AMARIN CORP PLC quarterly report, Q3 FY2011

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Amarin Corporation plc — Q3 2011 Form 10-Q

Reporting period: Three and nine months ended September 30, 2011; comparisons are to the corresponding 2010 periods. Amounts are U.S. dollars. Amarin is a clinical-stage biopharmaceutical company focused on AMR101 (icosapent ethyl); the product was not approved or available for sale during the period.

Financial results and liquidity

  • Revenue: None in either the quarter or first nine months of 2011 or 2010. With no revenue, operating margins are not meaningful.
  • Q3 results: Operating expenses were $9.4 million, including $6.0 million of R&D and $3.4 million of marketing, general and administrative expense. Operating loss was $9.4 million. Net income was $96.3 million, or $0.72 basic and $0.62 diluted per share, primarily because of a $106.6 million noncash gain from revaluing warrant liabilities.
  • Nine-month results: Operating expenses were $31.8 million, including $15.7 million of R&D and $16.2 million of marketing, general and administrative expense. Operating loss was $31.8 million; net loss was $87.5 million, or $0.68 per share. The period included a $53.4 million noncash loss on warrant-liability revaluation and $2.4 million of income tax expense.
  • Cash flow: Operating cash use was $27.9 million for the first nine months, versus $24.3 million in 2010. Investing cash use was $1.7 million, including a $1.65 million long-term investment. Financing provided $124.0 million, including $98.7 million net proceeds from the January share offering and proceeds from option and warrant exercises. Cash increased $94.4 million to $125.9 million.
  • Balance sheet: Current assets were $128.1 million and current liabilities $6.4 million at September 30. There were no debt obligations. Total liabilities were $162.0 million, including a $155.0 million warrant derivative liability; the company states this liability is settled in shares and is not a claim on cash. Stockholders’ deficit was $30.3 million.

Changes versus prior periods

  • Q3 R&D expense declined 21% year over year, and nine-month R&D declined 24%, mainly as the MARINE and ANCHOR Phase 3 trials moved past their main enrollment and trial-cost periods.
  • Marketing, general and administrative expense increased 62% in Q3 and 125% for the first nine months, reflecting higher staffing, commercialization preparation, and stock-based compensation.
  • Q3 net results swung from an $11.2 million loss in 2010 to $96.3 million income in 2011, primarily due to the warrant revaluation gain. For the first nine months, the net loss widened from $61.8 million to $87.5 million, including a larger warrant revaluation loss and higher operating expenses.
  • Cash rose substantially from $31.4 million at December 31, 2010, largely because of the January equity offering and warrant exercises. Shares issued also increased materially.

Outlook, developments, and risks

  • Amarin reported positive top-line results from the MARINE and ANCHOR Phase 3 trials. It submitted an NDA to the FDA on September 26, 2011 for the very-high-triglyceride indication studied in MARINE; FDA acceptance, review outcome, timing, and final approved label were uncertain.
  • The company reached agreement with the FDA on the REDUCE-IT cardiovascular outcomes study design and began initial trial and site preparation. It aimed for at least 50% enrollment by the end of 2012 and estimated total study costs of $100–$125 million over an anticipated six years, with no more than $25 million expected to be paid before the end of 2012. Additional funding would be needed to complete the study.
  • Management believed cash would fund planned operations for the next 12 months, including commercial preparation and initiating REDUCE-IT. This estimate assumed no additional funding or collaboration proceeds. A commercial launch without a strategic partner, and completion of REDUCE-IT, would require additional capital; financing might not be available on acceptable terms and could dilute shareholders or delay plans.
  • Management expected commercialization-related administrative costs to rise. It was preparing to commercialize AMR101 independently while discussing potential collaborations; no transaction was assured. Supplier qualification, purchase commitments, and approval-related milestone and royalty obligations could add costs.
  • The $155.0 million warrant liability is a Level 3 fair-value estimate sensitive to Amarin’s share price and volatility. A hypothetical 10% increase in share price was estimated to increase the liability by $16.8 million, reducing the reported revaluation gain. Such noncash changes can materially affect reported earnings.
  • Contractual obligations totaled $14.9 million, chiefly $13.4 million of purchase obligations and $1.5 million of operating leases. Other potential commitments include supplier expansion penalties, AMR101 approval-related payments and royalties, and milestone payments; most were not accrued because they were contingent or not reasonably estimable.
  • No asserted litigation was reported as having a material financial-statement effect. A dispute with former Ester shareholders concerning the discontinued EN101 program remained unresolved; management disputed the alleged breach. The filing also describes risks involving FDA review and approval, clinical outcomes, commercialization, funding, and pending patent applications.
  • Disclosure controls were reported not effective as of September 30, 2011 because of a continuing material weakness involving technical expertise and review of complex, non-routine accounting transactions. Management described steps including accounting position papers and, where appropriate, outside advice.

Important facts for investors to verify

  1. FDA filing status, review timetable, and eventual decision and label for the MARINE-based NDA.
  2. REDUCE-IT initiation, enrollment progress, projected costs, and the funding required beyond available cash.
  3. Whether Amarin secures a commercialization partner or funds a standalone launch, and the resulting capital needs and dilution.
  4. Warrant terms, potential share issuance, and how changes in share price affect the large noncash derivative liability and reported earnings.
  5. Supplier qualification and purchase commitments, contingent AMR101 milestone or royalty obligations, and the outcome of the Ester shareholder dispute.
  6. Remediation of the material weakness in internal control over financial reporting.