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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, 2020

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.)

 

77 Sir John Rogerson’s Quay, Block C,

Grand Canal Docklands

 

Dublin 2, Ireland

(Address of Principal Executive Offices)

 

(Zip Code)

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

American Depositary Shares (ADS(s)), each ADS
representing the right to receive one (1) Ordinary Share of

Amarin Corporation plc

AMRN

NASDAQ Stock Market LLC

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  

385,489,622 common shares were outstanding as of April 24, 2020, including 385,288,289 shares held as American Depositary Shares (ADSs), each representing one Ordinary Share, 50 pence par value per share and 201,333 Ordinary Shares. In addition, 5,160,378 ordinary share equivalents were issuable in exchange for outstanding preferred shares as of April 24, 2020, for a total of 390,650,000 ordinary shares and ordinary share equivalents outstanding as of April 24, 2020.

 


INDEX TO FORM 10-Q

 

 

 

 

 

Page

 

 

 

PART I – Financial Information

 

 

 

Item 1.

 

Financial Statements (unaudited):

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

 

3

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

 

4

 

 

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

 

6

 

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

 

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

 

25

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

35

Item 4.

 

Controls and Procedures

 

35

 

 

 

PART II – Other Information

 

 

 

Item 1.

 

Legal Proceedings

 

36

Item 1A.

 

Risk Factors

 

36

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

74

Item 5.

 

Other Information

 

74

Item 6.

 

Exhibits

 

76

 

SIGNATURES

 

77

 

2


PART I

AMARIN CORPORATION PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share amounts)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

329,045

 

 

$

644,588

 

Restricted cash

 

 

3,910

 

 

 

3,907

 

Short-term investments

 

 

213,190

 

 

 

 

Accounts receivable, net

 

 

158,288

 

 

 

116,430

 

Inventory

 

 

92,121

 

 

 

76,769

 

Prepaid and other current assets

 

 

20,760

 

 

 

13,311

 

Total current assets

 

 

817,314

 

 

 

855,005

 

Property, plant and equipment, net

 

 

2,466

 

 

 

2,361

 

Long-term investments

 

 

81,519

 

 

 

 

Operating lease right-of-use asset

 

 

8,397

 

 

 

8,511

 

Other long-term assets

 

 

1,074

 

 

 

1,074

 

Intangible asset, net

 

 

14,898

 

 

 

15,258

 

TOTAL ASSETS

 

$

925,668

 

 

$

882,209

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

98,330

 

 

$

49,950

 

Accrued expenses and other current liabilities

 

 

170,731

 

 

 

139,826

 

Debt from royalty-bearing instrument

 

 

36,978

 

 

 

50,130

 

Deferred revenue, current

 

 

4,288

 

 

 

2,342

 

Total current liabilities

 

 

310,327

 

 

 

242,248

 

Long-Term Liabilities:

 

 

 

 

 

 

 

 

Deferred revenue, long-term

 

 

17,519

 

 

 

18,504

 

Long-term operating lease liability

 

 

9,381

 

 

 

9,443

 

Other long-term liabilities

 

 

2,665

 

 

 

3,751

 

Total liabilities

 

 

339,892

 

 

 

273,946

 

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, 2020 and December 31, 2019 (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; 367,378,806 issued, 361,707,982 outstanding as of March 31, 2020; 365,014,893 issued, 360,103,901 outstanding as of December 31, 2019

 

 

270,716

 

 

 

269,173

 

Additional paid-in capital

 

 

1,774,671

 

 

 

1,764,317

 

Treasury stock; 5,670,824 shares as of March 31, 2020; 4,910,992 shares as of December 31, 2019

 

 

(49,731

)

 

 

(35,900

)

Accumulated deficit

 

 

(1,431,730

)

 

 

(1,411,177

)

Total stockholders’ equity

 

 

585,776

 

 

 

608,263

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

925,668

 

 

$

882,209

 

 

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,

 

 

2020

 

 

2019

 

Product revenue, net

$

152,204

 

 

$

72,731

 

Licensing and royalty revenue

 

2,789

 

 

 

547

 

Total revenue, net

 

154,993

 

 

 

73,278

 

Less: Cost of goods sold

 

34,807

 

 

 

17,140

 

Gross margin

 

120,186

 

 

 

56,138

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative

 

133,937

 

 

 

71,633

 

Research and development

 

10,278

 

 

 

7,242

 

Total operating expenses

 

144,215

 

 

 

78,875

 

Operating loss

 

(24,029

)

 

 

(22,737

)

Interest income (expense), net

 

1,208

 

 

 

(1,697

)

Other (expense) income, net

 

(91

)

 

 

3

 

Loss from operations before taxes

 

(22,912

)

 

 

(24,431

)

Income tax benefit

 

2,359

 

 

 

 

Net loss

$

(20,553

)

 

$

(24,431

)

Loss per share:

 

 

 

 

 

 

 

Basic

$

(0.06

)

 

$

(0.07

)

Diluted

$

(0.06

)

 

$

(0.07

)

Weighted average shares:

 

 

 

 

 

 

 

Basic

 

361,136

 

 

 

328,712

 

Diluted

 

361,136

 

 

 

328,712

 

 

See notes to condensed consolidated financial statements.

4


AMARIN CORPORATION PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(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, 2019

 

 

289,317,460

 

 

 

365,014,893

 

 

 

(4,910,992

)

 

$

21,850

 

 

$

269,173

 

 

$

1,764,317

 

 

$

(35,900

)

 

$

(1,411,177

)

 

$

608,263

 

Exercise of stock options

 

 

 

 

 

412,465

 

 

 

 

 

 

 

 

 

269

 

 

 

1,037

 

 

 

 

 

 

 

 

 

1,306

 

Vesting of restricted stock units

 

 

 

 

 

1,951,448

 

 

 

(759,832

)

 

 

 

 

 

1,274

 

 

 

(1,274

)

 

 

(13,831

)

 

 

 

 

 

(13,831

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,591

 

 

 

 

 

 

 

 

 

10,591

 

Loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,553

)

 

 

(20,553

)

March 31, 2020

 

 

289,317,460

 

 

 

367,378,806

 

 

 

(5,670,824

)

 

$

21,850

 

 

$

270,716

 

 

$

1,774,671

 

 

$

(49,731

)

 

$

(1,431,730

)

 

$

585,776

 

 

 

 

 

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

 

 

 

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,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(20,553

)

 

$

(24,431

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

146

 

 

 

6

 

Accretion of investments

 

 

(151

)

 

 

 

Stock-based compensation

 

 

10,591

 

 

 

6,883

 

Amortization of debt discount and debt issuance costs

 

 

289

 

 

 

446

 

Amortization of intangible asset

 

 

360

 

 

 

161

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(41,858

)

 

 

(12,962

)

Inventory

 

 

(15,352

)

 

 

(107

)

Prepaid and other current assets

 

 

(7,416

)

 

 

(2,389

)

Other long-term assets

 

 

 

 

 

(469

)

Interest receivable

 

 

(1,021

)

 

 

 

Accrued interest payable

 

 

(111

)

 

 

(73

)

Deferred revenue

 

 

961

 

 

 

(547

)

Accounts payable and other current liabilities

 

 

79,285

 

 

 

(2,238

)

Other long-term liabilities

 

 

(1,033

)

 

 

(2,369

)

Net cash provided by (used in) operating activities

 

 

4,137

 

 

 

(38,089

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from sales of securities

 

 

17,077

 

 

 

 

Purchase of securities

 

 

(310,648

)

 

 

 

Purchases of furniture, fixtures and equipment

 

 

(251

)

 

 

 

Net cash used in investing activities

 

 

(293,822

)

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options, net of transaction costs

 

 

1,306

 

 

 

15,456

 

Payment on debt from royalty-bearing instrument

 

 

(13,330

)

 

 

(6,423

)

Taxes paid related to stock-based awards

 

 

(13,831

)

 

 

(9,080

)

Net cash used in financing activities

 

 

(25,855

)

 

 

(47

)

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(315,540

)

 

 

(38,136

)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD

 

 

648,495

 

 

 

250,727

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

 

$

332,955

 

 

$

212,591

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest

 

$

875

 

 

$

7,709

 

Income taxes

 

$

 

 

 

 

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, or 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. The Company’s lead product, Vascepa® (icosapent ethyl), was first approved by the U.S. Food and Drug Administration, or FDA, in July 2012 for use as an adjunct to diet to reduce triglyceride, or TG, levels in adult patients with severe (>500 mg/dL) hypertriglyceridemia. On December 13, 2019, the FDA approved a new indication and label expansion for Vascepa based on the landmark results of our cardiovascular outcomes trial, REDUCE-IT®, or Reduction of Cardiovascular Events with EPA – Intervention Trial. Vascepa is the first and only drug approved by the FDA as an adjunct to maximally tolerated statin therapy for reducing persistent cardiovascular risk in select high risk patients. Vascepa is available in the United States, or 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.  

The Company, since inception, has devoted substantial resources to research and development efforts, most significantly, the development and conduct of a long-term cardiovascular outcomes study of Vascepa, REDUCE-IT. The Company announced topline results from REDUCE-IT on September 24, 2018. On November 10, 2018, the Company presented primary results of REDUCE-IT at the 2018 Scientific Sessions of the American Heart Association, or AHA, and the results were concurrently published in The New England Journal of Medicine. REDUCE-IT met its primary endpoint demonstrating a 25% relative risk reduction, or RRR, to a high degree of statistical significance (p<0.001), in first occurrence of major adverse cardiovascular events, or MACE, in the intent-to-treat patient population with use of Vascepa 4 grams/day as compared to placebo. REDUCE-IT also showed a 26% RRR in its key secondary composite endpoint of cardiovascular death, heart attacks and stroke (p<0.001). On March 18, 2019, the Company publicly presented the total cardiovascular events results, and the method of calculating such events, of the REDUCE-IT study at the American College of Cardiology’s, or ACC, 68th Annual Scientific Session and such results and methods were concurrently published in the Journal of the American College of Cardiology.

The FDA granted Priority Review designation to the Company’s March 2019 supplemental new drug application, or sNDA, seeking an expanded indication for Vascepa in the United States based on the positive results of the REDUCE-IT study. In November 2019, the FDA held an Endocrinologic and Metabolic Drugs Advisory Committee, or EMDAC, meeting to review the REDUCE-IT sNDA. The EMDAC voted unanimously (16-0) to recommend approval of an indication and label expansion for Vascepa to reduce cardiovascular events in high-risk patients based on the REDUCE-IT results. On December 13, 2019, the FDA approved a new indication and related label expansion based on REDUCE-IT.

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. Prior to the REDUCE-IT results topline announcement in September 2018, the Company’s commercialization of Vascepa was somewhat limited. Subsequent to learning the positive cardiovascular outcomes results of the REDUCE-IT study, the Company increased its promotional efforts. Based on the positive REDUCE-IT results, in early 2019, the Company increased the size of its sales force to approximately 440 sales professionals, including approximately 400 sales representatives. As a result of the FDA’s newly approved indication and label expansion, in early 2020 the Company completed the expansion of its direct sales force to approximately 900 sales professionals, including 800 sales representatives. In addition to promotion of Vascepa in the United States, based on REDUCE-IT, the Company has increased focus on expansion of the Company’s development efforts for Vascepa to major markets outside the United States. The Company currently has strategic collaborations to develop and commercialize Vascepa in select territories outside the United States. The Company operates in one business segment.

On March 30, 2020, the United States District Court for the District of Nevada, or the Nevada Court, ruled in favor of two generic companies in Amarin’s patent litigation related to its abbreviated new drug applications, or ANDAs, that seek FDA approval for sale of generic versions of Vascepa. The Company disagrees with the Nevada Court’s decision that its patents are invalid and are vigorously pursuing an appeal. Unless and until its appeal is successful, the Company intends to reduce the amount spent in the United States on Vascepa related education and promotion with the intention of retaining the capability to ramp-up promptly if Amarin wins upon appeal. If a generic drug company’s ANDA is approved by the FDA, and if such generic company has qualified supply available and elects to launch during the appeal process, it could be liable to the Company for damages for patent infringement if Amarin prevails on appeal. The Company could also launch a generic version of Vascepa separately from its branded version if the situation warrants such action.

7


Vascepa is not yet known to most healthcare professionals and generics companies rarely invest in product or disease state related market education. Furthermore, Vascepa is relatively expensive to manufacture and already sold at an affordable price as documented by third-party analysis such that saving, if any, on the price of generic Vascepa is likely to come at the expense of reduced market education and development. Thus, the Company believes that the launch of a generic version of Vascepa in the United States at this early stage in the life cycle of Vascepa is potentially harmful to patient care and discourages new product development, including for identifying and pursuing additional indications that could be treated with Vascepa.

Geographies outside the United States in which Vascepa is sold and under regulatory review are not subject to this U.S. litigation and judgment. No generic litigation is pending outside the United States. Vascepa remains available by prescription in Canada, Lebanon and the United Arab Emirates. In Canada, Vascepa has the benefit of eight years of data protection afforded through Health Canada (until the end of 2027), in addition to separate patent protection with expiration dates that could extend into 2039. Amarin, together with its commercial partners in select geographies, is pursuing additional regulatory approvals for Vascepa in the European Union, China and the Middle East. Ten to eleven years of market protection is anticipated due to regulatory exclusivity in the European Union subject to an approval recommendation by the European Medicines Agency, or EMA, near the end of 2020 and associated European Community, or EC, approval expected promptly thereafter, in addition to pending patent protection that could extend into 2033.

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, 2019, or the 2019 Form 10-K, filed with the SEC. The balance sheet amounts at December 31, 2019 in this report were derived from the Company’s audited 2019 consolidated financial statements included in the 2019 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 Accounting Principles, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets 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, 2020 are not necessarily indicative of the results for 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 condensed 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 well as the current global pandemic, COVID-19.

As of March 31, 2020, the Company had Current assets of $817.3 million, including Cash and cash equivalents of $329.0 million, Short-term investments of $213.2 million,  Accounts receivable, net, of $158.3 million and Inventory of $92.1 million. In addition, as of March 31, 2020, the Company has Long-term investments of $81.5 million. The Company’s condensed consolidated balance sheets also include a royalty-bearing instrument which is expected to be fully paid during 2020 based on projected Vascepa net revenues. As of March 31, 2020, the Company had no other debt outstanding. 

(2)

Significant Accounting Policies

Revenue Recognition

In accordance with Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined

8


to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for net product revenue and licensing revenue, see Note 9—Revenue Recognition.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of cash, deposits with banks and short-term highly liquid money market instruments with remaining maturities at the date of purchase of 90 days or less. Restricted cash represents cash and cash equivalents pledged to guarantee repayment of certain expenses which may be incurred for business travel under corporate credit cards held by employees.

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. All customer accounts are actively managed and no losses in excess of amounts reserved are currently expected; however, the Company is monitoring the potential negative impact of COVID-19 on the Company’s customers’ ability to meet their financial obligations.

The following table summarizes the impact of accounts receivable reserves on the gross trade accounts receivable balances as of March 31, 2020 and December 31, 2019:

 

In thousands

 

March 31, 2020

 

 

December 31, 2019

 

Gross trade accounts receivable

 

$

189,580

 

 

$

149,567

 

Trade allowances

 

 

(23,982

)

 

 

(29,261

)

Chargebacks

 

 

(6,365

)

 

 

(3,876

)

Allowance for doubtful accounts

 

 

(945

)

 

 

 

Accounts receivable, net

 

$

158,288

 

 

$

116,430

 

 

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 tax 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.

The Company provides reserves for potential payments of tax to various tax authorities and 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 income tax provision, as applicable.

9


The Company regularly assesses its ability to realize deferred tax assets. Changes in historical earnings performance, future earnings projections, and changes in tax laws, 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 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, or IRS, and states. The IRS has begun an examination of the Company’s 2018 U.S. income tax return in the first quarter of 2020. 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 this audit 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, 2020 and 2019 are as follows:

 

 

Three months ended March 31,

 

In thousands

 

2020

 

 

2019

 

Net loss—basic and diluted

 

$

(20,553

)

 

$

(24,431

)

Weighted average shares outstanding—basic and diluted

 

 

361,136

 

 

 

328,712

 

Net loss per share—basic and diluted

 

$

(0.06

)

 

$

(0.07

)

 

 

For the three months ended March 31, 2020 and 2019, 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

 

2020

 

 

2019

 

 

Stock options

 

 

17,207

 

 

 

16,837

 

 

Restricted stock and restricted stock units

 

 

7,033

 

 

 

9,341

 

 

Preferred stock (if converted)

 

 

28,932

 

 

 

28,932

 

 

 

Concentration of Credit Risk

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

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 collateral 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 24%, 35%, and 32%, respectively, of gross product sales for the three months ended March 31, 2020, and represented 32%, 27%, and 30%, respectively, of the gross accounts receivable balance as of March 31, 2020. Customers A, B, and C accounted for 21%, 39%, and 29%, respectively, of gross product sales for the three months ended March 31, 2019 and represented 32%, 37%, and 21%, respectively, of the gross accounts receivable balance as of March 31,

10


2019. The Company has not experienced any significant write-offs of its accounts receivable. All customer accounts are actively managed and no losses in excess of amounts reserved are currently expected; however, the Company is monitoring the potential negative impact of COVID-19 on the Company’s customers’ ability to meet their financial obligations.

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 disruption or termination of the Company’s current supply chain, including as a result of COVID-19, or the Company’s 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 the Company’s 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, 2020 and December 31, 2019 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, 2020

 

In thousands

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Fund

 

$

156,655

 

 

$

156,655

 

 

$

 

 

$

 

U.S. Treasury Shares

 

 

48,219

 

 

 

48,219

 

 

 

 

 

 

 

Corporate Bonds

 

 

147,472

 

 

 

 

 

 

147,472

 

 

 

 

Commercial Paper

 

 

135,173

 

 

 

 

 

 

135,173

 

 

 

 

Agency Securities

 

 

19,999

 

 

 

 

 

 

19,999

 

 

 

 

Repo Securities

 

 

12,000

 

 

 

 

 

 

12,000

 

 

 

 

Asset Backed Securities

 

 

10,021

 

 

 

 

 

 

10,021

 

 

 

 

Total

 

$

529,539

 

 

$

204,874

 

 

$

324,665

 

 

$

 

11


 

 

 

December 31, 2019

 

In thousands

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Fund

 

$

10,078

 

 

$

10,078

 

 

$

 

 

$

 

 

The carrying amount of the Company’s cash and cash equivalents approximates fair value because of their short-term nature. The cash and cash equivalents consists of cash, deposits with banks and short-term highly liquid money market instruments with remaining maturities at the date of the purchase of 90 days or less.

 

The Company’s held-to-maturity investments are stated at amortized cost, which approximates fair value. We do not intend to sell these investment securities and the contractual maturities are not greater than 24 months. Those with maturities greater than 90 days and less than twelve months are included in short-term investments on its condensed consolidated balance sheet. Those with remaining maturities in excess of twelve months are included in long-term investments on its condensed consolidated balance sheet.

 

Unrealized gains or losses on held-to-maturity securities are not recognized until maturity, except other-than-temporary unrealized losses which are recognized in earnings in the period incurred. The Company evaluates securities with unrealized losses to determine whether such losses are other than temporary. Interest on investments is reported in interest income. The unrealized loss for the three months ended March 31, 2020 and 2019 was $0.7 million and nil, respectively.

 

The carrying amounts of accounts 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, 2020 and December 31, 2019 are as follows:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

In thousands

 

Carrying

Value

 

 

Estimated

Fair Value

 

 

Carrying

Value

 

 

Estimated

Fair Value

 

Debt from royalty-bearing instrument

 

$

36,660

 

 

$