Amarin Corporation plc — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Comparative results are for Q1 2014. Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl), its sole commercial product, approved in the U.S. for severe hypertriglyceridemia.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Product revenue | $15.6 million | $11.0 million; up 42% |
| Licensing revenue | $0.4 million | None |
| Total revenue | $15.9 million | $11.0 million; up 45% |
| Gross profit / margin | $10.3 million / approximately 65% | $6.7 million / approximately 61% |
| Operating expenses | $37.4 million | $32.3 million; up 16% |
| Operating loss | $27.0 million | $25.6 million |
| Net loss | $31.1 million; $32.0 million applicable to common shareholders | $26.0 million |
| Basic and diluted loss per share | $0.18 | $0.15 |
| Net cash used in operating activities | $12.6 million | $27.5 million |
Revenue growth reflected increased Vascepa sales and the first recognition of China licensing revenue. Product gross margin improved, primarily due to lower-cost API purchases. SG&A rose 20% to $24.7 million, driven in part by legal costs, Kowa co-promotion fees and stock compensation. R&D increased 8% to $12.6 million, mainly from REDUCE-IT costs. Interest expense, net, was $4.9 million, versus $4.4 million; a $0.5 million derivative fair-value gain was lower than the $4.4 million gain in Q1 2014.
Cash and equivalents were $161.2 million at quarter-end, up $41.7 million from year-end 2014. Financing cash inflow of $54.3 million included $52.3 million net proceeds from the Series A preferred placement and $2.7 million from warrant exercises. Operating cash use was lower than the prior-year quarter in part because the China agreement contributed $14.6 million of deferred revenue. Management said cash was expected to fund projected operations for at least 12 months.
Current assets were $189.8 million and current liabilities $42.5 million. Total liabilities were $277.2 million, compared with total assets of $215.3 million; stockholders’ deficit was $61.8 million. Debt-related carrying amounts included $123.2 million of exchangeable notes (net of discount), $90.1 million of long-term debt and $14.1 million current debt. The BioPharma financing had $142.7 million remaining to repay under its revenue-linked arrangement; scheduled repayments may be reduced when revenue thresholds are not met and deferred amounts are rescheduled.
Material developments and outlook
- FDA decision on ANCHOR: On April 27, 2015, after quarter-end, Amarin received an FDA Complete Response Letter rejecting the proposed label expansion for statin-treated patients with mixed dyslipidemia. FDA cited insufficient evidence that triglyceride reduction is a surrogate for cardiovascular-risk reduction in this population. The existing severe-hypertriglyceridemia label remained unchanged.
- China licensing: The February 2015 Eddingpharm agreement granted exclusive rights in Mainland China, Hong Kong, Macau and Taiwan. Amarin received a non-refundable $15 million upfront payment, recognized $0.4 million in Q1 revenue and recorded $14.6 million as deferred revenue. Potential additional milestones are up to $154 million, plus tiered double-digit royalties; these are contingent, not guaranteed revenue.
- Financing and dilution: The March private placement generated $52.8 million gross proceeds. Series A preference shares may convert into up to 35.2 million ordinary shares, subject to conditions and ownership limits. The filing says a $31.3 million beneficial conversion feature was expected to be recorded in Q2 2015 as a non-cash dividend, reducing earnings applicable to common shareholders.
- REDUCE-IT: More than 7,400 of the targeted 8,000 patients had enrolled. Management expected enrollment completion in 2015, an interim independent monitoring review in 2016 and study completion around 2017, with results expected in 2018. Remaining study costs were estimated to exceed $100 million absent early completion. Amarin remained blinded; the monitoring committee had recommended continuing the study after safety reviews.
- Commercial trends and guidance: Estimated normalized prescriptions rose year over year, but Q1 2015 was affected by severe winter storms. Management cautioned that third-party prescription data are estimates and not necessarily predictive. The company provided no quantified revenue guidance. It expected SG&A to be broadly flat in 2015, subject to legal-cost variability and rising Kowa fees, and R&D to be slightly higher than 2014, largely due to REDUCE-IT timing.
- Legal, supply and other risks: On May 7, 2015, Amarin and physicians sued the FDA seeking to share truthful, non-misleading information about Vascepa; the outcome is uncertain. Six ANDA paragraph IV notices were reported, with patent litigation ongoing. The top three customers represented 94% of gross product sales in Q1 2015. Nisshin and Chemport supplied all API used in sales, and supplier purchase commitments potentially totaled $54.3 million. The filing also disclosed possible Laxdale milestone payments upon specified future approvals and other litigation and regulatory risks.
Most important facts for investors to verify
- Subsequent regulatory and litigation developments following the ANCHOR CRL, including any effect on prescribing, sales and the FDA-related lawsuit.
- Vascepa prescription and net revenue trends over multiple quarters, while accounting for shipment timing, rebates, payer coverage and winter-weather effects.
- REDUCE-IT enrollment, event accrual, monitoring decisions, completion timing and remaining funding needs.
- Cash burn and runway against operating costs, BioPharma repayments, debt service and supplier commitments; management’s 12-month liquidity assessment is forward-looking.
- Conversion, resale registration and potential dilution from the preferred placement, including the expected Q2 beneficial conversion feature and the contingent additional Sofinnova placement.
- Progress in qualifying and sourcing API, customer concentration, and the status and potential exposure of patent, ANDA, shareholder and other legal proceedings.