Amarin Corporation plc — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Unaudited results; U.S. dollars. Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl), its principal commercial product.
Key financial results
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Net product revenue | $47.1m | $32.4m | $126.3m | $90.6m |
| Total revenue | $47.4m | $32.7m | $127.2m | $91.4m |
| Gross margin | $35.4m | $24.3m | $95.7m | $67.2m |
| Gross margin percentage | 75% | 74% | 75% | 73% |
| Operating expenses | $43.9m | $39.6m | $134.1m | $119.9m |
| Operating loss | $(8.4)m | $(15.3)m | $(38.4)m | $(52.8)m |
| Net loss | $(10.8)m | $(15.8)m | $(45.4)m | $(58.9)m |
| Net loss per share | $(0.04) | $(0.08) | $(0.17) | $(0.31) |
Liquidity, cash flow and debt
- Cash and cash equivalents were $79.1m at September 30, 2017, down $19.2m from year-end 2016. Current assets were $147.0m and current liabilities $90.1m; stockholders’ deficit was $46.1m.
- For the first nine months, operating cash outflow was $30.7m versus $52.5m in 2016; investing outflow was $0.01m and financing inflow was $11.5m. Management separately stated that operating cash flow was positive excluding financing, debt and interest, royalties, and most R&D costs.
- Debt included a $30.0m principal amount of 3.5% exchangeable notes due 2047, with a $28.9m carrying value, and a royalty-bearing financing with a $95.2m carrying value. The remaining maximum repayment under the royalty agreement was $113.8m, tied to Vascepa revenues and subject to contractual limits.
- Amarin issued $30.0m of exchangeable notes in January 2017, receiving approximately $28.8m net proceeds, and repaid the remaining 2012 notes during Q1.
Material changes versus the prior comparable period
- Q3 total revenue increased 45%; nine-month revenue increased 39%. Management attributed product-sales growth primarily to higher estimated Vascepa prescriptions; estimated normalized prescriptions grew about 44% year over year in Q3.
- Gross margin improved, which management attributed primarily to lower unit-cost API purchases. Nine-month wholesaler inventory reductions were estimated to have reduced revenue by approximately $2.7m–$3.0m; 2016 inventory increases had added approximately $0.9m–$1.2m.
- SG&A rose 27% in Q3 and 23% year to date, reflecting increased promotion and legal costs, as well as higher co-promotion fees. R&D fell 21% in Q3 and 12% year to date, mainly due to timing variability in REDUCE-IT costs.
- Interest expense declined year to date, largely because substantially less exchangeable-note principal remained outstanding. The prior-year period also included an $8.2m gain from changes in derivative fair values; no such gain was recorded in 2017.
Outlook, commentary and principal risks
- Management said the $79.1m cash balance was expected to fund projected operations through REDUCE-IT results, then anticipated before the end of Q3 2018. Future quarterly cash outflows were expected to vary; additional capital might be needed to fund operations, debt obligations, or expanded promotion.
- REDUCE-IT enrolled 8,175 patients. The independent monitoring committee recommended continuing the trial after its August 2017 interim analysis; Amarin and FDA remained blinded to the efficacy results. Management estimated the target event count could be reached before the end of Q1 2018 and results released before the end of Q3 2018. The company estimated annual trial costs of $30m–$40m through completion.
- Amarin planned to add approximately 10–20 sales representatives beginning in Q4 2017 and, assuming successful REDUCE-IT results, anticipated a longer-term sales force of approximately 400–500 professionals. It was also considering direct-to-consumer advertising. No specific numerical FY2017 revenue guidance is provided in the supplied filing text.
- Vascepa’s FDA-approved indication remained severe hypertriglyceridemia; use in mixed dyslipidemia was promoted under a court-approved framework but was not an FDA-approved indication. Management expected positive REDUCE-IT results to be needed for label expansion.
- Key risks include dependence on Vascepa and U.S. sales, the uncertain REDUCE-IT outcome, generic-drug patent litigation, reimbursement and pricing pressure, reliance on third-party manufacturers, and concentration in three wholesalers (90% of nine-month gross product sales). The ITC declined to institute Amarin’s requested investigation into certain competing omega-3 products. A new Teva patent suit concerning the 500-mg product was filed in October 2017; outcomes of the patent cases are uncertain.
- The company reported ongoing U.S. federal and state tax audits, including an IRS audit for 2013–2014, but did not expect a material adverse effect. Potential Laxdale payments depend on future marketing approvals and were not accrued because they were not considered probable or estimable.
Most important facts for investors to verify
- REDUCE-IT event-count timing, final results, and whether the trial supports FDA label expansion.
- Vascepa prescription and net-sales growth, including wholesaler inventory movements, rebates, and realized net pricing.
- Cash runway and any need for additional financing, particularly if the company expands its sales force or results are delayed.
- Debt repayment obligations and the revenue-linked BioPharma financing terms, including any effect of a change of control or default.
- Progress and outcomes of the generic patent cases, including potential timing of generic entry.
- Execution of the Canada, China, and other licensing arrangements, and the timing and conditions of related milestones and royalties.