Amarin Corporation plc — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; unaudited. The company is a biopharmaceutical business focused on Vascepa and its cardiovascular outcomes study, REDUCE-IT.
Financial performance
Amounts below are in millions, except per-share data.
| Metric | Q2 2015 | Q2 2014 | H1 2015 | H1 2014 |
|---|---|---|---|---|
| Product revenue | $17.7 | $12.6 | $33.3 | $23.6 |
| Total revenue | $17.7 | $12.6 | $33.6 | $23.6 |
| Gross margin dollars | $11.3 | $7.6 | $21.6 | $14.3 |
| Operating expenses | $38.1 | $32.8 | $75.4 | $65.1 |
| Operating loss | $(26.7) | $(25.2) | $(53.8) | $(50.8) |
| Net income (loss) | $(31.5) | $15.3 | $(62.6) | $(10.7) |
| Net income (loss) applicable to common shareholders | $(62.9) | $15.3 | $(94.8) | $(10.7) |
| Basic and diluted EPS | $(0.35) | $0.09 / $0.08 | $(0.53) | $(0.06) / $(0.07) |
- Q2 product revenue grew 40%; H1 product revenue grew 41%. Management attributed growth mainly to higher estimated Vascepa prescriptions. Prescription estimates are third-party estimates and may not match distributor shipments.
- Reported product gross margin was 64% in Q2 2015 versus 60% in Q2 2014, and 64% for H1 2015 versus 61% for H1 2014. Management cited lower unit-cost API purchases.
- SG&A rose 24% in Q2 and 22% in H1, mainly from legal costs, higher Kowa co-promotion fees and stock compensation. R&D rose 3% in Q2 and 5% in H1; REDUCE-IT remained the principal development cost.
- The 2014 comparison included a $38.0 million debt-extinguishment gain and approximately $4.1 million of supplier and encapsulator settlement income. These items did not recur in 2015. The 2015 common-shareholder loss also includes a $31.3 million noncash preferred-stock beneficial conversion feature; it reduced income applicable to common shareholders, not reported net loss.
- H1 net cash used in operations was $37.6 million, compared with $38.8 million in H1 2014. Financing provided $54.1 million, principally from $52.1 million net proceeds from preferred shares and $2.7 million from warrant exercises. Cash increased by $16.5 million to $136.1 million.
Financial position and debt
- At June 30, 2015, cash and cash equivalents were $136.1 million; current assets were $169.3 million and current liabilities $50.3 million, implying working capital of about $119.1 million. Inventory was $20.5 million, up from $13.7 million at year-end 2014.
- Total liabilities were $286.5 million and stockholders’ deficit was $91.4 million. Balance-sheet carrying amounts included $124.6 million of exchangeable senior notes, $90.5 million of long-term debt and $15.4 million of current debt. Separately, the BioPharma agreement had $141.2 million remaining to repay under its $150 million aggregate payment obligation; repayments are revenue-linked and subject to quarterly thresholds.
- Management said cash was expected to fund projected operations for at least the next 12 months. This is management’s estimate, not a guarantee; H1 operating cash use was $37.6 million.
Material developments, outlook and risks
- Commercial outlook: Amarin provided no quantified revenue or prescription guidance and cautioned that quarterly sales may fluctuate. U.S. Vascepa promotion remained limited to the FDA-approved severe hypertriglyceridemia indication, with Kowa co-promoting under an agreement through 2018. Management expected 2015 SG&A and R&D to be higher than in 2014.
- REDUCE-IT: More than 7,600 of a targeted 8,000 patients were enrolled. Management expected enrollment completion near year-end 2015, an interim DMC efficacy and safety review in 2016, study completion around 2017 and results/publication in 2018. Remaining costs were estimated to likely exceed $100 million through completion and evaluation, absent an earlier DMC-recommended stop. The company remained blinded to results; the DMC had recommended continuing after safety reviews.
- FDA and litigation: The FDA issued a Complete Response Letter for the ANCHOR label-expansion application in April 2015, finding insufficient evidence to support triglyceride reduction as a surrogate for cardiovascular-risk reduction in that population. Amarin said it expected positive REDUCE-IT results would be required for label expansion. A May 2015 court ruling vacated FDA’s denial of five-year new-chemical-entity exclusivity and remanded the matter; Watson appealed in July, while FDA did not appeal by the stated deadline. Related generic patent litigation was stayed, and Amarin moved to dismiss those cases. Separately, Amarin and physicians sued to clarify rights to communicate truthful, non-misleading information about unapproved uses; the case remained unresolved.
- International licensing: Under its Eddingpharm agreement for China, Hong Kong, Macau and Taiwan, Amarin received a non-refundable $15 million upfront payment, recognized $0.4 million as H1 licensing revenue and deferred $14.6 million. The agreement also provides for up to $154 million in additional milestones and tiered double-digit royalties, contingent on development, approvals and sales.
- Capital and dilution: The March private placement generated $52.1 million net and issued Series A preference shares convertible at a 10-to-1 ratio. At June 30, up to 28.9 million ordinary shares remained issuable on conversion. A further $5.8 million placement closed July 10, 2015, after the reporting date. These securities, registration obligations and resale availability may affect dilution and share price.
- Other risks: The business depended substantially on one product, with 95% of gross product sales and 96% of gross receivables concentrated in its three largest customers. All H1 product sales relied on API from Nisshin and Chemport, despite additional supplier arrangements; supply disruption, minimum-purchase commitments and higher-cost supply could affect margins or availability. The company also cited competition, reimbursement and market-acceptance uncertainty, legal exposure, and the possibility that REDUCE-IT will not demonstrate benefit.
Most important facts for investors to verify
- Vascepa prescription and distributor-inventory trends, net pricing, rebates and returns; revenue recognition was based on distributor sales.
- Cash runway against operating burn, the REDUCE-IT remaining-cost estimate and timing of the interim review and final results.
- Progress and outcome of the ANCHOR promotional-rights case, NCE exclusivity appeal and generic-drug proceedings.
- BioPharma repayment thresholds and obligations, noteholder put/exchange provisions, and the company’s ability to meet contractual purchase commitments.
- Potential dilution from conversion and resale of Series A securities, including the July 2015 placement.