Amarin Corporation plc — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; unaudited. Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl), its U.S.-marketed prescription product. The filing compares results with the corresponding 2017 periods.
Key financial results
| Metric | Q2 2018 | Q2 2017 | First half 2018 | First half 2017 |
|---|---|---|---|---|
| Net product revenue | $52.5 million | $44.9 million | $96.3 million | $79.3 million |
| Total revenue | $52.6 million | $45.2 million | $96.6 million | $79.9 million |
| Gross margin | $39.8 million | $33.8 million | $73.1 million | $60.3 million |
| Operating expenses | $72.1 million | $45.2 million | $127.3 million | $90.2 million |
| Operating loss | $(32.3) million | $(11.4) million | $(54.2) million | $(30.0) million |
| Net loss | $(34.2) million | $(13.6) million | $(58.3) million | $(34.6) million |
| Basic and diluted loss per share | $(0.12) | $(0.05) | $(0.20) | $(0.13) |
- Revenue and margins: Q2 product revenue rose 17%; first-half product revenue rose 21%, primarily reflecting higher estimated U.S. prescriptions. Product gross margin was 76% in the first half, compared with 75% in 2017.
- Costs: First-half SG&A increased 48% to $97.4 million, mainly due to promotional spending, including about $12 million for pilot direct-to-consumer activities, higher Kowa fees and tail-payment accruals, and a $2 million Teva settlement payment. R&D increased 22% to $29.9 million, including REDUCE-IT costs and a $2.7 million Mochida upfront payment.
- Cash flow: First-half operating cash outflow was $34.2 million, versus $24.4 million in 2017. Financing provided $62.9 million, principally from the February/March share offering. Cash and cash equivalents were $102.3 million at June 30, plus $0.6 million restricted cash; combined cash and restricted cash increased $28.6 million during the half.
- Liquidity and debt: Current assets were $196.1 million and current liabilities $137.6 million. The company reported $86.7 million carrying value for the royalty-bearing instrument in the debt note, with $99.4 million remaining to repay under its revenue-linked agreement. The 3.5% exchangeable notes had $29.1 million carrying value; holders may put them for cash in January 2022. Amarin has a history of losses and reported an accumulated deficit of $1.33 billion.
- Capital and dilution: The offering and partial underwriter option exercise raised approximately $70 million net and issued about 20.6 million ADSs. At June 30, 293.9 million ordinary shares were outstanding, with a further 32.8 million ordinary-share equivalents represented by preferred shares.
Material changes and outlook
- Prescription estimates indicated Q2 growth versus the prior year, but management said patients who stopped therapy amid higher beginning-of-year insurance deductibles often did not resume in Q2. Management cautioned that prescription estimates are third-party estimates and are not guidance.
- REDUCE-IT enrolled 8,175 patients; the last patient visit had occurred by June. Top-line results were expected before the end of Q3 2018, with broader presentation targeted for Q4. The company remained blinded to results; the data monitoring committee had recommended continuing the study after interim reviews.
- Subject to positive REDUCE-IT results, management planned to expand its direct sales force from about 170 to approximately 400–500 professionals and increase promotional activity. It expected cash to fund operations through trial results and, assuming positive results, public presentation; further capital could be needed for expansion. The filing says future quarterly cash outflows may vary. Numeric 2018 revenue guidance is not clearly provided in the filing text supplied.
- Kowa’s co-promotion agreement was scheduled to end in December 2018. Amarin accrued $6.8 million for potential co-promotion tail payments in the first half of 2018.
- Amarin settled its Vascepa patent litigation with Teva: Teva may launch generics from August 9, 2029, subject to specified earlier-launch circumstances. Patent litigation with West-Ward and Dr. Reddy’s continued; the filing also describes a new Dr. Reddy’s notice concerning the 0.5-gram product.
Risks, contingencies and unusual items
- The business is heavily dependent on Vascepa and on REDUCE-IT results, which are uncertain and necessary, in management’s view, to support FDA-approved label expansion. The current FDA-approved indication remains limited to severe hypertriglyceridemia; promoted use beyond that label is subject to the court settlement and heightened scrutiny.
- Amarin relies on third-party manufacturers and distributors. Three wholesalers accounted for 89% of first-half gross product sales and 92% of gross receivables, creating customer concentration exposure.
- Potential generic competition, patent challenges, reimbursement and pricing pressure, competition from prescription products and supplements, and the need for additional financing could adversely affect sales, liquidity or expansion plans.
- The royalty-bearing financing is secured by Vascepa-related intellectual property and includes change-of-control and default provisions. The company also disclosed minimum supplier purchase commitments and possible Laxdale milestone payments tied to future approvals; no provision was recorded for the Laxdale amounts because they were not considered probable or estimable.
- Adoption of ASC Topic 606 resulted in a $0.2 million opening retained-earnings/deferred-revenue adjustment. The filing reports effective disclosure controls and no material change to internal control other than implementation related to Topic 606.
Important facts for investors to verify
- REDUCE-IT results, their safety and efficacy findings, and any subsequent FDA filing or label-expansion decision.
- Revenue growth, net pricing, prescription trends, payer coverage, and the effect of patient deductible-related interruptions.
- Cash burn and financing needs if Amarin proceeds with the planned sales-force and promotional expansion.
- Generic litigation outcomes, the enforceability and timing of patent protection, and the terms or triggers affecting Teva’s potential launch.
- Execution of the post-Kowa commercial plan, supply capacity, and exposure to concentrated wholesalers and third-party manufacturers.