Amarin has a big decision to make. How Sarissa Capital can help her move forward

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Company: Amarin Corporation Plc (AMRN)

Business: Amarin engages in the development and commercialization of therapeutic products for the treatment of cardiovascular diseases in the United States. Its lead product is Vascepa, a prescription-only omega-3 fatty acid product used as an adjunct to diet to reduce triglyceride levels in adult patients with severe hypertriglyceridemia. The company sells its products primarily to wholesalers and specialty pharmacies. It collaborates with Mochida Pharmaceutical Co. Ltd. to develop and commercialize drugs and indications based on Vascepa’s active pharmaceutical ingredient, omega-3 acid and eicosapentaenoic acid.

Market value: $1.3 billion ($3.36 per share)

Activist: Sarissa Capital Management

Percentage of ownership: 6.06%

Average cost: $4.46

Activist Comment: Sarissa Capital Management is an activist investor focused on the healthcare sector. It was founded in May 2013 by Alex Denner, former Managing Director of Icahn Capital. Denner led Icahn’s investments in companies including Biogen, Amylin, Genzyme, MedImmune and ImClone and served on the boards of ImClone, Amylin, Biogen, Enzon and Adventrx Pharmaceuticals. Denner holds a doctorate in biotechnology. He also has a rare combination of analytical skills in this sector, militant skills and experience. Sarissa has been involved in several acquired healthcare companies. Most notably, there is The Medicines Company, which was acquired by Novartis International AG, giving Sarissa a 13D return of 138.43% versus 16.40% for the S&P 500 over the same period. There’s also Ariad Pharmaceuticals Inc., which was acquired by Takeda Pharmaceutical, giving Sarissa a 13D yield of 529.39% versus 32.47% for the S&P 500 over the same period.

What is happening?

Sarissa acquired a 6.06% position for investment purposes.

In the wings:

Amarin’s lead product is Vascepa, a prescription cholesterol-lowering heart medication. The Vascepa brand is extremely valuable because it is a proven drug, has already been approved by the US FDA and the European Union and helps fight the number one cause of death in the world, which makes it the largest class of drugs in the world. However, in March 2020, the company lost its patents to Vascepa in the United States. This news caused the stock to drop from $13.58 to $4.00 in the space of a day and after closing as low as $24.12 per share as recently as December 13, 2019. In June 2021, the Supreme Court rejected the company’s bid to revive Vascepa’s patents, ruling in favor of two generic makers of the drug. The company is involved in ongoing litigation related to the patent infringement lawsuit. The company’s latest announced plan is that it will compete with generics and launch the drug in Europe and accelerate growth in the United States.

Following the court ruling, the company scaled back Vascepa’s US launch and reduced the size of its sales force. Despite this and even with generic competition, it was still able to make $600 million in revenue in the United States. These revenues are expected to decline over the next few years as generic competition increases, but the drug is not easy to manufacture due to its specialized formula and supply constraint. Also, Vascepa is still a good brand, so the company should be able to compete in the US and increase that revenue with a more comprehensive sales force. For example, even though Lipitor’s patent expired in 2011, it still generates around $2 billion in US revenue per year for Pfizer. Additionally, the company has generic patent protection in the EU, so it can get into it without generic competition and should be able to generate significant revenue outside of the US. However, the company’s current plan would require spending hundreds of millions of dollars on a European sales team in addition to the US sales team.

There are clearly more effective ways to monetize this asset. The easiest thing for the company to do would be to sell itself to a strategic investor who already has a complete infrastructure and sales team around the world. That’s what The Medicines Company, also with a cholesterol-lowering drug, did just seven months after Sarissa filed a 13D there. The Medicines Company was acquired by Novartis for $9.7 billion despite having no revenue (compared to $600 million for Amarin) and no FDA approval at the time (Amarin has FDA approval and of the EU). Amarin has a blockbuster drug and would be a prime takeover target for Big Pharma.

The second-best option for Amarin would be to partner with another company that could distribute the drug. This way, Amarin doesn’t have to spend money on a sales team and infrastructure. Instead, it would only collect royalties, like Innoviva, where Sarissa has a 13D rating and board seats.

The last resort for the company would be to bolster sales forces in Europe and the United States and distribute the drug itself. This would be an incredibly expensive, time-consuming, and risky option to avoid at all costs.

Obviously, a deal like the acquisition of Novartis/MDCO would be a no-brainer here. Without it, a partnership with a company that has a dedicated international sales force could quickly leverage Vascepa to billions of dollars in sales without having to spend much of the $470 million in net cash on Amarin’s balance sheet.

Either way, Sarissa has extensive industry knowledge and contacts. It would be a valuable resource to help the company analyze and pursue the path it chooses. As the company’s stock price indicates, shareholders are frustrated and a shareholder representative with Sarissa’s industry experience would be welcome. However, if the company resists, it will be interesting to see how a proxy battle for Sarissa would play out. Amarin is incorporated in England and Wales, and its principal offices are in Ireland. They have unusual provisions, including that at each annual general meeting at least one-third of the directors step down. However, outgoing directors are eligible for re-election, so despite this provision, at the last annual meeting all seven directors had served on the board for at least seven years – with a majority for at least 11 years. Additionally, the company only appoints two directors a year, so it would take Sarissa at least two years to gain meaningful representation on the board if it turned confrontational.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist investments. Amarin is held in the fund.

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