Amarin Corporation plc — Q2 2020 Form 10-Q Summary
Business context and period. Unaudited results for the quarter and six months ended June 30, 2020. Amarin is a pharmaceutical company focused on VASCEPA (icosapent ethyl), its lead product for cardiovascular risk reduction and severe hypertriglyceridemia. VASCEPA’s expanded U.S. cardiovascular-risk indication was approved in December 2019. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions where shown.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $135.3 million | $100.8 million | $290.3 million | $174.1 million |
| Net product revenue | $133.7 million | $100.4 million | $285.9 million | $173.1 million |
| Gross margin | $106.5 million; approximately 79% of revenue | $78.0 million; approximately 77% | $226.7 million; approximately 78% | $134.2 million; approximately 77% |
| Operating income (loss) | $4.2 million | $(2.5) million | $(19.9) million | $(25.3) million |
| Net income (loss) | $4.4 million | $(1.8) million | $(16.1) million | $(26.3) million |
| Operating cash flow | Not separately presented for the quarter | $5.7 million | $(22.2) million |
- Q2 total revenue increased 34% year over year; six-month revenue increased 67%. Product revenue growth was primarily attributed to U.S. sales volume and a modest increase in U.S. net selling price. International partner product sales were $1.8 million in Q2 and $8.5 million for the half year, including initial Canadian launch supply.
- Q2 operating expenses were $102.4 million, including $92.4 million of selling, general and administrative expense and $10.0 million of research and development. Six-month operating expenses were $246.6 million, up from $159.4 million.
- Six-month net loss included a $2.4 million income tax benefit related to U.S. net operating loss carrybacks under the CARES Act.
- Cash, cash equivalents and restricted cash totaled $217.9 million at June 30, compared with $648.5 million at year-end. The decline largely reflects purchases of investments: the company held $336.3 million of short-term and $61.0 million of long-term investments at June 30. Management described total cash and investment resources as exceeding $600 million.
- Inventory rose to $124.8 million from $76.8 million at year-end. Accounts receivable, net, was $125.0 million, versus $116.4 million.
- The royalty-bearing financing liability had a $22.3 million carrying value at June 30; approximately $23.0 million remained to repay CPPIB. Amarin reported no other debt outstanding and expected the royalty-bearing instrument to be fully repaid during 2020.
Material changes versus comparable periods
- Q2 returned to operating and net income, compared with losses in Q2 2019; the six-month net loss narrowed by $10.1 million year over year.
- Revenue expanded substantially, while selling, general and administrative costs rose sharply with U.S. sales-force expansion, promotion, personnel, insurance and patent-litigation costs. The U.S. field force reached approximately 900 sales professionals, including about 800 representatives.
- Six-month operating cash flow improved to a modest inflow from an outflow in 2019. Working-capital movements included a $48.1 million inventory increase, partly offset by higher accounts payable and other current liabilities.
- Cash balances shifted into short- and long-term investments; the resulting decline in cash and cash equivalents should not be read alone as the change in total liquid resources.
- In April 2020, holders converted 237.7 million Series A preference shares into 23.8 million ordinary shares. Additional conversions followed in July; 2.4 million ordinary shares remained issuable from preference shares after those conversions.
Outlook, management commentary and principal risks
- Management stated that cash and cash equivalents plus short-term investments at June 30 were expected to fund projected operations for at least 12 months and support its current plan to reach positive cash flow. This depends on assumptions that could prove incorrect; management cautioned that capital could be used sooner than expected.
- No specific full-year revenue guidance is provided in the supplied filing text. Management planned approximately $80 million of education and promotion spending in 2020, with spending subject to adjustment based partly on generic competition and the appeal outcome. It anticipated fewer than 20 European hires in 2020, initially focused on regulatory approval and reimbursement.
- COVID-19 constrained in-person promotion, patient visits and routine testing, slowing prescription and revenue growth during Q2. Field interactions resumed in phases in June. Management reported early signs of improved access but said the duration and future business impact of the pandemic were uncertain. COVID-19 had not materially affected product supply as of the filing.
- The Nevada federal court ruled on March 30 that relevant VASCEPA patents were invalid. Hikma received FDA approval for a generic in May but had not launched as of the filing; Amarin appealed and could seek an injunction. DRL’s application could also receive FDA approval. A generic launch could materially harm U.S. revenue and results. Settlements with Teva and Apotex generally provide for launches no earlier than August 2029, subject to specified circumstances, including outcomes of the appeal.
- Amarin received a June 2020 DOJ civil investigative demand concerning whether past speaker programs and copayment-waiver programs violated the Anti-Kickback Statute or False Claims Act. The company said it would cooperate; outcome, timing and potential impact were not predictable.
- Europe’s EMA review was ongoing; management then expected completion in early 2021, later than its prior late-2020 estimate, partly due to COVID-19. Amarin planned to self-launch in Europe if approved, while reimbursement, regulatory timing and commercial execution remained uncertain. Results from a China VASCEPA clinical trial were expected in the second half of 2020.
- Other key exposures include reliance on VASCEPA as the principal product, concentrated wholesaler customers, third-party manufacturing and minimum supply commitments, reimbursement and pricing pressure, and the possibility that future clinical or regulatory assessments affect perceptions of REDUCE-IT.
Most important facts for investors to verify
- Progress and timing of the Federal Circuit appeal, any injunction, and whether Hikma, DRL or another generic competitor launches and at what scale.
- Prescription trends and net sales after the Q2 COVID-related slowdown, distinguishing prescription estimates from wholesaler shipment timing.
- Whether management’s liquidity and positive-cash-flow assumptions remain valid, including investment maturities, inventory needs, operating spending and repayment of the royalty-bearing instrument.
- Developments and potential financial consequences of the DOJ investigation, including any eventual resolution or disclosure.
- EMA review and reimbursement milestones, China trial results, and commercial progress in Canada and other partner territories.
- Customer concentration: three wholesalers represented 91% of gross product sales for the first half of 2020, and 93% of gross receivables at June 30.
- Potential dilution: 388.7 million ordinary shares were outstanding at July 31, 2020, with 2.4 million additional ordinary-share equivalents issuable from preferred shares; options and restricted stock awards are also outstanding.