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The official word from the FDA on Amarin's (NASDAQ:AMRN) FDA's review of the supplemental New Drug Application (SNDA) seeking approval for the use of Vascepa(NYSE:R) (icosapent ethyl) capsules in the proposed ANCHOR indication won't be known until at least Wednesday next week. FDA papers were released today that sparked a more-heated-than-ever debate between bulls and bears as the stock price slid down. What the FDA will officially decide and which side is correct remains to be seen. Most agree a thumbs up could turn Amarin from rags to riches, as the indication for the ANCHOR trial is estimated at 36 million compared to only 4 million for the current indication, increasing its market potential by tenfold. The purpose of this article is to explore the "what if" Amarin receives a thumbs down.

The short version:
Amarin is broke within 2 years without ANCHOR approval.

The longer version:
As of June 30, 2013 Amarin had $149.4 million in cash, plus it raised $121.1 million in July for a total of $270.5 million. It had net cash outflows of $52.8 million in Q2 and stated, "Amarin anticipates that it will experience continued reductions in quarterly net cash outflows from operations with future quarterly results below the results of the second quarter..."

How much of a reduction? Gross profit margins that last two quarters were 48% and 45%. If you assume with quantity that grows to 60% and assume the sales of last quarter triple (weekly script rate currently is double what it was last quarter) going forward, it comes out to $9.9 million in gross profit ($5.5 million*3*60%), an increase of $7.2 million over last quarter.

Cash R&D was around $17 million last quarter. If you cut that in half to $8.5 million and reduce the $30 million cash SG&A to $25 million, you get an overall reduction in cash burn discussed thus far of $20.7 million using the most optimistic of scenarios imaginable.

Amarin, even then, is still at a $32.1 million quarterly cash burn. While Q3 results aren't out yet, let's assume the $52.8 million burned last quarter comes down to $40 million. That leaves Amarin with $230.50 million left. $230.5 million divided by $32.1 million = less than 8 quarters. This time in two years, Amarin is broke.

Amarin gave no details in its most recent conference call to expect anywhere as rosy of a scenario of reduced cash costs as I presented. Of course, there's always the buyout possibility, especially if another company with better resources believes it can market Amarin's Vascepa better than Amarin did. If sales go up sixfold instead of my "optimistic" threefold, cash burn would go down another $7.2 million (at 60% margins). Still, even at a sixfold increase and all the other rosy scenarios, it only buys Amarin time, not success, of another two quarters. It really needs a massive sales increase to even break-even, one that has a great chance with ANCHOR approval. Short of a buyout, or severe dilution, or an angel lender, I'm afraid Amarin is broke fairly soon without ANCHOR approval. It's do or die time. Amarin has no other drugs in its pipeline. Good luck to all.

Source: Thumbs Down To Amarin's ANCHOR Would Sink Its Ship