Alkermes Plc (ALKS) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Alkermes conference call to discuss the Company's fiscal 2009 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 your host for the today's conference call, Ms. Rebecca Peterson, Vice President of Corporate Communications at Alkermes. Please go ahead.

Good afternoon, and welcome to the Alkermes conference call to discuss our financial results for the fiscal year 2009 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 let me remind you that during today's 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 the forward-looking statements. You can find a list and detailed description of these risks and other risks in our annual report on Form 10-K which will be filed shortly, as well as in 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 2009 financial results and provide financial expectations for fiscal 2010. David Broecker will then provide an update on the Company. After our remarks we'll open it up for Q&A.

Now I'd like to turn over the call to Jim.

Thanks, Rebecca. Good afternoon, everyone. Fiscal 2009 was a successful year financially. We're pleased to report a profitable year on a GAAP basis as well as our fourth consecutive year of positive cash flow from operations. In fiscal 2009 we generated $34.6 million in cash flow from operations and ended the year with $404.5 million in cash and investments. Maintaining positive cash flow remains a key objective for us. This goal is indicative of how we manage the business. We believe that there are real advantages to managing the Company this way, providing discipline in our portfolio decisions while allowing us to invest in future growth.

Over the last year we made significant progress strengthening our balance sheet. We took advantage of the dislocated credit markets to buy back over 50% of our nonrecourse RISPERDAL CONSTA notes below par. Overall we repurchased $93 million of notes at a discount. These repurchases will save us over $18 million in cash over the life of the bonds.

During fiscal 2009 we also repurchased 1.6 million shares of common stock for $18 million as part of an ongoing stock repurchase program. Alkermes has not done a diluted financing since 2003. In fact, we have shrunk our share count by almost 10% while maintaining our cash balances. We were taking these actions because we are planning for strong EPS growth in the coming years.

Another example of our focus on operations is our decision to move our corporate headquarters to Waltham, Massachusetts, located just outside of Boston. We expect this relocation, which will take place in early calendar 2010, to result in annual cost savings in the range of $10 million to $15 million in fiscal 2011 and beyond. By finding a tenant to cover the cost of our current facility and entering into a long term lease at favorable rates in the current troubled real estate market we're able to reduce the cost of our business going forward.

Let me now move on to highlight our fiscal 2009 financial results. On a GAAP basis we achieved net income of $130.5 million or basic earnings per share of $1.37 and diluted earnings per share of $1.36. Our earnings were driven by manufacturing and royalty revenues from RISPERDAL CONSTA and the recognition of the remaining milestone in deferred revenue from our previous agreement with Cephalon for VIVITROL. On a pro forma basis we broke even with net income of approximately $24,000. For reconciliation of our pro forma net income to GAAP please see the press release that we issued today.

Turning first to RISPERDAL CONSTA, end market sales by Johnson & Johnson were $325 million for our fourth quarter, and operational growth remained strong. As Johnson & Johnson stated on its recent conference call, RISPERDAL CONSTA achieved first quarter sales growth of 17.5% on an operational basis. US sales growth was 24.8% while sales outside the US were up 13.9% operationally with continued positive momentum in share. For the full year, worldwide sales of RISPERDAL CONSTA were over $1.3 billion for fiscal 2009, representing a 12.6% increase over our fiscal 2008. On a unit basis J&J increased sales by 15.7%.

Manufacturing revenues related to RISPERDAL CONSTA were $24.4 million for the fourth quarter and $112.4 million for the fiscal year. Royalty revenues related to the product were $8.1 million for the fourth quarter and $33.1 million for the fiscal year. Taken together revenues related to RISPERDAL CONSTA from Johnson & Johnson were a record $145.5 million for the year. We expect continued growth for RISPERDAL CONSTA which is on patent through 2020.

With respect to VIVITROL, net sales in the fourth quarter were $4.5 million. Had we reported product sales for the full fiscal year, gross sales for fiscal 2009 would have been $18.8 million compared to $18 million for fiscal 2008. Sales were essentially flat year-over-year even as we transitioned and took over responsibility for commercializing VIVITROL in the United States. This year we're continuing to execute on a focused commercial plan. We are seeking to improve access for patients and physicians. We believe we can increase product sales while maintaining financial discipline as we commercialize VIVITROL.

During the year we carefully managed our expenses. Total operating expenses in fiscal 2009 were $191.9 million or approximately 15% lower than operating expenses of $225.5 million last year when one time restructuring charges are excluded. This decrease was in line with our expectations and was driven primarily by the restructuring of our business. Despite this decrease we actually increased our investment in both our pipeline and commercial infrastructure.

I will now outline our financial expectations for fiscal 2010. I'll remind you that I will make forward-looking statements. Before I go through the line items, I want to provide some context around our expectations for fiscal 2010. This year is about preparing for growth. We have growth opportunities with RISPERDAL CONSTA, with the NDA pending for Exenatide Once Weekly, and with potential for VIVITROL and alcohol dependence, as well as a potential new indication currently being studied in Phase III. This year or plan is to remain cash flow positive as we expand the investment in our pipeline and move to a more cost effective headquarters. Our long term goal remains the same, to rapidly grow earnings and cash flow with a target of $2 to $3 of earning per share from 2013.

With that I'll turn to our financial expectations for fiscal 2010. We expect total revenues to range from $182 million to $197 million which we break out as follows. Total manufacturing revenues in the range of $116 million to $122 million. This includes manufacturing revenues from RISPERDAL CONSTA in the range of $115 million to $120 million and manufacturing revenues for VIVITROL related to the Russian market in the range of $1 million to $2 million. Royalty revenues for RISPERDAL CONSTA in the range of $36 million to $38 million, net product sales for VIVITROL in the range of $23 million to $28 million, R&D revenues in the range of $2 million to $4 million, and net collaborative profit is expected to be approximately $5 million.

Turning to expenses for fiscal 2010, we expect cost of goods sold to range from $50 million to $60 million which includes non-cash compensation expense in the range of $1 million to $2 million. R&D expenses are expected to range from $93 million to $100 million. This range includes approximately $3 million to $4 million in non-cash compensation expense. This expectation also includes $16 million to $18 million of one time non-cash charges related to the relocation of our headquarters. Specifically, these charges are primarily related to the accelerated depreciation of certain assets in our current facility. This accelerated depreciation charge should occur only in fiscal 2010 between the date we signed our sublease in April and the dates we exit our Cambridge facility. So excluding these non-cash charges, our R&D expenses are expected to be lower than last year.

We expect SG&A expenses to range from $69 million to $77 million. These expectations include non-cash compensation expense in the range of $6 million to $9 million, and one time non-cash charges in the range of $2 million to $5 million also related to accelerated depreciation because of our move. We expect a GAAP net loss for fiscal 2010 in the range of $30 million to $40 million, or approximately $0.32 to $0.42 cents per basic and diluted share. I will remind you that this includes $28 million to $38 million of non-cash expenses which I just mentioned. We continue to expect positive cash flow from operations ranging from $1 million to $5 million next year. For a basic share count assumption we have used the current basic share count of 95 million shares.

To conclude, we entered fiscal 2010 from a position of strength and we have a very busy year ahead of us. We expect to achieve milestones across all of our programs over the next year while remaining cash flow positive, and we look forward to updating you on our progress.

With that I'll turn the call over to our Chief Executive Officer, David Broecker.

Good afternoon, everyone, and thank you, Jim, for your financial update. Jim's comments highlight the strong and exciting position that Alkermes is in as we enter this new fiscal year. The financial results we just reported and our guidance for the new year make clear a couple of important facts. First, because of RISPERDAL CONSTA we can maintain positive cash flow from operations even while advancing a diverse and valuable pipeline that includes NDA stage and Phase III product candidates. Second, we are now preparing for a new phase of growth as we anticipate new revenue streams building on the foundation provided by RISPERDAL CONSTA.

I will now discuss some of our recent developments and highlight the milestones we expect to achieve over the next few months. Let me start with RISPERDAL CONSTA. This product remains one of the biggest drivers for J&J's worldwide pharmaceutical business with new opportunities ahead for near term growth. Earlier this week we announced that the FDA approved RISPERDAL CONSTA as both a monotherapy and adjunctive therapy in the maintenance treatment of bipolar 1 disorder. In any given year this disease affects an estimated 5.7 million Americans. Just as this product was the first long acting atypical anti-psychotic for schizophrenia, it is now the first and only long acting therapy for bipolar disorder. We are proud to see that our ability to formulate long acting medications has resulted in another first in providing a new treatment option for patients.

A second near term growth opportunity for the brand is the upcoming launch of the product for the treatment of schizophrenia in Japan. Building on the impact that RISPERDAL CONSTA has already had in more than 60 countries worldwide, we now look forward to J&J's launch in Japan which we expect to occur in the next few months. In terms of the anti-psychotic landscape, we are confident about the potential of RISPERDAL CONSTA. Nearly five years after approval, the body of evidence supporting the clinical profile of this product continues to grow. At the annual meeting of the American Psychiatric Association, which actually concluded today, there were 11 presentations on RISPERDAL CONSTA. As data from clinical trials of potential competitors comes to light, RISPERDAL CONSTA looks stronger and stronger. We believe the safety and efficacy of this product remains unrivaled. We look forward to the continued success of this brand which is on patent through 2020.

Turning to VIVITROL, we have previously stated that this is a pivotal year for the product. Throughout the year we are closely monitoring three things that we believe serve as indicators for the potential of this product. Sales growth here in the US, the successful launch of VIVITROL in Russia by our partner J&J, and the results of the registration study in opioid dependence. Let me comment briefly on these three areas.

With respect to US sales, following a transition period, our commercial team just recently took full control of the product, distribution and sales, and we are now completing the integration of the commercial infrastructure required to support VIVITROL. A fundamental aspect of our strategy includes changes to the distribution network. Specifically, we are now contracting directly with specialty pharmacies in addition to national wholesalers to improve access for patients and physicians. We anticipate that we will see a sales impact from these programs in the second half of fiscal 2010.

Beyond the US market for alcohol dependence we are very pleased to announce that J&J just recently launched VIVITROL in Russia. We receive manufacturing fees as well as low double-digit royalties on sales of VIVITROL in Russia. We will watch this launch with great interest as it may serve as a proxy for other markets.

Finally, we have a major opportunity in opioid dependence. Unlike alcohol dependence, medication in the treatment of opioid dependence is standard therapy and this market exceeded $700 million in the US in calendar year 2008. In April we completed patient enrollment in the registration study for VIVITROL in opioid dependence. This study is progressing well and we look forward to reporting top line results at the end of this calendar year.

Moving on to Exenatide Once Weekly, the most recent news for this program is, of course, the fact that the NDA was submitted in early May. This is an exciting accomplishment for Alkermes, Amylin and Lilly. The NDA submission is the culmination of seven years of interaction with the FDA on specific data for Exenatide, an approved product combined with our microsphere technology which has been approved in other medications. But perhaps most importantly, the underpinning of the NDA submission is the clinical data supporting the best in class profile of Exenatide Once Weekly. The clinical basis of the NDA is the Duration-1 study which showed that Exenatide Once Weekly significantly lowered blood sugar compared to BYETTA. And in March the collaboration reported results from Duration-2 study which demonstrated that Exenatide Once Weekly showed superior glucose control compared to Januvia and Actos, two products with combined sales exceeding $5 billion last year. The collaboration is continuing to execute on a clinical program designed to competitively position Exenatide Once Weekly at launch. Additional superiority studies are ongoing with results expected this year for Duration-3 and in calendar year 2010 for Duration-4 and Duration-5.

Of course, included in the FDA review is a risk benefit analysis. The health complications of diabetes are very serious. These include heart disease, stroke, amputation, kidney failure and blindness. The prevalence of Type 2 diabetes continues to grow at an alarming rate and there remains a vast unmet medical need for safe and effective diabetes medication. As a once weekly therapy that has shown superior glucose control, along with weight loss and no increase in hypoglycemia and favorable changes in cardiovascular risk factors, we feel confident about the approvability of Exenatide Once Weekly.

Let me now turn to our proprietary pipeline. We have stated before that we would begin providing more visibility into our pipeline. In April we held our first R&D day meeting and explained the rationale behind our proprietary portfolio. We also reported clinical data on ALKS 33 and ALKS 29 which we are developing in the area of addiction, as well as ALKS 36 for the treatment of pain. We are continuing to make progress with these programs. We recently announced the initiation of two Phase I studies for ALKS 33, a novel opioid modulator. One of these studies, Study 003, is the Phase I multi-dose study in healthy volunteers. The second study, 004, is a Phase I clinical trial that will examine the ability of ALKS 33 to block opioid effects in healthy, nondependent opioid experienced patients. We expect to have top line data from these studies in the second half of calendar year 2009.

In addition, we are making progress with ALKS 36, a combination product with the potential to treat pain without the debilitating GI side effects commonly observed with opioid analgesics. We are planning to initiate a Phase I study of ALKS 36 in the second half of calendar year 2009.

To conclude, fiscal year 2010 is sure to be an important year for Alkermes with potential catalysts for each of our programs. Let me provide a brief review of the program milestones we expect in the coming months. First, new data from the Duration program for Exenatide Once Weekly, including data from Duration-2 at the upcoming meeting of the American Diabetes Association in June. Second, data from the Duration-3 study comparing Exenatide Once Weekly to insulin glargine. Third, top line results from the Phase IIA study for ALKS 27 for the treatment of chronic obstructive pulmonary disease. Fourth, top line results from the ongoing ALKS 33 studies. Fifth, data from the Phase I study of the four week formulation of RISPERDAL CONSTA. And finally, initiation of Phase I study for ALKS 36.

With that I'll now turn the call back to Rebecca.

Thanks, David. Operator, we'll now open it up for Q and A.

Thank you. (Operator Instructions) Our first question or comment is from Cory Kasimov of JPMorgan. Your line is open.

Good afternoon, guys. Thanks for taking the questions, two of them for you. First regarding the RISPERDAL CONSTA, some of the recent news there, in particular the two recent approvals that you've had both in Japan as well as the bipolar indication, just looking for some context into this and what this may mean for the franchise. As far as Japan's concerned if you could put any numbers around the opportunity, perhaps on a dollar basis, with what you know of what other anti-psychotics may have done there, and so how this may move the needle for CONSTA. And then as far as bipolar is concerned any insight into how much off label use is already in this space would be helpful.

Cory, this is David. Thanks for your question. Hard to comment on specific numbers. J&J is probably the best person to ask those questions of if you want some real detail. But I think at a high level we expect to see growth next year in RISPERDAL CONSTA sales of -- what? Jim, 10% to 15% I think is what you outlined. Japan is the third largest pharmaceutical market in the world, and having a long acting anti-psychotic is obviously a very important addition to the treatment of patients there. When it comes to bipolar disorder, there are about 5.7 million Americans that suffer from bipolar disorder. Our understanding is that J&J is in the process of filing for bipolar disorder outside the US. So we look at continued growth, but for specifics it's best if you talk to J&J.

Okay. Well, let me try to ask this one other way and then I'll move on to my final question. If these two approvals had been delayed beyond this point in time where you're reporting your fiscal year numbers and providing us with guidance, how much of a haircut would you have had to take to your CONSTA outlook if you didn't have these numbers in there yet? Would it be -- not number-wise necessarily, but roughly speaking, would it have been a significant haircut you would have had to put on the guidance or is that really contributing to this GROWTH or not so much yet?

Let me try and answer it a different way, as well. I think we've always tried to give our CONSTA guidance really looking in the rear view mirror, and as you can see what we've guided to is essentially the growth that we've seen to date. So I think it's fair to say that if there's any acceleration in the sales, as could, I think, be reasonably expected or at least surmised, then we might see uptick in CONSTA. I think we've always tried to be conservative about that and I think we've maintained a very good relationship by J&J over time by not really giving guidance on their products. Most of our guidance is done through the rear view mirror and we'll see where we go for the rest of the year.

Okay. That's very helpful. And then my last question is looking into this guidance, most of it, at least most of the key line items appear to be more or less in line with our expectations, but there was one notable exception, and that was SG&A. So I'm wondering how much of an impact you taking over the VIVITROL franchise is having on the guidance and the outlook for this year? And, David, you mentioned in your comments that this is a pivotal year for the product with data, with you guys taking it over. Is it safe to say this is also a make or break year in that if you don't see the performance, are you prepared to just kill this program?

Cory, that's been a thing that we've talked about in terms of continuing to manage this business and match investment to what we believe the opportunity is. So, we've got not just what happens here in the US in terms of sales growth, how this product launches in Russia is also important, but probably most important as well is the data that we get from the opioid study that we are going to complete and have top line data on by the second half of this year. Unlike alcohol dependence, we know that there's a market for medication for opiate dependence, and the things we're doing now to set the stage for alcohol dependence can easily be leveraged in support of launch of that product going forward. So we continue to look and see what happens from a sales perspective here. We want to see sales growth. Our expectations are $23 million to $28 million net sales going forward into this year, and that's what we'd like to see. So it's really the culmination of those three things.

Can you comment -- you used to provide this type of context into it in terms of the loss per quarter that you would see with VIVITROL. At $23 million to 28 billion in sales how much of a loss would you be taking in fiscal 2010 to go to this $30 million to $40 million net loss for the year?

Sure. Cory, let me answer, and your first question about the SG&A, as well. To go backwards from a net loss perspective I think -- and it's important to note we've gotten half the losses covered by Cephalon as we go forward. I think we did a very good deal with them and they had an obligation to cover the losses for the 12 months after we separated. So that's December 1st to December 1st of '09. They gave us $11 million in that sense. So obviously half of that makes that a $22 million loss for the year.

I also think, if you can do simple math on that $23 million to $28 million in net sales, it's important that we're talking about net sales now here, not gross sales which we were doing last year as we reported on Cephalon, so net sales is $23 million to $28 million. That essentially gives you, if you do simple math four, six, eight, 10. And if we exit the year doing $10 million a quarter, that gets us obviously very close to the break-even number that we're targeting. So those perspectives.

And then just back to SG&A, if you look at where we had been before we took on the Cephalon sales and marketing responsibilities, and we said this on our last conference call, we were running at about $12 million in SG&A for our company. We're going to add about $20 million of sales and marketing expense over the course of a year. It gets you right smack at $68 million to $70 million which is where our guidance is coming in. So I don't think that's changed from where we were last quarter. It's just a matter of covering that commercial expense for the full year.

Okay, context was helpful. Thanks a lot guys.

Our next question or comment is from Tom Russo of Baird. Your line is open.

Hi, good afternoon. Maybe just, Jim, elaborating on what you just said. With that progression of VIVITROL how much of the improvement in growth is coming from the changes to distribution and having the product in your hands as opposed to a successful outcome from the opioid study?

Yes Tom, hi, good question. I think clearly the opiate study is right now in Phase III and that's going to read out in the second half of the year, and then we're going to file the NDA on that. So all the growth coming this year, really, is from, I would say, two things. One, trying to focus the distribution system and really start a distribution system for a high value specialty injectable product, which VIVITROL has never had before. That's happening right now, as we speak, putting the final touches on that distribution system and rolling it out. And then as David mentioned, too, the second thing is really focusing on the current prescribers and helping them and giving them some tools to maintain their patients once they get them started. So we don't have to see real heroic growth in terms of going out and finding new physicians. We're trying to make it easier for people to get once they prescribe the product and then obviously holding onto those patients as they go.

Okay. And then just a little help interpreting the cost savings out beyond this year. Is the right way to think of those, the total SG&A and R&D in the fiscal 2010, less that amount, or should we be looking at what your comments are on the underlying spend? Can you just help us a little bit to interpret how that will look coming out of this year into next year?

Sure. I think, and we tried to give you the clear pull-out of the non-cash charges that are associated with the depreciation. So once we have that one time charge gone, and that's about $16 million to $18 million in R&D and $2 million to $5 million in SG&A, so $18 million to $23 million in total, you back that out, that's going to be non-cash per fiscal 2010. And then we're going to start to see the savings in fiscal 2011 and beyond because we're going to be in this facility for three quarters of the year. We have to move costs, et cetera, that will be offset with the money that comes in during this fiscal year. But going forward in fiscal 2011 and beyond, you can really subtract $10 million to $15 million out of our expenses in terms of the savings that we're going see from lower rent and operating costs.

And those are savings that we'll actually see on the P&L as opposed to they'll be reinvested in other areas?

I think it will depend on how 2011 and 2012 and 2013 go, obviously, but those are going to be savings that we ought to see some of that obviously drop to the bottom line. Some of that is going to give us the wherewithal to invest in other products, but all things being equal that would be lower expenses and ultimately more profits.

Okay. Thanks very much.

Thanks, Tom.

Thank you. Our next question or comment is from Ian Sanderson of Cowen. Your line is open.

Good afternoon. Thanks for taking my questions. Another question on VIVITROL and just how long you'll stick with this. Looking at the trend for Suboxone, which I think defines the opioid dependence market now, that took a long time and then suddenly took off. And do you have an idea of what drove that inflection point with Suboxone and how you would duplicate that with VIVITROL?

Ian, this is David. Good question. It did have a very slow and methodical buildup, probably over the first three or four years, and it wasn't until years four, five and six that it really started to jump. And I think in the early years, it was tens of millions of dollars, growing now last year up over $600 million. I think that there were a couple things that drove that.

I think one big thing that drove that was the fact that Reckitt who commercialized that product really did a good job at working with physicians and developing tools and programs to train them on how to use Suboxone in their outpatient practices to treat these opioid dependent patients. Prior to Suboxone this was really a method that was treated with Methadone at Methadone clinics, and what Suboxone provided was an outpatient alternative for psychiatrists and addiction specialists to treat these. But they had to go through special training, there were certain restrictions put on them in terms of the number of physicians that they could prescribe the product to, et cetera, et cetera.

The biggest learning I think that we took out of that as it relates to VIVITROL is this notion of what kinds of programs do you have to put in place to support the physician on a going forward basis. In, addition to some of these changes that we made in the specialty distribution network, which we've been talking about and it's really the things that we've worked on here in the first three or four months, the other thing that we've recently also launched in support of VIVITROL is a program for patients, for doctors giving them some of the tools that they need in order to facilitate the types of interactions that they need to have, them coming back for their next appointment to insure adherence and compliance to therapy, things like that. So we've tried to take a page out of their playbook, so to speak, and apply it to VIVITROL. So that's what we hope to see and expect going forward the second half of this year.

Okay. And then on the RISPERDAL CONSTA four week, actually, David, can you repeat when the data are expected for that. And is J&J providing funding for that program and, if, so is that what is flowing through your R&D revenue line?

Yes. Most of the R&D revenue that you see on the expectations for this year is associated with the J&J four week CONSTA program. So they are paying for that program. It's completely up to J&J to disclose that data, but we're anticipating that and hope that it's going to be in the second half of this year.

Okay. Thank you very much.

Thank you. (Operator Instructions) We do have a question from Robert Hazlett of BMO Capital. Your line is open.

Thanks for taking the late question, a number of them have been answered. Could you refresh us -- discuss the IP surrounding any particular four week dosing of CONSTA. Should that have fresh IP or not?

Our expectation on that is we certainly have IP through 2020 and we are pursuing other opportunities to enhance the IP on that product, as well. So it's protected for a long time.

And is that something that you're pursuing or J&J or both?

Together.

And are there issue patents surrounding the four week dosing version or are these patents being prosecuted? Is there anything specific to the four week version I guess is my question?

Nothing's been issued yet specific to the four week, but stay tuned.

Okay. Thank you very much.

Thank you.

Thank you, and I'm showing no further questions at this time. Please proceed with any further remarks.

Great. Thanks, everyone, for dialing in tonight and if you have any subsequent questions, please don't hesitate to call. Have a great evening.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Have a wonderful day.