Amarin Corporation plc (AMRN) Earnings Call Transcript & Summary

Hello. My name is Daniel Wolle. I'm one of the SMid-Cap Biotech Analyst at JPM. It's my pleasure to introduce Karim Mikhail from Amarin. Without further ado.

Good afternoon, everyone. I just want to start by thanking Daniel and JPMorgan for inviting us for the conference to share with you the progress we've made in 2020, '22 against solid through bold objectives that we've had. 2022 started as a challenging year where we've had the third generic, we had an impact on revenue. But we are closing the year with 4 consecutive quarters of revenue in the U.S., a positive cash burn in Q4, but also 5 markets where we have final pricing and reimbursement in Europe. So in my presentation, I may make forward-looking statements or a full list of risk factors, please consult our SEC filing. So my presentation is going to have 4 main portions. I will start first by just reviewing a little bit of the Amarin journey, where we have been in the past, in the present and in the future. The second part, we're going to really go into the progress of 2022, and this is going to be the large part of what I'm going to cover today. But then we're going to talk about the outlook, the future, what the next chapter looking like and then a real focus on the 2023 priorities. So first, looking at the Amarin journey. So many have been part of this journey over the last many years. Chapter 1, there was the challenge of establishing the evidence of triglyceride lowering, building that market, demonstrating the value. And Amarin faced a lot of challenges in that chapter, but at the end, really succeeded in demonstrating the value. Chapter 2 is even more challenging where there was the challenge of really demonstrating a cardiovascular outcome. A relatively small company had to find a way to fund a big outcome study that many big pharma would not there to actually fund, but they made it possible. And after 7 years of studying the 10,000 patients demonstrated the value, was able to get a standing ovation at AHA in 2018 when the data was presented and the second chapter was yes challenging but successful. And now we are in the third chapter of Amarin. And the third chapter of Amarin is starting with an important challenge where IT litigation in the U.S. and the loss of the patent of the indication for triglyceride lowering and having generics on the market in the U.S. where Amarin had to reinvent itself by basically building the market ex U.S. in Europe and international. So this is the chapter we're in at this point in time. And we are already proving that at the beginning of this chapter, we are delivering solid results versus that initial phase of globalization and commercialization, and we'll talk about that in more detail in the next parts of my presentation. So 2022 progress, we've had 3 main areas where we were focusing on in 2022. The first area was geographic expansion, right? The U.S. had its challenges with generics. We had to recreate that potential outside of the U.S., and we had the plan to get reimbursement in Europe, launch in Europe and expand internationally. I'm going to talk about the progress we've made because we made very significant progress in that area in 2022. But also, we have to do that while thinking about the future. Remember, you don't get an asset like VASCEPA that demonstrated 25% relative risk reduction every day. So if you think you can create this value with just the molecule without thinking of a franchise, you would be really not creating the maximum value that you can get out of that. And if you look at all the largest assets that are out there in cardiovascular, they all came with a true life cycle management plan to go beyond just the main molecule. If you look at the example of Cozaar, Cozaar had Cozaar, Hyzaar and Fortzaar; Januvia had Januvia and Janumet; ezetimibe had Zetia, Vytorin, Atozet and other line extension. So this is a very common important practice within cardiometabolic field, and we have initiated the work and we're going to give more update on that in terms of diversification. But we had to do those 2 things while being incredibly financially disciplined, while being very cost conscious in terms of our cash burn, and we will show the progress now that we have delivered in those areas. So let me first start with the U.S. We've had significant progress in the U.S., where for the last 6 to 7 months, we are at 60% market share from a prescription perspective, despite the fact that now we have 4 generics on the market, 3 for the large majority of the year, but 4 now. So if you look in the past to try to identify a case where you have had more than 2 years of generic presence, where you're still maintaining 60% of market share, I can tell you there are not too many out there. So this is a very, very unique performance by the team being able to hold on to all this market share despite, by the way, making significant reductions in the footprint. So we are maintaining only 10% today of the footprint that we had at the time of the launch. Maybe people will remember, I became CEO in August of 2021. The first decision that I took was to reduce the U.S. field force by 50% in October of 2021, where we did a minus 50%, and in June, we did another minus 40%, which got us to where we are. And the results that you see is delivered with that core group that's driving the brand today and ensuring that we sustain as much as revenue as possible. Now if we move to progress in Europe, we started 2021 with 10 dossiers submitted and we had one market where we were in price negotiation. We are closing the year in 2022 with 5 markets where we have pricing, so we have final price national reimbursement in U.K., Sweden, Finland. We have individual reimbursement in Denmark and in Austria, and we are in pricing and negotiation in 5 other markets. And it's not on the slide, but we also submitted 3 additional dossiers. So in fact, there are currently 13 active dossiers where we are working on so that we can bring that value and this amazing product to Europe. On the international front, you remember that we had a number of territories that we're partnered already like China, like the MENA region with biologics like Canada with HLS. But when you looked at that list of countries, they were not -- they were only 30 markets. And in reality, there were still a lot of value to be created outside of those 30 markets. There are markets in Latin America that are very significant from a cardiometabolic perspective like Mexico, like Brazil, in Asia markets like Australia, like Korea, these were usually for a top brand in cardiovascular in your top 50. So we had to make sure that we don't stop at U.S. and Europe, but we go beyond that list to ensure that we get the product to be available in these markets because that's going to open a $1 billion opportunity in these markets if we're able to get regulatory approval. So far, we have achieved regulatory approval in 6 of these markets. You've seen us issuing press releases on some of the key ones like Australia, like Switzerland. And we continue the process to make sure that in these products we have regulatory approval. As stated previously, we do not intend to have any presence in these markets. What we would gain out of that would not make sense compared to the investments that need to be made. So all of these international markets, all of Central Eastern Europe, we were already very clear that we do not plan to be ourselves in this market, but we plan to work via third parties to make sure that we expand the business internationally. Now on the progress that we made for operational excellence. There were 2 areas of focus. The first one was really on cash and cash preservation. If you remember, we started the year with an important level of cash burn that we were very conscious that we had to manage. A lot of these things, you cannot just press on the button and switch them on and off. You really have to do big, deep foundational changes in the way you operate to impact the cash burn consistently and over time and not just for a quarter. So we took these very bold moves. We had an important restructure that we announced in June, where we basically eliminated 40% of total head count in the company, right? And remember, this was the second restructure after the October 2021, where we already eliminated 50%. So very significant effort in terms of OpEx and OpEx management. We said we're going to save $100 million from our operational expense between mid-2022 and mid-2023. We said that those $100 million are net of additional EU investments, meaning you should not expect us to be investing more based on that number because we already baked into the effort what else we need to add for the launch in Europe But more importantly, the third quarter, which was the first quarter of the saving, which we already announced, we saved $28 million instead of the $25 million that we committed to do. So we are very serious about continuing the effort on capital allocation and our operation -- operating expense. On top of that, there was an effort to renegotiate a number of our supply agreements. This was one of the biggest challenges we were dealing with. As you know, VASCEPA is a long lead manufacturing product. You basically need to start 18 months ahead and put purchase orders. So these were arrangements which we had to take time to renegotiate to allow us the flexibility that is needed. We have made very good progress with these negotiations. Some of them are still ongoing. But based on this, we are able now to really demonstrate a clear turnaround on the cash burn situation, which I'm going to show in a couple of slides. And at the same time, we had to work to transform the leadership because that was necessary for us to move from a chapter where the focus was the U.S., with the REDUCE-IT study and R&D to going to become a true global commercial leader. You need a different skill set. You need people who know what it is to sell in these markets, what will it take to gain reimbursement in Europe. So first, let me show you the revenue in the U.S. So this is showing 4 consecutive quarters of revenue stabilization. As you can imagine, these are 3 generics on the market. The market is very competitive. Where we stand today, there is not a shortage of supply, right? We are 2 years early on when generics came, we said it takes 6 months, it takes a year, it takes 18 months for genetics to have access to supply. For the moment, there is enough supply for everybody on the market. So what you see today in terms of stabilization is a product of the effort that is achieved on the market to work with plans that really prefer the brand and believe that we are bringing value as a company and as a partner. And of course, we have to continue to look at what's going to happen in the market. Obviously, today, we have the launch of Teva, the fourth generic, which we are following very closely. We'll have to see how they're going to track. But we are ready and if there will be any impact on our revenues, we already have a plan on how we can sustain and maintain the profitability that we are delivering today. Now if you look in terms of cash burn, these are our 4 consecutive quarters where we started the year, we're close to $100 million of cash burn. Half of that was going to supply. Second quarter, we brought this down to $65 million. Third quarter, it was close to $20 million, but included restructuring charges. So actually, the third quarter, we were also cash positive, but there were the restructuring charges there. And now Q4 is just pure $4 million positive cash. And you can imagine, most of this revenue is coming from the U.S. So if at the corporate level, we are able to deliver $4 million positive cash, then the U.S. business itself must be highly profitable. Now all of this could not have been achieved without a very, very capable leadership team. If you look today at the leadership team and people I have around my leadership table, we basically kept the best of the first 2 chapters of the company. We kept Steven Ketchum, who led all the R&D efforts and reduced it. We have Aaron Berg, who leads the U.S., who continue to deliver the results that you see. And we have Donna Pasek, our HR. But apart from that, every other member is new. And I mean, I am 2.5 years in the company. At times, I feel like a veteran because most of us are new to the role. And everybody is coming with the ambition of making a difference and making sure that we bring this product to as many patients as we can. And that's why the focus was on getting the leadership team with a cardiovascular launch scale. Most of the members are coming from cardiometabolic power homes like Merck, like AstraZeneca, like Novartis. They have launched before in Europe and internationally. That's what they've done, and that's what we intend to do moving forward. If you look at the effort also in getting the right leadership team at the European level, where today, we have a complete medical affairs team led by a cardiologist by profession. And by the way, most of our medical directors in Europe are cardiologists by profession. So true technical expertise, not just prior cardiometabolic experience, but that's what they did for a living prior to joining the industry. But also, if you look at the GMs, they are all coming from companies where they've dealt with pricing reimbursement and launches, whether it was a PCSK9 in the last 3 to 5 years or it was an LDL lowering 10 years ago, but all with the experience that is needed with launches in cardiometabolic and the true geographic experience and expertise we need in Europe. And the Board took upon itself to refresh itself also. So they have initiated a process in October of 2021. And for now, we basically have 75% of new Board members. So you see on the list here, all the new Board members who were added to the list who again with the same concept are coming with the skill set that is required, needed, necessary for the future of the company, which is international commercial expertise. They know what it is to negotiate with Australia, with many of these markets, but also at a European level, where we're working very hard to ensure that we are successful there. Now if I move on to the third part of my presentation, which is really the next chapter. So what are we set out to do for the next phase. Our priorities and our goals are very clear. We have to continue the geographical expansion. This is the key to shareholder creation, right? We know that the U.S. is the U.S. We have generics. They're not going to be less. They're going to be the same or more. And we can hold on to the revenue for as long as we can, but let's face it we're going to see price erosion, we're going to see additional pressure, so we have to continue to make progress quarter after quarter at the European level. So that's with geographic expansion and of course, beyond that to the international markets. The second part that we have to focus on it, we should not stop at VASCEPA. There is huge value of bringing VASCEPA with rosuvastatin and atorvastatin because that gets you to gain years in adoption, right? If you put a very familiar molecule with still new molecule, you just gain, and we're going to talk about that again in a few seconds. And finally, we have to do those 2 while we continue to be very disciplined in terms of financial management and our operating expenses. So on Europe, we have steps 1, 2, 3 of pricing reimbursement in all of our countries completed. We're only focusing really now on pricing reimbursement negotiations in the remaining markets. And we believe we're going to get the vast majority of these getting price reimbursement in 2023. Beyond Europe, we need to continue the international journey. We have 6 approved, but we need to get to the 14 remaining by the end of 2024. And we have to do this while we continue to focus on operational excellence. So in terms of operational excellence, priority #1 is profitability in the U.S. As you know, we have adapted our plans as we went along. We actually have cumulative revenue of $1 billion in the U.S. since generic introduction. If we had pulled just immediately, I don't know if we would have had this revenue by now, right? So we continue to look and anticipate what's going to happen in the market. If we see a hit, we will react, right? We are very clear that if we see an additional threat from Teva who listed but it's not on the market yet. If we see an additional threat, we will be the first to act to preserve the profitability because we need that cash to launch in Europe, and we're very conscious of it. So that's the first area of focus. The second one is maintaining financial discipline just across the line, right? And I can tell you, a big part of this is the sequenced investment in Europe. If you look at how we are working our investment base at the European level, we do not hire commercial headcount unless we see somebody holding the pen and signing a reimbursement in a country. So today, in the U.K., we are building a full team that is fit for purpose, right? Meaning, sized appropriately to what is needed. We have not inherited a field for size from a prior launch, and we have to have people that we don't really need. We only hire what we need, what the expertise that we need and all of them are coming with the business acumen and the expertise in cardiometabolic that is required for the job, and we will continue to do that. One might say, but why don't you find a way of just throwing everything at it, and maybe you're going to get a lot more out of that. The reality is the market has changed dramatically even before COVID. Today, we are not in the market where you are in carpet-bombing and just throwing everything at the launch. You need to know what you need to do. And I can tell you for this product, it's about scientific engagement, okay? If physicians are convinced of the value, they will prescribe. Going there and repeating a message every day without people believing the evidence is not of value, right? So that's what we are doing. We are putting the right investments and we're sequencing them appropriately so that we do not waste resources without real value early on in the launch phase. Now moving on to the next chapter in terms of diversification, we actually have 3 key areas where we have true strengths. So we have a commercial team in the U.S. that's holding on to 60% market share despite 3 to 4 generics, and they are very, very capable team. Most of them have been with the company for the last 8 to 10 years. So very significant experience in the field. And at the same time, we're building a world-class team in Europe that is delivering on the pricing reimbursement that you've seen that is launching in the U.K. and in other markets in a capable way. So very strong commercial capability. But we also have the R&D engine that we have preserved because we believe that this is of real value and that expertise that need to be preserved. And now we are building that very significant medical affairs team that has the cardiovascular network. So that allows us to do beyond VASCEPA. But at the same time, we want to say that the first thing we want to focus on is actually our own fixed-dose combination because we believe that this could be a very significant opportunity in the marketplace, right? And again, I have personal experience with launching multiple portfolios with line extensions. I can tell you, it makes a very, very big difference, especially if you are a new paradigm. And in our case, there is not a clear new paradigm than us. We're the first non-LDL asset that demonstrated cardiovascular outcome on top of a stat. We're the first, right? And remember, there were so many failures before us. CETP inhibitors try to demonstrate that and failed on top of a statin. Other molecules tried to demonstrate that and failed. We are the first. But we are launching in Europe without pre-marketing, right, with no initial market development. We wish we had that luxury. But what situation we are inheriting, just we didn't have that. We had to do Europe because of the challenge in the U.S. So to do that, right, associating yourself or some of these molecules can be very important. We already initiated a process to seek guidance from EMEA on the regulatory pathway. And we are hopeful that we'll be able to share more details with our investors in the next quarters, but this is a very, very significant step in our diversification. So to try to close on our priorities 2023, but our work is carved out for us very clearly. We have to continue to make progress on the reimbursements. This is probably the #1 priority to create incremental additional shareholder value for the company, is more reimbursement in more countries in 2023. And doing that while maintaining profitability in the U.S., we already communicated that we believe we are sufficiently funded to launch in Europe, but a big part of that is maintaining that profitability. And as we said, we are ready for whatever scenario that can come our way to ensure that we continue to deliver that contribution margin and that U.S. profitability that is needed for the launch. We will and we will continue to work on obtaining additional international regulatory approval, very critical. We do not plan to do this ourselves. Hopefully, 2023 is going to be a year where we can communicate some of the partnerships that we will have in many of these markets that will still allow us flexibility for the future of the company, which is very important for us. So it's not about just partnering, it's making sure that we maintain the flexibility and at the same time, advance the fixed-dose combination, which we believe will have a significant impact on the life cycle of the product, while exploring obviously other BD opportunity. Finally, do all of that with a very, very, very strong focus on financial discipline and making sure we do more with less. I just want to finish by saying, look, we have a bold ambition. Our bold ambition and the reason why we all joined Amarin in the last 2 years is the following: many of us launched cardiometabolic molecules across the world. Our experience says that you can have a 50-50 split between U.S. and ex U.S. business, right? Lipitor had that, at least as that I -- franchise that I know very well had that, a 50-50 split between U.S., ex U.S. Well, if you look at the potential of VASCEPA in the U.S., the lowest estimates was that this product was going to sell $3 billion in the U.S. So if we say that the European opportunity is $1 billion plus and the international market is maybe close to $1 billion, then we're not far off from that assumption. We are here because we believe we can recreate this potential. And the path to that is to get pricing reimbursement in Europe, launched successfully in Europe, expand to international, and we have to continue to maintain the profitability in the U.S. to ensure we're going to be self-funded for that. So I want to thank you all for your attention. I know it's a long day, but pleasure to be here in person with you all in San Francisco. Thank you.

Great.

I want to invite Tom Reilly, my CFO, to join me for questions and answers.

[Operator Instructions]

Can I ask a question about the material because I saw a report from the Dr. Reddy, they said, okay, maybe in the next few years, we've got maybe several generics drug will come. And in a few years, maybe the raw material, I mean, the EPA, the raw material, the price could be up like the 30% to 50%, that influence a lot. So what do you think about that?

So first of all, I'm not a manufacturing expert. So I will not be claim for that. But look, the manufacturing of this product is very, very complex. If it was not, okay, you would have seen very different volumes on the market. A rate-limiting step is the cost of the raw material, but let me tell you, that's not the only rate-limiting step. The other limiting step is the technology that is needed to transform the raw material into 96% pure EPA. And for that, there are multiple technologies on the market. Some of them have very different yield from one another, right? So some of them can turn this much raw to this much fewer or you need to have 3x more. So this is not as simple as it sounds. Having said that, look, if the cost of goods is going to be cheaper which is going to get the product to be at a lower base, we're going to benefit from that, probably more than anyone because we believe we have the best setup in terms of supply chain at this point in time. So I don't know if this is going to be a competitive advantage to the generics. And on top of that, remember that Europe has regulatory exclusivity until 2031 and we have plans to extend that in many ways. So we're not going to face any generic challenges in Europe or in the international market. So this may be valid where we are in the U.S. Let's face it, if this is coming in 2025, we would be way ahead from where we need to be in terms of driving new business, but good question. Thank you.

Maybe I'll ask a question in relation to that, you're currently undergoing renegotiations for supply agreements. So can you maybe comment on that? And what does the process involve for that renegotiation?

Sure. So we have not disclosed many of the details, obviously, on these renegotiations because their nature is obviously very confidential. All what we communicated before was basically this is a product where you have dedicated manufacturing facilities, right? This is not a simple solid form manufacturing facility where they can produce 10 different products. They only work to produce 96% EPA. So the way they operate, they have to dedicate their effort to you. And for them to do so, you have to commit for a long-term arrangement, usually 3 to 5 years, at least, and you have to commit to volumes that you are going to purchase at least for 18 months. So to get in or to get out of this working relationship is not a simple procedure. The real value that we have with our partners from a supply perspective is that they see us building a market in Europe, right? This is the big advantage that we have is that they see us opening country after country after country. They see us continue to pursue Asia. They see us working to get the China approval, right? So they understand that if there is any future volume that's going to come, let's face it, Amarin will continue to be the key customer for those suppliers. They want to work with us and they understand what happened in the U.S. What happened in the U.S. was out of our control, right? There was an IP situation. We lost volume. We had to act on it. So they are understanding. They are collaborative in most cases to try to see how we can arrive to an arrangement where we can continue to work together, but that's really what we disclosed up to now. And we will continue to work on that. Look, supply chain is an important advantage in this business and consistency and quality of supply is a critical priority in the business.

Maybe focusing on the OUS launch with VAZKEPA. With national reimbursements now secured in 5 countries, how would you characterize the size of the collective market in this regions and the potential revenue in 2023?

Sure. So we currently have national reimbursement in the U.K., Sweden and Finland. We have individual reimbursement in Austria and Denmark. Individual reimbursement actually means something similar maybe to prior authorization in the U.S., which means the physician will have to get an approval from the authority to get the product reimbursed. It's an electronic procedure where they have to take. And you start with that in many countries until you get full national reimbursement. Now if you look at the size of these markets, the U.K. is obviously the largest. If you look at the EU business split by country, between the 4 to 5 large markets, you cover 50% to 60% of the business. And then the remaining markets are really 40%. So today, we have the U.K. The U.K. will be a significant contributor of revenue in 2023. We believe we're going to have other larger markets where we're going to get pricing reimbursement in 2023 that they are not on the list, right? We're working to get them first, second, third quarter as we go along. And together, they're going to be really the big contribution for the business. But overall, if you add these up, they would be maybe 20%, 25% of what the business is.

Do you expect to have more physical versus digital presence in Europe? With that in mind, how much larger should we expect your sales force to grow in that region as you gain reimbursements in 2023?

So this is one of the benefits we have of building the business bottom up, which is to say what is really necessary for us. We know today that in the U.K. by law, you can only visit the physician twice a year in an unsolicited visit, meaning you just cannot do that by law, unless they invite you, right, it's a different story. But uninvited, you can only see them twice. So if you're on a launch mode and you don't have a digital capability, it's going to take you a very long time to get to the exposure level that you get physicians to truly prescribe. So the way we built our model is that we are digitally native. Digital native means we actually start with digital, right? We start with digital, we start the awareness with digital. And when it's time to bring the headcount, we bring the headcount because let's face it, digital costs a lot less. You can optimize the value, meaning you can take something that you develop for the U.K. and use it in Sweden, you use it in other markets where you cannot do that with a rep. So there are so many advantages of going digital compared to going face to face. And we are using all of that as we are working through our launches in the markets.