Q2 2015 Earnings Call Transcript

Published: 8 Aug 2015

[Operator:]

Welcome to Amarin Corporation's conference call to discuss its Financial and Operating Results for the Second Quarter of 2015. This conference is being recorded today, August 6, 2015. I would now like to turn the conference over to Mike Farrell, Vice President of Finance for Amarin.

[Mike Farrell:]

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 Private 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 sales, revenues, and other commercial metrics; expenditures; supply-related activities; managed care coverage and the adequacy of our financial resources; our current expectations regarding product development internationally; government agency decisions and pending litigation; our current expectations regarding our cardiovascular outcome study, such as anticipated enrollment, the related regulatory process, and potential outcomes; our plans to protect the exclusivity and commercial potential of our product; and our current expectations regarding our co-promotion agreement and our business generally. These statements are based on information available to us today, August 6th, 2015. 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 if 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 factor section of our quarterly report on Form 10-Q for the three and six months ended June 30th, 2015. 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 of 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; Steve Ketchum, our President of R&D; Joe Kennedy, our General Counsel; 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:]

Thank you for joining us today. On today's call, we will discuss Amarin's recent commercial, operational, and financial performance; provide an update on company initiatives and legal matters; and then take questions from analysts and investors. Our priorities for 2015 remain unchanged

[Aaron Berg:]

Thank you, John. As John mentioned, we're pleased that Vascepa prescriptions and revenues grew significantly in Q2 versus the same period last year and accelerated versus Q1 2015. In Q2, normalized prescriptions for Vascepa of 176,000 and 157,000 were reported based on data from Symphony Health Solutions and IMS Health, respectively. These normalized prescription numbers represent growth of 14% and 15%, respectively, over the first quarter of 2015. In Q2, normalized total prescriptions achieved all-time high levels and continued to outpace the growth of the total omega-3 category. Vascepa new prescriptions for the month of June were 23,463, growth of 8.3% over May. And normalized total prescriptions were 62,231, growth of 7.5% over May levels. For Q2, Vascepa prescription growth continued to be primarily generated from higher-decile physicians targeted by both Amarin and Kowa sales representatives. We believe that we have significant opportunity for continued Vascepa growth based on the currently approved indication supported by the strong efficacy, safety, and tolerability profile of Vascepa; the current size of our market opportunity; and the relatively limited penetration of Vascepa compared to earlier market entrants. In parallel with marketing Vascepa for its current indication, Amarin is preparing to expand its medical communications regarding Vascepa to healthcare professionals based on the letter we received on June 5th from the FDA in connection with the First Amendment litigation. And hopefully, our commercial team will be involved in implementing new programs after a favorable court judgment. Currently, most healthcare professionals are not aware of the results of the ANCHOR study and are not aware that we're conducting the REDUCE-IT cardiovascular outcome study. The extent to which we broaden our discussion of Vascepa results depends on the pending decision from the court. All such communication will be subject to disclaimers and other steps to ensure that the scientific information communicated is truthful and not misleading. FDA reviewed and validated the ANCHOR study results in the context of our litigation and had previously strongly urged us to complete the REDUCE-IT cardiovascular outcome study, pointing to final REDUCE-IT data as a means to settle FDA's uncertainty on the connection between triglyceride reduction and cardiovascular outcomes in the ANCHOR population, specifically, those patients with persistently high triglycerides after statin therapy. These patients are often treated with other therapies that have unfavorable side effects not associated with Vascepa. We seek to responsibly and more broadly educate healthcare professionals regarding Vascepa. Media attention has recently focused on a new class of cholesterol-lowering drugs referred to as PCSK9 inhibitors. We do not believe that such injectable therapies which target LDL cholesterol will compete with Vascepa. One of the characteristics of Vascepa is that it significantly lowers triglycerides and other lipid parameters without increasing LDL cholesterol. As a result, we believe that Vascepa is well positioned to benefit from increased attention on LDL lowering and be used in conjunction with LDL-lowering statin therapy. This has not changed as a result of the introduction of PCSK9s. We believe the introduction of this new class of drug will also increase physicians' focus on lipid management generally. We're confident that, if physicians reviewed the safety, efficacy, and tolerability profile of Vascepa, they will be drawn to use Vascepa over other triglyceride-lowering therapies to treat severely high triglycerides. Key factors contributing to our anticipated Vascepa growth for the balance of 2015 are

[Mike Farrell:]

Thank you, Aaron. My comments will address our recent financial results. You will find a more detailed discussion of our results in our 10-Q and press release issued earlier today. In Q2 2015, we recognized $17.7 million in net product revenues, representing an increase of 40% as compared to net revenues of $12.6 million in Q2 2014. As previously described, the timing of shipments to the wholesalers varies from period to period. At the end of June, wholesalers held approximately six days fewer inventory than they held at the end of the December. We view this to be more of a matter of timing and not an ongoing trend that the number of days of supply on hand at our wholesalers tends to fluctuate based on the timing of their orders. On a year-to-date basis through June 30th, 2015, we recognized $33.3 million in product revenues as compared to $23.6 million in the same period in 2014, an increase of 41%. As John mentioned, our average net price per capsule sold in Q2 2015 approximated our average net price in Q1 2015. Such net pricing, as previously discussed, is lower in 2015 than in 2014 due primarily to the impact of additional rebates and, in particular, from expanded tier-two managed care coverage and increased utilization of such coverage. Our overall rebate levels remain consistent with industry practice. Cash collections from the sale of Vascepa in the six months ended June 30th, 2015, were approximately $47 million. And all of our customers remain current in their payments. In addition to Vascepa product revenue, we recognized licensing revenue of $400,000 in the six months ended June 30th, 2015, related to the Eddingpharm development and commercialization agreement that was executed in February 2015. The development process in China continues to progress, consistent with our expectations. Based upon our current estimates, we anticipate approximately $800,000 in licensing revenue will be recognized in aggregate during 2015, including the $400,000 recognized earlier in 2015. Gross margin on product sales during the quarter ended June 30th, 2015, was 64% as compared to 60% in Q2 2014. Gross margin for the six months ended June 30th, 2015, was 64% as compared to 61% for the same period in 2014. While our gross margin may fluctuate from quarter to quarter, overall, we expect our gross margin percentage to improve as we source lower-cost API. We began purchasing an increasing proportion of lower-cost API during 2014. And we anticipate that purchase costs will continue to fall on average based upon supplier mix, purchase price concessions, and the improved strength of the US dollar as it relates to foreign exchange rates. During the six months ended June 30th, 2015, we paid approximately $19 million for supply-related purchases as compared to approximately $3 million in the same period of the prior year. As a reminder, we began 2014 with an excess of 12 months of inventory on hand, such that a portion of our inventory was classified as long term on our balance sheet. Our SG&A expense in Q2 2015 was $26.1 million as compared to $21.1 million in Q2 2014 and was $50.8 million in the six months ended June 30th, 2015, as compared to $41.7 million for the same period in 2014. The increase in SG&A expenses was primarily driven by higher legal expenses primarily associated with our new chemical entity and First Amendment litigation, an increase in co-promotion expense related to our partnership with Kowa, and an increase in noncash stock-based compensation expense. We previously guided that we anticipate that our 2015 SG&A costs, excluding noncash items, while variable in amount from quarter-to-quarter will be comparable in amount to our 2014 SG&A costs, with the exception of anticipated higher fees payable to Kowa, which correlate to increases in gross margin. As referenced by John and Aaron, we are preparing to expand certain marketing programs in order to communicate broader information about Vascepa to healthcare professionals than we have previously communicated, including information about the results from our ANCHOR Trial. While such communication will be made with appropriate disclaimers and are not part of an improved label, we anticipate that such communication could lead to greater use of Vascepa as physicians will be better informed of Vascepa's demonstrated effects in the ANCHOR Trial. The extent of such increased marketing spend and the potential effect on Vascepa usage cannot be predicted at this time. Most likely, the added spending during 2015 will be less than $7 million. We will make further determination regarding the cost and potential impact of such programs after a ruling in the First Amendment litigation. Our R&D expenses in Q2 2015 were $12 million as compared to $11.7 million in Q2 2014 and were $24.6 million in the six months ended June 30th, 2015, as compared to $23.4 million for the same period in 2014. The increase in R&D expenses compared to 2014 was driven by an increase in staffing and overhead costs primarily in support of progressing the REDUCE-IT Trial. As discussed on previous calls, R&D costs are expected to be slightly higher during 2015 as compared to 2014 as a result of the timing of REDUCE-IT costs. And such costs are expected to decline modestly thereafter upon completion of enrollment for REDUCE-IT. Such enrollment is currently more than 95% complete. Under US GAAP we reported a net loss of $62.9 million in the second quarter of 2015. Our basic and diluted loss per share in the second quarter of 2015 was $0.35. This net loss included $3.2 million in noncash, share-based compensation expense, a $600,000 noncash loss on the change in fair value of derivatives, and a $31.3 million charge for a noncash deemed dividend for accounting purposes. For the six months ended June 30th, 2015, we reported a net loss of $94.8 million, or basic and diluted loss per share of $0.53. This net loss included $6.3 million in noncash share-based compensation expense, a $100,000 noncash loss in the change in fair value of derivatives, and $32.2 million in charges for noncash deemed dividends for accounting purposes. We reported cash and cash equivalents of $136 million at June 30th, 2015, representing a net increase of $16.5 million from reported cash and cash equivalents of $119.5 million as of December 31st, 2014. The increase in cash reflects a $15 million upfront payment received in March upon execution of our initial ex-US licensing agreement for Vascepa as well as the net proceeds of $52.1 million received in March from the issuance of convertible preferred stock, partially offset by cash used in operating activities. Net cash outflows from operations for the six months ended June 30th, 2015, were $37.6 million as compared to $38.8 million in the same period in 2014. As a result of the timing of certain items, including interest payments and the timing of supply purchases, legal costs, and REDUCE-IT expenses, we expect quarterly variability in 2015 cash outflows from operations. On the investor relations front, Amarin will be presenting at the 2015 Rodman & Renshaw Global Investment Conference in New York City during the second week of September. I will now turn the call back to John Thero for closing remarks. John?

[John Thero:]

Thank you, Mike. Hopefully, through these comments, you get a sense for the progress we are making. A beacon for our efforts continues to be the enormous upside potential of success in the REDUCE-IT cardiovascular outcome study. We have not focused much on REDUCE-IT in our comments today. Hopefully, evidence to everyone is the very large potential presented for improved patient care and revenue growth if that trial is successful. In prior investor calls, we have described reasons we believe that this important study is positioned for success. And that perspective has not changed. With that, we conclude our prepared comments, and we move to open the line to some questions. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Chris Hanacek, Bank of the West. Please proceed with your question.

[Chris Hanacek:]

Thank you. Just a question in terms of what monthly prescription volume you anticipate to exceed the breakeven point in terms of profitability for Amarin?

[John Thero:]

Chris, appreciate the question. This is John. So, as we were coming out of last year, so off of last year's sort of December prescription levels, we had commented that, at that point in time, we needed to roughly double our prescription growth in order for us to breakeven on a commercial basis. And I define commercial basis as being our cost excluding our R&D costs. And that guidance hasn't changed at this juncture.

[Operator:]

Our next question comes from Akiva Felt with Oppenheimer. Please proceed with your question.

[Akiva Felt:]

Sure. Thanks for taking the questions. John, could you walk us through the math and the calendar that hits the first ANDA or first potential ANDA approval at 2020? And would a challenger need to overcome all of the Orange Book-listed patents, including maybe any new ones that are listed in the extended period between now and the end of the NCE exclusivity?

[John Thero:]

I'd be happy to, but since I have Joe Kennedy, our General Counsel, sitting next to me and he's in the thick of that, let me turn things over to Joe to respond.

[Joe Kennedy:]

So, thanks for the question. So, for an ANDA to proceed with review at the FDA, the FDA would have to reaccept an ANDA right now. So, as we noted in our prepared remarks, the ANDAs, while originally submitted, have been -- their acceptance has been revoked. And so, right now, the FDA is not reviewing ANDAs. For that review to begin again, we believe that review would -- could only begin again after the exclusivity period for NCE would expire. And that would be July 2016. Right now, the court, in granting a summary judgment motion, remanded back to the FDA determination on NCE. So, what we're looking at right now based upon that strongly worded opinion is no acceptance of ANDAs until July 2016. Now, once they get accepted, typically, if you look at the review period for ANDAs, they can run up to three years of review. We believe that once an ANDA would be accepted by the FDA in mid-2016 or the second half of 2016, we'd then be entitled to a 30-month stay that would run out into the beginning of 2020. And so, that's the point in time that we see the ANDA litigation starting up again. And in terms -- to answer your other question, yes, there are many patents that we have listed in the Orange Book and that have been the subject of the patent litigation that's ongoing right now, which we're moving to dismiss. And not only would an ANDA applicant have to overcome each of those patents, but each of the individual claims in those patents. And when you add them all up, there are a few hundred claims in those patents. So, I hope that answers your question. If not, let us know.

[Akiva Felt:]

No, that was great. Thank you, Joe. Maybe just a follow up, this is probably for John. Should we expect or anticipate that you guys are evaluating maybe other territory-like agreements similar to Eddingpharm but with a different company?

[John Thero:]

Sorry, Akiva. Can you just repeat that? There was a little static on this end.

[Akiva Felt:]

Sure. Are you guys looking at partnership opportunities outside of China or similar collaborative agreements to Eddingpharm?

[John Thero:]

So, absolutely. As we had laid out in a prior discussion, in -- last year, our focus was on finding a commercial partner domestically, which we did with Kowa. We then focused our effort internationally and prioritized China, and we're very pleased with our relationship with Eddingpharm and that the efforts in China are progressing as expected. And we have great confidence in Eddingpharm to continue to progress matters there. And we have now moved to select other geographies in the world where we have discussions going on with various companies, different statuses in different geographies. There's enough interest there that suggests to me that something can happen. And I think what we and some of the people we're talking to would like something to happen deal terms on any of these things can often be protracted. So, we're not at this point in time giving guidance on the timing. A lot of factors to consider, but we are of a belief that Vascepa has global sales opportunities and global potential. Triglycerides, lipids are a problem almost everywhere in the world. And we'll look forward to being able to announce something when we conclude a deal but don't want to provide specific guidance on deals as these things are not entirely within our control.

[Akiva Felt:]

All right. Great. Thank you.

[Operator:]

And next question comes from Chris Hanacek with Bank of the West. Please proceed with your question.

[Chris Hanacek:]

Thank you. Under what scenarios would you anticipate initiating direct-to-consumer marketing?

[John Thero:]

Yes, so, this is John Thero. I appreciate the comment. At this point, our approval is for patients with very high triglycerides. It's an important indication, but it is a niche indication. It's an indication over which we think we can continue to grow. But, these are patients who, due to the nature of the label, tend to be getting special attention by their whether it be their primary care physician, cardiologist, or lipidologist. And we think that the best use of our resources are in educating the medical community on the importance of treating these patients, identifying these patients, and treating these patients in a way that doesn't offset the value of other therapies that such patients may be being treated with, in particular not offsetting the value of LDL therapy, where we believe our drug is uniquely positioned. So, our focus is there today. As we progress through here, we'll see what happens back on the First Amendment matter. We believe that's also an opportunity with healthcare professionals that the aim would be to use truthful and nonmisleading information to give healthcare professionals additional information to use in the treatment of their patients. Following an outcome study, whereby we had results which would definitively right now, what we have is significant data that is some of its genetics. Some of its clinical. Some of its epidemiological. There's a lot of information pointing to the health benefit provided by the active ingredient in product that helps benefits coming from the lipid reduction, coming from the anti-oxidation, coming from the anti-inflammation. It's broad benefit. But, after we have that benefit shown not only strongly suggested by the clinical, genetic, and epidemiological evidence, and by pointing to outcome study data from outside the US, once we have that based on a Western population, that's information we think will get fairly broad consumer attention just by the nature of the importance of the data but also would at that point in time be much more suitable for a direct-to-consumer campaign. Part of what we're doing here is growing revenues. But, part of what we're also doing is trying to make sure that we're being smart with where our cash is being used. And at this juncture, it's not trying to increase our burn rate. We've been making significant strides over the last two years to bring that burn rate down and try to get ourselves here to a position where we're cash flow positive. I think the outline I've just described to you is consistent with that. So, hope those comments are helpful.

[Chris Hanacek:]

Great. Thank you.

[Operator:]

There are no further questions at this time. I'd like to turn the call back to John Thero for closing remarks.

[John Thero:]

Thank you very much, everybody, for your interest. We look forward to continuing to update you on our progress. Great day. Bye.