Alkermes Plc (ALKS) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Alkermes conference call to discuss fiscal year 2004 financial results. At this time, all participants are in a listen-only mode. Later, 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 the financial results for our fiscal 2004, which ended on March 31st, 2004. With me today is Richard Pops, our CEO, and Jim Frates, our CFO.

Before we begin, let me remind you that during the call today, certainly matters we will discuss contain forward-looking statements relating to, among other things, our expectations concerning the commercialization of Risperdal Consta, our future financial and business performance, including our revenue and expense expectations, operating plans, goals and objectives of management, proposed partnering arrangements and regulatory plans.

Listeners are cautioned that these statements are neither promises nor guarantees, but are subject to risks and uncertainties that could cause actual results to differ materially from our expectations.

In particular, the risks and uncertainties include, among other things, risks related to the continued launch, pricing, and market acceptance of Risperdal Consta and our other products, whether we can manufacture Risperdal Consta and our other products on a commercial scale or economically, and whether additional regulatory approvals will be received, and those other risk factors contained in our press release announcing our most recent results and in our periodic reports filed with the FCC, including, but not limited to, our annual report on form 10K, ended March 31st, 2003 and subsequent forms 10Q's.

We undertake no obligation to update or revise the information provided in this call, whether as the result of new information, future events, or circumstances or otherwise.

We're looking forward to providing you with a comprehensive update on Alkermes during our up-coming analyst day on this Monday, May 17th.

So today's comments will be focused on our financials and a brief update on our lead programs. First, Jim Frates will discuss our financial results and then provide our financial expectations for fiscal 2005.

Rich Pops will then present a brief update with our progress with Risperdal Consta and Vivitrex. We'll then open up the call for Q & A. We do hope to see all of you at our up-coming analyst day on Monday.

The program will feature Dr. John Cane, Vice President for Behavioral Health Services of North Shore, Long Island Jewish Healthcare System, and Chairman of Psychiatry [INAUDIBLE] Hospital, as well as Dr. David Gastfriend, Director of Addiction Services at Mass General Hospital.

If you'd like to attend this event, please contact Deborah Kupos [PHONETIC] at 617-583-6220. The presentations will also be webcast on the Investor Relations section of our website. With that, I'll turn the call over to Jim.

Thanks, Rebecca. Good afternoon, everybody.

It's been an exciting fiscal year for us here at Alkermes, one that included the U.S. approval and launch of Risperdal Consta, our long-acting formulation of Risperidone for the treatment of schizophrenia, partnered with Johnson & Johnson; as well as the announcement of positive results in our Phase 3 trial of Vivitrex, our proprietary, long-acting formulation of naltrexone, for alcohol dependence.

We're continuing to advance our pipeline of partnered and proprietary development products, including AIR Insulin and Exenatide LAR. These milestones have contributed to the growth of our Company, and we expect that they will continue to drive our success.

From a financial perspective, we've been focused on driving these programs forward, while at the same time controlling our expenses in order to reach our goal of building a profitable pharmaceutical company with a promising pipeline.

The recent U.S. approval of Risperdal Consta is a key driver in our path to profitability, which we continue to aim for in late calendar year 2005.

As we enter fiscal year 2005, we look forward to the continuing growth of Risperdal Consta sales in the United States and abroad, further advancement of Vivitrex, as we prepare for an NDA and discuss potential marketing partnerships, and the advancement of our clinical programs. Now let me move on to a review of our financial results.

Our loss on a GAAP basis for the year ended March 31st, 2004 was $102.4 million or $1.25 per share, as compared to a loss of $106.9 million or $1.66 per share for the year ended March 31st, 2003.

Because of the significant nature of certain non-cash items, we feel it's important to discuss proforma results that we as a management team feel more accurately reflect our on going operations.

Proforma net loss for fiscal 2004 was $100.2 million or $1.22 per share, compared to the proforma net loss of $82.4 million or $1.28 per share in fiscal 2003.

The increase in the proforma net loss for fiscal 2004 was a result of an increase in expenses, primarily related to manufacturing Risperdal Consta, and external research costs related to the Phase 3 clinical trials for Vivitrex.

The increase in proforma net loss was also a result of the reduction in research and development revenues reported in the year ended March 31st, 2004, following the restructuring of our collaboration with Lilly.

This decrease in research and development revenues was offset by an increase in manufacturing royalty revenues related to Risperdal Consta. For a detailed reconciliation of our proforma net loss to GAAP, please see our press release, which can be found on our website, www.alkermes.com.

Now let me move onto the specific line items. Total revenues were $39.1 million for the fiscal year, compared to $47.3 million for fiscal 2003. This comprised manufacturing, royalty, and research and development revenues.

Due to the amount of royalty revenues earned as a result of the successful commercial loss of Risperdal Consta in the U.S. and around the world, we are, for the first time, separately reporting royalty revenues for manufacturing revenues.

In addition, we're disclosing our exact royalty rates in order to provide you with more clarity, now that the revenues from Risperdal Consta have become so material for us. Total manufacturing and royalty revenues were $29.5 million in fiscal 2004 and $15.5 million in fiscal 2003.

Of those -- of those totalled, excuse me, manufacturing revenues were $25.7 million and $14.3 million for the fiscal years ended March 31st 2004 and 2003, respectively. Manufacturing revenues for Risperdal Consta were $25 million and $13 million in fiscal year '04 and fiscal year '03, respectively.

The increase in manufacturing revenues was primarily due to the U.S. launch of Risperdal Consta and continued launches of the product around the world. Under our agreement with Jansen, we record manufacturing revenues upon shipment of product to Jansen, based on a percentage of Jansen's net selling price.

These percentages are based on the volume of units shipped to Jansen in any given calendar year, with the minimum manufacturing fee of 7 1/2% coming in Alkermes. In fiscal 2004, our manufacturing revenues were based on an average of 9.8% of Jansen's net sales price for Risperdal Consta, compared to 12.3% in fiscal 2003.

Based on J&J's sales projections, we expect our manufacturing fee to range from 7 1/2 to 8 1/2% in fiscal 2005, and then move to 7 1/2% for the foreseeable future. Total royalty revenues were $3.8 million in fiscal 2004 compared to $1.2 million in fiscal 2003, including $3.1 million and $.4 million, respectively, of royalty revenues for Risperdal Consta.

The increase in royalty revenues was due to an increase in global sales of Risperdal Consta by Jansen. Under the terms of our agreement with Jansen, we record royalty revenues equal to 2 1/2% of Jansen's net sales of Risperdal Consta. This is in addition to the manufacturing fee that we receive, which I described earlier.

These royalties have grown each quarter, as sales of Risperdal Consta ramp in the United States and Europe. Specifically, in the fourth fiscal quarter of 2004, we received $1.3 million in royalties on Risperdal Consta sales, up 37% from the previous quarter.

Research and development revenue under collaborative arrangements for fiscal 2004 was $9.5 million compared to $31.8 million for fiscal 2003.

The decrease was primarily the result of the restructuring of our AIR Insulin and AIR hGH programs with Lilly, as well as changes in the stage of several other collaborative programs. For fiscal 2004, the cost of goods manufactured was $19 million, consisting of approximately $13 million for Risperdal Consta and $6 million for Nutropin Depot.

Cost of goods manufactured was $10.9 million in fiscal 2003, consisting of approximately $5.5 million for Risperdal Consta and $5.4 million for Nutropin Depot. The increase in cost of goods manufactured was primarily the result of an increase in production of Risperdal Consta for shipment to Jansen.

Research and development expenses for the year were $91.1 million, higher than last year's $85.4 million in expense, because of an increase in external research expenses related to not only the continuing development of our proprietary product candidates, but also our collaborative product candidates, as well as an increase in occupancy costs and depreciation expense related to our expansion of facilities in both Massachusetts and Ohio.

The main driver for fiscal 2004 was the Phase III program for Vivitrex, as well as our large Phase II study of Pulmonary Insulin with Lilly. General and administrative expenses were $26 million in fiscal 2004, compared to $26.7 million for fiscal 2003.

Excluding the write-off of $2.7 million in deferred merger costs in connection with the termination of the Company's proposed merger with Reliant in the year ended March 31st, 2003, G&A expenses for the year ended March 31st, 2004 were higher, primarily as a result in an increase in personnel, consulting and insurance costs.

Interest income for the year was $3.4 million, lower than the $3.8 million reported in fiscal 2003, due to a decline in interest rates on investments held on the year and partially offset by higher cash and investment balances during the year ended March 31st, 2004.

Interest expense for fiscal 2004 was $6.5 million versus $10.4 million in fiscal 2003. This decrease was primarily the result of a decrease in the outstanding average debt balance, as well as lower interest rates payable on a convertible debt outstanding during fiscal 2004 as compared to fiscal 2003.

At March 31st, 2004, we had total cash in investments of $148.9 million as compared to $173.7 million at December 31st, 2003. Let me now take a moment to review our financial expectations for fiscal 2005.

Please note that certain statements I will make constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

For information with respect to factors that could cause actual results to differ from our expectation, please see the risk factors at the end of our press release, which is available on the Alkermes website, or in more detail in reports filed by us with the Securities and Exchange Commission under the Securities and Exchange Act of 1934, as amended.

Total revenue projections for the upcoming fiscal year range from $95 to $125 million, with total manufacturing and royalty revenues projected to range from $50 to $60 million for fiscal 2005. As with last year, we expect a vast majority of this revenue to be from Risperdal Consta.

These expectations are obviously based on our partners' estimates, which are subject to change, as well as our ability to manufacture and ship products from our second commercial line, which is expected to come on-line in the third quarter of the calendar year.

We expect manufacturing revenues to range from $42 to $50 million, based on the increase of shipments of Risperdal Consta. We expect revenues will grow substantially from quarter to quarter through the fiscal year, and will likely follow a similar trajectory as our last fiscal year, albeit from a larger base.

With that in mind, I expect manufacturing revenues to be between 3.5 and $4.5 million for the first fiscal quarter of 2005. Our manufacturing revenues are based on estimates from our partners, who have the right to change the timing and amount of their purchases, and the Company's ability to manufacturing sufficient quantities to meet the estimates from our partners.

As a result, we may see significant quarterly fluctuations in our revenues in the future. In addition, we are renegotiating our manufacturing and supply agreement with Genentech for Nutropin Depot, to address the recurring manufacturing losses associated with the current volume levels.

This expectation assumes a successful conclusion to those negotiations, although there can be no assurance that such negotiations will be successful. We expect royalty revenues to range from $8 to $10 million for the year, with the vast majority of these revenues, again, coming from Risperdal Consta.

This expectation assumes continued revenue growth of Risperdal Consta in the United States, and that further approvals and launches of Risperdal Consta continue, as anticipated, in the rest of the world.

Once again, I might add that we rely on sales projections received from our partners to determine royalty revenue expectations, and such projections may not turn out to be accurate, and are subject to change. From a financial perspective, we believe that the growth in our royalty revenue is the best indicator of the status of the launch of Risperdal Consta in the coming year.

We expect that research and development revenues will range from 45 to $65 million. This estimate includes an anticipated revenue of between 15 and $30 million for our partnering deal for Vivitrex.

We are currently in discussions with potential partners for Vivitrex; but of course, there can't be any assurance as to the timing or economics of a deal until negotiations are complete and the deal is signed.

We are also including in this guidance for research and development revenue, work performed on the Lilly programs after the proceeds from the Lilly -- from Lilly's purchase of $30 million of Alkermes preferred stock are fully used in 2005.

This assumes a positive product decision on Pulmonary Insulin and the continued collaborative development of our Pulmonary hGH program. While we're very positive about these programs, there can be no assurance that Lilly will choose to continue. In addition, the estimates of research and development revenues assumes that certain milestones and other assumptions related to our partner programs will be achieved.

Our projections for cost of goods manufactured for fiscal 2005 range from 23 to $27 million, and are estimated based on projected orders from our partners for Risperdal Consta and Nutropin Depot; and obviously, those orders are subject to change, as I mentioned earlier.

We expect Research and Development expenses for the fiscal year 2005 to range from 85 to $95 million. This expectations reflects our continued efforts to advance our pipeline, notably our Vivitrex program, and our collaborations with Lilly for pulmonary insulin and pulmonary human Growth Hormone.

We expect to report general and administrative expenses for fiscal 2005 in the range of 29 to $33 million. The increase will mainly be as a result of additions to the sales and marketing infrastructure, as well as market research and education, as the Vivitrex program advances towards commercialization.

We anticipate a net loss of 35 to $45 million for fiscal 2005 or approximately 39 to 50 cents a share. For a share count assumption, we have used a weighted average of 90 million shares outstanding for the year. While we don't provide specific quarterly guidance, I do want to provide some comments on our expectations about the timing of certain events.

With regards to revenue, there are three main drivers to consider. First, as I mentioned, we expect manufacturing royalty revenues will follow similar patterns to fiscal 2004, with growth throughout the year.

Second, we expect that revenue from Lilly's funding will increase significantly in the second half of the fiscal year, subject to a positive decision by Lilly on Pulmonary Insulin. Finally, the completion and timing of the Vivitrex deal remains uncertain.

As Rich will touch on later, we will make our decision on completing a Vivitrex deal when we are comfortable that we have selected the right partner that we believe will maximize the value of the product to Alkermes and to our shareholders. With that, I'll wrap up with a few words on capital expenditures and our expectations there.

We expect the capital expenditures for fiscal 2005 will be approximately $25 million, reflecting our investment to build and expand our manufacturing infrastructure for Risperdal Consta, Exenatide LAR and Vivitrex.

This includes the addition of a high speed -- high efficiency fill line for Risperdal Consta and Vivitrex, as well as the addition of a fourth commercial line at our plant in Ohio that will be dedicated to Exenatide LAR, as we prepare for fiscal -- excuse me, for Phase 3 clinical trials and a potential commercial production.

In summary, we had a strong financial year here at Alkermes; and as I noted, we're looking forward to achieving the significant corporate milestone of profitability in late calendar year 2005, based on the continued growth of our partner products and our proprietary development programs.

I'll now turn the call over to Rich for a brief update on Risperdal Consta and Vivitrex.

Thank you, Jim. Hello, everybody.

I think you can that tell just from that financial overview that the complexity and the richness of this business is increasing significantly over time. I'd just like to thank Jim and his team for the work that they've been doing over the last several months to increase the transparency of the financial results and of the projections for the Company going forward.

It's been an enormous amount of work. I'd also, on the occasion of the end of the fiscal year, just like to thank the employees of Alkermes for an amazing year, characterized by a tremendous amount of work and a number of triumphs.

So a lot happened here on tight deadlines, and people should be very proud of what they accomplished. So what I'll do is just give you a little sense of where we are right now, particularly with respect to Consta and Vivitrex. In [INAUDIBLE], we started this fiscal year -- I mean, this previous fiscal year -- with the outside world intensely focused on Risperdal Consta.

Over the course of that year, with our continuing successes on the regulatory front with Consta, you could sense that perhaps the perspective on Alkermes was beginning to broaden, that once again people would begin to evaluate the Company as we built it -- that is, as a true multi-product company.

With positive results from our Phase 3 studies with Vivitrex, the momentum began to build, and I hope that in this next fiscal year, people will further appreciate the fact that we have a major opportunity in the pipeline of programs that we're currently pursuing: Risperdal Consta, Vivitrex, Inhaled Insulin, Exenatide LAR and so on.

Like Alva did before us, we're using the advanced formulation technologies that are increasingly proven in commercial, to make important products for our partners and for our own account.

So I'll spend a little time today to provide an overview of the U.S. launch for Risperdal Consta. As many of you know, we believe that Risperdal Consta is the most important new product approved for schizophrenia in many years, delivering on the need for more effective therapy for these patients.

Consta is now approved in 58 countries and launched in 32; including, of course, the U.S. U.S. sales are growing and tracking with J&J's internal 2004 forecast. We are very impressed with the marketing sales and reimbursement effort that J&J has dedicated to this product.

They are performing well against an ambitious launch plan. The story of Consta is a story of outcomes. Over the long-term, the ultimate value of this product is a function of the medical benefit it provides to patients. In the short-term, during the launch phase, logistical issues and reimbursement issues are focal, and many of you picked up on that in your own research.

Many of you have been attempting to get a sense of the product launch in the U.S. While I won't take you through chapter and verse of all the programs state by state, our colleagues at Jansen have provided us with the ability to disclose some illustrative examples of the successes J&J is having in the course of the Consta launch.

I want thank them for doing that for us. J&J has a staff dedicated to securing reimbursement from the various payor systems, and reimbursement for the [INAUDIBLE] is going very well. Over 70% of the states currently reimburse Consta as an unrestricted product under Medicaid; and additional states are on cut for getting Consta this [INAUDIBLE].

The path to Consta reimbursement is driven by a number of key factors. State Medicaid programs collect data on patients receiving Consta, and J&J has seen validation of the benefits of Consta in this efficacy data collected by such state programs. Based on J&J's monitoring of this data, we understand that doctors are enthusiastically reporting clinical improvements [INAUDIBLE] in patients.

In addition, we've seen the impact of local advocacy groups and key opinion leaders actively supporting patient access to Consta. An example of the continuing momentum of Consta reimbursement in top target states is the progress that's being made in the state of New York.

The New York State Office of Mental Health has tracked New York patients on Risperdal Consta. And even utilizing a small cohort of patients over a 3-month period of time, they've observed favorable Consta outcomes with a large percentage of patients able to reduce the use of multiple therapies for their condition, and several patients discharged from in-patient settings.

In addition, New York advocacy groups and key opinion leaders are pushing for reimbursement of Consta. We believe that this progress in New York is an example of the type of data and support that accelerate J& 's efforts to secure reimbursement in all 50 states in the near future.

We were also pleased to be informed by J&J this week that the Veterans Administration, the VA, has granted formulary approval for Risperdal Consta nationally, with a very favorable recommendation for use.

Consta was approved on the VA formulary in six months, and our friends at J&J told us that compares to about a 17-month approval time for Abilufy [PHONETIC], another atypical anti-psychotic.

According to J&J, the rapid pace of Consta's reimbursement success is remarkable and directly related to the growing recognition of Risperdal Consta's therapeutic potential.

In addition, CMS recently authorized pass-through payments for Consta under the OPPS, or Outpatient Prospecitve Payment System, thereby confirming that Risperdal Consta will be reimbursed in the hospital outpatient setting for Medicare, Medicaid and other federal programs.

Pass-through payments are made in addition to OPPS-based payments for new drugs and new devices, whose costs have not been captured in calculating OPPS rates.

We would note that these pass-through payments are temporary until there's enough cost data to set a price within the OPPS, since Consta is a new product. It does not yet have a hospital code and an assigned reimbursement percentage; therefore, it will be reimbursed at 95% of the AWP, or average wholesale price, until the ASP plus 6% rule goes into effect next January.

That might be more technical than most of you want to hear, but that's the straight information. So, in summary, J&J is rolling out Consta on a national basis, working state by state to gain the most favorable reimbursement status for this first-in-class product. Jim took you through the guidance for the year from a financial point of view, so you get a sense of the economic impact at Alkermes of the growing sales of Consta across the world, and particularly here in the United States.

It's a core part of our longer-term strategy. On the manufacturing side, we are upholding our end of the deal by manufacturing Risperdal Consta at our facility in Willington, Ohio. Given launch performance in Europe and in the U.S, and the projected demand for Risperdal Consta over the immediate and longer-term, we continue to find ourselves in the position of producing as much Risperdal Consta as we can.

Our existing facility has been supplying the product since the launch in December, and we're counting on our expanded facility -- what we refer to as Line 2 -- to start production to meet anticipated future demand. So with that, let me move on quickly to Vivitrex and wrap up.

Vivitrex, of course, is our long-acting formulation of naltrexone for the treatment of alcohol dependence, which we see as an untapped pharmaceutical market with a clear medical need and a clear societal benefit.

We now have positive and clinically significant Phase 3 data, and we're preparing to file an MDA for this product. In addition to completing the necessary data analysis of Phase 3 data, we're aiming to complete our additional ongoing trials for Vivitrex.

As you know, we currently have a long-term extension to the Phase 3 study underway and a large open-label safety study ongoing. We're working on completing the scale-up and validation of the commercial production line for Vivitrex at our Wilmington, Ohio plant.

We'll talk in more detail about our product for Vivitrex at Monday's analyst meeting, which Rebecca mentioned. Another major initiative for us here at Alkermes is to establish a commercialization partnership for Vivitrex.

As we've discussed in this call in the past, and in one-on-one meetings, we intend to launch this product to the speciality sales force, targeted at U.S. alcohol treatment centers. And our plan, though, is to enter into one or more pharmaceutical partnerships to expand the sales and marketing effort around this important new drug during its life cycle.

So, we see Alkermes focusing on these key opinion leaders in the core group of the U.S. alcohol treatment centers, but within the context of a broader series of collaborations, to access the market in a broader way and maximize the potential of the brand.

We're currently in discussions with multiple partners -- I'm sorry, with multiple potential partners -- and we're being careful and deliberate with this process, as we've talked about before. Our goal is to strike the appropriate deal with the appropriate partner, who will maximize the value of the product over the long-term.

And obviously, we're focused on sending a high-quality deal, rather than accelerating the negotiations merely to deliver on a partnership announcement in the short-term. That isn't to say that we don't have a time line where we could deliver a partnership in the more immediate-term rather than longer-term.

It's simply a way of letting you know that a number of these discussions are ongoing, we will let them mature as they mature, as opposed to putting them on a specific time line in order to meet an arbitrary standard. And we'll update you with this, obviously, as we move forward through the year.

Our other pipeline programs continue to advance. And I don't want to give them short stripped by not mentioning them here, but it's an important component of the message that the pipeline of this product, of this Company, continues to grow in its potential value. We'll discuss some of these at our analyst day on Monday.

So, Alkermes as a company is continuing to mature, and we now have significant strength in development, manufacturing, commercialization of these advanced drug delivery systems in dosage forms, and we have an extensive pipeline of products using these increasingly-proven technologies.

So we'll look forward to updating you more on analyst day for a more detailed discussion of certain of those programs. With that, I'll finish up and we'll open it up for questions. Operator?

Thank you, sir. If you have a question at this time, please press the 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself form the queue, please press the pound key.

Again, if you would like to ask a question at this time, press the 1 key on your touch-tone telephone. Please stand by. Our first question comes from Harvey Simbosiven.

Hi, yes, thank you. Question, perhaps for Jim. In terms of the [INAUDIBLE], thank you for just segmenting out the Risperdal Consta numbers in terms of royalty revenues and manufacturing revenues.

But I'm wondering, in terms of trying to get a sense of the actual quarterly sales, is it perhaps a little bit more accurate to use the royalty or the manufacturing number in terms of the rates that you've provided, or is it some average in the middle?

I'm just trying to get a sense of which, perhaps, we should be relying on, perhaps for, you know, clarity and accuracy here.

Sure, Harry. Thanks for the question. It's a good one. I tried to make it clear, but I will give it another go.

The manufacturing fee that we receive occurs when we ship product to J&J. So it really has nothing to do with our ongoing sales, because it is very much a leading indicator. Our royalty rate, on the other hand -- the 2 1/2% that we receive -- it does not fluctuate, and it is a direct representation of what the sales are in a given quarter.

So, that is what -- and again, I tried to say that in the call, the royalty rate of 2 1/2% is a -- is directly related to J&J's sales on a quarter to quarter basis. So that's the best thing to watch.

And so fair to say you did something like $125 million of Risperdal Consta in the fiscal year?

Yeah, your math matches mine.

Okay, that's great.

One other quick question for you -- and I assume there's no global difference, whether it's U.S. or Europe? It's all the same, it's 2 1/2%?

Well, we get that percentage of net sales; and obviously, every country has a different net selling price, but that's amalgamated for us by Johnson & Johnson, and that's what we've worked.

That's great. One quick additional question.

Your R&D expenditure is going up for next year, but I note that, you know, your Vivitrex expenses are probably gonna come to, you know, a close at some point in time with the Phase III finishing, and your AIR Insulin costs are also going to reduce.

And I'm wondering where the additional monies are going to go into at this point in time?

Well -- and I think you're right to focus on Vivitrex as the main driver for R&D costs, but, you know, I'll remind you that we have two very large studies going on right now.

All the patients in the Phase III have rolled over -- those who chose -- have rolled over into an ongoing extension study, and you know, we're very pleased that 85% of the patients who finished actually rolled over into that extension. So that's gonna be ongoing until the product is approved.

And then finally, as we mentioned in the press release in March, we've completed enrollment in a 400-plus patient safety study. So that study is gonna be going on for the next year.

And those two studies are where you see the major R&D costs for Vivitrex going forward.

Thank you.

You're welcome.

Our next question comes from Thomas Way of Piper Jaffray.

Thanks very much. I'll also add my thanks on the additional clarity on the Risperdal Consta front.

In terms of looking at the guidance for fiscal '05 Consta royalties, can you just help us understand -- you said the vast majority of it is related to Consta on the royalty front.

Does that include a similar amount of royalties assumed for Nutropin Depot when compared with the '04 number -- fiscal '04 number?

Sure, Thomas, I'll try and take a stab at that. I mean, I think you're looking at the right components.

We had $1.4 million of royalties in fiscal 2004 from Nutropin Depot, and one -- but one of the reasons why we give ranges is because obviously we can't predict what those sales are, so it's our best estimate. It's obviously what's in our planning case for the budget.

It might be below that, they might be above that, but we certainly expect Risperdal Consta to be growing through the course of this current fiscal year.

I guess, just so that I'm clear, when you talk about restructuring or renegotiating the Nutropin Depot relationship with Genentech, should we understand that to reflect both the manufacturing revenue that you would record and the royalty, or just the manufacturing revenue?

Well, you know, it could go in three different places, really. It can go in cost of goods, it can go in royalty, and it can go in manufacturing.

And what I'll just say is that it's not reflected in the royalty fees, the guidance that we gave in $8 to $10 million.

Okay, that's very helpful. Thank you. And then a question on the Vivitrex partnership and the guidance around that.

Maybe you can just help clarify how you're gonna recognize some of the payments from the deal, if there's enough [INAUDIBLE] payment, is that being amortized over time?

What is that $15 to $30 million in revenue? And am I looking at the guidance correctly that last year you would have been assuming somewhere around 30 to 40, versus the 15 to 30?

Well, that's a good question in both parts. Actually, no, we were assuming $15 to $30 million last year as well. That hasn't changed.

I think included in last year was certain milestones from other programs, for instance Serono starting a Phase B with the FSH program that didn't occur last year and we expect to occur this year. So we haven't changed our assumptions on the Vivitrex partnership.

You know, and as also I think anybody who lives in biotech or technology will know that all these [INAUDIBLE] partnerships are governed by EIPS-0021[PHONETIC],which is revenue arrangements of multiple deliverables.

So it's really broken into two components, which is an R&D arrangement and a commercial arrangement, and depending how the deal is structured -- it could be structured in any number of ways -- you're gonna take the R&D arrangement and essentially amortize those payments, either as revenues occur and you get reimbursed -- those are obviously revenues in the immediate quarter.

If they're milestones for R&D-related things, they can be recognized when milestones are reached. And if they're upfront license fees related to R&D components, then they're amortized over the life of the product until product approval.

On the commercial side, you have a different amortization period, and that would be over the commercial life of the product, which is generally thought to be, you know, the patent life. So again, every deal we structure is different.

I think that's one of the reasons why we have such a range in terms of the $15 to $30 million, but we're pretty comfortable that if we deliver the right deal, that we're gonna create value for Alkermes' shareholders. So hopefully that helps parcel it a little bit.

From Friedman Billings, our next question is from Jim Reddick [PHONETIC].

Hi, this is David Antone for Jim Reddick. Thanks for taking my question.

Hi, David.

Hi. Just a quick question on -- going back to reimbursement of Consta. Could you just clarify if New York is already paying for the drug?

I just want to make sure I heard you correctly. And then are states that are currently paying for Consta, are they typically reimbursing it as a medical benefit or as a pharmacy benefit?

So, this is Rich. I would ask you, for the fine details of this, to talk to the folks at J&J, because they're the experts here.

My understanding in the state of New York is that a certain number of patients are being reimbursed now within New York, but the reimbursement situation in New York is going to get materially better as the initiatives that I talked about come to fruition.

With respect to medical versus pharmacy benefits, the vast majority of states -- we've been told on the order of 70% of the states -- reimburse Risperdal Consta as a pharmacy benefit as opposed to a medical benefit.

And that has certain advantages, which makes getting reimbursements for the doctor much easier.

Okay, that's great, thanks.

You're welcome.

Our next question comes from Ian Sanderson of SG Cowen.

Good afternoon. And again, thanks for breaking out the revenue information. It's very helpful.

Actually, could you repeat the guidance for the Q1 manufacturing revenues? And is there any lag in the royalty payments, or are those -- do your March quarters match up to J&J's March quarter?

And can you give us a hint what the December quarter royalty number looked like for Consta? And second, on Nutropin Depot, is there any update on the adult indication, and how might that impact your manufacturing negotiations?

If I can slip in a last one, any data going to be presented on the AIR Insulin or Exenatide programs at ADA next month?

Okay, Ian. I'll try and remember all of them.

Sorry about that.

Is this a test?

No.

Ah, okay. First of all, the manufacturing guidance for the first quarter was $3.5 to $4.5 million.

Okay.

$3 1/2 to $4 1/2 million. And as I mentioned, I expect the quarters to grow as they did this year.

Secondly -- and I did mention on the call, I might have spoken too quickly -- the fourth quarter -- the fourth fiscal quarter -- so the quarter ended in March -- and I'll answer two questions at once, and that's the same.

We report our royalties in the same quarter J&J sells the product.

Okay, great.

So it's identical. There's no lag there.

Okay.

And those royalties were $1.3 million for the quarter.

Do you -- have the December quarter royalty numbers--

Well, I said it grew by 37%.

Oh, quarter over quarter?

Quarter over quarter, yeah.

All right, thank you.

Sure. And what was the last one -- oh, the adult growth hormone question?

Yeah, any update there?

Ah, at this point, Genentech is in the process of making a decision.

They are presenting the data, and as we said, it was positive data, on the Phase 3 clinical trial, and they're presenting that data at the Endocrine Society meeting in June.

Okay, and the, any data at ADA on either insulin or Exenatide?

Ian, I'll take that one.

There will be data on insulin at the ADA, but it will be earlier stage data, versus the Phase 2 study that we're currently in right now.

Thank you.

You're welcome.

Again, ladies and gentlemen, if you would like to ask a question at this time, please press the 1 key on your touch-tone telephone.

Please stand by. We have a follow-up question from Jim Reddick of Friedman Billings.

Hi, this is David Antone again. Just a quick question on the royalty in the fiscal fourth quarter. So, if you had $1.3 million in royalty, I guess that gets us to about, call it $50 to $55 million in worldwide sales.

Could you maybe provide some color on the breakout between U.S. and ex-U.S. components of that number?

Yeah, I wish I could.

At this point, we worked very, very hard to get you more information on what was going on with the launch, and we won't be breaking out U.S. from rest of world sales at this point.

Thanks.

You're welcome.

Our next question comes from Ben Macklevack of Merrill Lynch.

Hello? Can you remind us of the '05 Consta revenue projections?

Well, I didn't break out Consta specifically in calendar year -- excuse me -- in fiscal year 2005, but from a manufacturing and royalty perspective, the guidance is 50 to $60 million in total revenue to Alkermes.

Okay. Thank you.

And $8 to $10 of that being from royalty, and the other bit being from manufacturing.

Okay. Thank you.

You're welcome.

Please stand by.

Our last question comes from Donald Ellis of Thomas Weisel Partners.

[INAUDIBLE], thank you. [LAUGHTER] Never heard that one before! I just have an additional question on Risperdal Consta. It looks like your manufacturing revenues would suggest that you sold about $255 million to Jansen, and $125 million that came out.

So it looks like they're building up a lot of inventory, expecting future sales to go up a lot, is that the conclusion here?

Well, I think there's -- the other thing is that they're launching in a number of countries around the world, Don; and I mean, that's one of the reasons why we needed to give you clarity that we had, you know, higher royalty rates -- excuse me, higher manufacturing fees -- in previous years because of the lower volume.

So, I think that as Rich said, we have a full order book, we're looking forward to continuing to build, and I think that as J&J, again, continues to lunch in more and more countries around the world, because I think it's been approved in over 60 countries now, but only launched in about 30.

So they have a very wide inventory system.

So roughly about 120 -- you sold an extra $125 million to them above and beyond what they sold to the market, is that a general look at it?

Again, I think that that gives you a rough count, but it doesn't give you an exact count of how much inventory's in the system.

Okay, I was looking at just a rough idea. And the last question is about your gross margin on the product.

If we look at the $25 million manufacturing revenue and then the $13 million cost of goods manufactured for Risperdal Consta, and then look at the royalty and all that, it looks like you have about a 58% gross margin. Is that roughly correct?

That's roughly correct.

Okay.

And we're kind of estimating going forward -- which we did last year as well -- about a 50% gross margin when you combine the royalty and the manufacturing fee.

Excellent. Thank you very much.

You're welcome.

Mr. Ellis? This concludes our question-and-answer session. Mr. Pops, Mr. Frates? I'd like to turn the conference back back to you, sir.

Thank you very much for attending, and we hope to see you Monday in New York at our analyst day. Good night.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.