Amarin Corporation plc — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed February 27, 2019. The filing reports annual results, with selected unaudited quarterly figures. Amarin is a pharmaceutical company principally dependent on Vascepa (icosapent ethyl), marketed in the U.S. for severe hypertriglyceridemia. The FDA-approved label had not yet been expanded to include cardiovascular risk reduction.
Financial performance and liquidity
| Metric (USD millions, except per-share data) | 2018 | 2017 | Change |
|---|---|---|---|
| Net product revenue | $228.4 | $179.8 | +27% |
| Total net revenue | $229.2 | $181.1 | +27% |
| Gross margin | $174.7 | $136.2 | +28% |
| Gross margin percentage | 76% | 75% | +1 percentage point |
| Operating expenses | $282.9 | $181.7 | +56% |
| Operating loss | $(108.2) | $(45.6) | Loss widened |
| Net loss | $(116.4) | $(67.9) | Loss widened |
| Basic and diluted loss per share | $(0.39) | $(0.25) | — |
| Cash used in operating activities | $(94.7) | $(32.8) | Cash use increased |
| Cash and cash equivalents at year-end | $249.2 | $73.6 | +$175.6 |
- Revenue growth was attributed primarily to increased U.S. Vascepa prescriptions. Estimated normalized prescriptions rose approximately 25%–27% year over year, based on third-party data.
- SG&A increased 69% to $227.0 million, reflecting expanded promotion and sales-force costs, direct-to-consumer activity, and a $16.4 million accrual for Kowa co-promotion tail payments. R&D increased 19% to $55.9 million, mainly due to REDUCE-IT closeout and related work.
- Cash used in investing activities was $0.1 million. Financing activities provided $271.3 million, including equity issuance and option-exercise proceeds, partly offset by debt payments.
- Year-end current assets were $378.0 million and current liabilities $157.3 million. Inventory was $57.8 million and net accounts receivable $66.5 million.
- The company had $79.7 million carrying value of royalty-bearing debt at year-end, with $88.6 million remaining to repay under the agreement. Repayments are generally calculated as 10% of quarterly Vascepa net revenue. The $30.0 million exchangeable notes were exchanged for ADSs in 2018; no exchangeable notes remained outstanding at year-end.
- Amarin reported an accumulated deficit of $1.4 billion and had not achieved profitability. Auditors issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting.
Fourth-quarter comparison
Unaudited Q4 2018 total revenue was $77.3 million versus $53.9 million in Q4 2017. Net loss was $33.7 million versus $22.5 million, respectively. Revenue increased, while the quarterly loss widened.
Material changes and notable developments
- REDUCE-IT, a trial of 8,179 statin-treated, at-risk patients, met its primary endpoint: Vascepa 4 grams daily showed a 25% relative risk reduction in first major adverse cardiovascular events versus placebo (p<0.001). The key secondary composite endpoint showed a 26% reduction (p<0.001); the reported number needed to treat for the primary endpoint was 21.
- After the positive results, Amarin expanded its U.S. sales organization from about 170 sales professionals to about 440, including approximately 400 sales representatives. Kowa’s co-promotion agreement ended on December 31, 2018 and was not renewed.
- Prescription growth and higher promotional spending lifted revenue but contributed to substantially greater operating losses and operating cash use. Inventory increased from $30.3 million to $57.8 million.
- Amarin raised equity through 2018 public offerings and exchanged its $30 million 2017 notes for ADSs, increasing the share count. As of February 22, 2019, 329.3 million shares were outstanding, with another 28.9 million ordinary-share equivalents issuable from preferred shares.
Outlook, risks and contingencies
- Management planned to submit an sNDA seeking a cardiovascular risk-reduction label before the end of March 2019. It anticipated a standard FDA review of about 10 months and did not expect an expanded label in 2019 or an effect on 2019 revenue from label expansion. FDA approval and review timing were not assured.
- Management said $249.2 million of year-end cash was expected to fund operations for at least 12 months and through the likely PDUFA date. Additional capital could be needed depending on prescription growth, FDA timing and promotional plans; future quarterly cash outflows were expected to vary.
- Amarin expected to build inventory in 2019, with incremental cost estimated at $50 million–$75 million. It anticipated 2019 R&D expense to be modestly lower than 2018 and SG&A to increase with expanded promotion, partly offset by the end of Kowa’s ongoing co-promotion fees.
- REDUCE-IT used mineral oil as placebo. The filing discusses questions raised by critics about whether it was biologically inert and whether it might have affected statin absorption or trial interpretation. The company cites FDA and independent monitoring committee reviews but notes that further analysis and regulatory interpretation could affect market acceptance, reimbursement and the sNDA review.
- A putative securities class action was filed on February 22, 2019, alleging that Amarin failed to disclose potential mineral-oil placebo effects during the period surrounding the REDUCE-IT announcements. The company said it would defend the case; loss exposure could not be reasonably estimated. This is a subsequent event, not a year-end balance-sheet liability determination.
- Other material risks include dependence on one product and the U.S. market; generic patent litigation and the possibility of earlier-than-expected competition; coverage, pricing and reimbursement pressure; reliance on contract manufacturers and a small number of wholesalers; and regulatory scrutiny of promotional claims outside the FDA-approved label. Three customers accounted for 88% of 2018 gross product sales.
- Teva settled its Vascepa patent litigation, with generic launch generally deferred until August 9, 2029, subject to specified earlier-launch circumstances. Litigation with West-Ward and Dr. Reddy’s remained ongoing; the outcome of the patent cases is uncertain.
Important facts for investors to verify
- 2018 offering proceeds: The filing’s liquidity discussion states approximately $70 million of net proceeds from the November 2018 offering, while the equity note states approximately $194.8 million. The February offering is reported as approximately $70 million in both discussions. Reconcile the November figure against the offering documents and cash-flow statement.
- FDA path: Verify the sNDA submission, review classification, PDUFA date, any FDA questions about REDUCE-IT—including the mineral-oil placebo—and the final approved label.
- Commercial execution: Track prescriptions, net pricing, payer coverage, wholesaler inventory and channel concentration; management cautions that prescription figures are estimates and not definitive revenue guidance.
- Cash needs and obligations: Monitor cash burn, the planned $50 million–$75 million inventory build, royalty-bearing repayments, supplier purchase commitments and any need for additional financing.
- Patent and share dilution exposure: Follow remaining generic litigation and potential preferred-share conversion, options and other equity awards.
- Legal contingency: Monitor the securities class action and any change in the company’s assessment of potential loss or insurance coverage.