Amarin Corporation plc — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021, compared with the three months ended March 31, 2020. Amarin is a pharmaceutical company focused on VASCEPA (icosapent ethyl), its principal commercial product. Financial statements are unaudited.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue, net | $142.2 million | $155.0 million | Down 8% |
| Product revenue, net | $141.4 million | $152.2 million | Down 7% |
| Licensing and royalty revenue | $0.8 million | $2.8 million | Down $2.0 million |
| Gross margin | $113.8 million | $120.2 million | Down $6.3 million |
| Gross margin as a percentage of revenue | 80% | 77% | Up 3 percentage points |
| Operating expenses | $115.2 million | $144.2 million | Down 20% |
| Operating loss | $1.3 million | $24.0 million | Improved $22.7 million |
| Net loss | $1.6 million | $20.6 million | Improved $18.9 million |
| Net cash used in operating activities | $18.7 million | Net cash provided of $4.1 million | Declined $22.8 million |
Balance sheet and liquidity at March 31, 2021
- Cash and cash equivalents: $291.0 million; restricted cash: $3.9 million.
- Short-term investments: $223.7 million; long-term investments: $24.0 million. Cash, restricted cash, and investments totaled approximately $542.6 million.
- Total assets: $990.3 million; current liabilities: $325.8 million; stockholders’ equity: $634.6 million.
- Inventory was $230.9 million, up from $188.9 million at year-end 2020. Accounts receivable, net, was $151.3 million.
- No debt was outstanding. The company reported sufficient liquidity to fund projected operations for at least 12 months, subject to assumptions and business risks.
Material changes and management commentary
- Revenue fell year over year, but management attributed approximately $10.8 million of the comparison to one fewer effective shipment week in Q1 2021. Excluding that additional week in Q1 2020, U.S. net product revenue increased 5% year over year.
- Management cited COVID-19-related limits on physician visits, testing and sales access; generic competition; severe U.S. winter weather; and lower international sales. U.S. prescriptions were broadly comparable with the prior-year quarter, though company-cited third-party prescription estimates are not definitive.
- SG&A fell $28.1 million, primarily because of reduced U.S. promotion, travel and hiring. Management expects SG&A to increase during 2021 as it prepares for a European launch. R&D expense declined 9%; management expects it to remain broadly consistent with the prior year.
- Cost of goods sold declined 19%, and management reported product gross margin of 80%, compared with 77%. Management expected 2021 average API cost to be similar to or modestly below 2020, while noting costs may vary by period.
- Operating cash use reflected increased inventory purchases and European launch preparation. Investing cash inflow primarily reflected $127.9 million in security maturities; financing cash use included $7.3 million of taxes paid related to stock-based awards. The royalty-bearing financing instrument had been repaid in 2020.
Outlook, developments and risks
- Guidance: Amarin suspended quantified revenue guidance because of uncertainty around COVID-19, generic competition and European market access. It said it would consider resuming guidance when there is greater clarity. Management said cash and short-term investments were expected to fund operations for at least 12 months and support positive cash flow under current plans, but cautioned that assumptions may prove incorrect.
- Europe: The European Commission approved VAZKEPA on March 26, 2021. Launch timing depends on country-level reimbursement; the company planned a Germany launch before the end of Q3 2021, subject to market access. It planned to expand its European team to approximately 300 professionals by year-end.
- Other markets: China’s regulator accepted the VASCEPA application for review, with a decision expected near year-end 2021; Hong Kong review was also expected to conclude near year-end. These are management expectations, not guaranteed outcomes.
- Competition and patents: Hikma had launched a generic version in the U.S. Amarin’s Supreme Court petition challenging the adverse ANDA patent ruling was pending. Amarin also pursued separate cardiovascular-risk-reduction patent litigation against Hikma and Health Net.
- Legal and regulatory matters: Dr. Reddy’s filed an antitrust complaint on April 27, 2021, after the quarter, concerning alleged restrictions on API supply; Amarin said it would defend itself. The company was cooperating with FTC and New York Attorney General inquiries concerning supply practices. A DOJ investigation into promotional speaker and copayment programs was also ongoing. Outcomes, costs and potential effects are uncertain.
- Other commitments: Supply agreements included approximately $213 million of potential minimum-purchase obligations over their terms. The company recorded a $12.0 million current liability for a Laxdale milestone triggered by European approval; a further potential milestone of approximately $6.9 million was not accrued. Marketing commitments were approximately $14.2 million.
- Leadership: In April 2021, CEO John Thero announced plans to retire effective August 1, 2021, with Karim Mikhail appointed as successor. General Counsel Joseph Kennedy also planned to retire, and a search for a successor had begun.
- Other risks: The business depends heavily on VASCEPA, third-party manufacturing and a small number of wholesalers. COVID-19, reimbursement outcomes, generic entry, supply constraints, litigation, regulatory scrutiny and reliance on REDUCE-IT data could materially affect results. Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether U.S. product demand and revenue improve after adjusting for shipment timing, and how generic competition affects branded sales, pricing and prescriptions.
- Progress and outcomes of the Supreme Court petition, cardiovascular-risk patent litigation, Dr. Reddy’s antitrust case, and government investigations.
- Country-level reimbursement decisions, launch timing and commercial uptake for VAZKEPA in Europe, and regulatory decisions in China and Hong Kong.
- Inventory levels, supplier capacity and qualification, and the timing and cash impact of minimum-purchase commitments.
- Cash burn and whether the company achieves its stated liquidity and positive-cash-flow objectives as U.S. promotion and European launch costs evolve.
- Effects of the CEO and General Counsel transitions on execution and management continuity.