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A Deep Dive into a Amarin (AMRN) Takeover, Other Scenarios

October 8, 2012 11:51 AM EDT Send to a Friend
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With an NCE decision for Amarin's (NASDAQ: AMRN) Vascepa just days away, a note from Canaccord Genuity on Friday pondering a takeover garnered a lot of attention. Canaccord Genuity analyst Ritu Baral took a deep-dive into a potential deal, which could be valued at up to $78 per share.

First the firm discusses the strict and sensitive Irish takeover law, where Amarin is based. Under Irish takeover laws an announcement is required:
(c) when, following an approach by an offeror to the offeree, the offeree is the subject of rumour and speculation or there is an anomalous movement in its share price;

(d) when, before an approach has been made by an offeror to the offeree, the offeree is the subject of rumour and speculation or there is an anomalous movement in its share price, and there are reasonable grounds for concluding that the cause of the rumour, speculation or price movement is the offeror’s own actions or intentions;


Because of this, "potential buyers are likely to be very secretive and circumspect, as any confirmation of talks would likely build in a significant premium to the stock, working against their interest," Baral said.

While NCE is incremental to value, the analyst said large pharma has grown more conservative, paying premiums for certainty, whether on data, IP, or clarification of market timeline. "We do not think BD teams have any incentive to submit premature bids, tipping their hand to competition," he said.

On NCE status for Vascepa, the firm sees an over 50 percent chance that is is granted. "FDA's delayed decision only suggests the determination is complex, which we knew," Baral said. "We think if FDA was inclined to reject NCE, it would have done so by now. The agency may still not grant NCE, but it is clearly very carefully evaluating the decision."

Discussing what Vascepa is worth, the analyst discusses three scenarios:

Scenario 1: Acquisition

With values ranging from $17 to $78 per share based on SG&A and duration assumptions, Vascepa's EV makes AMRN a Buy even in a worst-case scenario, the analyst said. If Vascepa has full patent protection through 2030, using SG&A at 3% of sales, the firm comes up with a valuation of $76.26. Even under a worst case, assuming no patent protection and just three-year exclusivity, "we think an acquirer could market Vascepa with incremental SG&A spend, and arrive at an enterprise value of ~$3.9B, or $21 per AMRN's FD shares outstanding in this worst case."



Scenario 2: Out-license
"Our current model assumes AMRN out-licenses worldwide rights, and patent protection through 2030, and that AMRN collects 28% royalties. In this case, Vascepa's enterprise value is $4.9B, or $26 per AMRN's fully FD shares outstanding.
Values range from $4 to $28 per share on royalty % and duration assumptions."

Scenario 3: Self-marketing
In this case we assume significant SG&A spend, and heavily discount revenues to account for launch risk, and arrive at an enterprise value of $5.7B, or $30 per AMRN's FD shares outstanding. Values range from $8 to $49 per share on discount rate and duration assumptions.




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