The bull thesis on bio-pharmaceutical company Amarin (NASDAQ:AMRN) for 2020 is pretty simple. The company’s core drug, Vascepa, is in the early innings of a huge multi-year growth trajectory. In 2020, several catalysts will meaningfully accelerate Vascepa’s growth trajectory. As they do, the company’s revenues and profits will continue to soar.
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Amarin stock isn’t fully priced for this growth. Thanks to concerns about international expansion and the robustness of Vacepa’s intellectual property, Amarin stock is actually trading at a discount to the company’s growth potential.
Such concerns are overstated, and will soon be forgotten as Amarin sustains huge revenue and profit growth over the next few years. As these concerns fade, so will the persistent discount in Amarin stock, and shares will pop.
How much higher can they go? My numbers suggest that a $23 price tag is doable this year. The stock currently trades hands at $18. That adds up to about 30% upside potential over the next twelve months.
Vascepa Promises Big Growth in 2020
Long story short, Amarin has cracked the ultra-valuable fish oil code with Vascepa, and this drug will power huge growth over the next few years.
Taking a step back, cardiovascular (CV) health is one of the biggest unaddressed health problems in the world, with CV disease being the No. 1 killer of men and women around the world. Some 40 million Americans take statins, or medicine aimed at lowering blood cholesterol. But, given the fatality figures, statins aren’t enough; a bigger solution is needed. Over the past few years, bio-tech companies of all shapes and sizes have tried to find that solution in the fish oil market, since fish oil pills are easy and cheap to distribute and consume, and provide a scalable solution to a big health problem.
In late 2018, Amarin finally cracked this fish oil code. They developed the first fish oil pill which clinically reduces the risk of a CV event. Called Vascepa, this new treatment is being heralded as a revolutionary breakthrough in cardiovascular therapy.
The financial implications for Amarin are enormous. The CV treatment industry in the U.S. measures $500 billion. No other product has come close to matching Vascepa’s robustness or clinical success. Thus for the foreseeable future, Amarin is a lone wolf in a $500 billion henhouse.
This favorable set-up should lead to sustained huge growth for the foreseeable future. That huge growth started in 2019 (revenues rose 85% year-over-year). It will continue in 2020, supported by Vascepa winning Food & Drug Administration approval in late 2019, and being cleared for Canadian market expansion in 2020.
Amarin Stock is Discounted
Against this backdrop of huge Vacepa growth, it’s tough to see Amarin stock not rallying. That’s especially true given that shares are discounted at current levels.
Just look at the numbers. Sales rose 85% in 2019 to $425 million. They are guided to rise another 60% in 2020 to $675 million, and analysts are projecting for nearly 50% growth in the year after that to about $1 billion. The growth ramp won’t be done there. Driven by more robust uptake of Vascepa in developed markets and expansion into emerging markets, many analysts believe that Vascepa will hit peak sales around $2 billion by 2024 or 2025.
Gross margins here are around 80%. That’s high — high enough to allow for significant positive operating leverage over the next few years as expense growth rates moderate (and they will, given the lack of competition in this space).
Net net, assuming $2 billion in peak Vasepa sales by 2025 and significant profit margin expansion, my modeling suggests that Amarin could net about $2.25 in earnings per share by then. Based on a pharmaceutical sector-average 15-times forward earnings multiple and a 10% annual discount rate, that implies a 2020 price target for the stock of $23, about 30% above where shares trade hands today.
Bottom Line on AMRN Stock
Thanks to Vascepa, Amarin looks like a big grower for the next few years. Shares aren’t quite fully priced, and this discrepancy is your opportunity. Buy into present weakness, let overstated fears pass and let fundamental strength from Vascepa power shares materially higher over the next twelve months.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
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