Amarin Corporation, plc. (NASDAQ:AMRN) closed Friday below $8 - the Go-it-alone reality has begun to sink in for longs as the December orange book update did not have an NCE decision for Vascepa. In our latest Red Acre Insight about AMRN $7 was our near-term support level call followed by $5. Buyout attention has largely shifted to after the Anchor sNDA is submitted - probably closer to the ANCHOR PDUFA date in late 2013. In the meantime, the market will be watching the launch of the drug to see if AMRN can actually grab meaningful market share from GSK. While Vascepa's superior theraputic profile (not raising LDL-C) is a positive; AMRN's hastily assembled sales force and the potential that doctors may be slowly shifting away from surrogate endpoints such as reduction of triglyceride levels to focus on outcomes based evidence for cardiac drugs are concerns weighing on the stock.
We see AMRN slowly drifting lower in coming weeks unless FDA delivers a surprise positive decision on NCE. For long-term holders buying at the $7 level is a good bet although the stock may dip even lower if the launch of the drug is slow. AMRN stated in their last conference call that they are working to ensure wide insurance coverage for Vascepa prior to formal launch. If they are successful in these efforts, the launch trajectory may be better than the market expects and the stock should see a recovery in this case.
Synergy Pharmaceuticals (NASDAQ:SGYP) closed below the $5 level on 12/21. In our last Red Acre Insight about SGYP we suggested that the stock would begin to drift lower as run-up traders exited the stock. Next week is huge for SGYP with both their annual meeting of shareholders (where they will vote on the merger with Callisto) and the announcement of top-line results for their phase IIb/III trial of plecanatide. We view the trial results as having better than even odds of being successful and the stock is undervalued in this case.
As a side note, shares of Callisto Pharmacuticals (OTC:CLSP) are extremely undervalued when factoring in the merger conversion price and the potential upside from positive trial results. In the merger agreement, each share of CLSP will convert to 0.1799 shares of SGYP. With SGYP stock trading at $4.98, each Callisto share should be worth 89 cents. CLSP last traded at 65 cents which is 37% below the merger price. If, as we expect, shares of SGYP make a large upside move on positive trial data, shares of CLSP may be undervalued by more than 150%.
There are 2 caveat's to holding CLSP. First, if one holds through the merger the newly issued SGYP shares will have a 24 month lock-up. When we asked SGYP CFO Bernard Denoyer why there was a 24 month lock-up his response was "No comment. Whatever is in the S-4 is all we will disclose about the merger." He did however, confirm our math that CLSP's share price was below the effective merger price. The second caveat to holding CLSP is that the stock is very thinly traded. accumulating a large position is difficult, and exiting a large position at favorable prices prior to the merger may be equally difficult.
Year End Notes
It looks as if the deficit talks in Washington will not result in a deal prior to January 1st. The end of this week could see some very negative sentiment in the overall market and even biotech stocks may suffer as a result. If no deal is reached and we go over the fiscal bump (it's not really a cliff), expect the S&P to revisit the 1350 area if it hasn't reached there in bearish trading before then. At Red Acre Investments our fund is almost 50% cash currently due to the stalled budget talks. We see many buying opportunities in the early part of the year should the automatic budget cuts and sequestration go into effect. We stand ready to buy securities that are mispriced to the downside knowing that eventually a deal will be reached on the budget and the market will put this fear behind and look to the next calamity. As always, stocks "climb a wall of worry".
Happy Holidays and Best wishes for the New Year to all of our readers. We look forward to launching our member's area in early 2013 for those of you who have found our insights profitable this year.