Alkermes Plc (ALKS) 2004 Q1 法說會逐字稿

Welcome to Alkermes's 2004 conference call. At this time all participants are in a listen only mode. There'll be a question-and-answer session to follow. Please be advised this call is being taped at Alkermes's request. At this time, I would like to introduce your host of today's conference call -- Miss Rebecca Peterson, Director of Corporate Communications. Please go ahead, ma'am.

Thank you. Good afternoon and welcome to Alkermes conference call results first quarter fiscal 2004. Which ended on June 30. I'm Rebecca Peterson, Director of Corporate Communications. With me today is Richard Pops, our Chief Executive Officer and Jim Frates, our Chief Financial Officer. 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. Although we believe such statements are based on reasonable assumptions, various factors may cause our actual results to differ materially from our expectations. These include whether additional predatory approvals will be received (indiscernible) particularly in the U.S. after the (indiscernible) approvable letter from the FDA. Whether additional commercial launches of Risperdal Consta in countries where it has been approved or may be approved in a current timely successful manner, whether sales of Risperdal Consta or other products will meet expectations particularly because we rely on our partners to market these products. And whether advancement of our pipeline will be delayed to actions or decisions by our partners with regard to development and regulatory strategy, timing and funding, which are out of our control, the outcome of clinical and preclinical work we're pursuing -- including the results of clinical trials -- and our ability to successfully and efficiently manufacture our commercial products and (indiscernible) product (indiscernible). For further information of these factors and additional factors please see our reports filed with the SEC. Alkermes disclaims any intention or obligation for updating (indiscernible) financial guidance contained in this conference call. During the call today Jim will review our financial results for the quarter and then Rich will talk about the progress of our pipeline including (indiscernible) Vivitrex.

We will then open it up for Q&A. With that, I'd like to turn the call over to Jim.

I'm pleased to report another productive quarter for Alkermes -- over the past few months, we made excellent progress in developing our business and we entered the second half of the calendar year very pleased with our outlook.

We're actively supporting the development of our pipeline particularly our later stage products where we're taking steps to ensure that we have the manufacturing and quality infrastructure in place to supply the market with these promising therapies. The list of countries that have approved Risperdal Consta continues to grow and with the submission of the complete response letter to the FDA in April, we expect an approval in the United States this year. We have 2 Phase III programs -- Vivitrex, our proprietary treatment for alcohol dependence and Nutropin Depot for adult growth hormone deficiency which if successful will also support our transition to profitability.

Rich will provide a full review of our pipeline later in the call but for now let me turn your attention to a review of our financials.

Net loss on a GAAP basis for the quarter ended June 30 was 30.6 million or 47 cents per share as compared to a net loss of 45.3 million or 70 cents per share in the same quarter the previous year. Because of the significant nature of certain non-cash items we felt it important to discuss pro forma results that we as a management team feel more accurately reflect our ongoing operations.

Pro forma net loss for the three months ended June 30th, 2003, was 28.2 million or 44 cents per share compared to a pro forma net loss of 21 million or 33 cents a share for the three months ended June 30th, 2002. The pro forma net loss for the three months ended June 30th, 2003, excludes the $3.8 million non-cash derivative charge associated with the provisional call structure of our 6.5 percent convertible senior subordinated notes issued in December 2002 as well as 1.4 million of other non-cash income recognized on a net increase from the fair value of warrants we hold in connection with certain licensing arrangements.

Going forward we are likely to have either a gain or a loss related to these warrants depending on the market value of the securities underlying the warrants. Pro forma net loss for the quarter ended June 30th, 2002, excludes the $24.2 million non-cash charge related to our investment in Reliant. In keeping with the equity accounting rules our investment in Reliant has been reduced to zero for accounting purposes. And since we have no further funding commitment to Reliant we have not recorded any share of their losses in the current quarter.

The increase in the pro forma net loss for the current quarter as compared to the prior year's quarter was primarily due to a reduction in total revenues related to the restructuring of our pulmonary (indiscernible) G. hGH progress with Eli Lilly and changes in the stage of several other (indiscernible) agreements.

Total revenues for the quarter ended June 30th, 2003, were 4.3 million compared with 10.3 million for the same period in the prior year. Comprised of both manufacturing and royalty revenues and research and development revenues.

In the first quarter we reported manufacturing royalty revenues at 1.5 million of which 1.1 million related to manufacturing royalty revenues for Risperdal Consta. Just to spend a moment on that revenue for Risperdal Consta last quarter revenues for Risperdal Consta were 8.4 million quarter ended in March. As I told you during our year end call revenues won't be smooth especially in the first few quarters. We have significant orders from J&J and a busy production schedule for the remainder of the fiscal year particularly as we anticipate U.S. approval on our third fiscal quarter.

We've moved up our semiannual shutdown into the June quarter and prepared for multi shift operations moving forward. We resumed production in mid-July and expect our revenues to increase substantially for the year particularly in our third and fourth fiscal quarters. We've remained comfortable with our manufacturing and royalty revenue guidance and reiterate that guidance of $30 to $35 million for the fiscal year.

Research and development revenues under collaborative arrangements for the quarter ended June 30 were 2.8 million as compared to 10.3 million for the same quarter at 2002. The decrease is mainly a result of the restructuring of our (indiscernible) Hgh program. As of January 1st, 2003, we no longer record research in development revenue for work performed on our Lilly programs. But use the proceeds from the sale of $30 million of our preferred stock to Lilly in December 2002 to pay for the development of the programs into year calendar 2004.

The decrease in R&D revenues also reflects a change in our corporate partners as well as a stage of development of certain other collaborative programs.

For our first quarter cost of goods manufactured total 2.6 million consisting of approximately 1.4 million attributable to Risperdal Consta. and approximately 1.2 million for Nutropin Depot. R&D expenses for the quarter ended June 30, 2003, were 21.7 million lower than last year's 24.6 million -- primarily due to the fact that we're now separately reporting cost of goods manufactured from our commercial products -- Risperdal Consta and Nutropin Depot.

This was partially offset by increase in occupancy cost and depreciation expense related to the expansion of our Massachusetts and Ohio facility. G&A expenses were 5.8 million for the quarter compared to 6 million for the same period in fiscal 2003 reflecting a decrease in consulting costs that were partially offset by an increase in personnel and insurance cost.

Other income net was 1.4 million in the three months ended June 30th, 2003, as compared to zero for the same period in the prior year reflecting income recognized on the net increase of the fair value (indiscernible) connection with licensing arrangement. Which were recorded as derivatives in the consolidated balance sheet. The recorded value of such warrants can fluctuate significantly based on fluctuations in market value of the underlying securities of the issuer of the warrant.

As part of other income we recorded a 3.8 million non-cash charge related during the quarter to reflect a full value of the embedded derivative related to our 6 1/2 percent senior notes to be paid pursuant to the two-year interest (indiscernible). On July 18, 2003, upon the conversion of event outstanding senior notes and payment of the two year interest (indiscernible) the embedded derivative was settled in full and the balance was reduced to zero.

That will have no further impact on financial statement of operation going forward.

As you know, last month we exercised our right to convert the $175 million of our 6 1/2 percent note. The details are outlined in the press release and after the conversion date our common shares outstanding are approximately 89 million. This conversion was a strategic step that enabled us to eliminate this convertible debt as well as the ongoing interest payment associated with the Notes, further strengthening our balance sheet.

At June 30, 2003, we had total cash and investments of 113.6 million as compared to 145 million at March 31st. The decrease was primarily a result of cash used to fund our operations to acquire fixed assets to complete the construction of our commercial production facilities in Wilmington and Chelsea and to make interest and principal payments on our indebtedness.

We continue to target profitability in calendar 2005 and we're on target to reach this goal. By growing our commercial revenue base, growing our funded R&D and closely managing our expenses. This guidance does assume a U.S. approval for Risperdal Consta calendar year 2003 and that further approval of launches continued as projected in the rest of the world.

In summary the financial picture at Alkermes is strong. We're on track to meet our financial objectives while at the same time investing in our promising portfolio so that we can advance these programs to the clinic. With that let me turn the call over to Rich who will update you on our portfolio.

Thanks, Jim. Hello, everybody. I'm going to give you a little bit more kind of a general view of what's going on in the Company in the portfolio. And let me start by saying that the past quarter was a remarkably productive one for the Company. A number of things occurred during that first quarter that were not unexpected but were critical for us to achieve in order for us to be ready for the next phase of our growth. I suppose they would have been surprised if we had accomplished them. But we did and now we enter the second half of this calendar year extremely optimistic about what lies ahead. We see the value of the Company changing significantly and we expect positively based on data and events that will occur pretty same, literally, within the next 4 to 6 months. Obviously Consta looks like it can be a very important product for us perhaps one of the most significant breakthroughs in the treatments of schizophrenia in the past decade. J&J has characterized Risperdal Consta as a paradigm shift in the treatment of schizophrenia and early returns from markets outside the U.S. are (indiscernible) exciting.

But in addition to Consta a whole lot has changed at Alkermes over the last few years. Pipeline -- which was largely ignored by investors more focused on understanding U.S. regulatory status of Consta for the past several months has progressed significantly. We have a remarkably strong pipeline of products in development, both with partners and for our own accounts. We expect key milestones in literally every development program during the remainder of this fiscal year.

With our partners, we have made progress in programs that do not typically receive much attention from the investment community. But have quite important potential medical and economic benefit. For example our collaboration with Lilly for inhaled insulin -- for Serrano (ph) for long acting injectable follicles stimulating hormone for female infertility (indiscernible) and with toward (indiscernible) a long acting form of Exenatide. These collaborations continue to hit milestones and continue to be extremely productive for us. On proprietary product front we made outstanding progress with Vivitrex for the treatment of alcohol dependence and our inhaled formulation of epinephrine (AIR-ep) is beginning to make real headway in this development. And as Jim mentioned very significant accomplishment during the quarter with a conversion of our convertible debt into equity. This leaves us with a very very clean capital structure and provides us with tremendous financial flexibility going forward. So let me address some of these in more detail.

Let's start with Risperdal Consta. So as you all know, Risperdal Consta is our long acting form of (indiscernible) the most widely prescribed atypical antipsychotic that we developed in collaboration with Janssen Pharmaceutica -- a division of J&J. Risperdal Consta sales continued to grow as Janssen launched the product in markets around world. So far Janssen has filed for approval in 54 countries. The product has been approved by regulatory authorities in 35 of those and Janssen has launched marketing efforts in 15 countries -- most recently including Spain in July.

The market update -- uptake today exceeds the expectations of our team here at Alkermes, and our partners at Janssen and provides us with an indication of the potential reception in the US. Already according to J&J's numbers, Risperdal Consta has achieved approximately 15 percent of Risperdal Consta sales in Germany and the product has achieved tremendous interest in the physician community around the world.

As you know after a vast amount of work by both Johnson & Johnson and Alkermes, J&J delivered a complete response (indiscernible) FDA for Risperdal Consta during the past quarter. In accordance with (indiscernible) guidelines we would expect a response by October 29 (indiscernible) and we expect the response to be favorable.

The success we're enjoying overseas is really a testament (indiscernible) quality of the product and b., I think to the exceptional marketing effort by our partners at Janssen. They have launched an extensive and aggressive education campaign aimed at the issue of treatment compliance in schizophrenia, a concern that is addressed head-on use of Risperdal Consta -- unlike oral Risperdal, which is dosed daily Risperdal Consta dosed once every two weeks in a physician's office. What is becoming increasingly clear, is the treatment is not inherent widespread among patient population and that doctors often overestimate the patient's level of compliance.

The effects of noncompliance are devastating. J&J recently highlighted data gathered from the California Medicaid database, which demonstrates missing just one in ten days of therapy can double the risk of hospitalization and relapse and additional research shows that continuing cycles of relapse lead to further deterioration and worsening of patient's symptoms.

More and more physicians and psychiatrists are recognizing treatment compliance as a major issue in the management of schizophrenia and its increased level of awareness is driving interest and ultimately we believe sales for Risperdal Consta. (indiscernible) treatment compliance there's also growing clinical evidence that Consta provides improved tolerability vs. oral Risperdal.

As one would expect daily treatment with oral Risperdal yields expected peaks and troughs in plasma concentration generally staying with oral medication. And (indiscernible) side effects are often associated with the peaks in plasma concentration. However, with Risperdal Consta the long-acting delivery yields steadier plasma levels over time. So one would expect to see a lower recurrence of side effects with Consta. Early experience in Europe supports this view. J&J is conducting additional trials designed to demonstrate the drug's potential to improve compliance in tolerability and drive this market acceptance for this delivery alternative.

We believe Janssen's marketing plan is well crafted, supported by a growing model of clinical evidence and it will maximize the product's potential. So in support of all that here at Alkermes we're focused on our manufactured responsibilities for Consta. Our manufacturing facility in Wilmington, Ohio, is well-equipped to meet what we expect to be strong worldwide demand for Risperdal Consta and as Jim mentioned we completed our shut down, we've upgraded our facility and now we're running multiple shifts and we're working hard to support a U.S. launch and projected worldwide demand for the product.

As we've previously discussed, we recently completed a construction of the plant expansion in Ohio and it is now in the process of being validated and brought online. Once online, you have production capacity sufficient to supply J&J with quantities of Consta that they're forecasting.

While the situation could change of course based on a number of factors, at J&J's direction, we're preparing our organization and our facilities to supply quantities of Risperdal Consta that could generate annual peak sales in excess $1.5 billion per year.

So, overall, we're very excited about the potentials for Risperdal Consta, we're extremely encouraged by the response from the marketplace for this therapeutic advance. This is indicative of the type of product that we're developing here at Alkermes generally with these advance (indiscernible ) technologies that we've developed. With that as an (indiscernible) let me shift now to talk about Vivitrex.

Vivitrex is our long acting formulation now of (indiscernible) that we're developing as a treatment for alcohol dependence. At the end of March, 2003, we completed enrollment in our pivotal Phase II clinical trial. Let me take a moment and provide you with an overview of the program. We enrolled 624 patients across 24 centers in the US. Following a six-month treatment period, patients can enter into an extension study that will collect long-term safety data for an additional 12 months.

That extension study is well underway with more than 80 percent of patients completing the Phase III electing to enroll in the extension trial. For those of you who attended or watched our analyst day presentations on the Web, you began to see the architecture of this sophisticated program. Now alcohol dependence is a complex disease and we were very careful when creating our trial design. Our protocol is designed to balance key variables that we have determined have the potential to influence the patients' response to (indiscernible) and the six months duration of the study provides advantages over three-month study typically conducted in syndication.

We believe that the typical method that we've developed, and the primary efficacy outcome that we're measuring which is reduction in the rate of heavy drinking rate events will enable us to demonstrate the safety and efficacy of Vivitrex, in this patient population.

We're leveraging our experience with Consta to develop a comprehensive marketing plan for this product. Much in the same way that Risperdal Consta improves compliance for schizophrenia patients Vivitrex's long-acting formulation eliminates the need for retreatment and encourages patient compliance which may also ultimately help patients reduce the amount of alcohol they consume and potentially help them remain abstinent for longer periods of time. (indiscernible) details as we are evolving (indiscernible) marketing strategy. We intend to focus on the 2.3 million alcoholics seeking treatment in the US each year.

We plan to position treatment with Vivitrex in conjunction with psychosocial intervention as the standard of care and to launch our commercial marketing effort by first targeting the patient to seek treatment through an alcohol abuse center or an addiction specialist. We're planning on building a dedicated marketing and specialist sales force to detail these markets but importantly expanding this focus through one or more marketing partnerships. On this front we have begun our discussions with potential marketing partners. One of the most gratifying I'd say and important development of the quarter is the validation of the market potential for Vivitrex we have gained through due diligence conducted by others in the context of these discussions. We're convinced now more than ever that Vivitrex has potential to be a major therapeutic advance and our discussions are ongoing with potential marketing partners.

The potential for the product is significant, as currently approved drugs for syndication are limited, they have limited clinical data and they're not actively promoted. We have a clear opportunity to redefine how alcohol and (indiscernible) dependence is treated and position Vivitrex to the treatment of choice for this untapped market. Our immediate focus with this program in near-term is of course the complete and analyzed Phase III data.

With the last patients coming out of the study at the end of the fourth-quarter our goal it to have topline results at the very end of calendar 2003 or early 2004.

In addition to the clinical development, our team continues on a number of separate activities including building relationships with thought leaders and of course conducting these partnering discussions I mentioned with potential collaborators. Beyond these two lead programs with Risperdal and Vivitrex we have a number of projects that are equally as exciting. And while we spend a great deal of time is discussing the late stage pipeline it's worth recognizing we have a portfolio of candidates that are moving along nicely in their development and I will briefly review (indiscernible) of these other two programs.

Insulin. We're working extremely closely with our partner Eli Lilly to advance the air insulin program and (indiscernible) capabilities for the product. Our clinical program is moving forward and multiple clinical trials are underway. We're conducting for example our randomized multicenter cross over trial in patients with diabetes. Where we're looking at safety and efficacy. The response from physicians and patients alike has been very positive in the study and you can imagine we're very encouraged by this preliminary market (indiscernible) history, if you will from the context of our clinical trial. We're also expanding our clinical experience with the product candidates and are conducting additional studies including importantly its use in special populations.

In tandem with the clinical activities we have been focusing on expanding our air manufacturing capability and we've been moving forward with our plans to prepare our production facility in Chelsea, Massachusetts, for commercialization. Our commercial scale spray dryer and filling equipment are operational and we are in the midst of scale up work and validation in that plant. During the quarter we had news use from our scientists that it started to snow in Chelsea which meant that they began spray drying large-scale insulin batches in the large equipment for the first time.

The scale has gone extremely well. We're on track to complete this work on time. Our goal was to finalize the commercial systems design by the end of the fiscal year -- overall the program is on track, and we've taken advantage of the restructuring of our collaboration with Lilly which gave us the financial resources to drive the development of the program in the near-term.

Epinephrine. AIR epinephrine is Alkermes; second proprietary product and shares features with the Vivitrex program in that it allows us to capture for our own account, the extensive amount of work that we've done to advance a particular delivery systems in collaboration with a pharmaceutical company partner. For Vivitrex it is Metabsorb and our work with J&J. For epinephrine it's our air technology and the work we're doing on insulin and hGH with Lilly. We're also leveraging our experience in proprietary product development with the Vivitrex program to effectively and aggressively move the product further downstream as cost effectively as we can.

We have completed two Phase I clinical trials now for air-EPE (ph) which have produced very encouraging results and show we can deliver therapeutic concentration of epinephrine via the lung. With this clinical data in hand, the program has passed an important milestone. We intend now to meet again with regulatory authorities in U.S. and in Europe to settle on the final registration strategy for the product.

In the meantime, we're working on finalizing the inherent design in the powder production processes as well as packaging. Our clinical work continues and we're currently conducting a pharmacokinetic and pharmacodynamic dose ranging study for topline results expected by (indiscernible ) here.

FSH. We have a collaboration going with Serono (ph) for the development of a long acting injectable form of follicles stimulating hormone or FSH. Serono recently conducted a Phase I B study that invalidated not only safety in pharmacokinetics but also estrogen levels of follicles development by ultrasound. Now (indiscernible) data are now underway we're optimistic about the outcome of this trial and we anticipate that Serono will pursue with additional clinical trials, although we expect a formal decision in the fall.

AC2993 LAR -- we continue to work with amylin and Eli Lilly on a long-acting formulation in extended type LAR-- as you may know (indiscernible) currently conducting Phase III trials of Exenatide administered by twice daily injection. (technical difficulty)

Our collaboration for Exenatide (ph) LAR is focused on creating a more infrequent dosing schedule through the development of a sustained relief subcutaneous injection in the cytokine for treatment of people with Type II diabetes. This is based on the Metabsorb technology, the technology we're using for Risperdal and for Vivitrex as well. This is our only program that is based on a product not yet approved probably in clinical trials but we continue to see very promising data emerging from amylin development program for (indiscernible). Just yesterday amylin announced typically significant results from the first three pivotal Phase III clinical trials for (indiscernible) and we are obviously extremely encouraged by the data.

So optimistic about this program and ultimately the market opportuity for a long-acting release formulation of this novel and exciting compound.

Air hGH. We have another program with Lilly for an inhaled formulation of hGH based on our air technology. We recently announced the results of a single-dose Phase I study in which our inhaled formulation demonstrated accessible pulmonary bioavailability and a chief dose equivalent to a subcutaneous injection of hGH. Both the teams here and at Lilly are encouraged by these results and we're happy to report that Lilly has decided to move forward with multiple dose studies with the inhaled formulation.

Before I open the call to questions let me update you on what you can expect over the next several months.

Before I review the upcoming milestones, let me remind you about the forward-looking statements that Rebecca summarized earlier in the call. Our late stage programs continue to move forward and we are anticipating key milestones this year that if achieved will support our transition to a fully integrated biopharmaceutical company. First of course we anticipated U.S. approval for Consta, as well as additional approvals and market launches worldwide. Two, we expect the completion of Phase III clinical trials and results from our study of Nutropin Depot and adult growth hormone (indiscernible) (inaudible). Number three we expect to complete our Phase III clinical trial and announce topline results late calendar 2003, early 2004. And of course we continue to drive clinical and development activities with Air insulin, air epinephrine (indiscernible) and the air hGH. We are beginning to see a great deal of maturation and traction in this portfolio. We are encouraged by Risperdal Consta launches this fall. I must say, we're really excited here about the potential market opportunity for Vivitrex, and even the (indiscernible) earlier stage pipeline. We have taken the steps to ensure that we have the manufacturing infrastructure in place to support these programs and we're in the process of finalizing our marketing plan for our first (indiscernible) compound Vivitrex.

Overall, we seem to be committed to strengthening our organizational infrastructure operation so we're well positioned to maximize the value of this product portfolio that we've worked so hard on for so long to develop. We look forward to updating you on all these events in future calls and with that I will open the call up for questions.

(CALLER INSTRUCTIONS) Mara Goldstein for CIBC World Markets.

I have a couple of question with respect to the plant shutdown in the first quarter. Actually can you tell us how many days the plant was shut down in the quarter and then I was hoping you might be able to talk a little bit about the partnering for Vivitrex since you actually entered into discussions perhaps you can share with us the characteristics you're looking for in a partner, given this market is not very well-characterized.

With the first one, Mara, it's I won't be able to give you the specific numbers (indiscernible) number of weeks but I don't have a specific number in hand. And it was important shutdown because we are really are, really now that we've come out of it, preparing now to be on multiple shift operation going forward essentially continuing this production to supply market demand we expect for Risperdal Consta (indiscernible) going forward now so it's important to get that under our belt successfully and we are glad that we did.

With respect to the Vivitrex partnership it's really interesting how this plays out over time because in the beginning when we started off we were firmly committed to marketing this product ourselves feeling like we could circumscribe a market here we could go after ourselves without the need necessarily for a pharmaceutical company partner. As time passes now and as we are -- two things happened. No. 1, we are conducting our own more extensive market research and No. 2, pharma companies are coming in doing diligence and making proposals.

(CONFERENCE CALL CONCLUDED)