AMRN - Amarin: Sarissa Is Giving Me Hope Again

2024-01-15 03:06:15 ET

Summary

• Sarissa Capital is successfully turning around Amarin, giving it new life and potential for success.
• Amarin's REDUCE-IT trial proved the cardiovascular benefits of its purified EPA product, Vascepa, leading to its potential for greatness.
• The implementation of strategic proposals, a new CEO with relevant expertise, and higher than expected Q4 earnings are positive signs for Amarin's future.

Amarin ( AMRN ) isn't dead, after all. Sarissa seems to be doing what they promised to do - turning it around and giving it new life. I wasn't a believer before, but I could well become one soon. Things are looking that good.

The Amarin story, very briefly, is this: fish oil has been used for ages as a health supplement. Fish oil contains omega-3 fatty acids, which has been assumed to be responsible for those health benefits. Omega-3 fatty acids are essential polyunsaturated fats, meaning the body cannot produce them and they must be obtained from the diet. EPA (eicosapentaenoic acid) and DHA (docosahexaenoic acid) are key omega-3 fatty acids found in fish oil. EPA and DHA have their own health benefits. Cardiovascular risk reduction is a health benefit specific to EPA, but not to DHA. This crucial, previously unknown fact was proven through Amarin’s large REDUCE-IT trial, which showed that Vascepa, Amarin’s 95%+ purified EPA product ( icosapent ethyl, highly purified ethyl ester of EPA) had a much better CV risk reduction profile than just fish oil, when used as an adjunct to statin therapy in patients with elevated triglycerides.

REDUCE-IT was a significant trial that contributed to the understanding of the potential cardiovascular benefits of specific omega-3 fatty acids in certain patient populations with elevated triglyceride levels, despite having well-controlled LDL cholesterol levels. Amarin after REDUCE-IT was on the cusp of greatness until a judge in a small town somewhere in Western United States decided that generic companies were right, Amarin’s then-approved product wasn’t so novel, after all. Amarin collapsed.

This is a bird’s eye view of what happened at Amarin. I covered the stock repeatedly in those heady days, and also invested a lot of my own money on it. I have written 37 articles on Amarin in the last 6-7 years - you can read them all here . Long story short, Amarin could have been a great story, but it wasn’t. It ended up being taken over by Sarissa Capital, an activist shareholder that brought in a new management and promised hapless investors there will be major changes at the now decrepit Amarin.

In its proxy fight last year against Amarin’s previous BoD, Sarissa made three strategic proposals, as seen in its February 2023 presentation :

1. Undo Amarin’s flawed “subscale commercial strategy” by outsourcing sales

2. Change from maximum tolerated price approach to population based health approach for single payor system countries in Europe and elsewhere

3. Switching from a positive contribution margin model to a return on investment model in the US by maximizing cash

As part of implementing these strategies, in July last year, the new Amarin with Sarissa in control brought in a new CEO whose CV is outstanding and makes him particularly suited to the Herculean task of bringing Amarin back to its old, sprightly life. The new CEO is Patrick Holt, who, according to the press release , “led a successful turnaround [of Cordis, Cardinal Health’s global interventional cardiovascular business] that included a return to revenue growth, a refocused R&D strategy, as well as sustained enhancements in operational effectiveness delivering margin expansion.” Mr Holt, a graduate of Harvard Business School, was able to sale Cordis to Hellman & Friedman in 2021 for an enterprise value in excess of $1 billion. This is just the kind of expertise Amarin needs. Sarissa assured us quite recently, as follows:

In Sarissa’s experience, turning around companies takes time. We are pleased with the progress that Amarin has made to date and expect the value to be reflected in the stock price over time. We share all shareholders’ frustration in the low stock price.

As part of their strategy, and in order to implement parts of points “1” and “2” above, the company did a major overhaul of the company workforce, effecting a 30% reduction of non-sales workforce in the US, and a trimming of salesforce. The company expects to save $40mn per year from this effort.

Amarin made a few sales deals, notably the one in Israel where it was approved earlier. They also have one for 10 ASEAN countries where the total CV market is around $2bn, although Vascepa is not yet approved in South Korea or these other markets. However, the strategy here is clear - and common enough - to have direct product sales control in the US and maybe EU, and partner out in the RoW. Being a single product company which cannot maximize sales force efficiency by promoting multiple related products, this approach works best for small commercial stage companies.

Some of these strategies seem to have paid off with higher than expected preliminary Q4 earnings figures coming in earlier this month. Current estimate is $72mn-$74mn in preliminary Q4 revenues, which is significantly higher than the current consensus of $62.03mn. As Patrick Holt, the new CEO of Amarin, noted :

We enter 2024 with a number of positives: we have a solid cash position and no debt; our European business is showing early signs of progress following new leadership and a new strategy; our U.S. business continues to retain IPE market leadership and is in a solid position with exclusive contracts to start 2024; and our partners in the Rest of World are advancing commercialization and market access efforts.

As part of its celebrations, AMRN is planning a $50mn share repurchase program to give back some value to shareholders. On both topline and bottomline, Amarin is on track to deliver results in 2024.

At the recent JPM two days ago, management noted the following (notes from the transcript ):

…In Europe, based on new leadership and a new strategy, we have shared that our results for Q4 are 65% growth on Q3, really demonstrating some solid progress, particularly in Spain and the UK.

in the U.S. we also announced that we have continued 57% market leadership. That market leadership has been sustained for three years post-generics here in the U.S. And indeed that 57% has been stable for 12 months.

six quarters of cash flow neutral or cash flow positive performance and indeed a $10 million advance in our cash flow versus prior year

This looks like a very upbeat story right now. For the first time in many years, I am thinking: can Amarin do it - again? Remember how David and Goliath its style has always been, fighting the unfair battles, and winning? Can Amarin really turn around again? Me, I see small signs of hope.

Bottom line

AMRN is a buy at these prices - once again. My assessment is based on a) Sarissa’s all-out endeavour to turn Amarin around, b) Sarissa’s buying Amarin shares and not selling shares, putting money where their mouth is, c) implementing some of the proposed strategies over which 80% shareholders voted for them, d) the new CEO’s previous expertise in the cardiovascular “turnaround” space, e) Sarissa’s previous expertise in the same space with The Medicines Company, and f) the new earnings figures, which supports points a to e.

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