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AMRN > SEC Filings for AMRN > Form 10-Q on 8-Nov-2012All Recent SEC Filings

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Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements reflect our plans, estimates and beliefs. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "would" and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not transpire. We discuss many of these risks in Part I, Item 1A under the heading "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and below under Part II, Item IA, "Risk Factors".

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.


We are a biopharmaceutical company focused on the commercialization and development of therapeutics to improve cardiovascular health. On July 26, 2012, we received approval from the U.S. Food and Drug Administration, or FDA, to market and sell our lead product Vascepa™ (icosapent ethyl) capsules (formerly known as AMR101) as an adjunct to diet to reduce triglyceride, or TG, levels in adult patients with severe (TG ³500mg/dL) hypertriglyceridemia, which we sometimes refer to as the MARINE indication. Triglycerides are fats in the blood. We are also developing Vascepa for the treatment of patients with high (TG ³ 200 mg/dL and <500 mg/dL) triglyceride levels who are also on statin therapy for elevated low-density lipoprotein cholesterol, or LDL-C, levels which we refer to as mixed dyslipidemia. We refer to this second proposed indication for Vascepa as the ANCHOR indication.

Hypertriglyceridemia refers to a condition in which patients have high levels of triglycerides in the bloodstream. We estimate that over 40 million adults in the United States have elevated triglyceride levels (TG ³ 200mg/dL) and approximately 4.0 million people in the United States have severely high (TG ³500mg/dL) triglyceride levels. According to The American Heart Association Scientific Statement on Triglycerides and Cardiovascular Disease (2011), triglycerides provide important information as a marker associated with the risk for heart disease and stroke, especially when an individual also has low high-density lipoprotein, or HDL-C (often referred to as "good" cholesterol),

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and elevated levels of LDL-C (often referred to as "bad" cholesterol). The effect of Vascepa on cardiovascular mortality and morbidity in patients with hypertriglyceridemia has not been determined. The effect of Vascepa on the risk for pancreatitis in patients with severe hypertriglyceridemia has not been determined.

The potential efficacy and safety of Vascepa was studied in two Phase 3 clinical trials, the MARINE trial and the ANCHOR trial. These trials showed favorable clinical results in their respective patient populations in reducing triglyceride levels without a statistically significant increase in LDL-C levels, and in the 4 gram Vascepa ANCHOR results, with a statistically significant decrease in LDL-C levels. These trials also showed favorable results, particularly with the 4 gram dose of Vascepa, in other important lipid and inflammation biomarkers, including apolipoprotein B (Apo B), non-high-density lipoprotein cholesterol (non-HDL-C), total-cholesterol (TC), very low-density lipoprotein cholesterol (VLDL-C), lipoprotein-associated phospholipase A2 (Lp-PLA2), and high sensitivity C-reactive protein (hs-CRP). In each of these trials, the most commonly reported adverse reaction (incidence >2% and greater than placebo) in Vascepa treated patients was arthralgia (joint pain) (2.3% for Vascepa vs. 1.0% for placebo).

In July 2012, we received approval from the FDA to market Vascepa in the MARINE indication. We plan to separately seek approval to market Vascepa for use in the treatment of patients in the ANCHOR population. Like the MARINE indication, the ANCHOR indication is supported by a Special Protocol Assessment, or SPA, with the FDA. An SPA is an evaluation by the FDA of a protocol with the goal of reaching an agreement that the Phase 3 trial protocol design, clinical endpoints, and statistical analyses are acceptable to support regulatory approval. The FDA agreed that, based on the information we submitted to the agency, the design and planned analysis of the MARINE and ANCHOR trials adequately addressed the objectives necessary to support a regulatory submission. An SPA is generally binding upon the FDA unless a substantial scientific issue essential to determining safety or efficacy is identified after the testing begins. Moreover, any change to a study protocol can invalidate an SPA. There can be no assurance that the FDA will ultimately consider our SPA for the ANCHOR indication to be binding. If the FDA does not consider the SPA to be binding or makes a determination that we did not follow the SPA appropriately, the agency could assert that additional studies or data are required to support a regulatory submission.

To obtain FDA marketing approval for the use of Vascepa in the ANCHOR population, based on communications with the FDA, we believe that we must be substantially underway with a cardiovascular outcomes study at the time of the submission of a supplemental NDA, or sNDA, to the FDA seeking approval of the ANCHOR indication. Based on our current estimates, we anticipate that our cardiovascular outcomes study will be substantially underway in time to support an sNDA filing prior to the end of February 2013 which, assuming a ten-month FDA review period, we expect to result in the FDA assigning a Prescription Drug User Fee Act, or PDUFA, date of not later than the end of 2013. Based upon feedback from the FDA and consistent with the SPA for the ANCHOR trial, we do not believe the final results of an outcomes study are required for FDA approval of Vascepa for the ANCHOR indication.

In December 2011, we announced commencement of patient dosing in our cardiovascular outcomes study of Vascepa, titled REDUCE-IT (Reduction of Cardiovascular Events with EPA - Intervention Trial), that is 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 is also the subject of an SPA with the FDA. If successful, we believe the results of this study could lead to a broadening of the market potential for Vascepa beyond the approved MARINE and proposed ANCHOR indications. We currently estimate that the duration of the REDUCE-IT trial, which duration is estimated based on prediction of the rate of occurrence of cardiac events, to be approximately six years.

Manufacturing and Supply

The approval of Vascepa in July 2012 included the approval of one API manufacturer, Nisshin Pharma, Inc., and one API encapsulator, Banner Pharmacaps Europe BV. Nisshin and Banner are the API manufacturer and API encapsulator, respectively, with which we have had the longest working relationships. Their facilities were inspected by regulatory authorities as part of the process that led to the FDA's July 2012 approval of Vascepa, and we believe that the facilities are qualified to support our commercial launch of Vascepa. We have defined with the FDA our plan and specifications for qualifying additional API manufacturers. In October 2012, a second API encapsulator, Catalent Pharma Solutions LLC, was qualified to encapsulate API for Vascepa. We intend to submit an sNDA for the use of additional suppliers after these suppliers successfully complete the qualification process.

Our goal in expanding our supply chain is to provide greater capacity to meet anticipated demand, enable supply diversification and flexibility and introduce cost competition. After conducting an extensive global search for manufacturers capable of producing Vascepa API to our technical specifications, in 2011 we entered into limited exclusivity, long-term agreements with two additional API suppliers, Chemport and BASF (formerly Equateq Limited). In each case, following FDA qualification of the supplier for the manufacture of API for commercial sale and other milestones relating to manufacturing capacity, these agreements include annual purchase levels to enable Amarin to maintain exclusivity with each respective supplier, and to prevent potential termination of the agreements. We recently agreed to terms with a fourth API supplier, which terms are subject to contingencies that we anticipate will be satisfied in 2012. Certain of our API supply agreements contain provisions under which the cost of supply to us decreases as we purchase increased product volume.

The agreements with each of our API suppliers contemplate phased capacity expansion aimed at creating sufficient capacity to meet anticipated demand for API material for Vascepa. Accordingly, our current supplier, Nisshin Pharma, and our other potential suppliers are currently working to expand and qualify their production capabilities to meet regulatory requirements to manufacture the API for Vascepa. These API suppliers are self-funding these expansion and qualification plans with contributions from Amarin. There can be no assurance that additional suppliers will fully-fund the capital costs of our engagement or that they will successfully qualify with the FDA.

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We intend to purchase increasing amounts of API in preparation for the commercial launch of Vascepa. Our supply agreement with Nisshin contains minimum purchase commitments for metric tons of API, and we may purchase more than the minimum requirement. We anticipate receipt of the majority of this API during 2012, in advance of our planned commercial launch of Vascepa. We also plan to encapsulate and package such API as part of our commercial launch plans. During 2013, we intend to further increase our purchases of API and finished capsules of Vascepa. These purchases are generally made on the basis of rolling twelve-month forecasts which in part are binding on us and the balance of which are subject to adjustment by us subject to certain limitations. We may elect to make certain of these purchases prior to sNDA approval of our added suppliers after we are satisfied that the material they produce and their facilities are qualified. However, in the event that we make such purchases, we will not be able to use such material for commercial sale until the sNDA for the applicable supplier is approved by the FDA. Similarly, if we are not compliant with other regulations with regard to this intended purchase of supply, the supply of product for our launch may be delayed.

Our strategy is to expand capacity and to mitigate risk by having multiple API suppliers. Our aggregate capacity to produce API is dependent upon the qualification of our API suppliers. Each of our API suppliers has outlined plans for potential further capacity expansion. While we anticipate purchasing qualified API from multiple suppliers for our first year of commercial sales of Vascepa, if no additional API supplier is approved by the FDA, our API supply will be limited to the API we purchase from Nisshin. We believe that our overall API manufacturing plan provides a pathway to the production of API in sufficient quantities to meet anticipated demand, subject to API supplier capacity expansion, qualification and regulatory approval. There can be no assurance that these expansion plans will be successful. If our third party manufacturing capacity is not expanded and compliant with application regulatory requirements, we may not be able to supply sufficient quantities of Vascepa to meet anticipated demand. During the period commencing October 1, 2012 through the expected launch of Vascepa in early 2013, we estimate cash outflow of $20 to $30 million to build inventory levels of API and Vascepa capsules in advance of the commercial launch of Vascepa. Our purchase of supply may be insufficient to meet, or exceed, actual demand for Vascepa.

Commercialization Strategy

We anticipate commercial launch of Vascepa in the first quarter of 2013, and we continue to consider three potential paths for the marketing and sale of the product: strategic collaboration, acquisition and self-commercialization, the latter of which could include a third-party collaboration. From time to time we have held discussions with larger pharmaceutical companies on potential collaborations and other strategic opportunities, and we may have discussions regarding such opportunities in the future. These strategic opportunities may include licensing or similar transactions, joint ventures, partnerships, strategic alliances, business associations, or a sale of the company. However, we cannot estimate the timing of any such potential strategic transaction and no assurance can be given that we will enter into any such strategic transaction.

Until such time when we enter into such a strategic transaction, if ever, we plan to continue to execute on our plans to launch, market and sell Vascepa on our own. These efforts include, but are not limited to, advancing the introduction of Vascepa to managed care plans to gain formulary access, building up inventory levels, hiring key personnel and coordinating other pre-launch marketing activities.

The U.S. market is currently our primary focus for the initial commercial launch of Vascepa. Opportunities to market and sell Vascepa outside of the United States are also under evaluation.

January 2012 Financing and Financial Position

On January 9, 2012, Amarin, through its wholly-owned subsidiary Corsicanto Limited, a private limited company incorporated under the laws of Ireland, completed a private placement of $150.0 million in aggregate principal amount of its 3.5% exchangeable senior notes due 2032. The notes are the senior unsecured obligations of Corsicanto Limited and are guaranteed by Amarin. The notes bear interest at a rate of 3.5% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2012. In July 2012 Amarin made its initial interest payments on the notes in the aggregate amount of $2.7 million. The notes mature on January 15, 2032, unless earlier repurchased, redeemed or exchanged. On or after January 19, 2017, we may elect to redeem for cash all or a portion of the notes for the principal amount of the notes plus accrued and unpaid interest. On each of January 19, 2017, January 19, 2022 and January 19, 2027, the holders of the notes may require that we repurchase in cash the principal amount of the notes plus accrued and unpaid interest. At any time prior to January 15, 2032, upon certain circumstances, which circumstances include our issuing a notice of redemption to the note holders, the price of Amarin shares trading above 130% of the exchange price, or certain other events defined in the note agreement, the holders of the notes may elect to convert the notes. The exchange rate for conversion is 113.4752 ADSs per $1,000 principal amount of the notes (equivalent to an initial exchange price of approximately $8.8125 per ADS), subject to adjustment in certain circumstances, including adjustment if we pay cash dividends. Upon exchange, the notes may be settled, at Amarin's election, subject to certain conditions, in cash, ADSs or a combination of cash and ADSs. It is the Company's current intention to settle these obligations in cash.

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As of September 30, 2012, our cash balance was $215.1 million, including net proceeds of approximately $144.3 million, after deducting underwriting commissions and expenses, associated with the issuance of $150.0 million in principal amount of our 3.5% exchangeable senior notes in January 2012. We believe that we have sufficient financial resources to fund our operations at least for the next twelve months, including advancement of the REDUCE-IT cardiovascular outcomes study, and continuing the commercial preparations for and launch of Vascepa on each of the three potential paths we are considering for commercialization. Unless we enter into a strategic collaboration in support of a commercial launch, we will likely need to raise additional capital to support these efforts on our own.

Financial Operations Overview

Revenue. We recorded no revenue in 2012 or 2011.

Research and Development Expense. Research and development expense consists primarily of fees paid to professional service providers in conjunction with independent monitoring of our clinical trials and acquiring and evaluating data in conjunction with our clinical trials, fees paid to independent researchers, costs of contract manufacturing, services expenses incurred in developing and testing products and product candidates, salaries and related expenses for personnel, including stock-based compensation expense, costs of materials, depreciation, rent, utilities and other facilities costs. In addition, research and development expenses include the cost to support current development efforts, including patent costs. We expense research and development costs as incurred.

Marketing, General and Administrative Expense. Marketing, general and administrative expense consists primarily of salaries and other related costs for personnel, including stock-based compensation expense, in our executive, business development, marketing, finance and information technology functions. Other costs primarily include facility costs and professional fees for accounting, consulting and legal services.

Interest and Other Income (Expense), Net. Interest expense consists of interest incurred under lease obligations, the amortization of the conversion option related to the Company's exchangeable debt, the amortization of the debt discount and debt obligation coupon interest. Interest income consists of interest earned on our cash and cash equivalents. Other income, net, consists primarily of foreign exchange gains and losses.

Critical Accounting Policies and Significant Judgments and Estimates

As a result of the issuance in January 2012 of our 3.5% exchangeable senior notes, we have included a Debt Issuance policy under our critical accounting policies at September 30, 2012. Other than this new Debt Issuance policy, at September 30, 2012, there have been no other changes in our critical accounting policies, judgments, and estimates as described in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on February 29, 2012.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by FASB and are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting pronouncements will not have a material impact on consolidated financial position, results of operations, and cash flows, or do not apply to our operations.

Results of Operations

Comparison of Three Months Ended September 30, 2012 versus September 30, 2011

Revenue. We recorded no revenue in 2012 or 2011.

Research and Development Expense. Research and development expense for the three months ended September 30, 2012 was $20.9 million, versus $6.0 million in the prior year period, an increase of $14.9 million. Research and development expenses for the three months ended September 30, 2012 and 2011 are summarized in the table below:

                                                                  Three Months Ended
                                                                     September 30
                                                                    (in thousands)
                                                                  2012            2011
Research and development expenses, excluding non-cash
expense (1)                                                    $    19,943       $ 5,607
Non-cash stock based compensation expense (2)                          970           406

                                                               $    20,913       $ 6,013

(1) Research and development expense, excluding non-cash charges, for the three months ended September 30, 2012 was $19.9 million, versus $5.6 million in the prior year period, an increase of $14.3 million or 255%. The increase in research and development expense was due to increased costs in 2012 for our Vascepa cardiovascular program, primarily costs associated with the purchase of raw materials and vendor qualification, and increased clinical costs for the REDUCE-IT cardiovascular outcomes study. Prior to FDA approval of Vascepa on July 26, 2012, all supply purchases of Vascepa were expensed to research and development. After FDA approval, supply purchases

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of Vascepa were capitalized as a component of inventory, with the exception of clinical trial material which continues to be expensed to research and development. During the three months ended September 30, 2012, pre-approval supply purchases and vendor qualification costs were approximately $5.7 million. During the three months ended September 30, 2012, expenses incurred for the REDUCE-IT study were approximately $8.3 million.

(2) Stock based compensation expense included within research and development was $1.0 million and $0.4 million for the three months ended September 30, 2012 and 2011, respectively.

Although clinical costs for the MARINE and ANCHOR trials have decreased as a result of their completion in 2011, we expect these cost reductions to be offset in 2012 by costs for the REDUCE-IT cardiovascular outcomes study for which dosing of initial patients commenced in December 2011 and for which the rate of patient enrollment has been increasing. Increases in research and development costs during the first half of 2012 also relate to the purchase of commercial supply of Vascepa, which supply we have included as a component of research and development expense for accounting purposes prior to FDA approval in July 2012. Purchases of commercial supply of Vascepa after FDA approval have been capitalized as a component of inventory.

Marketing, General and Administrative Expense. Marketing, general and administrative expense for the three months ended September 30, 2012 was $13.4 million, versus $3.4 million in the prior year period, an increase of $10.0 million. Marketing, general and administrative expenses for the three months ended September 30, 2012 and 2011 are summarized in the table below:

                                                                   Three Months Ended
                                                                      September 30
                                                                     (in thousands)
                                                                 2012              2011
Marketing, general and administrative expenses, excluding
non-cash expenses (1)                                          $  10,926         $  4,529
Non-cash stock based compensation expense (2)                      3,665            2,256
Non-cash warrant related compensation expense (income)
(3)                                                               (1,194 )         (3,352 )

                                                               $  13,397         $  3,433

(1) Marketing, general and administrative expense, excluding non-cash compensation charges for stock compensation and warrants, for the three months ended September 30, 2012 was $10.9 million, versus $4.5 million in the prior year period, an increase of $6.4 million, or 142%. The increase was primarily due to cost increases in 2012 for marketing research activities and medical education (approximately $5.3 million) as well as from higher staffing levels and related travel (approximately $1.6 million), higher facility costs and other general and administrative costs incurred in order to prepare for the commercialization of Vascepa.

(2) Stock based compensation expense for the three months ended September 30, 2012 was $3.7 million, versus $2.3 million in the prior year period. This increase of $1.4 million primarily reflects an increase in the number of awards outstanding during the period ending September 30, 2012 versus the prior period, and also in the fair value of new option awards granted to attract and retain qualified employees.

(3) Warrant related compensation income for the three months ended September 30, 2012 was $1.2 million, versus $3.4 million in the prior year period. Warrant related compensation income for the period ended September 30, 2012 reflects a non-cash change in fair value of the warrant derivative liability associated with warrants issued in October 2009 to three former employees of Amarin, net of warrants exercised. The decrease in the fair value of the warrants for the three months ended September 30, 2012 is due primarily to a decrease in our stock price between June 30, 2012 and September 30, 2012. We anticipate that the value of this warrant derivative liability may increase or decrease from period to period based upon changes in the price of our common stock. Such non-cash changes in valuation could be significant as the history of our stock price has been volatile. The gain or loss resulting from such non-cash changes in valuation could have a material impact on our reported net income or loss from period to period. In particular, if the price of our stock increases, the change in valuation of this warrant derivative liability will add to our history of operating losses.

We expect marketing, general and administrative costs in 2012 to increase as we prepare for the commercialization of Vascepa in early 2013, including costs for market research, hiring key personnel, sales force preparation and development of management information systems. Unless we enter into a strategic collaboration in support of a commercial launch, we currently anticipate that we would hire the majority of the anticipated number of sales representatives near the end of 2012.

Gain (loss) on Change in Fair Value of Derivative Liability. Gain (loss) on change in fair value of derivative liability for the three months ended September 30, 2012 was a gain of $16.5 million versus a gain of $106.6 million in the prior year period. Gain (loss) on change in fair value of derivative liability is related to the change in fair value of warrants issued in conjunction with the October 2009 private placement. In October 2009 we issued 36.1 million warrants at an exercise price of $1.50 and recorded a $48.3 million warrant derivative liability, representing the fair value of the warrants issued. As these warrants have been classified as a derivative liability, they are revalued at each reporting period, with changes in fair value recognized in . . .

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