Amarin Corporation plc — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Unaudited U.S. GAAP results; comparison is with Q1 2017 unless noted. Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl), its commercial product and the subject of its cardiovascular outcomes study.
Key financial results
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Net product revenue | $43.8m | $34.3m | +27% |
| Total revenue | $43.9m | $34.6m | +27% |
| Cost of goods sold | $10.6m | $8.2m | +30% |
| Gross margin | $33.3m | $26.4m | Product gross margin was 76% in both periods |
| Operating expenses | $55.2m | $45.0m | +23% |
| Operating loss | $(21.9)m | $(18.6)m | Loss widened |
| Net loss | $(24.1)m | $(20.9)m | Loss widened 15% |
| Basic and diluted loss per share | $(0.08) | $(0.08) | Unchanged |
| Cash used in operating activities | $(9.8)m | $(13.9)m | Outflow narrowed |
At March 31, 2018, cash and cash equivalents were $129.0m, versus $73.6m at year-end 2017; current assets were $207.6m and current liabilities $119.2m. The cash increase chiefly reflected $70.0m net proceeds from a February public offering, partly offset by operating cash use. Inventory was $35.1m, up from $30.3m at year-end. Total liabilities were $232.4m, compared with assets of $215.7m; stockholders’ deficit was $16.7m and accumulated deficit was $1.30bn.
Debt included approximately $89.9m carrying value of royalty-bearing debt and $29.3m of exchangeable senior notes, including the current portion. The company reported $103.8m remaining to repay under the royalty-bearing agreement; payment amounts are subject to quarterly Vascepa revenue thresholds. Q1 cash repayments under that agreement were $5.3m, with a further $4.4m scheduled for May.
Business developments and changes versus prior period
- Vascepa product revenue rose 27%, which management attributed primarily to prescription growth. Estimated normalized prescriptions increased about 25%–27%, depending on the third-party data source; the filing cautions that these estimates are not definitive and can differ from shipment timing.
- SG&A increased 27% to $43.4m, including higher promotional spending and $3.4m accrued for Kowa co-promotion tail payments. R&D rose 9% to $11.8m, mainly from REDUCE-IT timing.
- The company issued 20.6m shares in the Q1 offering and partial underwriter option exercise, receiving approximately $70.0m net. This increased the share count; 293.6m ordinary shares were outstanding at March 31.
- Amarin adopted ASC 606 on January 1, 2018. The modified retrospective adoption reduced opening retained earnings and deferred revenue by approximately $0.2m, with no material impact reported on the quarter’s results.
Outlook, risks and contingencies
- Management expected REDUCE-IT top-line results before the end of Q3 2018 and reported that the independent monitoring committee had recommended continuing the study after safety reviews and two interim analyses. Amarin remained blinded to study data. The study’s success and any resulting FDA label expansion were uncertain.
- Management said $129.0m of cash should fund projected operations through REDUCE-IT results and, assuming positive results, their public presentation before year-end 2018. Expanded promotion could require additional capital; if unavailable, the company might delay, limit or eliminate planned expansion. Future quarterly cash outflows were expected to vary.
- Following the anticipated successful study results, Amarin planned to increase its sales force from about 170 to approximately 400–500 professionals. Kowa’s co-promotion agreement was due to end in 2018; tail payments may continue for up to three years.
- The filing says Amarin revised 2018 revenue guidance in April 2018 after Q1 insurance-coverage and seasonal trends. The text provided does not state a clear updated guidance value. The company also cautioned that prescription metrics are not revenue guidance and may not indicate future results.
- Key risks include REDUCE-IT failing to demonstrate benefit or support regulatory expansion; reliance on Vascepa as the principal product; pricing, reimbursement and prescription variability; potential generic competition and ongoing patent litigation; strict scrutiny of permitted off-label promotion; reliance on third-party manufacturers and distributors; and the need for possible additional financing.
- Three wholesalers each represented at least 10% of Q1 gross product sales, collectively accounting for 88%. The company also depends on three qualified API suppliers and third-party encapsulators; supply interruptions or capacity constraints could affect sales.
- Potential Laxdale payments include approximately $10.5m upon specified European first-indication approval and up to approximately $14.0m for two further-indication approvals. No provision was recorded because the obligations were not considered probable or estimable. The filing reported no material changes to previously disclosed legal proceedings.
Important facts for investors to verify
- Updated 2018 revenue guidance referenced as issued in April 2018, which is not quantified in the filing text provided.
- REDUCE-IT results, safety and efficacy findings, and any subsequent FDA filing or label-expansion decision.
- Revenue growth quality: prescription trends, wholesaler inventory and purchasing, rebates, discounts, and net pricing.
- Cash runway and financing needs if the company proceeds with expanded promotion; dilution and share-count effects of any additional capital raise.
- Royalty-bearing debt repayment thresholds and balance, exchangeable-note terms, and the outcome of generic patent litigation.
- Manufacturing capacity and supplier performance, customer concentration, and the transition after Kowa’s co-promotion term ends.