Amarin Corporation plc — Form 10-Q Summary
Business context and reporting period. This unaudited filing covers the quarter and six months ended June 30, 2017. Amarin is a biopharmaceutical company focused on Vascepa (icosapent ethyl), its principal product, which is FDA-approved in the United States for severe hypertriglyceridemia. The company also promotes certain information about use in patients with persistently high triglycerides under a court-approved arrangement; that use is not FDA-approved. Its principal development program is the REDUCE-IT cardiovascular outcomes trial.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | First half 2017 | First half 2016 |
|---|---|---|---|---|
| Total revenue | $45.2m | $33.1m | $79.9m | $58.7m |
| Net product revenue | $44.9m | $32.8m | $79.3m | $58.1m |
| Gross margin on product sales | 75% | 73% | 75% | 73% |
| Operating loss | $(11.4)m | $(14.4)m | $(30.0)m | $(37.5)m |
| Net loss | $(13.6)m | $(13.4)m | $(34.6)m | $(43.1)m |
| Net loss per share | $(0.05) | $(0.07) | $(0.13) | $(0.23) |
For the first half, operating cash use was $24.4m, versus $33.8m a year earlier; investing cash use was $0.01m, and financing provided $11.6m. Cash and cash equivalents fell $12.8m from year-end to $85.5m. The company reported current assets of $150.4m and current liabilities of $86.3m; total liabilities were $208.9m, exceeding total assets of $170.2m, leaving a stockholders’ deficit of $38.8m. Accumulated deficit was $1.24bn.
At June 30, debt included the $30.0m principal amount of 3.5% exchangeable notes due 2047 (carrying value $28.9m, plus current accrued interest) and royalty-bearing financing with $118.3m remaining under its $150.0m repayment cap. The 2017 notes may be put to the company for cash in January 2022; holders may also exchange them for ADSs. The company repaid the remaining 2012 notes during the first quarter.
Changes versus comparable periods
- Product revenue increased 37% in Q2 and 36% in the first half, driven primarily by higher estimated Vascepa prescriptions. Management reported prescription growth of roughly 50%–55% across the cited data sources, while noting that prescription and shipment timing can differ.
- First-half product revenue was partly affected by lower wholesaler inventory: management estimated a $2.0m–$2.3m revenue reduction, compared with a $1.5m–$1.8m increase from inventory growth in the prior-year period. Q2 2016 also benefited from an estimated $2.9m–$3.2m inventory increase; Q2 2017 wholesaler inventory decreased modestly.
- Product gross margin rose two percentage points to 75%, which management attributed mainly to lower-cost API purchases.
- First-half SG&A increased 22% to $65.7m, mainly from increased promotion and legal costs; R&D declined 7% to $24.5m, largely reflecting timing of trial and related costs. Q2 R&D increased 9% year over year.
- Net interest expense declined to $4.7m from $11.2m in the first half, principally because exchangeable-note principal and related discount amortization were lower. The prior-year periods included derivative-liability gains ($5.8m in Q2 and $4.6m in the first half) that were absent in 2017; the first-half 2016 period also included a $1.3m tax benefit, versus none in 2017.
- Weighted-average shares increased to about 270.4m for the first half from 184.3m, reflecting prior-period note conversions and other share changes; loss per share therefore should be considered alongside the substantial change in share count.
Outlook, commentary and key risks
- Management said $85.5m of cash was expected to fund projected operations through REDUCE-IT results, then anticipated in Q2 or Q3 2018. It cautioned that additional capital might be needed depending on operating cash generation, debt obligations, or plans to expand Vascepa promotion. Future quarterly cash outflows were expected to vary.
- REDUCE-IT enrolled and randomized 8,175 patients. The trial targets 1,612 primary cardiovascular events; management expected the target in early 2018 and results in Q2 or Q3 2018. An 80%-event interim review was expected before the end of Q3 2017. The company remained blinded and expected the study to continue, while acknowledging that the independent monitoring committee could recommend continuation or stopping for efficacy, futility-related concerns, or safety.
- Management estimated REDUCE-IT annual costs through completion at $30m–$40m. It anticipated second-half 2017 SG&A at approximately the first-half level.
- Vascepa’s potential cardiovascular risk-reduction benefit remains unconfirmed pending REDUCE-IT. The FDA had not approved the ANCHOR indication; management said positive REDUCE-IT results would be required for label expansion. Permitted promotional communications do not change the FDA label or require third-party reimbursement.
- Amarin depends substantially on one product and a small number of wholesalers: its top three customers accounted for 92% of first-half 2017 gross product sales and 86% of gross receivables at June 30. Supply is also dependent on third-party manufacturers; certain supply agreements have minimum purchase commitments and shortfall remedies.
- Kowa co-promotion fees were $9.8m in the first half. The agreement, amended July 25, 2017, was scheduled to end in 2018; the company anticipated a modestly higher fee rate that year and possible tail payments for up to three years afterward.
- Potential contingencies include up to approximately $9.8m upon specified European marketing approval and up to approximately $13.0m for two further indication approvals under the Laxdale agreement; no provision was recorded because the amounts were not considered probable or estimable. The IRS was auditing 2013–2014 returns; management did not expect a material adverse effect. The Third Circuit affirmed dismissal of the securities class action, and rehearing and en banc requests were denied.
Important facts for investors to verify
- Current Vascepa prescription, net revenue, gross-to-net deductions, and wholesaler inventory trends; reported prescription figures are third-party estimates.
- REDUCE-IT interim-review status, event accrual, final results, and any FDA response or label-expansion requirements.
- Cash runway under actual operating outflows, remaining BioPharma repayments, and whether additional financing is required.
- Generic Vascepa patent litigation and the timing and durability of relevant regulatory exclusivity.
- Concentration of sales and receivables among the top three customers, supplier capacity and minimum-purchase obligations, and Kowa transition or tail-payment costs.