Amarin Corporation plc — 2016 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2016. The filing also presents unaudited quarterly results, including the fourth quarter. Amounts below are in U.S. dollars unless noted.
Business context
Amarin is a biopharmaceutical company whose business is centered on Vascepa (icosapent ethyl), a prescription product approved in the U.S. to reduce triglycerides in adults with severe hypertriglyceridemia. The company sells primarily through wholesalers and promotes Vascepa with its approximately 150-person sales organization and co-promotion partner Kowa.
Financial results and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Total revenue, net | $130.1 million | $81.8 million |
| Net product revenue | $129.0 million | $81.0 million |
| Operating loss | $65.6 million | $98.2 million |
| Net loss | $86.4 million | $115.2 million |
| Net loss per share, basic and diluted | $0.41 | $0.83 |
| Cash used in operating activities | $71.8 million | $84.0 million |
- Revenue increased 59%, primarily reflecting higher estimated Vascepa prescriptions. The company estimated channel-inventory changes added approximately $3–$6 million to 2016 net product revenue; prescription and inventory data are estimates and may not align with shipment timing.
- Product gross margin rose to 73% from 66%, mainly due to lower unit-cost API purchases. Cost of goods sold was $34.4 million, up 23%.
- SG&A increased 10% to $111.4 million; Kowa co-promotion fees increased to $18.0 million from $8.0 million. R&D declined 2% to $50.0 million; REDUCE-IT accounted for $37.0 million of 2016 R&D expense.
- Fourth-quarter 2016 revenue was $38.7 million versus $26.6 million in Q4 2015. Net loss was $27.5 million versus $21.9 million; diluted loss per share was $0.10 versus $0.12.
- Cash and cash equivalents were $98.3 million at year-end, down $8.7 million. Current assets were $146.3 million and current liabilities $76.2 million. Management said cash should fund projected operations through REDUCE-IT results, then expected in mid-2018, but additional capital may be needed.
- At year-end, the balance sheet showed $15.1 million of exchangeable notes and $101.1 million of royalty-bearing debt, including current and long-term portions. The BioPharma agreement’s remaining repayment amount was $125.6 million, payable from Vascepa-related revenues subject to contractual thresholds. In January 2017, approximately $15.0 million of notes were put to the company; Amarin subsequently issued $30.0 million of 3.5% exchangeable notes due 2047, raising approximately $28.9 million net.
Material changes and developments
- REDUCE-IT enrollment and randomization finished in 2016 with 8,175 patients, above the 8,000 target. The trial is designed to reach 1,612 primary cardiovascular events; management expected results in 2018. The independent monitoring committee recommended continuing after its first interim efficacy review in September 2016.
- FDA approved Vascepa’s 0.5-gram capsule in October 2016; the approved daily dose remains 4 grams. Sales of the new capsule were not significant in 2016.
- FDA granted Vascepa five-year new-chemical-entity exclusivity through July 26, 2017. Four generic applicants sent patent-challenge notices; Amarin sued three. A statutory stay generally prevents FDA final approval of those applicants’ products before January 2020, absent an earlier adverse court decision.
- Amarin mandatorily exchanged $150.0 million principal of 2014 and 2015 notes for 60.3 million ADSs in September 2016, reducing outstanding exchangeable debt but increasing the share count.
- China licensing revenue was $1.1 million in 2016. The Eddingpharm agreement provides for potential additional milestones and royalties, contingent on regulatory and commercial progress. Biologix entered a separate agreement covering parts of the Middle East and North Africa.
Outlook, risks and unusual items
- Management expected 2017 operating cash flow, excluding interest, royalties and R&D costs, to be positive; quarterly cash flows were expected to vary. It anticipated 2017 SG&A excluding non-cash costs to increase less than 10%, with additional commercial spending possible following successful REDUCE-IT results, and R&D excluding non-cash costs to remain broadly consistent with 2016. The filing text provided here does not state a clear numerical 2017 revenue-guidance value.
- Expansion of Vascepa’s FDA-approved label depends on REDUCE-IT results; the ANCHOR indication is not FDA-approved. The court settlement permits specified truthful, non-misleading promotion beyond the approved label, but does not change labeling or require payer coverage for off-label use.
- Amarin remained loss-making, with a $1.2 billion accumulated deficit. Major risks include REDUCE-IT efficacy or safety outcomes, funding needs, generic patent litigation, payer coverage and pricing, competition, and dependence on a single product.
- The top three customers represented 95% of gross product sales in both 2016 and 2015 and 96% of gross accounts receivable at year-end 2016. API supply relies on three principal suppliers; certain agreements carry minimum-purchase commitments, with up to $44.6 million potentially payable over their terms.
- Other notable items include an $8.2 million non-cash gain from changes in derivative fair values, a $10.0 million income-tax provision, and a pending appeal in securities litigation. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions.
Important facts for investors to verify
- REDUCE-IT event accrual, interim-review timing, final results and any effect on FDA approval prospects.
- Whether revenue growth reflects sustained prescription demand rather than distributor inventory changes, and the accuracy of third-party prescription estimates.
- Cash runway, operating cash generation, 2017 revenue guidance and potential financing requirements.
- Outcomes and timing of the generic patent cases, including whether any court decision could shorten the expected delay to generic entry.
- BioPharma repayment terms and the effect of the 2017 notes, future dilution and remaining preferred-share equivalents.
- Customer concentration, supplier capacity and minimum-purchase obligations, as well as reimbursement and access for Vascepa.