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Amarin (NASDAQ:AMRN) is set to report its Q3 earnings on November 7 after a series of bad news over the last few weeks related to approval for its ANCHOR indication. Amarin is now down 80% from its October 7th price.

Although it comes as little consolation to current shareholders, Amarin's share price now essentially has all the downside related to the FDA's December 20th decision beaten out of it. There is virtually 0% chance of expanded approval then, but Amarin's stock price should not react on December 20 to a negative decision. Now it becomes a question of how much revenue Amarin can generate from its MARINE indication, whether Amarin can reach profitability without needing additional financing, and whether the REDUCE-IT study will turn out positively (if completed).

We believe that the market is discounting the REDUCE-IT study to near zero value due to its long-term horizon and the hurdles Amarin must face to get to that point. Amarin may also have a $3 to $4 value based on its MARINE indication only (although that requires excellent execution), and we hope to get some hints about its future through its earnings call.

Expectations for Revenue and COGS

Over the first two quarters of FY2013, Amarin has recognized $7.842 million in revenue, while the Symphony data showed approximately 52,500 prescriptions during that time. This results in approximately $149.37 in revenue per prescription as reported by Symphony.

Symphony reported approximately 67,628 Vascepa prescriptions during Q3 FY2013. Using $149.37 per Vascepa prescription gives us $10.102 million in revenue for Q3.

COGS should show substantial improvement for Q3. The COGS for finished goods inventory held by others represented 37.9% of deferred revenues in Q2, indicating that the newest inventory being sent out has lower associated costs. Amarin's management has previously indicated that gross margins should reach over 80% in time. We are going to assume that gross margins are 67% in Q3.

Q3 2013

Revenues ($ Million)

10.102

Gross Margin (%)

67%

Gross Margin ($ Million)

6.768

Things to Look For In The Conference Call

Although it is important to get a read on revenue per prescription and COGS for future projections, the most important things to get out of the earnings report and conference call is information on the direction of Amarin (such as the future of the REDUCE-IT study) and guidance (if any) about expected cash burn and sales in future quarters.

Some key questions we hope to get answered include:

  • Is Amarin still committed to the REDUCE-IT study and how much are the expected costs each quarter?
  • With the 50% cuts to staffing, what is Amarin's guidance for operational expenses going forward? It has been hard to get a strong read on baseline levels during the last two quarters due to marketing and other launch related costs, as well as the costs associated with vendor qualification. In addition, the cost of raw materials from new suppliers before FDA approval was charged to R&D expense.
  • What are the expectations for Vascepa sales going forward under the MARINE indication? Sales growth has been negligible over the last few weeks, although it is uncertain how much of that is due to normal weekly variances, as Lovaza's weekly sales have fallen 6% compared to three weeks ago.

Week Ending

Vascepa TRx

Lovaza TRx

Vascepa As % of Lovaza

August 2, 2013

4685

89754

5.2%

August 9, 2013

5044

89451

5.6%

August 16, 2013

5109

86761

5.9%

August 23, 2013

5382

86599

6.2%

August 30, 2013

5501

89544

6.1%

September 6, 2013

5139

86936

5.9%

September 13, 2013

5830

88787

6.6%

September 20, 2013

6019

86696

6.9%

September 27, 2013

5930

86657

6.8%

October 4, 2013

6255

92586

6.8%

October 11, 2013

6215

89049

7.0%

October 18, 2013

6239

87563

7.1%

October 25, 2013

6208

86681

7.2%

Aside from that, any news regarding partnerships would be very welcome, as would a gesture by executives to take a substantial pay cut given Amarin's cash burn and the recent negative events.

Conclusion

Amarin's recent performance has been quite disastrous, and there are serious questions about some of the decisions that Amarin's management have made in the past. Still, Amarin does have a product that is likely to generate over $60 million in revenue next year even if new prescriptions do not increase from current levels and there is still potential approval for an expanded market after the REDUCE-IT study is completed. Current share prices mostly discount the chance that the REDUCE-IT study will be successful or the chance that Amarin can monetize its current market better. Amarin remains an interesting speculative play at its current share price, although it may be prudent to wait until after the conference call for any additional bad news that may come out.

Source: Amarin: Questions For The Q3 Earnings Call