AMARIN CORP PLC quarterly report, Q3 FY2015

Amarin Corporation plc — Q3 2015 Form 10-Q

Reporting period: Three and nine months ended September 30, 2015; unaudited. Amarin is a biopharmaceutical company focused on Vascepa, its prescription product approved in the U.S. for severe hypertriglyceridemia, and on developing additional uses.

Financial performance and position

MetricQ3 2015Q3 2014Nine months 2015Nine months 2014
Total revenue$21.5m$14.1m$55.1m$37.7m
Product revenue$21.3m$14.1m$54.6m$37.7m
Gross margin$14.0m$8.8m$35.6m$23.1m
Operating expenses$39.8m$33.7m$115.2m$98.8m
Operating loss$(25.8)m$(24.9)m$(79.6)m$(75.8)m
Net loss$(30.7)m$(26.1)m$(93.3)m$(36.7)m
Net loss applicable to common shareholders$(32.3)m$(26.1)m$(127.2)m$(36.7)m
Net loss per share, basic$(0.18)$(0.15)$(0.71)$(0.21)
  • Gross margin was 65% in Q3 and 64% for the nine-month period, compared with 62% and 61%, respectively, in 2014. Management attributed the improvement primarily to lower-cost API purchases.
  • For the nine months, selling, general and administrative expense rose 27% to $77.5m, mainly reflecting increased sales and marketing activity, Kowa co-promotion fees and stock compensation. Research and development expense was nearly flat at $37.7m.
  • Cash and cash equivalents were $119.0m at September 30, 2015, versus $119.5m at year-end 2014. Current assets were $156.1m and current liabilities $55.3m. Accumulated deficit was $1.10bn; stockholders’ deficit was $111.1m.
  • Nine-month operating cash use was $60.1m, compared with $58.7m in 2014. Financing provided $59.5m, chiefly from $57.7m net proceeds from preferred-share placements and $2.7m from warrant exercises. Cash decreased by $0.6m.
  • Debt carrying amounts included $126.1m of exchangeable senior notes and $105.0m of current and long-term debt. Separately, $139.4m remained payable under the BioPharma revenue-linked financing arrangement; repayments are subject to revenue thresholds and may be deferred.

Changes versus the prior comparable period

  • Q3 product revenue grew 51%; nine-month product revenue grew 45%. Prescription estimates also increased, although the company cautioned that third-party prescription data are estimates and may not track distributor shipments precisely.
  • Operating losses widened modestly in Q3 and for the nine months. The nine-month common-shareholder loss increased substantially, partly because of a $33.0m non-cash preferred-stock beneficial conversion feature charge. In 2014, results included a $38.0m gain on debt extinguishment and an $11.9m gain from changes in derivative fair values; neither benefit recurred comparably in 2015.
  • Inventory increased to $19.7m from $13.7m at year-end, while accounts payable rose to $17.9m from $8.5m. The company received a $15.0m China licensing upfront payment, of which $0.5m was recognized as licensing revenue and $14.5m remained deferred at quarter-end.

Outlook, commentary and risks

  • Management said the $119.0m cash balance was expected to fund projected operations for at least the next 12 months. The filing does not provide a clear numerical full-year revenue or earnings forecast; management cautioned against treating short-term prescription data as guidance.
  • REDUCE-IT had enrolled more than 7,700 of its 8,000 targeted patients. Management expected enrollment to finish near year-end 2015, an interim data monitoring committee review in 2016, and study completion around 2017, with results expected in 2018. Estimated annual study costs through completion were $30m–$40m. The company remained blinded to trial data; the committee had recommended continuing the trial after safety reviews.
  • The FDA issued a Complete Response Letter in April 2015 declining the ANCHOR label expansion. A federal court’s August 2015 preliminary ruling permitted specified truthful, non-misleading communications to healthcare professionals about off-label Vascepa use; the FDA did not appeal by the deadline, and settlement discussions were ongoing. The filing emphasizes that this does not constitute FDA approval of the indication.
  • A May 2015 court decision vacated the FDA’s denial of five-year new chemical entity exclusivity and remanded the matter to the FDA. A generic applicant sought to intervene and appeal; related patent proceedings were stayed, and Amarin had sought dismissal. Outcomes remained uncertain.
  • Key risks include dependence on a single product and U.S. sales, uncertain market acceptance and reimbursement, REDUCE-IT efficacy and timing, generic competition and litigation, concentrated customers (the top three represented 95% of gross product sales), reliance on contract suppliers, and potential dilution from preferred shares convertible into up to 32.8m ordinary shares. The company also disclosed litigation and supply-purchase commitments; some Laxdale milestone obligations were not accrued because they were not considered probable or estimable.

Most important facts for investors to verify

  • Whether prescription growth converts to sustainable net revenue and cash generation, given rebates, co-pay support, distributor timing and customer concentration.
  • REDUCE-IT enrollment, interim-review timing, spending trajectory and eventual clinical results; no efficacy results were disclosed because the company remained blinded.
  • Cash runway and repayment terms for BioPharma financing, including revenue-based payment thresholds, deferred amounts and change-of-control provisions.
  • Developments in ANCHOR promotional litigation, NCE exclusivity and generic-applicant proceedings, and the extent of any eventual FDA-approved label expansion.
  • Preferred-share conversion, resale registration and resulting dilution; verify the remaining convertible share count and potential impact on ownership.
  • API supply continuity, supplier qualification, minimum purchase commitments and the extent to which lower-cost suppliers improve margins.