Amarin Corporation plc — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also presents unaudited quarterly results, including Q4 2012. Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl); it had no product revenue during 2012.
Business context and developments
- The FDA approved Vascepa on July 26, 2012 for severe hypertriglyceridemia (the MARINE indication). U.S. prescription sales began in January 2013, after the reporting year.
- In late February 2013, Amarin submitted an sNDA for the ANCHOR indication. The company expected an FDA action date by year-end 2013 if the application was accepted and reviewed on the assumed schedule; acceptance depended in part on FDA agreement that the REDUCE-IT outcomes study was sufficiently underway.
- REDUCE-IT was ongoing to assess cardiovascular outcomes. Management estimated a study duration of about six years, with an optimized target of 8,000 patients.
Financial results and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $59.0 million | $21.6 million |
| Marketing, general and administrative expense | $57.8 million | $22.6 million |
| Total operating expenses / operating loss | $116.8 million | $44.2 million |
| Net loss | $179.2 million | $69.1 million |
| Basic and diluted loss per share | $1.24 | $0.53 |
| Cash and cash equivalents at year-end | $260.2 million | $116.6 million |
| Net cash used in operating activities | $122.3 million | $39.4 million |
- FY 2012 R&D growth reflected REDUCE-IT costs, supply purchases and AMR102 work. The company reported approximately $23.3 million of REDUCE-IT CRO expenses during 2012 and anticipated $30–$40 million of CRO expense in 2013.
- G&A increased with pre-commercialization activity, including marketing research and medical education, staffing and launch preparation. Amarin expected G&A to rise further in 2013, including costs for its approximately 275-person sales force.
- FY 2012 cash provided by financing activities was $280.3 million, principally from $144.3 million net proceeds on the exchangeable notes and $99.7 million net proceeds from the Biopharma financing. Cash increased by $143.6 million over the year.
- At December 31, 2012, current assets were $285.7 million and current liabilities $25.2 million. Total assets were $310.9 million; total liabilities were $314.9 million; stockholders’ deficit was $4.0 million.
- Debt included $150 million principal of 3.5% exchangeable senior notes due 2032 (reported carrying value $134.3 million) and the Biopharma arrangement: $100 million received in 2012 in exchange for repayment of up to $150 million from future product-related receipts. The Biopharma obligation is secured and includes revenue-linked payment thresholds and change-of-control provisions.
- Management said year-end cash was expected to fund projected operations for at least 12 months. It also said additional capital or a strategic collaboration would likely be needed to fully support commercialization for ANCHOR and to fund REDUCE-IT through completion.
Material changes and unusual items
- Net loss widened to $179.2 million from $69.1 million. Operating expenses rose to $116.8 million from $44.2 million, while revenue remained zero.
- The 2012 net loss included a $35.3 million non-cash loss on derivative liabilities and $18.1 million interest expense, much of the latter reflecting debt discount and issuance-cost amortization. These items make reported loss distinct from operating cash burn.
- Q4 2012 revenue was zero and net loss was $10.6 million, or $0.07 per share, compared with Q4 2011 net income of $18.3 million, or $0.14 per share. The 2011 quarterly profits were attributed mainly to non-cash changes in warrant derivative fair value.
- Gross margin was not meaningful because there were no 2012 product sales. Management anticipated lower Vascepa gross margin in 2013 than in later years, citing initial supply costs, launch discounts and consumer copayment assistance.
- Year-end inventory was $21.3 million, capitalized after FDA approval for supply from an approved supplier. Additional API suppliers still required regulatory approval before their product could be used commercially.
Outlook, commentary and principal risks
- Amarin gave no Vascepa revenue guidance, stating that it could not yet make a reasonably accurate forecast because commercial sales had only recently begun.
- Key execution risks include launch acceptance, prescriber uptake, payer coverage and reimbursement, pricing, competition, and the costs of building a commercial organization. The company relied on one approved API supplier at year-end, creating supply and capacity risk while other suppliers underwent qualification.
- Regulatory uncertainty included FDA acceptance and approval of the ANCHOR sNDA, FDA judgment on REDUCE-IT enrollment status, and the pending decision on five-year new chemical entity exclusivity. The filing noted that cardiovascular benefit and pancreatitis-risk reduction from Vascepa had not been established.
- REDUCE-IT could fail to meet its clinical endpoints; its duration and cost depended on enrollment and event rates. Management also cautioned that special protocol assessments do not guarantee approval.
- Intellectual-property protection, generic and other product competition, and reliance on third parties are material risks. Amarin reported 18 U.S. patent applications issued or allowed and more than 30 pending; allowed applications are not equivalent to issued patents.
- The Biopharma agreement imposes security interests and covenants, and a change of control can accelerate repayment. The company also disclosed a dispute with former Ester shareholders; management did not believe it was in breach, but the outcome was uncertain. No material litigation was reported as of year-end.
Most important facts for investors to verify
- Actual post-launch Vascepa sales, prescription trends, net pricing, payer coverage and realized gross margins.
- FDA acceptance and outcome of the ANCHOR sNDA, including the agency’s view of REDUCE-IT enrollment and the exclusivity determination for Vascepa.
- REDUCE-IT enrollment, projected completion timing, total remaining cost and eventual clinical results.
- Approval and validated commercial capacity of additional API suppliers, and whether supply can meet demand without excessive inventory or cost.
- Cash runway against operating cash burn, commercialization spending and trial costs; repayment terms and restrictions under the Biopharma financing; and the cash-versus-equity settlement implications of the exchangeable notes.