Business context and reporting period
Amarin Corporation plc is a pharmaceutical company focused on Vascepa (icosapent ethyl), its principal product. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2019. Vascepa was FDA-approved for severe hypertriglyceridemia; the company had applied for an expanded cardiovascular-risk-reduction indication based on REDUCE-IT results.
Financial performance and position
Amounts below are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net product revenue | $100.4 | $52.5 | $173.1 | $96.3 |
| Total revenue | $100.8 | $52.6 | $174.1 | $96.6 |
| Gross profit | $78.0 | $39.8 | $134.2 | $73.1 |
| Operating expenses | $80.5 | $72.1 | $159.4 | $127.3 |
| Operating loss | $(2.5) | $(32.3) | $(25.3) | $(54.2) |
| Net loss | $(1.8) | $(34.2) | $(26.3) | $(58.3) |
| Basic and diluted loss per share | $(0.01) | $(0.12) | $(0.08) | $(0.20) |
Product revenue increased 91% in Q2 and 80% in the first half, which management attributed mainly to higher U.S. Vascepa sales and prescription growth. Management reported product gross margin of 77% in both 2019 periods, versus 76% in 2018. Q2 interest income exceeded interest expense, contributing to the lower net loss.
For the first half, operating cash use was $22.2 million, versus $34.2 million a year earlier; investing cash use was $0.8 million and financing cash use was $4.5 million. Cash and restricted cash declined $27.5 million to $223.3 million. At June 30, cash and cash equivalents were $221.8 million, current assets $372.0 million, and current liabilities $184.9 million. The company reported no debt other than its royalty-bearing instrument: carrying value was about $68.1 million, with $73.6 million remaining to repay under the agreement.
Changes versus prior comparable periods
- Commercial and promotional spending rose as Amarin expanded its sales force following REDUCE-IT results. SG&A increased 36% in Q2 and 49% in the first half, despite the end of Kowa co-promotion fees after 2018.
- Research and development expense fell 61% in Q2 and 52% in the first half, primarily because REDUCE-IT trial costs declined after the study concluded.
- Sales-force size had grown from approximately 170 professionals before the REDUCE-IT announcement to approximately 440 by June 30; the company was expanding toward a planned 800.
- Cash was lower than at December 31, 2018, while accounts receivable increased to $95.4 million and inventory decreased to $46.3 million.
Outlook, risks and notable items
- The FDA accepted the expanded-label sNDA for Priority Review, with a September 28, 2019 PDUFA goal date. Approval, timing and the scope of any label change remained uncertain. Management said it intended to increase promotion following approval, if obtained.
- Management expected 2019 Vascepa API costs to be similar to or modestly below 2018 levels and estimated an additional $50–$75 million of 2019 inventory purchases for a planned build. It said cash on hand at June 30 was expected to fund operations for at least 12 months and through the FDA goal date. The filing refers to July 2019 updates to financial outlook, but the text provided does not give the updated guidance figures.
- After quarter-end, Amarin completed a public offering, including the underwriters’ exercised option, generating approximately $439.5 million in net proceeds. The offering issued 25,555,556 ADSs in total.
- Key risks include dependence on one primary product and U.S. sales; potential FDA non-approval or a narrower-than-expected label; debate over whether the REDUCE-IT mineral-oil placebo affected results; reimbursement, pricing and prescription-growth uncertainty; generic-entry and patent litigation; and dependence on contract manufacturers and distributors. Three wholesalers accounted for 90% of first-half gross product sales combined.
- A consolidated securities class action alleges that Amarin misled investors about REDUCE-IT placebo-group biomarker data. The company said it would defend the claims; it could not reasonably estimate any loss exposure. It expected insurance to cover any significant exposure after the deductible.
- Supply agreements included approximately $90 million of potential minimum-purchase obligations over their terms. The royalty-bearing financing is secured by Vascepa-related intellectual property and has a change-of-control repayment feature.
Most important facts for investors to verify
- FDA action and final label, including any advisory-committee process, following the September 28, 2019 goal date.
- Whether prescription growth translates into sustained net sales growth, considering wholesaler shipment timing, rebates and other variable-revenue reserves.
- Actual spending and cash use as the sales force expands, alongside the effect of the post-quarter offering and planned inventory purchases.
- Outcomes of the securities class action and generic patent disputes, and the durability of Vascepa’s patent and regulatory protections.
- Supply capacity, minimum purchase commitments and exposure to concentrated wholesalers and third-party manufacturers.