Amarin Corporation plc — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015; unaudited. Amarin is a biopharmaceutical company focused on Vascepa, its prescription product approved in the U.S. for severe hypertriglyceridemia, and on developing additional uses.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $21.5m | $14.1m | $55.1m | $37.7m |
| Product revenue | $21.3m | $14.1m | $54.6m | $37.7m |
| Gross margin | $14.0m | $8.8m | $35.6m | $23.1m |
| Operating expenses | $39.8m | $33.7m | $115.2m | $98.8m |
| Operating loss | $(25.8)m | $(24.9)m | $(79.6)m | $(75.8)m |
| Net loss | $(30.7)m | $(26.1)m | $(93.3)m | $(36.7)m |
| Net loss applicable to common shareholders | $(32.3)m | $(26.1)m | $(127.2)m | $(36.7)m |
| Net loss per share, basic | $(0.18) | $(0.15) | $(0.71) | $(0.21) |
- Gross margin was 65% in Q3 and 64% for the nine-month period, compared with 62% and 61%, respectively, in 2014. Management attributed the improvement primarily to lower-cost API purchases.
- For the nine months, selling, general and administrative expense rose 27% to $77.5m, mainly reflecting increased sales and marketing activity, Kowa co-promotion fees and stock compensation. Research and development expense was nearly flat at $37.7m.
- Cash and cash equivalents were $119.0m at September 30, 2015, versus $119.5m at year-end 2014. Current assets were $156.1m and current liabilities $55.3m. Accumulated deficit was $1.10bn; stockholders’ deficit was $111.1m.
- Nine-month operating cash use was $60.1m, compared with $58.7m in 2014. Financing provided $59.5m, chiefly from $57.7m net proceeds from preferred-share placements and $2.7m from warrant exercises. Cash decreased by $0.6m.
- Debt carrying amounts included $126.1m of exchangeable senior notes and $105.0m of current and long-term debt. Separately, $139.4m remained payable under the BioPharma revenue-linked financing arrangement; repayments are subject to revenue thresholds and may be deferred.
Changes versus the prior comparable period
- Q3 product revenue grew 51%; nine-month product revenue grew 45%. Prescription estimates also increased, although the company cautioned that third-party prescription data are estimates and may not track distributor shipments precisely.
- Operating losses widened modestly in Q3 and for the nine months. The nine-month common-shareholder loss increased substantially, partly because of a $33.0m non-cash preferred-stock beneficial conversion feature charge. In 2014, results included a $38.0m gain on debt extinguishment and an $11.9m gain from changes in derivative fair values; neither benefit recurred comparably in 2015.
- Inventory increased to $19.7m from $13.7m at year-end, while accounts payable rose to $17.9m from $8.5m. The company received a $15.0m China licensing upfront payment, of which $0.5m was recognized as licensing revenue and $14.5m remained deferred at quarter-end.
Outlook, commentary and risks
- Management said the $119.0m cash balance was expected to fund projected operations for at least the next 12 months. The filing does not provide a clear numerical full-year revenue or earnings forecast; management cautioned against treating short-term prescription data as guidance.
- REDUCE-IT had enrolled more than 7,700 of its 8,000 targeted patients. Management expected enrollment to finish near year-end 2015, an interim data monitoring committee review in 2016, and study completion around 2017, with results expected in 2018. Estimated annual study costs through completion were $30m–$40m. The company remained blinded to trial data; the committee had recommended continuing the trial after safety reviews.
- The FDA issued a Complete Response Letter in April 2015 declining the ANCHOR label expansion. A federal court’s August 2015 preliminary ruling permitted specified truthful, non-misleading communications to healthcare professionals about off-label Vascepa use; the FDA did not appeal by the deadline, and settlement discussions were ongoing. The filing emphasizes that this does not constitute FDA approval of the indication.
- A May 2015 court decision vacated the FDA’s denial of five-year new chemical entity exclusivity and remanded the matter to the FDA. A generic applicant sought to intervene and appeal; related patent proceedings were stayed, and Amarin had sought dismissal. Outcomes remained uncertain.
- Key risks include dependence on a single product and U.S. sales, uncertain market acceptance and reimbursement, REDUCE-IT efficacy and timing, generic competition and litigation, concentrated customers (the top three represented 95% of gross product sales), reliance on contract suppliers, and potential dilution from preferred shares convertible into up to 32.8m ordinary shares. The company also disclosed litigation and supply-purchase commitments; some Laxdale milestone obligations were not accrued because they were not considered probable or estimable.
Most important facts for investors to verify
- Whether prescription growth converts to sustainable net revenue and cash generation, given rebates, co-pay support, distributor timing and customer concentration.
- REDUCE-IT enrollment, interim-review timing, spending trajectory and eventual clinical results; no efficacy results were disclosed because the company remained blinded.
- Cash runway and repayment terms for BioPharma financing, including revenue-based payment thresholds, deferred amounts and change-of-control provisions.
- Developments in ANCHOR promotional litigation, NCE exclusivity and generic-applicant proceedings, and the extent of any eventual FDA-approved label expansion.
- Preferred-share conversion, resale registration and resulting dilution; verify the remaining convertible share count and potential impact on ownership.
- API supply continuity, supplier qualification, minimum purchase commitments and the extent to which lower-cost suppliers improve margins.