Amarin Corporation plc — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011; comparisons are to the corresponding 2010 periods. Amounts are U.S. dollars. Amarin is a clinical-stage biopharmaceutical company focused on AMR101 (icosapent ethyl); the product was not approved or available for sale during the period.
Financial results and liquidity
- Revenue: None in either the quarter or first nine months of 2011 or 2010. With no revenue, operating margins are not meaningful.
- Q3 results: Operating expenses were $9.4 million, including $6.0 million of R&D and $3.4 million of marketing, general and administrative expense. Operating loss was $9.4 million. Net income was $96.3 million, or $0.72 basic and $0.62 diluted per share, primarily because of a $106.6 million noncash gain from revaluing warrant liabilities.
- Nine-month results: Operating expenses were $31.8 million, including $15.7 million of R&D and $16.2 million of marketing, general and administrative expense. Operating loss was $31.8 million; net loss was $87.5 million, or $0.68 per share. The period included a $53.4 million noncash loss on warrant-liability revaluation and $2.4 million of income tax expense.
- Cash flow: Operating cash use was $27.9 million for the first nine months, versus $24.3 million in 2010. Investing cash use was $1.7 million, including a $1.65 million long-term investment. Financing provided $124.0 million, including $98.7 million net proceeds from the January share offering and proceeds from option and warrant exercises. Cash increased $94.4 million to $125.9 million.
- Balance sheet: Current assets were $128.1 million and current liabilities $6.4 million at September 30. There were no debt obligations. Total liabilities were $162.0 million, including a $155.0 million warrant derivative liability; the company states this liability is settled in shares and is not a claim on cash. Stockholders’ deficit was $30.3 million.
Changes versus prior periods
- Q3 R&D expense declined 21% year over year, and nine-month R&D declined 24%, mainly as the MARINE and ANCHOR Phase 3 trials moved past their main enrollment and trial-cost periods.
- Marketing, general and administrative expense increased 62% in Q3 and 125% for the first nine months, reflecting higher staffing, commercialization preparation, and stock-based compensation.
- Q3 net results swung from an $11.2 million loss in 2010 to $96.3 million income in 2011, primarily due to the warrant revaluation gain. For the first nine months, the net loss widened from $61.8 million to $87.5 million, including a larger warrant revaluation loss and higher operating expenses.
- Cash rose substantially from $31.4 million at December 31, 2010, largely because of the January equity offering and warrant exercises. Shares issued also increased materially.
Outlook, developments, and risks
- Amarin reported positive top-line results from the MARINE and ANCHOR Phase 3 trials. It submitted an NDA to the FDA on September 26, 2011 for the very-high-triglyceride indication studied in MARINE; FDA acceptance, review outcome, timing, and final approved label were uncertain.
- The company reached agreement with the FDA on the REDUCE-IT cardiovascular outcomes study design and began initial trial and site preparation. It aimed for at least 50% enrollment by the end of 2012 and estimated total study costs of $100–$125 million over an anticipated six years, with no more than $25 million expected to be paid before the end of 2012. Additional funding would be needed to complete the study.
- Management believed cash would fund planned operations for the next 12 months, including commercial preparation and initiating REDUCE-IT. This estimate assumed no additional funding or collaboration proceeds. A commercial launch without a strategic partner, and completion of REDUCE-IT, would require additional capital; financing might not be available on acceptable terms and could dilute shareholders or delay plans.
- Management expected commercialization-related administrative costs to rise. It was preparing to commercialize AMR101 independently while discussing potential collaborations; no transaction was assured. Supplier qualification, purchase commitments, and approval-related milestone and royalty obligations could add costs.
- The $155.0 million warrant liability is a Level 3 fair-value estimate sensitive to Amarin’s share price and volatility. A hypothetical 10% increase in share price was estimated to increase the liability by $16.8 million, reducing the reported revaluation gain. Such noncash changes can materially affect reported earnings.
- Contractual obligations totaled $14.9 million, chiefly $13.4 million of purchase obligations and $1.5 million of operating leases. Other potential commitments include supplier expansion penalties, AMR101 approval-related payments and royalties, and milestone payments; most were not accrued because they were contingent or not reasonably estimable.
- No asserted litigation was reported as having a material financial-statement effect. A dispute with former Ester shareholders concerning the discontinued EN101 program remained unresolved; management disputed the alleged breach. The filing also describes risks involving FDA review and approval, clinical outcomes, commercialization, funding, and pending patent applications.
- Disclosure controls were reported not effective as of September 30, 2011 because of a continuing material weakness involving technical expertise and review of complex, non-routine accounting transactions. Management described steps including accounting position papers and, where appropriate, outside advice.
Important facts for investors to verify
- FDA filing status, review timetable, and eventual decision and label for the MARINE-based NDA.
- REDUCE-IT initiation, enrollment progress, projected costs, and the funding required beyond available cash.
- Whether Amarin secures a commercialization partner or funds a standalone launch, and the resulting capital needs and dilution.
- Warrant terms, potential share issuance, and how changes in share price affect the large noncash derivative liability and reported earnings.
- Supplier qualification and purchase commitments, contingent AMR101 milestone or royalty obligations, and the outcome of the Ester shareholder dispute.
- Remediation of the material weakness in internal control over financial reporting.