Amarin Corporation plc (AMRN) Q3 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the Amarin Corporation Third Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Schultz, Director of Investor Relations for Amarin Corporation. Thank you, Mr. Schulz. You may begin.

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, government agency decisions, potential indications and commercial success for our product candidates and approved product. Our current expectations regarding our cardiovascular outcome study and the potential implications of such study on a regulatory process, plans to protect the commercial potential of our product candidates and approved product 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 approved product and 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 as of today, November 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 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-Q, each of which were filed today with the SEC and are available on our website amarincorp.com. We encourage everyone to read these documents. This call is intended for investors in Amarin and not intended to promote the use of Amarin's Vascepa outside of its approved indication. 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 third 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 is joining us today. During this call, we will briefly review our recent accomplishments, update you on Amarin's financial performance in the third quarter of 2012 and answer a few questions from those on the call. I am joined on today's call by John Thero, Amarin's President; Steve Ketchum, our President of R&D; Joe Kennedy, our General Counsel; and Fred Ahlholm, our VP of Finance. Since our last quarter, we have advanced key objectives in a number of areas, including: FDA approval of Vascepa capsules as an adjunct to diet to reduce triglyceride levels in adult patients with severe hypertriglyceridemia; 8 patents, either issued or allowed within the United States Patent and Trademark Office, in addition to over 30 U.S. patent applications pending; receipt of an Intention to Grant of a European patent related to the MARINE Phase 3 trial findings; while continuing to evaluate 3 paths to commercialization and acquisition of Amarin, a strategic collaboration, or self-commercialization, the latter of which could include third-party support, continuing preparedness for early Q1 2013 Vascepa launch, including inventory purchases, managed care outreach and management expansion; publication of ANCHOR Phase 3 trial results in the American Journal Cardiology; the publication of additional MARINE Phase 3 trial results in its Journal of Clinical Lipidology; and most recently this week, presentation of Vascepa Phase III clinical data at the American Heart Association Scientific Sessions; received regulatory approval of Catalent, as a second drug product encapsulator; and as previously communicated, making good progress on REDUCE-IT enrollment, which continues to support the projected Prescription Drug User Fee Act action date for ANCHOR before the end of 2013. While these achievements are significant, we have done this while carefully managing our spending. As a result, we ended September with a…

Thank you, Joe. As noted, earlier today Amarin filed its quarterly report on Form 10-Q with the SEC for the 3 and 9 months ended September 30, 2012. While we 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 $215.1 million at September 30, a decrease of $35.2 million from our reported $250.3 million in cash and cash equivalent at June 30, 2012. This increase in cash outflows reflects increased activities related to our commercial preparations for the launch of Vascepa. As of September 30, 2012, post-approval purchases of commercial supply were approximately $9 million, as we begin to build up Vascepa inventory levels to stock wholesalers at launch. As described last quarter, we anticipate spending an additional $20 million or $30 million for commercial supply prior to the launch of Vascepa in early 2013. Our cash outflows in Q3 2012 also include expenses incurred for the REDUCE-IT cardiovascular outcome study of approximately $8.3 million, which commenced at the end of 2011 and has been accelerating throughout 2012. The company's liabilities as of September 30, 2012, excluding the value of a non-cash financial derivative, totaled approximately $164 million, which includes $130.8 million for the carrying value of the exchangeable debt. Our research and development expenses for Q3 were approximately $19.9 million, excluding non-cash costs associated with stock and warrant-based compensation, as compared to $5.6 million for the same period of 2011. Our research and development costs in Q3 2012, in addition to REDUCE-IT and other development program costs, include the $5.7 million in costs for some purchases of pre-approval commercial supply and supplier qualification costs. Prior to FDA approval of Vascepa in July 2012, all purchases of commercial supply were expensed as a component of research and development expense. Our marketing and general and administrative expenses for Q3 were approximately $10.9 million, excluding non-cash costs associated with stock- and warrant-based compensation as compared to $4.5 million for the same period in 2011. The increase is due primarily to cost increases for market research and education activities as well as higher staffing levels and other general and administrative costs incurred in order to prepare for the commercialization of Vascepa. That concludes my prepared comments. I will now turn the call back to Joe. Joe?

Thanks, Fred. We are pleased with the progress that Amarin has made over the past quarter, especially regarding the expansion of Vascepa intellectual property coverage. In addition to news that could result from our continued strategic discussions, you may hear from us on the following in the near future: regulatory exclusivity determination, REDUCE-IT cardiovascular outcome study becoming substantially under way, Vascepa sNDA submission for the high triglyceride indications studied in the ANCHOR trial, sNDA submissions for our expanded supply chain, additional grant of patents or Notices of Allowance further strengthening Vascepa's proprietary position to at least 2030 and beyond, the commencement and completion of a Phase I PK study of a combination product comprised of Vascepa and a leading statin, and, of course, the finalization of our Vascepa commercial launch plans under one of the 3 options we previously discussed. As has been the case, Amarin will continue to evaluate and pursue, what in our view, are the best options to maximize the value of Vascepa. Thank you for your interest in Amarin. I would now like to open the call for a few questions. Operator?

[Operator Instructions] Our first question comes from the line of Chris Schott of JP Morgan.

This is Dewey Steadman for Chris Schott. I just have a quick question on a competitor. One of your competitors was out this week with data for its Omega-3 product and they commented that Vascepa results may be aided somewhat by the use of mineral oil as a placebo in the MARINE and ANCHOR studies. And can you just comment on the rationale behind the use of mineral oil instead of olive oil, like the competitor, or corn oil like the studies for Lovaza? And do you see your placebo choice as a marketing burden heading into the launch?

Dewey, this is Joe. The FDA, through our SPAs, approved our placebo. And over the years, many companies have used olive oil, corn oil, mineral oil, we really think it's much ado about nothing. So we really don't see a difference. What I think is more important to look at, though, is that we've actually looked at the data that was presented on Monday, it was actually worse than the data that our competitor originally presented earlier in the year, i.e., their ANCHOR data was worse than their MARINE equivalent data. What do I mean? On LDL, they increased statistically significant 5% at the 2 gram dose, and at 1% sales and non-inferiority study, this is on their ANCHOR equivalent study. You'll recall, we reduced ours by 6% statistically significance. This is going to be a real problem for them. Again, I'm not the FDA, but I know Reliant has results better than that and failed to get their indication approved. Their non-HDL lowering is 1/3 to 1/2 of what we're doing. They continue to talk about 5% to 7% dropout in their study just due to side effects. Just to remind, you we had 0% in our MARINE study, we had 2% in our ANCHOR study, which was less than placebo. They want to talk about what's going on regarding the side-effect profile. And then they got lower Lp-PLA2 results and actually increase Apo B, whereas we decrease it. I think the challenges are going to be there for them. I really look towards the other competitors that are out there that we'll deal with when we hit the marketplace. They've also got patent challenges. I understand the U.S. PTO has turned one of the patents, or is in the process. And with blanketing patents that we've got, it's going to be hard for them. And then finally on NCE, I hope we get it. I think we deserve it. But their drug, in our opinion, is basically Lovaza. And -- so really, long answer to your question. I think it's much ado about nothing. But thank you, Dewey, as always, for your question.

Our next question comes from the line of Thomas Wei from Jefferies & Company. Thomas Wei - Jefferies & Company, Inc., Research Division: I just wanted to ask a little bit about the commercialization strategy, just maybe a little bit more commentary about what you said about 3 versus 5 years of exclusivity and how that provides some degree of clarification for prospective pharma acquirers. Should we interpret that to mean that that's a really critical factor and they're looking for 5 years of regulatory exclusivity and then also a separate question, if an acquisition cannot be consummated, what are some of the factors you're weighing when considering the other 2 pathways, the pharma partnership versus selling it on your own?

Thomas, so, look, we believe in our hearts it's all about the patents, okay? The regulatory exclusivity, we'd like it as well, at the 5 years versus the 3. We've got the trade secrets and then our ability to take advantage of the manufacturing barriers to entry. But clearly, I think the position we're in on the regulatory exclusivity is, we'd like to have a yes answer. Second, we'd like to have a no answer. And third, is sort of in the state we're at, with an indeterminate answer. In terms of what that means, I think everyone were talking to really gets it, it's about the patents. But like anything else, you go into a situation where you're building consensus in a big company. Some of these organizations have different risk profiles and although I want to believe that everyone believes that it's all about the patents, this is our potential fear that what happens if there's a no answer. Does the stock move, and what does that mean within the company and how they're how they're trying to manage it? So I just think -- I think it's the lack of clarity, it's an overhang. So that's always about -- but it's really about the patents. In terms of the other 2 scenarios, as I said on the call, I said in the remarks, we have been parallel processing all of these, and we continue to build all the right infrastructure, all the right teams, everything we need. And our last step really is to make the decision to make sales force offers. Just to give you a sense, we've been approached by over 2,000 sales reps, okay, in terms of potential opportunities here at the company. And we think that this is a great drug regardless of what happens. I think -- and we've not made a decision but -- so that's one, and then the other alternative is what kind of partnership might you go with? We believe that it's got to be a very special partnership here, right? You can't do a deal that is a sale of a company by another means. What do I mean? You can't just take in upfront milestones and a royalty and then ultimately put yourself in a situation where you hide the assets for many years. If it's a partnership, it's got to be freedom to operate. Freedom to do what we see, okay? And I think there are a lot of those, that those that can still be possible. And again, as we said today, we're still pursuing the 3 options. We've not made a decision on making the offers on the sales force. We take this very seriously on all 3 options, Thomas, and we'll keep everyone posted as we proceed.

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

I was wondering, are these exclusive agreements that you have with the suppliers, particularly for the API?

Yes. They all have some degree of exclusivity to them that would make it well below our percentage composition, okay? Could a supplier make DHA or a low-grade material, something of that nature, but they are exclusive to us. We've not announced the exact exclusivity, but we feel very, very comfortable with the 3 that we have in place, and the fourth one that we're about to put in place and covering us on exclusivity, Joe.

And then as far as your combination product development, how do you anticipate co-formulating with the statin when your drug is given twice a day and I think all the statins are once a day?

Yes. Well, they're actually not. And some of them are approved in different regards but we are working closely with the FDA in how we propose doing that. But there are exceptions to that. And we have our proprietary formulation that we're working on. And again, as we previously stated, we hope to begin that study very shortly.

And then one more, if I could. You said that if you were to hire a sales force now that would be before the end of this month. And usually, the NCE determinations are given in the second full week of a month, which is next week, but you also said that, that lack of an NCE clarity has presented a challenge in your discussion. So are you basically going to be deciding what you want to be doing going forward with the company in the third and fourth week of this month?

Yes. I think what we've said is, we're going to make a decision on whether we're going to start making offers to the sales reps sometime between the middle of the month and the end of the month. In terms of what we're going to do with the company, regardless if we start building the sales force, I don't think anyone should think that once you build the sales force, a, you're launching yourself or you eliminated the other 2 options. I think we will constantly be in the path of always looking at: Are you launching yourself with help? Are you selling the company? Are you looking at a strategic partnership? So I think the big difference is, up to that point, all 3 options are the same. It's when you start making those offers that it -- you start to do something different. But it doesn't take away the optionality of where you might go.

Our next question comes from the line of Ritu Baral of Canaccord.

Joe, if we could go back to sales force hiring for a second. What exactly are the timelines that you think that you would need to hold to, in order to get your feet on the ground in Q1, as promised, optimally? Would you -- like if you issued the offers, how long would you need to train them, and actually get them out there to launch the drug in Q1? Is this a decision that you could even push past to December, or is it something that you feel that you would have to do in November for the sake of holding that Q1 deadline?

Yes, I guess there's always the possibility, Ritu. But I mean the way we sort of -- we sort of look at this is that -- as I mentioned, we're approaching 2,000 resumes, if you will. The one thing I can tell you that's incredibly helpful to us if we go in this direction, and while we've been able to delay the decision to begin with, that I originally said was October, is that there's been a huge concentration of sales reps over the past 2 years, or reduction in the U.S. They've gone from, I don't know, 110,000 to 115,000, down to 65,000. And of those 65,000, we really have our pick of the litter. So I can tell you that as we look at the 200, 250-plus territories we're going to have, I can tell you that everyone we might hire, might hire, has experience in the cardio-metabolism/diabetes space with those very physicians we'll be promoting to. So instead of doing what we did in my former job, at Reliant, or otherwise, where you might go hire people out of school, from T-Mobile or at the mall, and that's what a lot of people used to do, you're going to get folks with 3 to 10 years experience, with the very doctors you want to go in and promote to. And what that allows us to do is make the decision to offer in, let's call it mid- to late November, bring people on board, mid- to late December, train and then go into the launch mode. I will tell you that when you look at the folks that are out there, and even a lot of the folks that we talked to, they know this space, they know our product. And we're in a very fortunate position to have such a great product, with many great people available. So I think we can really make that happen. But if we do make that decision to do it, we're taking this very, very seriously, okay? And I'll just leave it at that.

Second question, as you go through your talks with potential business development partners, are they looking at the market the same way that you are? Are they looking at the same sort of numbers of patients, both in the 500-plus and the 200 to 500, is there any sort of points of discussion or alternate points of view in certain areas?

Yes, I would say that it's always hard for me to tell you how people are thinking about these things. I would tell you that everybody looks at MARINE as being a huge opportunity and an ability to expand the market and steal share, if you will. And ANCHOR is something more of an untouched opportunity. So I think across-the-board, people get it. To what degree they get and how things go of that nature, ultimately, that's for them to answer but I think it's safe to say that people see this as a very, very significant opportunity.

Do they see MTE as mattering to one market more than the other?

No. I think what I'd like to believe is that it's all about the patents and people are evolving and have gotten to that point. I think the issue, and, again, these are always very subtle things, I think the NCEP is an overhang, and I think it's -- that's really the issue we're dealing with. And as I said, our priority would be to have a yes decision on NCE, our second would be a no decision and our third would be -- a no answer, and our third would be sort of where we are today, waiting. It's just tough.

Our next question comes from the line of Brian Rockwood [ph] with Aegis Capital.

I'm just going to bundle my questions into one. I want to reference an article that was dated January 11 in Bloomberg News, where you were interviewed and you had said that you had seen more interest from potential partners and buyers. You've had more companies interested and this asset than employees, and at the time you have 17 employees on the payroll. The second thing is -- well, my question is, are you still getting that kind of interest from interested parties? The second one references an article in the Daily Mail about 2 weeks ago, where they suggested that AstraZeneca has a possible interest in your company. And then the last question, I guess, goes back to your days as Chief Operating Officer over at Reliant, when they were sold to the GlaxoSmithKline, I guess, on a personal level, have you learned anything from that experience that you feel better positions Amarin going forward in today's market?

Well, thanks for the questions. First of all, regarding the Bloomberg article of the 2011 early, we all live and we learn, in what we say and what we don't say. I would tell you that we continue to see significant interest across-the-board. I can officially tell you today we have more employees, as we approach approximately 100, than we have potential interested parties, pun intended. But you go down this process and you've got this incredibly valuable asset that we're sitting on right now. You've got pharma companies out there spending $3 billion to $5 billion a year in R&D and it's us launching one drug. So I think people get how special this is and we really continue to make the progress. But things sometimes take longer than they do but I confirm things are still very active. On your second question about the Daily Mail and AstraZeneca, I have to officially say no comment. There's been speculation for quite some time and we'll leave it at that. And then I think the Reliant experience is been incredibly valuable to me, personally, I think, to the company and folks. I'm sitting here with Steve Ketchum, who is Chief Scientific Officer, and I think we learned a lot. But I think the one thing we know, or we believe, is when you look at the data that we have and compare it to what else is out there, this is a very, very special product. I think you can learn a lot just by talking about -- I'll give you an example. We've also got Jojo Lulli [ph] and his team driving the pricing strategy. He was with us at Reliant. He was responsible, he and his team, for capturing 200 million lives in managed care and reimbursement. We been out and we've talked to every major company out there from a reimbursement perspective. We think we're pretty well-positioned there. We've got supply expertise. We've got pricing expertise. We've got marketing expertise and, ultimately, if we need it, we'll do the sales expertise. So I think, again, I think the most important thing is, this is a special asset, in a right special period of time, with a very special team managing it. And I -- we're incredibly motivated here and then excited about the opportunity, regardless of which of the 3 paths we go down.

Ladies and gentlemen, we have reached the end of Q&A session. I would like to turn the call back over to management for any closing comments.

Thank you. Look, everybody, we're delighted. I'm told there were 500 people on the call today, a great turnout. We continue to work diligently to maximize the value of Vascepa and we are going to continue to do that. We've got some exciting times, continue to have here, in reference some of the decisions we have forthcoming. Again, looking for further clarity from the regulatory agencies who are providing this "overhang." And then really great things going on with the REDUCE-IT study, the submission of ANCHOR and, really, across-the-board, just a real team pulling together here. So we thank you for your commitment. I know I'll be talking to many of you over next several days, and we just wish you a good evening. Thank you.

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