Amarin Corporation plc — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. Amounts are in U.S. dollars; financial statement figures are in millions unless noted. Amarin is a pre-commercial biopharmaceutical company focused on Vascepa.
Business context and reporting period
The FDA approved Vascepa (icosapent ethyl) on July 26, 2012, for the MARINE indication: use with diet to reduce triglycerides in adults with severe hypertriglyceridemia. The company had not yet recorded product revenue. It was preparing for an anticipated U.S. launch in Q1 2013 and continued developing Vascepa for the ANCHOR mixed-dyslipidemia indication.
Financial performance and position
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $20.9 | $6.0 | $39.7 | $15.7 |
| Marketing, general and administrative expense | $13.4 | $3.4 | $41.1 | $16.2 |
| Operating loss | $(34.3) | $(9.4) | $(80.8) | $(31.8) |
| Net loss (income) | $(26.4) | $96.3 | $(168.6) | $(87.5) |
| Basic loss (income) per share | $(0.18) | $0.72 | $(1.19) | $(0.68) |
Margins are not meaningful because the company reported no revenue. Q3 2011 net income principally reflected a $106.6 million non-cash gain from revaluing warrant derivatives; Q3 2012 included a $16.5 million gain. For the first nine months of 2012, the company recorded a $68.7 million non-cash derivative loss, compared with a $53.4 million loss in 2011. These valuation changes materially affect reported results and are not operating revenue or cash flow.
- Cash and liquidity: Cash and cash equivalents were $215.1 million at September 30, 2012, versus $116.6 million at December 31, 2011. Current assets were $228.7 million and current liabilities $32.5 million. The company said cash should fund operations for at least twelve months.
- Cash flow, nine months: Operating activities used $78.5 million, compared with $27.9 million in 2011; investing activities used $1.7 million; financing activities provided $178.8 million. Financing included $144.3 million net proceeds from the notes, plus proceeds from warrant and option exercises.
- Debt: The company issued $150.0 million principal amount of 3.5% exchangeable senior notes due 2032, with $130.8 million net carrying value at quarter-end. The effective interest rate was 13.5% because of accounting discounts; nine-month interest expense was $13.2 million. The notes may be settled in cash, ADSs, or both at the company’s election; management said it currently intended cash settlement.
- Other balance-sheet items: Inventory was $9.0 million, primarily raw materials. The $91.0 million warrant derivative liability is a non-cash accounting liability that the company said can be settled only in shares and does not represent a claim on liquid assets. Stockholders’ equity was approximately $38,000, following an accumulated deficit of $737.1 million.
Material changes versus prior periods
- Nine-month operating expenses rose to $80.8 million from $31.8 million, reflecting REDUCE-IT trial costs, API and supplier qualification, pre-approval supply purchases, and commercial launch preparation.
- Q3 R&D expense increased $14.9 million year over year; management cited $8.3 million of REDUCE-IT costs and approximately $5.7 million of pre-approval supply and vendor qualification costs in the quarter.
- Nine-month G&A expense increased $24.9 million, driven by marketing research and medical education, higher staffing, stock compensation, and commercialization readiness.
- Cash increased following the January 2012 note financing, while operating cash use also increased. Shares issued rose from 135.8 million at December 2011 to 149.9 million issued at September 2012, mainly through warrant and option exercises.
Outlook, risks, and unusual items
- Management anticipated launching Vascepa in Q1 2013. It was considering a strategic collaboration, acquisition, or self-commercialization, but said it would continue preparing to launch independently unless a transaction was completed. It warned that additional capital would likely be needed to support a self-commercialized launch.
- The company estimated $20–30 million of cash outflow from October 2012 through the expected launch to build inventory. At September 30, minimum purchase obligations under the Nisshin supply agreement were $27.7 million, and total disclosed contractual cash obligations were $36.6 million.
- Management targeted an ANCHOR supplemental NDA filing before the end of February 2013, conditional on REDUCE-IT being substantially underway; it expected a possible FDA action by the end of 2013 assuming a ten-month review. REDUCE-IT was estimated to run about six years. Neither the timing nor approval was assured.
- Supply is a significant execution risk: Nisshin was the only approved API manufacturer under the NDA at quarter-end. Qualification of additional suppliers and capacity expansion were not assured. The filing also warned that actual demand could differ from supply purchases.
- The FDA’s decision on Vascepa’s requested five-year new chemical entity exclusivity was pending. The filing said the company expected three-year exclusivity if NCE status was not granted, but neither the determination nor timing was certain.
- Vascepa’s effects on cardiovascular mortality and morbidity and on pancreatitis risk were not established in the filing. REDUCE-IT outcomes remained uncertain; approval for ANCHOR was not assured. Commercial risks included market acceptance, reimbursement, competition, and building sales capability.
- FDA approval triggered an approximately $12.1 million Laxdale milestone liability, which the company anticipated paying in cash before year-end 2012. The filing also disclosed a dispute with former Ester shareholders concerning the discontinued EN101 program; the company denied breach but could not assure the outcome. It reported no legal proceedings expected to have significant effects on financial position or profitability.
Important facts for investors to verify
- Whether Vascepa launched on schedule, gained payer coverage and physician adoption, and generated commercial revenue.
- REDUCE-IT enrollment and progress against the “substantially underway” threshold, and any change to the ANCHOR filing timetable or FDA requirements.
- FDA action on NCE exclusivity and the patent position, including potential generic or branded competition.
- Qualification and capacity of additional API suppliers, inventory levels, purchase commitments, and launch supply adequacy.
- Cash burn and financing needs relative to management’s twelve-month runway statement; note settlement, interest, and potential dilution from exchangeable notes and equity issuances.
- Future warrant revaluation effects on reported earnings, which can be significant and non-cash, and the status and payment of the Laxdale obligation and Ester dispute.