Amarin Corp Plc (AMRN)

[HDGabor]

Inventory (possible) effect on cash-flow (millions USD)

Purchase obligation / commitment has two parts:
a.) Certain of the agreements with the suppliers include minimum purchase obligations. These purchases are generally made on the basis of rolling 12-month forecasts which in part are binding on Amarin and the balance of which are subject to adjustment by Amarin subject to certain limitations.
b.) Certain of the agreements also include contractual minimum purchase commitments regardless of the rolling 12-month forecasts.

Inventory cash-flow equal with (-) COGS (+/-) change of inventory. Amarin had the following

Period: COGS / Inventory* / Change in inventory = Cash-flow / Commitment at the end of the period** / Change in commitment.
* They have a “new” inventory category since end of 2021 (long-term inventory: when consumption of the inventory is expected normal operating cycle) but as I do not know the duration of the normal operating cycle I did not separate it in this analysis … just as a note below.)
** Pursuant to the supply agreements, there is a total of approximately $ X million that is potentially payable over the term of such agreements based on minimum purchase obligations.


2020: 131* / 189* / 112** = 244* / 326* / +134**
2021 Q1: 28 / 231 / 42 = 70 / 213 / -113
2021 Q2: 32 / 272 / 42 = 74 / 213 / 0
2021 Q3: 30 / 309 / 37 = 67 / 213 / 0
2021 Q4: 31 / 356 / 47 = 77 / 196 / -17
2021: 121* / 356* / 167** = 288* / 196* / -130**
2022 Q1: 22 / 409 / 53 = 75 / 49 / -147
* Sum of the year or at the end of the year
** vs. previous year end

So what could be changed?

First of all: it was an awful “goods” / inventory management e.g. (i) they spent more in 2021 than in 2020 (ii) commitment was not changed during Q2 & Q3 2021 …

The good things (looks like as … based on these data): they are managing the inventory since August 1 (?), 2021 … since Q4 2021 (i) separating the short-term and long-term inventory (ii) reducing obligation / commitment.

The commitment is ATL (49) as of March 31, 2021 and I assume that it is “100”% the contractual minimum purchase commitments (regardless of the rolling 12-month forecasts) or contains minimal rolling 12-month forecasts.
I will use the following assumptions:
(i) the 49 commitment is due till the end of 2022 (I think it is conservative)
(ii) they will not purchase anything top of the commitment (Maybe it is a bold assumption … but it is a prudent one).

What it means?

API purchase was -75 (75% of total net CF) in Q1. This and the 49 commitment means -124 spending on API in 2022 (vs 244 and 288 in 2020 and 2021 respectively).

- They had 389 cash as of March 31, 2022.
- The non-API related net cash-flow was -24 in Q1 2022
- Assuming – but it is not the case – revenue and other cost / cash-flow will be flat (“same” as in Q1) they will have 317 cash as of December 31, 2022.

Note:
(i) I would like to analyze the API / inventory only (independently from other elements).
(ii) I did not analyzed the long-term inventory separately – two data available only – but it will be “interesting” to check the level of it (EOY2021: 121; EOQ12022: 141). As the short term level is 268 I expect an increase in the upcoming quarters – meanwhile the short-term decreasing – but a decrease after a certain quarters.

Best,
G