Business context and reporting period
Amarin Corporation plc’s Form 10-K covers the fiscal year ended December 31, 2017; it is an annual report, not a standalone fourth-quarter filing. Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl), its principal product. In the U.S., Vascepa was FDA-approved to reduce triglyceride levels in adults with severe hypertriglyceridemia. The filing was signed February 27, 2018.
Financial performance and position
| Metric | FY 2017 | FY 2016 | Change / context |
|---|---|---|---|
| Total revenue, net | $181.1 million | $130.1 million | Up 39%; principally higher Vascepa sales |
| Net product revenue | $179.8 million | $129.0 million | Up 39% |
| Licensing revenue | $1.3 million | $1.1 million | Primarily amortization of China and Canada agreement payments |
| Gross margin | $136.2 million | $95.7 million | Product gross margin was 75%, versus 73% |
| Operating expenses | $181.7 million | $161.3 million | SG&A rose; R&D declined |
| Operating loss | $45.6 million | $65.6 million | Loss narrowed |
| Net loss | $67.9 million | $86.4 million | Loss narrowed; includes a $13.0 million income tax provision in 2017 |
| Net loss per share | $0.25 | $0.41 | Per share amounts are losses |
| Operating cash flow | $(32.8) million | $(71.8) million | Cash use declined, with higher collections offsetting increased commercial spending |
| Cash and cash equivalents | $73.6 million | $98.3 million | Down $24.6 million |
For Q4 2017, revenue was $53.9 million and net loss was $22.5 million; Q4 2016 revenue was $38.7 million and net loss was $27.5 million. Gross product sales are subject to rebates, discounts, returns and other allowances. Three wholesalers represented 88% of 2017 gross product sales, creating customer concentration exposure.
At year-end, total assets were $161.6 million, current assets $153.3 million and current liabilities $108.5 million. The balance sheet reported a $65.1 million stockholders’ deficit. Debt included $30.0 million principal of 3.5% exchangeable notes due 2047 and a royalty-bearing financing arrangement with $109.1 million remaining to be repaid (balance-sheet carrying value $92.4 million). The notes may be put for cash in January 2022; the royalty repayments depend on Vascepa revenue, subject to contractual limits.
Material changes versus the prior comparable period
- Revenue growth was driven mainly by increased prescriptions; management cited estimated normalized prescription growth of 42%–45% for 2017, depending on the third-party data source. These estimates are not definitive and may not track shipments or revenue period by period.
- SG&A increased 21% to $134.5 million, including $22.5 million of Kowa co-promotion fees, versus $18.0 million in 2016. Higher promotional activity and legal costs contributed.
- R&D decreased 6% to $47.2 million. REDUCE-IT remained the largest program, with $34.9 million of study-related costs in 2017.
- Net interest expense declined 48% to $9.3 million, largely because $150 million of 2014 and 2015 exchangeable notes had been exchanged for shares in 2016. The remaining 2012 notes were repaid in 2017; the company issued $30 million of new exchangeable notes.
- Cash used in operations fell to $32.8 million from $71.8 million, but cash declined as operating outflows and debt repayment exceeded financing inflows.
Outlook, risks and unusual items
- REDUCE-IT: The trial enrolled 8,175 patients and was designed to reach 1,612 primary cardiovascular events. In January 2018, Amarin reported that more than 90% of the target events were documented. The company remained blinded; the independent monitoring committee had recommended continuing the study after safety reviews and two interim analyses. Management expected results before the end of Q3 2018. Positive results were not assured, and the FDA had indicated that positive outcomes data would be needed for label expansion.
- Funding and spending: A February 2018 ADS offering generated approximately $65 million net proceeds. Management expected year-end cash plus offering proceeds to fund operations through REDUCE-IT results and, if successful, their public presentation before year-end 2018. Expanded promotion could require additional capital. Management anticipated variable quarterly cash outflows and up to approximately $10 million of incremental inventory build ahead of trial results.
- Commercial plans: The U.S. sales force was approximately 165 professionals at year-end; management contemplated 400–500 after successful REDUCE-IT results. The Kowa co-promotion agreement was scheduled to end in 2018, with potential tail payments afterward. The filing does not provide a clear numeric 2018 revenue-guidance figure in the supplied text.
- Regulatory and litigation: The FDA had not approved the ANCHOR mixed-dyslipidemia indication; court-approved settlement allowed certain truthful, non-misleading off-label communications but did not change the FDA label or ensure payer reimbursement. Patent litigation with generic applicants could affect exclusivity and future sales; Amarin estimated FDA final approval of certain ANDAs could be barred until 2020, subject to litigation outcomes. The appeal of the ITC’s refusal to investigate certain omega-3 dietary supplement imports was ongoing.
- Other risks: Amarin depends heavily on one product, a small number of wholesalers and third-party manufacturers. Competition includes generics, other prescription products and supplements. REDUCE-IT results, reimbursement, promotional compliance, supply capacity, patent validity, and access to additional financing are material uncertainties.
- Unusual tax item: The 2017 tax provision included a $2.4 million non-cash charge from the U.S. corporate tax-rate reduction and $8.7 million of non-cash expense to fully reserve specified U.S. deferred tax assets.
Important facts for investors to verify
- REDUCE-IT final event count, results, safety findings, publication and subsequent FDA discussions; the filing’s timing and outcomes were expectations, not results.
- Current cash, operating cash burn, and the adequacy of funding for any post-trial commercial expansion.
- Revenue quality: wholesaler inventory, gross-to-net deductions, prescription trends and continued dependence on three large customers.
- Current status and possible outcomes of generic patent litigation, including any effects on exclusivity and launch timing.
- Remaining royalty-financing obligations, cash-flow-based repayment limits, and the 2022 put terms on the $30 million notes.
- Whether Kowa’s co-promotion ends as scheduled, the amount of any tail payments, and the cost and execution of replacing or expanding sales coverage.