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Amarin Corporation plc Message Board

  • jesse.livermore jesse.livermore Sep 19, 2012 9:24 AM Flag

    AMRN's Finances...

    Many of you are under the impression that AMRN is under some financial pressure and this pressure will force them either to dilute the stock, or require them to sell to a BP...The reasoning goes even though they have over $250mil in the bank, the have a similar amount in long term debt( LT) and their burn rate has been in the tens of millions for the last few quarters...Buffett says LT debt and high burn rates can be a bad thing, but Buffett also says...Understand what you are looking at when you read financials.

    AMRN's LT debt is almost entirely related to accounting practices concerning warrants and the convertible notes issued in Jan of this year...The same for the burn rate...It goes like this...AMRN still has over 10mil warrants still outstanding...The warrants allow the holders, (the 3 VCs and some insiders) to purchase shares of AMRN from the issuer, AMRN . Most of the warrants are at $1.50. This means AMRN would have to sell shares currently trading at about $14 to these holders for $1.50. From a balance sheet standpoint this difference is carried as a debt...so as the PPS of AMRN goes up, the LT debt goes up...The assumption being that AMRN would have to buy these shares in the market, The reality is they will "issue them"...So what really happens is AMRN will make $15mil from the warrants and "owe" $135mil; as the balance sheet suggests....This is also cause the startling escalation in the burn rate...as the rising PPS creates artificial quarterly losses...

    The same rule hold on the convertible notes, although the situation is much more complicated. In essence since the notes are convertible the ADRs (Common), once again as the PPS goes up the result is an increase on the balance sheet, because theoretically the company owes them share value.

    My advice...They have $250 mil in the bank and other than the 3.5% on the unconverted notes, they don't owe nobody nothin....Teir burn rate is small enough even counting $20mil/yr for REDUCE-ITY to last another 3-4 years without any more money...And they will begin to be a revenue producing company next year...

    All good news...

    ": ) JL

    Sentiment: Strong Buy

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    • This explanation is as good as one can get to in "Enron" accounting.
      It will require more correction on correction on correction........

      Convertible debt has a huge cost. That is called "dilution". The CB holders will get 100mm shares at $1.50 at conversion as the company pays off for $150mm in CB debt. That comes out of you and I, the existing shareholders. At $14, at today's price, they will have to issue only 10.7mm shares to raise the same amount. The debt goes away only at the conversion that should take place after 2017. So this is real money that the company owes until the conversion happens.

      By issuing CBs, AMRN gets money at 3.5% and they only repay the debt through conversion. The holders get a boat load of shares at $1.50. You see there is no free lunch here and "nobody owes anything" is not true.

      Now let's look at the cash. AMRN had $116mm in cash at the beginning of the year. They received $144mm from the CBs after the fees/expenses and were sitting on $250mm in cash at 3/31/12. In the second qtr ended June 30, 2012, they spent $14mm in sales and admin expenses and another $14mm in R&D expenses ("reduce it" has not even started as yet). That means at the current run rate, they will need $28mm per quarter just to manage the shop. That is over $100mm in real cash per annum.

      Of course, once they start selling Vascepa, based on the cost of production and additional sales expenses, they will generate positive cash, hopefully.

      Look AMRN's last year 10K. It says unless AMRN enters into a strategic collaboration to support the launch, we may need to raise additional capital to support these efforts.

      With outside support or not a new product launch requires a lot of money. The estimates I have seen so far are close to $300mm (NM please comment on this).

      The bottom-line is AMRN will have to raise money if they were to "go-alone". They will have to raise this money at a much lower stock price as the going alone/dilution will lead to a huge dip in stock price. It is the HOPE of a buyout that keeps this stock at the current price level of $14, in my view.

    • very interesting read, as usual!

      my take: it's not because the company can that it will go it alone. (but again: I am a complete rookie in the the field). I have been lucky enough to see what C level people did to their company to maximize their short term gains. some prefer to sell and move on to the next one (or take a sabbatical) instead of taking the long road to success, which sometimes lead to failure...

      By the way: I didnt know that warrants were treated as liabilities in the #$%$ Do you ahve some good material or website you used to train yourself at looking at such things?

      I do not understand why the burn rate would vary though...

      Again: thanks for contributing such a good piece Jesse!

      Sentiment: Buy

      • 1 Reply to choubix
      • chou..

        The price of the warrants and notes show up on the income statement. A quarter ago the income statement showed AMRN losing some $88mil this is despite much smaller operational costs and the fact they had not bought anything...This was from investing activities, ie the warrants and notes...This is what the the posters were throwing in as high burn rates...But take note of the fact this had little or no effect on their cash position...

        Can not recommend a book, just got to keep your mind active when things do not seem to be lining up right...Also IMHO the notion they will need huge cash infusions to launch is flawed...with the internet, outsourcing and processing companies ramping up...AMRN will have more than enough to get through the next few years...

        ": ) JL

        Sentiment: Strong Buy

    • This is helpful. Thanks for taking the time to write.

      Sentiment: Strong Buy

    • Estimates for major product launch are between 200 and 300 million dollars so they will need to raise money most likely if they go it alone. They will use a third party so hard to say how much that takes off launch cost but I do think they will need to raise money to launch though unclear whether they could go a non-dilution route or not. Dilution is usually the preferred method since it does not need to be paid back but if they think sales will ramp up immediately they could do a non-dilutive financing and pay it all off within the first year possibly.
      Realistically they have use of quite a bit of cash but most companies launching a major drug would want more cushion than they currently have.

      • 1 Reply to ktsven
      • You are right--WW launch could be costly if done by Amarin.
        Amylin limited Launch to USA because of costs.(Now BMY,AZN will share the launch in Rest of World).
        However--they can get advanced cash payment from some company who shares in launching in OUTSIDE USA.
        This is done in many deals. Yes-the Company launching abroad must have CASH. There are many co. in Europe/UK who have lot of CASH.

    • correction paragraph one...

      AMRN will make 415mil from the warrants and NOT "owe" 135mil as the balance sheet suggests.

 
AMRN
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