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Background

Amarin (AMRN) is an Irish based company with a recently FDA approved drug called Vascepa with very large market potential.

Vascepa is broadly a prescription grade Omega 3 fatty acid (like those found in fish oils) based on highly purified EPA . Currently, the only other similar FDA approved drug comparable to Vascepa is Lovaza.

Lovaza has reached annual sales of nearly $1 billion. Vascepa has several advantages over Lovaza, most importantly that it does not raise LDLs and in many cases lowers them.

As far as market potential, Vascepa has a huge advantage over Lovaza. Lovaza was approved only for patients with very high triglycerides (>500 mg/dl) while Vascepa’s ANCHOR study shows that it is also effective for patients with high triglycerides (>200 mg/dl), and is on track to receive this label indication as well.

The significance of this difference is hard to overstate. Lovaza’s prescription market population in the US is restricted to about 5 million Americans with very high triglycerides (which does not prevent it from selling $1 billion annually) while the US population with high triglycerides is 10 times that amount, at about 50 million. Though it should not be assumed that these two populations would purchase prescription drugs at the same rate, this fact alone makes the market potential for Amarin extremely large and its current market capitalization very much undervalued.

Additionally, Vascepa is well protected by about 10 current patents and many other pending ones that protect the drug in some cases until 2030 and beyond. Vascepa is also protected by certain trade secrets, supply chain agreements, and other industry methods for exclusivity and barriers to entry.

Amarin, under the direction of Joseph S Zarkzewski, hoped to be acquired by a large pharmaceutical company after the FDA approval in order to launch Vascepa during the first quarter of 2013. Short of that, it hoped to reach a strategic partnership for the commercialization of Vascepa, and as a last resort self-commercialize the drug.

The reason for this preference is two-fold. Namely, that many of the investors, both insiders and members of the investing public, supported Amarin during the development and pre-approval stages with that goal in mind; their investment horizon was to recuperate their investment plus profits upon acquisition  and not through a more lengthy and risky self commercialization process. It would be the acquiring BP company that would be interested and be better equipped to “milk” Vascepa for all its potential commercial success throughout the years to come. This points to the second reason, which is that Vascepa itself would likely be much better commercialized by leveraging the infrastructure, resources and marketing expertise of a large BP company than if it attempted to replicate and compete against these itself.

Due to several factors, known and unknown, neither an acquisition nor a strategic partnership has thus far materialized. The planned launch date now nearly upon us, the CEO was forced to announce the hiring of a sales force and other steps required for self commercialization of the drug. The only known impediment to the strategic discussions so far is the FDA’s odd and continuous delays in announcing  the NCE decision on Vascepa. Vascepa should receive either a 3 year or 5 year exclusivity (this is an independent form of protection granted by the FDA separate from what is inherent in patents) indication from the FDA. Normally given upon approval or within a month thereafter, there has been continuous and unexplained delays on this decision by the FDA. Amarin recently admitted that this has been an overhang in negotiations.

Failure of Negotiations

Logic would dictate that the valuation of the company would be different with or without an NCE (5 years) indication. However, this alone does not explain the failure of discussions since there are many ways around this issue. For example, payments contingent on the decision, or shares granted to the Amarin shareholders in the acquiring company  that would obviously share in the benefit of a positive decision as their acquired asset is now move valuable (meaning continuing to share the risk of the commercialization, upside and downside).

Other than the NCE issue, the shareholders have been told nothing about the difficulties. They also have been told precious little about the prospects of the self commercialization. In essence, the feeling in the market currently is one of loss of confidence and even panic selling. Amarin’s share price, continues to drop consecutively day after day, even when positive news about suppliers, patents, related medical studies, analyst ratings and other similar developments are released.

Though this may be a great opportunity for new buyers of the stock, for previous investors in the stock that saw Amarin reach post-approval levels of $15 per share, it has been devastating to see the price drop to the high $7 with no end in sight. The reason for this unmitigated (and in large part unexplained) drop is the silence from Amarin’s management. In the absence of the acquisition that was hoped for by this time and the continued FDA NCE decision delays, the silence has bred rampant rumors and loss of confidence. Many retail investors, unwilling or unable to hold any longer have and continue to sell their positions in the company they supported at depressed prices. The same holds true for larger investors and funds, the likes of George Soros and Louis Moore Bacon have recently reduced or eliminated their Amarin holdings.

It may be true that Mr Zakrzewski is sleeping snugly sure of his long-term strategy and the long-term value of Vascepa. In fact, much of the silence may be strategic, and it is understandable that he must show to be ready for self-commercialization if he is to have leverage in buyout talks. However, the feeling of disaster and failure cannot be escaped by the investors in great part due to the unexplained silence of management. In fact, the silence, lack of clear direction and clear transparency of the current situation  combined with the significant amount (and understandable) of insider selling that occurred post-approval is even fueling rumors of manipulation. The retail investor and to some extent the medium sized institutional investor that supported Vascepa is being left out to dry.

The value of Vascepa is clear. It has an FDA approval to sell to a market in which an inferior competitor sells $1 billion annually. It is well protected by patents and other measures. Most importantly, it is on track to serve a market 10 times the size of its competitor, while being similarly price.  The management, at least on paper and based on their track records, seem to be more than capable of executing the needed strategies for success.  So what is the problem?

The Silence

Joe, secure or not in his long term odds at success, has forgotten that he does not own the company; the shareholders do. He (though of course a minor shareholder himself) is an employee of the shareholders. The complete lack of communication to his employers are fueling the fear. If the above fundamentals of the company are true, then what has been the hang up? This fuels speculation that the fundamentals are not what they appear, perhaps the FDA approval for ANCHOR is in jeopardy,  perhaps generics will be entering the market much sooner than expected, perhaps the medical world is turning away from EPA based drugs due to some new research or experience. Will insurance companies not be covering Vascepa (or not in an advantageous Tier pricing)? Is the competitor Lovaza (acquired and owned by big pharma) too entrenched? In some way does big pharma not share the belief in these fundamentals? What is it that they know that we do not know?

These and many others are the fears gripping the OWNERSHIP of Amarin while management remains silent. My speculation (and it is only speculation) is that Joe is simply asking for a higher bid than BP was willing to offer due to the risks they must undertake in realizing Vascepa’s potential. Ironically, Joe’s strategy of silence has helped drastically reduce Amarin’s share price which makes his desired bid look even more unrealistic. In fact, at these depressed levels, Amarin is target for a hostile takeover.

A word about hostile takeovers. Though they conjure up images of a company being conquered, the headquarters’ doors being kicked open on Monday morning  by bat-wielding men coming in to take new charge, the truth is less dramatic than that. Law does not allow “conquering” of companies, which in effect would be theft by force or violence.  Companies, like all other assets in a free market, can only be acquired with the consent of their owners. Therefore, all takeovers, “hostile” or not, are always done with the consent of the ownership. In case of a publicly held company, this usually means at least 51% of the ownership which can decide the fate of the company (with some exceptions). And even in such a case, a hostile takeover does not mean the opposing 49% in any way loses anything more than the approving 51%. All equity (in the same class) is equal. The 49% simply can be overruled in a decision, for example the decision to sell the company at a certain price, but they do not lose out on any money, privilege or value their ownership affords them relative to shareholders who approve the decision.

So to the only party that a hostile takeover is in fact hostile, is management. And management, being employees of the shareholders tasked with serving their interests, assume far too much importance when resisting or vilifying such events. Management, at the shareholder’s pleasure, run the day-to-day operations of the company and can (and should) give the shareholders their expert opinion on what the company’s potentials are and what deals may or may not be advantageous. Ultimately however, these decisions (including who is management) are the shareholders’ to make. Zakrzewski, for all his work, passion and belief in Amarin, must remember that he does not own it. If he wanted to be Vascepa’s sole owner  he could have done so by developing it himself privately. Amarin (long before Joe Z was on board in 2009) asked for support from investors who wished to take risk and equity ownership of the company in order to finance its success, and this must be remembered and honored.

To this end I propose shedding some light on the darkness that Amarin’s management has left its ownership in. Below the article you will find a contact form where Amarin shareholders can express their opinion, in order to reach some consensus.  Shareholders may confidentially input their name, number of shares owned, and willingness to sell.

The starting point will be to Vote whether you, the shareholder, would be willing to currently sell your shares for $19 US per share. You may vote “YES” or “NO”, and if “NO” then indicate the price at which you would be willing to currently sell.

Shareholders should use verifiable emails and may be asked to provide proof of ownership at a later stage. No individual or institution’s position will be disclosed to anyone without their prior consent  However, serious and potential buyers of Amarin can inquire about the general feeling of the shareholders and the price levels they are willing to sell at. This can be a starting point for negotiations and transparency. Other shareholders and potential buyers can get an idea of what they are willing to buy and sell for.

Depending on the results, we may or may not make some announcements of the general findings. Again, no individual’s position will be disclosed privately or publicly without their consent, and likewise, neither will be the interest or opinion of any potential buyer.

There is no reason to doubt Joe Zakrzewski’s and the rest of Amarin management’s  competency or motivation. To date, they have performed quite admirably in the development of the drug, and its general strategy of protection (patents, supply, etc). I also think them more than capable of  executing a very successful self-commercialization of Vascepa if need be. However, perhaps due to the unexpected turn of events and sensitivity of the situation, they have nonetheless failed at communicating to their bosses, the shareholders. If they wish to execute  their duty and have shareholders stay with them, attract further investment, stock price be propped up, panic selling stop, and send a strong message to the BP community that Amarin is serious about its launch with or without them, they must communicate clearly to them.

  • What have been the problems in the buyout negotiations?
  • What price (or range) are you seeking?
  • Why do you think you can (or cannot) get it?
  • Why can’t you or can you  get around the NCE decision issue by a creative deal?
  • Given the “GIA” approach, dates, goals and figures… When can we see a launch more precisely? When will the sales-force start operating? Most importantly, when will the first sales reports be available and what estimates do you have for initial sales?
  • How do you see those issues progressing thereafter? What about tier pricing? Marketing efforts?
  • Will the sales force only sell Vascepa or other bundled products? Is this sustainable?
  • Clarity on the NCE issue? How important or not is it really, and what in your opinion has been the source of the FDA’s delay thus far? How much longer do you anticipate it to continue?

Realizing that some of these answers must be kept somewhat obfuscated for strategic purposes, the utter and complete lack of transparency is not appropriate. It has fueled rumors, speculation and fear. Amarin is not a con job and so should not behave like one. Mr. Zakrzewski  must address the shareholders in a timely manner and tell them when he may or may not address them again so that there is no room for speculation. Alternatively, the owners of the company should take matters in their own hands.

 

 

Comments

2 Responses to Amarin “Hostile” Takeover

  1. Update: The feedback so far has been very positive (in the sense of participation, not as in the nature of the survey of course). There has also been very interesting and intelligent comments and feedback. I would encourage shareholders to continue on participating.

    It may also be useful to pass on this feedback in the near future as a concise and representative way to the management.

    One issue which has been raised frequently so far is about Irish law and a 90% hostile takeover ownership requirement. It is true that there are some discrepancies between a EU directive and previous Irish law about this matter. However, as far as I understand them, they are related to a minority “squeeze out” situation. This meaning that without the consent of management, it may very well be true that the approval of 90% of shareholders (in equity terms, not individuals) is required in order to force the remaining 10% to sell.

    This is not particularly relevant in itself. It does not block shareholders from selling their shares at an agreeable price to an interested buyer or buyers. Perhaps more importantly, it does not stop the owners of equity from exercising their rights as owners. So to put it bluntly, (not implying it as anyone’s goal, but simply as an illustration), shareholders can chose to sell 51% or more total equity to an interested buyer; though this new buyer (owning less than 90%) may not be able to complete a total merger or acquisition without the consent of management, he would have vast control over management and the board itself. Short of “poison pills” and other devious methods, they could simply replace management with one that agrees with the merger. At that point, the minority could even be offered less money (depending on regulations and other factors) for the remaining shares (since now there is a “merger friendly” management) than the initial sellers who gave controlling interest to the buyer.

    The point being squeeze out provisions or not, controlling interest is a controlling interest.

    Those with more expert knowledge on EU and Irish regulations on the matter (and how they relate to a US listed company) are welcome to comment and/or correct my understanding on the issue.

    Merry Christmas, and continue to voice your opinions as shareholders!

  2. […] This is not necessarily proper behavior, but may or may not be a factor in explaining the company’s behavior recently. The seemingly inept handling of this interim period, leading to large share value losses, is the subject of a previous post. […]

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