Amarin Corporation plc — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl). The company began U.S. prescription sales in January and launched Vascepa for the MARINE indication on January 28, 2013. Financial statements are unaudited and prepared under U.S. GAAP.
Key financial results
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Product revenue | $2.3 million | None |
| Cost of goods sold | $1.3 million | None |
| Gross margin | Approximately 45% | Not comparable; no prior-period revenue |
| SG&A | $39.3 million | $14.0 million |
| Research and development | $21.8 million | $4.8 million |
| Operating loss | $60.1 million | $18.8 million |
| Net loss | $62.2 million; $0.41 per share | $88.3 million; $0.65 per share |
| Operating cash flow | $(59.6) million | $(17.7) million |
| Cash and cash equivalents | $201.8 million at March 31 | $260.2 million at December 31, 2012 |
Net loss narrowed year over year largely because the company recorded a $3.6 million gain on changes in derivative fair values, compared with a $66.2 million loss in Q1 2012. Operating expenses increased substantially as Amarin launched Vascepa and expanded the REDUCE-IT cardiovascular outcomes study. SG&A rose 181%, primarily reflecting sales-force, marketing and launch costs; R&D rose 354%, including higher clinical-trial costs, purchases from unqualified API suppliers and ANCHOR filing fees.
Cash used in investing activities was $0.01 million. Financing activities provided $1.2 million, versus $147.0 million in Q1 2012, when the company issued senior notes. Cash declined by $58.5 million during Q1 2013. Current assets were $242.0 million and current liabilities $42.4 million; working capital was approximately $199.7 million. Stockholders’ deficit was $60.1 million.
Revenue, liquidity and debt
Because the company had limited sales and returns history, it recognized revenue only for product reported resold by distributors to fill prescriptions. Q1 recognized revenue was $2.341 million; an additional $2.865 million was deferred at March 31. Net invoices for shipments through March were approximately $5.2 million, of which $5.1 million had been collected by May 1. The company reported no material product returns through May 9.
At March 31, debt carrying values included $137.7 million of exchangeable senior notes and $85.9 million of long-term debt. The balance sheet also included a $15.6 million derivative liability for a change-of-control redemption feature and a $49.0 million warrant derivative liability; these derivative liabilities are not equivalent to ordinary cash debt payments. The $150 million 3.5% exchangeable notes mature in 2032, with holder repurchase rights beginning in 2017. The December 2012 financing provided $100 million and requires repayment of up to $150 million from future Vascepa revenues, generally on a schedule extending to 2017; change of control may accelerate repayment.
Outlook, commentary and material risks
- Management said available cash should fund projected operations for at least the next 12 months, including Vascepa commercialization and REDUCE-IT. It expected cash to decline quarterly during 2013, with future quarterly decreases not substantially greater, and likely less, than Q1’s $58.5 million decline.
- Amarin provided no Vascepa revenue guidance, citing limited commercial history and potential seasonal effects. Management cautioned that Q1 results may not predict future performance.
- Management forecast $30 million to $40 million of 2013 REDUCE-IT clinical research organization costs, including Q1 spending. It expected 2013 gross margin to be lower than in subsequent years, citing initial API pricing, launch discounts, rebates and other launch factors.
- Management said additional capital or a strategic collaboration will likely be needed to fully support commercialization, particularly for the ANCHOR indication; it also noted a need for additional capital to complete REDUCE-IT. ANCHOR sNDA review was accepted in April 2013, with a December 20, 2013 PDUFA target date; approval and timing are not assured.
- The FDA approved Chemport and BASF as additional API suppliers in April 2013. Slanmhor remained subject to qualification and FDA approval. Supply constraints, supplier qualification, manufacturing capacity and demand forecasting remain risks.
- Key risks include reliance on a recently launched single product, uncertain market uptake and reimbursement, competition including potential generics, unresolved FDA determination on Vascepa’s new-chemical-entity exclusivity request, REDUCE-IT results, patent challenges, and dependence on third-party manufacturers.
- Potential obligations include a $5.4 million minimum purchase commitment to Nisshin, further supplier development and purchase commitments not fully reflected in the contractual-obligations table, and contingent Laxdale payments of approximately $11.4 million for a European first-indication approval and up to approximately $15.2 million for two further-indication approvals. The company recorded no provision for these Laxdale amounts because they were not considered probable or estimable.
- The company disclosed a dispute with former Ester shareholders concerning the discontinued EN101 program, but reported no legal proceedings with significant effects on its financial position or profitability as of March 31. Management concluded disclosure controls were effective; no material change in internal control was reported apart from new revenue-recognition and cost-of-goods-sold controls.
Investor facts to verify
- Whether prescriptions, distributor resales, payer coverage and collections translate into sustained net revenue, and how deferred revenue and return estimates develop.
- Cash burn, liquidity runway, additional financing or collaboration needs, and compliance with the Biopharma agreement’s repayment terms and covenants.
- FDA action on the ANCHOR sNDA by its target date and the FDA’s decision on Vascepa exclusivity.
- REDUCE-IT enrollment, timing and spending, and whether the study ultimately demonstrates cardiovascular benefit.
- API supplier qualification, manufacturing capacity, unit costs and any additional supply or milestone commitments.