Quarterly Report (10-q)

Date : 05/01/2019 @ 11:50AM
Source : Edgar (US Regulatory)
Stock : Amarin Corp. Plc ADS (AMRN)
Quote : 19.55  0.13 (0.67%) @ 5:23PM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 000-21392

 

Amarin Corporation plc

(Exact Name of Registrant as Specified in its Charter)

 

 

England and Wales

 

Not applicable

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

2 Pembroke House, Upper Pembroke Street 28-32

 

Dublin 2, Ireland

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: +353 (0) 1 6699 020

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES       NO  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES       NO  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

  

 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES       NO  

330,686,553 common shares were outstanding as of April 26, 2019, including 330,480,979 shares held as American Depositary Shares (ADSs), each representing one Ordinary Share, 50 pence par value per share and 205,574 Ordinary Shares. In addition, 28,931,746 ordinary share equivalents were issuable in exchange for outstanding preferred shares as of April 26, 2019, for a total of 359,618,299 ordinary shares and ordinary share equivalents outstanding as of April 26, 2019.

 


INDEX TO FORM 10-Q

 

 

 

 

 

Page

 

 

 

PART I – Financial Information

 

 

 

Item 1.

 

Financial Statements (unaudited):

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

 

3

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018  

 

4

 

 

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the three months ended March 31, 2019 and 2018

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

 

6

 

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

32

Item 4.

 

Controls and Procedures

 

32

 

 

 

PART II – Other Information

 

 

 

Item 1.

 

Legal Proceedings

 

33

Item 1A.

 

Risk Factors

 

33

Item 6.

 

Exhibits

 

72

 

SIGNATURES

 

73

 

2


PART I

AMARIN CORPORATION PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share amounts)

 

 

 

March 31, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

211,089

 

 

$

249,227

 

Restricted cash

 

 

1,502

 

 

 

1,500

 

Accounts receivable, net

 

 

79,485

 

 

 

66,523

 

Inventory

 

 

57,909

 

 

 

57,802

 

Prepaid and other current assets

 

 

5,334

 

 

 

2,945

 

Total current assets

 

 

355,319

 

 

 

377,997

 

Property, plant and equipment, net

 

 

57

 

 

 

63

 

Operating lease right-of-use asset

 

 

8,900

 

 

 

 

Other long-term assets

 

 

643

 

 

 

174

 

Intangible asset, net

 

 

7,319

 

 

 

7,480

 

TOTAL ASSETS

 

$

372,238

 

 

$

385,714

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

26,776

 

 

$

37,632

 

Accrued expenses and other current liabilities

 

 

94,170

 

 

 

84,171

 

Current portion of long-term debt from royalty-bearing instrument

 

 

38,960

 

 

 

34,240

 

Deferred revenue, current

 

 

1,898

 

 

 

1,220

 

Total current liabilities

 

 

161,804

 

 

 

157,263

 

Long-Term Liabilities:

 

 

 

 

 

 

 

 

Long-term debt from royalty-bearing instrument

 

 

35,338

 

 

 

46,108

 

Deferred revenue, long-term

 

 

18,265

 

 

 

19,490

 

Long-term operating lease liability

 

 

7,930

 

 

 

 

Other long-term liabilities

 

 

8,030

 

 

 

10,523

 

Total liabilities

 

 

231,367

 

 

 

233,384

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, £0.05 par, unlimited authorized; 289,317,460 shares issued and outstanding as of March 31, 2019 and December 31, 2018 (equivalent to 28,931,746 ordinary shares upon future consolidation and redesignation at a 10:1 ratio)

 

 

21,850

 

 

 

21,850

 

Common stock, £0.50 par, unlimited authorized; 334,365,726 issued, 330,578,168 outstanding as of March 31, 2019; 329,110,863 issued, 325,850,013 outstanding as of December 31, 2018

 

 

250,088

 

 

 

246,663

 

Additional paid-in capital

 

 

1,301,389

 

 

 

1,282,762

 

Treasury stock; 3,787,558 shares as of March 31, 2019; 3,260,850 shares as of December 31, 2018

 

 

(19,493

)

 

 

(10,413

)

Accumulated deficit

 

 

(1,412,963

)

 

 

(1,388,532

)

Total stockholders’ equity

 

 

140,871

 

 

 

152,330

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

372,238

 

 

$

385,714

 

 

See notes to condensed consolidated financial statements.

3


AMARIN CORPORATION PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)

 

 

 

Three months ended March 31,

 

 

 

2019

 

 

2018

 

Product revenue, net

 

$

72,731

 

 

$

43,777

 

Licensing revenue

 

 

547

 

 

 

142

 

Total revenue, net

 

 

73,278

 

 

 

43,919

 

Less: Cost of goods sold

 

 

17,140

 

 

 

10,648

 

Gross margin

 

 

56,138

 

 

 

33,271

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

71,633

 

 

 

43,407

 

Research and development

 

 

7,242

 

 

 

11,762

 

Total operating expenses

 

 

78,875

 

 

 

55,169

 

Operating loss

 

 

(22,737

)

 

 

(21,898

)

Interest expense, net

 

 

(1,697

)

 

 

(2,252

)

Other income, net

 

 

3

 

 

 

55

 

Loss from operations before taxes

 

 

(24,431

)

 

 

(24,095

)

(Provision for) benefit from income taxes

 

 

 

 

 

 

Net loss

 

$

(24,431

)

 

$

(24,095

)

Loss per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.07

)

 

$

(0.08

)

Diluted

 

$

(0.07

)

 

$

(0.08

)

Weighted average shares:

 

 

 

 

 

 

 

 

Basic

 

 

328,712

 

 

 

285,207

 

Diluted

 

 

328,712

 

 

 

285,207

 

 

See notes to condensed consolidated financial statements.

4


AMARIN CORPORATION PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited, in thousands, except share amounts)

 

 

 

Preferred

Shares

 

 

Common

Shares

 

 

Treasury

Shares

 

 

Preferred

Stock

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Treasury

Stock

 

 

Accumulated

Deficit

 

 

Total

 

December 31, 2018

 

 

289,317,460

 

 

 

329,110,863

 

 

 

(3,260,850

)

 

$

21,850

 

 

$

246,663

 

 

$

1,282,762

 

 

$

(10,413

)

 

$

(1,388,532

)

 

$

152,330

 

Exercise of stock options

 

 

 

 

 

3,838,739

 

 

 

 

 

 

 

 

 

2,496

 

 

 

12,960

 

 

 

 

 

 

 

 

 

15,456

 

Vesting of restricted stock units

 

 

 

 

 

1,416,124

 

 

 

(526,708

)

 

 

 

 

 

929

 

 

 

(929

)

 

 

(9,080

)

 

 

 

 

 

(9,080

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,596

 

 

 

 

 

 

 

 

 

6,596

 

Loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,431

)

 

 

(24,431

)

March 31, 2019

 

 

289,317,460

 

 

 

334,365,726

 

 

 

(3,787,558

)

 

$

21,850

 

 

$

250,088

 

 

$

1,301,389

 

 

$

(19,493

)

 

$

(1,412,963

)

 

$

140,871

 

 

 

 

 

Preferred

Shares

 

 

Common

Shares

 

 

Treasury

Shares

 

 

Preferred

Stock

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Treasury

Stock

 

 

Accumulated

Deficit

 

 

Total

 

December 31, 2017

 

 

328,184,640

 

 

 

272,719,044

 

 

 

(1,697,033

)

 

$

24,364

 

 

$

208,768

 

 

$

977,866

 

 

$

(4,229

)

 

$

(1,271,869

)

 

$

(65,100

)

Cumulative-effect adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(218

)

 

 

(218

)

January 1, 2018

 

 

328,184,640

 

 

 

272,719,044

 

 

 

(1,697,033

)

 

$

24,364

 

 

$

208,768

 

 

$

977,866

 

 

$

(4,229

)

 

$

(1,272,087

)

 

$

(65,318

)

Issuance of common stock, net of transaction costs

 

 

 

 

 

20,616,438

 

 

 

 

 

 

 

 

 

14,635

 

 

 

55,372

 

 

 

 

 

 

 

 

 

70,007

 

Exercise of stock options

 

 

 

 

 

782,553

 

 

 

 

 

 

 

 

 

541

 

 

 

1,007

 

 

 

 

 

 

 

 

 

1,548

 

Vesting of restricted stock units

 

 

 

 

 

1,838,380

 

 

 

(675,242

)

 

 

 

 

 

1,302

 

 

 

(1,302

)

 

 

(2,553

)

 

 

 

 

 

(2,553

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,754

 

 

 

 

 

 

 

 

 

3,754

 

Loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,095

)

 

 

(24,095

)

March 31, 2018

 

 

328,184,640

 

 

 

295,956,415

 

 

 

(2,372,275

)

 

$

24,364

 

 

$

225,246

 

 

$

1,036,697

 

 

$

(6,782

)

 

$

(1,296,182

)

 

$

(16,657

)

 

See notes to condensed consolidated financial statements.

5


AMARIN CORPORATION PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

 

Three months ended March 31,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(24,431

)

 

$

(24,095

)

Adjustments to reconcile loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

6

 

 

 

8

 

Stock-based compensation

 

 

6,883

 

 

 

3,762

 

Amortization of debt discount and debt issuance costs

 

 

446

 

 

 

573

 

Amortization of intangible asset

 

 

161

 

 

 

162

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(12,962

)

 

 

6,138

 

Inventory

 

 

(107

)

 

 

(4,844

)

Prepaid and other current assets

 

 

(2,389

)

 

 

(163

)

Other long-term assets

 

 

(469

)

 

 

 

Accrued interest payable

 

 

(73

)

 

 

(327

)

Deferred revenue

 

 

(547

)

 

 

(142

)

Accounts payable and other current liabilities

 

 

(2,238

)

 

 

9,123

 

Other long-term liabilities

 

 

(2,369

)

 

 

 

Net cash used in operating activities

 

 

(38,089

)

 

 

(9,805

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of transaction costs

 

 

 

 

 

70,007

 

Proceeds from exercise of stock options, net of transaction costs

 

 

15,456

 

 

 

1,548

 

Payment on long-term debt from royalty-bearing instrument

 

 

(6,423

)

 

 

(3,785

)

Taxes paid related to stock-based awards

 

 

(9,080

)

 

 

(2,553

)

Net cash (used in) provided by financing activities

 

 

(47

)

 

 

65,217

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(38,136

)

 

 

55,412

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD

 

 

250,727

 

 

 

74,237

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

 

$

212,591

 

 

$

129,649

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest

 

$

7,709

 

 

$

5,873

 

Income taxes

 

$

 

 

$

23

 

Supplemental disclosure of non-cash transactions:

 

 

 

 

 

 

 

 

Initial recognition of operating lease right-of-use asset

 

$

8,995

 

 

$

 

 

See notes to condensed consolidated financial statements.

6


AMARIN CORPORATION PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For purposes of this Quarterly Report on Form 10-Q, ordinary shares may also be referred to as “common shares” or “common stock.”

(1)

Nature of Business and Basis of Presentation

Nature of Business

Amarin Corporation plc (“Amarin” or the “Company”) is a pharmaceutical company with expertise in omega-3 fatty acids and lipid science focused on the commercialization and development of therapeutics to improve cardiovascular health and reduce cardiovascular risk. Since its inception, the Company has devoted substantial resources to research and development.

The Company’s lead product, Vascepa ® (icosapent ethyl) capsules, is approved by the U.S. Food and Drug Administration, or FDA, for use as an adjunct to diet to reduce triglyceride levels in adult patients with severe (TG > 500 mg/dL) hypertriglyceridemia. Vascepa is available in the United States (the “U.S.”) by prescription only. In January 2013, the Company began selling and marketing 1-gram size Vascepa capsules in the United States, and in October 2016, introduced a smaller 0.5-gram capsule size. In August 2015, in addition to marketing Vascepa for severe hypertriglyceridemia, the Company commenced marketing Vascepa for use in adult patients with mixed dyslipidemia, as an adjunct to diet and an add-on to statin therapy in patients who despite statin therapy have high triglycerides (TGs > 200 mg/dL and <500 mg/dL), which the Company also refers to as persistently high triglycerides. This expanded promotion of Vascepa commenced pursuant to a federal court order and is continuing pursuant to an agreement among the Company, the FDA and the U.S. government.  

The Company also developed Vascepa for FDA approval of potential additional indications for use. In particular, the Company conducted a cardiovascular outcomes study of Vascepa, titled REDUCE-IT™ (Reduction of Cardiovascular Events with EPA—Intervention Trial). The REDUCE-IT study, which commenced in 2011 and completed patient enrollment and randomization of 8,179 individual patients in 2016, was designed to evaluate the efficacy of Vascepa in reducing major cardiovascular events in a high-risk patient population on statin therapy. The REDUCE-IT study topline results were made public in September 2018, and the primary results of the REDUCE-IT study were presented at the 2018 Scientific Sessions of the American Heart Association (AHA) in November 2018 with such results concurrently published in The New England Journal of Medicine . The total (first and subsequent) cardiovascular events results of the REDUCE-IT study were presented at the American College of Cardiology’s (ACC) 68 th Annual Scientific Session in March 2019 and concurrently published in the Journal of the American College of Cardiology. The Company submitted a supplemental new drug application (sNDA) in March 2019 to the FDA seeking revised labeling for Vascepa based on results of the REDUCE-IT study and, upon such expanded labeling, subject to FDA approval of such label, to further expand its promotion of Vascepa in the United States.

In the United States, the Company sells Vascepa principally to a limited number of major wholesalers, as well as selected regional wholesalers and specialty pharmacy providers, or collectively, its Distributors or its customers, that in turn resell Vascepa to retail pharmacies for subsequent resale to patients and healthcare providers. The Company markets Vascepa in the United States through its direct sales force, which prior to the REDUCE-IT results topline announcement in September 2018 consisted of approximately 170 sales professionals, including sales representatives and their managers, and to begin 2019 increased to approximately 440 sales professionals, including approximately 400 sales representatives and remained at approximately this level as of March 31, 2019. Prior to 2019, the Company also engaged a co-promotion partner to help promote Vascepa in the United States which co-promotion by mutual agreement was not extended beyond December 31, 2018. Outside of the United States, the Company has entered into agreements with third party companies in select geographies for purposes of pursuing regulatory approval and commercialization of Vascepa. The Company operates in one business segment.

Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by the Company, without audit, in accordance with accounting principles generally accepted in the United States and pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information in the footnote disclosures of the financial statements has been condensed or omitted where it substantially duplicates information provided in the Company’s latest audited consolidated financial statements, in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018, or the 2018 Form 10-K, filed with the SEC. The balance sheet amounts at December 31, 2018 in this report were derived from the Company’s audited 2018 consolidated financial statements included in the 2018 Form 10-K.

The condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that, in the opinion of management, are necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated. The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. Generally Accepted

7


Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent ass ets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results fo r the entire fiscal year or any future period. Certain numbers presented throughout this document may not add precisely to the totals provided due to rounding. Absolute and percentage changes are calculated using the underlying amounts in thousands. The co ndensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying condensed consolidated financial statements of the Company and subsidiaries have been prepared on a basis which assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

As of March 31, 2019, the Company had current assets of $355.3 million, including cash and cash equivalents of $211.1 million, accounts receivable, net, of $79.5 million and inventory of $57.9 million. The Company’s condensed consolidated balance sheets also include long-term debt from a royalty-bearing instrument which is anticipated to be repaid quarterly calculated as a percentage of Vascepa net revenues until fully satisfied. As of March 31, 2019, the Company had no other debt outstanding. 

(2)

Significant Accounting Policies

Accounts Receivable, net

Accounts receivable, net, comprised of trade receivables, are generally due within 30 days and are stated at amounts due from customers. The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of any recoveries. The allowance is based primarily on assessment of specific identifiable customer accounts considered at risk or uncollectible, as well as an analysis of current receivables aging and expected future write-offs. The expense associated with the allowance for doubtful accounts is recognized as selling, general, and administrative expense. The Company has not historically experienced any significant credit losses.

The following table summarizes the impact of accounts receivable reserves on the gross trade accounts receivable balances as of March 31, 2019 and December 31, 2018:

 

In thousands

 

March 31, 2019

 

 

December 31, 2018

 

Gross trade accounts receivable

 

$

104,011

 

 

$

86,133

 

Trade allowances

 

 

(23,992

)

 

 

(19,495

)

Chargebacks

 

 

(534

)

 

 

(115

)

Accounts receivable, net

 

$

79,485

 

 

$

66,523

 

 

Inventory

The Company states inventories at the lower of cost or net realizable value. Cost is determined based on actual cost using the average cost method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. An allowance is established when management determines that certain inventories may not be saleable. If inventory cost exceeds expected net realizable value due to obsolescence, damage or quantities in excess of expected demand, changes in price levels or other causes, the Company will reduce the carrying value of such inventory to net realizable value and recognize the difference as a component of cost of goods sold in the period in which it occurs. The Company capitalizes inventory purchases of saleable product from approved suppliers while inventory purchases from suppliers prior to regulatory approval are included as a component of research and development expense. The Company expenses inventory identified for use as marketing samples when they are packaged. The average cost reflects the actual purchase price of Vascepa active pharmaceutical ingredient, or API.

Income Taxes

 

Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts and tax bases of assets and liabilities and operating loss carryforwards and other attributes using enacted rates expected to be in effect when those differences reverse. Valuation allowances are provided against deferred tax assets that are not more likely than not to be realized. Deferred tax assets and liabilities are classified as non-current in the condensed consolidated balance sheet.

8


The Company provides reserves for potential payments o f tax to various tax authorities or does not recognize tax benefits related to uncertain tax positions and other issues. Tax benefits for uncertain tax positions are based on a determination of whether a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized, assuming that the matter in question will be decided based on its technical merits. The Company’s policy is to record interest and penalties in the provision for income taxes.

The Company regularly assesses its ability to realize deferred tax assets. Changes in historical earnings performance, future earnings projections, and changes in tax laws and tax rates, among other factors, may cause the Company to adjust its valuation allowance on deferred tax assets, which would impact the Company’s income tax expense in the period in which it is determined that these factors have changed.

Excess tax benefits and deficiencies that arise upon vesting or exercise of share-based payments are recognized as an income tax benefit and expense, respectively, in the condensed consolidated statement of operations. Excess income tax benefits are classified as cash flows from operating activities and cash paid to taxing authorities arising from the withholding of shares from employees are classified as cash flows from financing activities.

The Company’s and its subsidiaries’ income tax returns are periodically examined by various tax authorities, including the Internal Revenue Service (IRS) and states. The Company recently completed the audit by the IRS for the years 2013 to 2014 with no material changes to the filed income tax returns. Although the outcome of tax audits is always uncertain and could result in significant cash tax payments, the Company does not believe the outcome of these audits will have a material adverse effect on its consolidated financial position or results of operations.

Loss per Share

Basic net loss per share is determined by dividing net loss by the weighted average shares of common stock outstanding during the period. Diluted net loss per share is determined by dividing net loss by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as common stock options calculated using the treasury stock method and convertible notes using the “if-converted” method. In periods with reported net operating losses, all common stock options are deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal.

The Company’s preferred stock is entitled to receive dividends on an as-if-converted basis in the same form as dividends actually paid on common shares. Accordingly, the preferred stock is considered a participating security and the Company is required to apply the two-class method to consider the impact of the preferred stock on the calculation of basic and diluted earnings per share. The Company is currently in a net loss position and is therefore not required to present the two-class method, however, in the event the Company is in a net income position, the two-class method must be applied by allocating all earnings during the period to common shares and preferred stock based on their contractual entitlements assuming all earnings were distributed.

The calculation of net loss and the number of shares used to compute basic and diluted net loss per share for the three months ended March 31, 2019 and 2018  are as follows:

 

 

 

Three months ended March 31,

 

 

In thousands

 

2019

 

 

2018

 

 

Net loss—basic and diluted

 

$

(24,431

)

 

$

(24,095

)

 

Weighted average shares outstanding—basic and diluted

 

 

328,712

 

 

 

285,207

 

 

Net loss per share—basic and diluted

 

$

(0.07

)

 

$

(0.08

)

 

 

For the three months ended March 31, 2019 and 2018, the following potentially dilutive securities were not included in the computation of net loss per share because the effect would be anti-dilutive:

 

 

 

Three months ended March 31,

 

 

In thousands

 

2019

 

 

2018

 

 

Stock options

 

 

16,837

 

 

 

25,703

 

 

Restricted stock and restricted stock units

 

 

9,341

 

 

 

12,420

 

 

Exchangeable senior notes (if converted)

 

 

 

 

 

7,716

 

 

Preferred stock (if converted)

 

 

28,932

 

 

 

32,818

 

 

 

  Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains substantially all of its cash and cash equivalents in financial institutions believed to be of high-credit quality.

9


A significant portion of the Company’s sales are to wholesalers in the pharmaceutical industry. The Company monitors the creditworthiness of customers to whom it grants credit terms and has not experienced any credit losses. The Company does not require co llateral or any other security to support credit sales. Three customers individually accounted for 10% or more of the Company’s gross product sales, Customers A, B, and C accounted for 21%, 39%, and 29%, respectively, of gross product sales for the three m onths ended March 31, 2019, and represented 32%, 37%, and 21%, respectively, of the gross accounts receivable balance as of March 31, 2019. Customers A, B, and C accounted for 26%, 31%, and 31%, respectively, of gross product sales for the three months end ed March 31, 2018   and represented 37% , 30%, and 24%, respectively, of the gross accounts receivable balance as of   March 31, 2018 . The Company has not experienced any significant write-offs of its accounts receivable.

Concentration of Suppliers

The Company has contractual freedom to source the API for Vascepa and to procure other services supporting its supply chain and has entered into supply agreements with multiple suppliers. The Company’s supply of product for commercial sale and clinical trials is dependent upon relationships with third-party manufacturers and suppliers.

The Company cannot provide assurance that its efforts to procure uninterrupted supply of Vascepa to meet market demand will continue to be successful or that it will be able to renew current supply agreements on favorable terms or at all. Significant alteration to or termination of the Company’s current supply chain or its failure to enter into new and similar agreements in a timely fashion, if needed, could have a material adverse effect on its business, condition (financial and other), prospects or results of operations.

The Company currently has manufacturing agreements with multiple independent FDA-approved API manufacturers and several independent FDA-approved API encapsulators and packagers for Vascepa manufacturing. Each of these companies has qualified and validated its manufacturing processes and is capable of manufacturing Vascepa. There can be no guarantee that these or other suppliers with which the Company may contract in the future to manufacture Vascepa or Vascepa API will remain qualified to do so to its specifications or that these and any future suppliers will have the manufacturing capacity to meet anticipated demand for Vascepa.

Fair Value of Financial Instruments

The Company provides disclosure of financial assets and financial liabilities that are carried at fair value based on the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements may be classified based on the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities using the following three levels:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Unobservable inputs that reflect the Company’s estimates of the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.

The following tables present information about the Company’s assets and liabilities as of March 31, 2019 and December 31, 2018 that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

 

 

 

March 31, 2019

 

In thousands

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents—money markets

 

$

9,945

 

 

$

9,945

 

 

$

 

 

$

 

 

 

 

December 31, 2018

 

In thousands

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents—money markets

 

$

9,880

 

 

$

9,880

 

 

$

 

 

$

 

 

10


The carrying amounts of cash, cash equivalents, accou nts payable and accrued liabilities approximate fair value because of their short-term nature. The carrying amounts and the estimated fair values of debt instruments as of March 31, 2019 and December 31, 2018 are as follows:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

In thousands

 

Carrying

Value

 

 

Estimated

Fair Value

 

 

Carrying

Value

 

 

Estimated

Fair Value

 

Current portion of long-term debt from royalty-bearing

     instrument, net of accrued interest

 

$

38,394

 

 

 

 

 

 

$

33,602

 

 

 

 

 

Long-term debt from royalty-bearing instrument

 

 

35,338

 

 

 

 

 

 

 

46,108

 

 

 

 

 

Total long-term debt from royalty-bearing instrument

 

$

73,732

 

 

$

72,600

 

 

$

79,710

 

 

$

78,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 The estimated fair value of the long-term debt from royalty-bearing instrument is calculated utilizing the same Level 3 inputs utilized in valuing the related derivative liability (see Derivative Liabilities below). The carrying value of the long-term debt from royalty-bearing instrument as of both March 31, 2019 and December 31, 2018 did not include a debt discount as it had been fully amortized.

Derivative Liabilities

Derivative financial liabilities are recorded at fair value, with gains and losses arising for changes in fair value recognized in the condensed consolidated statement of operations at each period end while such instruments are outstanding. If the Company issues shares to discharge the liability, the derivative financial liability is derecognized and common stock and additional paid-in capital are recognized on the issuance of those shares.

Long-Term Debt Redemption Feature

The Company’s December 2012 royalty-bearing instrument financing arrangement (discussed in Note 5—Debt) contains a redemption feature whereby, upon a change of control, the Company would be required to repay $150.0 million, less any previously repaid amount. The Company determined this redemption feature to be an embedded derivative, which is carried at fair value and is classified as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs. The fair value of the embedded derivative was calculated using a probability-weighted model incorporating management estimates of future revenues and for a potential change in control, and by determining the fair value of the debt with and without the change in control provision included. The difference between the two was determined to be the fair value of the embedded derivative. The fair value of this derivative liability is remeasured at each reporting period, with changes in fair value recognized in the condensed consolidated statement of operations. As of March 31, 2019, the fair value of the derivative was determined to be nil, and the debt was valued by comparing debt issues of similar companies with (i) remaining terms of between 1.3 and 7.6 years, (ii) coupon rates of between 5.4% and 11.6% and (iii) market yields of between 8.1% and 14.9%. As of December 31, 2018, the fair value of the derivative was determined to be nil based on underlying assumptions, and the debt was valued by comparing debt issues of similar companies with (i) remaining terms of between 1.3 and 4.0 years, (ii) coupon rates of between 5.4% and 10.8% and (iii) market yields of between 6.7% and 15.8%. As such, the Company recognized no gain or loss on change in fair value of derivative liability for the three months ended March 31, 2019. The Company recognized no gain or loss on change in fair value of derivative liability for the three months ended March 31, 2018.

Any changes in the assumptions used to value the derivative liabilities, including the probability of a change in control, could result in a material change to the carrying value of such liabilities.

Segment and Geographical Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources to an individual segment and in assessing performance of the segment. The Company currently operates in one business segment, which is the development and commercialization of Vascepa. A single management team that reports to the Company’s chief decision-maker, who is the Chief Executive Officer, comprehensively manages the business. Accordingly, the Company does not have separately reportable segments.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, and are early adopted by the Company or adopted as of the specified effective date.

In February 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-02, Leases (ASC 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset

11


for virtually all of their leases (other than leases that meet the definition of a short-term lease). Lessor accounting remains largely unchanged except for changes in the definition and classification of leases. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption, with an option to elect to use certain transition relief. The FASB also proposed a transition method to allow entities to not apply the new leases standard in the comparative periods they present in their financial statements in t he year of adoption.

On January 1, 2019, the Company adopted ASC 842 using the modified retrospective method for all leases that existed at or commenced after January 1, 2019.  The adoption of ASC 842 did not have a material impact on the Company’s condensed consolidated financial statements as of the effective date. See Note 11 – Leases for further details. The Company elected to apply the practical expedients in ASC 842-10-65-1 (f) and therefore:

 

1)

Did not reassess expired contracts for the presence of lease components therein and if it was already concluded that such contracts had lease components then the classification of the respective lease components therein was not re-assessed.

 

2)

Did not re-assess initial direct costs for any existing leases.

 

3)

Will not separate the lease and non-lease components.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which is intended to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The Company adopted this standard effective January 1, 2019, which did not have a material impact on the Company’s condensed consolidated financial statements.

The Company also considered the following recent accounting pronouncements which were not yet adopted as of March 31, 2019:

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , which eliminates, adds and modifies certain disclosure requirements for fair value measurements, including eliminating the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and requiring disclosure of the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption, either of the entire standard or only the provisions that eliminate or modify requirements, is permitted. The Company has evaluated the disclosure requirements of this standard and does not expect it to have a material impact on the Company’s condensed consolidated financial statements.

The Company believes that the impact of other recently issued but not yet adopted accounting pronouncements will not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows, or do not apply to the Company’s operations.

(3)

Intangible Asset

Intangible asset consists of the historical acquisition cost of certain technology rights for Vascepa and has an estimated weighted-average remaining useful life of 11.3 years. The carrying value as of March 31, 2019 and December 31, 2018 is as follows:

 

In thousands

 

March 31, 2019

 

 

December 31, 2018

 

Technology rights

 

$

11,624

 

 

$

11,624

 

Accumulated amortization

 

 

(4,305

)

 

 

(4,144

)

Intangible assets, net

 

$

7,319

 

 

$

7,480

 

 

12


(4)

Inventory

The Company capitalizes its purchases of saleable inventory of Vascepa from suppliers that have been qualified by the FDA. Inventories as of March 31, 2019 and December 31, 2018 consist of the following:

 

In thousands

 

March 31, 2019

 

 

December 31, 2018

 

Raw materials

 

$

7,941

 

 

$

14,142

 

Work in process

 

 

8,653

 

 

 

8,590

 

Finished goods

 

 

41,473

 

 

 

35,357

 

Total inventory, gross

 

 

58,067

 

 

 

58,089

 

Inventory cost adjustment

 

 

(158

)

 

 

(287

)

Inventory

 

$

57,909

 

 

$

57,802

 

 

(5)

Debt

Long-Term Debt from Royalty-Bearing Instrument—December 2012 Financing

On December 6, 2012, the Company entered into a Purchase and Sale Agreement with BioPharma Secured Debt Fund II Holdings Cayman LP, or BioPharma. Under this agreement, the Company granted to BioPharma a security interest in future receivables associated with the Vascepa patent rights, in exchange for $100.0 million received at the closing of the agreement which occurred in December 2012. Under these terms, the Company continues to own all Vascepa intellectual property rights, however, such rights, as described below, could be used as collateral for repayment of the remaining unpaid balance under this agreement if the Company defaults on making required payments. In the agreement, the Company agreed to repay BioPharma up to $150.0 million with such repayment based on a portion of net revenues and receivables generated from Vascepa. On December 20, 2017, BioPharma assigned all rights under this agreement to CPPIB Credit Europe S.à r.l., or CPPIB.

As of March 31, 2019, the remaining amount to be repaid to CPPIB is $80.9 million. During the three months ended March 31, 2019, the Company made repayments under the agreement of $7.7 million to CPPIB and an additional $7.3 million is scheduled to be paid in May 2019 for the first quarter of 2019. These payments, as well as additional quarterly repayments scheduled in the future, are calculated as 10% of Vascepa net revenues. All such payments reduce the remainder of the $150.0 million in aggregate payments to CPPIB. Except upon a change of control in Amarin, the agreement does not expire until $150.0 million in aggregate has been repaid. The Company can prepay the net remaining amount at any time.

The Company determined the redemption feature upon a change of control to be an embedded derivative requiring bifurcation. The fair value of the embedded derivative was calculated by determining the fair value of the debt with the change in control provision included and also without the change in control provision. The difference between the two fair values of the debt was determined to be the fair value of the embedded derivative, and upon closing the Company recorded a derivative liability of $14.6 million as a reduction to the note payable. The fair value of this derivative liability is remeasured at each reporting period, with changes in fair value recognized in the condensed consolidated statement of operations and any changes in the assumptions used in measuring the fair value of the derivative liability could result in a material increase or decrease in its carrying value. Based on current assumptions underlying the valuation, the Company recognized no gain or loss on change in fair value of derivative liability during the three months ended March 31, 2019 and 2018.

As of March 31, 2019 and December 31, 2018, the carrying value of the royalty-bearing instrument, net of the unamortized debt discount and issuance costs, was $73.7 million and $79.7 million, respectively. During the three months ended March 31, 2019, the Company recorded cash and non-cash interest expense of $1.2 million and $0.4 million, respectively, in connection with the royalty-bearing instrument. During the three months ended March 31, 2018, the Company recorded $1.5 million and $0.5 million of cash and non-cash interest expense, respectively, in connection with the royalty-bearing instrument. The Company will periodically evaluate the remaining term of the agreement and the effective interest rate is recalculated each period based on the Company’s most current estimate of repayment.

To secure the obligations under the agreement, the Company granted BioPharma, which it subsequently assigned to CPPIB, a security interest in the Company’s patents, trademarks, trade names, domain names, copyrights, know-how and regulatory approvals related to the covered products, all books and records relating to the foregoing and all proceeds of the foregoing, referred to collectively as the collateral. If the Company (i) fails to deliver a payment when due and does not remedy that failure within a specific notice period, (ii) fails to maintain a first-priority perfected security interest in the collateral in the United States and does not remedy that failure after receiving notice of such failure or (iii) becomes subject to an event of bankruptcy, then CPPIB may attempt to collect the maximum amount payable by the Company under this agreement (after deducting any payments the Company has already made).

13


Under the agree ment, the Company is restricted from paying dividends on its common shares, unless it has cash and cash equivalents in excess of a specified amount after such payment.

(6)

Commitments and Contingencies

Litigation

In the ordinary course of business, the Company is from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements and other matters. Refer to Item 1 - Legal Proceedings of this Quarterly Report on Form 10-Q below for a discussion of the Company’s current legal proceedings. There have been no material changes to the matters described in those disclosures as of the date of this filing.  

Milestone and Supply Purchase Obligations

The Company entered into long-term supply agreements with multiple FDA-approved API suppliers and encapsulators. Certain supply agreements require annual minimum volume commitments by the Company and certain volume shortfalls may require payments for such shortfalls.

These agreements include requirements for the suppliers to meet certain product specifications and qualify their materials and facilities with applicable regulatory authorities including the FDA. The Company has incurred certain costs associated with the qualification of product produced by these suppliers.

Pursuant to supply agreements, there is a total of approximately $90.0 million that is potentially payable over the term of such agreements based on minimum purchase obligations. The Company continues to meet its contractual purchase obligations.

Under the 2004 share repurchase agreement with Laxdale Limited (“Laxdale”), upon receipt of marketing approval in Europe for the first indication for Vascepa (or first indication of any product containing Amarin Neuroscience Limited intellectual property acquired from Laxdale in 2004), the Company must make an aggregate stock or cash payment to the former shareholders of Laxdale (at the sole option of each of the sellers) of £7.5 million (approximately $9.8 million as of March 31, 2019). Also under the Laxdale agreement, upon receipt of a marketing approval in the United States or Europe for a further indication of Vascepa (or further indication of any other product using Amarin Neuroscience Limited intellectual property), the Company must make an aggregate stock or cash payment (at the sole option of each of the sellers) of £5 million (approximately $6.5 million as of March 31, 2019) for each of the two potential market approvals (i.e. £10 million maximum, or approximately $13.0 million as of March 31, 2019).

The Company has no provision for any of the obligations above since the amounts are either not probable or able to be estimated as of March 31, 2019.

(7)

Equity

Preferred Stock

On March 5, 2015, the Company entered into a subscription agreement with four institutional investors (the “Purchasers”), including both existing and new investors, for the private placement of 352,150,790 restricted American Depositary Shares, each representing one (1) share of Amarin’s Series A Convertible Preference Shares, par value £0.05 per share, in the capital of the Company (“Series A Preference Shares”), resulting in gross proceeds to the Company of $52.8 million. The closing of the private placement occurred on March 30, 2015.

For each restricted American Depositary Share, the Purchasers paid a negotiated price of $0.15 (equating to $1.50 on an as-if-converted-to-ordinary-shares basis), resulting in $52.8 million in aggregate gross proceeds to the Company, before deducting estimated offering expenses of approximately $0.7 million. The net proceeds are reflected as preferred stock in the accompanying condensed consolidated balance sheets.

Each ten (10) Series A Preference Shares may be consolidated and redesignated as one (1) ordinary share, par value £0.50 per share, in the capital of the Company, each ordinary share to be represented by American Depositary Shares (“ADSs”), provided that consolidation will be prohibited if, as a result, the holder of such Series A Preference Shares and its affiliates would beneficially own more than 4.99% of the total number of Amarin ordinary shares or ADSs outstanding following such redesignation (the “Beneficial Ownership Limitation”). By written notice to the Company, a holder may from time to time increase or decrease the Beneficial Ownership Limitation to any other percentage not in excess of 19.9% specified in such notice; provided that any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company. This consolidation and redesignation may be effected by a holder of Series A Preference Shares following the first to occur of the resale of the ADSs representing the ordinary shares being registered for resale under the Securities Act pursuant to an effective registration statement, following any sale of the

14


ADSs representing the ordinary shares pursuant to Rule 144 under the Securities Act, or if such ADSs representing the ordinary shares are eligible for sale under Rule 144, following the expiration of the one-year holding requirement under Rule 144. During the year ended December 31, 2015, at the request of the holders, a portion of the Series A Preference Shares were consolidated and redesignated, resulting i n the issuance of 6,283,333 ADSs.

Except as otherwise provided in the Series A Preference Share Terms or as required by applicable law, the Series A Preference Shares have no voting rights. However, as long as any Series A Preference Shares are outstanding, the Company cannot, without the approval of the holders of seventy-five percent (75%) of the then outstanding Series A Preference Shares, alter or change adversely the powers, preferences or rights attaching to the Series A Preference Shares or enter into any agreement with respect to the foregoing.

Holders of the Series A Preference Shares are entitled to receive, and the Company is required to pay, dividends (other than dividends in the form of ordinary shares) on the Series A Preference Shares equal (on an as-if-converted-to-ordinary-shares basis) to and in the same form as dividends (other than dividends in the form of ordinary shares) actually paid on ordinary shares when, as and if such dividends (other than dividends in the form of ordinary shares) are paid on the ordinary shares.

The restricted American Depositary Shares and Series A Preference Shares were sold in a transaction exempt from the registration requirements under the Securities Act of 1933, as amended (the “Securities Act”). The Company filed a registration statement with the SEC covering the resale of the restricted American Depositary Shares and the ADSs representing ordinary shares created by the consolidation and redesignation of the Series A Preference Shares (the “Registrable Securities”) on April 9, 2015, which was declared effective by the SEC on May 1, 2015. In addition, the Company agreed to use its commercially reasonable best efforts to keep the registration, and any qualification, exemption or compliance under state securities laws which the Company determines to obtain, continuously effective, and to keep the Registration Statement free of any material misstatements or omissions, until the earlier of (a) March 11, 2017 or (b) the date on which all Registrable Securities held by Purchasers may be sold or transferred in compliance with Rule 144 under the Securities Act, without any volume or manner of sale restrictions.

The Series A Preference Shares contain a contingent beneficial conversion feature (“BCF”) because they contain a conversion feature at a fixed rate that was in-the-money when issued. The BCF was recorded in the three months ended June 30, 2015 as a result of the related Form S-3 Registration Statement being declared effective, which represents the resolution of the contingency to convert the Series A Preference Shares. The BCF was recognized in stockholders’ deficit and was measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The effective purchase price of the ordinary shares into which the preferred shares are convertible was $1.50, which was used to compute the intrinsic value. The intrinsic value was calculated as the difference between the effective purchase price of the ordinary shares and the market value ($2.39 per share) on the date the preferred shares were issued, multiplied by the number of shares into which the preferred shares are convertible. The BCF resulting from the issuance of the Series A Preference Shares was determined to be $31.3 million. The BCF was recorded as a non-cash dividend to preferred shareholders through accumulated deficit, and was therefore reflected as an adjustment to net loss applicable to common shareholders for earnings per common share purposes in accordance with GAAP for the year ended December 31, 2015.

During the year ended December 31, 2018, the Company issued 3,886,718 ADSs upon consolidation and redesignation of Series A Preference Shares at the request of the holder, such that a maximum of 28,931,746 ordinary shares remain issuable upon future consolidation and redesignation of the remaining Series A Preference Shares as of March 31, 2019, subject to certain adjustments for dilutive events.

Common Stock

On November 29, 2018, the Company completed a public offering of 11,111,112 ADSs, with each ADS representing one ordinary share of the Company. The underwriters purchased the ADSs from the Company at a price of $17.575 per ADS after commission, resulting in net proceeds to the Company of approximately $194.8 million, after deducting customary commissions and offering expenses.

On February 1, 2018, the Company completed a public offering of 19,178,082 ADSs, with each ADS representing one ordinary share of the Company. The Company also granted the underwriters a 30-day option to purchase an additional 2,876,712 ADSs, which was partially exercised on March 5, 2018 for issuance of 1,438,356 ADSs. The underwriters purchased the ADSs from the Company at a price of $3.41 per ADS after commission, resulting in net proceeds to the Company of approximately $70.0   million, after deducting customary commissions and offering expenses.

Incentive Equity Awards

As of March 31, 2019, there were an aggregate of 16,837,051 stock options and 9,341,393 restricted stock units (“RSUs”) outstanding, representing approximately 4% and 2%, respectively, of outstanding shares (including common and preferred shares) on a fully diluted basis.

15


During the three months ended March 31, 2019 and 2018, the Company issued 3,838,739 and 782,55 3 shares, respectively, as a result of the exercise of stock options, resulting in gross and net proceeds of $15.5 million during the three months ended March 31, 2019 and $1.5 million during the three months ended March 31, 2018.

On February 1, 2019, the Company granted a total of 757,800 RSUs and 1,193,400 stock options to employees under the Amarin Corporation plc Stock Incentive Plan (the “2011 Plan”). The RSUs vest annually over a three-year period and the stock options vest quarterly over a four-year period. Also on February 1, 2019, the Company granted a total of 580,000 RSUs to employees under the 2011 Plan that vest upon the achievement of a specified sales performance condition.

In September 2018, in connection with positive REDUCE-IT results, the Company issued 2,499,750 shares upon vesting of performance-based RSUs granted in 2015, of which 764,819 shares were retained as treasury shares as settlement of employee tax obligations.

On May 14, 2018, the Company granted a total of 190,034 RSUs and 286,536 stock options to members of the Company’s Board of Directors under the Amarin Corporation plc Stock Incentive Plan (the “2011 Plan”). The RSUs vest in equal installments over a three-year period upon the earlier of the anniversary of the grant date or the Company’s annual general meeting of shareholders in such anniversary year. The stock options vest in full upon the earlier of the one-year anniversary of the grant date or the Company’s annual general meeting of shareholders in such anniversary year. Upon termination of service to the Company or upon a change of control, each Director shall be entitled to a payment equal to the fair market value of one share of Amarin common stock per award vested or granted, respectively, which is required to be made in shares.

On March 12, 2018 and November 1, 2018, the Company granted a total of 970,000 RSUs and 90,000 RSUs, respectively, to employees under the 2011 Plan that vest over three years commencing after REDUCE-IT results upon the achievement of certain regulatory and sales performance conditions associated with the REDUCE-IT clinical trial and subsequent revenue growth.

 

On February 1, 2018, the Company granted a total of 1,305,575 RSUs and 2,205,075 stock options to employees under the 2011 Plan. The RSUs vest annually over a three-year period and the stock options vest monthly over a four-year period. During the three months ended March 31, 2019, the Company issued 387,715 common shares related to the vesting of these RSUs, of which 139,928 shares were retained as treasury shares as settlement of employee tax obligations. three months ended March 31, 2019

(8)

Co-Promotion Agreement

On March 31, 2014, the Company entered into a Co-Promotion Agreement (the “Agreement”) with Kowa Pharmaceuticals America, Inc. related to the commercialization of Vascepa capsules in the United States. Under the terms of the Agreement, Amarin granted to Kowa Pharmaceuticals America, Inc. the right to be the sole co-promoter, together with the Company, of Vascepa in the United States during the term. The Agreement was amended on July 25, 2017 to reflect evolving promotional needs, including refinement of target lists. Amarin and Kowa Pharmaceuticals America, Inc. intentionally designed the co-promotion to naturally end as of December 31, 2018 and mutually agreed not to renew the agreement.

During 2018, which was the last year of the Agreement, as amended, the Company incurred expense for both the annual co-promotion fee, which in 2018 was calculated as eighteen-and-a-half percent (18.5%) of Vascepa gross margin, plus accrual for co-promotion tail payments which are calculated as a percentage of the 2018 co-promotion fee. The accrued tail payments are paid over three years with declining amounts each year. Kowa Pharmaceuticals America, Inc. is eligible to receive $17.8 million in co-promotion tail payments, the present value of which of $16.6 million was fully accrued as of December 31, 2018. No tail payments were made during the three months ended March 31, 2019. As of March 31, 2019, of the $16.9 million the Company had accrued for tail payments under the Agreement, $9.5 million was classified as current on the condensed consolidated balance sheet.

(9) Revenue Recognition

The Company sells Vascepa principally to a limited number of major wholesalers, as well as selected regional wholesalers and specialty pharmacy providers in the United States, or collectively, its Distributors or its Customers, that in turn resell Vascepa to retail pharmacies for subsequent resale to patients and healthcare providers. Patients are required to have a prescription in order to purchase Vascepa. In addition to distribution agreements with Distributors, the Company enters into arrangements with health care providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of the Company’s product.

Revenues from product sales are recognized when the Distributor obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the Distributor. Payments from Distributors are generally received 30-60 days from date of sale. The Company evaluates the creditworthiness of each of its Distributors to determine whether revenues can be recognized upon delivery, subject to satisfaction of the other requirements, or whether recognition is required to be delayed until receipt of payment . The

16


Company calculates gross product revenues generally based on the wholesale acquisition cost that the Company charges its Distributors for Vascepa.

 

Reserves for Variable Consideration

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from (a) trade allowances, such as invoice discounts for prompt pay and distributor fees, (b) estimated government and private payor rebates and chargebacks and discounts, such as Medicaid reimbursements, (c) reserves for expected product returns and (d) estimated costs of incentives that are offered within contracts between the Company and its Distributors, health care providers, payors and other indirect customers relating to the Company’s sales of its product. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the Distributor) or as a current liability (if the amount is payable to a party other than a Distributor). Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.

Trade Allowances: The Company generally provides invoice discounts on Vascepa sales to its Distributors for prompt payment and fees for distribution services, such as fees for certain data that Distributors provide to the Company. The payment terms for sales to Distributors generally include a 2% discount for prompt payment while the fees for distribution services are based on contractual rates agreed with the respective Distributors. Based on historical data, the Company expects its Distributors to earn these discounts and fees, and deducts the full amount of these discounts and fees from its gross product revenues and accounts receivable at the time such revenues are recognized.

Rebates, Chargebacks and Discounts: The Company contracts with Medicaid, Medicare, other government agencies and various private organizations, or collectively, Third-party Payors, so that Vascepa will be eligible for purchase by, or partial or full reimbursement from, such Third-party Payors. The Company estimates the rebates, chargebacks and discounts it will provide to Third-party Payors and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. The Company estimates these reserves based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. The Company estimates the rebates, chargebacks and discounts that it will provide to Third-party Payors based upon (i) the Company’s contracts with these Third-party Payors, (ii) the government-mandated discounts applicable to government-funded programs, (iii) information obtained from the Company’s Distributors and (iv) information obtained from other third parties regarding the payor mix for Vascepa. The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.

Product Returns: The Company’s Distributors have the right to return unopened unprescribed Vascepa during the 18-month period beginning six months prior to the labeled expiration date and ending twelve months after the labeled expiration date. The expiration date for Vascepa 1-gram and 0.5-gram size capsules is currently four years and three years, respectively, after being converted into capsule form, which is the last step in the manufacturing process for Vascepa and generally occurs within a few months before Vascepa is delivered to Distributors. The Company estimates future product returns on sales of Vascepa based on: (i) data provided to the Company by its Distributors (including weekly reporting of Distributors’ sales and inventory held by Distributors that provided the Company with visibility into the distribution channel in order to determine what quantities were sold to retail pharmacies and other providers), (ii) information provided to the Company from retail pharmacies, (iii) data provided to the Company by a third-party data provider which collects and publishes prescription data, and other third parties, (iv) historical industry information regarding return rates for similar pharmaceutical products, (v) the estimated remaining shelf life of Vascepa previously shipped and currently being shipped to Distributors and (vi) contractual agreements intended to limit the amount of inventory maintained by the Company’s Distributors. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.

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Other Incentives: Other incentives that the Company offers to indirect customers include co-pay mitigation rebates provided by the Company to commercially insured patients who have coverag e for Vascepa and who reside in states that permit co-pay mitigation programs. The Company’s co-pay mitigation program is intended to reduce each participating patient’s portion of the financial responsibility for Vascepa’s purchase price to a specified do llar amount. Based upon the terms of the program and information regarding programs provided for similar specialty pharmaceutical products, the Company estimates the average co-pay mitigation amounts and the percentage of patients that it expects to partic ipate in the program in order to establish its accruals for co-pay mitigation rebates. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liabilit y which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. The Company adjusts its accruals for co-pay mitigation rebates based on actual redemption activity and estimates regarding the portion of is sued co-pay mitigation rebates that it estimates will be redeemed.  

The following tables summarize activity in each of the net product revenue allowance and reserve categories described above for the three months ended March 31, 2019 and 2018:

 

In thousands

 

Trade

Allowances

 

 

Rebates,

Chargebacks

and Discounts

 

 

Product

Returns

 

 

Other

Incentives

 

 

Total

 

Balance as of December 31, 2018

 

$

19,495

 

 

$

41,634

 

 

$

2,948

 

 

$

1,167

 

 

$

65,244

 

Provision related to current period sales

 

 

15,881

 

 

 

70,410

 

 

 

418

 

 

 

8,286

 

 

 

94,995

 

Provision related to prior period sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credits/payments made for current period sales

 

 

(2,624

)

 

 

(18,494

)

 

 

 

 

 

(6,891

)

 

 

(28,009

)

Credits/payments made for prior period sales

 

 

(8,760

)

 

 

(37,521

)

 

 

(179

)

 

 

(1,199

)

 

 

(47,659

)

Balance as of March 31, 2019

 

$

23,992

 

 

$

56,029

 

 

$

3,187

 

 

$

1,363

 

 

$

84,571

 

 

In thousands

 

Trade

Allowances

 

 

Rebates,

Chargebacks

and Discounts

 

 

Product

Returns

 

 

Other

Incentives

 

 

Total

 

Balance as of December 31, 2017

 

$

12,035

 

 

$

32,064

 

 

$

1,887

 

 

$

2,107

 

 

$

48,093

 

Provision related to current period sales

 

 

8,506

 

 

 

32,947

 

 

 

222

 

 

 

4,185

 

 

 

45,860

 

Provision related to prior period sales

 

 

(200

)

 

 

(435

)

 

 

 

 

 

(69

)

 

 

(704

)

Credits/payments made for current period sales