It's Cool Steve Rosenman Loves Amarin But His Math Is Screwy

BOSTON ( TheStreet) -- No Amarin ( AMRN) bull is more bullish than Steve Rosenman. His latest Seeking Alpha article makes the case for Amarin shares to quadruple in value this year. Amarin trades for $8 today, so Rosenman's year-end target is $32, or a sweet 300% gain.

The assumptions and math Rosenman relies upon to reach his price target prediction stretch credibility to the breaking point. I was also hoping Seeking Alpha's editors would ask Rosenman to explain or apologize for his many missed Amarin calls, mainly predictions about the company being acquired and the granting of Vascepa NCE status. Rosenman is an ardent supporter of Amarin and is enthusiastic about sharing his opinions but he's not big on accountability.

Under the heading "How will it quadruple in 2013?" Rosenman endorses the Amarin financial model published by Aegis Capital analyst Raghuram Selvaraju. Selvaraju has a buy rating and a $35 price target on the stock.

His model, which Rosenman includes in his Seeking Alpha article, forecasts 2013 Vascepa sales of $74 million. That's fairly reasonable, and isn't even high on the Street, according to Bloomberg.

Selvaraju's model gets wonky in 2014, however, when he predicts $687 million in Vascepa sales. That's a huge increase over 2013 and is more than double current Street consensus of around $300 million in 2014 Vascepa sales. Clearly, Selvaraju and Rosenman believe Vascepa sales take off like a rocket when FDA approves an expansion of the drug's label into the "mixed dyslipidemia" patient population, aka the "ANCHOR data" patients.

Rosenman is correct about the blockbuster potential for Vascepa given the millions of people with high triglycerides who aren't adequately helped by statins alone . However, Rosenman assumes doctors will prescribe (and insurance companies will reimburse) Vascepa by the truckload in the absence of beneficial cardiovascular outcomes data. I disagree there. I don't believe Vascepa sales take off, if ever, unless the ongoing REDUCE-IT study demonstrates a reduction in heart attacks, strokes or other serious cardiac-related side effects. We won't see data from this study for another three years. Without those data, I believe Amarin will struggle to sell Vascepa into an expanded patient population. I also believe Big Pharma agrees with me, which is why Amarin was forced to launch Vascepa on its own in the first place. (Not have NCE status for Vascepa played a big role, too.)

Even if you accept Rosenman's position, his numbers (Selvaraju's numbers, actually) don't make much sense. Amarin has been very clear that it will not market Vascepa to the mixed dyslipidemia patient population on its own. The company needs a partner.

That means Amarin will not record $687 million in Vascepa sales in 2014. A partner, if one ever materializes, will grab a big chunk of those dollars. We don't know what sort of agreement Amarin and a marketing partner may reach, but you can imagine a 50-50 profit split or a royalty deal. Either way, Amarin doesn't get $687 million in top-line revenue.

But heck, let's be really generous and just go with Rosenman/Selvaraju's numbers, which forecast earnings of 94 cents per share in 2014. A $32 per share stock price in 2013 implies a forward (2014) price-to-earnings multiple of 34. (The P/E would be even higher if I discounted back, but I won't bother.)

There aren't many biotech or drug firms trading today with P/Es of 34. Alexion Pharmaceuticals ( ALXN) and Regeneron Pharmaceuticals ( REGN) are in that ballpark but it's hard to justify placing Amarin in their league. Tthe average P/E for large cap biotechs -- Celgene ( CELG), Gilead Sciences ( GILD), Biogen Idec ( BIIB), etc -- is in the mid-high teens. Amarin might be worth $16-18 per share, anything higher is just pimping.

Let this serve as a reminder that sell-side analysts are like butchers -- both have heavy thumbs on the scale. Rosenman forgets this valuable lesson.

He also needs a better calendar. He predicts FDA approval of Vascepa's expanded "ANCHOR" label in the third quarter. Amarin only submitted the supplemental new drug application in February. The FDA will likely take 10 months to review the Vascepa submission, which puts the approval decision date in December. FDA could grant priority review to Vascepa but I'm at a loss for reasons why in the absence of cardiovascular outcomes data.

-- Reported by Adam Feuerstein in Boston.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.