Amarin Corporation plc — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial figures below are in U.S. dollars; amounts are rounded to millions unless stated otherwise. The filing was signed August 2, 2023.
Business context and reporting period
Amarin is a pharmaceutical company focused on VASCEPA (icosapent ethyl), its principal product. U.S. sales face generic competition; outside the U.S., the company sells directly in certain European markets and works with commercial partners in other territories. Mainland China approved VASCEPA for the MARINE indication in June 2023.
Financial performance and liquidity
- Q2 revenue: $80.2 million, down 15% from $94.4 million. Net product revenue was $65.2 million, down 31%; licensing and royalty revenue was $15.0 million, versus $0.6 million.
- Six-month revenue: $166.1 million, down 12% from $189.1 million. Net product revenue fell 20% to $149.8 million; licensing and royalty revenue increased to $16.3 million from $1.3 million.
- Profitability: Q2 operating loss was $24.0 million and net loss was $17.6 million ($0.04 per share), compared with losses of $62.8 million and $70.0 million ($0.18 per share) in Q2 2022. Six-month net loss was $34.0 million ($0.08 per share), versus $101.5 million ($0.26 per share).
- Gross margin: Reported product gross margin was 42% in Q2 versus 46% a year earlier, and 50% for the first half versus 61%. Excluding restructuring-inventory and inventory write-off charges, management reported margins of 64% versus 72% for Q2 and 67% versus 74% for the first half.
- Operating cash flow: $0.2 million provided in the first half, compared with $163.4 million used in the prior-year period. Cash and restricted cash increased $15.3 million to $233.5 million.
- Liquidity and debt: Cash, short-term investments and long-term investments totaled approximately $313.0 million at June 30. The company had no debt. Current assets were $706.5 million and current liabilities $270.9 million.
- Inventory: Total inventory was $349.3 million, including $122.3 million classified as long-term, compared with $392.4 million total inventory at year-end 2022.
Material changes versus the prior comparable period
- U.S. product revenue declined as generic competition increased: Amarin cited four generics in the market in Q2 2023 versus three in Q2 2022. Its estimated U.S. icosapent ethyl market share was approximately 57% in Q2, versus 65% a year earlier; branded prescriptions declined 8%.
- Licensing revenue included material estimate changes: Amarin recognized an additional $5.0 million for Edding and $5.3 million for HLS after revising the estimated periods for its remaining support obligations. The company says these changes reduced Q2 net loss by $10.3 million; excluding them, Q2 and first-half loss per share would have been $0.06 and $0.10, respectively.
- Higher restructuring-inventory charges weighed on first-half results: $26.6 million in the first half of 2023 versus $15.0 million in 2022. SG&A and R&D fell 38% and 42%, respectively, in the first half, primarily reflecting earlier cost reductions and lower related spending.
- Operating cash flow improved substantially year over year, with inventory movements a significant cash-flow factor: inventory provided $43.0 million of operating cash in the first half of 2023, versus using $80.1 million in the prior-year period.
Outlook, management commentary, risks and unusual items
- Restructuring and outlook: In July 2023, Amarin announced a restructuring eliminating its entire U.S. sales field force and approximately 30% of non-sales positions, with managed care and trade staff retained to support U.S. commercial efforts. It expects approximately $40 million in annual operating-cost savings. The filing states that net revenue guidance has been suspended.
- Liquidity outlook: Management believes cash and cash equivalents and short-term investments are sufficient to fund projected operations for at least one year from issuance of the financial statements, while cautioning that assumptions may prove incorrect. The company has an accumulated deficit of approximately $1.6 billion and anticipates future cash flows will vary.
- Supply commitments: The company reported approximately $60.2 million in future contractual purchase obligations, plus $58.3 million of obligations contingent on specified European regulatory or reimbursement outcomes. Supplier negotiations to align commitments with demand could result in additional costs.
- Legal and regulatory exposure: Amarin disclosed ongoing antitrust litigation, including claims by generic manufacturers and class actions, and a securities class action. It says it cannot reasonably estimate potential losses for certain matters and has not accrued liabilities where loss is not probable or estimable. Government investigations relating to promotional practices and competition are also described in the risk disclosures.
- Other unusual items: Other income included a $3.9 million Employee Retention Credit after the company received IRS notice that receipt was probable. The company is under IRS audit for its 2018 and 2019 U.S. income tax returns.
- Market and execution risks: Results depend heavily on VASCEPA; key risks include generic competition, reduced U.S. promotion following the sales-force elimination, European pricing and reimbursement outcomes, partner execution, and third-party supply reliability. Management cautions that prescription data from Symphony Health are estimates and may be revised or inaccurate.
Important facts for investors to verify
- Whether the $40 million annual savings target is achieved and how the U.S. commercial model performs without a field sales force.
- Whether U.S. product revenue, branded prescriptions and market share stabilize or continue to decline amid generic competition.
- How much future licensing revenue reflects recurring royalties or milestones versus changes in estimates and recognition of previously deferred payments.
- Whether inventory levels and supplier purchase commitments can be aligned with actual demand without further charges or cash outlays.
- Developments in antitrust and securities litigation, government investigations, IRS audits, and the contingent European supply obligations.
- Whether cash generation and liquidity remain consistent with management’s stated one-year funding assessment.