Amarin Corporation plc — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. Unaudited financial statements; amounts below are in U.S. dollars and millions unless stated otherwise.
Business context
Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl), its sole commercial product. Vascepa is FDA-approved for severe hypertriglyceridemia; Amarin also promoted it for the ANCHOR population under a court-approved settlement, but that use was not FDA-approved. The company’s principal development program is the REDUCE-IT cardiovascular outcomes trial.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $32.7 | $21.5 | $91.4 | $55.1 |
| Net product revenue | $32.4 | $21.3 | $90.6 | $54.6 |
| Gross margin | $24.3 | $14.0 | $67.2 | $35.6 |
| Operating expenses | $39.6 | $39.8 | $119.9 | $115.2 |
| Operating loss | $(15.3) | $(25.8) | $(52.8) | $(79.6) |
| Net loss | $(15.8) | $(30.7) | $(58.9) | $(93.3) |
| Net loss per share | $(0.08) | $(0.18) | $(0.31) | $(0.71) |
- Product revenue grew 52% in Q3 and 66% for the nine-month period. Management attributed growth mainly to prescription growth; reported normalized prescription estimates rose about 54%–56% in Q3 and 55%–57% year over year for the nine months, depending on the third-party data source.
- Product gross margin was 74% in Q3 versus 65% a year earlier, and 73% for nine months versus 64%. Management cited lower-cost API purchases as the principal driver.
- Cash and cash equivalents were $117.6 at September 30, 2016, versus $107.0 at December 31, 2015. Current assets were $161.2 and current liabilities $75.1. Accumulated deficit was $1.2 billion.
- Nine-month operating cash use was $52.5, compared with $60.8 in the cash-flow statement for 2015. Investing cash use was $0.02; financing provided $63.1, including $64.6 net proceeds from an August ADS offering. Cash increased $10.6 over the period.
- Balance-sheet debt included $15.3 current exchangeable senior notes and royalty-bearing debt reported as $13.5 current and $88.6 long-term. The filing’s debt note separately gives a $93.1 carrying value for the royalty-bearing instrument; the relationship between that figure and the balance-sheet line items is not clear in the supplied filing text.
Material changes versus the prior period
- Amarin mandatorily exchanged $150.0 principal amount of its 2014 and 2015 exchangeable notes into 60.3 million ADSs in September 2016. Those notes were retired; the transaction reduced debt but materially increased share count.
- The company completed an August public offering of 24.265 million ADSs for approximately $64.6 million net proceeds.
- SG&A increased 3% for the first nine months, principally reflecting higher Kowa co-promotion fees and stock compensation, partly offset by lower other SG&A costs. Kowa fees rose to $12.6 million from $5.3 million as its gross-margin share increased from 15% to 19%.
- R&D increased 6% to $39.8 million for nine months, primarily reflecting REDUCE-IT costs. Nine-month interest expense rose 10% to $16.3 million.
Outlook, commentary, and risks
- Management said $117.6 million of cash was expected to fund projected operations for at least the next twelve months, while warning that additional capital may be needed depending on operating cash generation, debt needs, and any expanded Vascepa promotion. Future quarterly cash outflows were expected to vary.
- REDUCE-IT enrolled and randomized 8,175 patients. The first interim review was completed in September 2016; the independent monitoring committee recommended continuing the trial as planned. Management estimated the target of 1,612 cardiovascular events would be reached around Q4 2017, with results expected in 2018; a second interim review was anticipated around Q3 2017. These are estimates, not assured dates or outcomes.
- Management estimated REDUCE-IT annual costs of $30–$40 million through completion. It stated that final positive REDUCE-IT results were expected to be required for FDA label expansion; ANCHOR use remained outside the FDA-approved label, and third-party reimbursement for that promoted use was not guaranteed.
- The filing references updated 2016 financial guidance announced in August, but the supplied filing text does not provide a clear numerical guidance value.
- Four companies sent Paragraph IV notices in September and October 2016 challenging Vascepa patents. Amarin filed or was preparing infringement suits and stated it could not predict the outcomes. It sought to block generic marketing before asserted patents expire in 2030. The filing also notes NCE exclusivity through July 26, 2017 and potential patent-litigation stays; exclusivity and patent protection could be challenged.
- The remaining $15.1 million principal of the 2012 Notes could be put to Amarin for cash on January 19, 2017, plus accrued interest. The royalty-bearing financing has a $128.8 million remaining aggregate repayment amount, subject to revenue-based thresholds and other terms; a change of control or default could materially accelerate obligations.
- Key business risks include dependence on Vascepa and three major wholesalers (95% of gross product sales and gross receivables), reliance on third-party API suppliers and manufacturers, generic competition and patent litigation, reimbursement and pricing pressure, and the possibility REDUCE-IT does not demonstrate clinical benefit. The IRS was auditing tax years 2012–2013; management did not expect a material adverse effect.
Important facts for investors to verify
- Actual prescription and distributor-inventory trends, since quarterly revenue can differ from prescription estimates and is affected by wholesaler purchasing patterns.
- REDUCE-IT event accrual, interim-review timing, trial costs, final results, and the FDA’s subsequent position on label expansion.
- Cash burn and capital needs, including the January 2017 2012 Notes put right and the payment terms and balance of the royalty-bearing instrument.
- Share dilution and potential resales following the 2016 offering, the exchange of notes for 60.3 million ADSs, and outstanding convertible preferred shares and equity awards.
- Progress and outcomes of the four generic patent challenges, and the durability of Vascepa’s regulatory exclusivity and patent protection.
- Any numerical 2016 revenue guidance and subsequent revisions; the supplied filing text does not state a clear guidance figure.