Alkermes Plc (ALKS) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Alkermes conference call to discuss today's announcement. 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 the call is being taped at Alkermes' request. At this time, I would like to introduce your host for today's conference, Miss Rebecca Peterson, Director of Corporate Communications at Alkermes. Please go ahead.

Thanks Tom. Good afternoon and welcome to the Alkermes conference call to discuss the financial results for the second quarter of fiscal 2004, which ended on September 30, 2003. With me today is Richard Pops, our CEO; and Jim Frates, our CFO. 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 based on our knowledge of our business, various factors may cause actual results to differ materially from our expectations. These include whether manufacturing and royalty revenues for Risperdal Consta or other products meet the magnitude and timing we expect, particularly because we rely on our partners to market those products; whether additional regulatory approvals will be received or whether regulatory commercial losses of Risperdal Consta in countries where it has been or maybe approved occur in timely and successful manner; whether we enter into any collaboration with a third party to market or fund a proprietary product candidate; and whether terms of such a collaboration meet our expectations; whether the securities litigation suit brought against us will result in financial losses or require dedication of significant management resources; whether advancement of our pipeline will be delayed due to actions or decisions by our partners with regards to development, regulatory strategy, timing and funding which are out of our control, the outcome of clinical and pre-clinical work we are pursuing, including the results of clinical trials, potential changes in cost, scope, and duration of clinical trials, and our ability to successfully and efficiently manufacture our commercial products and scale up our product candidates. For further information with respect to these factors and how they could differ from our expectations, reference is made in the reports filed by us with the SEC Alkermes disclaims any intention or responsibility for updating predictions or financial guidance contained in this conference call.

During the call today Jim will review our financial results for the quarter and then Richard will review progress on our products and pipeline, including Risperdal Consta and Vivitrex. With that, after that we will open up the call for Q&A. Now I will turn the call over to Jim to review financials.

Thanks Rebecca, good afternoon and hello everybody. Before I review our quarterly results, I'd like to comment on the great news we had last week concerning the approval of Risperdal Consta in the United States. In this quarter's results we are beginning see our revenues ramp from Risperdal Consta's growth and if our partners' predictions about Risperdal Consta are correct, this product will become a key aspect of our financial picture for years to come Risperdal Consta is now approved for the treatment of schizophrenia in more than 40 countries and launched in more than 20. We are the exclusive supplier of this product for J&J and had been producing product in our Ohio facility for markets outside the United State for sometime. In October -- in March of 2003 we shipped a batch that J&J required for the U.S. launch. From a financial perspective, this approval represents an important event as we focus on our goal of breaking into profitability in late 2000 -- in the late calendar 2005. We expect that this product will provide us with significant revenues, which will allow us to drive the development of our promising pipeline, which includes our proprietary products, Vivitrex and pulmonary epinephrine.

So on to our financial results. Our loss on a GAAP basis for the quarter ended September 30,2003 was $26.2m or 31 cents per share as compared to a net loss of $67.8m or $1.05 per share one year ago, which included a $35.3m dollar non-cash charge related to the equity investment Alkermes have made in Reliant Pharmaceuticals in December 2001. Because of the significant nature of certain non-cash items, we feel that it's important to discuss pro forma results that we as a management team more accurately reflect our ongoing operations. The pro forma net loss for the 3 months ended September 30, 2003 was $26.4m or 31 cents per share compared to a pro forma net loss of $28.9m or 45 cents per share in the same quarter of the previous year. The pro forma net loss for the second quarter of fiscal 2004 excludes a $900,000 non-cash derivative charge associated with the provisional call structure of our 2.5% convertible subordinated notes issued in August and September 2003, as well as a $1.1m non-cash income recognized on the net increase in the fair value of certain warrants we hold.

Pro forma net loss for the quarter ended September 30 2002 excludes the $35.3m non-cash charge related to our investment in Reliant and a restructuring charge of $3.7m. The decrease in the pro forma net loss for the second quarter 2004 versus the same period one-year ago resulted primarily from the write-off of approximately $2.7m in deferred merger costs associated with the termination of our proposed merger with Reliant in the quarter ended September 30 2002. The net loss was also impacted by a reduction in the revenues reported in the quarter ended September 30, 2003, relating to the change in our collaboration with Eli Lilly in December 2002, as well as changes in the stage of several other collaborative arrangements. Total revenues for the quarter ended September 30 2003 were $7.5m compared with $9.5m for the same period in the prior year comprised of both manufacturing and royalty revenues and research and development revenues. Manufacturing and royalty revenues for the second quarter were $5.3m, which includes $5.1m in revenue related to Risperdal Consta. That is up from the $1.5m in the quarter ended June 30 2003, including $1.1m relating to Risperdal Consta.

Research and development revenues for the quarter ended September 30 2003, were $2.1m, compared to $9.5m for the same quarter in the prior year. The decrease was primarily as a result of the restructuring of our AIR Insulin and AIR HTH programs with Lilly, changes in the Company's partners as well as changes in the stage of several other collaborative programs. As previously mentioned, as of January 1st, 2003, we no longer record research and development revenue for work performed on our Lilly programs, but use the proceeds from the sale of $30m of our preferred stock to Lilly in December 2002 to pay for the development of the programs into calendar 2004. For our second fiscal quarter, costs of goods manufactured totaled $4.6m consisting of approximately $3.5m for Risperdal Consta and approximately $1.1m for Nutropin Depot. Research and development expenses for the quarter ended September 30th 2003 were $23.4m, lower than last year's $28.2m expense, due primarily to the fact that we are now separately reporting the cost of goods manufactured for our commercial products Risperdal Consta and Nutropin Depot. This decrease was partially offset by an increase in occupancy costs and depreciation expense related to the expansion of our Massachusetts and Ohio facilities as well as an increase in our external research cost. General and administrative expenses were $5.9m for the quarter, lower than the $9.2m in G&A expenses for the same period in fiscal 2003, primarily as the result of the write-off in the prior year of approximately $2.7m that I referenced earlier. However there was an increase in personnel and insurance cost during the quarter ended September 30th 2003, as compared to the same quarter of the prior year.

Total income, total -- excuse me -- total other income net for the 3 months ended September 30th 2003 resulted in $200,000 of net income as compared to $1m of net expense in the same period of the prior year and those details and the amounts are outlined in more detail in our press release. At September 30th, 2003, we had total cash and investments of a $197m as compared to $145m at March 31st 2003. The increase is primarily due to the issuance of a $125m of our 2.5% convertible subordinated notes during the quarter, which was partially offset by cash used to fund operations, acquired fixed assets [and] make interest in principal payment on certain bank loans. Before I turn the call over to Rich, let me take a moment to review our fiscal 2004 financial guidance. As we mentioned during last week's call, we are reaffirming our guidance for the fiscal year. As a reminder, we are expecting $30-$35m in manufacturing and royalty revenue during fiscal 2004. We expect our manufacturing and royalty revenues related to Risperdal Consta to continue to build gradually in our third quarter followed by a robust fourth quarter. Of course, it's important to remember that these events are highly dependent on many factors including the production schedule and the timing of shipments to Johnson & Johnson. We will update you as we learn more about J&J's launch experience in United States and in other Key markets.

We are also maintaining our expectations of $40-$50m in research and development revenues. As we've previously discussed, this guidance include an anticipated partnership for one of our proprietary programs. This is unlikely to occur before the fourth quarter; therefore we expect our R&D revenue for the fiscal third quarter to remain in line with the second quarter. In summary, the financial picture at Alkermes is quite strong. As is generally indicates with companies that our stage through results of our development programs have a major impact on our financial plans. I am happy to say with the approval of Risperdal Consta in United States we now have a major milestone behind us. We can now focus on our other development programs and manufacturing Risperdal Consta, a product our partner J&J plans to launch aggressively in United States over the next few weeks. With that, I will turn the call over to Rich.

Thank you Jim. Hi, everybody. I just got to say I am extremely pleased to report on the events of the past few months and our continued success in executing against our corporate objectives. We -- at the beginning of the year we really defined a clear set of objectives for ourselves relating to operational and financial goals that we identified as being critical to building the company that we expect to become. These aren't general or cinematic or conceptual goals, but these were specific deliverables as we began the year, for example, get Consta approved in the U.S. in calendar 2004, complete enrollment in our Vivitrex Phase III clinical trial by the end of March, so that we could have data by the end of the year, get our debt converted into equity in order to strengthen our balance sheet and give us financial flexibility and so on, a list of these types of objectives. Our accomplishments over the past few months have set the foundation for the company, which is this is multi-product, fully integrated, and ultimately profitable biopharmaceutical company. What Jim didn't say, as explicitly as I'll say is that the U.S. approval for Risperdal Consta is perhaps the key piece in this entire puzzle. Risperdal Consta changes the profile of this company, likely for the next decade and probably longer than that. Now withstanding the fact that Wall Street focuses on our currently quarterly-financial results appropriately so, the impact of Risperdal Consta on our business will be measured over the long term. Again, with a caveat, if the projections from our partners at J&J are correct, Risperdal Consta will provide a revenue base for this company that will allow us to continue to make good on the promise of the superb technology assets that we've built over the last several years and that we control, that is the power of Medisorb, our injectable, extended-release technology, our AIR pulmonary drug delivery technology, and our other prosperity delivery and formulation technologies that we use to generate more and more important product candidates on our own and in collaboration with these pharmaceutical companies as partners.

So in our view we find ourselves now on the threshold of a change in the profile of the company. The launch of Risperdal Consta in U.S. and more visibility with respect to its promotional potential will begin to be integrated in the valuation of our business. As Consta moves now from being a question mark, to being a performing asset, we hope to encourage a more comprehensive assessment on the other components of our business and of our pipeline. These components we feel have a significant and surge for under recognized medical and economic potential. From a communications perspective, from the investor-relations perspective one of our jobs over the coming months is to raise the understanding of the complete set of opportunities that we are pursuing here at this unusual company. Let me spend a minute on some of the Risperdal Consta particulars, and then some of the other features of the pipeline and other links. But first, let's talk a bit of Risperdal Consta. On October 29, the FDA approved Risperdal Consta as a treatment for schizophrenia, this was an extremely significant milestone for the company, as I've described. But we are really proud here at Alkermes that our drug formulation expertise has been the driving force behind the development of what many are characterizing to be the most significant advance for the schizophrenia in many years. Just this morning I was talking with some of the Johnson people regarding the launch and one comment stuck in my mind to the effect that when the people said, doctors have been waiting for a long acting atypical for 10 years and they finally have it. It's really a cause because we have been working on this drug almost that long, so it seems rather familiar to us and to those of you who follow the company for a long time. What we forget sometimes is that this is a completely new product, a completely modern product, which is being rolled out for the first time to the broad psychiatric community in U.S.

As you know, Risperdal Consta's long-acting formulation, a direct as the issue of treatment compliance, which is the key challenge in the treatment of schizophrenia. The ultimate hope, of course, is that increase compliance will allow doctors and patients to better manage schizophrenia and reduce the unintended consequences of noncompliance, such as relapse, hospitalization and further progressive deterioration. We have certainly seen evidence of this promise overseas. The clinical experience in the markets where Risperdal Consta has been launched has been extremely positive. To date, Risperdal Consta has been approved in over 40 countries, launched in over 20. We heard today, for example, is approving [inaudible] which was big news but I don't think Jim shared with you in his remarks. Additional studies are also providing further evidence of the benefits of treating with Risperdal Consta. One such study was just published in the October 2003 edition of the Journal of Clinical Psychiatry. This study provided initial data suggesting clinical outcomes could be improved with long-term Risperdal Consta use. The study enrolled patients who were stabilized with relatively low positive and negative symtom scores on oral and by psychotics or older Depot anti-psychotics remarkably or maybe not, maybe predictably after being switched to Risperdal Consta, patients showed further significant reduction in their PANSS scores, their Positive or Negative Symptom Scores, as well as, low re-hospitalization rates and improved quality life. In U.S. J&J is preparing for an aggressive launch. Certain launch activities have already begun, given the highly competitive nature of this marketplace, we have been asked not to comment specifically on the launch strategy or the launch timing. It will become clear over the next several weeks, I will, however, give you some sense of the overall positioning of the product from our point of view in the treatment of schizophrenia.

We expect the marketing strategy will focus on the clinical advantages of the long acting formulation of an atypical anti-psychotic. Specifically, how continuous and steady drug delivery can lead to improved therapeutic outcomes for patients. We understand that J&J is planning seminars designed to teach doctors and nurses how to administer Risperdal Consta, and we are encouraged to hear anecdotes that doctors and nurses who administered this product, administer the product find it extremely easy to use. Of course we note that the Medical community is already quite familiar with injectable therapies for schizophrenia. As almost 10% of schizophrenia patients worldwide are receiving long acting injectable [inaudible] formulations. While the pricing data for the products has not yet been disclosed, as we mentioned before we expect it to be priced inline with atypical to complete with Oral Risperdal just as it is in the other countries where Risperdal Consta is sold. This pricing is of course a reflection of the overall value that this first long-acting atypical provides to patients, healthcare professionals, and the healthcare systems. For these same reasons, J&J informs us that they do not expect any significant issues with respect to reimbursement for Risperdal Consta. Risperdal Consta is a first in class medication that meets the clear medical needs. We believe many patients suffer from schizophrenia are covered under a Federal or State program, and J&J has long standing relationships with pairs in the area of mental illness drug. J&J intends to provide both public and private pairs for the appropriate efficacy and Alkermes based information about Consta, so they can make and the imbursement decision. But, we are all very extremely optimistic the prospects for this products in the US. We believe that the combination of the J&J's marketing strategy and launch plan combined with the Medical community's interest in the product will make Risperdal Consta a very successful product here.

Anecdotally, the doctors we've spoken to and others that we've spoken to in conference calls and one-on-one understand the need for a long acting atypical preparation, and are looking forward to the availability of this new therapeutic option. We ourselves here have heard all kinds of stories about individual patient's clinical and social improvements after extended treatment with Risperdal Consta. Given the US approval, we at Alkermes are focused on our ongoing role in this relationship, which is our manufacturing role. We've been making Risperdal Consta on a worldwide basis for over a year, on more of a commercial basis for over a year [through our plant in Ohio].. We have already shipped products requested by J&J for the US launch, as we mentioned that occurred in October.

We are in the final stages of expanding and validating capacity additions that will meet the predicted growing demand for the product. Executing our manufacturing responsibilities well and bringing a new capacity online are big priorities for us. And we intend to complete the expansion as soon as possible. That's all I was going to say on Risperdal Consta now, let me say a couple of things about Vivitrex, and then we'll finish up for questions. So Vivitrex is a long acting formulation of naltrexone. As I mentioned earlier, we are expecting to announce top-line results from our pivotal Phase III clinical trial in the late December early January time frame, and we are encouraged by potential for this product particularly in light of the recent success with Risperdal Consta. The challenges for treating alcohol dependence are very similar to the challenges facing the treatment of schizophrenia. In that this patient population has difficulty in adhering to a daily self-medicating treatment regiment. The long acting formulation of Vivitrex is designed to enhance patient's compliance to the prescribed treatment regiment and we believe that this will alternately yield an improvement in patient's ability to maintain their sobriety.

Let me just review the trial design. It's a study of 624 patients across 24 centers in a six-month trial. The last patient completed dosing in September. Following the six-month treatment period in the study, patients had the option to enroll in a 12 month extension study. This portion in the study is well underway, and we are pleased to report that more than 80% of the patients who have completed the Phase III have elected to continue an extension trial. Our trial protocol is designed to balance the key variables that we determined to have the potential to influence the patient's response to naltrexone. In the 6 month duration of the study provides advantages we feel over the 3 month studies typically conducted in this indication. We believe that the statistical method that we have developed and the primary efficacy outcome that we are measuring, which is reduction in the rate of events of heavy drinking, will enable us to demonstrate the safety and efficacy of Vivitrex in this patient population.

Parallel to our clinical development efforts, we have been focused increasingly on our marketing strategy for the product. We intend to focus on the 2.3m alcoholics seeking treatment in the U.S. and physician treating them with Vivitrex in conjunction with psycho-social therapy as the standard of care. As part of this effort, our team continues to build relationships with thought leaders in the area of addiction. If approved, we plan to begin our commercial marketing efforts by first targeting the patients that seek treatment through an alcohol abuse center or from an addiction specialist, and we are preparing to build a dedicated marketing and specialist sales force to detail these markets. Beyond this patient population, which we consider the core patient population, we will expand on the market through one or more marketing partnerships. On this front, our discussions with potential marketing partners are ongoing. If we have a successful outcome of our pivotal study, we are optimistic about the potential for the product, especially since currently approved drugs for this indication are not actively promoted. With Vivitrex, we see a clear opportunity to redefine how alcohol and opioid dependence is treated and position this long acting formulation as treatment of choice in an untapped market, and we are looking forward to obtaining and then reporting to you the results of our phase III clinical trial.

We have chosen on this call to focus on Consta and on Vivitrex, our two later stage products for which we expect news over next several weeks. Beyond these products, of course, is our full pipeline of candidates based on our AIR, Pulmonary technology, our proprietary product epinephrine, and our healed formulations of insulin and human growth hormone with Eli Lilly. We also have in development long acting formulations of Serono's fertility drug, follicle stimulating hormone and Amylin's exenatide for the treatment diabetes. I am not going to summarize those in this particular call, but that's not because of a lack of the passion for the programs. We are in the midst of a scale up in validation activity at our production facility for AIR insulin in Chelsea, Massachusetts, and we are on track to finalize the commercial inhaler system design by the end of the fiscal year. We just hosted a ribbon cutting ceremony at the Chelsea facility just last week.

So as earlier described and as promised at the beginning of the year, we are experiencing a dramatic shift in our corporate profile as we prepare for the next phase of our growth with two approved products, major clinical results expected for new products in the next 8 weeks and a robust pipeline behind us. It's an exciting period for us and we just passed one of our major milestones for year, and we look forward to updating you on the events in future calls. With that I will hush, and I will open it up for questions.

Ladies and gentlemen, at this time if you do have a question or comment, please press the "1" key on your touchtone telephone. If your question has been answered and you wish to remove yourself from the queue, please press the "#" key and if you are on a speakerphone, please lift the handset before asking your question. Our first question comes from Sena Lund from Cathay Financial.

Hi, congratulations on the approval. My question is on pricing, if you can give us some sense in European countries -- I know you have mentioned 50-80% premium to Risperdal, but in any country is Consta's price above the [Xibrex's] price or is it possible to have a higher premium?

I think that we will refer specific pricing questions directly to J&J; we had a specific request for that today on that particular matter, but the European prices obviously are publicly available, and if you have any trouble getting those you can contact Rebecca Peterson here and she will help you do that. We expect the U.S. pricing to be available within a matter of days, if not weeks, and we expect, you know, similar pricing strategy as we've seen ex-U.S. with respect to the value of the product.

And on Serono's project you know it was supposed to be decided by October -- any update?

We never said that it would be decided by October, but we've said, I think, publicly before the product is progressing well, we've just recently completed a clinical trial that had very positive results in it, and I think that it's really now between the business development teams and the technical development teams to lay out what the path is so we kind of take you it publicly.

Thank you

Thank you, our next question comes from Rachel McMinn from Piper Jaffray.

Hi there, my question pertains to the manufacturing royalty number for the quarter was significantly greater this quarter then the first quarter, and I am wondering if you can give us directionally why that was -- is it, you know, a similar split between manufacturing and royalty revenues for Consta, or I think you had mentioned that there is probably no U.S. shipments basically there is a build up for France; so can you give us a little bit more color there?

Sure Rachel, hi it's Jim. I am not sure I'll be able to give you more color other then saying, you know, to remind you that the major part of our royalty is that what comes from manufacturing shipments and not from royalty on end sales from J&J, and we've talked about that obviously many times before. I think the changes as J&J looks forward and product is being sold overseas in more and more countries; it's being launched in more and more countries; they are essentially asking for more and more shipments from us. And as I mentioned we expect that to grow through the next couple of quarters and obviously beyond that as well. And I just -- I would make the point as I made earlier that the quarter ended September 30 did not include shipments from United States.

Okay, that's helpful. So can you comment qualitatively on the royalty aspect of Consta, is that -- are you seeing a nice increase there versus the first quarter, even though it's probably small?

Well, I think the growth in -- the $5.3m speaks for itself. And as we further to this process as I said we will keep you abreast, when it becomes important for us and material to our overall projections we will try and keep you abreast of as much information as we can on the breakdown between shipments and end sales, and we are working with our partner J&J to make sure that we can do that.

Okay, and then one last question, you mentioned that you started shipping to the U.S. -- for U.S. product in October. I am a little bit confused by your guidance for the fourth quarter being robust, but the third quarter being just kind of a steady good quarter, is their something -- is their going to be a delay in the U.S. launch that it should happen that you should be shipping more of the product in the fourth quarter?

No, it's really just got to do with continued growth from quarter-to-quarter. I think we expect each successive quarter to be growing from the previous quarter during this fiscal year, so you saw growth from the second quarter from the first. I expect to see growth from the third quarter compared to the second and I expect to see growth from the fourth quarter from the third, if that makes sense.

Sure, okay thanks so much.

Thank you. Our next question comes from Ian Sanderson from SG Cowen.

Good afternoon. Thanks for taking the call. In the press release there is a recline, this is regarding the R&D revenues where you referred to changes in the Company's partners as well as changes in the stage of several other collaborative programs. Could you just elaborate on what exactly occurred there? And secondly, Richard made the statements at the end of his remarks that the Chelsea facility is -- you are on track to finalize the inhaler design by the end of this fiscal year, would that be to go into pivotal clinical studies for the insulin program?

Yes, Ian it's Jim. I'll answer the first question while Rich answer the second. In terms of that disclosure that we talked about in terms of revenues, I believe it's the same disclosure that we had last quarter. And it essentially refers to change in the Company's partnership was -- when Glaxo decided not to move forward with the number of the programs that we are working on with AIR.

Okay.

That's the change and in terms of the stage of development, as you know we are working with Amylin and Serono and those two in particularly because now the Lily ones are funded separately.

Okay.

Those products are moving forward and so as those change and the work changes will be reporting different revenues depending on the -- as you know the activity we do in each quarter based on those programs. It's not always flat through the year depending on the work we do versus the work our partners are doing in clinical trials for instance.

But in the near-term act this license to be in Q4, we should expect that royalty in the R&D revenues to be pretty much the same as they were at this quarter?

Yes, that's right. That's what I said on the -- in my remarks.

Okay.

And Rich, you want to address that?

Ian, we've said publicly before that some of the key deliverables before product decision and the full blown registration studies on the inform program R3 one is the completion and positive alternative from the type II -- the type I Phase II study, the scale up in of the powder production processes in our Chelsea facility, so that's operational and the completion of the inhaler final design -- commercial design and so we are on track for all those things for next year.

Great, thank you.

Thank you. Our next question comes from Mara Goldstein from CIBC World Markets.

Thanks. I just actually wanted to confirm something so that I understood it correctly. In terms of the R&D revenue number for the year, that anticipation of $40-$50m includes -- I am assuming an upfront payment from a partner?

Yes, that's right. And Mara it's likely to be recognized as revenue because it will be quite that you are going to offset certain development cost that we have funded this year ourselves.

Okay. And I don't know if you can speak to this or not, but with respect to the Lily $30m funding for the AIR inform program, can you update us in terms of how far you are to that spend?

Well, as I said we mentioned that that's going to take us into calendar year 2004.

Okay. Thanks.

Thank you.

Thank you. Our next question comes from Michael Hearle from Leerink.

Hi, good afternoon. Just, I guess to clarify again on that what appears to be something like 30 or $40m of R&D payment in Q4, is this coming from an announced program that we are aware of at this point?

Well, Mike, again it's something we've said all along this year and there are programs -- we have got two proprietary programs with Vivitrex and epinephrine. We have other proprietary programs that we are working on, so it's likely to come from one of those programs

Right, it is something that's been announced?

Yes.

Okay, great.

And Michael it's Richard, the question is, is it some unknown product that you don't know about?

Yes.

No, it's not. It is something on the hit list of products that we talk about.

And I guess in back of Ian's question the timing and thoughts about moving to Phase III for inhaled insulin?

Well you know, I think, I don't think that Lilly has commented publicly, I think they are just recently in an Analyst Meeting even confirmed the first time that they are in this type one Phase II and based on the remarks we made earlier, you might deduce that we are kind of moving towards an '04 decision on this type of thing. But they are all, -- I will let them provide the specifics on it.

Okay great.

From our point you might just qualitatively, -- we think the program is going quite well. And we have -- there is a ton of activity going on the Chelsea facility in preparation for the -- open the commercial production of the product, and it's really that commercial oriented activity that we are elaborating on the epinephrine program.

Okay great. And two last questions. Maybe Jim if you can give us some idea of what you expect for, you know, range of CAPEX that you are still, that you also contributed to the Risperdal Consta manufacturing etc over the next year. The facility is in build out there, and would you just give us an idea of where headcount was at the end of last, and then at the end of the September quarter?

Sure. In terms of the CAPEX, we have said for this fiscal year that we expect the range to be around $14m. Again for this fiscal year ending in March in terms of the next expansion for Risperdal or you know, major capital expenditures there. It would really be associated with an expansion of our current facility, which would again quite dramatic, and we are not looking to major investments there in the near term. We did that essentially last year, and are finishing up and validating that facility now. So, in terms of the end of the last fiscal year, we were at roughly 440 people, and right now we are about 451. So, we have gone up a little bit. We have got anticipated growth similar to that range for the rest of this year, so we are not increasing headcount dramatically through the year.

Great, thank you.

Sure.

And Mike I'll just say on that the wild card on that -- on the facility stuff will be Vivitrex as well. If that reports out positively, and we are going to be in the long-term business of manufacturing with large quantities of Vivitrex, then we will put more CAPEX into the Wilmington facility.

Okay, I guess and then just since you brought that up, the sales force -- potential sales force size and scope that you had field in the states under the -- your expectations for what Alkermes which contribute to sales of Vivitrex?

It's a very fluid question right now. We actually have -- we have a very clear goal to long plan on how we would launch and promote the product to the key area of the bull's eye that I mentioned, and during my remarks, which would be at classic specialty size sales force. But, we also have very lively discussions with respect to co-promotion and other licensing type transactions. So, you have to consider it a non-answer right now, because we are still evaluating our alternatives. But, if we did it by ourselves, for example, Mike, you are not going to see a sales force in excess of you know on the order of a speaking around number on the order of a 100 people.

All right. Thank you.

You are welcome.

Thank you sir. Again ladies and gentlemen should you have a question or comment please press the "1" key at this time. Our next question comes from David Windley from Jefferies & Company.

Thanks for taking the question. Couple of questions Jim, the Nutropin Depot for the two quarters that you have broken information out, it looks like gross margin is negative -- am I looking at that correctly and when will that change?

Yes Dave, hi, it is negative; you are looking is that correctly, and the real change looking forward for us as, we've always said is the adult potential here. We've finished Phase III clinical trial with Genentech, and through the end of this year they are going to be reviewing that data and making a decision about what to do in the adult market, and obviously we don't expect to be losing money on that product for the long term.

Okay and then being on this R&D revenue question one more time, the payment from a partner - I'm hoping to get a sense for how visible that is; is that something that you are definitely planning to see not earlier than the fourth quarter, so it's definitely a fourth quarter not a third quarter event and then how definite is it in the fourth quarter in the guidance?

Well I think that's -- you've got our best estimates in terms of guidance. It also -- I wanted to talk specifically about the third and fourth quarter, because lots of people even though we guided, I thought, very clearly on our original conference call during the year, you know, that we always have monthly revenues and monthly expenses that this company; most people took our guidance and divided by 4. So I was trying to head off a number of questions about that. I think in terms of the size and scope of the partnership, you know, as again we are giving you good estimates about what we can give and what we know now.

Does it require multiple hits to get to the bogie that you've set or that any one of the potential hits would get you there?

Well, in the way we are trying to do this actually, I think any one of the potential hits could it get there and there is also other upsides that we have in our revenues, and I think as you can also see we are trying to control our expenses this year as well. We talked about, you know, guiding between $95-105m of R&D and we will be well under that, you know, at least for the first 6 months. So I think obviously these are very fluid companies and we've got more than one iron in the fire, to put that one.

Okay, thank you.

You welcome.

Thank you sir. There appears to be no further in the queue at this time; I would like to turn the program back to you presenters.

Great, thanks everyone for participating in the call and if you have any additional questions please call here at the company; have a good night.

This concludes today's presentation. Everyone have a nice day; you may now disconnect good day.