Thursday, September 5, 2019

IBI Research On Avalon: Poised For Market Conquest

Summary
Avalon's CAR-Ts are ahead of their time due to key advantages over conventional medicines. AVA-101 shuttles enough genes to decimate two oncology targets (CD19 and CD22).
In July 2019, Avalon launched its first CAR-T (AVA-001) into the clinic for relapsed/refractory acute lymphoblastic leukemia and non-Hodgkin lymphoma.
The most advanced CAR-T in the market (AVA-101) recently entered a process development and validation phase. As such, it will be advanced into human studies in 1Q2020.
The medical diagnostics franchise is progressing rapidly. AVA-201 will be made available in the clinic for oral cancer by 4Q2019. A regulatory filing is expected a year later.
The regenerative medicine segment is projected to deliver AVA-202 for diabetic wounds by year-end.
This idea was discussed in more depth with members of my private investing community, Integrated BioSci Investing. Get started today »
In the development phase, don't forget stability. And in stability, don't forget development. - Li Ka Shing (Billionaire Investor and Philanthropist)
Author's note: This an example of the IBI research available exclusively for our marketplace members.
A theme that I particularly like in bioscience investing is when a company layered excellent diversification within its pipeline. Diversification lowers investment risks while increasing the chances of finding a blockbuster. A prime example of this phenomenon is Avalon Globocare (OTC:AVCO), as the company is gearing to hit a "trifecta." Accordingly, Avalon is brewing the next-generation CAR-T, precision medicine diagnostic, and regenerative medicine. Though all three franchises have a high probability of generating winners, you only need a single blockbuster for the stock to appreciate multiple folds.
What makes this investment enticing is that the shares have depreciated significantly due to the overall biotech downturn in recent months. As such, its financial and valuation are highly favorable. In this research, I'll feature a fundamental analysis of Avalon and provide my expectation for this stellar growth stock.
Figure 1: Avalon chart (Source: StockCharts)

About The Company

As usual, I'll deliver a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. Operating out of Freehold New Jersey, Avalon is focused on the development and commercialization of disruptive medicines and diagnostics to serve the strong unmet needs in cancer and various diseases. Using a trident-like approach of Poseidon, Avalon captures opportunities in three lucrative niches. They include exosomes diagnostics, regenerative medicine, and cellular immunotherapy.
For the diagnostic portfolio, Avalon harnesses the power of "exosomal biomarkers" to launch an avalanche against oral cancer, nonalcoholic steatohepatitis ("NASH"), leukemia, colorectal cancer, and macular degeneration. In my view, exosomal biomarkers can promptly pinpoint a diagnosis to confer physicians an edge against dreaded diseases. When it comes to the fight for life, accuracy and precision are of paramount importance. As depicted below, there are several potential blockbusters such as AVA-101, -201, and -203.
Figure 2: Diagnostic and therapeutic pipeline (Source: Avalon)

Seeds For Growth

To transform stellar science into medicines, Avalon built two world-class facilities: Avactis Biosciences and Genexosome Technologies. Back in July 2019, Avalon inked a colossal partnership with GE Healthcare to expedite research and development. The GE collaboration is proof in the pudding of its pipeline quality. Moreover, it signifies the company's capability to form meaningful partnerships.
That aside, Avalon is working with other esteemed partners, including Weill Cornell Medicine, Beijing Lu Daopei, and Nanjing BenQ hospitals. With powerful ties, Avalon spans its reach from North America to China. Ultimately, this will enable the company to fully unlock the value of its medicines and diagnostics. Figure 3: Avalon subsidiary (Source: Avalon)
Since its founding in 2016, Avalon is already wrapping significant progress under its belt. With crucial partnership instituted, the firm is now poised to capture various niches. Amid ongoing developments, the stage is now set for Avalon's upcoming growth that, in and of itself, is tied to crucial catalysts. Framed the essence of recent developments in the most poignant terms, the President and CEO (David Jin, M.D., Ph.D.) remarked,
We are pleased to provide updates on our progress in advancing clinical studies using our cellular therapeutic platforms in CAR-T and stem cell-derived exosomes. We have successfully evolved into an active clinical-stage company which we have the technology, partnerships, and talent, all committed to delivering clinical execution and leadership in the areas of cellular immunotherapy and exosome technology.

Dragon CAR-T

That being said, I'll shift gears to analyze pertinent catalysts. Since the most value of Avalon resides in the CAR-T franchises, I'll update this franchise first. Accordingly, Avalon sent AVA-001 into the first-in-human clinical study for relapsed/refractory B-cell acute lymphoblastic leukemia and non-Hodgkin lymphoma in July 2019.
In my opinion, AVA-001 will deliver robust efficacy and excellent tolerability. Be that as it may, I'm much more interested in AVA-101, the most advanced CAR-T known to man. As follows, AVA-101 recently entered a process development and validation phase. By 1Q2020, investors can expect AVA-101 to be launched into a clinical trial. I elucidated in the prior research,
In this Golden Age of CAR-T, Avalon captures lightning in a bottle by innovating a CD19xCD22 CAR-T (i.e. AVA-101) that is far ahead of its time. As a monarch among CAR-T, AVA-101 attacks multiple cancer targets and thereby renders these rogue cells' ability to evolve for escaping immune detection. Additionally, AVA-101 circumvents setbacks of the previous generation CAR-Ts (Yescarta and Kymriah). As I recalled, two of IBI's CAR-T stocks were bought out for substantial profits. Specifically, Kite Pharma and Juno Therapeutics were correspondingly acquired by Gilead Sciences (GILD) and Novartis (NVS) back in 2017 and 2018. Nonetheless, I'm most enthusiastic at the profit potential from Avalon due to AVA-101. After all, the ramifications of this novel CAR-T for shareholders and patients are paramount.
When it comes to battling cancer the goal is to simultaneously trounce multiple targets. Epitomizing the cornerstone of stellar cancer management, combination therapy substantially reduces the time these rogue cells have to evolve for escaping immune detection. Interestingly, combination therapy can be achieved with either several drugs or a single molecule hitting multiple targets at once.
Of note, conventional CAR-Ts cannot achieve the astronomical feat of suppressing multi-targets with one drug. In other words, most gene-edited CAR-Ts utilizes an RNA virus to transfer the sequence coding for a T-cell receptor like CD19. Though efficacious, an RNA virus CAR-T suffers from size limitation. As such, its maximum carrying capacity is adequate for only one target.
Powered by jumping gene (i.e. transposon), AVA-101 comes with far "greater bandwidth" that shuttles enough genes for both CD19 and CD22 receptors. Having both receptors, the "General" T cell can easily seize and destroy these rogue entities. Hence, the superb design by the illustrious Dr. Jin translates into improving the efficacy against deadly cancers that is second to none. Aside from stronger efficacy, AVA-101 is by far less toxic than first-generation CAR-Ts. Having a "kill-switch," AVA-101 can be shut down at the first sign of cytokine release syndrome that dampens the prospects of other CAR-Ts.
Though precision and individualized medicine can be time-consuming and cumbersome, AVA-101 cleared this hurdle with flying colors. For instance, the T-cells of patients can be harvested, engineered with CD19/CD22 receptors, and reintroduced back into the same patients within several days. Due to stellar design and excellent management, it's not surprising that the development of Avalon's CAR-Ts is advancing rapidly. Looking ahead, I expect positive news from this clinical front.

Precision Medicine Diagnostics And Therapeutics

Avalon's exosome technology is as promising as its CAR-T. Exosome serves as the basis for Avalon's precision medicine empowered diagnostics and therapeutics. On this end, Avalon is projected to commence the human study of AVA-201 in 4Q2019. Thereafter, a regulatory filing is anticipated to occur in 4Q2020. Of note, AVA-201 is a novel miR-185 enriched exosome that has both diagnostic and therapeutic value against oral cancer.
From the mechanistic view, miR-185 is discovered to suppress cancer cell invasion, proliferation, and migration in cell culture. Similar findings were observed in the proof-of-concept animal studies that Avalon presented at the 2019 ISEV Conference in Kyoto, Japan. Additionally, AVA-201 data was featured in the international journal dubbed Artificial Cells, Nanomedicine, and Biotechnology. The title of the article is "Delivery of Mesenchymal Stem Cells-Derived Extracellular Vesicles with Enriched miR-185 Inhibits Progression of OPMD."
Signifying an industry tailwind, precision medicine embodies a therapeutic customized for the individual patient. As such, precision medicine confersfavorable efficacy and safety. After all, patients have differentiated responses that are tied to their unique genetic makeup. Of note, the key component of precision medicine is a liquid biopsy which epitomizes the fundamental shift away from a tissue biopsy. As a ramification, a liquid biopsy expedites the diagnosis time, lowers costs, and improves the diagnostic accuracy as well as treatment outcomes. I explicated in the prior research,
Traditionally, there are three biomarkers employed in a liquid biopsy. They include circulating tumor cells (CTCs), circulating tumor DNA (ctDNA), and exosomes. In my view, the trend is moving away from CTCs. Only ctDNA and exosomes remain dominant. As part of cancer cells that get pinched off and travels into the bloodstream, I believe that exosomes hold the greatest promise. Exosomes are like leaves that provide invaluable information about a tree (i.e. the cell). By getting a hold of the leaves, you can tell if the tree has a disease. And given that exosomes are readily accessible in many biological fluids (blood, urine, and saliva), tapping into exosomes for diagnosis is ingenious.
Figure 4: Exosome mechanism (Source: Avalon)
Growing at 28% CAGR, Market Research Future projected that the global liquid biopsy market will reach $17.3B by 2022, If Avalon can capture a tiny fraction of this market, the stock should be worth multiple folds higher.

Regenerative Medicine

As the overlooked franchise, Avalon's regenerative medicine has the potential to become a big winner. I particularly like the fact that Dr. Jin has deep expertise in regenerative medicine. Asides from Dr. Jin's leadership, the quality of Avalon's exosome and an industry tailwind support robust growth ahead. Having great flexibility and robust efficacy, exosome regenerative medicine can be employed for hair restoration, skincare, anti-scar, anti-wrinkle, diabetic foot ulcer, wound care, anti-fibrosis, etc. In my view, this technology works because stem cells and its exosomes mature into other tissues that catalyze the regeneration process.
Leveraging Weill Cornell Medicine, Avalon recently completed the standardized bio-production process for tissue-specific, clinical-grade exosomes derived from endothelial cells. Due to their endothelial origin, these exosomes have wound healing properties. As a result, they can regenerate blood vessel damage. In 4Q2019, Avalon will push the lead candidate (AVA-202) into a global multi-center clinical trial for vascular diseases and wound healing (i.e. diabetic foot ulcer). Soon, the company will also commercialize the Actex-based products for skincare, scar removal, and hair growth.
Figure 5: Regenerative medicine operation (Source: Avalon)
Investors need to keep in mind that an outstanding drug can be rendered obsolete if it doesn't have a significant market. For Avalon's shareholders, there is also good news on this landscape. Specifically, the global regenerative medicine marketis growing at 32.2% CAGR. And, it will reach $39.4B by 2023. Therefore, if both CAR-T and diagnostics fail, Avalon still has this lucrative franchise. As Avalon is aiming for the "trifecta" development, the future is bright for this growth stock.

Financial Assessment

Just as you would get an annual physical for your well-being, it's important to check up on the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll analyze the 2Q2019 earnings report for the period that concluded on June 30. As follows, Avalon procured $399.7K in revenues compared to $496.0K for the same period a year prior.
Since a young bioscience company has yet to launch a medicine, it's the norm to expect the firm to operate without revenues for several years. Therefore, let's assess more meaningful metrics. Accordingly, the research and development (R&D) registered at $949.7K. The R&D increase is reflective of the rapid pipeline advancement. That aside, there were $4.4M ($0.06 per share) net loss compared to $1.4M ($0.02 per share) decline for the same period of comparison.
Regarding the balance sheet, there were $3.4M in cash versus $2.2M for last quarter. Based on the $4.4M quarterly operating expense (OpEx) rate, Avalon will likely execute a public offering this quarter. In my observation, investors usually shy away from a public offering. Contrarily, I prefer a young bioscience company to raise capital this way rather than incurring substantial bank debts. Short-term bank debts can be recalled anytime that can prompt a company to file a Chapter 11. The key to a public offering is to conduct it when the shares are trading high.
Though I do not mind a public offering, you need to determine if you are holding a "serial diluter." A firm that employs dilution as a "cash cow" will render your investment essentially worthless. As the shares outstanding increased from 71.9M to 75.1M for Avalon, my rough arithmetics yield the 4.4% dilution. At this rate, Avalon easily cleared my 30% dilution cutoff for a profitable investment. Viewing this financial metric, it's obvious that Avalon is working for the best interests of the shareholders and patients.

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strength. At this point in its growth cycle, the main concern is if Avalon can generate positive data for the three business segments. In case of a negative clinical binary for its CAR-T, the stock is most likely to tumble over 60% and vice versa. This is because most of Avalon's value resides in AVA-001 and AVA-101. Leveraging my clinical forecasting framework, I ascribed a 70% (strongly favorable) chance of positive outcomes for both CAR-Ts. As a young growth company, Avalon can grow aggressively and thereby runs into a potential cash flow constraint. Moreover, investors tend to lose interest in a young stock and thereby causes the share to depreciate in the short-to-medium terms.

Conclusion

In all, I maintain my strong buy recommendation on Avalon Globocare with the five out of five stars rating. On the two to three years horizon, I anticipated the $12.5 price target to be reached. You can refer to my detailed valuation of Avalon in the previous research. And, I ascribed the 70% "investment profitability score" on this stock. In a nutshell, you have a strongly favorable chance of making money on Avalon, provided that you hold your shares for the long haul.
With keen science and stellar management, Avalon is rapidly advancing its therapeutic and diagnostic pipeline. In recent months, AVA-001 is launched into the clinic. And, the most advanced CAR-T (AVA-101) is expected to reach patients in less than six months from now. The medical diagnostics and regenerative medicine powered by precision medicine are precisely on target. Specifically, AVA-201 will go in a clinical trial by year-end. Furthermore, the highly advanced regenerative molecule (AVA-202) will reach the patients within a similar time frame.
As usual, the choice to buy, sell, or hold is ultimately yours to make. Notwithstanding, it's prudent to accumulate more Avalon shares to anticipate positive clinical data and ride the Dragon CAR-T as it delivers hopes to patients and rewards shareholders worldwide.
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Simply put, this is worth every penny. Just earlier today, one of the companies recommended by Dr. Tran got acquired for a nice 50% premium.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: As a medical doctor/market expert, Dr. Tran is not a registered investment advisor. Despite that we strive to provide the most accurate information, we neither guarantee the accuracy nor timeliness. Past performance does NOT guarantee future results. We reserve the right to make any investment decision for ourselves and our affiliates pertaining to any security without notification except where it is required by law. We are also NOT responsible for the actions of our affiliates. The thesis that we presented may change anytime due to the changing nature of information itself. Investment in stocks and options can result in a loss of capital. The information presented should NOT be construed as recommendations to buy or sell any form of security. Our articles are best utilized as educational and informational materials to assist investors in your own due diligence process. That said, you are expected to perform your own due diligence and take responsibility for your actions. You should also consult with your own financial advisor for specific guidance, as financial circumstances are individualized.

Thursday, August 29, 2019

Amarin: Elucidating Bullish And Bearish Claims

Summary
The Vascepa recommendation as the standards of care by both the American Diabetes Association and American Heart Association are stellar developments that foretell robust growth ahead.
The upcoming supplemental new drug application decision for Vascepa is the ultimate catalyst that will catapult Vascepa sales by multiple folds.
Amid overwhelming odds of approval, the recent Prescription Drug User Fee Act delay still incites fear of a negative regulatory binary.
This idea was discussed in more depth with members of my private investing community, Integrated BioSci Investing. Get started today »
Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic. - Warren Buffett
In bioscience investing, you are certain to encounter much volatility. Due to the notion that what went up must goes down, it seems to me that a rallied stock is more volatile than other equities. Facing the market's whim, it's important for shareholders to properly interpret the ongoing saga of your stocks. As such, you can avoid selling out prematurely on spectacular performers. Equally important, you can build shares in promising companies during opportunistic occasions.
The aforesaid phenomenon exemplifies the investment thesis on Amarin Corporation (AMRN). In light of a regulatory delay, the market sentiment now shifted out of favor for Amarin. Nonetheless, the development of the overall fundamentals is quite robust. By empowering yourself with market intelligence, you can make an informed decision rather than being victimized. In this research, I'll present a fundamental analysis of Amarin while dissecting bullish and bearish views.
Figure 1: Amarin chart (Source: StockCharts)

About The company

As usual, I'll provide a brief corporate overview for new investors. If you are familiar with the firm, I recommend that you skip to the subsequent section. Based in Bedminster New Jersey and Dublin Ireland, Amarin is focused on the innovation and commercialization of therapeutics to serve the strong unmet needs in cardiovascular health. Powered by its expertise in lipid science, Amarin successfully developed and commercialized icosapent ethyl (Vascepa) in the U.S. using an in-house sales force.
Figure 2: Therapeutic pipeline (Source: Amarin)
Since Amarin wishes to make Vascepa available worldwide, the company is collaborating with various global partners. Asides from the U.S., patients can obtain Vascepa in Lebanon and the United Arab Emirates. Approval in Canada, China, and the Middle East are the next destinations. And despite slow initial launch, Vascepa sales are ramping up drastically due to new study results and other paramount developments.
Figure 3: Vascepa commercial partners (Source: Amarin)

First Bullish Claim: American Diabetes Association's Standards Of Care

Shifting gears, I'll analyze various developments from both bullish and bearish stances. Without further ado, I'll jump into the first bullish argument which centers around the American Diabetes Association (ADA). Backed by robust Phase 3 REDUCE-IT results, the ADA endorsed Vascepa as the new standards of care for patients with diabetes. Keep in mind that these patients are already on a cholesterol-lowering drug (i.e. statin) yet having their triglyceride ("TG") level elevated. By taking Vascepa, their overall cardiovascular risk is substantially reduced. The ADA explicated,
Section 10 was updated based on the outcome of REDUCE-IT, which determined the addition of icosapent ethyl to statin therapy for patients with high triglyceride levels reduced cardiovascular events. The standards of care now include a recommendation that [Vascepa] be considered for patients with diabetes and atherosclerotic cardiovascular disease or other cardiac risk factors on a statin with controlled LDL-C [low-density lipoprotein cholesterol], but with elevated triglycerides (135-499) to reduce cardiovascular risk.
In my view, the recommendation is a medical necessity. After all, Vascepa demonstrated the 25% relative cardiovascular risk reduction that outshines all competing therapeutics. At that mark, Vascepa rivals the mega-blockbuster Lipitor. And, the strong data explicated the rapid revenues increase quarters after quarters. Sharing his view on the aforesaid developments, the Chief Medical Officer (Craig Granowitz, M.D., Ph.D.) enthused,
While we know that the benefits of Vascepa are not limited to people with diabetes, we are very pleased by ADA’s recognition of the importance of the REDUCE-IT study and its unprecedented outcomes by including Vascepa in the ADA standards of care. The prevalence of cardiovascular disease in people with diabetes is staggering, and we are encouraged by the ADA’s focus on reducing cardiovascular risk. It should be noted that data are lacking with other omega-3 fatty acids, and results of the REDUCE-IT trial should not be extrapolated to other products.

Second Bullish Claim: American Heart Association Recommendation

In an article published on August 19, 2019, the American Heart Association (AHA) featured an advisory on the management of high TG (i.e. hypertriglyceridemia) using Omega-3 fatty acid. As follows, the AHA cited that obesity and diabetes raised the prevalence of hypertriglyceridemia. Among various Omega-3 fatty acids, only pure molecule improves overall cardiovascular health. According to the AHA,
In treatment of very high triglycerides with 4 g/day, EPA [eicosapentaenoic acid]+DHA [docosahexaenoic acid] agents reduce triglycerides by ≥30% with concurrent increases in LDL-C, whereas EPA-only [Vascepa] did not raise LDL-C in very high triglycerides.
Of note, LDL-C is the so-called bad cholesterol that forms atherosclerotic plaques, thus leading to coronary disease. Based on the aforesaid advisory, I strongly believe that Vascepa sales will climb more rapidly. Since the EPA/DHA combinations (i.e. other Omega-3 products like Lovaza) raises LDL-C, physicians will reduce their prescription. Due to its reach, the AHA catalyst will galvanize Vascepa sales as much as the ADA recommendation. And, shareholders can enjoy that low hanging fruit (i.e. strong sales increase) as soon as next quarter.

Third Bullish Claim: Supplemental New Drug Application

Asides from the ADA and AHA development, I believe that the best is yet to come with the upcoming supplemental new drug application ("sNDA") approval for Vascepa. If granted, the label expansion will propel Vascepa sales by leaps and bounds. Therefore, it'll enable Vascepa to reach the Promised Land of mega-blockbuster within the next several years. Based on the latest earnings report, Vascepa is nearly half-way to blockbuster status (i.e. >$400M in revenues projected for Fiscal 2019).
Figure 4: Vascepa sales projection without sNDA (Source: Amarin)
As Vascepa is on the runway toward approval, the biggest concern is the surprising delayed approval decision. Initially, Amarin announced investors that the FDA doesn't need an advisory meeting (ADCOM). Moreover, the Prescription Drugs User Fee Act (PDUFA) date is set for September 28, 2019. In giving the market an unpleasant surprise, the company recently disclosed that the agency will entertain an ADCOM on Nov 14 and the PDUFDA is now shifted to December. In my observation, the market despises negative surprise and thereby exacerbates its effects to an unrealistic proportion. The reality is that Vascepa encounters a setback of several months yet the market reacted as if Amarin is suffering from a devastating catastrophe.
Though there are always risks associated with regulatory forecasting, I strongly believe that Vascepa will clear this regulatory hurdle by yearend. After all, Vascepa has neither safety nor efficacy issue. Therefore, I ascribed the 70% (i.e. strongly favorable) chances of approval. Perhaps, the FDA and Amarin were overly optimistic that they got ahead of themselves. Since the ADA already endorsed Vascepa, I can imagine the motivation for the FDA and Amarin to rush ahead.

First Bearish Argument: Competition From Over The Counter Omega-3

Going deeper into the bear territory, let's analyze the claim that Vascepa will suffer from competition related to over-the-counter (OTC) Omega-3 supplements ("OOS"). On the surface level, this argument makes sense. Notwithstanding, there is no strong footing for this claim as you dig deeper into the analysis. For instance, supplements are not regulated by the FDA. Due to the lack of regulatory overseeing, OOS do not have the same quality, safety, and efficacy as Vascepa.
As a ramification, "subpar purity" is an important issue for supplements. For instance, nearly all OOS harbor DHA that, in and of itself, raises LDL-C. In lowering one bad lipid, OOS elevates another bad molecule which altogether negates their health benefits. As such, there is no true comparison between OOS and Vascepa. Accordingly, I view Vascepa as an Olympic wrestler whereas OOS resembles a "weekend warrior." There's a huge difference in purity and quality. After all, Vascepa is 100% pure EPA while OTC supplements are adulterated with DHA and fillers.
Figure 5: Omega-3 supplement (Source: BiPri)
Another ramification of regulatory laxity is that you can easily get a labeling company to launch your OOS in a month. As presented below, the regulatory restraint is easily unfastened with a simple disclaimer. Consequently, patients cannot demand quality medicine without adequate oversight. The supplement industry is the Wild West but the folks in Utah managed to push for policy in their favor.
Figure 6: OOS disclaimer (Source: FDA)
That aside, OOS do not undergo rigorous clinical trials as required for Vascepa. Consequently, there is no way to ascertain a supplement's clinical benefits and safety. Notably, regulatory laxity comes with a cost. Due to the rising health concerns, the FDA now requires supplement companies like General Nutrition Center (GNC) to report adverse events. Nonetheless, that's a far cry from a comparable regulatory standard of pharmaceutical drugs. Hence, competent doctors are highly unlikely to prescribe OOS over Vascepa because physicians practice evidence-based medicine. As such, this explicates the fact that amid the wide availability of OOS, Vascepa sales still ramp up drastically.

Second Bearish Argument: Mineral Oil

The second issue raised is that REDUCE-IT results are potentially invalidated due to the application of mineral oil for the placebo arm. In other words, it's argued that mineral oil somehow converts to TG and thereby reduces the absorption of statin. Consequently, this raises LDL-C, thus increasing cardiovascular risk. I'm not deterred by this argument.
After running my chemical analysis, I concluded that mineral oil, though not conducive to one's health, doesn't lead to an increase in triglyceride. For instance, there is no conclusive evidence proving that polyalkanes (i.e. the composition of mineral oil) raises TG (i.e. glycerol backbone plus three esterified fatty acids). In my view, it takes tremendous Gibbs free energy in an extreme PH environment to convert an Sp3 hybridized carbon of mineral oil to Sp2 of TG. Molecular analysis supports the notion that such a transition is unlikely in the buffered environment of the blood.
Figure 7: Chemical analysis of mineral oil versus triglyceride (Source: IBI)

Financials Assessment

Financials Assessment

Just as you would get an annual physical for your well-being, it's important to check up on the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll assess the 2Q2019 earnings report for the period that concluded on June 30. Accordingly, Amarin procured $100.4M in product revenues thus, representing a 91.2% increase from $52.5M for the same period a year prior.
Additionally, the research and development (R&D) registered at $7.1M and $18.1M for the corresponding quarters. REDUCE-IT completion accounted for the lower R&D. That aside, there was $1.8M ($0.01 per share) net loss compared to $34.2M ($0.12 per share) decline for the same comparison. On a per-share basis, the bottom line improved by 91.6% year over year. Regarding the balance sheet, there was $221.7M in cash and equivalents. Due to the recent $400 capital raise, the cash is now tallied over $621.7M. Against the $80.5M quarterly operating expense (OpEx) rate, there should be adequate capital to fund operations until 2Q2021 before needing to raise money.

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the potential setback for Amarin is if the FDA will approve Vascepa sNDA. I believe there are 30% chances of regulatory failure. Since the sNDA is paramount to Vascepa's growth prospect, a negative decision can cause the stock to depreciate by 50% and vice versa.
The other concern is if Amarin can continue to reduce operational expenses to procure a net profit. The high "short interest" can also dampen Amarin's rally. Though not a significant concern, the FDA might give Amarin a difficult time with the mineral oil issue. Moreover, OOS can also reduce Vascepa's sales prospect.

Final Remarks

In all, I maintain my buy recommendation on Amarin with the five out of five stars rating. Even without an sNDA approval for Vascepa, Amarin is enjoying gargantuan revenues growth due to the ADA and AHA endorsement. Nevertheless, the chances are strongly in favor of the upcoming ADCOM on Nov 14 and the PDUFA in the subsequent month. As the ADCOM comprises of cardiologists and endocrinologists, the ADA and AHA support bodes well for the aforesaid meeting. And if the sNDA is approved, Vascepa will become the first prescription medicine of its kind to deliver cardiovascular risk reduction. Stellar sales growth will follow suit.
As usual, I'd like to remind you that the decision to buy, sell or hold is ultimately yours to make. In my view, it's prudent to build more stakes in Amarin to anticipate Vascepa approval and upcoming sales growth. Last but not least, an acquisition is in play because a replacement is needed for Lipitor.
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Dr. Tran's analyses are the best in the biotech sphere, well worth the price of subscription.
Very professional, extremely knowledgeable, and very honest… I would highly recommend this service and his stock picks have been very profitable.
Simply put, this is worth every penny. Just earlier today, one of the companies recommended by Dr. Tran got acquired for a nice 50% premium.
As I reserve higher market intelligence and exclusive features for IBI members, I invite you to take my temporary offer of 2 weeks FREE TRIAL.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: As a medical doctor/market expert, Dr. Tran is not a registered investment advisor. Despite that we strive to provide the most accurate information, we neither guarantee the accuracy nor timeliness. Past performance does NOT guarantee future results. We reserve the right to make any investment decision for ourselves and our affiliates pertaining to any security without notification except where it is required by law. We are also NOT responsible for the actions of our affiliates. The thesis that we presented may change anytime due to the changing nature of information itself. Investment in stocks and options can result in a loss of capital. The information presented should NOT be construed as recommendations to buy or sell any form of security. Our articles are best utilized as educational and informational materials to assist investors in your own due diligence process. That said, you are expected to perform your own due diligence and take responsibility for your actions. You should also consult with your own financial advisor for specific guidance, as financial circumstances are individualized.

Friday, August 23, 2019

Amarin: A Competitive Intelligence Analysis On Vascepa


Summary
Hindsight is 20/20 yet higher-level intelligence drives future profits. As such, I focus on forecasting the upcoming regulatory binary for Vascepa's label expansion and other corporate developments.
Despite Vascepa's dominant position, there are competing molecules such as Lovaza and over-the-counter Omega-3 supplement (OOS) that investors should assess.
In the spirit of sharing, I'll present part of what I discussed today inside my private investment community earlier than usual.
The best thing that happens to us is when a great company gets into temporary trouble ... We want to buy them when they're on the operating table. - Warren Buffett
As the weekend is winding down, I'll conduct competitive intelligence analysis on Amarin Corporation (AMRN). The inspiration from a ScienceDirect article that an Integrated BioSci Investing ("IBI") member shared catalyzed this analysis. As such, I'd like to express my gratitude to all IBI members for your continuous intellectual generosity. Equally important, I appreciate the counter-viewpoint. And, I encourage you to continue sharing your inputs.
In my view, IBI is a community where we learn from one another to become better investors. Therefore, all respectful debates are welcoming. By dissecting opposing arguments, we can learn about an investing thesis on a deeper level where most value resides. Without further ado, I'll take a deep-dive into this commentary.
Figure 1: Amarin chart (Source: StockCharts)
Accordingly, I found the recent article on Vascepa's competitor intriguing for various reasons. Notwithstanding, they all underlies the "impurity" and "subpar quality" of over-the-counter supplements (i.e. OOS), which I attributed to their regulatory laxity. The author remarked,
Elucida Research in Beverly, MA, found that Omega-3 fatty acid (3FA) levels fluctuated greatly from product to product, from as low as 33% to as high as 79%. However, it also determined that high levels of saturated fat and oxidized 3FA found in the supplements may actually undermine their possible health benefits.
As Elucida elucidated, one can best hope for a 79% Omega-3 from OOS. Adding further injury to insult, I believe that the aforementioned 79% is not pure eicosapentaenoic acid (EPA) like Vascepa. Asides from "fillers and oxidized Omega-3," OOS harbors the silent cardiovascular-disease inciter (i.e. docosahexaenoic acid or DHA).
Specifically, research proved that DHA raises the level of low-density lipoprotein (i.e. bad cholesterol or LDL-C), the culprit of heart diseases. As such, when you consume OOS or other Omega-3 products (Lovaza), they contain both DHA and EPA. Consequently, the health benefits - triglyceride ("TG") and cardiovascular risk reduction from EPA - are neutralized by DHA's LDL-C elevating effect.
As proof in the pudding of Vascepa dominance, there is a "fundamental shift" in the medical guideline. In the August Advisory, the American Heart Association (AHA) shined the light into DHA by explicating its negative health consequences.
Figure 2: AHA recommendation (Source: AHA)
As the truth is revealed, the AHA switched stance to endorse pure EPA. The endorsement comes on top of the Vascepa recommendation as Standards of Care by the American Diabetes Association (ADA) in March.
Being the only one of its kind with true purity, Vascepa is dominating over competitors such as OOS and other Omega-3 molecules. In other words, the research supports Vascepa over competitors. For instance, Lovaza (a prescription Omega-3) is rendering obsolete due to the LDL-C elevation tied to its DHA.
As a ramification of new findings, I strongly believe that the upcoming supplemental New Drug Application ("sNDA") bodes well for Vascepa label expansion. To view it another way, Vascepa is backed by both the ADA and DHA. Since the advisory committee (ADCOM) members comprised of cardiologists and endocrinologists, it'd be contradictory for them to recommend against Vascepa. After all, their governing associations endorsed the stellar drug.
Shifting gears to another impurity, most OOS also contain "saturated fatty acids (i.e. SFA)." That begged the question of what are saturated fatty acids and how they affect one's health?
As fatty acids (FAS) having a side chain (i.e. R group) without a double bond, SFAs do not hold an associated "kink" (Omega-3) in its molecular structure. Therefore, SFAs are analogous to bricks that neatly stacked on one another to form a "solid wall." Notable SFA examples are chicken and pork fats which become a solid-like cake at room temperature.
Figure 3: Differentiating fatty acids (Source: Pubchem)
Since SFAs easily clump into a solid, they contribute to the atherosclerotic (i.e. cholesterol plaque) formation. In a gradual process, the plague will occlude the coronary artery to induce a heart attack also known as myocardial infarction.
Figure 4: Atherosclerosis (Source: Merck manual)
In contrast, FA with a double bond in the side chain is deterrence to the solid formation. By remaining in a liquid state, it's much easier for these good fats to be flushed out of our physiology. Like a sponge, Omega-3 EPA sucks out the bad fat (LDL-C) from our arteries and liver.
That being said, let's check out a real-world example of good fat with a double bond that is not Omega-3.
Most of you probably heard that olive oil is conducive to one's health. I like my olive oil served with bread or in a salad. Notably, olive oil's benefits arise from the sole double bond in its side chain which confers it the name "monounsaturated FA (i.e. MUFA)." Similar to MUFA, the beauty of Omega-3 is the double bond that created a kink in the molecule at the Omega position.
That aside, "oxidized Omega-3" are found abundantly in OOS and thereby reduces their efficacy. Essentially, an oxidized molecule is already damaged by the oxidation process. Hence, it loses the therapeutic efficacy. Consequently, the oxidized Omega3 in OOS are defunct even for those at the upper extreme of 79%. This is far less beneficial than the higher quality >99% purity of Vascepa. I elucidated in the prior research,
OOS do not undergo rigorous clinical trials as required for Vascepa. Consequently, there is no way to ascertain a supplement's clinical benefits and safety. Notably, regulatory laxity comes with a cost. Due to the rising health concerns, the FDA now requires supplement companies like General Nutrition Center (GNC) to report adverse events. Nonetheless, that's a far cry from a comparable regulatory standard of pharmaceutical drugs. Hence, competent doctors are highly unlikely to prescribe OOS over Vascepa because physicians practice evidence-based medicine. As such, this explicates the fact that amid the wide availability of OOS, Vascepa sales still ramp up drastically.
As usual, the choice to buy, sell, or hold Amarin is ultimately yours to make. Before making your decision, it's best to consider all perspectives and arguments. In my opinion, it's prudent to build shares in this stock to anticipate a rally toward the sNDA approval. If the rally is muted, the increasing sales for years to come will certainly galvanize Amarin toward its intrinsic value.

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