Amarin's (AMRN) shares have recently experienced a new 52-week low, falling to $5.22 per share (p/s) after Amarin announced the issuance of 21.7 million ADS shares (ADSs), with Citigroup Global Markets Inc. and Jefferies LLC serving as underwriters. In addition, this offering included the possibility of an additional 3.255 million ADSs issuable to the underwriters pursuant to a 30-day option, which brings the total to a possible 24.955 million ADSs being issued. The announcement was not received well on Wall Street, with shares dropping from $6.17 p/s down to the aforementioned $5.22 low. The eventual pricing of the offering at $5.60 p/s helped to stabilize the stock price somewhat, and now many investors are looking forward to several upcoming catalysts, including the October FDA Advisory Panel on the Supplemental New Drug Application for the so-called ANCHOR indication, the Prescription Drug User Fee Act (PDUFA) date of December 20, 2013, and the potential buy-out or partnership with 'Big Pharma' that many investors are anxiously awaiting.
Although I agree that all of these future catalysts are vitally important, I think that one important upcoming catalyst is being overlooked. The August Q2 2013 Earnings Call is just on the horizon (when exactly is a bit up in the air currently - August 7 according to Yahoo! Finance, August 13 according to CNN Money - although I think the latter to be more likely), and I believe that this call will be the most important short-term indicator of what investors can expect in the future based on cash flow models. I believe that the earnings will likely beat (or worst case meet) analyst expectations, and will provide important data for plotting the future of Amarin.
In order to look forward, however, we must first look back at Amarin's Q1 2013 earnings report and cash flow statement numbers:
Q1 Results (dollars in thousands excluding EPS)
Now that we have established this baseline, we can compare April, May, and June prescription numbers (12,314 in April, 16,076 in May, and the estimated number of normalized total Vascepa prescriptions for June is 18,367 - bearing in mind that this number excludes the last two calendar days of June). This brings us to a total of 46,757 prescriptions for Q2, which using some simple division indicates that Amarin sold 4.456 times as many Vascepa prescriptions in Q2 as compared with Q1 (again, excluding the last two calendar days of June). This multiplier allows us a basis to model the Q2 numbers based on Q1 reported numbers, using what I consider to be a very conservative model of costs and expenses. I am using this conservative model because Amarin President Joe Theo has stated that he expects actual cost of goods to decrease as product sales increase (Amarin Q1 Conference Call), and also because I believe that the Q1 costs of getting a sales force into the field should drop somewhat. So, although I expect the associated expenses of operations to decrease in Q2, I am basing this expense model assuming maintenance of the high cash burn seen in Q1, and using the same operating loss numbers used to compute the net loss in Q1. Further, I am using a hard number of $223 per script revenue number, and a cost of goods calculated as revenue divided by 1.82, which was the ratio indicated by the Q1 numbers ($2,341,000 revenue divided by the cost of goods number of $1,287,000 gives us 1.82 rounded). The net profit/loss is calculated by removing the Q1 revenue and product costs, and using predicted numbers in their place while keeping other costs the same. The predicted numbers using this model are as follow, with EPS using the same amount of float as existed at the time of Q1 report, and the EPS diluted shares indicate the math with the current addition of 21.7 million ADSs:
Predicted Q2 2013 Earnings (dollars in thousands excluding EPS)
EPS / diluted
$(0.39) / (0.34)
Analysts are currently estimating a loss of $0.40 p/s, but as you can see from the above table, even using a conservative model, Amarin should beat these expectations and instead report a non-diluted loss of $0.39 p/s, or after the ADSs issuance and dilution, a loss of $0.34 p/s (not including any potential option exercise by underwriters), and again ignoring any decrease in cost of goods.
Now you may be asking yourself why this is so important, as it is only a penny difference in terms of beating analyst expectations. The reason is that when we take the original model for Q2 and use it to look forward one year, something incredible happens, even if we use what I consider extremely conservative numbers. For the purposes of this future modeling, I am going to use the last reported percentage growth on month-to-month scripts of 14% (the percentage gain from May to June) as highlighted in a somewhat misleading recent "article." I consider this number extremely conservative as it ignores the benefits of increased Tier 2 insurance availability, increasing acceptance of Vascepa by specialists and general practitioners, and completely ignores any possibility of a buy-out or partnership (one of which I feel is certain to occur following December's likely ANCHOR approval). Further, because I am bullish on the possibility of ANCHOR approval, and the Q1 and Q2 2014 models incorporate the ANCHOR approval using the same 14% growth model (based off of June's incomplete numbers), as well as a conservative 6x market expansion for prescriptions (Marine + 5x for ANCHOR) based on using a 5x multiplier of Amarin's anticipated ANCHOR market (the MARINE indication is believed to address a 3.8 million person population, whereas ANCHOR is expected to have an additional potential market of 36 million people, which is more than a 10x increase in market potential over MARINE). Further, I have used the same $223 revenue per script, and a denominator of 1.82 to compute cost of goods (revenue divided by 1.82) as based on the Q1 numbers and my modeling for Q2 2013. These numbers reveal something very, very interesting occurring in 2014, as illustrated below:
Predicted Q3/Q4 2013 and Q1/Q2 2014 Earnings (in thousands excluding EPS)
EPS / diluted
$(0.37) / (0.33)
$(0.35) / (0.30)
$0.21 / 0.19
$0.52 / 0.45
Yes, I am predicting that Amarin is a profitable company in the first half of 2014, so long as they can successfully tap the expanded market for the ANCHOR indication using their existing sales force (although the company has indicated they will not limit themselves in this manner). Any partnership would have a trade-off between increased prescriptions and decreased revenue per script, but the product costs and sales force costs should also decrease as production increases and sales force needs to stabilize. Increasing the size of the prescription sales pie will ultimately lead to more revenue and a bigger slice of profits for Amarin, if a partnership should occur. Additionally, possible increased loan repayment costs are not factored in, as there is some debate currently about whether that loan will exist in 2014, and therefore I have chosen to model off of Q1 loan costs.
Obviously, there are several potential limits to this model, including the ability of the sales force to indeed expand into the ANCHOR market; however, there are also costs built into this modeling that are likely higher than what actual costs are, including production cost and ongoing sales efforts (due to these numbers being based on the initial startup of the sales force), but I believe that Amarin is poised to do some amazing things in 2014. You should run your own models, but also bear in mind that I limited this to half of the potential ANCHOR market, accounted for no decreased production costs, and accounted for no additional sales force.
Although these numbers are great, I think that expanded sales efforts, could be brought to the table by 'Big Pharma,' which would include increased representatives in the field with better access to providers due to multiple product lines, would likely lead to the creation of television and other commercial avenues, and most importantly, bring some additional medical community credence by having a 'Big Pharma' name behind Vascepa.
As always, do your own due diligence, but know that I am very excited, and I think you should be as well. That said, if Amarin's Q2 2013 numbers match or are better than my model, then long-holders should be extremely optimistic for the future.