Risky Amarin Sets Its Cash Pile On Fire

| About: Amarin Corporation (AMRN)

Amarin (NASDAQ:AMRN) reported after the bell today, and as I had written just days ago, I was waiting to see if the company could make me a believer. I listened to the call and looked over the results and herein lies my analysis of the Amarin saga. Long story short, I'm still not drinking the Amarin punch, and the rest of 2013 is going to dictate a lot of the Amarin story.

From its website, "Amarin Corporation is a biopharmaceutical company focused on the commercialization and development of therapeutics to improve cardiovascular health. Amarin's product development program leverages its extensive experience in lipid science and the potential therapeutic benefits of polyunsaturated fatty acids. Vascepa (icosapent ethyl) is Amarin's first FDA approved product and is available in the United States by prescription."

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After the drug's approval, the company failed to produce any major pharmaceutical partners, brought on its own sales staff, and is taking a stab at launching Vascepa on its own. So far, the launch hasn't gone amazing, but it hasn't gone poorly. Numbers had been running commensurate to prescription predictions and the stock has been stuck in limbo between $6 and $7.

This morning, before earnings were announced, Adam Feuerstein took to his blog to throw absolutely massive haymakers in Amarin's direction, citing "the negative results of the Italian Risk and Prevention Study, published yesterday in the New England Journal of Medicine," which appear to systematically dismantle a ton of the benefits for fish oil.

Feuerstein's article says:

The Italian Risk and Prevention Study enrolled 12,513 patients with multiple cardiovascular risk factors or evidence of heart disease but no prior history of heart attacks. Half the patients were randomized to receive 1 gram per day of n-3 fatty acids (fish oil) or an olive oil placebo.

After five years of follow up, 11.7% of the patients taking daily fish oil died or were hospitalized due to cardiovascular disease compared to 11.9% of patients treated with a placebo. There was also no difference in any of the prospective secondary endpoints.

"On the basis of the results, we conclude that there was no significant benefit of n-3 fatty acids in reducing the risk of death from cardiovascular causes or hospital admission for cardiovascular causes," the researchers conclude.

Eric Topol, a well-known cardiologist at the Scripps Clinic who was not involved in the study, was even more blunt in comments made to TheHeart.org.

"Fish oil does nothing," said Topol. "We can't continue to argue that we didn't give the right dose or the right preparation. It is a nada effect."

After market today, Amarin reported numbers that instill anything but extreme confidence in the company. It reported EPS of -$0.41, a 2 cent miss from analyst expectations.

The positives were that the company recognized sales from Vascepa to the tune of $2.34 million of the $5.2 million it sold to wholesalers. This means there's a lot of Vascepa sitting on shelves right now -- not necessarily a bad thing if Amarin can continue to execute.

Also, Amarin reported that it received FDA approval of two additional active pharmaceutical ingredient (API) suppliers, BASF (OTCQX:BASFY) and Chemport, for the manufacture of Vascepa, giving Amarin three qualified API suppliers.

Amarin also increased its patent total to 22, adding 11 in the first quarter alone.

Its PR also provides that prescription data continues to move in the right direction for the company. As I said in my last article, the prescription data, in my opinion, has been "adequate." Amarin's press release states:

  • Witnessed steady increases in the number of clinicians prescribing Vascepa (now over 4,000), in the number of prescriptions reported (via third-party sources), in the number of bottles of Vascepa shipped from wholesalers to retail pharmacies and in the number of co-pay cards used by patients
  • Witnessed monthly volume (via third-party sources, often underestimated) increase with consistency in the first months post launch with prescriptions increasing from 3,224 to 7,260 to 11,768 normalized TRx, reported in February, March, and April, respectively (normalized TRx equates to 120 capsules, or one month's supply)

However, here's the catch: Amarin burnt $58 million in Q1 alone. I realize that starting from scratch is going to take a ton of money, but this kind of burn leaves Amarin susceptible to getting extremely close to running out of cash if it cannot get Vascepa sales to pick up. This, combined with the studies reported this morning that have much more potential of being looked at over the coming days, make Amarin an extremely large risk. From the earnings release:

Under GAAP, Amarin reported a net loss of $62.2 million in the first quarter of 2013, or basic and diluted loss per share of $0.41. This net loss included $4.9 million in non-cash share-based compensation expense, $0.5 million in non-cash warrant compensation income, and a $3.6 million gain on the change in the fair value of derivatives. In the first quarter of 2012, GAAP net loss was $88.3 million, or basic and diluted loss per share of $0.65, and included $3.9 million in non-cash share-based compensation expense, $2.4 million in non-cash warrant compensation expense, and a $66.2 million loss on the change in the fair value of derivatives.

With a $62 million cash burn and just $2.3 million in Vascepa revenues, Amarin could potentially be headed for a major cash crunch before 2013 ends.

Amarin lists its operational priorities as:

  • Increasing revenues from sales of Vascepa
  • Continuing managed care migration from Tier 3 to Tier 2 coverage
  • Gaining approval of the ANCHOR indication sNDA (PDUFA date of December 20, 2013)
  • Planning for the commercialization of the ANCHOR indication

In a SWOT analysis, I could list these same things under potential threats for the company. With the clock ticking on its cash burn on if it doesn't knock all four of these out the of park, the company could be in trouble. Again, this fails to mention the press that fish oil is getting of recent, as well.

In my previous article, I made it crystal clear what I was looking for from this conference call:

Having been completely unhappy with the previous quarter's conference call, I'm going to be looking for a couple of things that could potentially turn me a bit more bullish on Amarin (I'm currently weighted about 3 to 1 puts to calls) :

  • an update on ANCHOR status
  • guidance for prescriptions/sales for rest of 2013
  • information regarding how many prescriptions of those out thus far in specific were offered either free, or for a discount
  • a non-funeral-like tone, like the one on the last call
  • progressions with intellectual property

The only update we received on ANCHOR was that it was going to be another seven months before we hear anything. The ANCHOR results could almost be rendered useless if the cash burn continues the way it's going. Longs don't want to hear this, but unless costs get roped in and revenues ramp up, Amarin could very well be out of cash by the end of 2013.

In addition to the heinous cash burn, nobody on the conference call wanted to offer any guidance at all about future Vascepa sales. As you recall, the excuse of "it's too early" used on the last conference call made a reprise appearance in this call as well.

Between the press that came out this morning and the financial numbers reported today, I'm still keeping my bearish lean on Amarin. I'm currently holding 3:1 puts to calls and am going to maintain this position based on my caveats failing to be met from this call. Amarin has failed to convince me that's it's a sure fire winner.

Disclosure: I am short AMRN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own AMRN puts and calls.