Amarin Corporation plc — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Amarin is a pharmaceutical company focused on Vascepa (icosapent ethyl), its lead product for cardiovascular risk reduction and severe hypertriglyceridemia. The statements are unaudited and prepared under U.S. GAAP.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Net product revenue | $152.2 million | $72.7 million; up 109% |
| Licensing and royalty revenue | $2.8 million | $0.5 million |
| Total revenue | $155.0 million | $73.3 million |
| Gross margin | $120.2 million; 77% product gross margin | $56.1 million; 76% product gross margin |
| Operating expenses | $144.2 million, including $133.9 million SG&A and $10.3 million R&D | $78.9 million |
| Operating loss | $24.0 million | $22.7 million |
| Net loss | $20.6 million; $0.06 per diluted share | $24.4 million; $0.07 per diluted share |
| Operating cash flow | $4.1 million provided | $38.1 million used |
| Cash, cash equivalents and restricted cash | $333.0 million at March 31 | $648.5 million at December 31, 2019 |
| Short- and long-term investments | $294.7 million at March 31 | No investment balances reported at December 31, 2019 |
Product revenue growth reflected higher U.S. sales volume, a modest increase in net selling price, and approximately $6.7 million of sales outside the U.S., principally an initial Canadian supply order. Q1 2020 included approximately $10.8 million of revenue from an additional week of customer orders and receipts. U.S. normalized prescription estimates rose 72%–74% year over year, depending on the data provider; the company cautioned that these estimates are imperfect and should not be treated as definitive or predictive.
SG&A increased 87% year over year, mainly from expansion of the U.S. sales organization and promotional spending, plus higher legal costs related to patent litigation. R&D rose 42%, primarily reflecting REDUCE-IT-related analysis and other development costs. The $2.4 million income tax benefit resulted from CARES Act loss carrybacks.
Cash and investments totaled approximately $627.7 million, excluding restricted cash. Management stated that cash and cash equivalents and short-term investments—$542.2 million combined—were expected to fund projected operations for at least 12 months, based on assumptions that may not prove accurate. Investing cash outflow was $293.8 million, largely reflecting purchases of investment securities; financing cash outflow was $25.9 million. Operating cash flow benefited from collections and increases in accounts payable and other current liabilities.
The royalty-bearing instrument was the company’s only debt. Its carrying value was $36.7 million at March 31, 2020, with $38.2 million remaining to repay under the agreement; repayments are linked to Vascepa net revenue. The company expected it to be fully repaid during 2020. No other debt was outstanding. Accumulated deficit was $1.4 billion.
Material changes and business developments
- U.S. FDA approval in December 2019 expanded Vascepa’s label to reduce cardiovascular events in specified high-risk patients receiving statin therapy. The company completed expansion of its U.S. sales force to approximately 900 sales professionals, including approximately 800 representatives, in Q1 2020.
- On March 30, 2020, a federal district court ruled that patents asserted against two generic-drug companies were invalid. Amarin disagreed and was pursuing an appeal. The statutory stay had expired, so generic companies could receive FDA approval and potentially launch while the appeal proceeds.
- Following the ruling, Amarin intended to reduce U.S. education and promotional spending while seeking to preserve the ability to ramp up again if successful on appeal. A generic launch could materially reduce revenue and results; Amarin also noted it could launch a generic version itself if circumstances warranted.
- Vascepa launched in Canada on a limited scale in February 2020. The European Medicines Agency review was expected to conclude near year-end 2020, subject to the agency’s process. The company also continued development and commercialization efforts with partners in China and the Middle East.
- In April 2020, after quarter-end, holders converted preferred shares into 23.8 million ordinary shares; 5.2 million ordinary shares remained issuable upon conversion of the remaining preferred shares. The filing reported 385.5 million ordinary shares outstanding as of April 24, 2020, excluding those remaining equivalents.
Outlook, risks and unusual items
Amarin described 2020 results and cash flows as subject to substantial variability. It said selling expenses could change as it responds to COVID-19 and the potential for generic competition. The filing references financial and business guidance issued in January 2020 and subsequent updates, but does not provide a clear value for the guidance in the supplied text. Management cautioned that prescription and other operating metrics do not constitute guidance.
- COVID-19: In-person promotional activity was suspended on March 15. Amarin reported slower growth in new Vascepa prescriptions late in March as patient visits declined, and said the effects on demand, access to care, suppliers, clinical work and operations remained uncertain.
- Patent and generic risk: The appeal outcome and timing were uncertain; the court ruling increased the possibility of near-term U.S. generic competition. The company may seek an injunction, but provided no assurance of success.
- Commercial concentration: Three wholesalers accounted for 91% of gross product sales in Q1 2020. The company also depends on third-party manufacturers and suppliers; supply agreements included approximately $167.2 million of potential minimum purchase obligations over their terms.
- Other contingencies: European marketing approvals could trigger payments to former Laxdale shareholders of approximately $9.3 million for a first indication and $6.2 million for a further indication; no provision was recorded as the amounts were not yet payable. The filing also describes litigation and an IRS examination of the 2018 U.S. tax return; management did not expect that examination to materially affect financial position or results.
- Profitability: Amarin continued to report operating losses and stated it might not achieve sustained profitability. Its cash sufficiency estimate depends on assumptions about revenue, spending, COVID-19 and generic competition.
Key facts for investors to verify
- Progress, timing and outcome of the appeal of the March 30 patent ruling, including any injunction and FDA actions on generic applications.
- Subsequent U.S. prescription demand, sales, wholesaler inventory and net pricing, separating underlying growth from shipment timing and the extra Q1 week.
- COVID-19 effects on patient access, promotion, demand and product supply, and any resulting revisions to financial guidance.
- Cash burn, collection trends, investment maturities and repayment of the royalty-bearing instrument against management’s 12-month liquidity assessment.
- European regulatory review and the commercial progress and economics of the Canadian, Chinese and Middle Eastern partnerships.
- The extent of dilution from preferred-share conversions and equity awards, and the effect of wholesaler concentration and minimum supply commitments.