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Is Now the Perfect Time to Buy Amarin Corporation Stock?

George Budwell, The Motley Fool

Cardiovascular disease is the world's biggest killer by a wide margin. According to the World Health Organization, for instance, heart attacks and strokes contributed to over a quarter of all fatalities across the globe in 2016.

This raging epidemic also reportedly costs the U.S. healthcare system a staggering $555 billion per year at present, and this astronomical expense is forecast to double within the next 20 years. Stated simply, there is a clear need for new ways to treat cardiovascular disease that can both lower costs and mortality rates simultaneously. And that's where the Irish biopharma Amarin Corporation (NASDAQ: AMRN) could end up making a major impact on the course of this deadly condition in the not-so-distant future. 

3D image of a human heart inside the body.

Image source: Getty Images.

A little background

Amarin is the manufacturer of the highly refined prescription fish oil pill Vascepa. In two phase 3 studies, Vascepa significantly lowered triglyceride levels and improved other biomarkers associated with cardiovascular events like heart attack and stroke, compared to patients receiving a placebo. The drug is now set for its biggest test to date, however.

Namely, investors and patients alike are awaiting for the results of Vascepa's seven-year cardiovascular outcomes trial called Reduce-It. The point of Reduce-It is to assess Vascepa's ability to lower the rates of serious cardiovascular events in patients with persistently high triglycerides despite being on statin therapy. And with the last patient visit now in the books, Amarin expects the study's top-line results to hit the wires by no later than the end of September of this year. 

The big deal is that this top-line readout will undoubtedly be a major market-moving event in the company's life cycle regardless of the outcome. If positive, Amarin believes that Reduce-It should exponentially expand Vascepa's market, as well as its market share of the multi-billion dollar lipid-lowering drug arena.

After all, the drug is currently approved only for patients with severely elevated triglyceride levels. So, a positive Reduce-It outcome would open the door to a lucrative label expansion that would include about a quarter of all patients on statin therapy -- a market estimated to be as large as 9.5 million patients in the U.S. alone. That figure should translate into a multibillion-dollar commercial opportunity. Of course, the flip side is that a negative outcome may dampen Vascepa's recent commercial momentum, and perhaps keep the company from ever becoming profitable. 

Amarin's risk-to-reward ratio

Wall Street has Amarin's 12-month price target pegged at $7.60, implying a 165% upside potential from current levels. And other analysts have been even more generous by doling out a noteworthy $10 price target on this stock. So this speculative biotech play definitely offers a rather healthy upside potential in the event that everything works out. 

Wall Street might be a little too optimistic, though. A recent meta analysis of 10 studies covering 77,917 individuals found zero evidence that omega-3 supplementation positively impacts the fate of patients with cardiovascular disease. Worse still, a sub-group analysis also failed to find any support for using omega-3 supplements as an add-on to statin therapy.

Having said that, this comprehensive review does fly in the face of some individual studies that detected a clinically meaningful effect of omega-3 supplementation on cardiovascular outcomes, and the authors did note that they were unable to explain away this discrepancy. As another aside, this review examined patients who were generally taking far smaller doses of omega-3 supplements than those in the Reduce-It trial. So there's a chance that this elevated dosing regimen could produce a more clinically meaningful outcome, relative to the bulk of studies conducted thus far. 

However, the fact remains that Vascepa is swimming against the current in many ways, and a negative outcome will probably result in a sizable drop in prescriptions from current levels. How steep of a drop is anyone's guess, but it's safe to say that Amarin's share price will suffer mightily if things don't go as planned.  

Investing takeaway

Given Amarin's potential to produce enormous returns on capital in a short period of time, this stock has likely captured the imagination of numerous investors looking for a quick profit. However, it's important to understand that the science behind omega-3 supplementation has produced highly conflicting results to date. In other words, there's simply no way to handicap Reduce-It's odds of producing a positive outcome. That's not a knock against Amarin or Vascepa -- just a statement of fact regarding how murky the clinical data have been thus far. 

Summing up, Amarin is arguably worth putting on your watchlist if you're on the lookout for high-growth opportunities. But it's probably best to wait until Reduce-It is a known quantity before buying shares. If Reduce-It works out, after all, there should still be significant upside remaining in the stock after the initial surge higher and far less risk to boot.

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