Amarin Corporation plc — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Financial statements are unaudited and presented in U.S. dollars. Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl), its sole commercial product.
Financial results
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Product revenue, net | $34.3 million | $25.3 million | Up 36% |
| Total revenue, net | $34.6 million | $25.5 million | Up 36% |
| Gross margin | $26.4 million; 76% | $18.6 million; 73% | Margin up 3 percentage points |
| Operating expenses | $45.0 million | $41.8 million | Up 8% |
| Operating loss | $18.6 million | $23.1 million | Loss narrowed |
| Net loss | $20.9 million | $29.8 million | Loss narrowed |
| Net loss per share, basic and diluted | $0.08 | $0.16 | Loss per share narrowed |
| Cash used in operating activities | $13.9 million | $24.9 million | Use declined |
Prescription estimates rose year over year, while lower wholesaler inventory reduced Q1 2017 product revenue by an estimated $2.8–$3.1 million. Management attributed improved gross margin mainly to lower unit-cost API purchases. SG&A increased 22% to $34.2 million, reflecting promotional and legal costs and higher Kowa co-promotion fees; R&D declined 21% to $10.8 million, primarily due to timing of REDUCE-IT costs.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $96.1 million at March 31, 2017, down $2.2 million from year-end. Current assets were $154.8 million and current liabilities $77.9 million.
- Management said cash was expected to fund projected operations through REDUCE-IT results, anticipated mid-2018. It cautioned that additional capital could be needed, depending on operating cash generation, debt obligations and potential expanded promotion.
- Financing cash flow included $30.0 million of proceeds from new exchangeable notes, offset in part by $15.1 million used to repurchase or redeem the remaining 2012 notes and $1.2 million of debt issuance costs.
- The new notes carry 3.5% interest, mature in 2047, and have a holder cash put option in January 2022. Their March 31 carrying value, net of discount, was $28.8 million.
- The royalty-bearing financing had $121.7 million remaining to repay under its $150 million aggregate repayment cap. Repayments depend on Vascepa revenue thresholds; a change of control or default could accelerate obligations.
- Accumulated deficit was $1.225 billion and stockholders’ deficit was $28.8 million. The top three customers accounted for 95% of gross product sales.
Business developments, outlook and risks
- Vascepa is FDA-approved for severe hypertriglyceridemia. Promotion concerning the ANCHOR population is permitted under a court declaration and settlement, but the FDA-approved label was not expanded; reimbursement for off-label use is not assured.
- REDUCE-IT enrolled 8,175 patients. The company expected an 80%-event interim review by the independent monitoring committee before the end of Q3 2017, with final study results anticipated in 2018. The company remained blinded and expected the trial to continue; outcomes and any label expansion were uncertain.
- Management estimated REDUCE-IT annual costs of $30–$40 million through completion. It also expected variable quarterly cash outflows and said 2017 operating cash flow excluding interest, royalties and R&D was expected to be positive; this is not a forecast of overall cash flow.
- Q1 2017 revenue grew despite the estimated inventory-related headwind. Management cautioned that prescription and sales trends can fluctuate and should not be treated as reliable predictors. The filing refers to January 2017 financial guidance but the supplied text does not provide a clear numerical revenue target.
- Material risks include REDUCE-IT failing to show benefit or being delayed; reliance on Vascepa and concentrated wholesalers; generic competition and patent litigation; supply/manufacturing dependence; uncertain payer coverage and off-label promotion scrutiny; and possible need for additional financing. Three generic patent cases were underway, with the statutory stay described as extending to January 2020 absent an earlier adverse decision.
- The filing reported no material changes to previously disclosed legal proceedings. It also described potential Laxdale milestone payments tied to future approvals; no provision was recorded because the obligations were not considered probable or estimable.
Investor verification points
- Check subsequent Vascepa sales, prescriptions and wholesaler inventory to distinguish underlying demand from channel timing.
- Verify REDUCE-IT interim and final outcomes, timing, safety findings and any resulting FDA filing or label decision.
- Monitor cash burn, financing needs, the 2022 note put option and revenue-linked BioPharma repayment requirements.
- Track generic patent litigation, exclusivity and any developments that could change the expected timing of generic entry.
- Assess wholesaler concentration, API supply capacity, payer access and the sustainability of promotional spending and co-promotion costs.