AMARIN CORP PLC annual report, FY2013

Amarin Corporation plc — FY2013 Form 10-K

Reporting period: Fiscal year ended December 31, 2013. This is an annual report, not a standalone fourth-quarter filing. The filing was signed February 27, 2014.

Business context and reporting period

Amarin is a biopharmaceutical company focused on cardiovascular health. Its sole marketed product, Vascepa (icosapent ethyl), received FDA approval in 2012 for severe hypertriglyceridemia (the MARINE indication) and launched in the U.S. in January 2013. The company’s proposed ANCHOR indication covers patients with moderately high triglycerides receiving statin therapy. Amarin remained dependent on Vascepa and U.S. sales, with REDUCE-IT its principal ongoing development program.

Financial performance and position

Metric	FY2013	FY2012
Revenue	$26.4 million	None
Cost of goods sold / gross margin	$11.9 million / 55%	None
Research and development expense	$72.8 million	$59.0 million
Selling, general and administrative expense	$123.8 million	$57.8 million
Operating loss	$182.1 million	$116.8 million
Net loss	$166.2 million	$179.2 million
Operating cash used	$190.3 million	$122.3 million

• Fourth-quarter 2013 revenue was $10.1 million and net loss was $15.4 million. Quarterly diluted loss per share was reported as $0.27.
• Cash and cash equivalents were $191.5 million at year-end, down $68.7 million from 2012; total current assets were $219.4 million versus current liabilities of $37.5 million. Management said cash was expected to fund operations for at least the next twelve months.
• Working capital was approximately $181.9 million. Cash from financing activities was $121.6 million, including $121.2 million net proceeds from a July 2013 share offering.
• Year-end liabilities included $149.3 million carrying value of exchangeable senior notes and $87.7 million long-term debt associated with BioPharma, plus an $11.1 million debt-redemption derivative liability. The notes have $150 million principal, bear 3.5% interest and mature in 2032; BioPharma’s revenue-linked financing provides $100 million of funding in exchange for up to $150 million of repayments.
• The $47.7 million gain on derivative remeasurement materially reduced reported net loss; it was non-cash and primarily reflected lower fair value of warrant liabilities. Net interest expense was $33.8 million.
• Revenue was recognized primarily when product was resold to fill prescriptions, rather than when shipped to distributors, because Amarin could not yet reliably estimate returns. Deferred product revenue at year-end was $1.7 million.

Material changes versus prior comparable period

• Vascepa generated the company’s first reported product revenue in 2013; revenue reached $26.4 million from zero in 2012. Estimated normalized prescriptions were approximately 225,000 according to Symphony Health Solutions and 195,000 according to IMS Health; management cautioned that both figures were third-party estimates.
• R&D expense rose 23%, principally because REDUCE-IT costs increased. SG&A more than doubled as Amarin built and supported its commercial launch. Total operating expenses increased to $208.5 million from $116.8 million.
• Net loss narrowed year over year, but this comparison was affected by the $47.7 million derivative gain in 2013 versus a $35.3 million derivative loss in 2012.
• Amarin reduced its worldwide workforce by about 50% in October 2013, retaining approximately 130 U.S. sales representatives, excluding sales management. It recorded $2.8 million of restructuring charges, with remaining payments expected in the first half of 2014.

Outlook, commentary, risks and unusual items

• ANCHOR regulatory uncertainty: An FDA advisory committee voted 9–2 against recommending approval. The FDA rescinded the trial’s Special Protocol Assessment and did not act on the sNDA by its December 20, 2013 target date. In January 2014, the FDA declined to reinstate the agreement; Amarin planned further appeals. The company said FDA communications led it to expect positive REDUCE-IT results would be required for ANCHOR approval.
• REDUCE-IT: More than 6,500 patients were enrolled. Management estimated enrollment completion in the first half of 2015, trial completion around 2017, and results in 2018, subject to event accrual and continuation decisions. Remaining study costs were estimated to exceed $100 million. If ANCHOR approval was not obtained, Amarin planned to reassess whether to continue the study.
• Commercial outlook: Management expected Vascepa revenue to grow over time, but said growth could be uneven and provided no quantified revenue or prescription guidance. It warned that the short sales history and third-party prescription data should not be treated as predictive. Tier 2 coverage was reported for more than 100 million insured lives as of February 1, 2014.
• Margins and supply: Management expected 2013 gross margin to be lower than in later years, citing higher initial API costs, launch stocking discounts and patient co-pay assistance. Supply depends on third parties; Amarin relied exclusively on Patheon for encapsulation. BASF received a termination notice in December 2013, subject to a cure period, and Slanmhor was not yet approved or fully qualified. Contractual purchase obligations totaled $106.9 million and assumed supplier approvals and validations that were not assured.
• Other development: Development of AMR102, a Vascepa/statin combination, was suspended pending the ANCHOR outcome and could be discontinued if the indication was not approved.
• Competition and exclusivity: The FDA granted Vascepa three-year marketing exclusivity through July 25, 2015 rather than the five years sought. After year-end, Amarin sued the FDA over that decision. Generic competition, competing therapies, reimbursement and market acceptance remained risks.
• Contingencies: Four securities class actions alleged misstatements concerning ANCHOR and FDA approval prospects; Amarin said it intended to defend them and could not estimate potential loss. The filing also describes a dispute with former Ester shareholders. No material loss amount was clearly quantified for these matters.
• Financial risk: Amarin had accumulated losses of $913.9 million and reported no profitability in the prior five fiscal years. The company warned that its cash resources, continued operating losses, debt and the cost of REDUCE-IT could require additional capital or a change in spending plans.

Important facts for investors to verify

• Current status and outcome of the ANCHOR sNDA, FDA appeal and litigation over Vascepa’s exclusivity.
• REDUCE-IT enrollment, event accrual, continuation decision, projected total cost and financing capacity.
• Prescription trends, net sales, payer coverage, rebates and whether revenue recognized on prescription fulfillment tracks distributor shipments.
• Actual gross margin progression and supplier qualification, supply capacity, minimum purchase commitments and BASF’s termination status.
• Cash burn, the assumptions underlying management’s twelve-month liquidity assessment, and payment terms and covenants under the BioPharma financing and exchangeable notes.
• Potential financial exposure from securities litigation and other disclosed disputes, and the effect of generic entry after applicable exclusivity and patent protections.