Amarin Corporation plc (NASDAQ:AMRN) shares have been volatile. We noted in our last piece that this was likely, and would probably falsely be attributed to serious concerns over the viability of the Reduce-it study data due to the impact of the mineral oil used in the placebo arm.
In fact, the existence of anything other than a perfect granular data set (and this was pretty close) was a very easy shake-out opportunity. The stock did rocket higher off the September 24 revelations, but it also spent a great deal of time hovering around $18-21 in front of November 10, and doing so with tons of press hitting online talking about how clearly the company was going to be a take-out candidate in the future and how easy it would be to ride that pony higher.
Amarin Corporation plc (NASDAQ:AMRN) likely will still be a takeout candidate at higher levels. But human nature impacts market dynamics. In the end, there is no such thing as a predictable path, even to a predictable outcome. The action in this stock provides a good case study and learning example, as we discuss below.
The Tale of the Tape
In this case, in the five weeks during which the stock went from $20 to $21 in front of November 10, it is likely that lots of retirement plans were made by unsophisticated market participants using irresponsible levels of financial leverage after reading articles describing the strong potential for a further rise in the stock.
That forms the trading context we are in right now. Anyone in that situation – ie, trading way too big relative to true financial needs and doing so from a cost-basis of around $20 – will be particularly susceptible to stories about how the FDA might not approve the expanded labeling without another big study using a different placebo, and how that could take years and cost hundreds of millions. That “vulnerability” is really about the undisciplined positioning situation. Someone in that state will be very easy to scare out of the stock at $16 (down 20% and thinking about how broke he or she might be if it fell to $10).
That scenario is easy to imagine and the 5 weeks of trading around $20 with such big numbers being thrown around for the stock would likely have created a lot of such shake-out fodder.
The market is now going through a natural process of restoring the doubt that is necessarily the fodder for explosive upside that may still lie ahead.
But, in all of this, it’s important to remember several things listed in order of importance:
- Never participate in markets in an undisciplined manner or with irresponsible levels of leverage. You are just setting yourself up for just such an awful experience as those who will sell at $16 or $14 here and then watch in horror as it rockets back through $30 and $40 at some point. Use responsible position sizing, and always remember that ANYTHING CAN HAPPEN IN A BIOTECH STOCK.
- Mineral oil is not an unknown quantity. It is unlikely to require a full new study. The impact of mineral oil supplements on heart risk is not frontier science.
- Even with some minor reductions in impact levels, the fact that Vascepa is inexpensive and has a material impact on risk of cardiovascular death, heart attack, and stroke will still mean it is a very big deal with a very bright future.