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In my previous Amarin (NASDAQ:AMRN) article, I forecasted that FDA rejection of its ANCHOR indication for its fish oil drug Vascepa would lead to the death of Amarin. I gave the bear side of the case using conservative numbers to provide evidence that death was a sure thing. Now that ANCHOR appears most likely to get rejected, I will present the optimistic bull side. Amarin could actually still turn profitable, and it appears to be making at going at it too by laying off half of its staff.

Let's start with current forecasts. In the press release announcing the layoffs, Amarin said it expects its burn rate in 2014 to be $80 million in cash. It also said it ended Q3 with $226 million in cash. Based on Amarin's cash for the end of Q2 plus its cash raise since, this means it burned $44.5 million last quarter, down from $52.8 million in Q2, an improvement of $8.3 million or 15.7% and an annual rate of $178 million. Based on that trend, it's conceivable that from current product sales and cash reduction that was already going on, Amarin could potentially reduce its quarterly burn by 15.7% each quarter for the next five quarters. This comes out to $37.5 million for Q4, and $31.6 million, $26.65 million, $22.47 million, and $18.94 million for Q1, Q2, Q3, Q4 2014 respectively. This adds up to $99.66 million. Back out half of its staff getting pink slips, and the $80 million cash burn forecast for 2014 sounds reasonable and believable.

Next, cancel the REDUCE-IT trial. Many authors have strongly advised against this in the name of science and even commercial success. I couldn't disagree more. First, if it's really a benefit to science that Amarin continue to shell out $30 to $40 million for this trial, then let others fund it. If it's really that important, then it's a small price to pay for nonprofit groups, government groups, universities, etc. to fund it. I'm guessing none will step up to the plate. If it's not even worth $30 to $40 million in the name of science for anybody in the scientific community to fund it, I have trouble believing it's that important in the name of science, and cash-poor Amarin should not be footing the bill for something the scientific community apparently doesn't find very valuable. Amarin is a company, not a charity service, and paying for something that won't help it would be just as insane as Amarin donating $30 to $40 million to fund research on the migrating patterns of whales to help the environment. If it doesn't benefit Amarin's shareholders, and if its shareholders themselves don't want to step up the plate and fund the trial out of their own pockets, then its management needs to do what the owners of the company want. That is, cut the trial.

Second, the argument that stopping the trial would be "commercially stupid" because it would cause bad press is just crazy. Not only would any bad press be short-lived and forgotten almost as fast as it came, but I believe most doctors are ethical and don't write prescriptions based on media knee-jerk responses. If a doctor believes the drug will help its patient, then that doctor most likely will prescribe that drug to his patient. Period. Next, bulls and bears almost universally agree that most doctors and patients haven't even heard of Vascepa yet or at least don't know much of the details. It's hard to imagine bad press for a week will have much effect or even notice among the vast population that knows little or nothing about Vascepa. Some may even argue that there's no such thing as bad press meaning just having negative publicity reach new eyes and ears could help increase Vascepa sales. Finally, and the strongest cancel-REDUCE-IT argument is this. Vascepa had $2.657 million in gross profit last quarter or a $10.63 million annual pace. How could anybody with a straight face say that cutting $30 to $40 million in expenses isn't worth the potential "commercial damage" it could cause to a drug that has gross profits at a fraction of that cost savings? Even if every patient across the globe were to quit Vascepa, the $30 to $40 million savings is far greater than the gross profits it is currently realizing.

This means Vascepa could cut its $80 million cash burn down to $55 million using the midpoint of $30 to $40 million in savings for the cancellation of the REDUCE-IT trial.

Next, according to the company's 10K, Amarin has $26.5 million in debt payments due to Biopharma Secured Debt Fund II Holdings in 2014. If Amarin were to simply pay off the Biopharma debt in cash either from cash on hand or by raising equity, this debt and its associated interest expense would disappear. This brings the $55 million cash burn down to $28.5 million or $7.125 million per quarter.

To make up for this $7.125 million cash burn, Amarin just needs a continued surge in drug sales for its currently approved Vascepa indication. At 60% gross profit margins, that would mean a climb of $12 million in drug sales. We don't know how much of an increase in Vascepa sales were factored into management's $80 million cash burn forecast, so Amarin would need by my estimate a surprise gain of $12 million in drug sales per quarter. Impossible? Not really. In the last reported quarter, Amarin captured around 2% of the market. As of October 4, it was up to almost 5%. Its main competitor is GlaxoSmithKline (NYSE:GSK) that sells Lovaza had around 46% of the market last quarter. Lovaza just went generic and is being sold by Teva Pharmaceutical Industries (NYSE:TEVA). This means the vast amounts of marketing and sales efforts for Lovaza is likely to slow if not cease all together, making it potentially much easier for Vascepa to stand out and capture market share.

While I'm certainly no Amarin bull, it's far from dead and has a reasonable shot of actually turning profitable. Being profitable though is only one step in the right direction, and having enough profits to justify its nearly $400 million market cap is another story and another article for another day.

Source: Amarin Could Still Turn Profitable