Amarin Corporation plc (AMRN) Q1 2012 Earnings Report, Transcript and Summary

Welcome to Amarin Corporation's Conference Call to discuss its first quarter 2012 financial and operating results. This conference is being recorded today, May 8, 2012. I would like to now turn the conference over to Stephen Schultz, Senior Director of Investor Relations and Communications for Amarin.

Welcome, and thank you for joining us today. Please be aware that this conference call will contain forward-looking statements that are intended to be covered under the Safe Harbor provided by the Private Securities Litigation Reform Act. Examples of such statements include, but are not limited to, our current expectations regarding regulatory filings, regulatory approvals, potential indications and commercial success of our product candidates if approved; our current expectations regarding the cardiovascular outcome study and the potential implications of any such study on our regulatory process; plans to protect the commercial potential of our product candidates by obtaining patents and regulatory exclusivity, maintaining trade secrets and taking advantage of manufacturing barriers to entry; our current expectations regarding potential strategic collaborations, manufacturing efforts and preparations for commercialization of our product candidates; our expectations for future publication and presentation of our study data; and our future expenses and the adequacy of our financial resources. These statements are based on information available to us today, May 8, 2012. We may not actually achieve our goals, carry out our plans or intentions, or meet the expectations disclosed in our forward-looking statements, and you should not place undue reliance on these statements. Actual results or events could differ materially. We assume no obligation to update these statements as circumstances change. Our forward-looking statements do not reflect the potential impact of significant transactions that we may enter into, such as mergers, acquisitions, dispositions, joint ventures or any material agreement that we may enter into or terminate. For additional information concerning the factors that could cause actual results to differ materially, please see the Forward-Looking Statements section in today's press release and the Risk Factors section of our most recent Form 10-K, each of which were filed previously with the SEC and are available on our website, amarincorp.com. We encourage everyone to read these documents. In addition, please note that these remarks will contain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found within our first quarter financial results press release. Finally, an archive of this call will be posted to the Amarin website in the Investor Relations section. I'll now turn the call over to Joe Zakrzewski, Chairman and Chief Executive Officer of Amarin.

Thank you, Steve, and welcome to everyone who's joining us for this call. On the call today in New Jersey, I am joined by John Thero, Amarin's President; Paul Huff, our Chief Commercial Officer; Joe Kennedy, our General Counsel; and Fred Ahlholm, our VP of Finance. Additionally Steve Ketchum and Paresh Soni, part of our R&D team, are on the call but traveling overseas with an 8- to 12-hour time difference, so special thanks to both of them. Let me begin this call with a quick review of the first quarter's highlights. I will then ask Fred to provide the financial results update, and we will then take a few questions. Q1 was another positive quarter for Amarin, highlighted by the award of a Notice of Allowance for the 598 patent application known as the EPA without DHA in the capsule application. Amarin also appointed industry veteran Steve Ketchum as President of Research and Development. I previously had the opportunity to work with Steve in the successful development and launch of Lovaza while at Reliant Pharmaceuticals. Steve has a significant record of achievement in the life sciences industry and strengthens an already strong R&D and regulatory team. Relative to financials, Amarin's balance sheet was significantly strengthened in Q1 through the $150 million January placement of senior convertible notes, ending the quarter with a cash balance of $245.8 million. Based on our current plans, the net proceeds from this financing provide Amarin with the funding needed to get well into the launch of AMR101, as previously reported. Amarin also received confirmation from the FDA that no advisory committee will be scheduled in conjunction with the review of the AMR101 NDA for the MARINE indication. This is regarding the PDUFA date for July 26, 2012. While we do not plan to comment…

Thank you, Joe. As noted earlier today, Amarin filed its quarterly report on Form 10-Q for the 3 months ended March 31, 2012, with the SEC. While I'll provide some comments here regarding our financial results, you'll find a more detailed discussion of our results in the 10-Q. Amarin reported cash and cash equivalents of approximately $245.8 million at March 31, an increase of $129.2 million from our reported $116.6 million in cash and cash equivalents at December 31, 2011. During the 3 months ended March 31, 2012, cash outflows for operating activities were approximately $15.9 million compared to $8.8 million in the same period of the prior year. These outflows reflect various operating activities, split somewhat evenly between R&D activities and marketing, general and administrative activities. The spending included approximately $4.7 million paid in connection with Amarin's REDUCE-IT clinical trial activities for AMR101. Our March 31 cash balance was augmented in January 2012 by $144.3 million in net proceeds from the completion of a private placement of $150 million in aggregate principal amount of our 3.5% exchangeable senior notes due 2032. We believe that we have sufficient financial resources to fund our projected operations well into the commercial launch of AMR101 on each of the 3 potential patents we are considering for commercialization, subject to timely regulatory approval. As of March 31, 2012, Amarin had outstanding approximately 136.4 million ordinary shares and share equivalents. The majority of which were in the form of ADSs. In addition, on the same date, we had warrants, stock options and restricted stock units outstanding for the purchase of approximately 21.1 million, 12.8 million and 0.6 million ADSs, respectively, at average exercise prices of $1.48, $5.91 and a $8.86, respectively. In our press release regarding our operating results, we presented both GAAP and non-GAAP…

Thanks, Fred. Our achievement in 2011 and early 2012 helps position Amarin for an exciting and important year in 2012, underscored by a potential FDA approval for AMR101 in the second half of the year. I described earlier, 2012 is a year that we believe will be full of important milestones as we prepare AMR101 for a potential commercial launch in Q1 2013. We look forward to updating you on our progress as appropriate. And thank you for your support and interest in Amarin. I will now open the call for a few questions. Operator?

[Operator Instructions] Our first question is from the line of Christ Schott with JPMorgan.

First question was just can you talk a little bit about the recent top line data on a potential competitor, Epanova, and your view on the position of that product relative to AMR101?

Yes. I mean, Chris, this is Joe. And just to sort of summarize where we saw and again, there's only limited information we saw in the press release. But there were 5 things that we were measuring or looking to see in that release. We believe that when you look at their data and look at trig lowering, at best, it's near ours but likely worse than ours. If you think about it, they didn't talk about what the placebo data was and we think there's an issue in terms of how they measure that. Also in that whole trig lowering, you'll note that we saw significant synergies with a statin, and we announced that at our press release when we put out the document originally when we announced the MARINE data. So we saw a -- I think it was a -- at the 4-gram dose, a 33% reduction, and then it went to 65% reduction with statin and you adjust it for the baseline, which if you'll recall, our baseline was, I think about 140 points less than Lovaza. When you look at the higher group, the 750 mid-group that correlates with that, we saw -- I think it was a 45% reduction in trigs and 88% reduction in trigs although it's a very small group, when you looked at patients on a statin. So we think overall, our drug reduced trigs much better than theirs did, in addition when you look at the statin reduction. And again, it's hard to tell because what did they release, what didn't they release? They said nothing about LDL. Our drug, as you recall, let's call statistically flat, but I believe in our 4-gram group, we were minus 2%. When non-HDL, I think we were at minus 18%. I think they were 8%. On side effects, we had little to none, almost no dropouts. They specifically, if I recall correctly, guys, they had 5% to 7% dropouts on GI issues alone, which tells us that the side effects must be much higher. And they said nothing about Apo B, Lp-PLA2 or any of the other key biomarkers, which we think are an important part of the future. And again, this is information that we presented as part of our top line. So again, until they present at a conference and until we have the ability to see what they have, I think what we would say is that we still believe that AMR101 is a superior product in all 5 of those categories plus the additional ones that I brought up.

Great. Appreciate those comments. The second question I had was just when we -- you talked about the 3 patents in the past. With one allowable patent, kind of, now in place, how important is further progress on your IP portfolio to either choosing or maybe more preferably maximizing the value of this asset and kind of deciding on one of those paths? [indiscernible] partners obviously have their legal teams, they can do their work, but based on the feedback you're getting, do you need more allowable patents here before partners are really willing to give you the appropriate value for 101?

Yes. Chris, I didn't get the first part of your question. You broke up.

I'm sure. I'm sorry. So basically the question, when you're trying to decide on these 3 paths to go, you got one patent in place here. Essentially how important is further progress in the IP portfolio to actually making a choice here? I guess the heart of it is, do you think a partner will give you value doing their own work on the IP or do you actually need to get these things allowed before a partner's willing to give you value just with feedback you've been getting?

Got it, Chris. Yes, I mean on the 3 paths, I mean, if you think where we are now, we've gotten the patents -- the Notice of Allowance, again, expecting the issuance any time now. We have over 16 other patents that are in process. We've got the whole regulatory exclusivity piece, the manufacturing barriers to entry with the leveraging thereof, as well as the trade secrets. So people look at -- if you think about building the exclusivity around the asset, people are looking at that very, very broadly. And again, based on the previous company I was working with on omega-3 [ph], I've always said we've always had more, and even at this point, we have much, much more than we ever had when I was at Reliant. So I think people get that and take that into account. And if you look at how the stock performed in perception of where we've been since that patent and Notice of Allowance, that was, I think, a great relief to many folks on the street. But if you get back to what path we're going to select, we're still down that process. I think that a lot of folks are still -- we've got a PDUFA date coming up here in less than 3 months, are people willing to make the -- do a deal before then? Do people want to wait? There's so many variables out there that go into these things and I've been doing deals now for over 20 years, buying and selling [indiscernible] companies out. I think the lesson here is a deal happens when its time has come, and its time has come is when it's announced and when it's signed. And beyond that, it's really hard to say it's this, it's that, it's this, it's that. And so I think, what I can comment to people is the activity still there. As the patents been issued, as other news flows come out, it increases and it continues to increase. And we're going to do the right thing by this asset and by shareholders. And really, don't know which one of those options it's going to be at this point in time but I don't know that there's really much else to say other than that.

Our next question is from the line of John Boris with Citi.

First question just on commercialization or commercialization strategy. Have you -- I know you've indicated that you're obviously putting some money aside to do some market research. An important part of that would be with managed care and with formularies and testing the product content against the managed care and formularies. Have you done that yet and any sense as to formulary acceptance of the products? And then, if you look at Lovaza, it obviously has the discount within that channel. How are you thinking about when you do price, discounting, rebating that may be associated with the product also once you secure approval. Then I just have one follow-up question.

Sure. Yes. We're doing a lot of market research, met with just about all the key managed care folks. Right now I'll comment that between Paul and Joe Johuli [ph] and their teams, these were the folks that built the Reliant managed care group, et cetera, and really got several hundred -- I think it was over 200 million lives ultimately covered. And we're very delighted in what we're seeing so far. The other things that we're doing right now is we're also building our MSL group, medical science liaison. Those folks that are the initial interaction or the technical interaction between the company and the docs, not the sales force, but the key folks that are out there seeding the market, building the market, working with the key opinion leaders. So we're doing those. These are not big in costs. In terms of where we're thinking about and how we're going to penetrate this market, really this is about 2 things, right? This is about converting folks from some other products to our product. Again, our product, we believe, is superior. But it's also about expanding the market, not just ultimately within the MARINE indication, which is very lowly penetrated, maybe 15%, 20%, at most. And also as we head into the ANCHOR indication, which technically haven't penetrated at all. So we see this as both the opportunity to shift share and expand the market. And for us, what we believe the best managed care strategy, the best marketing selling strategy is, how do you set this product up in the best light to do that. And while we've made no definitive decisions around price, for example, you want to hit that market aggressively. You want to capture Tier 2, and that's where our heads are right now. So without saying we picked this price, we did this, we're heading in this direction. This is going to be about share shifting, market expansion and we think the best way to do that is to make this a Tier 2 product as quickly as you can and that's where our heads are. And I think we've got the best team on board to do that.

That's a great color, Joe. Appreciate that much. Just a question on the regulatory front and with the PDUFA date coming up here in July 26, and it would seem as though that you're certainly indicating that the FDA, at least one would think, would have to do an inspection of your manufacturing facility. I'm just wondering if they've done that and give you clearance out on your CMC section. And another part to that is, how has the dialogue been with the FDA? Are there anything that you have to button down and should we be banking in or assuming that when the PDUFA comes that you secure approval or that there might be a 3-month extension to that time period going forward here?

Yes, John. It's always hard to speculate on these things, and again, you can imagine why I have to be careful what I say. What I can tell you is that we've been very pleased with the interaction with the FDA so far. And as I stated in the notes, the comments I made earlier, we feel good about the progress that's occurred. And I need to be careful in saying anything more than that. And again, for all the right reasons, we want to protect the confidentiality of the discussions. But I've said before, this is going along the guidelines and along the plans that we would hope, but until you have an approval, you don't have an approval. So, feel good. I think directionally, things are correct, but until you have that letter, that piece of paper, you don't have it. So we are working very diligently. We've got a very experienced team. And we've done this time and time again, and we're anxiously awaiting July 26.

So can you just confirm whether they've inspected your API supplier? Yes or no?

I will just say that all the inspections have occurred that you would have expected to happen by this point in time, 2.5 months out.

Our next question is from the line of Joseph Schwartz with Leerink Swann.

I was wondering, Lovaza prescription have been weaker lately and then you commented that you don't think that Lovaza has penetrated the mixed dyslipidemia market meaningfully. Is this not due to some sort of increased compliance program from the FDA finally catching up with the use off-label? Or what is your understanding given your market mapping and activities now looking at the market?

Yes, it's hard. Even when it's your own drug to figure out which market segments are going into, there are a lot of things that you hear. I hear from different folks and different organizations. Again, nothing is confirmed, but the first one is that managed care, and again, I have no confirmation of this, but managed care is saying to folks now, “Show us that your trigs are over 500 mgs per deciliter before we allow you to go on Lovaza." That's what I've heard from third parties. And that's been their way of getting sort of toward this off-label issue. Again, real or not real, don't know. But we're in the fortunate position of having it, a, we've got the 500 mg per deciliter indication, but the 200 to 499, the one their theoretically coming after, is hopefully opening that market and protecting the market for us because we hopefully will go at it with the approved indication. But other than anecdotal information, Joe, we're hearing out on the street, it's hard to predict what's going on there. Paul, I don't know if you have anything. Paul, our Chief Commercial Officer, do you want to add to that at all?

It does seems like they backed off direct promotion. You still see a continued effort in the direct consumer, but our data shows that they backed off direct promotion quite a bit over the last year or 2.

And you mean, sales force...

Sales force promotion and then things directed from the sales force. So taking all the -- this is a commercially sensitive market, and we feel if you put the right effort behind it that you can really drive prescriptions. So that could be one of the reasons.

All right. That's helpful. And in their core market of hypertriglyceridemia, we might hear -- or we should hear very soon, the judges' opinion in the patent case any day now, and I'm wondering how do you think about pricing AMR101 in different scenarios if Lovaza is generic. Again, that's a relatively small market compared to the mixed dyslipidemia market, which they may not be able to go after.

Yes. I think the way we set ourselves up [indiscernible] is again, we look at this product as being well differentiated from Lovaza. On the LDL side, we actually lower non-HDL by about 2x of what they do. We don't -- we have a much better side effect profile, Lp-PLA2, et cetera. So we think there's a real argument here for a differentiated product in terms of what it does, but as well as price. Having said that, we're very cognizant of the marketplace that we're in today, both from a managed care perspective, potential generic perspective. And again, if you think about our focus on expanding the market and shifting share, part of that is also what happens if and when there ever is a Lovaza generic. That's all part of it. And that's why when I talk about Tier 2 targets for pricing and Tier 2, where we want to be, without saying what the price is, Joe, I think that tells you how competitively we look at this market because not everybody gets the Tier 2. And having said that, we do a lot of better things. Again, at end of the day, Lovaza generic, no Lovaza generic, we think the product is just incredibly, incredibly differentiated and the rest will take care of itself as long as we price it appropriately. But we haven't gone much further than that at this point in time.

Our next question is from the line of Ritu Baral with Canaccord Adams.

Can you comment on your manufacturing capacity right now? And do you plan on keeping that steady, I guess, during the rest of the review process or do you plan on working on expansion now versus after potential approval?

Yes, Ritu. So as anyone knows, we'll launch with the one supplier, with the one from the FDA from Japan. We believe we will file 3 additional sNDAs this year. That should put us in the market with other products in the first half of next year, again, assuming everything goes according to plan. So when you say bringing them online, we are actively bringing all of them online as we speak. There is, in terms of getting them ready for regulatory approval, getting them ready for whatever inspections there might be. So again, when I say we're going to submit 3 sNDAs, let's call it, in the fourth quarter, there's an incredible amount of effort going on right now. We believe in terms of volume and capacity, we haven't commented on that. We're trying to protect all the dollars and make sure we have the right volume, et cetera. But I will tell you this, as I stated before, if we launch with one, we should have the ability to have 3 or 4 online next year, and very quickly have quickly defined at normal uptake curves, 1, 000 or multiple thousand metric tons of products available. Again, this is going to be something where you're building and you're watching the market, et cetera. But it won't be an issue in terms of what we believe are the folks that we have coming online, the capacity and where they are. And again, I'll remind everyone that 1,000 metric tons, at least if you assume today's pricing, is about $1.2 billion to $1.3 billion per 1,000 metric tons of sale. So just to put that in perspective. But, again, we haven't commented on what our pricing is going to be. We haven't really said anything about volume we'll launch with except that, that's where we're heading as we get to what those -- what reasonable parties believe are those peak years as they start to come in.

And as you're staging adequacy of supply, are you sort of pegging that against the high, very high triglyceride market or the mixed dyslipidemia market even from 2013?

Yes, I mean, serially, this is, like anything else. It's a ramp up, which the drugs usually start to hit peak in 3 or 4, 5, 6 years. Again, I think the most conservative view for us is we have an approval on for our drug in the MARINE population, the very high trig case, this year. We launch it in Q1 as we've stated many times. We submit the sNDA once we get the substantial enrollment of the outcome study and then let's assume there's roughly a 10-month cycle time to get ANCHOR approved. Again, I think that's the statutory sNDA period for a drug. You can see again this drug then getting ANCHOR approval in the second part of next year. And then what you've got are 2 upward lifting curves happening simultaneously, one built on top of the other. Again, remember that there's 4 million people -- 4 million or 5 million in the MARINE group, there's also 40 million or 35 million to 40 million in the ANCHOR group. So all of a sudden you've got this one group that -- the higher trig folks, the 500 and above, has launched a year ahead of time, and then you're bringing on board this other group about a year later, plus that group's 10x bigger, and then what's the reimbursement, what's the uptake? There are a lot of complicating factors. But we think we've got that well under control, again, in the bringing on board some real world class leaders in terms of supply. I spent a lot of my time as the Chief Operating Officer of Reliant doing this. And we think we're going to be in pretty good shape. But -- and you head for it, and you take your chances, and you go for it. But again, we spent a lot of time on supply and we'll continue to spend a lot of time on supply, both now, as we launch and well into the future.

Got it. And one follow-up question. We have seen SG&A pick up, even on just a cash basis, this quarter. And you mentioned that you've got market-research expenses and MSLs, which you commented weren't that expensive. What else are you ramping on now versus Q3 and Q4?

Well, we'll continue to bring on board key positions as we head into this "decision point" of what we're going to do at end of Q3 in terms of, are you selling the company, is there some partnership, are you're doing it alone with or without help? And we'll continue to do that. And what I said is that the nice thing about getting to the end of Q3 and doing that is everything we're doing now, whether it be for market research, whether it be bringing on board MSOs, whether it's other key hires throughout the company, whether it's managed care, they're all the same, almost identical, as we get to that period of time. I think what part of the burn that you saw here was that we always see some periodic expenses moving from one quarter to the other. The other thing we're seeing is the outcome study is increasing in cost and enrollment and that's moving on. So all that just comes together and if you look at -- I think we spent, tread $16 million plus or minus in the quarter, and again without giving any guidance, I think that's what you'd expect for a company whether you're just in your preparatory mode and as you're wrapping up and getting the outcome study, and then getting ready to launch. So we're -- we manage every last nickel like it's our own. And the other thing I'd be remiss if I didn't say is we're spending quite a bit on patents. You'll recall, we just got the 598 patent approved and we have greater than 16 on file, and that's just in the U.S. alone. We're looking at these things globally. So we're building an organization here and trying to do doing it as cost effectively as we can.

We have time for one final question. It comes from the line of Tommy Nguyen with Jefferies.

I'm here for Thomas. A follow-up on maybe some of the earlier questions in a different way. The first one is on NCE. Would you remind us what the timeline is for requesting this? And then how important do you think this is specifically to potential partners and investors to get at the time of approval?

Yes, on NCE, guys, again just to remind people, we except that we're getting approval and then you'll also expect in the Orange Book that's issued in the following month, that's when you find out if you got into there [ph] or not. I would just say, commenting that getting the patent issued, the 598 patent, I think it's taken a lot of pressure off the NCE. Of course, while we feel very strong in our position to get the 5 years, as well as the benefits of the drug, a lot of, I would say, the tanks [ph] with NCE, we still want to build the, if you will, the moat around the castle, the electrified trench as we build exclusivity around the product. I think a lot of the pressure is off there. I think -- while the FDA could always give you 0 or 3 or 5 years, we think we should get 5. We think worst case, again, you can never guarantee, it's probably 3. And however you structure that, however that works out, it gives you plenty of time to continue leveraging other patents, and it gives you plenty of time to continue leveraging other trade secrets and other manufacturing barriers to entry. So we feel pretty good. I think in a simple way maybe, Tommy, is what I'm saying is that pressure is not the same as what it was, okay? I think a lot of what was out there on us, and clearly, watch -- what's happened to the stock price. What the Street was probably feeling was, "Great, they've got the one patent, hopefully there are others coming." I think the getting guaranteeing the 5 years of NCE becomes less of an issue. Although we are doing everything that we can proactively with the agency here. And again, I can't comment too much on there, but we've got a great team led by Joe Kennedy, our General Counsel, and working with outside folks, just doing everything we can as possible. Again, this is about protecting the overall exclusivity of the asset.

That's really helpful. So -- and then on the 889 application again, can you just tells us your goals for the upcoming Examiner interview in the context of your strategy there? And just to play devil's advocate, why not appeal yet and when would you consider doing that?

Well, great question. You said what is our goal with the 889? I'd like to get the patent issued, okay, that and every other patent we've got filed. We're still in the process of working very closely with our counsel after the interview that took place a week or 2 ago, and how we're going to respond. But again, we think we continue to make progress, et cetera. In terms of would you appeal, would you not appeal, we have a lot of options out there still. And I don't -- we haven't made that final decision, but I will tell you that we take it very, very seriously in terms of what we should do, shouldn't do and what's the right cadence that we approach it. And it's not an easy answer. There's a lot of folks out there that say why not appeal and without me commenting on it, what I can tell you is we are constant -- in constant consideration of all the options. But at this point, we feel very good about where we're going. And clearly, the ball, I think, is now in our court, Joe. And I think that's about all about we can say.

That's really helpful. I'm sorry for the IP [indiscernible] my last one. This little one on the 994 patent, there was an action with regarding restriction. Was -- can you just remind us what this means for you? What option, et cetera and where this falls in the strategy?

Yes. Well, first of all, 994, I believe, is an atorvastatin metabolite patent that's tied in combination with some other things based on some bench-top work we had done. I would tell you that the comments that people saw in the patent office were really semantics, very normal in the patent process. In fact, one could interpret it in a good way, where the patent office said, "Hey, you've got 2 pieces of invention here. Pick one here and then file the other one for a division or a continuation." So that's really all that was about.

We've run out of time for questions. I'd like to turn the call back over to management for closing remarks.

Well, thanks to everyone who's on the call today, and thanks for your continued commitment. We're delighted with the level of interest in our company, and very excited about what the next few months hold for us, and just thank you for your continued support. Have a good evening.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.