biotech makes a lot of sense in that they could leverage their larger salesforce, cutting out the need for Amarin's current salesforce expansion.

Conclusion

While there are a number of other arguments put forth by bears not detailed here, the key points put forth include high discontinuation rates, OM3 competition on the horizon, ongoing patent litigation, and an unlikely acquisition bid due to the price and risks involved. The counters to these include strong sales growth, diminished competition due to lack of CV outcomes data or a clean safety profile, patent litigation that appears to be in Amarin's favor currently, and the sales synergies from a large pharma or biotech acquisition. With a PDUFA date in late December for the crucial expanded label, competitor datasets reading out over the next several months, and the patent trial beginning in January, the following months will be a crucial time for Amarin stock.