Business context and reporting period
Amarin Corporation plc filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2016. The biopharmaceutical company’s business is focused on Vascepa (icosapent ethyl), its U.S.-marketed prescription product, and the REDUCE-IT cardiovascular outcomes study. Vascepa is FDA-approved for severe hypertriglyceridemia; promotion to healthcare professionals for the ANCHOR population was permitted under a court order and subsequent settlement, but that use was not FDA-approved.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Net product revenue | $32.8 million | $17.7 million | $58.1 million | $33.3 million |
| Total revenue | $33.1 million | $17.7 million | $58.7 million | $33.6 million |
| Gross margin | $24.3 million | $11.3 million | $42.9 million | $21.6 million |
| Operating loss | $(14.4) million | $(26.7) million | $(37.5) million | $(53.8) million |
| Net loss | $(13.4) million | $(31.5) million | $(43.1) million | $(62.6) million |
| Net cash used in operations | Not provided for quarter | Not provided for quarter | $(33.8) million | $(38.3) million |
- Q2 product revenue rose 85%; six-month product revenue rose 75%. Management attributed growth primarily to more prescriptions and, in Q2, higher wholesaler inventory. It estimated Q2 revenue benefited by $2.9–$3.2 million from net inventory increases; prescription estimates are third-party data and may not match shipments.
- Gross margin on product sales improved to 73% from 64% in both the quarter and six-month comparisons, chiefly due to lower-cost API purchases.
- Q2 SG&A was approximately flat at $26.1 million. Six-month SG&A increased 6% to $54.1 million, with higher Kowa co-promotion fees and stock compensation partly offset by lower legal costs. R&D rose 5% in Q2 to $12.6 million and 7% for six months to $26.3 million, mainly reflecting REDUCE-IT cost variability.
- Net loss comparisons benefited in 2016 from the absence of the 2015 preferred-stock beneficial conversion feature charge ($31.3 million) and purchase-option charge. These were non-cash preferred-shareholder-related items, so net loss applicable to common shareholders was $62.9 million for Q2 2015 and $94.8 million for the first half of 2015.
- Cash and cash equivalents were $72.5 million at June 30, down $34.5 million from year-end 2015. Operating cash use was $33.8 million; investing cash use was $0.02 million and financing cash use was $0.7 million. Current assets were $116.5 million versus current liabilities of $77.9 million.
- Balance-sheet debt included $30.8 million of current debt, $90.2 million of long-term debt, and $125.6 million of exchangeable senior notes. The $15.1 million 2012 Notes are classified current because holders may put them back in January 2017. Long-term debt derivative liabilities were $3.6 million.
- Stockholders’ deficit was $164.4 million and accumulated deficit was $1.16 billion. The three largest customers represented 95% of gross product sales in the first half and 94% of gross receivables at June 30.
Changes, outlook, risks and unusual items
- Management believed existing cash would fund projected operations for at least 12 months, but stated additional capital would likely be needed depending on operating cash generation; future quarterly cash outflows were expected to vary.
- Management estimated REDUCE-IT would cost $30–$40 million annually through completion. Enrollment reached approximately 8,000 in March 2016; the study is event-driven, with results expected in 2018. The filing describes a planned 60% interim analysis in September or October 2016. It also reports an August 2016 amendment to the FDA special protocol assessment adding an 80% interim analysis and expanding prespecified endpoints. Amarin remained blinded to study data and expected the interim reviews to recommend continuing the trial.
- The filing says 2016 SG&A, before REDUCE-IT data, was expected to be broadly consistent with 2015, apart from non-cash costs and higher Kowa fees. It refers to updated 2016 guidance but the supplied filing text does not provide a clear guidance value.
- Vascepa received five-year new chemical entity exclusivity, running through July 26, 2017. Amarin expected new generic applications could be accepted beginning in the third quarter of 2016 and planned to defend its patents. No Vascepa patent litigation was pending at filing; a securities class-action dismissal was appealed, which Amarin planned to contest.
- Key risks include dependence on one product and U.S. sales, REDUCE-IT failing to demonstrate cardiovascular benefit or being delayed, uncertainty over future FDA label expansion, scrutiny of permitted off-label promotion, generic competition and challenges to exclusivity, concentrated wholesale customers, API/manufacturing and minimum-purchase obligations, and the need for future financing.
- BioPharma financing requires repayment of up to $150 million from Vascepa-related revenues; $132.1 million remained at June 30. Payments are subject to revenue thresholds and caps, with deferred differences scheduled to begin repayment in 2017. A change of control can accelerate repayment, and the financing is secured by Vascepa-related intellectual property and other assets.
- Other commitments include potential Laxdale payments of approximately $10.0 million upon a first European indication approval and up to approximately $13.4 million for two further U.S. or European indication approvals; no provision was recorded because amounts were not considered probable or estimable.
Important facts for investors to verify
- Check subsequent Vascepa prescription and wholesaler inventory trends to distinguish underlying demand from shipment timing.
- Track REDUCE-IT interim-review timing, safety updates, event accrual and final results; interim estimates are not trial outcomes.
- Confirm the status of generic applications, NCE exclusivity challenges, patent proceedings and the securities-litigation appeal.
- Monitor cash burn, financing needs, the January 2017 2012 Notes holder put, and BioPharma repayment terms and covenants.
- Assess API supply capacity, minimum purchase commitments, customer concentration and the effect of Kowa’s rising co-promotion percentage.