Why Did Amarin’s Financing Announcement Spark a Sell-Off?

While investors had expected Amarin (NASDAQ:AMRN) to put itself up for sale or find a partner to market its cholesterol-lowering drug Vascepa, the company announced on Friday that it had raised $100 million in financing and begun hiring a sales force for the medicine.

Since 2011, the biotechnology manufacturer’s stock has grown at a faster pace than both the S&P 500 and the Dow Jones Industrial Average. As of yesterday, Amarin’s shares had gained 56 percent in the last 12 months, with investors eagerly awaiting FDA approval of the company’s first drug Vascepa.

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However, investors were not expecting Amarin to market Vascepa on its own; experts had predicted that a large pharmaceutical company like Pfizer (NYSE:PFE), Merck (NYSE:MRK), AstraZeneca (NYSE:AZN), or Abbott (NYSE:ABT) would be involved because of the prohibitive costs associated with such an undertaking.

Amarin is ill-prepared to take the drug to market. In the last quarter, the company’s expenses increased 82 percent year-over-year, and the expenses were recorded as an operating loss because the company reported no revenue for the period. Furthermore, compared with the industry average of 3.1, Amarin has a much higher debt-to-equity ratio of 24.0. Because of the company’s worrisome balance sheet, Wedbush Securities analyst Akiva Felt told Bloomberg, “There had been expectations that there would be a strategic agreement in the near term.”

Even though the market reacted negatively to the company’s financing announcement, Amarin has not discounted the possibility of a partnership or a takeover. “Amarin’s hiring of a sales force is part of a continuing strategy to evaluate three potential paths to Vascepa commercialization: an acquisition of Amarin, a strategic collaboration, and self-commercialization, the latter of which could include third-party support,” said the company in a press release issued on Thursday.

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