Amarin Corporation plc — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; filed February 25, 2016. The filing also presents unaudited fourth-quarter results. Amarin is a biopharmaceutical company whose business is substantially focused on Vascepa (icosapent ethyl).
Business context
Vascepa was FDA-approved for severe hypertriglyceridemia (the MARINE indication). In August 2015, following a federal court declaration, Amarin began promoting certain ANCHOR-study information to healthcare professionals for mixed dyslipidemia. This did not change the FDA-approved label, and third-party reimbursement for that use was not required. The pivotal REDUCE-IT cardiovascular outcomes trial remained ongoing.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Total revenue | $81.8 million | $54.2 million |
| Product revenue | $81.0 million | $54.2 million |
| Gross margin | $53.9 million; 66% on product sales | $33.7 million; 62% on product sales |
| Operating expenses | $152.1 million | $129.7 million |
| Operating loss | $(98.2) million | $(96.0) million |
| Net loss | $(115.2) million | $(56.4) million |
| Net loss attributable to common shareholders | $(149.1) million | $(56.4) million |
| Net cash used in operating activities | $(84.7) million | $(72.3) million |
Product revenue increased 49%, while estimated prescription growth was 55%–62% depending on the third-party data source. Amarin attributed the difference partly to a change in revenue-recognition methodology in 2014. The 2015 common-shareholder loss includes $33.0 million of non-cash preferred-stock beneficial-conversion-feature accounting and a $0.9 million preferred-stock purchase-option charge.
Fourth-quarter 2015 revenue was $26.6 million versus $16.5 million in Q4 2014. Net loss applicable to common shareholders was $21.9 million versus $19.7 million.
Cash and cash equivalents were $107.0 million at year-end, down from $119.5 million. Current assets were $143.5 million and current liabilities $50.7 million. Management stated that cash was expected to fund projected operations for at least 12 months, while noting that additional capital could be needed depending on operating cash generation. The company reported total liabilities of $302.7 million and stockholders’ deficit of $129.2 million.
Debt included $165.1 million principal amount of 3.5% exchangeable senior notes due 2032 and a BioPharma financing with $137.3 million remaining to repay. Cash used in financing activities was offset by $57.7 million net proceeds from preferred shares and $27.5 million from the 2015 notes issuance, among other items.
Material changes versus the prior comparable period
- Revenue rose to $81.8 million from $54.2 million; product gross margin improved to 66% from 62%, primarily reflecting lower-cost API supply and a broader supplier mix.
- SG&A increased 27% to $101.0 million, including higher promotion and legal costs, increased Kowa co-promotion fees, and higher stock-based compensation. R&D was broadly stable at $51.1 million; REDUCE-IT costs were $34.7 million.
- Operating cash use increased from $72.3 million to $84.7 million, principally reflecting higher supply purchases, partly offset by higher product collections and the China upfront payment.
- Net loss increased despite revenue growth, including because FY2014 benefited from a $38.0 million debt-extinguishment gain and a $13.5 million derivative fair-value gain; FY2015 had a $1.1 million derivative fair-value loss.
- Amarin added Novasep as a commercial API supplier and entered an exclusive China Territory agreement with Eddingpharm. It received a $15.0 million non-refundable upfront payment and recognized $0.8 million of licensing revenue in 2015.
Outlook, risks and unusual items
- REDUCE-IT: Enrollment was over 99% complete toward approximately 8,000 patients. Management expected the interim DMC review during 2016, the target of 1,612 cardiovascular events around 2017, and results in 2018. Management expected the trial to continue to completion; the company remained blinded. Annual study costs were estimated at $30–$40 million through completion.
- Guidance: The filing discusses January 2016 financial guidance but the supplied filing text does not provide a clear numerical 2016 revenue target. Management expected 2016 SG&A, before specified non-cash costs and higher Kowa fees, to be substantially consistent with 2015. Prescription estimates are expressly cautioned against as definitive or predictive.
- Regulatory and legal uncertainty: FDA issued a Complete Response Letter in April 2015 for the ANCHOR supplemental application, finding the evidence insufficient to accept triglyceride reduction as a surrogate for cardiovascular-risk reduction in that population. Amarin expected positive final REDUCE-IT results to be needed for label expansion. The court-authorized promotional scope remained subject to scrutiny and settlement discussions.
- Exclusivity and competition: A court vacated FDA’s denial of five-year new-chemical-entity exclusivity and remanded the matter, but a new FDA determination remained pending. The patent cases tied to 2014 generic applications were dismissed in January 2016; one filer appealed. The company expected possible new ANDA notices no sooner than late July 2016, subject to exclusivity status.
- Funding, debt and dilution: The company had a history of losses and an accumulated deficit of $1.1 billion. BioPharma financing is secured by rights related to Vascepa and includes repayment thresholds and change-of-control provisions. The 2015 preferred-share financing and exchangeable notes create potential dilution; remaining preferred shares could convert into approximately 32.8 million ordinary shares.
- Other exposures: The top three customers accounted for 95% of gross product sales. Supply agreements carried up to $44.7 million of potential minimum-purchase obligations. A securities class action remained pending after an amended complaint; the company could not predict its outcome. The CFO notified Amarin of his resignation, expected effective March 2016, with the CEO to serve as interim principal financial and accounting officer.
Investor verification priorities
- Check subsequent Vascepa revenue, prescription trends, gross-to-net deductions, and whether channel inventory or revenue-recognition timing affected reported growth.
- Track REDUCE-IT enrollment completion, event accrual, interim DMC timing, trial costs, and eventual results.
- Confirm FDA’s NCE-exclusivity determination, the status of the ANDA appeal and any new generic filings, and the scope or settlement of the promotional litigation.
- Reconcile cash runway and operating cash burn against debt service, BioPharma repayments, supply commitments, and any additional financing.
- Assess conversion and resale of preferred shares and exchangeable notes, and the resulting dilution and ownership concentration.
- Review customer and supplier concentration, the performance of Kowa and Eddingpharm, and coverage and reimbursement for promoted but unapproved use.