Amarin Corporation plc — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; quarterly figures below compare Q4 2019 with Q4 2018. Filed February 25, 2020. Amarin is a pharmaceutical company primarily commercializing Vascepa (icosapent ethyl).
Business context and significant developments
- On December 13, 2019, the FDA approved Vascepa’s expanded cardiovascular-risk-reduction indication for certain high-risk, statin-treated adults with elevated triglycerides. The approval followed REDUCE-IT, which reported a 25% relative risk reduction in first major cardiovascular events versus placebo.
- Amarin expanded its U.S. sales force from about 170 professionals before REDUCE-IT results to about 440 in early 2019, and was nearing a planned 900-person force by early 2020.
- Vascepa is the company’s principal commercial product. U.S. product revenue accounted for nearly all revenue; 2019 sales outside the U.S. were approximately $0.7 million.
Financial performance and liquidity
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total revenue, net | $429.8 million | $229.2 million | Up 87% |
| Product revenue, net | $427.4 million | $228.4 million | Up 87% |
| Gross margin | $333.7 million; 78% | $174.7 million; 76% | Margin up 2 percentage points |
| Operating expenses | $358.0 million | $282.9 million | Up 27% |
| Operating loss | $(24.3) million | $(108.2) million | Narrowed |
| Net loss | $(22.6) million | $(116.4) million | Narrowed |
| Basic and diluted loss per share | $(0.07) | $(0.39) | |
| Net cash used in operating activities | $(9.4) million | $(94.7) million | Cash use decreased |
Q4 comparison: Revenue was $143.3 million versus $77.3 million in Q4 2018; gross margin was $112.6 million versus $59.8 million. Amarin reported Q4 net income of $7.1 million, compared with a $33.7 million net loss in Q4 2018. The filing’s quarterly summary does not provide a clear Q4 operating-income figure.
- At year-end, cash and cash equivalents were $644.6 million (plus $3.9 million restricted cash), compared with $249.2 million in cash and $1.5 million restricted cash a year earlier. Current assets were $855.0 million and current liabilities $242.2 million.
- Operating cash use improved, partly from higher customer collections and lower REDUCE-IT study spending; promotional spending and sales-force expansion partly offset those benefits. Investing cash use was $2.5 million.
- Financing cash provided $409.6 million, mainly reflecting a July 2019 share offering that generated $440.1 million net proceeds. Cash increased by $397.8 million during the year.
- The royalty-bearing financing had $52.4 million remaining to repay at year-end, with quarterly payments based on 10% of Vascepa net revenue; the balance-sheet carrying value was $49.7 million. The 2017 exchangeable notes had been exchanged for equity in 2018, and the filing reports no other debt outstanding.
- Inventory was $76.8 million and net accounts receivable $116.4 million at year-end. Contractual cash obligations totaled $210.6 million, including $192.4 million of supplier purchase obligations, of which $117.0 million was scheduled for 2020.
Material changes, outlook and risks
- Revenue growth reflected higher U.S. Vascepa sales and prescription estimates. Estimated normalized Q4 prescriptions rose year over year, but the company cautions that third-party prescription data are estimates and may not track shipments or revenue closely.
- Selling, general and administrative expense rose 43% to $323.6 million, principally due to commercial promotion and sales-force expansion. Research and development expense fell 38% to $34.4 million as REDUCE-IT costs declined after the trial’s completion.
- Management expected 2020 selling and promotional expenses to rise with the expanded label, larger sales force and direct-to-consumer advertising. Amarin stated that year-end cash was expected to fund projected operations for at least 12 months and support its current plan to reach positive cash flow. The filing refers to January 2020 financial guidance but the supplied text does not provide clear numerical 2020 revenue or expense guidance.
- International plans included Canadian commercialization by partner HLS, which began on a limited scale in February 2020, and an EMA review of the Vascepa application expected to conclude before year-end 2020. Approval, timing, pricing and reimbursement remain uncertain.
- Generic competition is a major risk. A trial involving West-Ward (now Hikma) and Dr. Reddy’s took place in January 2020; a decision was expected by the end of March 2020, with appeals possible. Teva’s settlement allows generic entry as early as August 9, 2029 under stated conditions. The filing says the outcome of pending litigation cannot be predicted.
- A securities class action alleges that Amarin’s 2018 REDUCE-IT disclosures omitted information about biomarker changes in the mineral-oil placebo group and possible effects on statin absorption. Amarin disputes the claims; potential loss could not be reasonably estimated. FDA nevertheless approved the expanded indication after reviewing the data, while noting a possible interaction that its analysis considered unlikely to alter the overall treatment-benefit conclusion.
- REDUCE-IT reported higher rates of hospitalization for atrial fibrillation or flutter (3% versus 2%) and bleeding (12% versus 10%) with Vascepa; bleeding was more frequent with concomitant antithrombotic medicines. These are relevant safety and prescribing considerations.
- Three wholesalers represented 90% of 2019 gross product sales combined, creating customer concentration risk. Supplier capacity and minimum-purchase commitments, reimbursement and pricing pressure, patent challenges, and reliance on Vascepa are also material risks.
- The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Product returns were a critical audit matter; the year-end return reserve was $4.6 million.
Most important facts for investors to verify
- Whether post-approval demand, prescriptions and wholesaler purchases translate into sustained revenue growth, while distinguishing shipments from estimated prescription data.
- The ruling and subsequent appeal status in the West-Ward/Hikma and Dr. Reddy’s generic patent litigation, and the practical protection provided by Amarin’s patents and regulatory exclusivity.
- Actual 2020 revenue, operating expenses, cash burn and progress toward positive cash flow versus management’s guidance and assumptions.
- Whether reimbursement, discounts, rebates and customer concentration affect net revenue and gross margin; review the $128.6 million year-end balance of product-revenue allowances and reserves and the $4.6 million return reserve.
- Updates on European regulatory review, Canadian and other partner commercialization, and any changes in Vascepa’s safety profile or interpretation of REDUCE-IT data.