Amarin Corporation plc — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited. Financial statement amounts are in U.S. dollars and, unless otherwise noted, in millions.
Business context and reporting period
Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl), its sole commercial product. Vascepa is FDA-approved to reduce triglyceride levels in adults with severe hypertriglyceridemia. The company also promotes certain use in patients with persistently high triglycerides under a court-approved settlement, but that use was not added to FDA-approved labeling. Amarin markets in the U.S. with its own sales force and Kowa Pharmaceuticals America, and has licensed development and commercialization rights in China, Hong Kong, Macau and Taiwan to Eddingpharm.
Financial results and liquidity
- Revenue: Total revenue was $25.5 million, up 60% from $15.9 million. Product revenue, all from Vascepa, increased 63% to $25.3 million from $15.6 million. Licensing revenue was $0.2 million, versus $0.4 million.
- Gross profit and margin: Gross profit was $18.6 million, versus $10.3 million. Management reported product gross margin of 73%, compared with 64%, primarily attributing the improvement to lower-cost API purchases.
- Operating expenses and losses: SG&A increased 13% to $28.0 million, including $3.5 million in Kowa co-promotion fees; R&D increased 9% to $13.7 million, principally reflecting REDUCE-IT cost variability. Operating loss was $23.1 million, compared with $27.0 million. Net loss was $29.8 million, compared with $31.1 million; 2015 net loss applicable to common shareholders was $32.0 million, including a $0.9 million preferred-stock purchase-option charge. Loss per share was $0.16, versus $0.18.
- Cash flow: Operating cash outflow was $24.8 million, compared with $12.6 million. Investing cash outflow was $0.02 million. Financing cash outflow was $0.8 million, versus $54.3 million of inflow in 2015, which included preferred-stock financing. Cash and cash equivalents fell $25.6 million during the quarter to $81.4 million.
- Balance sheet and debt: Current assets were $124.4 million and current liabilities $53.6 million. Total liabilities were $308.8 million; stockholders’ deficit was $156.1 million. The balance sheet reported $138.7 million of exchangeable senior notes, $92.0 million of long-term debt and $12.7 million of current debt. Separately, $165.1 million of exchangeable notes remained outstanding at principal value. The revenue-linked BioPharma financing had $134.6 million remaining to be repaid under its aggregate repayment terms.
Material changes versus Q1 2015
- Vascepa product revenue rose $9.7 million; management attributed growth primarily to increased prescriptions and higher net selling price. It reported estimated prescription growth of 55%–56%, while cautioning that third-party prescription measures are estimates and may not predict future results.
- Cost of goods sold increased 23%, slower than product revenue growth; reported product gross margin rose nine percentage points.
- SG&A growth reflected expanded promotion and higher Kowa fees, partly offset by lower legal costs. Kowa’s share of aggregate Vascepa gross margins increased from 15% in 2015 to 19% in 2016.
- Operating loss narrowed, but operating cash use increased. The comparison was affected by the $15.0 million Eddingpharm upfront payment received in Q1 2015.
- Derivative fair-value changes were a $1.3 million loss in Q1 2016, versus a $0.5 million gain in Q1 2015; interest expense, net, increased 14% to $5.6 million.
Outlook, commentary and material risks
- Management stated that $81.4 million of cash was expected to fund projected operations for at least 12 months, while noting additional capital might be needed depending on cash generated from operations. It expected Q1 2016 to be the year’s highest quarter for operating cash use, with lower outflows thereafter anticipated from collections and expense timing.
- Management expected 2016 SG&A, before specified non-cash costs and anticipated Kowa fee increases, to be substantially consistent with 2015. REDUCE-IT costs were estimated at $30 million–$40 million annually through study completion and expected to vary by quarter. The filing refers to previously issued 2016 revenue guidance but the supplied filing text does not provide a clear numeric guidance value.
- REDUCE-IT reached its approximately 8,000-patient enrollment target in March 2016. An independent interim efficacy and safety review was expected in September or October 2016; management expected the trial to continue unless the monitoring committee recommended otherwise. The target event count was projected around 2017, with results expected in 2018. Amarin remained blinded to trial data.
- The FDA and U.S. government agreed in a March 2016 settlement to be bound by the court’s conclusions permitting truthful, non-misleading promotion of specified off-label Vascepa information. FDA labeling and reimbursement requirements for off-label use did not change. The company cautioned that promotional activity could continue to receive heightened regulatory scrutiny.
- Key risks include dependence on one product and U.S. sales, REDUCE-IT efficacy and timing, uncertain FDA exclusivity and potential generic competition, concentrated wholesale customers (top three represented 95% of gross product sales), reliance on third-party API suppliers and minimum-purchase commitments, and financing needs. A change of control or default could accelerate BioPharma repayment obligations.
- After quarter-end, on April 26, 2016, a securities class action was dismissed without prejudice, with plaintiffs permitted to amend. The company stated it intended to defend against any further action. A separate litigation settlement with the FDA concerning promotion was approved March 8, 2016.
Most important facts for investors to verify
- Vascepa revenue growth, net pricing, prescription trends and gross-to-net deductions, including the $19.9 million balance of revenue allowances and reserves at quarter-end.
- Cash burn and available financing against REDUCE-IT spending, debt service, and the company’s stated 12-month liquidity outlook.
- REDUCE-IT interim review timing, eventual event-driven completion, and whether results support any FDA label expansion.
- FDA determination on Vascepa’s regulatory exclusivity, related patent proceedings and the timing or likelihood of generic competition.
- BioPharma repayment thresholds and change-of-control/default provisions, plus supply commitments and customer concentration.
- Whether the securities litigation is amended or appealed following the post-quarter dismissal.