Amarin Corporation plc — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Amarin is a pharmaceutical company focused on Vascepa (icosapent ethyl); substantially all product revenue comes from U.S. sales. Financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net product revenue | $112.3m | $55.0m | $285.3m | $151.3m |
| Total revenue | $112.4m | $55.3m | $286.5m | $151.9m |
| Gross margin | $87.0m; 77% | $41.8m; 75% | $221.1m; 77% | $114.8m; 76% |
| Operating expenses | $91.5m | $64.0m | $250.9m | $191.3m |
| Operating loss | $(4.5)m | $(22.3)m | $(29.8)m | $(76.5)m |
| Net loss | $(3.5)m | $(24.5)m | $(29.7)m | $(82.8)m |
| Basic and diluted loss per share | $(0.01) | $(0.08) | $(0.09) | $(0.28) |
- Q3 product revenue rose 104% year over year; nine-month product revenue rose 89%. Management attributed growth primarily to greater U.S. Vascepa prescription volume. Third-party normalized prescription estimates for Q3 rose 89% year over year, though the company cautioned these estimates can be inaccurate and are not definitive indicators.
- SG&A increased 65% in Q3 and 55% year to date, reflecting expanded commercial promotion, sales-force growth and stock-based compensation. The prior-year periods included Kowa co-promotion fees; that arrangement ended December 31, 2018.
- R&D declined 37% in Q3 and 47% year to date, mainly because REDUCE-IT trial costs fell after trial results and completion.
- Net interest income was $1.1m in Q3 2019 versus net interest expense of $2.2m in Q3 2018. For the nine months, net interest income was $0.2m versus expense of $6.2m, reflecting higher interest earned on cash and no 2019 expense on exchangeable notes retired in 2018.
Cash, liquidity and capital
- At September 30, 2019, cash and cash equivalents were $673.2m and restricted cash was $3.9m; total current assets were $848.1m and current liabilities $229.7m. Working capital was approximately $618.4m.
- Nine-month operating cash use was $0.4m, compared with $62.4m in 2018; investing cash use was $2.1m. Financing provided $428.9m, principally from the July public offering, which generated approximately $440.1m net proceeds.
- Cash and restricted cash increased $426.4m during the nine months. The company reported an accumulated deficit of $1.418bn.
- Royalty-bearing debt had a $59.5m carrying value at quarter-end; the company reported $63.6m remaining to repay under the agreement, through quarterly payments generally calculated as 10% of Vascepa net revenue. The company reported no other debt outstanding. Payments of $25.0m were made in the first nine months and a further $11.2m was scheduled for November 2019.
- Common shares issued increased following the July offering of 25.6m ADSs, including the underwriters’ option. The filing reported 358.9m common shares outstanding and 28.9m ordinary-share equivalents from preferred shares as of November 1, 2019.
Outlook, developments and principal risks
- Amarin was seeking FDA approval to expand Vascepa labeling to reduce cardiovascular events based on REDUCE-IT. The FDA had scheduled an advisory committee meeting for November 14, 2019 and extended the PDUFA goal date to December 28, 2019. The company anticipated a potential early-2020 launch if the label expansion were approved; approval and scope were uncertain.
- Management was expanding the U.S. sales force from approximately 440 to approximately 800 sales professionals, with hiring and training of about 400 additional representatives expected to be completed in early 2020. This plan assumed approval of the expanded indication.
- The company expected quarterly cash flows to vary. It estimated a $50m–$75m incremental 2019 cost for a planned Vascepa inventory build, intended to support anticipated demand. It stated cash was expected to fund operations for at least 12 months and through the FDA’s then-current review goal date.
- REDUCE-IT reported a 25% relative reduction in first major cardiovascular events and a 30% reduction in total first and subsequent events. The FDA review could address subgroup results, trial conduct, mineral-oil placebo concerns and safety. The filing disclosed more atrial-fibrillation/flutter hospitalizations in the Vascepa arm than placebo (3.1% versus 2.1%) and more bleeding events excluding hemorrhagic strokes (11.8% versus 9.9%).
- Key business risks include dependence on a single product and U.S. market, uncertain FDA action and label scope, reimbursement and pricing pressure, execution of the sales-force expansion, and reliance on third-party manufacturers. Three wholesalers accounted for 90% of gross product sales for the nine months, creating customer concentration risk.
- Generic patent litigation involving West-Ward and Dr. Reddy’s was ongoing. The company stated it expected a court decision by the end of March 2020; an adverse outcome or generic entry could materially affect sales. Teva had settled, agreeing generally not to launch before August 2029, subject to specified circumstances.
- Supply agreements included approximately $90m of potential minimum purchase obligations over their terms. The filing reported no material changes in previously disclosed legal matters during the quarter.
Most important facts for investors to verify
- FDA advisory committee outcome, final label wording, approval timing and any post-approval requirements for the REDUCE-IT indication.
- Whether prescription growth translates into sustained net revenue growth, considering wholesaler shipment timing, rebates, discounts and third-party prescription-data limitations.
- Commercialization costs, sales-force deployment, inventory build and cash generation relative to management’s stated liquidity outlook.
- REDUCE-IT safety and placebo-related questions raised during FDA review, and how these affect benefit-risk assessment and market acceptance.
- Progress and outcomes of generic patent litigation, including the expected court decision and potential impact on Vascepa exclusivity.
- Wholesaler concentration, supply capacity and minimum purchase commitments as demand and production requirements change.