U.S. Markets closed

Amarin: Is a Buyout Really Off the Table?

George Budwell, The Motley Fool

Amarin (NASDAQ: AMRN) drew the ire of its shareholders last week by rolling out a breathtaking $460 million capital raise. The drugmaker's shares, in fact, fell by a noteworthy 17.4% last week in large part because of the sheer size of this public offering. 

This massive public offering caught shareholders flat-footed for two reasons. First up, the biopharma recently announced that sales of its prescription omega-3 treatment, Vascepa, have been going strong ever since the drug showed a 25% relative risk reduction in terms of serious cardiovascular events in the outcomes trial known as Reduce-It.

A white man wearing glasses and sitting at a table appearing to panic while staring at a laptop computer.

Image Source: Getty Images.

Amarin, in turn, reported that its cash position stood at a healthy $221 million at the end of June, thanks to Vascepa's strong sales trajectory. That amount should have been sufficient to bank roll the company's expanded marketing efforts for Vascepa, especially with the drug's sales growing by leaps and bounds in recent quarters.

Second, Amgen, Pfizer (NYSE: PFE), Novartis, and Novo Nordisk were all rumored to be interested in making a bid for Amarin earlier this year. In fact, most onlookers expected a formal buyout offer to be announced once Vascepa's Reduce-It indication was officially in the bag. So if buyout talks were indeed on track, a capital raise of this size would be both unnecessary and counter-productive from a value creation standpoint. Investors, in kind, seemed to take this capital raise as a sure sign that a buyout was no longer in the cards -- at least anytime soon. 

Has Amarin lost its luster as top buyout candidate? Let's dive deeper to find out. 

Why now?

Amarin's shareholders clearly want to know why the company felt compelled to jack up its cash position to an eye-catching $600 million-ish ahead of Vascepa's forthcoming regulatory decision. The long and short of it is that Amarin's share price was up by a mind-boggling 695% over the prior ten months and biopharmas almost always raise capital under such circumstances for good reason. No one can predict the future after all. Vascepa seems destined to get an OK from the FDA for its Reduce-It label expansion, but that's not certain until official word comes down from the agency later this year.

Moreover, there's always the risk that most doctors won't readily prescribe the drug for this indication or that a rival therapy currently in development might upend Vascepa's commercial trajectory. So Amarin's decision to strike while the iron was hot was arguably a prudent move. By doing so, the company addressed its long-term capital needs, whereby giving it a much-need cushion in case anything unexpected happens.  

Is a buyout really off the table?

A buyout is definitely not off the table. If anything, this capital raise removed any leverage potential buyers had in negotiations -- in effect, that Amarin didn't have the financial resources to realize Vascepa's full commercial potential. Amarin, in kind, can now demand top dollar for its hand or simply brush off these overtures from potential suitors. In the breath, a buyout probably isn't even in the best interests of long-term shareholders at this stage.

Amarin's shareholders would arguably be better served by a co-promotional deal in the same vein as Pfizer's agreement with cancer diagnostic specialist Exact Sciences. Such a deal would greatly bolster Vascepa's commercial reach through Pfizer's vast network, and perhaps entail an in-licensing deal of one or more of the pharma giant's early stage candidates. In that way, Amarin would be able to both capitalize on Vascepa's monstrous commercial potential and create deep value for its shareholders at the same time. 

The key takeaway here is that investors shouldn't sweat this capital raise. Amarin has proven to be a winning play for biopharma investors and this capital raise only creates more avenues for value creation in the years to come. Lastly, there's no reason to believe that a capital raise has any bearing on possible buyout talks -- other than the fact that Amarin would now be negotiating from a position of strength. 

 

More From The Motley Fool

George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.