Amarin: Solid Sales Trends Lead To Revenue Guidance Boost

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About: Amarin Corporation plc (AMRN)
by: Elephant Analytics
Summary

Amarin increased its 2019 revenue guidance from $350 million to a range of $380 million to $420 million.

This updated guidance appears to more accurately reflect Vascepa's current sales trends.

Amarin's current cash balance should be able to support its plans for a significant sales team expansion later in 2019.

Amarin insiders have sold a large amount of shares since REDUCE-IT's top-line results were released.

Significant insider sales are commonplace with successful biotech companies, though.

Amarin (NASDAQ:AMRN) recently increased its revenue guidance and outlined plans for expanding its commercialisation plans for Vascepa in the United States. The increased revenue guidance looks to accurately reflect current sales trends and is no longer noticeably conservative like its original guidance. An expanded label for Vascepa could significantly boost Q4 2019 revenues, but the main effect would be seen in 2020.

Increased Revenue Guidance

Amarin increased its guidance for total 2019 revenues to a range of $380 million to $420 million (from $350 million before). This is in line with my assessment in May that $400 million in 2019 revenues was a reasonable expectation for Amarin.

Amarin's updated revenue guidance appears to accurately reflect its current sales trends. The potential label expansion for Vascepa near the end of Q3 2019 (along with planned expansion of Amarin's sales force if that occurs) should give a jolt to Q4 2019 revenues, but most of the impact would be seen in 2020. Label expansion may help 2019 revenues reach $450 million.

Notes On Cash Balance

Amarin appears to have reached positive cash flow (at least temporarily) as its cash balance increased by $10 million (from $211 million to $221 million) during Q2 2019. I had noted before that above $106 million in revenues per quarter would likely lead to income statement profitability. However, positive cash flow could be achieved at a lower revenue level depending on working capital changes.

The income statement also includes the effect of stock-based compensation ($7 million in Q1 2019), so it would be possible for Amarin to report a slight income statement loss at the same time as generating slightly positive cash flow, working capital changes aside.

Amarin's expenses will increase significantly as it expands its salesforce later in 2019, but the additional revenues from an expanded label would quickly offset much of Amarin's additional expenses. I am comfortable with Amarin's cash position and believe it to be likely sufficient to support the expansion of sales and marketing efforts without a further capital raise.

Notes On Insider Sales Activity

The large amount of insider sales activity has been cited as a negative for Amarin by some bears. However, insider sales are very common at biotech companies, with insiders often selling tens of millions (in dollars) worth of shares in the two years prior to the company being acquired.

I took a look at the list of selected top 2015 acquisitions in Ernst & Young's biotech report and looked up insider sales activity for all the US-listed companies. The 2015 list was chosen since I had looked at insider sales at Pharmacyclics before, but I had no prior knowledge of what to expect for insider sales at the other companies on the list.

What I found is that all of the companies that were acquired had insider sales (typically quite substantial) in the two years prior to their acquisition, with the average sales price being much lower than the eventual acquisition price.

For example, insiders sold 2,140,432 shares of Dyax in the two years prior to its acquisition, for total proceeds of $32.9 million. This works out to an average sale price of $15.35 per share, compared to the $37.30 per share that Shire ended up paying for Dyax.

Acquired Company Net Shares Sold $ Million $/Share Acquisition Price Per Share
Pharmacyclics 392,380 $48.3 $123.05 $261.25
Salix Pharmaceuticals 237,766 $21.2 $89.25 $158.00
Synageva BioPharma 668,770 $50.2 $75.06 $230.00
Receptos 4,124,720 $201.0 $48.74 $232.00
Dyax 2,140,432 $32.9 $15.35 $37.30
NPS Pharmaceuticals 1,667,122 $37.6 $22.53 $46.00
Avanir Pharmaceuticals 1,025,160 $5.3 $5.17 $17.00
Auspex Pharmaceuticals 2,746,871 $144.0 $52.42 $101.00
ZS Pharma 732,891 $41.0 $55.90 $90.00
Kythera Biopharmaceuticals 465,137 $18.2 $39.07 $75.00

Since REDUCE-IT's top-line results were released, Amarin insiders have sold 7.8 million shares for total proceeds of $121.7 million (or an average of $15.59 per share).

This would put total insider sales (in $ millions) for Amarin at the higher end of the companies listed, although if Amarin is acquired, the deal price (also in $ millions) would likely be no worse than second largest of the companies listed as well.

Thus, while the large amount of insider sales activity at Amarin isn't a positive, it shouldn't be seen as that much of a negative indicator. The data shows that insiders typically end up selling significant amounts of stock at average prices that are much lower than the eventual acquisition price.

Conclusion

As previously anticipated, Amarin's original 2019 guidance was on the conservative side, and its revised guidance for $380 million to $420 million in revenues appears to more accurately reflect Vascepa's sales trends.

I am still overall bullish on Amarin, given the potential catalyst of the expanded label in a few months. While there is certainly some risk with the FDA, I believe that Amarin has a quite high chance of getting an expanded label for Vascepa. That being said, I have trimmed my position in Amarin after its most recent run-up, since the catalyst of the increased revenue guidance that I anticipated has now happened. I will probably add back to my position in Amarin should its stock price dip in the next couple months.

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.