Amarin Corporation plc — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Unaudited results are compared with the corresponding 2017 periods. Amarin is a pharmaceutical company focused on Vascepa (icosapent ethyl), its U.S.-marketed prescription product.
Key financial results
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Net product revenue | $55.0 million | $47.1 million | $151.3 million | $126.3 million |
| Total revenue | $55.3 million | $47.4 million | $151.9 million | $127.2 million |
| Gross margin dollars | $41.8 million | $35.4 million | $114.8 million | $95.7 million |
| Operating expenses | $64.0 million | $43.9 million | $191.3 million | $134.1 million |
| Operating loss | $(22.3) million | $(8.4) million | $(76.5) million | $(38.4) million |
| Net loss | $(24.5) million | $(10.8) million | $(82.8) million | $(45.4) million |
| Net loss per share | $(0.08) | $(0.04) | $(0.28) | $(0.17) |
Product gross margin was 75% in Q3 2018 and 75% in Q3 2017; for the nine-month periods it was 76% and 75%, respectively. Net interest expense was $2.2 million in Q3 and $6.2 million for nine months, down from $2.4 million and $7.1 million in the comparable periods.
Liquidity, cash flow and debt
- At September 30, 2018, cash and cash equivalents were $81.9 million, with restricted cash of $0.6 million. Current assets were $202.4 million and current liabilities $151.6 million, implying working capital of approximately $50.8 million.
- For the first nine months, operating cash outflow was $62.4 million, investing outflow $0.1 million and financing inflow $70.7 million. Cash and restricted cash increased $8.3 million to $82.5 million. Operating outflow compared with $30.7 million in 2017.
- Inventory rose to $43.7 million from $30.3 million at year-end 2017. Accounts receivable, net, was $47.6 million; other receivables were $25.7 million, including a $2.5 million HLS milestone receivable and amounts due for stock-option exercises.
- Royalty-bearing financing had a $83.4 million carrying value and $94.1 million remaining repayment amount at September 30. Repayments are linked to Vascepa revenues and subject to quarterly limits; the arrangement is secured by specified intellectual property and related assets.
- The 2017 exchangeable notes had a $29.2 million carrying value at quarter-end. After the reporting date, Amarin announced a mandatory exchange; completed November 2, 2018, it issued 7,716,048 ADSs and extinguished the notes and related interest obligations.
Changes versus prior comparable periods
- Q3 product revenue increased 17%; nine-month product revenue increased 20%, primarily attributed to higher estimated U.S. Vascepa prescription volume. Reported normalized prescription growth for nine months was 22% to 24%, depending on the data provider.
- Q3 operating expenses rose 46%, with SG&A up 51% and R&D up 32%. Nine-month operating expenses rose 43%; SG&A increased 49% and R&D 25%. This outpaced revenue growth and widened operating and net losses.
- SG&A increases included expanded promotion, direct-to-consumer pilot spending, higher Kowa co-promotion fees and tail-payment accruals, and a $2.0 million Teva settlement payment. Nine-month co-promotion expense included $10.7 million of tail-payment accruals.
- Financing included approximately $70.0 million net proceeds from a February 2018 public offering, plus $16.5 million of option-exercise proceeds during the nine months. Shares outstanding and potential dilution increased.
Outlook, management commentary and risks
- Management reported positive topline REDUCE-IT results in September: approximately 25% relative risk reduction in the primary composite cardiovascular endpoint, with p<0.001; secondary endpoints also showed efficacy. Detailed results were scheduled for presentation at the American Heart Association meeting on November 10, 2018.
- Amarin planned to submit an FDA supplemental new drug application in early 2019 and expand its U.S. sales force from approximately 170 professionals to more than 400. The current FDA-approved label had not changed; expanded indication approval remained subject to FDA review.
- Management said $81.9 million of cash and cash equivalents was expected to fund planned operations through the sales-force expansion and anticipated sNDA submission. Additional capital might be needed for further promotion; inability to raise it could force promotional activities to be delayed, limited or eliminated. Future quarterly cash outflows were expected to vary. No numerical 2018 revenue guidance is stated in the provided filing text.
- The Kowa co-promotion agreement was due to end in 2018. Kowa’s 2018 fee was calculated at 18.5% of Vascepa gross margin, with potential tail payments thereafter; replacing or expanding promotional capacity is a risk.
- Key risks include reliance on a single product and concentrated wholesalers (three customers represented 88% of nine-month gross product sales); third-party manufacturing and supply capacity; payer access, rebates and pricing; continued operating losses and potential need for capital; and regulatory uncertainty around label expansion and off-label promotion.
- Generic patent litigation continued against West-Ward and Dr. Reddy’s; Teva settled, with generic launch generally deferred until August 2029, subject to stated exceptions. Amarin disclosed ongoing patent, regulatory, tax and other proceedings, with no material change reported to previously disclosed legal matters.
- Vascepa’s patent-placebo mineral-oil issue was identified as a possible source of scrutiny and perception risk for REDUCE-IT interpretation. The company stated that the FDA had monitored unblinded lipid data during the trial and the independent monitoring committee recommended continuing the study.
- Amarin adopted ASC 606 revenue guidance in 2018; the opening retained earnings and deferred revenue adjustment was approximately $0.2 million. Management reported disclosure controls effective at the reasonable assurance level.
Important facts for investors to verify
- Review the complete REDUCE-IT results, including endpoint components, subgroups, safety, data quality and FDA’s subsequent assessment; topline results alone do not establish label expansion.
- Track Vascepa prescription trends, net pricing, gross-to-net reserves, payer coverage and distributor inventory; the company cautions that third-party prescription estimates and quarterly shipments may diverge.
- Assess cash burn against planned commercial investment, inventory needs and the timing of any additional financing.
- Confirm the final effect of the 2017 Notes exchange on shares outstanding and dilution, and monitor the revenue-linked CPPIB repayment obligation.
- Monitor Kowa transition and tail payments, sales-force expansion and supply-chain capacity as demand changes.
- Follow generic patent litigation and related launch timing, as well as any FDA action on the sNDA and promotional practices.