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Edited Transcript of AMRN earnings conference call or presentation 3-May-17 12:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Amarin Corporation PLC Earnings Call

Dublin May 8, 2017 (Thomson StreetEvents) -- Edited Transcript of Amarin Corporation PLC earnings conference call or presentation Wednesday, May 3, 2017 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aaron D. Berg

Amarin Corporation plc - SVP of Marketing & Sales

* Elisabeth Schwartz

* John F. Thero

Amarin Corporation plc - CEO, President and Director

* Michael W. Kalb

Amarin Corporation plc - CFO and SVP

* Steven B. Ketchum

Amarin Corporation plc - Chief Scientific Officer, President of Research & Development and SVP

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Conference Call Participants

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* Chiara Russo

Cantor Fitzgerald & Co., Research Division - Analyst

* Joel Lawrence Beatty

Citigroup Inc, Research Division - VP and Analyst

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Presentation

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Operator [1]

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Welcome to Amarin Corporation's conference call to discuss its financial and operating results for the first quarter of 2017. This conference call is being recorded today, May 3, 2017.

I would now like to turn the conference over to Elisabeth Schwartz of Amarin.

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Elisabeth Schwartz, [2]

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Thank you all for joining us today. Please be aware that this conference call will contain forward-looking statements that are intended to be covered under the safe harbor provided by the Private Securities Litigation Reform Act. Examples of such statements include, but are not limited to, our current expectations regarding our commercial and financial performance, including levels of Vascepa prescriptions and wholesaler inventories; Vascepa product and licensing revenues; costs and other commercial metrics; gross margin; expenditures and the adequacy of our financial resources; our current expectations regarding our cardiovascular outcome study, such as timing of interim analysis, study completion, regulatory review and likelihood of success; our plans in preparation for expanded promotion of Vascepa and related market positioning and potential; our plans to purchase additional supply of Vascepa; our goals regarding the timing and scope of international expansion and our current expectations regarding the effect of our co-promotion agreement on our business.

These statements are based on information available to us today, May 3, 2017. We may not actually achieve our goals, carry out our plans or intentions or meet the expectations disclosed in our forward-looking statements. Actual results or events could differ materially, so you should not place undue reliance on these statements.

We assume no obligation to update these statements as circumstances change. Our forward-looking statements do not reflect the potential impact of significant transactions we may enter into, such as mergers, acquisitions, dispositions, joint ventures or any material agreements that we may enter into, amend or terminate.

For additional information concerning the factors that could cause actual results to differ materially, please see the Forward-looking Statement section in today's press release and the Risk Factors section of our quarterly report on Form 10-Q for the 3 months ended March 31, 2017. These documents will be filed with the SEC and will be available through the Investor Relations section of our website at www.amarincorp.com. We encourage everyone to read these documents. This call is intended for investors in Amarin and is not intended to promote the use of Vascepa outside of its approved indication.

Please note that we are also providing slides to accompany this morning's call. These slides, which can be found on our website, www.amarincorp.com, in the Investor Relations section under the subcategory Events and Presentations, summarize some of the key updates discussed on today's call. Finally, an archive of this call will be posted on the Amarin website, again, in the Investor Relations section.

I'll now turn the call over to John Thero, President and Chief Executive Officer of Amarin.

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John F. Thero, Amarin Corporation plc - CEO, President and Director [3]

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Thank you, Elizabeth, and good morning, everyone. I recently met with an investor, who ended our discussion with a comment that Amarin keeps on positively executing in a manner, which, in his words, is sometimes boring, but is clearly creating value. He urged that we keep it up. I reminded this investor that we won't be quiet for long as completion of our landmark clinical outcome study is drawing near.

We've had a tremendous series of scientific publications based upon our Phase III studies, and imagine even broader publications based upon REDUCE-IT, assuming that the results are consistent with our expectations. He assured me that he will be sustained until that time by our growing existing commercial business, which he believed, alone supports our current valuation with little, if any, value given for the tremendous potential upside of REDUCE-IT.

While my conversation with that investor ended at that point, I want you to be assured that while we're giving priority to positive execution, we're also preparing for greater visibility. This preparation is occurring on a number of levels. For example, our medical affairs team is actively engaging key opinion leaders regarding the position of the REDUCE-IT study. This is evidenced by the recently published design paper entitled, The Rationale and design of REDUCE-IT: Reduction of Cardiovascular Events with Icosapent Ethyl-Intervention Trial. This paper was published on March 15 in Clinical Cardiology. A copy is available on Amarin's corporate website. The lead author on this paper is Dr. Deepak Bhatt, the principal investigator for this study.

The dedication of Dr. Bhatt and other authors to this paper is reflecting the fact that it was published within 9 months of our SPA amendment for the REDUCE-IT trial. This SPA amendment, which was previously described as a second interim look in multiple prespecified secondary and tertiary endpoints of the study, all of which was incorporated in the design paper. Another example of this increased visibility for REDUCE-IT is the increasing share of voice that the importance of triglyceride-lowering is getting in the wake of a series of failed HDL-C modification studies. Genetic studies and studies with EPA in Japan point to the value of triglyceride-lowering and the potential broad benefits associated with EPA. Clearly, the residual risk of cardiovascular events remains too high despite the standard of care of existing therapy.

This is true even in patients with well-controlled LDL cholesterol. On the LDL front, KOLs are debating the cost-effective value of PCSK9. In these debates, seemingly everyone agrees that lower is better for LDL, but question the costs and risks for achieving these results.

While Vascepa does not compete directly against LDL-lowering therapies, these discussions emphasize the need for therapy, such as Vascepa. Vascepa is orally administered, affordably priced, has no known drug to drug interactions and provides a broad range of improvement to levels of triglycerides and other lipids, lipoproteins and inflammation parameters as well as other markers associated with increased cardiovascular risk.

A successful result with REDUCE-IT would be a game-changer and disrupt current treatment practices to reduce cardiovascular risk, the leading cause of death in the United States.

In addition, the scientific community is increasingly focusing on the REDUCE-IT. Our commercial team is preparing for expansion following successful REDUCE-IT results. Our existing commercial team is inspired by the progress being made today around the increasing number of patients on Vascepa therapy. This enthusiastic team, which includes 139 sales representatives, has a scientific depth and passion to be the foundation for Amarin's continued commercial growth. We are also planning the infrastructure needs for rapid and effective expansion to approximately 400 to 500 sales reps following successful REDUCE-IT results.

Furthermore, we recently hired a head of consumer marketing. Today, most of our promotion has been direct to healthcare providers. Vascepa should become a consumer story, and we're increasingly preparing to make it so, particularly following REDUCE-IT results. The availability of REDUCE-IT results is growing near. We anticipate such results being available to us and publicly reported in Q2 or Q3 of next year.

With over 5 years of this landmark study completed, the end is in sight, and the opportunity continues to look large. Our ability to capitalize on such results will be aided by the fact that Vascepa already has a strong commercial history, with a positive safety record, strong managed-care reimbursement and consistently high quality supply.

2017 is off to a good start. Q1 has historically been our most difficult quarter due to industry challenges associated with beginning of the calendar year insurance deductibles for patients. These market dynamics cause patients at the beginning of the year not to fill prescriptions, particularly for therapies treating asymptomatic chronic conditions, like elevated triglyceride levels. We're excited that Q1 2017 marks the 13th consecutive quarter of generating greater than 50% growth in normalized prescriptions year-over-year as reported by independent companies, such as Symphony Health Solutions and IMS.

As the denominator gets larger, achieving this level of growth without expanding our sales team becomes more of an accomplishment, but also more of a challenge. It is a credit to our team that it was again achieved in Q1. Driven by prescription volume growth, product revenues also increased in Q1. Despite net product pricing increasing slightly in Q1 2017 compared to Q1 of last year, product revenues grew slower than prescription growth.

This delta appears to be due to timing of Vascepa purchases by independent wholesalers. Mike Cobb will describe the timing effect in more detail later in this call. You may recall that the timing of wholesaler purchases varied throughout 2016, such that in some quarters, purchases were below prescription levels, and in other quarters, they were above. Ultimately, the variability tends to balance out as it did for the full year in 2016.

Despite the lowering of on-hand inventory levels in aggregate by independent wholesalers, our reported product revenues in Q1 2017 increased 36% from Q1 2016. Gross margins increased to 76% in Q1 2017, and there were no major variations in expenses. This supported our lowering net cash outflows from operations, excluding R&D costs and financing-related costs in Q1 2017 to $1.4 million compared to $7.6 million a year ago.

This net cash flow in Q1 2017 excludes net proceeds of $13.7 million from our previously announced debt redemption in financing in January as well as interest and royalty. Overall, we believe that our Q1 results reflect positive execution. We reiterate that we anticipate achieving 2017 product revenues of between $155 million and $165 million.

Outside the United States, we received some positive news during the quarter from China. Regulatory authorities approved the clinical trial application for Vascepa made by our partner, Eddingpharm. We understand that other companies with omega-3 investigational products have applied previously, but encountered difficulties with approval in China. They were hindered by manufacturing quality and control or experienced delays in initiating the clinical trials. These attribute to the quality of Vascepa and the ability of the teams at Eddingpharm, Amarin and our suppliers that this approval was achieved. With this approval, our partner will move forward with planned clinical study of Vascepa in China, initially studying a patient population similar to the MARINE study in the United States.

We will strive to provide more information on the size and timing of the study after it's commenced. We believe that the omega-3 opportunity in China is large based upon the prevalence of hypertriglyceridemia, which is estimated to affect approximately 11.9% of adults in China. Our Mid East applications for clearance to market Vascepa are progressing. We will release more information on this timing once available.

Earlier I had mentioned that news flow from Amarin is likely to increase as we progress towards the completion of the REDUCE-IT cardiovascular outcome study. We estimate that in mid-March 2017, we reached the onset of approximately 80% of the target aggregate number of primary cardiovascular events in the REDUCE-IT study. Accordingly, we've triggered the 80% interim look process. While the timing of reaching 80% of the events was generally consistent with our expectations, it was slightly later than expected. When I say slightly, I mean weeks, not months. Being this close in our projection is not bad for a trial this large size and duration. This trend suggests that the final target event of the study may occur in early 2018, but we still anticipate that it will occur near the end of 2017. Again, this is not a big time shift given the overall size and duration of the study, and it does not change our expectation of having the results reported in mid-2018, but I mention it here for completeness.

The 80% interim look procedure has 3 primary steps.

The first is that our REDUCE-IT sites collect the information on each patient in the study and enter it into a database. This is a large task, as it involves efforts to meet with all 8,175 patients in this study, or more specifically, all of those who're still alive. Our study population is relatively sick and some patients have died. How many of those deaths are under placebo arm versus the Vascepa arm of the study is not known to us, but deaths in the study were expected, as these are high-risk patients. Collecting vital data on these patients requires a couple of months. The second step in the interim look process is that our study site coordination company scrubs and refiles the information for release to the independent data monitoring committee or DMC.

This is all done in a manner that is consistent with good clinical trial management, and Amarin remains blinded to the data throughout. The third step is that the DMC evaluates the interim data and makes a recommendation on whether to continue or end the study. Once we receive this recommendation, we will make it known publicly. We anticipate that the DMC will communicate its recommendation to us in Q3 2017 with regard to the interim look, after which we will promptly communicate the recommendation publicly.

As we've communicated in the past, we anticipate that the DMC will recommend that the study continued to completion. Our expectations are based upon the history of most cardiovascular outcome studies, the design of this study and the practical consideration that the DMC's interim look will be within approximately 6 months of the onset of the final target event.

Given the high importance of this study, the large size of the population with elevated triglycerides and the multiple high thresholds for stopping this study early for overwhelming efficacy, we expect that this study will run to completion.

As discussed previously, this 80% interim look has several helpful purposes. One is that it forces all data entry into the study database and for all the database data to be scrubbed. It also helps us to maintain contact between clinical sites and patients, as this is particularly important in long-term studies.

Thirdly, it tests processes and allows efficiencies to be refined to help ensure that at the end of the study, the trial is wrapped up efficiently.

I'm surrounded today by various members of Amarin's team. You haven't heard recently from Steve Ketchum, our Chief Scientific Officer. I'll now ask Steve to say a few words about our preparation for the completion of the REDUCE-IT study, outlook for success and market observations. Steve?

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Steven B. Ketchum, Amarin Corporation plc - Chief Scientific Officer, President of Research & Development and SVP [4]

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Thank you, John. As we prepare for the end of the REDUCE-IT study, the 80% interim look should be a good forcing function to ensure that systems are working. It will also ensure that the DMC members have all the information they need to rapidly and effectively evaluate the interim data from this large study.

The interim look is progressing, and I'm convinced that the efficacy and safety data will be ready for DMC review and recommendation before the end of Q3. Consistent with the views expressed by John, I believe that the trial will run to completion, with results available to report in mid-2018. We and the Clinical Research Organization, inVentiv Health are continuing to be diligent and vigilant in every aspect of the study to keep it on track to demonstrate the successful result we expect.

The study is being conducted in 11 countries at approximately 450 clinical sites, such that the magnitude of this effort is immense, with many complexities associated with a long-duration multinational study. Our team has completed scores of site visits to maximize the likelihood of a robust clinical result. These site visits help ensure that common long-term study challenges such as adherence to the study protocol, participant nutrition and data collection quality meet our high expectations. For avoidance of doubt, REDUCE-IT study team representatives do not meet with patients during site visits and do not know which patients are on placebo versus Vascepa to maintain the blind. The 80% interim look also serves as an additional contact point for clinical sites with their patients. We are nearing the end of the study, and we need to be vigilant and encouraging participation and compliance throughout the study for all patients. I mention this process here to give you a sense of our current focus.

After REDUCE-IT is complete, assuming the results of the study are successful, we will pursue steps to facilitate promotion of the results as promptly as possible. The FDA is interested in the results of this study. As the first study of any therapy in the population being studied in REDUCE-IT, we anticipate that the FDA will have an advisory committee meeting to review results that we submit. The timelines and details for submissions by Amarin and for FDA review will be more clearly defined after we have REDUCE-IT results.

Currently, we anticipate that this will be a standard review under PDUFA by the FDA. In the past, I have described the broad epidemiological, genetic and clinical data, which gives us confidence that REDUCE-IT is a well-designed study, with a high likelihood of succeeding. The science of omega-3 and lipid management is complex. We have a strong scientific team that, together with our collaborators, are regularly assessing relevant scientific factors. We are exceedingly proud that we have published or supported the publication of over 100 papers and presentations over the past 5 years and are continuing to prepare and publish others.

Some people ask us what we have learned from the FOURIER trial of PCSK9 therapy. One thing we have learned is that of all outcome studies conducted to date of add-ons to statin therapy, the results of EPA studied in JELIS continue to have the greatest reported relative risk reduction at 19%.

This is particularly noteworthy as the population studied in JELIS was a relatively lower-risk population. Further, FOURIER confirmed that there are risks associated with potentially conducting an outcome study over too short a span of time. Just as the method in which lipids are modified is important, the time frame over which a study is conducted is also important. As for example, it typically takes longer to accumulate more cardiovascular events in the study. While we can appreciate why FOURIER was conducted over a shorter time frame than REDUCE-IT, we believe that the duration of REDUCE-IT is more appropriate and will support a robust result. Furthermore, we believe that the study results for FOURIER confirmed both that lower is better for LDL-C levels and that controlling LDL-C alone is not enough to completely mitigate cardiovascular risk.

It is notable that after 2 decades of strong focus on LDL-C control, that the total number of deaths from cardiovascular disease is again rising. The American Heart Association estimates that the cost of treating heart disease will exceed $1 trillion in the U.S. alone within 2 decades. We believe that Vascepa can help to lower the total number of deaths and lower the cost of care by lowering the rate of adverse cardiovascular events in patients with high triglyceride levels.

We look forward to demonstrating this in REDUCE-IT, and we are excited that we are nearing the end of this important study. I hope that these comments are helpful. I now turn things over to our CFO to discuss our financial results. Mike?

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Michael W. Kalb, Amarin Corporation plc - CFO and SVP [5]

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Thank you, Steve. The first quarter of 2017 resulted in strong growth over the corresponding quarter of the prior year. During the first quarter of 2017, Amarin's net product revenue was $34.3 million, representing an increase of 36% over the first quarter of 2016. The core driver of our Q1 '17 over Q1 '16 increase in net product revenue was continued growth in new and recurrent Vascepa prescriptions.

As John mentioned, prescriptions have grown by greater than 50% based on Symphony Health Solutions and IMS Health data. This growth was supported by managed care coverage, which was broad in 2016 and expanded slightly at the start of 2017.

Most of the increase in revenues was volume-driven, although net product pricing increased slightly over corresponding net product pricing in Q1 2016. During the first quarter of 2017, wholesaler inventory levels decreased from year-end 2016 levels calculated based on estimated days of Vascepa sales on hand. We estimate that this decrease in inventory levels adversely impacted net product revenue by approximately $2.8 million to $3.1 million for the first quarter of 2017 compared to adversely impacting Q1 2016 by approximately $1.2 million to $1.5 million.

We believe that changes in channel inventory at these independent wholesalers and retail pharmacies are common and are impacted by numerous factors, including holiday timing and recent order trends. We also believe, based on information available to us, that channel inventory levels at the end of the first quarters of 2017 and 2016 are within ordinary ranges.

In addition to product revenue, we recognized licensing revenue of $300,000 in Q1 2017. Such licensing revenues relate to agreements for the commercialization of Vascepa outside the United States. Most of this licensing revenue came from amortization of the initial $15 million we received upon entering into our agreement with Eddingpharm for China.

Gross margin from product revenues improved to 76% in the first quarter of 2017. This compares favorably to the 73% in the first quarter of 2016. This improvement was driven primarily by lower costs, particularly lower costs for producing our active pharmaceutical ingredient. Selling, general and administrative, or SG&A, expenses for Q1 2017 and 2016 were $34.2 million and $28 million, respectively. The increase in SG&A expenses primarily reflects an increase in sales and marketing expenses, legal costs and co-promotion fees accrued under contract with Kowa Pharmaceuticals America, Inc.

The co-promotion fee is calculated based on gross margin on Vascepa product sales. The increase in co-promotion fees primarily reflects an increase during Q1 2017 compared to Q1 2016 in gross margin on product sales. Research and development expenses for Q1 2017 and 2016 were $10.8 million and $13.7 million, respectively. This decrease was primarily driven by timing of REDUCE-IT expenses. Amarin reported cash and cash equivalents of $96.1 million as of March 31, 2017.

As of March 31, 2017, the company also had $29.5 million in net accounts receivable, which is $34.5 million in gross accounts receivable before allowances and reserves and $23.9 million in inventory. Our net cash flow continues to be variable from quarter to quarter, but on track towards our guidance of achieving cash flow-positive commercial operations for 2017 taken as a whole, excluding research and development as well as interest, royalty and other finance-related costs.

In Q1 2017, calculated on this basis, our net cash outflow was $1.4 million. During the quarter, we had approximately $10.4 million in net cash outflows from research and development. We separate this amount, because this level of spending should significantly decline after completion of the REDUCE-IT study. Also in the quarter, we paid an aggregate of approximately $4.1 million in royalties and interest, offset by $13.7 million in net proceeds from the debt transactions we announced in January. Overall, from a year ago to today, the phasing out of our outstanding exchangeable debt has declined from $165 million to $30 million, with all of the remaining debt classified as long term as the first put date on such debt is approximately 5 years away.

As of March 31, 2017, Amarin had approximately 270.7 million American Depository Shares, or ADSs, and ordinary shares outstanding, 32.8 million share equivalents of Series A Convertible Preferred Shares outstanding, and approximately 23.5 million equivalent shares underlying stock options at a weighted average exercise price of $3.25 as well as 9.8 million equivalent shares underlying restricted or deferred stock units.

I will now turn the call over to John Thero for closing remarks.

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John F. Thero, Amarin Corporation plc - CEO, President and Director [6]

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Thank you, Mike. Before closing, I want to thank our employees and collaborators for your contributions. I also want to thank our shareholders for your support. If you are a current shareholder in Amarin, please note that we recently issued our proxy statement for our upcoming Annual General Meeting, which proxy statement should have been delivered to you by whatever means or methods you've elected with your brokerage firm. Thus far, voting has been overwhelmingly positive. For those of you who've already voted, thank you for your support. For those of you who have not yet voted, I hope that I can count on you for your support for these resolutions proposed in the proxy statement. These proposals, as described more fully in the proxy statement, are intended to ensure that Amarin is competitively positioned for the future. As noted in our proxy statement, Amarin's progress in 2016 was considerable. This progress continued in Q1 of 2017. I look forward to updating you on Amarin's further progress this year.

With that, we conclude our prepared comments, and would like to open the line for some questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Chiara Russo with Cantor Fitzgerald.

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Chiara Russo, Cantor Fitzgerald & Co., Research Division - Analyst [2]

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I think the first question that I have is actually in regards to some of those script trends. I went ahead and pulled some data off of Symphony, and this showed sort of a nice spike in the month of March towards the end of the quarter. Do you happen to know if that sort of trend has continued into April? And what was sort of driving that?

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John F. Thero, Amarin Corporation plc - CEO, President and Director [3]

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Chiara, it's John. So we're going to refrain from discussion of Q2 results at this point in time. We are bullish on the year overall, but we'd want to focus on them, but get the Q1 behind us, which is the purpose of this call. As we've talked about in the past, Q1 has historically been a challenging quarter for us and that's particularly due to insurance deductibles. That’s not unique to us. The insurance companies, some of them have $1,000, $2,000, I heard some have $3,000 deductibles. And patients need to work through that. And we have seen in the past that, that particularly affects prescriptions in January and February, a little bit less so in March. I think one could sort of think them through as to the wholesalers ordering [just tells us] which tend to be program based upon what they've seen most recently. So they see sort of January and February being slow, and they order -- continue to order sort of lightly into March. So we saw last year, we saw the year before, low January and then picking up a little bit in February and stronger March. That sort of happened this year as well. Last year, we ended up seeing that trend from the first quarter translating into the second quarter, both in terms of the strong scripts, but also in terms of the wholesalers sort of making up for their shortfall in the first quarter. It's a -- we cannot predict wholesaler patterns. In general, over a longer period of time, wholesalers balance out. Last year, they were -- they under-purchased in the first quarter, over-purchased in the second quarter, got a little closer in the third quarter, and by the end of the year, it sort of came fairly close and balance with the prescriptions. So without getting too specifically about April numbers, I'm hoping that, that context may be of value to you.

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Chiara Russo, Cantor Fitzgerald & Co., Research Division - Analyst [4]

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Yes. No, that was helpful in terms of historical context as well. And I'm sorry, did you say that you guys did take a slight price increase at the beginning of the year?

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John F. Thero, Amarin Corporation plc - CEO, President and Director [5]

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We continue to view this as being a volume growth business. So our growth as we focus in on it as prescription based. Lots of things happened at the beginning of the year. We expanded managed care coverage. It was already pretty good last year. But we expanded managed care coverage, including in some places some plans that put us on exclusively and removed the generic Lovaza. We're at a point now where our approval rates on Vascepa are very close to that of generic – the generic earlier-generation product that's out there. Most plans have us on parity pricing with -- parity coverage rather with Lovaza. There are some plans that have now put us on priority over Lovaza. There are still some disadvantages for the most part the same. But that expanded coverage eats a little bit into the gross. Now we're continuing to see more co-pay cards used. We have expanded our co-pay card program, so that it's not just $9 for a month, but a lot of people are getting 3-month supplies all at once from retailers who've gone to a card that also provides for $9 co-pay for the 3-month period subject to certain limitations. All this is a long way of saying that on a net basis, our pricing is somewhat comparable -- maybe slightly up, but really somewhat comparable despite the fact that we did take a 9% price increase towards the end of last year.

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Chiara Russo, Cantor Fitzgerald & Co., Research Division - Analyst [6]

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Okay. That makes sense. So volume is still good. And then just kind of a quick question. The SG&A expense is a little bit higher than I had anticipated. What sort of levels do you see that sort of, for basically the rest of the year. Is it going to be continuous or do you see it increasing?

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John F. Thero, Amarin Corporation plc - CEO, President and Director [7]

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Let me ask Mike Kalb to jump in on that one.

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Michael W. Kalb, Amarin Corporation plc - CFO and SVP [8]

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So I think as we've communicated in our guidance released earlier this year, we expect that the SG&A will increase by about -- by less than 10% for the year. So I do think it is going to be some timing in there. But I still think we will be in line with that guidance.

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Chiara Russo, Cantor Fitzgerald & Co., Research Division - Analyst [9]

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Okay. And I'm assuming that's the same for the R&D expense, I know you guided to that as well. That does not change either?

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Michael W. Kalb, Amarin Corporation plc - CFO and SVP [10]

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No. No change to that either. And we still stick with that guidance, yes.

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John F. Thero, Amarin Corporation plc - CEO, President and Director [11]

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There continues to be quarterly variability in all these numbers. I mean, particularly in the SG&A side of things, there are -- we've expanded our medical affairs team. Some of that's to support our current business, some of that's to expand our outreach to key opinion leaders. We've gone through in the first quarter and redone our promotional campaigns to sort of put a fresh look to that. We added a new agency, and I think some of our messages have been fine tuned in that. Some of those are one-time expenses that hopefully will provide longer-term feedback or continue to do a lot of programs where third-party speakers are out talking to groups of physicians. Attendance at those continues to be high. There is sampling cost. There's also some cost in there for -- year-over-year related to legal and related costs. They're not particularly high at this point in time. We're fairly early on in that, as you know, with the NCE protection and 30-month stay, we should have protection for regulatory exclusivity purposes into 2020. So patent litigation tends to fill all available time. Those expenses will escalate a bit, but more likely more so in the later 2018-2019 period. The biggest piece of the SG&A increase is due to the co-promotion agreement with Kowa. And there, as we talked about in our opening remarks, that’s a co-promotion fee, which is based upon gross margin. It increased year-over-year in 2 ways. One is the percentage is up slightly, 20% of gross margin for this year. But the biggest piece of that relates to the fact that we had more gross margin percentage increase, moreover that our revenues increased 36%. So that's sort of the biggest driver of the increase in the aggregate dollars of SG&A. So hopefully, that additional color is helpful. But I think you're leading into another question before I talked down the segment.

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Chiara Russo, Cantor Fitzgerald & Co., Research Division - Analyst [12]

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Yes. Just a last question sort of in relation to sort of the strategy around the REDUCE-IT readout. Obviously, everybody wants to have the primary endpoint be successful and hit that statistical significance. But my question is, moreover, what happens to your strategy if, for instance, the primary does not hit, but you see good efficacy within individual subpopulations, for instance, like a diabetic population or something like that? How does that sort of change your commercial and your regulatory strategy?

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John F. Thero, Amarin Corporation plc - CEO, President and Director [13]

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This is a large and diverse population we're studying. As you know, elevated triglycerides affect roughly 1 in 4 people in the United States. There are different elevations of risk within the population that we're talking about. So people who are diabetics are believed to be at a higher risk than people who aren't diabetic. People who had prior events are believed to be at higher risk than people who haven't had prior events. People with higher triglyceride baselines are believed to be at higher risk. So if for some reason the primary endpoint on the study isn't hit, and I think there's tremendous amounts of data and information suggesting that this is a well-designed study, and we believe we're going to be successful, if that doesn't hit, we will look at the underlying data to see what might or might not be useful to the medical community based upon that data. But that's a hypothetical at this point in time. There is no proven therapy in this space. So we continue to see, for example, fenofibrate use tremendously high despite the fact that it had failed outcome studies. And then lastly, of course, our current indication isn't being studied in the REDUCE-IT study, because it's unethical to study patients that have – half the patients on placebo given a high risk of pancreatitis in patients who have very high triglyceride level. So I think our base case is where we're putting our primary focus. We think the trial is going to be successful, and we're spending a lot of time getting ready for an expanded promotion beyond the study. I think the medical community is increasingly focusing in on triglycerides, and they see that as the frontier that holds the answers and holds promise towards addressing this significant residual risk that remains beyond the ability of LDL cholesterol management therapy. So we're pretty bullish about the overall study. You are right in pointing out that you never know, that's why you run the studies, but we're pretty bullish on the results. So thanks for your questions. I know that we're -- the markets are opening in not too long a period of time, and I think probably there's at least another couple of people in the queue who have hung in there. So we should probably get a move-on to others. So I appreciate your questions.

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Operator [14]

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Our next question comes from the line of Joel Beatty with Citi.

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Joel Lawrence Beatty, Citigroup Inc, Research Division - VP and Analyst [15]

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So it's been about 4 years since Vascepa launched. And as you mentioned earlier in the call, the script growth is still greater than 50% year-over-year, even though, from what I have seen, many other drugs can have more of a leveling-off after several years. So could you share any thoughts on why Vascepa continues to maintain its steady script growth after all these years?

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John F. Thero, Amarin Corporation plc - CEO, President and Director [16]

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No, I think there's a compliment built in there. So thank you for that. We are and continue to target a very limited number of physicians in the U.S. I mean, there are close to 700,000 physicians who write statin therapy. Our sales reps call on about 20,000 of them. And we haven't had any significant change in our targeting or in the size of our sales force now during that period of time. What we have had is physicians seeing the effect of Vascepa on their patients. We've seen -- had physicians seeing that the product is reimbursed. We've had a lot of literature out there about the mechanistic effects of EPA and its differentiation. And we've been able to continue to advance our messaging with regard to Vascepa. In fact, there's really so much information that can be communicated about our trial results and the active ingredient that we have, in many ways, restrained our team sort of a, "Don't take the firehose approach. Don't try to tell physicians everything about the product as exciting as it may be, because it's just too much for people to digest at any one point in time." So we're regularly sort of limiting and then introducing different pieces of the story to feed into information that physicians are looking for. So within our targets, there are different ranges of penetration, but we're continuing to particularly see new patient starts go on to Vascepa. We have been seeing increased levels of switching from prior therapies as well. So while our market share on a new prescription basis overall in the omega-3 space is coming up on 30% and then the broad nonstatin lipid-modifying market is coming up on 5%, and the good news is that both of those numbers suggest significant opportunities for further growth. If we look within our targets, those numbers are higher, but also continue to have significant headroom. So the product works. I think physicians are increasingly confident that it works, and our sales team is doing a good job, lot of different factors involved.

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Joel Lawrence Beatty, Citigroup Inc, Research Division - VP and Analyst [17]

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And my last question is a follow-up. And you mentioned the marketing message is very focused even though there's a lot you can talk about, especially given your First Amendment decision. Could you tell us a little bit about the main messages that you're having the sales force focus on?

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John F. Thero, Amarin Corporation plc - CEO, President and Director [18]

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Sure. For that, I'm going to ask our Head of Marketing and Sales, Senior Vice President, Aaron Berg, to jump in. Aaron?

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Aaron D. Berg, Amarin Corporation plc - SVP of Marketing & Sales [19]

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Sure. Overall, we've -- our core message has been that Vascepa effectively reduces triglycerides without adversely affecting LDL. That's been at the heart of everything we've done, and that resonates well, physicians are still LDL-centric. So knowing they have a product that will reduce the triglycerides without increasing what their primary target therapy is, which is LDL, is actually a real bonus. And then, of course, on top of it, we have a lot of other very, very good data to complement that, in particular the JELIS study as we pave the way for REDUCE-IT. So overall, we've had that core message since we launched. And as John said, we've had very focused strategies, focused messaging, focused on the same target audience, and I think the prescription growth you're seeing this many years out is a result of very good execution on that.

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Operator [20]

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Mr. Thero, there are no further questions. I'll turn the floor back to you for final remarks.

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John F. Thero, Amarin Corporation plc - CEO, President and Director [21]

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Thank you, everybody. Appreciate you joining us. Appreciate your support. I know a number of folks were apprehensive about our Q1 because of the fact that it's been a slow quarter in the past. I'm pleased that, I think, we had a good quarter. I think it positions us well for continued growth for the balance of the year and look forward to continuing to update you on our progress commercially as well as our progress towards the completion of the landmark REDUCE-IT study. Thanks, much.

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Operator [22]

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Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.