Amarin Corporation plc — Form 10-Q summary
Reporting period: Three and nine months ended September 30, 2013. Financial statements are unaudited and reported in U.S. dollars. Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl), approved in the U.S. for severe hypertriglyceridemia (the MARINE indication) and commercially launched in January 2013.
Key financial results
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Product revenue | $8.4 million | None | $16.2 million | None |
| Cost of goods sold | $3.7 million | None | $7.8 million | None |
| Gross profit / margin | $4.7 million / 56% | Not applicable | $8.4 million / 52% | Not applicable |
| Research and development | $16.8 million | $20.9 million | $56.1 million | $39.7 million |
| Selling, general and administrative | $28.3 million | $13.4 million | $101.5 million | $41.1 million |
| Operating loss | $(40.4) million | $(34.3) million | $(149.2) million | $(80.8) million |
| Net loss | $(48.9) million | $(26.4) million | $(150.8) million | $(168.6) million |
| Basic and diluted loss per share | $(0.29) | $(0.18) | $(0.96) | $(1.19) |
Financial position, cash flow and debt
- At September 30, cash and cash equivalents were $225.9 million, down $34.4 million from December 31, 2012; restricted cash was $1.4 million. Current assets were $262.6 million and current liabilities $31.3 million.
- For the first nine months, operating cash use was $157.3 million, investing cash use was negligible, and financing provided $122.9 million. The financing included $121.2 million net proceeds from a July public offering of 21.7 million ADSs at $5.60 each.
- Balance-sheet carrying amounts included $145.3 million of exchangeable senior notes and $87.3 million of long-term debt. The notes have $150 million principal, a 3.5% coupon and a 2032 maturity; their holders have specified repurchase rights beginning in 2017. The BioPharma financing was secured by Vascepa-related rights and provides for repayment of up to $150 million from future receipts.
- Management believed cash would fund projected operations for at least 12 months. It estimated fourth-quarter 2013 operating cash use would not exceed Q3’s and 2014 operating cash use would be no more than $80 million.
- Accumulated deficit was $898.5 million and stockholders’ deficit was $17.7 million at September 30.
Material changes versus the prior period
- Vascepa generated the company’s first product revenue in 2013. Q3 revenue was $8.4 million; nine-month revenue was $16.2 million. Revenue recognition was based on product resold to fill prescriptions, rather than shipments to distributors, because returns could not yet be reliably estimated. Deferred revenue was $1.6 million at quarter-end.
- Q3 operating loss widened to $40.4 million from $34.3 million, principally as commercialization-related SG&A more than doubled; R&D declined, mainly because pre-approval supply costs were lower. Q3 net loss also widened, with a derivative gain in the prior-year quarter not recurring.
- Nine-month operating loss increased to $149.2 million from $80.8 million, reflecting higher R&D and launch-related SG&A. Net loss narrowed year over year, largely because the derivative line shifted from a $68.7 million loss in 2012 to a $21.1 million gain in 2013; this non-cash valuation line is volatile.
- Gross margin was 56% in Q3, up from 45% in Q1 and 48% in Q2, primarily due to lower unit-cost API purchases. Management cautioned that 2013 margins were affected by supplier costs, launch discounts and other factors.
- Operating cash use increased to $157.3 million from $78.5 million for the comparable nine months, partly reflecting commercialization spending and working-capital changes.
Outlook, management commentary and key risks
- ANCHOR regulatory risk: After quarter-end, on October 16, 2013, the FDA advisory committee voted 9–2 against recommending approval of Vascepa for ANCHOR, the proposed use in statin-treated patients with moderately high triglycerides. On October 29, the FDA rescinded the ANCHOR Special Protocol Assessment, citing concerns that triglyceride reduction alone was insufficient evidence of cardiovascular benefit in this population. The FDA’s target decision date was December 20, 2013; Amarin said it appealed the SPA rescission on November 7. Management warned approval was uncertain and could require further studies.
- Commercial outlook: Management anticipated continued Vascepa revenue growth, but said it could vary by period and provided no prescription or revenue guidance. It cited 74,576 estimated normalized prescriptions in Q3, while cautioning that third-party estimates may be inaccurate and the short sales history is not predictive.
- Workforce and costs: On October 22, Amarin announced a worldwide reduction of approximately 50% of staff, retaining about 130 U.S. sales representatives. It estimated approximately $3 million of cash restructuring charges, expected in Q4 2013, with payments by the end of Q1 2014. It anticipated lower SG&A and some R&D costs in 2014.
- REDUCE-IT: More than 6,000 patients were enrolled. Management estimated enrollment completion in the first half of 2015 and study completion around 2017, dependent on cardiovascular-event accrual. Estimated remaining study and results-evaluation costs exceeded $100 million, excluding 2013 costs. If ANCHOR is not approved, the company planned to reassess whether to continue REDUCE-IT; it also said AMR102 development could be discontinued.
- Supply and inventory: FDA approval of Chemport and BASF as API suppliers in April 2013 expanded the qualified supply base; a Slanmhor-related application was submitted in August. Amarin recorded a $1.8 million reserve for inventory not recoverable in its current form. Supply qualification, supplier capacity, demand forecasts and minimum-purchase arrangements remain risks.
- Debt and repayment: BioPharma repayments depend on Vascepa revenue thresholds. Q3 revenue was below the contractual threshold; Amarin elected a reduced $0.8 million November payment instead of $2.5 million, with the difference rescheduled subject to future revenue-based limits. Change of control could accelerate substantial repayment.
- Contingencies and unusual items: Two putative securities class actions filed in November 2013 alleged that Amarin misled investors about ANCHOR approval prospects and REDUCE-IT relevance; the company said it would defend the claims. Potential Laxdale milestone payments of approximately $12.1 million for a European first-indication approval and up to approximately $16.1 million for two further approvals were not accrued because they were not considered probable or estimable.
Important facts for investors to verify
- The FDA’s final ANCHOR decision and the status and consequences of the SPA appeal.
- Vascepa prescription trends, net revenue, channel inventory, returns and rebate assumptions; reported prescription figures were estimates and management issued no sales guidance.
- Actual cash burn, runway and the effect of the workforce reduction, including whether 2014 spending aligns with management’s estimates.
- Whether REDUCE-IT continues, its funding requirements, enrollment and event timing, and any further FDA feedback.
- BioPharma repayment calculations and covenants, exchangeable-note repurchase or exchange exposure, and any potential liquidity effects.
- The status and potential exposure of the securities lawsuits, supplier qualification and capacity, inventory reserve, and contingent Laxdale obligations.