Summary
- Amarin and Sarissa are engaged in a bitter proxy war.
- Amarin has problems, but Sarissa doesn't have clear solutions.
- Amarin has given considerable proof of how its new management performed in the last few quarters.
Amarin ( AMRN ) and Sarissa are engaged in a major proxy war, but win or lose, Amarin is in a poor position right now after those bright days before the Judge Du judgment that routed the stock. It just appears to me, though, that the current management has tried to do a few things right, and a change in management like Sarissa envisions, without any definite strategy to sell the company or otherwise bring about constructive changes, will not do us any good. That is why, although I agree with some of Sarissa's criticisms of Amarin, I am against Sarissa's position.
Among the things that the new management has tried to do right, they have taken aggressive measures to sell Vazkepa in Europe, where it still has patent protection, and get adequate reimbursements for its customers. Cheap availability of generic "fish oil" has been a major hindrance, however Amarin has been able to deliver results in major European markets, except Germany.
The board has also made efforts to change its own entrenched nature, hiring recognized agencies to find independent directors for itself. At last count, the board is now 70% new, and a few long term directors from the John Thero period have been retired. This includes finding 6 new independent directors and retiring 2 such tenured directors.
On top of that, the company also pointed to preliminary fourth quarter and full year 2022 revenue results as demonstration of significant progress. Data shows that despite the generic onslaught from Hikma and others, Amarin is still maintaining a 60% market share in the US:
Vascepa Market share (Amarin website)
This is the level at which the company expects the US market to stabilize. Sarissa has accused the company of delaying a reduction in Vascepa pricing even after generic approval. It could have been because Amarin still expected judicial relief; however that might have been, Amarin's ability to retain 60% of the US market shows it has fought hard and well. Revenue, too, after having gone down from the $150-$160mn per quarter range in 2021 to about $90-$100mn range last year, seems to have stabilized at that level. If the company can simply stabilize the US market at that level while building it ex-US, they will have accomplished a major feat. On top of that, the company says it has made a solid effort to reduce cash burn, through restructuring, reducing the US sales force and so on - and if the results are correct, this seems to have been borne out. Cash burn has been reduced by about a fifth of what it used to be earlier. Operating expenses are also vastly reduced.
Thus, in the face of such promising delivery, if Sarissa wants to replace the board with its own people, then it needs to come out with a convincing improvement strategy, and also induct people that it can demonstrate can deliver on that strategy. From what I have seen so far, Sarissa has not been able to do that.
Amarin and Sarissa, its largest (6%) shareholder, are entangled in a bitter battle to change the company's Board and bring about changes to how the business is being run. Sarissa wants to bring in radical changes; Amarin wants to maintain the status quo. Amarin says that, first , Amarin is now under transformative management under a new CEO who has avoided previous operational missteps:
The last 18 months have been a story of transformation. When Karim Mikhail was appointed as CEO in August 2021, Amarin was at the height of its challenges - from generic competition to operational missteps.
Secondly, Amarin says that Alex Denner, the owner at Sarissa, is not really bringing fresh new ideas to the board. [see quote below]
Alex Denner simply wants to control Amarin so he can make money from his investment, alleges pro-Amarin shareholders; pro-Denner shareholders say, so what's wrong with that? Maybe Denner will do something that will not only help Denner, but also the thousands of Amarin shareholders who have lost money on Vascepa.
This is the situation, and there's no logical resolution to it. Amarin's hand is clear for everyone to see; Alex Denner, if he wants to be more convincing, should really tell us what else besides inducting seven of his own people on the board does he want to do. Denner holds just 6% of the company, so he has a lot more convincing to do than if he were to own, say, 60%.
On January 10, it was announced that Sarissa wants a special shareholder meeting to " remove the current board chairman and add its backed representatives." This seems to have been precipitated by months of fruitless negotiations between Sarissa and Amarin, with Amarin allegedly paying only " lip service " to Sarissa's demands for change; and also, most importantly, Amarin added a new board member recently without consulting Sarissa. Sarissa considers the addition of a new board member an acknowledgement from Amarin of the need for change. However, "entrenchment" of Amarin's board led by the Chairman Per Wold-Olsen caused them to add their own nominees instead of Sarissa's, despite the latter's proven track record "of creating significant shareholder value in healthcare companies, including those with cardiovascular drugs such as The Medicines Company."
The next day, while Amarin responded and tentatively agreed to hold such a shareholder meeting, it pointed out two things in its support - first, it pointed to preliminary fourth quarter and full year 2022 revenue results as demonstration of significant progress. Second, it pointed to the approximately 70% new Board it had formed over the last year, "including the appointment of six highly qualified independent directors and the transition of four longer tenured directors," as indicative of its intention to bring about the changes required by Sarissa, only in its own way. In the introductory paragraphs, I have discussed the various ways in which management has made an effort to demonstrate the positive changes it has brought about.
Questioning the need for the kind of change required by Sarissa, Amarin said that "Sarissa's proxy contest is misguided, costly and not in the best interest of other Amarin shareholders at this critical time for the Company." This is especially true, according to Amarin, because the company is at a new inflection with "positive pricing and reimbursement decisions in Europe, continued stabilization of the U.S. business and its international strategy." I discussed the European reimbursement angle in an article before, and said that not everything is favorable to the company in Europe, and that Germany's unwillingness to offer strong reimbursement may spill over to other countries.
In its favor, the company listed a number of milestones achieved [see the shareholder letter referenced above], including reimbursements in new and important markets, US revenue stabilisation over 4 consecutive quarters despite increasing generic competition, developments with the fixed-dose combination (FDC) program for icosapent ethyl, and improved cash position.
Also in its support, Amarin argues that despite what Sarissa says, Amarin has always engaged with Sarissa, even when the latter handed Amarin a list of director nominees - all five of whom were Sarissa employees - "until shortly prior to Amarin's 2022 Annual Meeting to then propose" this list. Despite this unusual practice, Amarin says it considered the list and approved three of the names. However, Amarin says that Sarissa has never provided them with a detailed business plan or strategy at any time during their engagements, insisting only on owning the Board.
As Amarin says in a letter to shareholders it submitted along with the proxy documents:
Sarissa is NOT the answer. Sarissa has no plan or new ideas, and its slate of nominees is underqualified to guide the Company at this critical juncture in our transformation.
Another telling section from that letter:
Of note, two of Sarissa's original five proposed candidates were junior Sarissa research analysts with less than five years of work experience, which highlights their cavalier approach to this campaign and unfitness of their proposed candidates to guide Amarin's transformation.
Glass Lewis, a Proxy advisory firm engaged by Amarin, had the following comment about Sarissa's strategy for Amarin:
…the only meaningful suggestion [Sarissa] has made is for Amarin to evaluate a subscription model for VASCEPA/VAZKEPA, with Sarissa citing the successful implementation of such a model at The Medicines Company as its supporting argument. While we acknowledge there are parallels between the companies, in our view the board has highlighted notable differences between the two firms that may point to a subscription-based pricing model being less relevant, or not optimal, for Amarin going forward.
Thus, it is not entirely true that Sarissa hasn't offered some plans, however, the plan may be merely proforma, and may not have come from an in depth knowledge of Amarin's business. For perspective, though, here's Sarissa's list of what's ailing Amarin.
Amarin has a current market cap of $737mn and a cash balance of $303mn. With their new cash saving strategy and reduced OpEx, they should be able to make this cash last them quite a few quarters, while they open up new revenue streams in Europe and elsewhere. The stock has stayed upbeat since January, when the proxy war became public knowledge, and I think one reason for the stock to stabilize further is that investors appreciate the proofs Amarin's management has proferred about its own performance. If the company manages to win the proxy, which seems likely, I think that will bolster the stock considerably. On the other hand, if Sarissa comes out with a clear strategy for the company - and then wins the proxy war - that, too, will be beneficial for Amarin.
For further details see:
The Amarin Proxy War: Amarin Has Problems, But Sarissa Doesn't Offer Solutions