On February 27, Amarin Corporation (AMRN) reported its fourth-quarter and full-year 2018 financial results and operations update. Amarin had previously released preliminary 2018 results on January 4th, which included revenue guidance for 2019. Many investors felt this initial guidance was a “low-ball” estimate, vastly underestimating Amarin’s potential revenue growth, and expected Amarin to revise the 2019 revenue guidance at some point this year. The first opportunity to revise the said guidance was the earnings report in February; however, Amarin reaffirmed its guidance at this time. Here, I will evaluate the current prescription fish oil market (from now referred to as “the fish oil market”), looking back at the recent changes and how these changes may affect the revenue growth moving forward.
Amarin is a mid-cap biotechnology company that focuses on developing therapeutics for cardiovascular health. Amarin’s product, Vascepa (icosapent ethyl), is a highly purified omega-3 fatty acid known as eicosapentaenoic acid (EPA). Amarin seeks to differentiate itself from the myriad of other fish oil products, as many of these contain combinations of EPA and another omega-3 fatty acid, docosahexanoic acid (DHA). There are three prescription fish oil products available, these include Amarin’s Vascepa, GlaxoSmithKline’s (GSK) Lovaza, and then generic versions of Lovaza. Lovaza and its generics contain a combination of ethyl esters of omega-3 fatty acids, which include both EPA and DHA, which is different than Vascepa which just contains the ethyl ester version of EPA. All three agents in the fish oil market are currently approved as an adjunct to diet for the reduction of triglyceride levels in adult patients with severe (≥500 mg/dL) hypertriglyceridemia.
In an attempt to differentiate itself from Lovaza and its generic version, Amarin conducted the REDUCE-IT trial. This trial aimed to expand the indication of Vascepa to what is expected to be for patients with elevated triglyceride levels (fasting triglyceride level of 135 to 499 mg per deciliter) despite the use of statins, based on the inclusion criteria for the REDUCE-IT trial. The positive top-line results were announced on September 24, 2018, and full results were presented on November 10th, 2018, at the American Heart Association (AHA) conference. These results have been extensively discussed, and as such, will not be discussed here so as to avoid being repetitive.
January’s 2019 Revenue and Business Guidance Highlights
In the January update and initial guidance, Amarin emphasized focusing on preparing and submitting the Vascepa sNDA to the FDA in the first quarter of 2019. The company further provided 2019 revenue guidance of approximately $350M, mostly from sales of Vascepa in the US. This is an approximate growth rate of 50% over 2018 revenues. Interestingly, Amarin provided insight on its intention to purchase enough inventory to support at least $700M in revenue.
Potentially most important, in my opinion, is the discussion of the sales force. Previously, Vascepa was being promoted by a partner, in this partner’s second position. This agreement ended on December 31, 2018, and was not renewed. Now, Amarin has a sales force of 400 representatives, up from its 150 in 2018. Furthermore, 90% these sales representatives were trained and ready to meet with physicians in the first week of January 2019. These sales representatives will be focusing on promoting Vascepa in the first and only position. Amarin guided that there would likely continue to be around 400 sales representatives until label expansion, at which point “we will also evaluate whether 400 sales representatives are sufficient to support the multi-billion-dollar potential of this important new cardiovascular therapy.”
February’s Earnings Report
On February 27, Amarin reported record sales for both the fourth quarter and full year of 2018. The product revenue in these periods were $77.1M and $228.4M, respectively. On the regulatory front, Amarin reaffirmed the timeline that the Vascepa sNDA would be filed before the end of the first quarter of 2019. Furthermore, Amarin reaffirmed its 2019 revenue guidance of $350M. Amarin did include this potential word of caution in its press release: “Amarin believes that, while there may be some transition period required for new sales representatives to become productive, Vascepa revenue growth will be most cost-effectively achieved by having this expanded Amarin sales team giving priority to Vascepa promotion.”
Let’s look at some select financial highlights, as there are some points I would like to highlight. First, Amarin has little debt on the balance sheet, only the long-term debt from the royalty-bearing instrument. This equates to roughly $79M as of December 31, 2018, and is repaid at a rate of 10% of Vascepa net revenue (Amarin paid $7.7M for the fourth quarter of 2018 based on the net sales of $77M). Secondly, Amarin has been paying Kowa Pharmaceuticals America for co-promotion of Vascepa, which was not renewed at the end of 2018. In 2018, the expense of Kowa’s copromotion was $46.8M. This included a tail payment. The tail payments will be paid over three years, with declining amounts each year, at a total value of $27.6M. With that being said, this is an expense which will no longer eat away at the Vascepa revenue as it grows. This expense will likely be replaced by expenses required to support the expanded sales force, but at least these expenses will not be additive. Discussing some metrics, Amarin’s gross margin on product sales was approximately 77% in the fourth quarter, which was improved from 75% in the fourth quarter of 2017.
There have been numerous users on various forums that have generously posted weekly and monthly prescription numbers for the fish oil market. These numbers are provided on a weekly basis for retail prescriptions, and monthly for retail and institutional values. This analysis will look at the weeks ended 10/26/2018 through 3/1/2019, using the weekly, retail sales number. The logic for starting at the end of October allows for some time for the initial turbulence associated with topline results to settle out, while capturing changes that occur following important updates such as the AHA conference and new sales representatives starting in January 2019. I will also focus on total prescriptions (TRX) instead of new prescriptions (NRx). Again, there are three players in this arena: Lovaza, generic Lovaza, and Vascepa.
TRx Fish Oil Market Share
The holder of the largest portion of the fish oil market has been generic Lovaza, likely as the result of its favorable affordability, being a generic product. For guidance and ease of interpretation, all figures presented will have the following color scheme: Lovaza in blue, generic Lovaza in orange, and Vascepa in grey. In figures 1 and 2, the TRx market share is presented in the form of a bar graph and line graph, respectively. In Figure 3, the week over week (WOW) change in TRx market share is presented.
Looking at Figures 1 and 2, I liken the data into 3 portions. There is the segment from the end of October to the end of 2018, where market share growth has increased steadily as a lower magnitude WoW. Then, the month of January, this market share growth increased slightly, followed by a stark increase in market share growth in February 2019. This is further exemplified by the WoW market share growth outlined in Figure 3. The spike in the beginning of January may be the result of the new year and insurance plan changes. However, I believe the accelerated growth seen in February correlates with the new and expanded sales force discussed earlier. At this point (in February) the entire sales force of nearly 400 representatives had an entire month promoting Vascepa. It would appear this investment in the sales force has begun to show benefits. At the beginning of this analyzed period, generic Lovaza had 63.59% of the fish oil TRx market, compared to Vascepa which had only 35.18%. Fast forward to the week ended 3/1/2019, generic Lovaza’s market share has fallen 8.92% to 54.67% of the fish oil TRx market, while Vascepa had 44.28% of the fish oil TRx market. This is impressive growth for Vascepa in a matter of four months without an expanded label.
Volume of TRx
While the market share growth has been impressive, I have concerns when it comes to the growth of the total fish oil market. Presented in Figure 4 are the weekly TRx volumes. Amarin and Vascepa have realized increased TRx numbers associated with the increase in market share, but the total fish oil market has not grown over this period of four months. This means that likely, the growth in market share is the result of Vascepa cannibalizing generic Lovaza patients already on a prescription fish oil product for hypertriglyceridemia or an off-label use, and less likely patients receiving Vascepa for the intended indication being filed for with the sNDA. If the total fish oil market begins to experience growth, then that likely indicates physicians have begun prescribing fish oil for the intended indication. This is both a positive and negative. The negative being the full magnitude of growth may not be realized till label expansion. However, the positive being that Vascepa has seen such growth already, if and when the growth comes, it will be far greater in magnitude than the growth we have seen thus far. Looking at the values, there were 30,423 prescriptions reported on the week ended 10/26/2018, fast forward four months to the week ended 3/1/2019, there were 40,285 prescriptions reported. This represents a growth of 32.4% comparing the beginning and ending portion of this period analyzed.
The reported monthly prescriptions for Vascepa in the fourth quarter are presented in Table 1, along with the total product revenue for the quarter. Using this data, each reported retail prescription is normalized to a value of $183.79. This normalized value can then be used to estimate the value of the growing prescriptions that have been reported.
Table 1. Reported Retail TRx by Month
In Table 2, the reported TRx for Vascepa are presented, along with the estimated value of these weekly reported prescriptions, WoW change, and average WoW changes. The table contains a thick Black Line after the week ended 12/28/2018 to denote the approximate change from 4Q18 to 1Q19. The week ended March 1 was the first week that Vascepa was reported to have topped 40,000 prescriptions. This is an estimated approximate value of $7.4M per week. The estimated total revenue for 2019 thus far is $59M, through the first nine weeks. How does this stack up with its guidance of $350M in revenue for this year? If Amarin continues the average TRx and respective revenue estimated for these first nine weeks of 2019, it is estimated that the total revenue for 2019 would $341.68M. Let’s say that instead of the average for the first nine weeks, Vascepa flatlines at 40,000 weekly prescriptions. Then, it is estimated that the 2019 revenue would be $380.64M. These estimates are not accounting for any growth from the current levels, which we have seen is unlikely, given the current growth rate. The takeaway from this exercise is that based on these estimates, Amarin’s $350M in revenue this year is very attainable and likely a low ball estimate. Assuming little to no growth from current levels, Amarin will likely hit this estimate with ease.
Table 2. Reported Weekly TRx
A recent publication sparked my interest and is worthy of sharing. In the March 4 edition of the Circulation Journal (from the AHA), a piece titled: Eligibility and Cost for Icosapent Ethyl Based on the REDUCE-IT Trial: Insight from the Veterans Affairs Healthcare System was published. Here, researchers estimated the number of patients and cost of treating patients within the VA health system based on the inclusion criteria of the REDUCE-IT trial. The researchers found that in the database utilized, 263,114 patients would be eligible for therapy with Vascepa, based on the REDUCE-IT trial criteria. The VA has a contracted price of $150.65 per month for Vascepa. The authors also evaluated what the cost would be using the Medicaid price (estimated as 64% of the average wholesale price). They project the annual cost to the VA for these eligible patients for one year of therapy would be $476M and $676M using the contracted price or the estimated Medicaid price, respectively. Granted, this is not the exact revenue Amarin would see after accounting for the middle men, but that exemplifies the massive potential of annual revenue for Amarin. For background, the VA estimates they provide care for over 9 million vets, granted the eligibility of VA patients versus the general population may be subject to some degree of selection bias.
Figure 5. Estimated VA Patients Eligible for Vascepa (Ji et al)
Risks and Timeline
Amarin will be a growth story, dependent upon whether the company can efficiently commercialize and ramp up sales. That is evident as the valuation is steep, considering it is trading at a market cap of $7.05B with only $228.4M in product sales in 2018. Those looking for current value are likely to shy away at present time. The cost of commercialization, marketing, and ramping up will also be an issue. In total, Amarin has estimated that once all factors balance out, operating expenses will increase $25 to $50 million over the 2018 numbers. It is uncertain if Amarin will need any help financing, given the unknown timeline of factors such as revenue growth, marketing expansion, and international partnership(s).
For a brief overview of the timeline for the FDA, Amarin has confirmed that indeed it is on track for submitting the sNDA in the first quarter. Once submitted, the FDA has 60 days to accept the application. At the time of acceptance, the FDA will assign the sNDA either standard review (10 months) or priority review (6 months). Keeping expectations in line is important with this stellar data. Amarin’s CEO John Thero has tried to do just this. “REDUCE-IT was a multi-year study conducted in multiple countries. The database includes millions of data points from more than 35,000 patient years of study. The study contains multiple endpoints and multiple subgroups. The results encompass more than 200,000 pages of data. Each page undergoes extensive medical, statistical and quality review.” As seen, with such a large data package, it takes time to prepare, and will also take time for the FDA to review. With such a large package, it is reasonable to expect the FDA needing more than 6 months to sift through all the data. Furthermore, with such a large data package, and the potential to impact so many patient lives, it is not unreasonable that the FDA may want an ADCOM meeting to discuss certain portions of the data.
John Thero also emphasized this fact: “With respect to an adcom, we won't know that answer until after the sNDA is submitted and the FDA has had an opportunity to look at the data. This is an enormous filing, it is a first-ever indication in a space which potentially represents one in four adults in the United States. I can make arguments that FDA would potentially want that adcom as this is a precedent setting filing, they may want an adcom to use this as an opportunity to emphasize that this is not about triglycerides and they want to have an adcom to evaluate where this falls and the dietary supplement world out there and to use this as an opportunity to emphasize differences between prescription therapy and dietary supplements.
There's a lot of potential reasons that they could want an adcom, but we won't know, if we were to guess at timing, probably the day 74 letter would be when we might get a signal as to whether they want an adcom or not. We don't think that there is an adcom that's necessarily a bad thing, but we really don't know. We will be preparing for one, just as easily that could potentially not be an adcom. We just don't know nor quite believe the FDA knows at this point in time as they have not received this submission or had an opportunity to reveal it.” (From February conference call transcript)
All things considered, if the FDA assigns standard review timeline, it is likely a decision for approval or denial would come down in the first quarter of 2020, pending any large developments.
Amarin and its management have been very strategic in their management of the company following the release of the REDUCE-IT data. The reported retail prescription numbers have been growing steadily over the past four months. However, this appears to be largely the result of increasing market share, and not increased prescribing of prescription fish oil products. This will be something to keep an eye on moving forward, as eventually the market share will reach a plateau and growth will become dependent upon new patients and not market share growth. Estimating the potential revenue thus far, Amarin appears to be well on track to hit, and hopefully exceed, the $350M in revenue it has guided to. One must always remember that Amarin’s revenue is dependent on wholesalers and distributors purchasing the medication, but the prescription usage is a good indicator. Should the growth continue, Amarin is in line to exceed its $350M in guidance, without the label expansion, as its new sales force continues to solely promote Vascepa.
Investors also need to consider that the stock is steeply valued relative to current sales and is largely priced on future prospects. With this in mind, investors should also keep their expectations in check regarding the FDA timeline and the potential for an ADCOM meeting. This sNDA has the potential to help many patients, and I anticipate the FDA will ensure they complete their due diligence on such a large data package to make the most informed choice regarding label expansion. All things considered, Amarin potentially has the next blockbuster cardiovascular drug, providing investors a unique investment opportunity.
Disclosure: I am/we are long AMRN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.