Alkermes Plc (ALKS) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Alkermes conference call to discuss the Company's fiscal year 2008 financial results. At this time, all participants are in a listen-only mode. There will be a question and answer session to follow. Please be advised that this call is being taped at Alkermes' request.

At this time, I would like to introduce you to your host for today's call, Ms. Rebecca Peterson, Vice President of Corporate Communications at Alkermes. Please go ahead.

Thanks Matt. Good afternoon, and welcome to the Alkermes conference call to discuss our financial results for fiscal year 2008 which ended on March 31st. With me this afternoon are David Broecker, CEO of Alkermes', Jim Frates, our CFO, and Richard Pops, our Chairman.

Before we begin today, let me reminds that you during the call we will make forward-looking statements relating to among other things, our expectations concerning the commercialization of RISPERDAL CONSTA and VIVITROL, our future financial expectations and business performance, and our expectations concerning the therapeutic value and development of our product candidates. Listeners are cautioned that these statements are neither promises nor guarantees, but are subject to risks and uncertainties that could cause our actual results to differ materially, from the results contemplated by these forward-looking statements.

You can find a list and a detailed description of these and other risks in our Annual Report on Form 10(K) which will be filed shortly, as well as other periodic reports filed with the SEC under the Securities and Exchange Act of 1934 as amended. We undertake no obligation to update or revise the information provided in this call. This afternoon Jim Frates will discuss our fiscal 2008 financial results, and David Broecker will provide an update on the Company. We will then open up the call for Q&A.

Before I turn over the call to Jim I would like to tell you about an exciting new development. We are very pleased to discuss that Alkermes has sign an agreement with J&J, for the development and commercialization of a four-week formulation of RISPERDAL CONSTA. The two-week formulation is now a growing blockbuster product, and we are excited to announce that we are pursuing this new formulation, which could offer patients and physicians another dosing option. David will provide additional details about the program in our pipeline shortly.

Now I will will turn the call over to Jim.

Thanks, Rebecca. Good afternoon everyone. Fiscal 2008 was a very successful year financially. On a GAAP basis we achieved record net income of $167 million, or basic EPS of $1.66, and diluted EPS of $1.62. Our earnings were driven by manufacturing and royalty revenues from RISPERDAL CONSTA, and significant income and cash from the sale of the Company's stake in Reliant Pharmaceuticals.

On a pro forma basis we reported net income of $31.8 million, or $0.32 per basic share, and $0.31 per diluted share. Our financial performance for fiscal 2008 was at the high-end of our financial expectations we provided in May 2007. For a reconciliation of our pro forma net income to GAAP, please see the press release we issued earlier today.

Behind the numbers, I view our performance as an indication of the strength and resiliency of our business model. Despite Eli Lilly's termination of the AIR Insulin program, we delivered positive cash flows from operations of over $40 million last year. We enter fiscal 2009 with a number of unique strengths, a solid foundation with over $460 million in cash and investments, a strong and growing economic engine in RISPERDAL CONSTA, and multiple drivers for near term growth.

We have an opportunity with VIVITROL to build a meaningful franchise in the treatment of addiction, while managing our investment through our partnership with Cephalon. We have a major late stage opportunity in Exenatide once weekly, a product with important clinical benefits that is approaching NDA submission. We have an emerging pipeline of proprietary products to provide long-term growth, and we are investing in a share repurchase program, to further leverage our earnings potential.

Today's press release details our fiscal 2008 results, and is quite comprehensive, so I will focus on the most important elements of our business. If you have any questions we will be happy answer them during the Q&A session. I will begin with RISPERDAL CONSTA. The momentum of the product continues to build. End market sales by Johnson & Johnson were $309 million for the quarter, and approximately $1.2 billion for fiscal 2008, representing a 27% increase over fiscal 2007.

Manufacturing revenues related to RISPERDAL CONSTA were $29.1 million for the fourth quarter, and $95.2 million for the fiscal year. Royalty revenues related to the product were $7.7 million for the fourth quarter, and $29.5 million for the fiscal year. We are gratified to see RISPERDAL CONSTA continue to grow, particularly outside the United States, where price and value pressures from government payers are most intense. In our fourth fiscal quarter 67% of RISPERDAL CONSTA sales came from outside the United States.

As J&J said on their most recent earnings call, when changes in wholesale inventory are normalized, RISPERDAL CONSTA achieved sequential first quarter sales growth of over 10% on an operational basis in United States, and 16% internationally. RISPERDAL CONSTA is marketed in over 60 countries' worldwide, and with patent protection through 2020, we look forward to continued growth and success in this product. Today's news that Rebecca mentioned only adds to that.

With respect to VIVITROL, gross sales by Cephalon during fiscal 2008 were $18 million, and are in the ranges of the financial expectations for VIVITROL that we provided in May of 2007. Gross sales for the fourth quarter of fiscal 2008 were $4.3 million, compared to $5 million for the third quarter. Sales were sequentially lower, due to the realignment of the sales team in the third quarter.

In the fourth quarter we further reduced the total loss on the product to $5.7 million, down from approximately $7 million for the third quarter. Keep in mind that we now share this loss with Cephalon, so our portion of the loss was approximately $2.85 million for the fourth quarter. Based on it's efficacy profile we believe strongly in the value of the VIVITROL, and will continue to work with our partner to drive sales.

We are confident in our long-term outlook and therefore we initiated our first share repurchase program in fiscal 2008. With our EPS goal of $2.00 to $3.00 a share in 2013, we view the repurchase program as an excellent investment.

With the completion of the accelerated share repurchase program we announced in February, we have repurchased 7 million shares of our common stock for $93.4 million, which represents approximately a 7% reduction in our shares outstanding. This is all part of the $175 million share repurchase program authorized by our Board of Directors last November. We will continue to make repurchases throughout this year. As a result of our share repurchase, we currently have approximately 95 million basic shares outstanding.

I will now outline our financial expectations for fiscal 2009, and I will remind you that these statements are forward-looking. Again, full details can be found in today's press release. Before I provide the details of our financial expectations you should understand the way we view our business.

First we have been building our preclinical pipeline over the past few years, and have had some real successes. As a result we are advancing several development programs into the clinic this fiscal year. Second, even while investing in our pipeline we remain disciplined in the way we operate our business, and are targeting positive cash flows from operation.

Let me also give you a little bit more detail on VIVITROL. We have worked hard through the fiscal year to reduce the collaborative losses on VIVITROL and have delivered on that, bringing losses from approximately $25 million in the first quarter, down to $5.7 million in the fourth quarter. The key for this year is to drive sales growth.

For fiscal 2009 we expect growth sales for VIVITROL to range from 25 to $35 million, and we expect spending on the product to be approximately $40 million. We will continue to manage VIVITROL through the year and if there are any losses, those losses would be shared with Cephalon, and would not be material. We think the product is on its way to breakeven, and we believe that we have an exciting commercial opportunity in VIVITROL.

With that I will turn to our specific financial expectations for fiscal 2009. We expect total revenues to range from 175 to $200 million which we break out as follows. Total manufacturing revenues in the range of 113 to $125 million, this includes manufacturing revenues for RISPERDAL CONSTA in the range of 106 to $114 million, and manufacturing revenues for VIVITROL in the range of 7 to $11 million. Royalty revenues for RISPERDAL CONSTA in the range of 32 to $35 million, R&D revenues in the range of 20 to $25 million, and net collaborative profit in the range of 10 to $15 million.

There are a number of assumptions underlying our revenue expectations, including the timing of orders from and shipments to our partners, yields on manufacturing, spending by Alkermes' and Cephalon on VIVITROL, and continued success in our R&D programs.

Turning to expenses for fiscal 2009, we expect COGS to range from 40 to $50 million, R&D expenses to range from 95 to $100 million, and SG&A expenses to range from 55 to $60 million. These expectations for fiscal 2009 expenses include 15 to $20 million of non-cash share-based compensation expense, and reflect continued work on partner programs, increased investments in our proprietary pipeline, and continued commercial activity by the Company's sales force. As I stated, this should result in positive cash flow from operations ranging from 1 to $5 million, with an expected GAAP net loss of 10 to $15 million for fiscal 2009, or approximately $0.11 to $0.16 per basic share.

Again this GAAP net loss of 10 to $15 million, includes 15 to $20 million of non-cash charges associated with share-based compensation expense. For basic share count assumption, we have assumed awaited average share count of 95 million shares for the year. To conclude despite the loss of almost $45 million in R&D revenue from Eli Lilly that we had budgeted for fiscal 2009, the financial foundation at Alkermes is very strong. We have the flexibility to generate positive cash flows from operations, strategically invest in new product opportunities to fuel long-term earnings growth, and to continue our share repurchase program.

We have an important year ahead of us, and I look forward to update you on our progress. With that, I will turn the call over to our CEO, David Broecker.

Thanks, Jim, didn't afternoon everyone. Jim described hour we ended the fiscal year in a very strong financial position. Most of your well aware of the products and candidates understanding this strengths.

RISPERDAL CONSTA is a blockbuster product that continues to grow, and at the same time we feel that the competitive threats around it are diminishing significantly. We continue to develop the market for VIVITROL, while managing the business for breakeven. Behind our commercial products Exenatide once weekly is increasingly recognized as one of the best new diabetes products in development, and the progress in the commercial facility is on track.

The bottom line is that we continue to manage this base business towards a $2.00 to $3.00 EPS objective in 2013. As we enter this new fiscal year one of the commitments we are making to you, is to provide more visibility into our pipeline. While our recent communication to focus on our commercial and late stage products, our development teams have been working steadily over the past few years to build a very exciting pipeline, which has now reached a stage where multiple products are entering clinical trials. These products will be important value drivers for us going forward.

The rational for these programs leverages our experience in developing products in psychiatry, addiction, and respiratory. And also builds on our existing proprietary platforms, as we push the technology to new levels. And we have the expertise to scale up and commercially manufacture these types of products. We expect to disclose three new development products from our pipeline during the remainder of calendar year 2008. Today as Rebecca mentioned in her introduction, we are disclosing the first of these candidates.

We are discussing for the first time our agreement with J&J for the development and commercialization of a four-week formulation of RISPERDAL CONSTA. Lead formulations have already been identified, and we expect J&J to begin clinical studies in the first quarter of calendar year 2009. The net economics for the four-week RISPERDAL CONSTA program are the same as what we receive on the two-week formulation. We believe that this product will build on RISPERDAL CONSTA's tremendous success in treating patients with schizophrenia, and leverage the wealth of data that has been generated around the world in support of this brand.

Our new agreement with J&J is a testament to both our extended release technology, and the commercial success of the two-week formulation of RISPERDAL CONSTA. Earlier this month at the American Psychiatric Association Meeting, 14 posters were presented on RISPERDAL CONSTA. These data underscore the fact that RISPERDAL CONSTA is evolving into a gold standard of efficacy in the treatment of schizophrenia. Let me briefly touch upon three of the most important highlights of this meeting.

First, J&J presented positive results from a large groundbreaking study comparing RISPERDAL CONSTA to quetiapine, which is also known as Seroquel. Seroquel is the best-selling oral atypical anti-psychotic, in terms of both revenue and prescription. The study results were striking. Over a two-year treatment period, almost twice as many patients taking quetiapine relapsed, compared to those taking RISPERDAL CONSTA. This is the first study conducted in more than 30 years to comparing a long-acting injectable antipsychotic to an oral formulation, and we were pleased to see such positive outcomes.

Second, J&J presented from a study of RISPERDAL CONSTA, comparing outcomes in patients with early schizophrenia, to those with more advanced disease. Nearly 90% of the patients with early schizophrenia were relapse-free over one year, compared to roughly 78% of patients who had been diagnosed more than three years prior. These data are remarkable, and underscore the important role that RISPERDAL CONSTA can play as a front line therapy in schizophrenia.

Third, J&J presented key data to support the two recent SNDA filings for RISPERDAL CONSTA. J&J submitted the SNDA seeking approval for use as a deltoid injection last November, and we expect the FDA to respond to this submission later this calendar year. Last month J&J submitted the SNDA seeking approval for use in patients with frequently relapsing bipolar disorder. These submissions represent new growth opportunities, and we look forward to the FDA's responses.

Let me conclude the discussion of RISPERDAL CONSTA with a comment on Paliperidone palmitate, a long acting formulation of Invega. Results from the Phase III program were presented for the first time at the APA Meeting this month, and many of you have asked for our perspective on this.

Our view is that in contrast to the wealth of data accumulating year after year for RISPERDAL CONSTA, the two posters on Paliperidone palmitate, provided little information to generate interest within the physician community. We believe that the scarcity of even early data for this product candidate, stands in striking contrast to the enormous amount of clinical experience and outcomes data, that support RISPERDAL CONSTA in markets around the world.

Now I would like to turn to VIVITROL. We believe in the ability of this product, to help people faced with the challenging disease of alcohol dependence. We are continuing to go work with Cephalon to increase sales, and manage the business to break even performance by the end of the year. Our job is to show you results in terms of sales, and we remain optimistic about the potential of this product. We are also working on multiple opportunities to grow the brand.

Our partner J&J recently submitted a New Drug Application to the Russian regulatory authorities, seeking approval for the treatment of alcohol dependence. This disease is a major problem in Russia, and patients there have few treatment options. In addition, we expect to initiate a Phase III registration study of VIVITROL for opioid dependence by end of June.

The main study will be a six-month multi-center study in approximately 200 opioid dependent patients. Participants completing the 6-month study will have an opportunity to continue on in an extension phase. We think opioid dependence can be an important new indication for VIVITROL, and look forward to updating you on the start of this trial.

Turning back to our pipeline. Exenatide once weekly continues to generate a great deal of interest, to both the investment and healthcare communities. We look forward to sharing with you both the 30-week and 52-week data from the Phase III, or Duration 1 study at the upcoming American Diabetes Association Annual Meeting in June. Like you, we are eager to advance Exenatide once weekly through the development and regulatory processes, so that the product can reach patients in need of this treatment option.

We have an aggressive timeline and are on-track. We are manufacturing material at the commercial scale, and continue to plan for commercial readiness by the end of calendar year 2008. We have extensive experience scaling up extended release injectable products, and we feel very good about where the project currently stands.

On the clinical side, the collaboration is working to further demonstrate the value of exenatide once weekly through additional clinical studies, designed to support commercial launch of the product. The first of these three trials is underway, with study results expected in the first half of calendar year 2009.

Beyond exenatide once weekly, we have a robust pipeline of candidates that we are moving forward. We intend to announce at least two additional new development programs during the calendar year, and we will share details about these programs once the clinical plans are in place. We are very excited about this pipeline, and expect to have eight products in clinical trials by the end of March 2009.

These eight candidates include Exenatide once weekly, VIVITROL for opioid dependence, ALKS 27 for the treatment of COPD, ALKS 29 an oral candidate for alcohol dependence, ALKS 33 a novel opioid receptor modulator with potential across a range of behavioral reward disorder, four-week RISPERDAL CONSTA, and two undisclosed product candidates.

In conclusion, over the next few months we are focused on the following milestones. First, presentation of Exenatide once weekly data at the ADA Meeting to be held from June 6th through June 10th, second, further clarification on the timing of the NDA submission to the FDA for Exenatide once weekly. Third, initiation of the registration study for VIVITROL for the treatment of opioid dependence. Fourth, responses from the FDA to the SNDA applications for RISPERDAL CONSTA for frequently relapsing bipolar disorder, and use as a deltoid injection, as well as the submission of the SNDA for the broader bipolar indication. and fifth, advancing our pipeline and announcing new development candidates.

We are very pleased with how our business is advancing, and we have a very busy year ahead. We are passionate about our work, and look forward to sharing our progress with you. With that, I will turn the call back to Rebecca.

Thank you. Operator, with that we will open it up for Q&A.

(OPERATOR INSTRUCTIONS). Our first question is from Cory Kasimov, JPMorgan.

Thank you. Good afternoon. Thanks for taking the question. Want to start off with this new disclosure about the once monthly CONSTA, and maybe get a little bit more visibility into that. At this point going into the clinic next year, given the extensive experience supporting the twice a month version, what type of clinical data do you at this time anticipate is going to be necessary to gain approval of this product?

Cory, this is David, great question. Obviously we are very excited about taking on this project as well. And as we mentioned the plan is to do a Phase essentially a PK study first quarter next year, and then based on that and looking at that profile, it will inform us about what the rest of the development program will look like for this product. So we are going to have to kind of wait for those results before we know exactly what the timeline to clinical strategy is going to be going forward.

Okay. Not sure with this follow up if you can disclose any further information, but curious to know when this agreement may have been reached? And then from there if you are willing to, if you can speculate, if you care to read into what this may or may not say about J&J's expectations for palmitate?

I don't want to comment on the perspectives or expectations around Paliperidone palmitate. Again I would refer you to J&J for further details on that. Suffice it to say this is a new agreement that we entered into just very, very recently. So we are looking forward to doing all of the work to get it into the clinic first quarter of next year,

Are there milestones attached to this agreement?

Not that we can guided to right now, and I will just add to that, that clearly we are very encouraged to have lead formulations identified, and are very excited about the prospects for this program.

And with regards to the ongoing progress to validate the third bulk line for the existing formulations of CONSTA, can you comment on that?

We still, that is based on the capacity requirements, and the outstanding job that our Ohio is doing improving yields, we have not had to pull the trigger on validating that line. It is basically in place and ready to go whenever we need it. So the expectation that Jim outlined and the supply requirements for next year, we envision coming out of the two existing bulk lines.

Lastly just to get a better sense of the impact of AIR Insulin and that discontinuation, can you discuss at all, or mention the impact if any, that this has on the 2013 EPS goal?

Yes, it really doesn't impact it at all. Obviously we were disappointed that Lilly made the decision to terminate the program, but I think as you know, we made the decisions we needed to make to do the restructuring back here, and we are now ready to go forward and invest in this proprietary pipeline, that we are excited to talk about and over the course of the year.

Generally speaking then the P&L did not have that much sensitivity to the AIR Insulin program?

Exactly.

Okay, great, thanks for taking the question.

Thanks a lot ,

Next question, Jami Rubin of Morgan Stanley, your question, please.

Thank you. I just wanted either you Jim or David to further elaborate on the sales force dislocation on VIVITROL, which caused the sequential decline in the fourth quarter, and where you are in terms of numbers, and what you expect that will look like for your first quarter 2009? Secondly, so the difference in the revenue, R&D revenue guidance for 2009 was the absence of Lilly AIR insulin. Did I hear that correctly?

Yes, there was, we had over $50 million of revenue from Lilly last year, Jami. And obviously we were in the throes of late stage Phase III development. So that was a major loss.

At the same time though we are losing some revenue from Amylin as we go forward, because we are winding up our work with them to turn over the facility, which as we have talked about, we are targeting the end of calendar year 2008 for that. So the revenue, R&D revenue from Amylin is also coming down a little bit.

So that 20 to 25 million then that is mostly R&D revenue related to Exenatide LAR?

Yes.

And then 2009 that should go away essentially?

Some of that will go away. I think there will still be some of it there. But we also now just announced our four-week program with J&J, so there is some anticipated R&D revenue with Johnson & Johnson on the four-week CONSTA that will be going forward. And we will announce new programs as we go through the year as David discussed, so we look forward to keeping both the partnered R&D business, but also the loss from Lilly of the R&D revenue just earlier in March, was significant for us.

And Jami I will pick up a little bit on the sales for VIVITROL, and the first quarter obviously was the first full quarter with the new organization in place, and just to remind you, we basically reduced total resources by about 50 to 60% across both organizations. So it really reflects the new team getting in place, getting their territories sort of aligned, and meeting the doctors in them, and then putting the plan in place going forward.

So we continue to be very optimistic about the product. We continue to here about it's impact in terms of patients lives, and the focus of the efforts right now, are trying to really develop the market and go after big opportunities. And that could mean that sales could be a little lumpy over the course of the year, because some of these opportunities do take time to sort of bear fruit.

If I can just follow up, and just ask one more question you said that AIR Insulin does not impact your 2013 goal of $2.00 to $3.00, but then you also said that the loss of revenue was significant. So what are you making up that $2.00 to $3.00 with, or what are you making up within your P&L to get to that $2 to $3 without AIR Insulin?

I think the difference between where people stand looking out, and where we believe we will be in four to five-years is the growth of RISPERDAL CONSTA. And as I look at at all the analysts models, it spokes out, people have RISPERDAL tailing off even as early as this year, so RISPERDAL CONSTA is obviously a major part of that component, and not requiring heroic growth from here, we have Exenatide LAR, or once weekly exenatide in those numbers, and we believe in four to five years VIVITROL can be quite a substantial contributor.

So those are the three main drivers that we have. Of course we expected profitable results from pulmonary insulin out in those years as well, but even with the loss of that program, and the significant loss of R&D revenue right now, but that product should have been on the market in that timeframe, and that would have helped us in that regard, but we still feel confident that we can hit those targets without pulmonary insulin.

All right. Thank you.

Thanks Jami.

Next question, Dave Windley of Jefferies and Company, your question please.

Thanks. Jim, on the R&D expense, if I did my calculation correctly, it looks like the unfunded R&D from '08 to '09 increases about $50 million? Is that fair?

Well, I think you are probably overestimating, because we are taking some cost out of R&D, Dave, with the loss of Lilly. You have to do it in a couple of step process. Lilly is something out, and some of our proprietary R&D is going back in.

Okay. I was just, yes, all right, I took R&D revenue minus R&D expense, and took the difference between the two years for that calculation, and got about $48 million. Just wondering --

That is in the ballpark.

So if that is the ballpark number, is it possible to, I mean you went through and David, you talked about several programs that you expect to have in the clinic, is it possible to kind of rank order of what is going to consume the majority of that R&D expense?

Do you want to--?

Well, I think rank ordering is, we haven't gotten into that kind of granularity, Dave, but we talked about the eight programs that we are going to have. We have two more to announce. And I think it is really the other thing is the Lilly revenue is covering a lot of overhead, that is now being borne solely by Alkermes. And that also gets factored into the mix. But I think when you look at the totality of the programs that is where the R&D expense is coming from.

Maybe another way to ask, of the eight programs, of those eight what would, how far along would the most advanced project be?

Dave, there is usual a correlation between spend and stage of development.

Sure.

And the late stage programs clearly are exenatide once weekly in Phase III, scaling up in Ohio, the initiation of the VIVITROL study for opioid dependence, that is a Phase III program, and then from there, you get into sort of the Phase II programs, ALKS 27, ALKS 29. Then you get into sort of the Phase I programs, ALKS 33, four-week CONSTA, and it is fair to say that probably the two undisclosed programs will be Phase I programs as well.

Changing gears a little bit Jim on CONSTA manufacturing, I tried to do a quick calculation on gross margin, and it looks like if I use mid points again on the guidance for next year, you are looking for gross margin to improve about 5 percentage points, is that approximately accurate and if so what is driving that?

I think it is in that range, Dave and it is volumes.

So generating more volume, but still only using the two lines?

Right. Exactly.

And on that third line, do you have to take any cost on that, or is it not essentially placed in service yet?

It is not placed in service yet and I will also remind everybody that it is actually on J&J's books because they paid for the line, so we don't have the depreciation associated with that.

Good point. My last question is on VIVITROL, you are including some manufacturing revenue in your guidance but no royalty revenue. Is it possible that it could work that way, or are you just being conservative, or could you reconcile those two for me?

Well, our deal with Cephalon runs through the net collaborative profit line. We won't see royalty revenue from that. And there is, the third sheet in our press release lays out the changes in numbers there. So when the product breaks even, we ought to see that net collaborative profit line go up, as we share 50% of the profit.

Alright. Thank you.

You are welcome.

Our next question is from Jim Reddoch of FBR.

You said you have seen competitive threats falling away, of CONSTA falling away, what besides long acting were you referring to? And I have another question.

You broke up a little bit there, the diminished competitive threats around RISPERDAL CONSTA?

Yes, you said competitive threats were falling away, what besides Zyprexa long acting were you referring to?

Specifically about Zyprexa not getting the FDA approval, and again as I mentioned, I think it is still a little too early to the tell what the impact of Paliperidone palmitate is going to be. We saw two posters, but we saw 14 posters for RISPERDAL CONSTA, and obviously now with today's news about four-week, we see RISPERDAL CONSTA being a growing brand for many years to come.

Is the once every four weeks also Medisorb technology?

Yes, it leverages everything that we have done on the two-week program.

Have there been any technological improvements with the beat, that would allow you to have smaller, a smaller gauge needle?

A little early to the really comment on that at this point. We have chosen some of the lead formulations, and we are just going to have to see how they perform, before we give you some specifics around that.

But, Jim, let me just add to that. Keep in mind this would be a physician or nurse administered product.

Right. What percent of oral Risperdal is bipolar right now, and what is the expectation for the proportion of bipolar with CONSTA?

Do you know Rebecca, off the top of my head I'm not sure.

Jim, I don't have the break out in front of me, but clearly bipolar is a growing indication for the field, and as you see many of these products getting label indication for bipolar, sales are increasing for these products, so we are very excited about the opportunity for RISPERDAL CONSTA in the area of bipolar.

Lastly, J&J is not covering the development expenses for the once monthly?

No, in fact they are.

They are, so that is not contributing to higher R&D this year, right?

There is a little bit of that in that are 20 to 25 number that Jim quoted.

We have it in --

--to the R&D expense--

It would be offset essentially, they are going to cover all our expenses for the development, Jim, actually and it would be in R&D revenue, and you would also see it in R&D expense.

And those two should totally wash?

Yes, for Amylin and for the long acting J&J four-week.

Got it. Thank you.

Next question, William Ho of Bank of America.

Hey, guys. Thanks for taking my questions. I guess the first question, with respect to RISPERDAL CONSTA, and going from every two weeks to every four weeks what is the differences in the formulation, and do you need technological improvements to get there. What exactly is involved?

This is David. I remind everybody that VIVITROL is a once a month injection as well, and when you look at the dose, we think we certainly have the capability from a polymer perspective, and from a manufacturing process perspective, to do what we need to do. The work that we have done with generating these lead formulations we have got all of the capabilities to do that.

Great. One follow-up question on LAR, last week at our conference Amylin had indicated that some of the issues they were having, or trying to deal with, is that the FDA doesn't really have guidance towards developing a long acting injectable, that being said, you guys have developed a few of those, and they characterized that perhaps they may have to do a PD bridging study. Can you talk about what you may have done in the past, and if do you have to do such a study, what that might entail from your knowledge?

Yes, good question. Maybe the best example is VIVITROL. When we got VIVITROL approved, all of the material that we supplied for that clinical program came out of a unit that was basically 1 kilogram in scale. And we produced dozens of batches at the 1 kilogram scale, to meet all the requirements for the Phase III and safety clinical for VIVITROL.

We have had discussions and had ongoing discussions with the FDA about how we were going to demonstrate comparability of that material to the 20-kilogram process, that we knew we needed to have in place, in order to launch the product. And once we produced the material at the 20 kilogram scale, once we got the data we were able to then to sit down with the FDA, and talk about an in vivo in vitro correlation strategy, and basically we are able to do it based on the data, the science, and the conversations that we had with the FDA.

And so I know people are trying to say, is that possible with once weekly exenatide, and the answer is yes, and I think as we talked, it comes down to making material at scale, which is something that we have done at the Westchester facility. Gathering that data and now it is having the conversations with the FDA, and showing them the science behind it. So we think there are parallels between these programs.

Great. Thank you.

Next question, Bert Hazlett, BMO Capital Markets.

Thanks for taking the questions. A couple of them. The 18.1 million regarding Eli Lilly and the termination of the program, should we expect any residual charges with regard to AIR Insulin, or do you think that is it?

No. Bert, that's it. We have written off the equipment that was dedicated to it, and the restructuring charge related to the termination of the 120 people that we had to let go because of that.

Second, clearly a good increase with regard to CONSTA. Did J&J, or with regard to the 27% increase, do you have a volume versus exchange mix of the breakout of that? Clearly the dollar, weak dollar might have helped that, and just trying to tease out exactly how much was volume related there?

Yes, absolutely. It was absolutely positive impact of the currency, but units increased approximately 15%.

Okay. Then with regard to the four-week formulation, maybe you answered this, maybe you got to it, are the economics of the four-week formulation the same as CONSTA? I mean, and I guess the answer is just to maybe split hairs a little bit with the answer you gave a little earlier, you haven't guided to any milestones, but are there any milestones in the agreement?

Sure, Burt, no, there are no milestones, they will just be covering our R&D costs essentially, which is fine from our perspective. And in terms of the economic deal, it is essentially the same. It is meant to be the same. Of course, we don't know what price they are going to charge, and we don't know what our manufacturing costs are going to be, but we have agreed to essentially make it the same to Alkermes. We will be dealing with that in the future.

Great. That will be a nice product. In terms of the Phase I PK study, and in terms of the expectations for timing, what can we think about how long this might take? I mean I know it is early days. You just announced this but it, but how long do you think that this might take, without full blown clinicals, or what do you need to do to get this through to fruition, in terms of FDA approval?

It will be a typical Phase I type of study, where we will be looking at some PK and safety data. Because it is a month in duration it will take at least a month, but it is not going to be a six-month type of thing. It is going to be a fairly quick study.

Okay. Thanks.

Next question, Scott Henry, Roth Capital, your question please.

Thank you. I just had a couple questions. First, with regards to the Lilly agreement, are there any expectations for any sort of payment coming from them, similar to what we saw with Nektar and Pfizer?

Scott, thanks for the question. We are currently working things out with Lilly right now, and will update you as soon as we can.

Fair enough. Secondly just when we look at your fiscal year 2009, how should we think about the quarterly progression? Should we expect the loss to be highest and then improving throughout the year, or is there any way we should think about that trajectory?

Yes, I think, just trying to put this in the right context, because we typically don't give quarterly guidance. And I think as we get into some of these clinical programs though, you will see some more spending through the course of the year. Of course that is going to be offset by increasing sales of VIVITROL, and increasing sales of CONSTA, we hope. So at this point, we are not going to get into giving quarterly guidance right now.

Okay. That is helpful. And then just a final question. In terms of RISPERDAL CONSTA in Japan, any updates there, how should we think about the timing there?

J&J hasn't given specific guidance on when they expect to get approval, clearly the cycle is a little bit longer than what is here in the U.S., but it is the Japanese Regulatory Authorities stick to their timelines, we should be hearing later this year.

Thank you.

Thank you. Operator, we have time for one more question. Our final question is from Cory Kasimov of JPMorgan.

Thanks for taking the follow-up, just one question, regarding the technology being used to potentially move CONSTA from a twice a month to a once a month product, could that eventually be applied perhaps to the LAR program? To further optimize or extend the dosing of that molecule?

Good question, something that we have considered, and I think that if that is something that we would do, we will inform you about it later.

Okay. Thank you.

Thanks, Cory.

Thank you everyone for dialing in, and if you have any additional follow-up questions, we will be happy to take them. Have a great evening.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Good day.