Alkermes Plc (ALKS) 2002 Q3 法說會逐字稿

Thank you for standing by. Welcome to the Alkermes third quarter 2003 financial results conference call. At this time, all participants are in a listen-only mode. There will be a question and answer session to follow. Please be advised that this call is being taped at Alkermes' request. At this time, I would like to introduce your host for today's call, Ms. Rebecca Peterson, Director of Corporate Communications at Alkermes. Please go ahead.

Good afternoon and welcome to Alkermes’ conference call to discuss our financial results for the third quarter of fiscal 2003. I’m Rebecca Peterson, Director of Corporate Communications here at Alkermes. With me today is Richard Pops, our CEO and Jim Frates, our CFO.

During this call, Jim will begin the call by reviewing our financial results for the quarter. Then, we’ll turn the call over to Richard, who will provide a brief overview of our strategy going forward and a review of the products in the pipeline. After that, we will open up the call for Q&A.

Before we begin, let me please remind you that during the call today we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. While we believe that our expectations in making these statements are reasonable, actual results could differ materially from our expectations as the result of a number of factors. Including but not limited to whether the issues raised in the non-approvable letter from the FDA for Risperdal Consta can be resolved in a timely manner, if at all, whether product sales will meet expectations, particularly in light of our collaborations, our collaborators are responsible for marketing products, manufacturing issues related to our products, actions by our partner with regard to development and regulatory filings, which are out of our control, decisions by the FDA or foreign regulatory authorities regarding Risperdal Consta , and other product candidates, the outcome of clinical and pre-clinical work we are pursuing and potential changes in cost, scope, and duration of clinical trials. For a more detailed list and description of some of these risks and uncertainties, please see the reports filed by Alkermes with the SEC. Alkermes disclaims any intention or obligation to update or revise forward-looking statements.

With that, I’ll turn the call over to Jim.

Thanks, Rebecca. We’re pleased to report a solid fiscal third quarter.

Net income on a GAAP basis was $41.2m or $0.64 per basic share, compared to a net loss of $17.9m or $0.28 per share for the third quarter of 2001. This increase was primarily the result of the $80.8m gain from the exchange of our 3.75% convertible subordinated notes for our new 6.52% convertible senior subordinated notes that we closed in December of 2002. Because of the nature of this gain and other non-cash and non-recurring items, we felt it important to discuss pro forma results that we, as the management team, feel more clearly reflect our ongoing operations.

The pro forma net loss for the quarter ended December 31, 2002 was $12.8m or $0.20 per share, compared to a pro forma net loss of $15.2m or $0.24 per share for the same period in 2001. The pro forma net loss for the quarter ended December 31, 2002 excludes the $80.8m gain related to the convertible debt exchange referenced above, $24.5m in non-cash charges related to our investment in Reliant Pharmaceuticals LLC, especially a pharmaceutical company in which Alkermes hold the 19% stake, as well as $2.3m in restructuring charges. The restructuring charges related to additional charges recorded by Alkermes to sublease certain facilities.

Pro forma net loss for the quarter ended December 31, 2001 excludes the $2.7m non-cash charge related to our investment in Reliant. The decrease in the pro forma net loss for the current period versus the prior period was primarily the result of an increase in R&D revenues, as well as the cost savings from our August 2002 restructuring.

Research and Development revenue under collaborative arrangements was $15.2m for the 3 months ended December 31, 2002, compared with $11.5m for the same period of the previous year. The increase in revenues reflects increased funding relating to certain collaborative agreements, including non-cash revenue earned as result of the termination of a collaboration with a partner.

The increase in revenues was partially offset by decreased R&D funding from other collaborative agreements, including Janssen Pharmaceutica, as the Risperdal Consta program continues to evolve from a development stage project to a commercial program.

R&D expenses for the 3 months ended December 31, 2002 were $21.2m, as compared to $23m for the same period of the prior year. General and administrative (G&A) expenses for the 3 months ended December 31, 2002 were $5.4m, as compared to $5.9m for the same period of the prior year. These results reflect a decrease of $8.2m from last quarter’s recurring operating expenses. These decreases in expenses were mainly the result of our restructuring in August of 2002.

There was an increase in occupancy in costs and depreciation and amortization as we continue to expand our manufacturing and other facilities in both Massachusetts and Ohio.

Interest income for the 3 months ended December 31, 2002 was $552,000, compared to $4.4m for the corresponding period of the prior year. The decrease in such income was primarily the result of a lower average cash and investment balance, as compared to the prior year, as well as a decline in interest rates. Interest expense for the fiscal third quarter was $2.1m, as compared to $2.1m for the corresponding period in the prior year.

At December 31, 2002, we had total cash and investments of $167.1m versus $80.9m in September 30, 2002. Strengthening our balance sheet was a key focus for the management team during the fiscal third quarter and this increase reflects our commitment to strengthening our cash balance as we advance our promising pipeline of candidates through the clinic.

During the quarter, we raised $120m through various financing activities in the public markets and with our partners and I’d like to briefly review those 4 transactions.

First, we completed an exchange offer for our outstanding convertible debt. We exchanged $199m or 3.75% convertible subordinated notes due in 2007 for $114m of new convertible notes due in 2009. We also raised an additional $60m through the issuance of new convertible notes to existing holders of the debt, on the same terms. As we have previously discussed, this transaction reduced our debt balance and provided us with additional cash resources, as well as notes with a very attractive automatic conversion feature.

Second, we received $30m from our partner, Eli Lilly, to fund the development activities relating to AIR insulin and AIR HGH. Pursuant to these agreements, Lilly purchased $30m of newly issued convertible preferred stock of Alkermes. We agreed to use the proceeds to fund, primarily, the inhaled insulin program during calendar years 2003 and 2004 and agreed to use a portion of the proceeds to fund the HGH development program during calendar year 2003.

Third, we received a $23.9m advance payment from Johnson & Johnson (J&J), representing the first 2 years of minimum revenues, associated with a 10-year commitment regarding Risperdal Consta. That payment helps us stay on track with the expansion of our manufacturing activities so we and Janssen can be prepared to meet potential demand for Risperdal Consta. Currently, J&J has informed us that the initial launches of Risperdal Consta have exceeded their expectations in Germany, England and the other countries where the product is being sold.

Finally, we raised $6m through an equipment lease financing.

Overall, we’re extremely pleased with the financial results for the quarter. With a strong balance sheet and committed partners, we’re prepared to move ahead with our clinical development and manufacturing efforts in the current year.

I will now turn the call over to Rich, who will provide an overview of our strategy, products, and clinical programs.

Thanks, Jim. Hi everybody. As Jim mentioned, we had an extremely productive fiscal third quarter. We worked extremely hard on the things that you heard Jim describe, culminating, really, with the successful completion of the convertible debt exchange offer and financing. Our focus on capital raising activities during the quarter provided us with the resources necessary to develop the pipeline and continue the task we’re on towards profitability.

As we mentioned, I think, in last quarter’s conference call, we’re also committed, in the context of really focusing on our business in light of the events of last summer, to execute the strategic review of the portfolio. In order to effectively manage the business, we’ve directed our resources towards, obviously, the most promising proprietary programs and the most productive and highest expected value partnerships. So, by focusing on our most important opportunities, we can provide the Company with the best chance for clinical and financial success as we move towards profitability.

So, the net result of all that is that we’re focusing the Company on 9 major programs and, as we discussed before, we reevaluated all of the existing partnerships. We took every one in turn and looked at these programs.

One collaboration that we mentioned last quarter that we’ll no longer be working on is our collaboration with GlaxoSmithKline. We had some concerns about the rate of product development activity in this collaboration, which covered the use our AIR Pulmonary Delivery technology in important fields of respiratory disease. These are fields that are important to us as we view our business on a going forward basis. So, as we discussed before, the contract contains certain diligence provisions and we’ve been able to reclaim all 4 fields from GSK and we plan to enter into new partnerships for certain of these fields.

Also, as part of the pipeline review, we also expanded the collaboration with Eli Lilly for AIR insulin. There has been a great deal of attention focused on the development of inhaled insulin, in part because this type of product represents the best that enabling drug delivery can really offer. Inhaled insulin has the potential to change the quality of life for diabetic patients with Type 1 and Type 2 diabetes. So, we have been and continue to be extremely excited about this program and in the past quarter, Jim gave you the highlights of how that program was expanded.

I’ll discuss a little bit more about that in a second, but in summary, it provided us with greater financial resources, greater near-term development control, coupled with an increase in the royalty rate for the period of time that the preferred stock is outstanding.

Let me note that this type of strategy pipeline review is not an episodic phenomenon. It’s always ongoing and, of course, in all these partnerships and all the programs that we’ve focused on, there is a significant element of risk in the product development associated with it. That being said, we believe that we’ve made tremendous progress over the last quarter, insuring that we have a robust and diverse pipeline of products, with partners and for our own account, that provide real medical benefits and that will bring us closer to our goal of profitability.

This year, 2003, marks an important step forward towards that goal. We are expecting several events during this calendar year that will bring our products closer to market and accelerate the transition from, essentially, a drug delivery company working in collaboration to what we see in the fullness of time as being a fully integrated, emerging biopharmaceutical company.

And the key events really include 1) additional approvals for Risperdal Consta around the world, 2) which is the completion of the Phase III clinical trial for Vivitrex, our first proprietary product on the program. And 3) completion of the Phase III clinical trial for Nutropin Depot in growth hormone deficient adults. We believe that these events have the ability to propel us to our next stage of development and as you can imagine, we’re looking forward to reporting on these milestones throughout the course of the year.

So with that, let me turn your attention to the core of our business, which is the core elements of our pipeline and, obviously, at the top of the list is Risperdal Consta.

As most of you know, Risperdal Consta is our long-acting formulation of J&J’s atypical antipsychotic risperdal and it’s designed to improve compliance and reduce relapse among schizophrenic patients. We are extremely optimistic about the potential for this product. We’ve been working extremely hard on this product for a number of years and it’s really exciting for this Company to see it reaching the commercial market place.

J&J has filed for marketing approval in something on the order of 30 countries and we expect and J&J expects that we’ll receive regulatory clearance in all of these markets. So far Risperdal Consta has been launched now in 5 markets, the UK, Germany, Austria, Denmark, and Switzerland and the word from J&J is that initial sales are exceeding expectations.

The list of approvals continues to grow. We can report now that Risperdal Consta is approved now for sale in 13 countries. Including the markets I just mentioned, J&J has received clearance in Finland, Iceland, Ireland, Israel, Korea, Mexico, the Netherlands, and New Zealand. You can expect this momentum to continue and this list to expand over the course of 2003. As I’ve mentioned to many of you in separate meetings, our regulatory group, because we’re in control of the CMC section of the NDA, we’re in a routine series of correspondences with all the regulatory bodies that are approving drug around the world. And we really see the queue maturing of these various markets that we’re seeking approval in.

Of course, securing US approval remains a critical goal, an important goal for both Alkermes and J&J. It’s extremely difficult for an outsider to measure the substantial progress we’ve made with this application over the last 6 months and particularly over the last 3 months. Particularly because the work is occuring behind the scenes at both companies and due to our relationship with J&J, we’re required to keep that confidential.

But if I can provide you with just a bit of color on what’s been going on, I’m quite impressed with both teams’ commitment to this effort and the results that we’ve seen to date.

One topic that we discussed ad nauseum in the past is that there are several approaches J&J could take in responding to the FDA’s concerns. And I’m happy to report that J&J has settled on it’s US regulatory strategy and is acting on this plan with our support and our participation. They have requested that we keep this particular regulatory strategy as confidential information, thus we will not be able to provide further details today, either in these remarks or in the Q&A.

We do believe, however, that J&J will be willing to provide more concrete guidance as certain milestones that we’ve a priori identified are met as certain milestones in our regulatory strategy, that is, play themselves out.

From financial and operational points of view, we continue to model our business based on the assumption of regulatory approval for Risperdal Consta at the end of calender 2003. Though it’s appropriate here to remind you that regulatory approval in the US is not certain and the timeline for approval and FDA interactions are controlled entirely by our partners at J&J.

What we do control, though, is the work that’s going on with respect to the commercial facility. So, in parallel with the regulatory efforts, we are expanding our manufacturing capacity in Ohio, in order to accommodate the projected worldwide demand for the product. Based on the sales trends we have seen to date, coupled with the clear market need for a long-acting atypical antipsychotic, it’s becoming quite clear that the prospects for the drug worldwide are quite promising.

We’ve just completed the construction of the second facility in Ohio, in order to expand the manufacturing capacity to meet this projected demand and we are beginning validation on this facility this month. Once the second facility is on line, we’ll be able to supply J&J with Risperdal Consta, sufficient to generate peak revenues to Alkermes, as we said before, well in excess of $100m per year.

We are extremely excited about the potential for this product. We’ve been saying that for some time now and we really look forward to providing an update on additional approvals and launch efforts around the world in the coming weeks and months.

Let me move on now to other programs that we find equally exciting and let’s start with Vivitrex. Vivitrex is our proprietary product for alcohol and opioid additions and it’s based on the same delivery technology as Risperdal Consta. That is our meta absorbed injectable sustained release system. We believe that the relationship between these 2 products is indicative and illustrative of our development strategy.

We took the developing and manufacturing knowledge that we gained as a result of our collaboration with J&J and the Risperdal Consta and we’ve applied that to development of Vivitrex. So, Vivitrex is an extended release formulation of naltrexone used for treatment of alcohol and opioid dependence that’s currently available in a daily oral dosage form.

We designed Vivitrex to provide therapeutic concentrations of naltrexone for a one-month period, so, a single injection that releases naltrexone over a one-month period and we’ve tested this now in Phase I and Phase II clinical trials. And we currently have it in Phase III clinical trials, in a trial that is proceeding extremely well. We have already enrolled over 500 patients in this 600 patient trial and we expect to complete enrollment in the first quarter of calendar 2003, this quarter.

With a 6-month endpoint to this study, we would therefore expect to have top line results at the end of 2003 after the data has been compiled and cleaned up and analyzed. It’s a big study, an important study, we’re excited by the way it’s going and it dovetails exactly with what we’ve been doing with Risperdal Consta.

I’m going to shift topics now. I want to move briefly to highlight the progress that we’ve seen with our pulmonary drug delivery programs, our AIR technology.

Our lead program in this area is AIR insulin, which we’re developing in collaboration with Eli Lilly. I’m sure and I know that many of you have followed the progress with other inhaled insulin programs and this indeed is an undertaking that required an extremely rigorous development program. And it requires a sophisticated delivery technology in order to be able to, at the end of the day, cross the finish line and develop a commercially acceptable inhaled insulin product.

We and Lilly are extremely encouraged by the progress that we’ve seen in this development collaboration. Based on the achievement of development milestones relating to clinical progress, as well as relating to scale up and manufacturing activities for the program, we expanded the collaboration with Lilly. So, the additional funding of the program was driven by the achievement of certain key technical and clinical milestones that we’ve been working on for some time.

The expansion of the deal was designed to enable the program to move forward as aggressively as possible and we developed this financial structure in order to enable that to happen and it’s basically structured as follows. Eli Lilly purchased $30m of newly issued convertible preferred stock of Alkermes. We take the $30m, then, and we’ll use it primarily for the development activities for AIR insulin in calendar 2003 and into 2004.

The royalty rate payable to Alkermes, based on the sales of inhaled insulin products, was increased significantly, but important, Lilly can buy down this royalty rate back to it’s original level by returning the preferred shares to Alkermes. And this is what we expect. The way we modeled the deal is that’s what we expect to happen in the 2005 timeframe.

On the manufacturing front for this program, we’re currently constructing a large scale AIR manufacturing facility in Chelsea, Massachusetts. As you may know, Lilly has made a significant investment in this facility as well and their particular investment funds insulin packaging and production. The facility is about 90,000 square feet. We expect construction to be completed in the second quarter of calendar 2003.

You can think of what we’re doing with our AIR technology as being directly analogous to what we’ve done with our Medisorb technology. In that, we partnered with a strong and capable partner in order to bring the technology to the commercial stage and then scaled up commercial production facilities in collaboration with these pharmaceutical company partners. We then take the knowledge and experiences gained through our partnerships and apply them to proprietary products for our own account.

Risperdal Consta with J&J led to Vivitrex for own account. Inhaled insulin really enables our second proprietary product, which we call AIR Epinephrine. This is a program I think we just talked about it for the first time in our last conference call, but in November, we announced that we’d successfully completed a Phase I trial with this product candidate.

The inhaled formulation of epinephrine offers an alternative drug delivery method for epinephrine, or adrenaline, which is currently self-administered by injection for the treatment of anaphylaxis. Which you know is a sudden, potentially life threatening allergic reaction to food, to insect venom, to latex, to any of a number of things. We believe that this product could offer important therapeutic advantages over the current widely used injectable form of epinephrine.

So, we’ve complete 2 studies of AIR epinephrine and we’ve met with regulatory authorities in the US and Europe, with respect to it’s continuing development. We intend to develop this product for our own accounts. Given our projections as to the ultimate commercial opportunity for the product candidate, we will, though, consider co-development opportunities with companies that could enhance the value of the brand, primarily through directed marketing and sales capability to markets that we wouldn’t be able to go after ourselves.

Moving on, I want to move onto our collaboration with Serono for common human FSH, or follicle stimulating hormone. We are developing an extended release formulation of FSH for infertility, based on ProLease technology that we would use to dose once per cycle.

Moving on -- I want to move onto our collaboration with Serono for common human FSH, or follicle stimulating hormone. We are developing an extended release formulation of FSH for infertility based on ProLease technology that we would use to dose once per cycle. We're happy to announce today that Serono initiated a Phase I(B) trial with this compound and you'll be hearing more about this, obviously, as we move through the clinic and generate data. So that's a nice milestone for us to be back in the clinic with that drug.

The 5 products I just reviewed for you represent some of the products that we're working on here as a company. We have 4 other programs in the clinic, all of which are based on our enabling drug delivery technology and provide us with a range of product opportunities. As you recall, the logic of this place has been to develop multiple drug delivery platforms with multiple product opportunities with multiple partners and also for our own accounts, so the covariant between the success or failure of any one opportunity and another is very limited.

So before I open the call up for questions, let me just take a moment to outline what you can expect from us over the next calendar year. As I mentioned earlier, we have these 3 key milestones from our 3 late stage programs during 2003. First, we're expecting to announce additional approvals for Risperdal Consta worldwide. Second, complete enrollment of Phase III studies for Vivitrex by the end of our fiscal fourth quarter or the current calendar quarter, and we plan to have top line data by the end of calendar 2003. Finally, we expect to complete the Phase III trial for Nutropin Depot in adult growth hormone deficiency by year end.

With the rest of our pipeline, we have a number of ongoing efforts. We plan to continue our clinical and development activities in our AIR Insulin, AIR epinephrine, and ProLease FSH programs. And finally, we plan to continue clinical studies with AC2993LAR, a long-acting formulation of Amylin's Exendin-4, for the treatment of diabetes. That, as you may know, is a very exciting program currently in the clinic. We're testing the initial pharmacokinetic profiles for a long-acting formulation of this particular product candidate. We are excited about this pipeline. We worked a long time to get it to where it is and we look forward to updating you on our efforts as we move it forward. With that, I will open the line up for questions. Operator?

Thank you. Ladies and gentlemen, if you have a question at this time, please press the one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, if you have a question, please press the one key. The first question comes from Joe Gonzardi from Solomon Smith Barney. Mr. Gonzardi, your question please? Mr. Gonzardi is not responding. We'll go to Hari Sambasivam from Merrill Lynch.

Yes, thank you. Jim or Richard, I'm wondering whether you can give us a sense of the size of Risperdal Consta sales in the past three months that you just reported if possible. Secondly, also if you can maybe put some color on the AIR epinephrine market or if you could maybe just give us an idea of how to quantify this opportunity. And, thirdly, just an audit accounting question - - if you can explain the mechanics of how you actually get a gain of $80m on this exchangeable?

Sure, Hari, how are you? I'll take the first and the third question and I'll let Rich talk about epinephrine. As to the first question, J&J has not disclosed the sales ultimately of Risperdal Consta and when they reach a material level for us, on our overall financial statements, we'll begin to break out the sales of Risperdal and our operating margins. In terms of the $80.8m gain, interestingly, as you know, we have an automatic conversion feature which I mentioned. That conversion feature has been deemed a derivative under FAS123 by our accountants and so we actually had to mark to market a $9m valuation we put on our balance sheet. We'll mark that to market each quarter so if you add the $9m with the $80.8m and you include the amortized cost of the debt offering over the 7 years of its life that's how you get to those numbers on the balance sheet. But as you see a full balance sheet in our Q, those will be easily ascertainable. Rich, you want to answer the question about epi?

Does that answer your other questions, Hari?

I'll take the accounting question offline.

I'm surprised that's not immediately obvious here. With respect to epi, it's interesting. There's a number of ways to try to triangulate on what the size of this market could be. One obviously important one is our sales of the EPI-pen, which is a product being sold without a tremendous amount of promotional activity behind it. It's on the order of an $80m product or so. The market, we think, is much bigger than that. Our own investigation suggests that a number of people who would benefit from carrying around epinephrine for use, PRN, don't because of the need to use an auto-injector intramuscularly. According to the Food Allergy and Anaphylaxis Network, which is a charitable foundation with an interesting website you can look at, they say there are about 7m Americans, the majority of whom are kids, suffer from food allergies alone. In some of our presentations, we've shown the picture from the cover of the New York Times Sunday magazine last year talking about the instance of these allergies in kids and adults and their rise. So it's difficult for us to say how big the market would be right now. We're going to wait and see. I think it's going to be highly dependent upon our distribution and marketing strategy. You can see detailing this product directly through allergists, you could see recapitulating or doing similar to what the marketing strategy is for the pen, which I think was under-promoting the product, and I can see this as broadly as being detailed to GPs as well. Those are - - we're actually starting off on a series of discussions with various pharmaceutical companies and marketing companies to get a sense of what the view of the market is. So we'll give you more guidance on that as we move along.

The next question comes from Ian Sanderson from SG Cowen.

Thanks for taking the question. Jim, where does the $23.9m advance payment for Janssen show up on the balance sheet? There's a deferred revenue line, but it doesn't equal that and so it's just an accounting question. Similar, there's the receivables for collaboration arrangements of $15m and I didn't know what that was. Then third, on the P&L, what was the magnitude of the non-cash revenue earned by the termination of the partner collaboration in the quarter which, I presume, was GlaxoSmithKline?

Sure, Ian. To address the deferred revenue question first, the $13.4m or $13.5m that you see is actually the long-term portion of that. The other portion of the $23.9 is in the total current liabilities. That will be broken out in more detail in the full balance sheet. I didn't get your second question.

There's the receivables for collaboration arrangements item on the current liabilities or current assets, and that's $14.7m. I just didn't know what that referred to.

Well, that's really just things we complete in the quarter but we haven't yet been paid for, so it's kind of a standard. You know, you bill your partner on December 31 - - accrual accounting would say that you book that in your income statement and you just post it on receivables until it gets paid 45 days later. Then the final question was?

The magnitude of the non-cash revenue earned by the termination of the partnership collaboration?

That was between $4m and $5m.

Okay, great. Thank you.

The next question comes from Mara Goldstein from CIBC World Markets.

Thanks. I have two questions. The first is on Risperdal Consta. I certainly understand that you're limited in what you can say in order to maintain confidentiality with J&J, but since you're still targeting a year-end approval, is there anything that you might offer us with respect to any type of PDUFA date or the timing assigned to the submission or resubmission of that application?

Mara, hi, it's Rich. No, I don't think - - it depends on what the nature is of the response that J&J were to make, which we haven't disclosed yet. But one thing that Rebecca has been working hard with J&J on has been to get their agreement, which I think we have, that once they actually file or submit or lock themselves into a certain regulatory review process, that they will let us announce that. To give you a specific sense of the timing.

But I mean, as of yet, there's really been no confirmation to you that there has been any type of PDUFA date assigned to whenever that submission will be?

No, the only PDUFA date that was relevant was the 10 month PDUFA date which, obviously, was June 30th.

Just a clarification on the epi trials - - it's not going to be possible to do placebo-controlled trials with this product, is it?

Correct. The auto injectors, the IM epi pens, were approved without clinical trials. So we will run clinical trials and our current plan has not been elaborated publicly in detail, but we're certainly running PK and PD clinical trials and we'll run those both in kind of normal volunteers and also in particular subpopulations.

Okay, thank you.

The next question comes from Peter Ginsberg from Piper Jaffray.

Good afternoon. Just a quick numbers question. R&D trended down significantly in the December quarter versus previous quarters. Is that a number that we should use as a run rate or are we still looking at your previous fiscal '03 guidance of $100m to $105m in R&D?

Yeah, Peter, hi, it's Jim. I think that we are going to be sticking with our overall guidance of a loss of $80m to $85m on an operating basis and we're pretty comfortable with that guidance for the rest of the year.

Okay, great. Thanks a lot.

Again, if you have a question, please press the one key. The next question comes from Michael Hearle from Leerink Swann.

Hi, good afternoon. Just a few questions - - just housekeeping on Reliant. Will your fiscal Q4 be the last quarter that you record the non-cash charges associated with that transaction?

Yeah, most likely, Mike. Obviously it depends on Reliant's results. If they have an $80m gain in one quarter - - but if they continue on their current trajectory, we expect this to be the last quarter, yes, the one that we're currently in.

Right. Any update there that you can offer in terms of forecasting profitability or where they are versus a year ago?

I don’t have specific numbers for you on that, Mike, but I feel like they did a nice deal with Biovale in the fourth quarter and they are financed based on - - their current models are financed through to profitability. Last year I think we were talking about them approaching profitability in '04 and I think they're still on track for that.

Okay, and just last question - - on burn during the December quarter - - it looks like, I might be missing something here, but you burned about $32m in cash. Was some of that CAPEX and can you explain what that went towards?

Yeah, absolutely, Mike. We did have a lot of CAPEX in the quarter and that was roughly $13.2m. We are on plan. We gave guidance at the beginning of the year for roughly $50m in CAPEX for the entire fiscal year. We're on plan for that, which would leave roughly $10m for this quarter and that's really spent, as Rich mentioned, on the expansion of our Risperdal manufacturing capabilities or Metazor manufacturing capabilities in Ohio. That construction is essentially complete and we'll be completing construction on the pulmonary facility that we have in Chelsea, Mass., sometime either this quarter or early next quarter. So that's where those CAPEX, or the vast majority, are going. So we see that going down dramatically for next year.

Okay, then last question -- if the path that J&J takes is submission of an addendum to the NDA, it sounded as if that will be something that they will announce at the time that that goes in or soon thereafter?

I think - - I'm looking to Rebecca but I think the answer is that we will announce that. Is that right, Rebecca?

Mike, that's a material event to Alkermes, so we will announce it.

The next question comes from David Windley from Jeffries and Company.

Hi, good afternoon. Just one more follow up question on the non-cash revenue. I apologize this may be obvious, but what makes it non-cash in the quarter? Was this cash that you had previously received that you get to keep as a cash item in the quarter?

Yeah, that's right, David. It was, previously in the partnership, you get paid to do certain work over a long period of time, so rather than taking that all as income, you post it on deferred revenue as a liability then when you actually do the work associated with that, you run it through your income statement.

Have you, in the termination of the agreement, were you granted the ability to keep all cash previously given or do you have a payable back to them?

No, this is cash that we'll be keeping so there's no payable back to the partner.

The next question comes from Paul Bonney, from Symmetry Capital

Thanks. Let me try to get a little clearer on the Risperdal Consta situation. If J&J has kind of decided what their strategy is going to be, can we assume that that's something that's been decided in conjunction with the FDA?

I wouldn't want to start tearing apart. Obviously, we're highly constrained in what we can say publicly about this. So I think the critical point is that there were a number of different tracks that J&J could pursue that had certain advantages or disadvantages starting really from July 1st up until they made the decision, ranging from putting together an entirely new submission to simply negotiating face to face with the FDA and everything in between there. So the nice news is that after a significant amount of work between both companies and including outside consultants and what not, they're in the groove now, they know exactly what they're doing and we're in support of it. And so I also believe that we're going to be able to give you guys some more guidance on that as certain of these milestones are hit in that plant. Sorry I can't give you more, but that's just the rules we operate under.

The next question comes from Seth Teak from Apex Capital

Hi, I have a couple of questions please. I think you said that the two guys, you and J&J, have filed 30 countries for approval for Consta. I was curious to know if that's an additional 30 countries versus the 13 you've gotten approval for?

I think 30 is not an exact number, Seth, but that would be we would have 13/30ths approved right now.

Okay, so 13 of 30 roughly.

And I think that they could obviously file in a lot more with the passage of time.

Okay, and then you said that you wouldn't break out the sales of Consta on your income statement until it was material. I was curious to know if you could help us get our arms around what material is.

Well, that's defined on an annual basis by your revenue or expense line by the accountants and roughly 5-15% of ultimate revenues.

Okay, so that's a reasonable measuring stick for us to use at which point you'll start booking revenue?

Yeah.

Okay, and then, I don't know if you've given any burn rate for either calendar '03 or fiscal '04. Do you plan on doing so?

Well, we're a March 31 year end company and so we're right in the middle of our budget process right now, so what we've done in the past and we'll do again this year, is update for our fiscal year ending March 31, 2004, we'll update that guidance when we provide our results for the year ended March 31st.

Okay, then I have two Consta questions real quickly. I was curious to know if you guys have initiated or plan to initiate a trial testing Consta for injection either every 3 or 4 weeks versus the every 2 weeks?

I think, Seth, we should probably - - we're looking at each other - - I think you should probably direct that question to J&J.

Great. Thanks.

There are no further questions.

Terrific. Thank you everybody and thank you, Operator.