Amarin Corporation plc — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Financial amounts below are in U.S. dollars; “m” means millions. Amarin was a pre-revenue biopharmaceutical company focused on Vascepa. The FDA approved Vascepa for the severe hypertriglyceridemia (MARINE) indication on July 26, 2012, after quarter-end.
Financial performance and position
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $14.1m | $5.2m | $18.8m | $9.6m |
| Marketing, general and administrative | $13.6m | $10.0m | $27.7m | $12.8m |
| Operating loss | $27.7m | $15.2m | $46.5m | $22.4m |
| Loss on warrant derivative revaluation | $18.9m | $185.4m | $85.1m | $160.0m |
| Net loss | $53.9m | $202.1m | $142.2m | $183.8m |
| Loss per share, basic and diluted | $0.38 | $1.58 | $1.03 | $1.46 |
Margins are not meaningful because the company reported no revenue. R&D growth reflected REDUCE-IT trial costs, raw-material purchases and supplier qualification. Higher G&A reflected commercialization preparation, staffing, marketing research and infrastructure, as well as stock-based compensation.
- Cash flow, six months: Operating activities used $39.1m, compared with $19.6m in 2011; investing activities used $1.1m; financing activities provided $173.9m. Cash increased $133.7m to $250.3m.
- Liquidity: Current assets were $257.2m and current liabilities $17.5m at June 30. Management stated that cash should fund projected operations for at least 12 months, including REDUCE-IT and Vascepa launch preparations.
- Debt: In January, Amarin issued $150m principal of 3.5% exchangeable senior notes due 2032, receiving $144.3m net proceeds. Their June 30 carrying value was $127.4m after discounts. The notes are exchangeable in specified circumstances and have holder repurchase dates beginning in 2017. Reported six-month interest expense was $8.3m, including substantial noncash discount amortization.
- Balance sheet: Total assets were $271.2m, total liabilities $265.9m and stockholders’ equity $5.3m, versus a $6.0m deficit at December 31, 2011. The $120.2m warrant derivative liability is a noncash fair-value liability that the filing says is settled in shares and is not a claim on liquid assets.
Material changes and unusual items
- Six-month net loss narrowed from $183.8m to $142.2m, principally as the warrant revaluation loss declined to $85.1m from $160.0m. The Q2 loss likewise fell substantially year over year, largely for this reason. These fair-value changes are noncash and can be volatile; the company reported that a hypothetical 10% share-price increase would have raised the warrant liability by $13.2m.
- Operating expenses increased materially as Amarin expanded clinical, supply and launch-preparation activities. Operating cash use more than doubled year over year.
- The January note financing and exercises of warrants and stock options contributed to liquidity and increased shares outstanding. At June 30, 148.1m ordinary shares were issued; 11.3m warrants remained outstanding.
Outlook, risks and contingencies
- Management planned a U.S. Vascepa launch in early 2013 if proceeding independently, while evaluating strategic collaboration, acquisition and self-commercialization options. No collaboration was assured; Amarin said additional capital could be needed to support commercialization without one.
- The company expected to spend $25m–$35m from July 2012 through the anticipated launch to build API and finished-product inventory. Following FDA approval, minimum purchases from the existing supplier were approximately $35.3m in aggregate. As of quarter-end, only one API supplier and one capsule encapsulator were approved in the NDA; qualifying additional suppliers was important to capacity and supply diversification.
- For the proposed ANCHOR indication, Amarin expected REDUCE-IT to be substantially underway around year-end 2012 and anticipated an FDA determination on a supplemental application in the second half of 2013. These expectations were conditional; the outcomes trial was estimated to last about six years, and its results were not assured.
- FDA approval, commercial acceptance, reimbursement, pricing, competition, manufacturing capacity and supply qualification are key uncertainties. The filing notes that cardiovascular mortality/morbidity benefit and pancreatitis-risk reduction had not been determined.
- Post-approval obligations included a $0.5m supplier milestone, additional supply commitments and payments to former Laxdale shareholders. The company accrued relevant liabilities after the July approval; amounts for certain obligations were not recorded at June 30 because they were not then considered probable or estimable. The filing also describes a dispute with former Ester shareholders, with outcome uncertain, but reports no material legal proceedings at quarter-end.
- The company had an accumulated deficit of $710.6m and expected continuing losses until successful commercialization. It warned that further financing might be unavailable on acceptable terms and could dilute shareholders or impose restrictions.
Important facts for investors to verify
- Commercial launch timing, sales execution, market access and any collaboration terms; the filing reported no product revenue through June 30.
- Progress and costs of REDUCE-IT, the timing and requirements for the ANCHOR application, and the eventual trial outcomes.
- Supplier qualification, manufacturing capacity, inventory spending and whether supply commitments match actual demand.
- Cash runway against operating burn, commercialization costs and the possibility of additional financing.
- Potential dilution or cash settlement under the exchangeable notes, warrant-related share issuance, and the effect of volatile warrant valuations on reported losses.