Amarin: Starting To Show Some Modest Vascepa Growth

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 |  About: Amarin Corporation PLC (AMRN)
by: Elephant Analytics

Summary

Vascepa prescription numbers are starting to show some modest increases in the last couple months.

Kowa representatives are not yet at full effectiveness given the suggested 5 to 6 month timeline for that to occur.

Amarin needs further acceleration in Vascepa growth to avoid requiring additional funding for REDUCE-IT completion.

Current sales growth does bode well for being able to at least get a first read of results in 2016 without additional funding.

Vascepa's prescription numbers have recently improved after a lengthy period of very slow growth. It appears that Amarin's (NASDAQ:AMRN) co-promotion agreement with Kowa is starting to show some dividends. However, this growth rate is still not enough to ensure completion of the REDUCE-IT study without additional funding, although it should allow Amarin to at least get a first read on the results. Prescription growth should be closely monitored to see if there are additional gains as the Kowa representatives approach full effectiveness.

Prescription Trends

After a period of mostly flat growth, Vascepa's prescription numbers reached over 3,800 NRx in each of the past two weeks. This is a marked improvement over the 3,000 to 3,200 range for March and April, and represents an improvement of roughly 40 NRx per week during the last two months. Management noted that co-promotion efforts typically reached full effectiveness in 5 to 6 months. If that holds true, there may be stronger prescription growth in the next few months. An average increase of 60 NRx per week would result in Vascepa reaching 5,000+ NRx per week by December.

Click to enlarge

Source: Symphony

Vascepa's TRx/NRx ratio has stayed at around 2.20, which is lower than the 2.67 ratio that I had assumed before, and also lower than the 2.80 ratio that Lovaza had in 2013. This is a negative compared to my previous calculations and is something to monitor.

Effect On Revenues

If we assume NRx increases by 60 per week, then revenues would reach approximately $57 million in 2014 and $102 million in 2015 and $150 million in 2016. This is slightly ahead of analyst estimates for $56 million in revenue for 2014 and $97 million in 2015. Gross margin is estimated at 60% with lower product costs offset by the increase in co-promotion payments to Kowa.

Year

Revenue ($ Million)

Gross Margin

Gross Margin ($ Million)

2014

$57

60%

$34.2

2015

$102

60%

$61.2

2016

$150

60%

$90.0

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Biopharma Repayments and Effect On Cash Expenses

Although the full details of the Quarterly Cap on the BioPharma repayments are not available, so far it appears that the cap is equal to 10% of Vascepa's revenues. If the same formula holds true for future quarters, the projected repayments to BioPharma are $4.9 million in 2014, $9.1 million in 2015 and $13.9 million in 2016. Payments to BioPharma in 2014 are based off of revenue from Q4 2013 to Q3 2014, which is why the numbers do not equal 10% of annual revenue. The remaining amount owed to BioPharma after 2016 is approximately $121 million.

Amarin's estimated cash expenses are $125 million in 2014, $119 million in 2015 and $124 million in 2016.

$ Million

2014

2015

2016

SG&A + R&D

$115.0

$105.0

$105.0

BioPharma

$4.9

$9.1

$13.9

Cash Interest

$5.2

$5.2

$5.2

Total

$125.1

$119.3

$124.1

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Projected Cash Balances

Based on the above information, with NRx increasing by a rate of 60 per week, Amarin is expected to have $100.6 million in cash and cash equivalents by the end of 2014, $42.5 million by the end of 2015 and $8.4 million by the end of 2016. The cash outflow of $91 million in 2014 appears larger than Amarin's expectation for outflows of $80 million. That can likely be explained by expectations for an acceleration in sales growth towards the end of 2014 plus potential changes in working capital.

Starting Cash ($ Million)

Less Cash Expenses ($ Million)

Plus Gross Margin ($ Million)

Ending Cash ($ Million)

2014

$191.5

$125.1

$34.2

$100.6

2015

$100.6

$119.3

$61.2

$42.5

2016

$42.5

$124.1

$90.0

$8.4

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Funding Status Of REDUCE-IT

If Vascepa's NRx grows by 60 per week, it appears that Amarin will have enough money to get through 2016 and at least get an early read on the REDUCE-IT results. However, in such a scenario Amarin would require additional funding to complete the study. I would imagine that a positive early read on the REDUCE-IT results would facilitate additional funding though.

If Vascepa's NRx increases by a higher amount (such as 100 per week), it appears that Amarin would likely have enough money to finish REDUCE-IT as well as pay back the remaining $31.3 million in 2012 Notes that may be due in early 2017. Amarin's moves to exchange 2012 Notes for 2014 Notes was an important one as it moved the potential redemption date on $118.7 million in debt to 2019, after the scheduled completion of REDUCE-IT.

If Vascepa's NRx increases by a lower amount (such as 20 per week), then Amarin may not be able to get a first read on REDUCE-IT without additional funding or cutting expenses further.

Here's a look at where NRx would stand in November 2014 at various growth rates. If Vascepa's NRx was in the 5,300 to 5,600 range in November 2014, I would consider that quite a positive scenario, while NRx in the 4,100 to 4,200 range would be firmly negative. NRx in the 4,700 to 4,900 range would reflect the default assumptions in this article.

NRx Growth

NRx Per Week (November 2014)

20 Per Week

4,100 to 4,200

60 Per Week

4,700 to 4,900

100 Per Week

5,300 to 5,600

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FDA Ruling

As Adam Feuerstein notes, Amarin is expecting to hear about the results of its FDA appeal in early August. I'd agree that at the time he published the article, the market was pricing in a zero chance of the appeal succeeding. Since that article, Amarin's price has risen a bit, reflecting at least a modest expectation that the appeal succeeds. If the ANCHOR SPA was re-instated and Amarin gained full approval of Vascepa label expansion, it would probably be worth $5 or so (down from before due to additional dilution from the 2014 notes). Rejection of the appeal would likely push the stock back into the $1.50 range.

A price of $1.80 would imply a 6% to 7% chance of the appeal succeeding. At $1.67, the market pricing in a chance is closer to 3%. I'm personally not too hopeful about the appeal succeeding, but when you're dealing with probabilities in the low-to-mid single digit percentages, the default assumption should be that it won't succeed.

Conclusion

Amarin is making some modest progress with Vascepa sales, with the hope that the Kowa co-promotion efforts will result in accelerated sales growth once the reps reach full effectiveness. At this time, it looks like Amarin may still require additional funding to complete the REDUCE-IT study, but it has positioned itself well to be able to get a first read on the data without requiring additional funding.

Disclosure: The author is long AMRN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have a small position in Amarin and have a few options with the idea that the price will either be at around $1.50 or close to $5 in a month.