By Pete Gallo
Sam Isaly’s biotech and pharma hedge fund looks to have a winner on its hands. OrbiMed Healthcare Fund Management is the largest shareholder in Amarin, a biopharmaceutical firm whose stock has produced spectacular results, thanks to a recent flurry of positive clinical trials for a cardiovascular drug it’s developing.
OrbiMed has been a longtime investor in the company. But Amarin shares have taken off of late, climbing from a lowly $5.50 on December 1 to a recent high of $15.82 set on April 19. The bulk of that gain came in April as news that the firm’s AMR101 drug, aimed at fighting heart disease, produced strong results in its latest clinical trial.
On the day results were announced (April 18), the stock rallied for a 95% price gain, a single-session rise that was especially impressive, given that wider indices plummeted that same day, jittered by S&P lowering its outlook for U.S. debt to negative.
OrbiMed owns seven million shares of Nasdaq-listed Amarin, based on March 7 filings made with the Securities and Exchange Commission. And the good news for OrbiMed investors is that a seven-million-share stake worth $38.5 million on December 1 was worth $110.7 million as of April 19.
But the better news is that SEC filings show OrbiMed had warrants on an additional 3.5 million shares of Amarin, which means gains may have been substantially higher, as the hedge fund group presumably took advantage of the stock’s stellar rise to exercise options. (The combined shares and options holdings leave OrbiMed and its affiliate funds with an 8.44% stake in the company, according to regulatory filings dated March 7.)
Isaly’s investment team at OrbiMed surely realizes that AMR101 still has some regulatory hoops to jump through before it wins approval. There is no way to guess the outcome with any certainty. But Amarin’s latest clinical test results bode extremely well, suggesting that the drug is on track—if not ahead of schedule—to win Food and Drug Administration approval this year.
What’s so special about AMR101? You may recall a grandparent touting the merits of sipping a daily dose of cod liver oil to keep the heart healthy. But what’s old can sometimes be new again as mainstream pharmaceutical companies embrace the benefits of so-called omega-3 fatty acids—the kind naturally occurring in fish oils—to prevent cardiovascular disease.
AMR101 has been described by the company as a “prescription-grade omega-3.” One might laugh that the company is aiming to market some kind of ultra-strength fish oil to the public. But the clinical results seem solid so far. Taking four grams of its drug, over time, reduced triglyceride levels by more than one-fifth without any bump in so-called bad cholesterol levels known as LDL.
If the FDA agrees AMR101 has merit, OrbiMed will have an even bigger winner on its hands in terms of potential profits. But that is attributable to anything but luck. You have to hand it to Isaly’s team for not only spotting a winner, but in this case helping to nurture Amarin’s success.
OrbiMed was part of an investor consortium that in late 2009 helped Amarin retrench in a difficult economy. OrbiMed participated in a $70 million private placement deal led by Fountain Healthcare Partners that also included Sofinnova Ventures and Longitude Capital Management. That deal allowed the company to expand its corporate operations in Connecticut, not only saving Amarin team members long flights from Europe to the U.S. but positioning the company for greater access to the all-important American market.
And OrbiMed partner Carl Gordon, who holds a Ph.D. in molecular biology, joined Amarin’s board as a nonexecutive director in 2008, following an earlier private investment in the company.
Until now, the small cap company has looked to licensing its products as part of that business plan. But that may be changing as Amarin execs consider ways to directly market drugs under development.
Amarin’s stock growth is twofold. On one hand, investors like OrbiMed and others are attracted to the stock because Amarin’s drugs under development show promise. But along with that structural growth, Amarin’s market cap—now $1.7 billion—makes it large enough to be considered a buyout target worthy of note, further driving the stock price higher.
Much of Amarin’s recent share-price growth may reflect the built-in assumption that the AMR101 will get regulatory approval and that the company will soon be attracting suitors. That is a good reason for OrbiMed to stick around: With an 8.4% stake in the firm, OrbiMed surely would have a deciding voice in any buyout bid that comes along.