Q1 2016 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

Greetings, and welcome to the Amarin's first quarter 2016 results conference call. [Operator Instructions] I'd now like to turn the conference over to your host, Kate McNeil, Executive Director, Investor Relations. Thank you. You may now begin.

[Kathryn McNeil:]

Welcome, and thank you for joining us today. Please be aware that this conference call will contain forward-looking statements that are intended to be covered under the safe harbor provided by the Securities Litigation Reform Act. Examples of such statements include, but are not limited to, our current expectations regarding our commercial and financial performance, including levels of Vascepa revenues, costs and other commercial metrics; gross margins, expenditures and the adequacy of our financial resources; our current expectations regarding litigation; regulatory reviews and government agency decisions, our current expectations regarding our cardiovascular outcome study, such as timing of completion and likelihood of success, our plans to protect the exclusivity and commercial potential of Vascepa, our goals regarding international expansion and other business development opportunities, and our current expectations regarding the effect of our co-promotion agreement on our business. These statements are based on information available to us today, May 5, 2016. We may not actually achieve our goals, carry out our plans or intentions, or meet the expectations disclosed in our forward-looking statements. Actual results or events could differ materially. So you should not place undue reliance on these statements. We assume no obligation to update these statements as circumstances change. Our forward-looking statements do not reflect the potential impact of significant transactions we may enter into, such as mergers, acquisitions, dispositions, joint ventures or any material agreement that we may enter into, amend, or terminate. For additional information concerning the factors that could cause actual results to differ materially, please see the forward-looking statement section in today's press release and the risk factors section of our Quarterly Report Form 10-Q for the quarter ended March 31, 2016. These documents have been filed with the SEC and are available through the Investor Relations section of our website at www.amarincorp.com. We encourage everyone to read these documents. This call is intended for investors in Amarin and is not intended to promote the use of Vascepa outside its approved indication. Finally, an archive of this call will be posted to the Amarin website in the Investor Relations section. In addition to myself, on today's call from Amarin are John Thero, our President and Chief Executive Officer; Joe Kennedy, our Executive Vice President, General Counsel and Strategic Initiatives; Steve Ketchum, our President of Research and Development and Chief Scientific Officer; Craig Granowitz, our Chief Medical Officer; and Aaron Berg, our Senior Vice President of Marketing and Sales. I'll now turn the call over to John Thero, President and Chief Executive Officer of Amarin.

[John Thero:]

Good morning, and thank you for joining us today. We're excited to have this opportunity to touch base and review our progress thus far this year. Having recently taken a rather deep dive through the business during our last conference call, we will keep this discussion focused on recent events and performance against our top operating goals. As you've heard me say before, our priorities remain unchanged, to support improved patient care with Vascepa, increased revenues, progress our cardiovascular outcome study REDUCE-IT and manage our business in an opportunistic and cost-effective manner. The unifying theme that underlies each of these goals and one of Amarin's proven core strength is focused execution. This focused execution resulted in another strong quarter for the company in Q1, marking our ninth consecutive quarter of generating greater than 50% growth in normalized prescriptions year-over-year. Increases in both new and recurring prescriptions during the quarter led to net product revenues of $25.3 million compared to $15.6 million during the same period last year, an increase of approximately 63%. Our reported revenues for Q1 exceeded our internal forecast for the quarter. As previously described, Q1 each year starts out slowly for many drugs, addressing chronic conditions due to seasonal factors, in particular, due to beginning of the year insurance deductibles for patients. While we witnessed some of this seasonal effect in Q1 2016, it was largely offset by strong NRx growth, which reflects the traction and momentum our field force and managed care teams are building, and evident that our messages are resonating. We are fortunate to have a talented and committed team supporting our product in the markets. Having just returned from our Annual National Sales Meeting, I can attest to our field team being highly focused, energized and motivated to make 2016 an outstanding year. Our focus and execution also kept us on track in our REDUCE-IT study, for which we not only achieved target enrollment, but more importantly hit the event threshold needed to initiate preparations for a pre-specified interim analysis of efficacy and safety later this year. During the past two years, there has been considerable uncertainty regarding our authority to broadly promote Vascepa beyond our initially approved label. Thanks to our legal and regulatory affairs team, the courts and the FDA, our path forward is now clear. We and the FDA reached agreement in March, which effectively made permanent the terms of our August 2015 federal court declaration. This agreement confirms our right to promote the ANCHOR clinical trial data and to discuss the current state of scientific research on the potential of Vascepa to reduce the risk of cardiovascular disease. We have been methodically expanding our promotion of Vascepa, based upon this expanded authority, while taking special steps to ensure that our promotion is both truthful and non-misleading. I'll provide a brief recap of our financial results before turning the discussion over to others for more detail. As mentioned, in Q1 we had a 63% year-over-year increase in net product revenue reporting $25.3 million in net product revenue and $25.5 million in total revenue for the quarter. Cost of goods sold during the three months ended March 31, 2016, was $6.9 million compared to $5.6 million in the same quarter of 2015. Gross margin on product sales jumped to 73%, a 9 percentage point improvement compared to 64% gross margin reported for the first quarter of 2015. This improvement was primarily driven by lower unit API purchase costs. SG&A for the quarter was $28 million, up a little over $3 million from the same quarter last year, primarily as a result of increased co-promotion fees earned by Kowa and increased sales and marketing spend associated with our expanded marketing initiatives. SG&A for the quarter also increased as a result of increased non-cash stock-based compensation expense, partially offset by quarterly variability and legal costs. With the exception of increases in co-promotion fees expected to be earned by Kowa and excluding non-cash Kowa, we expect our 2016 SG&A cost, taken as a whole, should be relatively flat compared to 2015. We have held the size of our sales force steady over the past two years, while increasing revenues from increased productivity and experience. We intend to continue this focused approach with emphasis of becoming cash flow positive and preparing for further sales force expansion following successful REDUCE-IT results. Our R&D expenses for the quarter were $13.7 million compared to $12.6 million in Q1 2015. The $1.1 million increase was primarily driven by the timing of REDUCE-IT expenses. In 2016, we intend to manage our R&D expenses, excluding non-cash costs, to a level which is relatively consistent with 2015 with continued quarterly variability due to the timing of study-related costs. Similarly, we expect REDUCE-IT related expenses to be approximately $30 million to $40 million annually until study completion. Under GAAP, we reported a net loss of $29.8 million in the first quarter of 2016 or basic and diluted loss of $0.16 per share. This net loss included $3.6 million in non-cash share-based compensation expense and a $1.3 million non-cash loss on the change in fair value of derivatives. As of March 31, we had cash and cash equivalents of $81.4 million. Due to the timing of payment for supply and the timing of certain other costs, net cash outflows from operations in Q1 were higher than we expect from any other quarter this year. Cash outflows in Q1 for inventory-related purchases were approximately $11.5 million. We remain on track to enter 2017 cash flow positive from commercial operations, excluding REDUCE-IT costs and other R&D expenses not required to sustain current commercial operations. We ended the quarter with $15 million in net accounts receivable, reflecting $19.3 million in gross accounts receivables before allowances and reserves. We also ended the quarter with $21.3 million in inventory. With that, I will turn the call over to Aaron Berg, he had a little more color on how to improve efficiency, expand our reach and move closer to becoming cash flow positive. Aaron?

[Aaron Berg:]

Thank you, John. We started 2016 with encouraging results, particularly with respect to new prescription growth and new prescribing physicians. Q1 has historically been a challenging quarter and is reassuring to see these positive underlying growth trends. We have no doubt that our messages are resonating with providers as well as with payers. In the first quarter, normalized prescriptions for Vascepa reached 201,000 and 214,000 based on data from Symphony Health Solutions and IMS Health. These levels represent increases of approximately 55% and 56%, respectively, over the corresponding quarter in 2015. As John mentioned, the first quarter of 2016 marks our ninth consecutive quarter of greater than 50% growth. While that's a tremendous growth rate to sustain three years into launch, we're confident that we can continue to generate growth before the readout of REDUCE-IT, as this market and Vascepa have consistently proven to be very sensitive to promotion. When physicians spend the time to learn about Vascepa, the data reviewed is compelling. Our focus prior to the readout of the REDUCE-IT is expanding our share of the prescription omega-3 market, for which there remains ample room for growth, as we currently have less than 20% of that market. After successful REDUCE-IT results, we plan to not only capture the majority share of the prescription omega-3 market, but also to capture much larger share of the 25 million prescriptions written annually for other triglyceride lowering non-statin agents, such as fibrates and prescription niacin. Moreover, based on positive REDUCE-IT results, we expect the total non-statin market to grow due to Vascepa promotion, as less than 5% of patients with high triglycerides today receive prescription therapy to address their elevated triglycerides. The overall potential market expansion is our greatest opportunity, representing billions of dollars in potential. With a product that's safe, effective and well-tolerated, as Vascepa, supported by a robust body of evidence supporting the unique attributes of pure EPA, we already start with an advantage right with options and opportunity. So in addition to our recently expanded marketing efforts, we are continually pulling different levers to amplify our message and drive utilization. This includes efforts such as enhancing our speakers bureau program, drawing bigger audiences and garnering positive feedbacks on the quality content delivered in these forums. We continue to focus on the highest value prescribers and have also recently begun to spend more time educating nurses and pharmacists about the unique role Vascepa plays in patients with elevated triglycerides. In parallel to our efforts to engage healthcare professionals, we continue our focus on payers to ensure affordable access to treatment. We continue to see a discrepancy between the perception and reality of Vascepa coverage. As a result of our efforts, managed care coverage continues to improve with over 140 million Tier 2 lives covered without restriction. In fact, we recently compared the approval rates of Vascepa versus generic Lovaza and other braded prescription products. What we found was the approval rate for Vascepa is consistent with other branded prescription drugs and within 7% of generic Lovaza. This finding contrasts with the perception that because Vascepa is still relatively new to the market, its coverage is limited. Regarding this misperception, we're redoubling our efforts to work directly with healthcare professionals to provide further clarity, so that they are confident that the prescriptions they write for Vascepa are filled. Fortunately, this is an addressable concern and our managed care team continues working closely with our field force to refine up the strategies for tackling this problem head on. Our share of voice in the marketplace continues to be strong. While there is significant promotion ongoing in support of PCSK9 inhibitors, they are of course not directly competitive with Vascepa. Their marketing is consistent with our messaging that lower LDL cholesterol is better, as unlike other triglyceride lowering products such as fibrates and omega-3 mixtures, which contain DHA, Vascepa does not increase LDL. As the ANCHOR study demonstrates, Vascepa effectively lowers triglyceride in statin-treated patients with high triglycerides, without offsetting the LDL lowering effect of statins. Last month, apparently based on failed outcome studies, the FDA removed from the label of all fenofibrates and prescription niacin drugs for use on top of statin therapy. The FDA also removed from the market drugs, which are fixed dose combinations of these drugs and statin. While physicians may not initially be aware of these changes, and payers may not care, given that fibrates and prescription niacin are generic, we believe that this is an added opportunity for Vascepa. We will continue to seek and capitalize on opportunities to make Vascepa the drug of choice in statin-treated patients with persistently high triglycerides. As we look to the remainder of 2016, we're excited to continue to build on our positive momentum, further increase market share and are confident we can continue to grow Vascepa revenues. I'll now turn the call over to Steven Ketchum, who will review some highlights and key clinical achievements for the quarter.

[Steven Ketchum:]

Thank you, Aaron. During the first quarter we hit two significant milestones in the REDUCE-IT cardiovascular outcome study. First, REDUCE-IT reached its target enrollment and now has over 8,000 patients enrolled in this study, evaluating the effectiveness of Vascepa and preventing the occurrence of the first major cardiovascular event in a population of patients at high residual risk and with elevated triglyceride levels, despite statin therapy. Second, and more importantly, we reached the onset of approximately 60% of the target primary cardiovascular events in the study, triggering preparations for the protocol pre-specified interim analysis by the independent data monitoring committee or DMC. It's fairly remarkable how closely event rates in this study track to our initial estimates. And as we have reported all along, the cardiovascular event rate continues to track to prior estimate. We believe this supports the assumptions we made about the target patient population, size and powering of the study, so we continue to take comfort in its steady progress. Having reached the event threshold for interim analysis, we initiated a multi-step process to prepare for the DMC review. An early step in that process is having all participating clinical sites completed clinical update for all 8,000-plus patients enrolled in the study. This updated patient status, including updates for patients with and without cardiovascular events, is intended to give us an accurate, current and complete dataset for the study up to point of database swap for the interim. After the records are updated for all patients, the data will be prepared for transfer to it and analysis by the DMC. Our current expectation is that the DMC will conduct their review in September or October of this year. While the DMC has reviewed safety data on a quarterly basis since the study started, the upcoming interim analysis will represent the first review of unblinded efficacy data by the DMC. As you know, we will, of course, remain blinded to the interim and ongoing results until after the study is ready to be start, be that at the interim analysis or at the final analysis. As we indicated before, despite our continued and growing confidence that the REDUCE-IT studies position for success, we expect that at the interim look the DMC will recommend the study continuing until attainment of 100% of the target primary events, which is expected to occur in the second half of 2017. If successful, the study would be the first multinational outcome study demonstrating the cardiovascular benefit of having pure EPA therapy on top of statin therapy treated patients, moreover, because it is the first randomized and controlled study of any drug to prospectively low patients who despite statin therapy have high triglyceride levels. If successful, this study will be the first such study in patients with elevated triglycerides to show that any drug can help to address the considerable residual cardiovascular risk that remains beyond statin therapy. Results of the study now only have the potential to expand the indicated uses for Vascepa, but will serve to define what benefits beyond triglyceride lowering, that EPA treatment can confer in this population to lower cardiovascular risk. We are looking for clear and decisive data that not only can secure future claims for Vascepa, but that also sets the bar high for other therapeutics looking to compete in this space. In addition to our progress in the REDUCE-IT study, we have been working closely with our partner Eddingpharm to complete submissions to the China Food and Drug Administration needed to better define the clinical and regulatory pathway to Vascepa approval in China. This included the compilation and translation of the full Vascepa safety, efficacy and CMC data packages. At this juncture, it is difficult to accurately predict the timing for regulatory efforts in China, and consistent with our initial assessment of this very significant additional market opportunity for Vascepa, we expect the China FDA could respond with additional clinical trial requirements. Once Eddingpharm sees the response, we will be in a much better position to estimate time to market in this region. I would now like to introduce you to the newest member of the senior team at Amarin, Dr. Craig Granowitz. Craig joined Amarin earlier this year as our Senior Vice President, Medical Affairs and Chief Medical Officer. He has an M.D. and a PhD with degrees from Columbia. He has significant industry experience including spending his last six years at Merck, where he was Senior Vice President and Head of Global Medical Affairs in the Global Human Health division. Craig?

[Craig Granowitz:]

Thank you, Steve. I'm very pleased to be a part of Amarin. I was drawn to Amarin by the quality of the people, the clinical positioning and performance of Vascepa, and the opportunity I see for Amarin to become a transformative company, particularly with respect to addressing the residual cardiovascular risk of patients beyond that, which can be addressed through statin therapy. As I continue to dig deeper into the science behind Vascepa, and get to know the people in the company better, I'm sure that I made the right choice and that the future of Amarin is bright. Amarin's medical affairs capabilities and opportunities are growing. We need to both support the current commercialization of Vascepa, as well as help pave the way for REDUCE-IT results to be understood and broadly communicated once they are available. We are working with key opinion leaders and expanding continuing medical education opportunities for physicians regarding lipid management. Our medical affairs group is working closely with our R&D team to expand research and data analysis, focused on further refining and defining our understanding of pure EPA therapy. For example, last month we had new clinical and preclinical data presented at the American College of Cardiology meeting in Chicago. Posters presented at the meeting included, a poster presented by Dr. Harold Bays of the Louisville Metabolic and Atherosclerosis Research Center that highlights findings from an exploratory subgroup analysis of the MARINE data, suggesting Vascepa significantly lowered triglycerides and improved other lipid parameters relevant to cardiovascular health without raising LDL cholesterol, in patients who are also receiving statin therapy. And a poster presented by Dr. Preston Mason of Department of Medicine at Harvard Medical School, featuring preclinical data, suggesting that EPA, both alone and in combination with the active metabolite of Lipitor could improve endothelial function. Both presentations add to the growing body of clinical and preclinical data on the effects of EPA, when combined with statins and provide key insights into our development and commercial strategies for Vascepa. We are planning additional publications and presentations this year, including several expected at the upcoming National Lipid Association meeting in New Orleans in a few weeks. For those of you that may not be familiar, in L.A. is an important medical conference that addresses the needs, concerns and interest of thought leaders, focused on prevention of cardiovascular disease and other lipid related disorders. We have a strong presence at this conference with the a branded booth and members of our medical team will be meeting with many of the attendees. When REDUCE-IT is complete, we will be well-prepared for the results of this landmark study to be broadly published and noticed. I look forward to providing you with further updates as we move aggressively forward. Now, let me turn the discussion back to John.

[John Thero:]

Thank you, Craig. In closing, our plans are big and our expectations are high. Our pathway forward is increasingly clear. We are confident that we have the right product and the right team to further advance our leadership in the cardiovascular space. Realizing this vision requires continued execution and our team is focused on our key strategic priorities of expanding Vascepa utilization within our promotion rights, maintaining our position at the forefront of a changing cardiovascular market through the completion of a first of its kind cardiovascular outcome study, while supporting additional EPA research and maximizing operational efficiencies. We're very excited about where Amarin is today and we look forward to reporting on our progress throughout the year, as we continue to focus on innovation and relentless execution. With that, I would like to open the lines for some questions. Operator?

[Kathryn McNeil:]

While we wait for our first question to be queued up from the operator, let's take a question that was submitted via email. Our first question is about the recent regulatory developments related to fenofibrates and niacin. This investor asked how Amarin sends help to all those people who are denied coverage for fenofibrates now that the FDA has pulled the indication.

[John Thero:]

I'll touch on that a bit further. I know Aaron mentioned a bit of it in his prepared comments. But as background, there were essentially two recent actions here by the FDA on this topic. One was to change the label for a generic fenofibrates and nicotinic acid, whereby they remove from those labels the approval of the use of those drugs on top of statin therapy. The drug remained on the marketplace, and can, of course -- they'll be prescribed that way, but it's been removed from the label. The FDA had a year ago removed it from the branded product, which takes it further to be a generic product. Secondly, they removed the products from the marketplace that are combination products of fibrates and/or nicotinic acid with statin therapy. Those drugs weren't broadly prescribed, but nonetheless, those drugs are now removed from the marketplace. This action by the FDA appears to be an effort to break more of a level playing field, follows up on failed outcome studies, particularly the ACCORD study and the AIM-HIGH study. As commented before, the entry criteria in those studies where patients with low HDL. The studies, it didn't work. We also commented that the subset population, as those studies have had high triglycerides, they do show benefits of the overall effectiveness of those drugs wasn't shown to be successful. And this move on the FDA part to limit those labels, positions Vascepa such that when we are, and we expect to be successful with REDUCE-IT study, that we will be the only drug positioned to be used on top of statin therapy for add-on benefit beyond the benefit provided by LDL lowering therapy, in particular, statin therapy. The change in terms of its communication and its value to our marketing will come over time and in pieces. The label change and removing of the combination products that should have somewhat immediate effect, but the prescription levels of those drug are fairly modest. The change is relative to the labels on niacin and nicotinic acid, and fenofibrates, both which are generic, may or may not be noticed by prescribing physicians. And payers of these products are unlikely to change reimbursement for products that they are using on top of statin therapy given that the overall field isn't particularly tightly managed and given that these products are not particularly expensive. We will be anticipating through CME programs and other opportunities that physicians get educated on this. There are certainly other side effects associated with those products to the extent that physicians become aware of this. And related to those outcome studies, related to other potential issues with those products, I think that continues to shine positively for the differentiation for Vascepa, but it will be a gradual process. We're not in a position to go out and bash our competitors over their limitations with the FDA. That being said, I do think physicians will through various avenues learn about it over time. I think I probably touched at key points. Aaron, I don't know, if you wanted to add anything further.

[Aaron Berg:]

No, I think you summed up the key takeaways. Our strategy is to keep pushing the high prescribing omega-3 prescribers, who are also often high prescribers of fibrates and prescription niacin, keep pushing into right more of Vascepa and we hope as they become increasingly aware of these changes, that there is some doubt about the limitations of these earlier generation products that rises and we certainly hoped that they are led to prescribing Vascepa in place of those agents.

[Kathryn McNeil:]

We've got another question actually that was submitted via email as well, so I'm going to quickly jump to that. It relates to our planned development efforts. Specifically this investor is curios about Amarin's plan to pursue other research studies for Vascepa, studying the VA trial on Alzheimer's disease in the new Mass General Hospital, study on depression, as examples of exploratory research evaluating applications of omega-3 and EPA. This investor asked if management has contacted large departments and hospital to co-promote a trial using Vascepa.

[John Thero:]

We're certainly aware of data suggesting that EPA, the active ingredient in Vascepa they have various therapeutic benefits in areas beyond, which we've studied and we're aware of research of EPA being conducted in areas such as Alzheimer's disease and depression. We're certainly looking forward to learning more about these areas of opportunity. We do maintain dialogue with various investigators regarding potential broader uses of Vascepa. There's some very interesting thought and hypothesis underlying number of these evaluation studies. Our internal R&D efforts today is highly focusing on REDUCE-IT and the large opportunity that that presents to us. In my earlier comments, I described the value of focus and efficient execution. So while we are given these other potential opportunities some attention, the level of attention will increase after REDUCE-IT is completed.

[Kathryn McNeil:]

Operator, do we have any other questions at this time.

[Operator:]

Not at this time. End of Q&A

[John Thero:]

It's a busy day with companies reporting earnings. So thanks folks for your attention this morning. We look forward to providing and continue to update as we progress forward. Have a great day.

[Operator:]

Thank you for joining us for Amarin teleconference this morning. This concludes today's teleconference and you may now disconnect lines at this time.