A 20% quarter-over-quarter growth may sound like solid growth, but not when it only gets you to $10.1 million in net sales. It's hard to be impressed by the launch of Amarin's (AMRN 2.52%) fish oil Vascepa. To put it in perspective, the biotech had $22 million in selling, general, and administrative expenses during the quarter.
Some time to figure it out
Amarin plans to burn through less than $80 million this year and ended last year with more than $191 million in the bank, so it's not like the company is in dire straits. Management believes it can get to cash flow positive before Amarin runs out of money.
Management didn't say at what sales level it would be cash flow positive, but we can do some back of the envelope calculations to get a rough idea. To cover that $80 million it plans to burn through this year, Amarin needs an additional $120 million in sales, assuming it can get gross margins to about 67%; management said it hopes "to approach the 70s" with larger purchases of raw ingredients to make Vascepa. That means it has to go from $10 million per quarter to $40 million, and my assumption may be on the generous side since it assumes no additional sales contributing to the $80 million burn.
Can it get to that sales level? Theoretically yes, but a more realistic scenario comes from a decrease in research and development expenses, which accounted for $73 million last year.
Amarin is running a large outcomes study in patients with moderately high triglyceride levels to see if Vascepa not only lowers triglyceride levels but also reduces cardiac events, heart attacks, strokes, and the like.
Amarin started the trial to satisfy a deal it made with the Food and Drug Administration, in which it would have the trial substantially enrolled before the agency would approve the drug for the expanded indication. Since then, the FDA has rescinded the deal and wants to see the full data set before approval. Amarin is appealing the decision.
If the company can get someone else -- the National Institutes of Health for instance -- to pick up the expense of that trial, Amarin might have a fighting chance. It could also just drop the trial altogether, but that would leave it stuck with the small market share.
Vascepa only has about 1% of the non-statin lipid-modifying market, so there's certainly potential for sales to be a lot higher. But it's hard to compete against entrenched players like GlaxoSmithKline's (GSK 0.91%) Lovaza and AbbVie's (ABBV 1.26%) Tricor and Trilipix.
Getting approved for patients with moderately high triglyceride levels -- it's currently approved for extremely high triglyceride levels -- will help differentiate Vascepa since neither GalxoSmithKline's nor AbbVie's drugs are specifically approved for that indication. Unfortunately, an expanded approval is looking increasingly unlikely until the full data from the outcomes trial is available in a few years.