Amarin (NASDAQ:AMRN) has addressed the potential for its cash balance to drop to low levels in 2017 with a private placement of exchangeable senior notes. This should allow Amarin to reach 2018 without requiring additional funding. It also appears that Vascepa sales growth remains solid in early 2017, and I believe that it is likely that net product revenues will at least reach the upper part of Amarin's guidance for the year.
With solid sales growth and sufficient liquidity taken care of, the major catalyst by far in 2017 will be the second interim look for REDUCE-IT. Amarin expects the onset of 80% of the target event to occur in the first half of 2017 (personally I think March/April is likely, although that is just a guess), with the interim analysis concluded before the end of Q3 2017. Amarin's share price could increase quite significantly with an early stop, although Amarin did mention that it continues to believe that REDUCE-IT will run to completion. The odds of a stop at the second interim look should be significantly higher than the odds of a stop at the first look, although I am still taking the conservative position that REDUCE-IT is more likely than not going to continue to completion.
As I mentioned before, Amarin was on track to end 2017 with around $25 million to $35 million in cash. The private placement of exchangeable senior notes adds around $28.4 million to Amarin's year end cash balance, after taking into account the July interest payment. This should allow Amarin to enter 2018 with a sufficient cash position unless the second interim analysis for REDUCE-IT results in an early stop and leads to Amarin ramping up spending significantly in 2017 to take advantage of the study's success. However, that situation would be obviously be a positive for Amarin and would allow it to raise additional funds on favorable terms anyway.
Vascepa Growth In 2017
Although we only have a few weeks of data for Vascepa scripts in 2017, it looks like year-over-year growth continues to be solid. At this point I believe that it is likely that Amarin's net product revenue will come in towards the high end or above the high end of its guidance for $155 million to $165 million in 2017. I previously mentioned my expectation for net product revenue to come in around $160 million to $175 million for 2017, and the early 2017 script results appears to be in-line with that expectation.
With that level of sales growth during 2017, Amarin will still be burning a bit of cash in early 2018. That cash burn should change to positive cash flow once REDUCE-IT's R&D expenditures diminish, although that also depends on how much Amarin ramps up SG&A spending and whether Amarin decides to increase non-REDUCE-IT related R&D spending.
Increasing Share Count
The exchangeable senior notes potentially will add another 7.7 million shares to Amarin's share count. I think that the structure of the financing appears reasonable though. A straight equity offering would have added several million more shares, while non-convertible debt would have likely had a fairly high interest rate. In any case, the potential dilution appears pretty limited at around a 2.3% increase in diluted shares.
While the effect of the note offering on Amarin's diluted share count is limited, Amarin's share count has increased significantly over the past few years. Amarin indicated that it had 269.2 million shares outstanding at the end of Q3 2016. This number would increase to 333.5 million including the effect of stock options, restricted/deferred stock units and the conversion of Series A Convertible Preferred Shares. Conversion of the recent offering of exchangeable senior notes would potentially bring Amarin's share count up to over 341 million. As a result, Amarin's enterprise value now appears to be around where it was at the end of September 2013, pre-ADCOM.
Amarin has addressed its potentially low cash balance in 2017 with a private placement of exchangeable senior notes. Combined with the continued solid Vascepa sales growth, this will likely be sufficient for Amarin to maintain a sufficient amount of cash into 2018. The deal does result in a modest amount of potential additional dilution for Amarin though. The potential dilution isn't very much on its own, but it should be noted that Amarin's share count is significantly higher than it was a few years ago. This will serve to lessen Amarin's potential upside, although I believe that a large amount of upside still remains with a successful REDUCE-IT. I continue to believe that REDUCE-IT is likely to continue to completion, although I may take a speculative position prior to the second interim analysis depending on Amarin's share price.
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