Amarin Corporation plc — FY 2014 Form 10-K
Reporting period: Year ended December 31, 2014. The filing also presents unaudited fourth-quarter results. Amarin is a biopharmaceutical company whose principal commercial product is Vascepa (icosapent ethyl); it operates as one business segment. Amounts are in U.S. dollars.
Business context and operating progress
- Vascepa was FDA-approved for severe hypertriglyceridemia (MARINE indication) and sold in the U.S. only. The company began commercial sales in January 2013.
- In 2014, Amarin promoted Vascepa with its own approximately 150 sales professionals and Kowa’s approximately 250 representatives; Kowa promotion began in May. Amarin retained all product-sale revenue and paid Kowa a fee based on gross margins.
- Estimated Q4 normalized prescriptions were approximately 146,000 per Symphony Health Solutions and 131,000 per IMS Health, versus 94,000 and 79,000, respectively, in Q4 2013. These third-party estimates may differ from actual prescriptions and are not revenue guidance.
Financial performance and liquidity
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Net product revenue | $54.2 million | $26.4 million |
| Gross profit / margin | $33.7 million / 62% | $14.4 million / 55% |
| SG&A expense | $79.3 million | $123.8 million |
| R&D expense | $50.3 million | $72.8 million |
| Operating loss | $(96.0) million | $(182.1) million |
| Net loss | $(56.4) million | $(166.2) million |
| Cash used in operating activities | $(72.3) million | $(190.3) million |
| Cash and cash equivalents at year-end | $119.5 million | $191.5 million |
- Revenue rose 105%; gross margin improved mainly because of lower-cost API purchases. Management noted that some 2014 inventory had been purchased at higher prices and expected future average API costs to decline.
- SG&A fell 36% and R&D fell 31%, primarily reflecting the 2013 workforce reduction, lower launch-related spending and lower REDUCE-IT and pre-approval supply costs. REDUCE-IT remained the largest R&D expense.
- FY 2014 net loss included a $38.0 million gain on extinguishment of debt and a $13.5 million gain from changes in fair value of derivative liabilities; these items are not equivalent to operating earnings. Other income included supplier/encapsulator settlements, including a $3.0 million BASF refund.
- Q4 2014 revenue was $16.5 million and net loss was $19.7 million. Quarterly net income was volatile: Q2 reported net income of $15.3 million, including the debt-extinguishment gain.
- Year-end current assets were $145.3 million and current liabilities $40.3 million. Total assets were $171.1 million, total liabilities $259.6 million and stockholders’ deficit $88.4 million. Accumulated deficit was $970.2 million.
- Debt included $150.0 million principal of 3.5% exchangeable senior notes due 2032 and BioPharma financing with up to $150 million repayable from future revenue. The remaining BioPharma repayment amount was $144.4 million at year-end; repayment amounts are subject to revenue-based thresholds, with deferred amounts potentially rescheduled.
- Management stated that year-end cash was sufficient for projected operations for at least 12 months, while also warning that additional capital or a strategic collaboration might be needed. It estimated REDUCE-IT costs remaining through completion and publication would likely exceed $100 million.
Material changes, outlook and risks
- Revenue recognition: Beginning January 2014, Amarin recognized revenue on sales to distributors after determining it could reliably estimate returns; previously, recognition generally followed resale for prescriptions. The change released $1.7 million of deferred 2013 revenue in Q1 2014. Returns were de minimis through year-end.
- ANCHOR regulatory uncertainty: The FDA advisory committee voted 9–2 against recommending the proposed mixed-dyslipidemia indication. The FDA rescinded the ANCHOR trial’s Special Protocol Assessment in 2013; Amarin’s appeals were denied, most recently in September 2014. The sNDA remained pending, with no FDA action date specified. Management said it expected final positive REDUCE-IT results would be required for label expansion.
- REDUCE-IT: More than 7,300 of a target 8,000 patients were enrolled; management expected enrollment completion in 2015, an interim review around 2016, study completion around 2017 and results in 2018. The company remained blinded; the monitoring committee had recommended continuing the study following safety reviews. Outcomes, timing and label expansion were uncertain.
- Amarin provided no quantified revenue or prescription guidance, citing limited commercial history, the Kowa arrangement, regulatory uncertainty, seasonality and potentially inconsistent period-to-period growth. It anticipated continued revenue growth but cautioned that prescription metrics are estimates, not forecasts.
- Six generic applicants sent paragraph IV patent notices, and Amarin filed patent litigation. The 30-month stays were expected to prevent final FDA approval of the related ANDAs before September 2016, absent an earlier adverse court decision. FDA granted three-year exclusivity through July 25, 2015; the company was separately challenging FDA’s denial of five-year exclusivity.
- Other key exposures include dependence on one product, concentration of 95% of gross sales with its top three customers, reliance on third-party manufacturers (Nisshin and Chemport supplied commercial API in 2014), competition from generics and other therapies, and ongoing securities and patent litigation. The company reported an FDA inspection observation in 2014 concerning adverse-event processes and said it had responded and was working with the FDA.
- Subsequent event: In February 2015, Amarin signed an exclusive regional development and commercialization agreement with Eddingpharm for China, Hong Kong, Macau and Taiwan. It received a non-refundable $15 million upfront payment and became eligible for up to $154 million in milestones plus tiered royalties; this agreement was entered after FY 2014.
Most important facts for investors to verify
- Current FDA status and outcome of the ANCHOR sNDA, and whether REDUCE-IT enrollment, interim review, timing and eventual results match management’s estimates.
- Underlying Vascepa demand, net pricing, reimbursement and prescription trends, considering that distributor shipments, recognized revenue and third-party prescription estimates differ.
- Cash runway and quarterly burn against remaining REDUCE-IT costs, supplier purchase commitments and BioPharma repayment terms; confirm whether further financing is needed.
- Results and timing of the six ANDA patent cases and the lawsuit challenging FDA’s exclusivity decision, including any change to expected generic-entry timing.
- Progress in qualifying alternative API and encapsulation capacity, and the effect of supplier mix and inventory costs on gross margin.
- Amarin reported effective disclosure controls and internal control over financial reporting; Ernst & Young issued an unqualified audit opinion on the 2014 financial statements and internal controls.