Amarin Corporation plc — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Unaudited U.S. GAAP financial statements. Amarin is a biopharmaceutical company focused on Vascepa; U.S. sales began in January 2013. Vascepa was FDA-approved for severe hypertriglyceridemia (MARINE indication), while approval for the proposed ANCHOR indication remained unresolved.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Product revenue | $11.0 million | $2.3 million; up 378% |
| Cost of goods sold | $4.2 million | $1.3 million |
| Gross margin | 61% | 45% |
| Operating expenses | $32.3 million | $61.1 million |
| Operating loss | $25.6 million | $60.1 million |
| Net loss | $26.0 million; $0.15 per share | $62.2 million; $0.41 basic loss per share |
| Net cash used in operating activities | $27.5 million | $59.6 million |
Revenue was entirely from Vascepa. Revenue growth reflects the product’s early commercial ramp and a change in revenue recognition: beginning in 2014, Amarin recognized sales on shipment to distributors after concluding returns could be reliably estimated. Q1 revenue would have been $10.0 million under the prior prescription-resale basis; $1.7 million of previously deferred revenue was recognized. Product returns were described as de minimis.
SG&A fell 48% to $20.6 million and R&D fell 46% to $11.7 million, primarily following the October 2013 workforce reduction and lower launch, supply, and study-related costs. Gross-margin improvement was attributed mainly to lower unit-cost API purchases. The reported $4.4 million gain from changes in derivative fair values and lower interest expense also affected the year-over-year loss comparison.
Cash and cash equivalents were $164.3 million at March 31, down $27.2 million from year-end. Current assets were $194.1 million and current liabilities $31.4 million. Total liabilities were $277.8 million; stockholders’ deficit was $57.6 million. The balance sheet included $150.0 million of exchangeable senior notes and $88.2 million of long-term debt. Management said cash was expected to fund projected operations for at least 12 months.
Contractual cash obligations totaled $232.1 million, including $57.7 million of purchase obligations and $148.2 million of anticipated BioPharma principal and interest payments under the scheduled repayment terms. Actual BioPharma payments may be reduced and deferred when revenue thresholds are not met. Operating cash use improved from the prior-year quarter, while financing provided $0.3 million; investing cash flow was nil.
Material developments, outlook, and risks
- ANCHOR and FDA: The FDA had not acted on the ANCHOR sNDA by its December 20, 2013 goal date. It rescinded the trial’s Special Protocol Assessment; an internal appeal was denied in January and upheld at the next FDA level in late April 2014. Amarin planned a further appeal. The advisory committee had voted 9–2 against recommending approval. Management expected positive REDUCE-IT outcomes data may be required for label expansion; approval and timing remained uncertain.
- REDUCE-IT: More than 6,800 patients were enrolled. Amarin estimated enrollment completion in the first half of 2015, trial completion around 2017, and results in 2018. Remaining costs were expected to exceed $100 million. If ANCHOR approval was not obtained, the company planned to reassess whether to continue the study. AMR102 development was suspended pending ANCHOR resolution.
- Commercial outlook: Amarin provided no quantified revenue or prescription guidance, citing limited sales history and uncertainty. It anticipated revenue growth over time but warned growth could vary by period. A March 2014 co-promotion agreement with Kowa was expected to add at least 250 sales representatives beginning in May; Amarin retained revenue recognition and would pay a fee based on gross margins, rising from high single digits in 2014 to low-twenty-percent levels in 2018, subject to terms.
- Liquidity and spending: Management expected 2014 net cash outflows to be significantly lower than in 2013, citing lower commercialization expenses, headcount, and supply purchases. This outlook must be weighed against continuing operating losses, debt obligations, and the potential cost of REDUCE-IT.
- Competition, supply, and concentration: Five generic applicants sent paragraph IV notices; patent litigation was initiated or planned, with a 30-month stay expected to prevent final FDA approval before September 2016 absent an earlier adverse court decision. Amarin also challenged FDA’s denial of five-year exclusivity. BASF’s supply agreement terminated in February 2014; commercial API supply relied principally on Nisshin and Chemport, while Slanmhor qualification remained pending. The top three customers represented 96% of gross product sales.
- Other contingencies: Shareholder securities lawsuits sought unspecified damages; Amarin said it could not reasonably estimate loss exposure. The company sued the FDA over exclusivity and sued AstraZeneca/Omthera over Epanova-related patent infringement. Additional patent suits against generic applicants were disclosed. Laxdale milestone payments could arise upon additional regulatory approvals; no provision was recorded because amounts were not considered probable or estimable.
Important facts for investors to verify
- Whether FDA decisions or appeals change the prospects or timing for ANCHOR approval, and whether REDUCE-IT continues as planned.
- Vascepa prescription and revenue trends across multiple quarters, distinguishing shipment-based revenue from prescription demand and monitoring returns, rebates, and distributor inventory.
- Cash burn, financing needs, and the assumptions behind management’s 12-month liquidity assessment and lower-outflow expectation.
- BioPharma repayment amounts and thresholds, exchangeable-note terms, and the timing and practical impact of contractual obligations.
- Progress and outcomes of generic, exclusivity, shareholder, and competitor patent litigation; status of API supplier qualification and commercial supply capacity.