Amarin Corporation PLC (AMRN) 2003 Q4 法說會逐字稿

Good morning. My name is Jonathan, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Amarin Corporation fourth quarter 2003 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Mr. Stewart, you may begin your conference.

Thank you Jonathan. Good morning. This is Rick Stewart, Chief Executive Officer of Amarin. I would like to welcome you to our fourth quarter and full-year 2003 earnings conference call. With me today is Ian Garland. As a reminder this call may contain forward-looking statements that are subject to inherent risks and uncertainty. For more information I refer you to the Safe Harbor statement on our Web site and to Amarin's Form 20-F on file with the SEC. The fourth quarter and full year results released today bring closure to a very difficult year for the company. Amarin faced serious challenges in 2003, which required management to take action in order to secure the future of the company. A combination of generic competition to Permax, delays in both Zelapar for Parkinson's, and LAX-101 for Huntington's Disease, plus inventory destocking at the wholesalers, and high indebtedness caused a situation which threatened the viability of the company. Management took decisive action during the year to address these issues by a significant restructuring program involving the sale of Amarin development for $15m and subsequent to year-end the sale of Amarin Pharmaceuticals to Valeant Pharmaceuticals International for total consideration of $46m.

As we reported on 26 February, 2004 the consequence of these actions was the ability to settle our debt obligations to Elan, which incidentally was $76.5m at the beginning of 2003, and have been reduced to $35.4m by year-end 2003. Additionally, we were able to monetize an asset in the form of Amarin Pharmaceuticals, which would have been a significant cash drain on the company until Zelapar was approved. We now have a simplified financial structure with a clean balance sheet, we have one product due to enter Phase III clinical trials in the US later this year, and a strong reputation in the US neurology community. I will talk in more detail about our future strategy when Ian has reviewed the fourth quarter and full year numbers in more detail.

Thanks Rick. As Rick has already indicated, the fourth quarter and year-end results reported today reflect the end of a difficult year for Amarin, and one dominated by the impact of high wholesaler inventories, competition to our largest product Permax, and our highly leveraged balance sheet. Before I take you through the highlights of the financial results, I'll first explain the format of the selected financial data released today. Under UK GAAP, the disposal of Amarin Development during the quarter and Amarin Pharmaceuticals subsequent to the year-end are both treated as discontinued activities. All income statement line items are split between continuing and discontinued activities for both the current quarter and year, and the comparatives have been restated also. As you would have seen from the results announcements, further provisions for returns and inventory losses have been made in the fourth quarter as we have gathered greater in-market inventory and demand data. This has impacted both the Primary Care portfolio and Permax. In total, charges of $8m were taken in the fourth quarter of which $4.5m was against revenue and $3.5m was in cost of goods. Permax accounts for $5.6m of these charges and the balance $2.4m relates to Primary Care. Also impacting fourth quarter 2003 revenues, we saw further reductions in wholesaler inventory levels across our product range compared to the same quarter in 2002. In-market demand for Permax in the fourth quarter 2003 as shown by total prescriptions was down 67% compared to the same quarter of 2002. This was due to continued decline in pergolide share of the dopamine agonists market and the loss of prescriptions to generic pergolide. Revenues from Amarin Development have been included through the date of sale October 28, 2003 compared to the whole of the fourth quarter 2002. The gross margin for the fourth quarter is dominated by the charges for inventory losses as I've already explained. Prior to these charges the gross margin was 61% for the fourth quarter 2003, as compared to 59% for the fourth quarter 2002, the slight increase represents the benefit of reduced discounting of sales in the fourth quarter of the current year.

As Rick already mentioned, on 26 February we announced the sale of Amarin Pharmaceuticals, and our US product portfolio including Zelapar, but excluding LAX-101. That represented the conclusion of an asset divestment program that has seen the sale of Amarin Developments earlier in the quarter. In the fourth quarter we have recognized the gain on disposal of Amarin Development of $11.4m, which was slightly higher than the estimate of $10m that I announced in the third quarter conference call. In light of the proceeds realized post year-end on the sale to Valeant, we have incurred further impairment charges in the fourth quarter of 2003, all of $10.1m, and that comprises Permax, which was written down by a further $9.4m to $17.6m, and also the Primary Care portfolio, which was written down by $0.7m to $10m. The fourth quarter 2002 also included impairment charges of $38.9m of which $38.4m related to Permax and that followed the approval of a generic pergolide competitor. Other operating expenses in the fourth quarter of 2003 are favorable to the same quarter of 2002 primarily because of the Amarin Development sale with effect October 28, reductions in amortization following that 2002 impairment charge to Permax, and also as a result of cost reductions that we implemented to account of the poor trading outlook for 2003. The fourth quarter 2003 tax line benefits from the creation of a deferred taxed asset of $7.5m, which arises on historical timing differences. This deferred taxed asset has been recognized, as it will be realized in 2004 against the gain that arises on settlement of the Elan debts and deferred consideration obligations. For the quarter, the resulting net loss was $4.4m, and that compares to a net loss of $42.8m in the same period of 2002. The 2002 fourth quarter loss benefited from a foreign exchange gain of $2.1m. There was no material foreign exchange difference in the fourth quarter 2003. The fourth quarter loss per ADS was $0.25 and that compares to a net loss per ADS of $4.60 in the same period of 2002. Basic weighted average shares rose to 17,940,000 in the fourth quarter 2003 from 9,297,000 in the fourth quarter of last year because of the full impact of shares issued in the January private placements and conversion of 2m preference shares in February 2003, both of which were highlighted in the first quarter conference call. Below the income statement is the summary of the year-end group balance sheet, this shows total assets of $47.4m and cash from receivables totaling $4.4m. That balance sheet however does not reflect the impact of the sales to Valeant post year-end or the settlement of obligations to Elan.

As Rick mentioned, the disposal program raised $51.5m in cash, and that enabled us to restructure and settle our debt and deferred consideration obligations with Elan. In December 2003, following the sale of Amarin Developments, we paid $11.1m to Elan in part settlement, and on February 25, we paid a further $17.2m in cash and issued a $5m 8% five-year loan note in final settlements of all outstanding obligations. Included in the press release is a pro forma balance sheet. This has been included to provide a view of the impact of the sale of API and the US products to Valeant, and also the settlement with Elan. This pro forma indicates that once the contractual obligations to Valeant have been met, the approved balance sheet would comprise fixed assets of approximately $4.4m of which LAX-101 represents substantially all of the carrying value, net current assets of approximately $3.8m which includes approximately $6m in cash, a long-term loan due to Elan of $5m as already mentioned, and net assets of approximately $3m. Finally, and is normal in a disposal, the sale of Valeant includes the closing balance sheet mechanism with the potential adjustment up or down with the purchase price, the changes in that has that. This process has not been completed at the time of finalizing our results, and consequently that pro forma balance sheet does not reflect any potential adjustments that may arise. One area of known contention in this process is going to relate to in-market inventories and their impact on provisions. And subsequent to the closing of the sale to Valeant, previously unknown inventory at a key wholesaler came to light, and we are in discussions with Valeant as to how this matter should be dealt with. I will now hand you back to Rick.

Thanks, Ian. Our task as management is to restore shareholder value, and to maximize the potential of our key current asset, which is LAX-101 for Huntington's disease. Despite the disappointment of the need for an additional Phase III clinical trial, which we announced last year, and the resulting delays in getting the compound to market, we have been reassured by the statistically significant results in the protocol patient group of the initial study. Further analysis has been conducted by our developer Laxdale which has given an increased priority about the patient response. These findings have been incorporated into the plans for the additional study. The intention is to commence a significantly larger Phase III study in the latter half of this year. Subject to final of the FDA, a 420 plus patient multi-site study is in the latest stages of planning. We will update you as progress is made.

Our future strategy is to concentrate on developing a pipeline of high quality neuroscience compounds. Our goal is to ultimately commercialize products in the US, which are targeted at the small physician populations, which can be serviced by a small sales force. We will see co-marketing collaborations for products with a wider market audience in the Primary Care sector. We will carefully evaluate product development opportunities balancing risks and cost associated with new chemical entities with the development of improved outcome formulations of existing drugs. Additionally, we will seek to in-license or acquire promising high value added compounds where available. In many respects, Amarin's strategy remains unchanged with a focus on developing compounds in smaller diseases such as Huntington's and Parkinson's, which attract less direct competition and where we are able to potentially establish a leadership position on commercialization. In certain circumstances, Amarin may seek development and marketing collaborations where the market opportunity is larger than our capabilities, potential requiring a Primary Care sales force, or where the opportunity is outside our direct area of expertise in neurology. Finally, I would like to thank the management team for their dedication and commitment during a difficult year, and to our shareholders who have expressed their continuing support and enthusiasm for our strategy. The management team will now take questions. Jonathan if you could open up the lines.

At this time I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. And your first question comes from Don Gher.

Hi Rick. Couple of things to follow-up on one, what assets are left besides LAX-101? And also, what is the size of the sales force that's currently left?

Actually Don, LAX-101 is the key asset that we have. Other than that it is largely a matter of our infrastructure here in London. So, yeah, LAX-101 is the key infrastructure. The sales force actually was part of the transaction with Valeant. So, they actually are now Valeant employees.

Okay. So, if indeed you do go further to look at marketing you are going to have to start a new sales force? Is that --?

That's correct.

Okay. And then who is left on the management team besides you and Ian here?

Well, in London we have Van coming in who is responsible for strategic development, and John Lamb who is our General Counsel. So, as part of our overall strategy as we look to in-license and develop new compounds we will be strengthening that management team with a scientific base.

And on LAX-101, when you are saying latter part of the year, is there any more clarity on that, and also what's the length of the trial that you anticipate?

Okay. Our expectation is that -- I was using my words carefully, frankly, Don, it is subject to the FDA agreeing to the protocol, our expectation is that we would -- sometime probably late Q3, perhaps early Q4, we believe this study will start. The trial will be approximately 12 months.

And have people who were in the original trial, have any remained on the compound?

Yes, absolutely. In fact, what has happened is, there's been an open-label study which has been ongoing since the end of that trial. Those on placebo actually switched to active. I need to get my numbers right. But of the 121 patients who were eligible to go on to an open-label Study, a 120 actually did.

And finally, I didn't hear this, I might have missed the burn rate quarterly or monthly?

The burn rate is down to $1m a quarter approximately.

Okay, great. Thank you.

Thanks Don.

Your next question is from Joan .

Good morning everyone. Rick, my questions are basically about LAX-101. Can you give us an update on that, the Phase III study? And I have a couple of other questions about LAX, if you wouldn't mind taking multiple questions.

Sure. LAX-101, the state of the study right now, the protocol is at an advanced stage of development. Discussions have taken place with the investigators and we, Laxdale, our developer intends to take it to the FDA in the very near future, just for a final discussion prior to the commencement of the study. What Laxdale want to make sure as do we is that the protocol will actually meet the requirements of the FDA, particularly given that it's such a significantly larger patient group that we are dealing with.

Can you just remind us, perhaps, or remind me, how does it treat the disease specifically?

The mode of action is still in the process of being determined, but the belief is that this is a mitochondrial cell membrane stabilizer, which effectively slows the disease progression. What we have seen certainly in the Phase II study was some element of disease or the symptomlogy regression. I think we are all more comfortable in saying that actually certainly in the Phase III study there was evidence that that was the case. But at least we will have more of those patients who were actually on the active who have stabilized, another in the course of the study, but even into the open-label study.

Can I ask one last question Rick, what's going on with LAX-101 in Europe?

LAX-101, this is with respect to our discussions with Laxdale, first of all, we do not have any rights to LAX-101 in Europe. But our understanding is that the drug was actually filed with the European authorities in June of last year and is currently under review. Other than that we have no further information.

Thanks.

Your next question is from .

Rick, just wondering if you could answer couple of questions related to future strategy. You know, throughout the year you know we followed Amarin and the sale of Amarin. So, pharmaceutical seems like a good deal. But going forward I was just wondering how your are going to source these compounds you talked about earlier?

Really, the compounds fit into two categories. The first which I would call new chemical entities where quite frankly in-licensing some of these compounds can be very expensive. It depends on the motivation of the developer and what exactly that they are looking to financially obtain from the transaction. But I would see a combination going forward of very, very selected new chemical entities. Clearly, when you have a significant period of patent protection from the launch of a new chemical entity, they are potentially ten years, that's a very attractive proposition. We also want to counterbalance the cost and the risk associated with new chemical entities with the development of a series of improved outcome products, and I think Zelapar was very good example of an improved outcome product. With a new formulation of selegiline there is a real potential for that product to be quite a significant opportunity. So, we would look for opportunities where existing drugs, where the toxicity and actually the proven benefit of the product in the market has been established, probably coming towards the end of that or a generic. There are opportunities there to reformulate them and to build a reasonably substantial revenue stream from them. So, we would look to other developers with the capability of enhancing those drugs.

And then maybe a follow-up question. How would you anticipate they are paying for those?

Well I think, we'd have to evaluate each one on their merits, and that is, in a sense that's why we want this split profile of the products NCEs are typically more expensive, more risky, longer to take to market and you have to evaluate what I was to call a funding process, which was associated with success milestones. On the other hand the improved outcome products tend to be lower risk, some what cheaper, but you're still talking, somewhere in the range of three years to actually get into market. So, we want to balance that risk and I think we'll take it on a case-by-case basis, given the opportunity in the market.

Okay. When would you anticipate us hearing anything from a timing perspective?

Well, we are in the process of evaluating product opportunities as we speak and indeed we're potentially beyond just a straightforward in-licensing. We have been evaluating opportunities to acquire small development companies or indeed now look at major partners potentially as well. So, that process is ongoing. I wouldn't like to give you a specific timeframe for when you're likely to hear anything, but all I can assure you is that on multiple levels those evaluations are taking place and with a very clear objective of ensuring that we restore shareholder value.

Thank you.

At this time I would like to remind everyone in order to ask a question, please press start then the number one on your telephone keypad. And sir, you have a follow-up from Keith.

Rick if I could maybe just one more question, I've noticed that several pharmaceuticals companies are virtual pharmaceutical companies that really had some substantial fund raising, really with no products in their portfolios, I was wondering if Amarin is looking at something like that?

I have to say on the magnitude of some of these fund raisings, I think there was one recently in the last couple of days, Jazz Pharmaceuticals raised $250m. Certainly that is not our intention to raise that order of magnitude. But it is interesting that the market window is apparently open, and we would look at -- if we have an acquisition opportunity or a funding opportunity, again we will clearly look to the market to do that. But I think it is encouraging that the window does seem to be open for the right story.

Thank you.

You have another follow-up question from Don Gher.

Rick, given there is still substantial holding by Elan, and the additional $5m loan, were there discussions that were taking place during the recent sales of Elan actually coming in and taking out the rest of Amarin? Is there an interest in LAX-101, I guess, is the real question from their side?

There was no specific discussion along those lines, because I think to be exactly honest, at that time Don they had not completed their disposal program. I think what they were focused on doing was ensuring they completed their program. I think that as far as we are concerned we've always maintained our independence, and I think the importance going forward for us is to kind of power our own roots going forward. We have an agreement with Elan that if there is an appropriate opportunity and Elan will gain the right value for it that they will be prepared to sell our stake. But it is not contemplated, it is not planned. But I think as far as we are concerned we are an independent company, and we want to move forward.

Thanks.

At this time there are no further question sir.

Well, I'd like to thank you all for joining us, and we look forward to updating you with progress throughout this year. Thank you very much.

This concludes the Amarin Corporation fourth quarter 2003 earnings conference call. You may now disconnect.