Amarin's Stock Sale Helps Shorts Cover Winning Trade

Tickers in this article: AMRN

BEDMINSTER, NJ (TheStreet) -- I expect a good number of shorts to cover on the Amarin financing deal announced last night.

The company is selling 21.7 million shares with an over-allotment option for another 3.2 million shares. Pricing has not been announced yet but disclosure of the latest financing took Amarin shares down by 11 percent to $5.51 in Monday's after-market session. The stock closed Monday's regular trading at $6.17.

Amarin shares were down 7% to $5.71 in pre-market trading Tuesday.

To put the possibility of a sub-$6 per share offering in perspective, Amarin hasn't traded this low since December 2010.

The "short Amarin" thesis has played out exceedingly well since Vascepa was approved almost one year ago. Current short interest (as of June 14) stands at 23.6 million shares, according to Nasdaq.

@ColfaxCapital handles healthcare trades for institutional investor clients. He had this educated guess about demand for the Amarin offering last night:

Dan Rosenblum, one of my favorite healthcare traders, also believes many shorts will declare victory and cover, particularly since the risk-reward starts to look less favorable with Amarin at $5.

Shorts may be inclined to cover their winning positions but will other investors want to actually own Amarin?

In a regulatory filing Monday night, Amarin said Vascepa scripts for the second quarter (April through June) totaled just over 46,700, according to estimates compiled by a third-party data provider. A wholesale acquisition cost of $184 per script implies second-quarter sales of $8.6 million, or just above current (but already lowered) analyst consensus of $8.3 million, according to S&P CapitalIQ.

Actual reported Vascepa sales for the June quarter will could easily fall short of consensus given Amarin's liberal use of discounts and rebates during the early months of the launch.

Vascepa sales are growing month over month on an absolute basis, but the rate of growth has slowed considerably and is approaching zero way too fast for a product on the market for only six months.

-- Reported by Adam Feuerstein in Boston.