Amarin Corporation PLC (AMRN) 2003 Q3 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the Amarin Corporation third quarter 2003 earnings conference call. At this time all participants have been placed on a listen-only mode and the floor will be open for your questions following today's presentation. It is now my pleasure to introduce your host, Mr. Rick Stewart. Sir, you may begin.

Good morning. This is Rick Stewart, Chief Executive Officer of Amarin. I'd like to welcome you to our third quarter 2003 earnings call. With me today are Ian Garland and Mike Coffee, as a reminder this, call may contain forward-looking statements that are subject to inherent risks and uncertainties. For more information I refer you to the Safe Harbor statement on our website and to Amarin Form 20-F on file with the SEC. My third quarter review will address three key areas. Firstly, progress on the asset disposal program, secondly, third quarter trading and finally, a pipeline review. Turning to progress on the asset disposal program. The key event actually took place after the end of the third quarter. The sale of Amarin Development to Watson Pharmaceuticals for $15 million was a significant step forward in our strategic refocusing and a contributor to the repayment of our financial obligations to Elan. The successful development of the generic version of glipizide for Watson made them a leading candidate but also demonstrated the strong capabilities of the company. We have stated in the past that Amarin Development was a non-core asset and the proceeds from sale will be deployed elsewhere in the group at the appropriate time. We also announced today an agreement in principal with Elan to extend the payment deadline from the 31st of December 2003 to the 31st of March 2004. This may be required in order to facilitate the closing of certain asset disposal transactions. Furthermore we have retained SG Cowen as our investment banking advisors to maximize shareholder value in the future. In this regard we have expanded the scope of our strategic discussions to include the sale of certain core neurology assets, strategic collaborations, and potentially to evaluate the sale of the company. Secondly, I will review trading. Third quarter performance has continued to be as challenging as reported in previous conference calls. An addition generic competitor to Permax was licensed in September, which, in combination with continued wholesaler destocking, continues to negatively impact overall trading performance. We expect this to continue for at least the remainder of the year. The launch of the second generic was expected at the time we acquired Permax and has been factored into our forecast since that time. Permax generic penetration at the end of the third quarter was slightly lower than expected with generics taking approximately 54% of prescriptions written. Our neurology sales force continue to detail Permax to movement disorder specialties where that brand loyalty is particularly high. The primary care portfolio also performed in line with forecasts. Turning to the third quarter results, which were in line with expectations, revenues were $4.6 million, gross margin was 71%, and operating expenses were 8.8 million. Net loss for the quarter was $5.8 million. I'll now hand you over to Ian to give you more detail on the numbers.

Thanks, Rick. I summarized the revenues for the quarter were $4.6 million, and that compares to 15.2 million for the third quarter of 2002. That represents a 70% decline, and similarly to the second quarter, is due to two factors. The first is the continuing impact of competition to Permax, and the second is continued wholesaler destocking across all of our U.S. brands. The revenues for the quarter include the results of Amarin Development and as Rick mentioned, that business was sold on the 28th of October. In the 2003 third quarter, ADAB contributed revenues of approximately $1.4 million, which was down slightly on the third quarter 2002. The results of ADAB will be consolidated through the date of disposal, so the fourth quarter group revenues will recognize approximately one month of ADAB results. If we turn to the specific product revenues, Permax files in the quarter with just $0.4 million, and that compares to 9 million in the third quarter of 2002. As we indicated in both the first and second quarter conference calls, wholesalers continue to hold adequate inventories of Permax and we do not anticipate a return to meaningful sales revenues through the first half of 2004. Of the U.S. product sales, from the primary care portfolio, with $2.7 million in the third quarter, which was down from 4.2 million in the same period of 2002. The variance primarily driven by wholesaler purchasing patents and also by net price changes. The gross margin in the third quarter was 71% and that compares to 32% in the same quarter of 2002. However, the 2002 gross margin reflects a charge of 4.8 million for the withdrawal of Phrenilin CC and before this charge the third quarter 2002 gross margin was 63%. So the increase to 71% from 63% is due to higher average net selling prices, and that arise primarily because we are offering lower discounts to wholesalers in 2003 and also represents a product mix change. Total operating expenses at $8.8 million for the quarter are down 4% compared to the same quarter in 2002. The 2002 expenses included a $0.5 million charge for the closure of the New Jersey facility, and before this charge, so after eliminating the effect of that charge, total operating expenses have risen by $0.4 million, or 5%. The primary drivers of the change in operating expenses are selling, general and administrative, and research and development costs are up a combined $1.3 million, primarily reflecting the cost of supporting the approval of Zelapar. This is offset by product rights amortization which is down $0.9 million because of the lower charge for Permax following its impairment write-down at the end of 2002. For the quarter, the net loss was $5.8 million and that compares to a net loss of $2.2 million in the same period of 2002. In addition to the charge for the withdrawal of Phrenilin CC, the 2002 third quarter net loss benefited from a foreign exchange gain of $2.5 million. There was no material foreign exchange difference in the third quarter of 2003. The third quarter 2003 loss per ADS was 32 cents, and that compares to a net loss per ADS of 22 cents in the same period of 2002. The basic weighted average shares rose to 17,932,000 in the third quarter of 2003 from 9,838,000 in the third quarter of last year, reflecting the full year impact of the shares issued in the January private placements and conversion of 2 million preference shares in February of this year, both of which were highlighted in the first quarter conference call. Below the press release financials for the income statement, there's a summary of the group balance sheet. This shows total assets at the end of the quarter of $57 million, included therein are tangible assets amounting to $2.2 million, and intangible assets of $43.3 million, which include all our rights to products sold in the U.S. and investments in our development products. Cash and receivables at the end of the quarter were 7.4 million. The sale of ADAB, as I said, completed on the 28th of October, will result in a gain on disposal in the fourth quarter of approximately $10 million. As Rick has already mentioned, perhaps one of the most important updates for the quarter is our progress in raising funds to settle our obligations to Elan and to fund our ongoing working capital needs. Rick has indicated that the key development since our last quarter has been the sale of ADAB and also given the prolonged process for the sale of the primary care portfolio, the end principal agreement with Elan of an extension of 31st December deadline to, if required, 31st of March 2004. Rick also mentioned, this is key as well, that we have expanded our divestment process to consider core assets or even the sale of the company as a whole. Our cash position at the current time remains very difficult. After such agreement with Elan announced today, we have access to adequate cash to fund our operating deficit through the first quarter of 2004. The drawdown of funds in 2004 will be subject to our demonstrating to Elan, or to Elan's satisfaction, that we have a reasonable prospect of consummating a transaction to settle the Elan debt by March 31st. I will now hand you back to Rick.

Thanks, Ian. Finally, I'll review the pipeline. Firstly turn to Zelapar. The NDA approval letter was received from the FDA in the first quarter 2003, and meetings were held with the FDA in the second and third quarters to clarify the exact requirements. As a result, two relatively short non efficacy studies are planned to commence in the first quarter of 2004 with a potential submission and approval in the second and fourth quarters of 2004 respectively. The two studies are a timing challenge study and a QT interval prolongation study. The timing study is intended to evaluate any blood [inaudible] results and high levels of selegiline. A separate QT interval study to identify any change in heart rhythm is now a requirement of the FDA where as it was not previously. The approximate cost of these studies is $4 million. The protocols are in the later stages of being agreed and the studies are ready for commencement once we have resolved the financial position of the company. Plans for additional LAX-101 phase III studies are at advance stage. The trial protocol is close to being finalized and a meeting with the FDA will be scheduled in the near future to agree to protocol. The studies are intended to be significantly larger than the initial study with an excess of 400 patients. We're optimistic that the larger patient population will overcome the noncompliance, or protocol violation issues, experienced in the initial study. The timing is dependent on our develop our LAXdale Limited which is responsible for funding the studies, completing the protocol and initiating recruitment. In summary, although progress is being made on the asset disposal program, uncertainties remain over timing and value, which is why Amarin has retained SG Cowen to assist us in the process. We have also obtained the extension from Elan to conclude that process. Until the sales have been completed, there remains execution risk. Management's current priority is focused on addressing those risks while progressing other business priorities. The management team will now take your questions. If I can turn it over to Elsa, the operator. Do we have an operator?

Thank you. The floor is now open for questions. If you do have a question you may press the number 1 followed by 4 on your telephone keypad at this time. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask that while you pose your questions to please utilize your handset to provide optimum sound quality. Once again, that is 1 followed by 4 for any questions at this time. Our first question is coming from Don Gear of Cold Stream Capital. Please go ahead with your question.

Hi, Don Gear. Rick, could you just give me a definitional understanding of what you're considering core assets that might be sold and also do you have any estimates on the primary care portfolio as to what it may bring in?

Hi, Don. I think what we're looking at are a number of different potential transactions. Clearly during the course of selling the primary care portfolio and, indeed, as part of the Amarin Development disposal process, interest was expressed in certain of the other assets, either through strategic collaborations or indeed outright sales of those assets. I would say that clearly a strategic collaboration around Zelapar is something that is being considered and discussed, but I think in general what we've decided to do is to get SG Cowen as our advisors to assist us in maximizing shareholder value in that process. So I think the key driver is really the nature and structure of the transactions that are under discussion. In terms of the value that can be ascribed to the primary care portfolio, I would prefer to put that to one side, to be frank. Disclosure of our kind of value range would actually prejudice some of the discussions that are currently ongoing. So I don't wish to be obstructive but I think if we were to discuss that it would cause us some difficulties in the overall negotiation.

Just a follow-up. Are you considering either an equity or a convertible type of filing instead of the sales, or have you considered it?

We have considered it, but I think that where we are at the present time, in terms of some of the discussions that are ongoing, they would be a potentially better route to maximizing shareholder value than an equity offering or some type of debt offering at this point.

Thanks.

Thank you. Our next question is coming from Keith Hislap, a private investor. Please go ahead with your question.

Rick, I'm wondering if you have any offers on the assets for sale and what the likely timing would be on those.

What I'm prepared to say is that we have, as I said on the last question, we've had a number of discussions and negotiations around a variety of the assets. And the key really is to ensure that we maximize the value of those assets through the sale process. So I think that one of the reasons we have requested the extension from Elan is, quite simply, that we want to make sure that we've got the time to maximize the value that we receive from the assets.

Thank you.

Thank you. Once again if you do have a question, please press the number 1, followed by 4 on your telephone keypad at this time. Our next question is coming from Joan Ank of BGI. Please go ahead with your question.

Hi, good morning, folks. I have a question about Elan, which has been such an overhang for the company for so long now. Is it fair to say that it's feasible that the company will be paying the debt to Elan in the first quarter of next year to reduce this overhang, and then what, once this debt is paid, what are your plans beyond that, Rick?

Joan, it is our intention to pay off the Elan financial obligations as soon as we possibly can. It is dependent entirely on the timing of the closing these asset disposals. I think once that event has taken place, singular focus is on getting Zelapar approved. As we go through that process we will initiate these two studies as soon as we can and then look towards a submission to the FDA, I would guess, sometime late in the second quarter with a anticipated approval late in the fourth quarter. So I think efforts and resources are going to be entirely focused on that objective. Having said that, I think in the intervening time, once we have fixed our balance sheet, clearly fixing our trading is a major priority. I think what we would look to do is to identify selected co-promotion opportunities in order to leverage the benefit that we've got from our neurology sales force, both through their relationships with neurologists and also, I think, with the reputation that they've already established. For the moment, we are putting new pipeline products into our bag, so to speak, is something that we would evaluate on a very selective base, but to be perfectly honest, our focus is getting Zelapar approved, and to the extent that it's possible, to leverage that sales force.

Thanks for the explanation, Rick.

Once again, if you do have a question you may press the number 1 followed by 4 on your telephone keypad at this time. There appear to be no further questions. I'll turn the floor back over to you for any further remarks.

I'd like to thank you for joining us. We look forward to updating you on progress, both on the fourth quarter and for the full year. Thank you very much.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.