My family’s wallets are filled with skyrocketing online retailers, skyrocketing software-as-a-service stocks, and vaccine biotech that has jumped 2,000%. This is my first year of writing for The Motley Fool, and at the same time the best year of my 20-year investment career. But I also had hiccups.
In an article, I advocated that investors buy shares of Cafe Luckin. The next day, the company said its income reports were fraudulent. But maybe my biggest failure was with Amarin (NASDAQ: AMRN). I have repeatedly suggested that investors might want to buy Irish biotech stocks because of the company’s incredible drug, Vascepa. In March, a Nevada trial judge struck down several patents for the drug. Amarin’s stock fell 70% overnight. Ouch.

Image source: Getty Images.
I no longer bought shares of Amarin. For me, this market reaction was completely justified, given what happened in court. And yet, now that I’ve had time to think about it, I see a bullish case for Amarin (especially at these prices).
Amarin may lose patent fight against Vascepa and still win prescription war
Why did Wall Street hit Amarin? The stock market is very familiar with the “patent cliff” and how pharmaceutical stocks in particular can be killed when drugs are no longer patented. So, for example, when Pfizer lost patent protection for Lipitor, billions of dollars in revenue evaporated.
The stock market assumes a similar fate awaits Amarin. But it is a strange situation. Unlike Pfizer, Amarin has not had the opportunity to develop the market for its drug. The United States Food and Drug Administration (FDA) only recently authorized the company to expand its label. At the time, Amarin and many of his shareholders saw a huge blockbuster opportunity with Vascepa. But this market must be built. Doctors must be educated. Amarin is the entity that will pay for all of this. If this Irish biotech leaves the American market, no one will be in the hospitals to defend Vascepa.
The generic manufacturers involved in the trial, Dr Reddy’s laboratories (NYSE: RDY) and Hikma Pharmaceuticals (OTC: HKMP.Y), will educate physicians about the wonders of icosapent ethyl (the generic version of Vascepa)? No. Growing consumer demand is not what generic drug makers are doing.
Other than that, these companies are actually banned from trying to market their drugs as beneficial to heart health.
Compare FDA labels
In May, Hikma received FDA approval for its generic Vascepa. The company label for the drug states that “icosapent ethyl is indicated as an adjunct to a diet to reduce triglyceride levels in adult patients with severe hypertriglyceridemia.”
It was more or less the original Vascepa label. This is not surprising, because the patents that have been invalidated relate to the sale of Vascepa to people with very high triglyceride levels. It’s a small market opportunity, which is why Amarin has spent many years – and a lot of money – paying for a clinical trial to prove Vascepa beneficial for heart health.
So, in order for a generic company like Hikma to make a lot of money with icosapent ethyl, the company would have to hope that doctors would prescribe Hikma’s drug off-label. Doctors can do this, of course, it’s not illegal. But why would a doctor prescribe an off-label generic when you have an inexpensive drug, Vascepa, approved by the FDA to improve heart health?
Here is the new Amarin label: “The US Food and Drug Administration [has] approved the use of Vascepa (icosapent ethyl) as an adjunct (secondary) treatment to reduce the risk of cardiovascular events in adults with high levels of triglycerides (a type of fat in the blood) by 150 milligrams per deciliter or more. ”
The Amarin label is much better than the Hikma label. Vascepa reduces the risk of cardiovascular events in a large class of people. The Hikma label reduces triglycerides in a small number of people.
Why should investors be bullish about Amarin?
It’s really bad news for Amarin (or any pharmaceutical company) when a drug isn’t approved by the FDA, either because it’s unsafe or because it doesn’t work. This is classic bad news for a pharmaceutical company. It can and will crash your stock.
The invalidation of several patents does not say anything about the effectiveness or the safety of a drug. This is bad news, but another kind of bad news.
Patents are important because they give you intellectual property rights, which means you can sue people and shut down all the other businesses that are trying to steal your income. The invalidation of some Amarin patents has opened the door to competition. But these generic companies are prohibited from marketing their drugs as improving heart health, while Amarin’s patents in this area are still strong.
This is not the only downside to generics. In a recent earnings call, Amarin CEO John Thero noted that while generic companies might have the ability to supply “to support tens of millions of dollars in revenue,” that amount didn’t represent ” that a small part “of what Vascepa – and Amarin – could possibly do.
Don’t forget Europe!
Of course, the big news for Amarin next year will be the approval of Vascepa in Europe. The company has already filed its MA application with the European Medicines Agency and the European Commission. If accepted, Amarin will be free to market Vascepa throughout Europe as reducing cardiovascular risk for appropriate patients.
There are over 80 million people in Europe with cardiovascular disease, so this opportunity is huge. And while the desirability of the U.S. market is much more obscure than it was, the claim that generics will capture most of that market seems questionable at best. Interested healthcare investors may find Amarin a worthwhile buy at these prices.