Amarin Corporation plc — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Amarin is a pharmaceutical company focused on Vascepa (icosapent ethyl), its lead product. Unless noted otherwise, financial amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Net revenue | $73.3 million | $43.9 million; up 67% |
| Product revenue | $72.7 million | $43.8 million; up 66% |
| Gross margin | $56.1 million; approximately 76% of product sales | $33.3 million; approximately 76% of product sales |
| Operating expenses | $78.9 million | $55.2 million |
| Operating loss | $22.7 million | $21.9 million |
| Net loss | $24.4 million; $0.07 per share | $24.1 million; $0.08 per share |
| Cash used in operating activities | $38.1 million | $9.8 million |
| Cash and cash equivalents | $211.1 million at March 31 | $249.2 million at December 31, 2018 |
| Cash, cash equivalents and restricted cash | $212.6 million at March 31 | Down $38.1 million from year-end |
| Royalty-bearing debt | $73.7 million carrying value; $80.9 million remaining to repay under the agreement | $79.7 million carrying value at December 31, 2018 |
Current assets were $355.3 million and current liabilities were $161.8 million. Accounts receivable was $79.5 million and inventory was $57.9 million. The company reported no other debt outstanding. It had an accumulated deficit of $1.4 billion.
Material changes and operating results
- Vascepa sales growth drove higher revenue; management attributed the increase primarily to greater sales volume. Estimated normalized prescriptions rose year over year, but the company cautioned that third-party prescription estimates can be inaccurate and may be revised.
- SG&A increased 65% to $71.6 million, principally reflecting expanded promotion and the U.S. sales force, which grew from about 170 to about 440 professionals. The Kowa co-promotion agreement ended December 31, 2018; Q1 2019 had no co-promotion fee, compared with $9.1 million in Q1 2018. Accrued tail payments were $16.9 million at March 31, with $9.5 million classified as current.
- R&D fell 38% to $7.2 million, mainly because REDUCE-IT trial costs declined after the study results. Q1 expenses included trial wrap-up, regulatory support and publications.
- Operating cash outflow increased to $38.1 million, in part because of commercial expansion and higher receivables associated with sales growth. Financing activities were approximately neutral in Q1 2019; Q1 2018 included about $70.0 million of net public-offering proceeds.
- The company paid $7.7 million under the royalty-bearing financing arrangement during the quarter and reported a further $7.3 million payment scheduled for May 2019. Payments are generally calculated as 10% of Vascepa net revenue. The agreement’s change-of-control provision can accelerate repayment obligations.
Outlook, risks and unusual items
- REDUCE-IT reported a 25% relative risk reduction in its primary cardiovascular endpoint; total first and subsequent cardiovascular events were reported 30% lower than placebo. Amarin submitted an sNDA on March 28, 2019 seeking an expanded U.S. indication to reduce cardiovascular events in at-risk patients. FDA approval, timing and final labeling were uncertain.
- Management said cash and cash equivalents of $211.1 million were expected to fund projected operations for at least 12 months and through the likely FDA action date for the sNDA. Future cash outflows were expected to vary. The filing refers to January 2019 financial guidance but does not provide a clear numeric guidance range in the text supplied.
- Management expected to build Vascepa API inventory during 2019 at a rate above anticipated 2019 requirements, with estimated incremental cost of $50 million to $75 million. It cited product stability as limiting the risk of excess inventory.
- Amarin identified FDA review of REDUCE-IT and the mineral-oil placebo debate as important uncertainties. The company defended the trial findings but acknowledged that differing interpretations or additional data could affect regulatory decisions, medical acceptance, reimbursement and market perception.
- Two putative securities class actions filed in February and March 2019 allege that the company and executives misled investors about whether mineral oil placebo affected REDUCE-IT results. Amarin said it would defend the claims; it could not reasonably estimate any loss exposure and expected insurance to cover significant exposure after the deductible.
- Generic-entry and patent-litigation outcomes remain material risks. Teva settled its litigation, permitting generic launch no earlier than August 9, 2029, subject to specified circumstances; litigation with other ANDA applicants continued.
- Three wholesalers accounted for 21%, 39% and 29% of gross product sales in Q1 2019, respectively, creating customer concentration risk. The company also cited reliance on third-party manufacturers, roughly $90 million of potential supply minimum-purchase obligations, reimbursement and pricing pressure, and dependence on Vascepa as its principal product.
- Disclosure controls and procedures were assessed as effective at the reasonable-assurance level as of March 31, 2019.
Important facts for investors to verify
- Track FDA review, timing and final terms of the REDUCE-IT sNDA, and any subsequent trial-data interpretation or labeling requirements.
- Compare revenue growth with prescription trends, wholesaler inventory and cash collections; verify revisions to third-party prescription estimates.
- Assess the pace and cost of commercial expansion, including the planned $50–$75 million inventory build, against available liquidity and revenue growth.
- Monitor royalty-bearing debt repayments, the remaining contractual repayment amount and potential change-of-control acceleration.
- Follow the securities class actions and generic patent litigation, including any developments that could affect market entry or potential loss exposure.
- Evaluate wholesaler concentration, supplier capacity and minimum purchase commitments, as well as pricing, reimbursement and market-acceptance risks.