Alkermes Plc (ALKS) 2010 Q1 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 first quarter fiscal 2010 financial results. At this time, all participants are in 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 today's 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 first quarter of fiscal 2010 which ended on June 30. 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 the call today, 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 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 a detailed description of these and other risks in our annual report on Form 10-K, our quarterly report on Form 10-Q which was filed this afternoon as well as our 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. Today Jim will discuss our first quarter financial results and David Broecker will provide an update on the Company. After that, we'll open it up for Q&A. Now I'd like to turn call over to Jim.

Thanks, Rebecca. Good afternoon, everyone. As we are just one quarter into fiscal 2010, I will quickly take you through the results and then hand the call over to David who will discuss recent progress and upcoming milestones. We delivered a solid quarter with pro forma net income of $1.2 million or one penny per basic and diluted share. On a GAAP basis, we reported a net loss of $10.2 million or a basic and diluted loss per share of $0.11. The GAAP net loss was driven primarily by $8.2 million of charges associated with our planned relocation from Cambridge to Waltham Massachusetts. As you may recall, we outlined these anticipated charges during our May earnings call and expect them to occur until the move is complete in early calendar 2010. As we've discussed previously, the vast majority of these charges are non-cash. It is important to note that the move will substantially reduce our ongoing operating costs, saving us $10 million to $15 million annually in fiscal 2011 and beyond. For a full reconciliation of our pro forma net income to GAAP as well as details of our quarterly revenues and expenses, you can review the press release that we issued earlier this afternoon.

Let me now briefly highlight key financial results from our first quarter. Total revenues were $47.5 million, driven by manufacturing and royalty revenues from RISPERDAL CONSTA. End market sales by Johnson & Johnson were approximately $348 million, a record quarter for the product. As Johnson & Johnson stated on its recent earnings call, "RISPERDAL CONSTA achieved second quarter sales growth at 12.1% on an operational basis. US sales growth was 9.2% while sales outside the United States were up 13.7% operationally, driven by increased share." Unit growth is the key indicator of the health of this franchise and the June quarter was a strong one for us. We expect continued growth of RISPERDAL CONSTA, which is on patent through 2020. For the second quarter of fiscal 2010, we anticipate manufacturing revenues from RISPERDAL CONSTA to be in the range of $28 million to $33 million. With respect to VIVITROL, net sales for the quarter were $4.2 million. We are continuing to execute on a focused commercial plan aimed at improving access for patients and physicians. As we have stated before, we expect to see the results of these efforts in terms of increased product sales in the second half of our fiscal year 2010.

Turning to expenses, total operating expenses for the first quarter were $57.5 million, relatively flat compared to the same period last year when the $8.2 million of charges associated with our relocation are excluded. These operating expenses were in line with our expectations. Underlying our operations is a strong financial foundation with over $380 million of cash and total investments on our balance sheet. During the quarter, we invested $2.5 million in our ongoing stock buyback program, and we also continued to retire our RISPERDAL CONSTA notes redeeming $6.4 million of notes in the quarter. We continue to expect to be cash flow positive on an operating basis for the full fiscal year, even while we advance our pipeline.

To conclude, we entered fiscal 2010 from a position of strength and have a very busy and eventful year ahead. RISPERDAL CONSTA continues to be successful in the marketplace with growing sales worldwide. We have a near term commercial opportunity with Exenatide Once Weekly, a profit that will be profitable for Alkermes from the first day of sales. We also see potential upside in VIVITROL and are anticipating the results of our ongoing registration study for opiate dependence at the end of the calendar year. Beyond our base business, we're continuing to advance our pipeline and proprietary product candidates. With that, I'll turn the call over to David, our CEO, for an update on our programs.

Good afternoon, everyone, and thank you, Jim, for your update. Fiscal year 2010 is shaping up to be an exciting year for the Company, and we've already achieved several important milestones across the portfolio. What I'd like to do now is highlight some of our recent developments. Let me begin with RISPERDAL CONSTA, a global blockbuster product on track for $1.4 billion in sales for fiscal year 2010. As many of you know last week, the FDA improved in Invega Sustenna, J&J's long acting injectable version of Invega, an oral atypical that followed RISPERDAL in the marketplace. It is important to recognize that just as RISPERDAL is different from in Invega, RISPERDAL CONSTA and in Invega Sustenna are also distinct. In fact, there are several factors that differentiate RISPERDAL CONSTA in the marketplace.

First as I mentioned, RISPERDAL CONSTA is sold in markets around the world with well over $1 billion a year in sales. It's an important product for patients, physicians and payors, which in turn has made RISPERDAL CONSTA one of J&J's top five pharmaceutical products in terms of sales. Second, it has taken years of investment to build this brand and the return on this investment continues. There have been several key milestones in just the past few months. In May, RISPERDAL CONSTA was improved -- approved by the FDA for bipolar 1 disorder, making it the first and only long acting atypical medication approved for both schizophrenia and bipolar disorder. It was also recently approved in the European Union for use as a deltoid injection. And in June, J&J launched RISPERDAL CONSTA in Japan for schizophrenia representing another opportunity for growth. Finally, it takes time and real world patient and physician experience to establish a billion dollar brand. A key advantage of RISPERDAL CONSTA is its demonstrated real world efficacy with more than six years of patient, physician and payor experience as well as data supporting its pharmaco economic benefits. With patent production into the year 2020, we are confident about the future of this product.

Turning to Exenatide Once Weekly, we achieved several key milestones during the quarter. The new drug application was submitted and accepted by the FDA. Subsequently, Amylin received the filing review issues letter from FDA commonly referred to as the 74 Day Letter. As Amylin stated on their recent earnings call, "the letter was clear in that there were no deficiencies in the submission and there were no requests for additional preclinical or clinical studies." We remain very confident in the submission and look forward to the PDUFA date, which is now set as March 5, 2010.

During the quarter, we also reported exciting new efficacy and safety data as part of the duration program. Presentations at the ADA meeting in June included two year data from Duration-1 and a late breaker on Duration-2 and most recently, the collaboration reported positive results from Duration-3. In this study, Exenatide Once Weekly showed superiority over Lantus with greater improvements in glucose control and reductions in body weight. In addition, there were fewer episodes of hypoglycemia with Exenatide Once Weekly. The results are particularly impressive as this is the first clinical study to use one of the most aggressive insulin titration regimens in comparing (inaudible) to Lantus. To prepare for commercialization, the collaboration is building an impressive data set showing how Exenatide Once Weekly compares to commonly used medications for the treatment of type 2 diabetes. The duration studies reported to date have shown superiority over Actos, Januvia and now Lantus. Medications with combined sales of more than $8 billion in calendar year 2008. With clinical trial data demonstrated to reduce blood sugar, weight loss and cardiovascular improvements, we believe Exenatide Once Weekly represents an important blockbuster opportunity.

Moving on now to VIVITROL, we are executing on the plans we outlined during our last earnings call. During the quarter we worked to further improve access for patients and payors and as Jim mentioned, we expect to see the results of these changes in the second half of the fiscal year. Beyond alcohol dependence, we have a real opportunity in opioid dependence where there is a clear need for new medications. The number of Americans addicted to or abusing prescription or nonprescription opiates has more than doubled since the year 2000. As a once monthly opioid antagonist that is nonnarcotic and nonaddictive, VIVITROL could provide an important treatment option for patients with opioid dependence. The registration study for VIVITROL is progressing well and we look forward to reporting top line results at the end of this calendar year.

I will conclude with a brief update on ALKS 27, an inhaled formulation of trospium for the treatment of chronic obstructive pulmonary disease. We recently completed a Phase IIa study and are pleased to report positive results. In the study, ALKS 27 was generally well tolerated, had a rapid onset of action and led to a statistically significant improvement in lung functioning compared to placebo. As we have previously mentioned, our strategy is to partner this product before pursuing further development. We will keep you informed of our progress. Let me now finish with just a brief overview of the program milestones we expect in the coming months. First, top line results from the two ongoing Phase I studies for ALKS 33 for the treatment of alcohol dependence and other reward disorders; second, the initiation of a Phase I study for ALKS 36 for the treatment of pain and third, top line data from the registration study of VIVITROL and opioid dependent patients. With that, I'll now turn the call back to Rebecca.

Operator, we'll now open it up for questions.

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

Hi, thank you. Good afternoon, guys. First question I have for you is on the IP estate surrounding RISPERDAL CONSTA. There's been some confusion on this subject in the -- among investors, and I was just wondering if you can clarify the types of patents you have and what they extend to for both the US and in Europe. Thanks.

Cory, this is David, great question. I think the easy way to look at it and think about it is if you go to the orange book and you look at the patents that are listed there, you'll see that there's some patents that go out to the year 2019, and we know also of some issued patents that have -- around our process of manufacturing RISPERDAL CONSTA which actually take it out to 2020, and we continue to actually evolve the patent estate around RISPERDAL CONSTA actively. So what you see in the orange book is 2019 and with these additional process issued patents, takes it out to 2020.

And then to the extent that you can tell this through all the public documents, the Invega Sustenna IP estate, when does that extend to?

Rebecca, do you --

Cory, based on our analysis, we believe that Invega Sustenna has patent protection into 2018. And just a point of clarification on your earlier question, so it's 2020 in the US for RISPERDAL CONSTA patents and 2021 in Europe.

Okay. And then in terms of the pilot study for once monthly dosing of CONSTA, if we assume for a minute that that's successful, what would be the next steps be beyond that, or do you know at this point?

At this point we don't know, because it depends on the results of the Phase I study that we're conducting. As we've probably outlined in previous calls, we expect the results second half towards the end of this year and we look forward to communicating what those results are and determining what the next steps are.

Okay. And then lastly on the ALKS 27 data that you just said in looking for a partner to progress that further in development, have you been speaking with partners before getting this data, or are you basically going to be starting those discussions now that you have this in hand?

I think it's fair to say we've been in on and off again partner discussions over time. One of the reasons why we wanted to complete that latest Phase IIa study was to get the data set that came out of it and fortunately, it confirmed our hypothesis that we could show statistical differences to placebo. We believe we have a once a day product in the area of COPD and so now we're going back out and engaging partners again.

Great. Thanks for taking the questions.

Our next question or comment comes from the line of Terence Flynn from Lazard Capital. Your line is open.

Hi. This is actually Ana Petrovic. Thank you for taking my question. Just on the recent approval in bipolar disorder for CONSTA, could you possibly comment on the market potential and have you seen any impact on scripts?

So, Ana, thanks for the question. I'll just take that quickly. So that we know that about 40% of atypical scripts are for schizophrenia and about 30% are for bipolar. We just recently got the approval in bipolar, so I don't think we have yet a really good sense of how this is going to play out. That being said, we certainly believe this is a growth opportunity for the product.

Okay. Thanks.

Our next question or comment comes from the line of Mr. Dave Windley from Jefferies & Company. Your line is open.

Hi. Thanks for taking the questions. So a following onto that last one, is on both of the approvals on CONSTA bipolar in the US and then the approval in Japan, how do those, Jim, affect your manufacturing revenue and how much does your guidance already include those opportunities or are you leaving those opportunities for greater visibility down the road?

Sure. Hi, Dave. Well, we always like to beat our guidance, of course, which we've done with RISPERDAL CONSTA over the last few years.

And we appreciate that.

Both the Japanese approval and the bipolar approval have really been in the plans for quite some time. So from a manufacturing revenue perspective, I think you can assume that it's already in there, and I think we're going to be looking to the sales line and the operational growth. That's how we judge the health of the franchise going forward, and I think I'd just echo what Rebecca said. Both of those approvals really came in the end part of June. So we don't believe we've really seen any impact to that really in the last quarter.

Okay. And then just to clarify, when you say you'll look to the sales line on that, is that sales line of J&J sales of CONSTA, but then I guess are you also implying there that you've got the manufacturing included in your forecast, but the royalties on the sales line would be the upside? That would be where we could see upside to your guidance or --

Well, they really work hand in hand, Dave, as you know.

Sure.

And the manufacturing revenues, again, that you'd have to look at to them the course of the six or nine month period to get a sense of the direction of those manufacturing revenues compared to the royalties and hopefully both of these expansions in the market will drive increased sales growth.

Okay. I wasn't -- I didn't have time to actually plug the numbers in and do the calculation, but it looked like your cost of manufacturing on CONSTA dropped a little bit year-over-year on a similar manufacturing revenue base. Was there a slight improvement in manufacturing gross margin there, or did I dream it?

No. I think we're relatively flat essentially. I think we're down a percent or two actually compared to a year ago from RISPERDAL CONSTA margins. Last quarter was a particularly strong one -- a year-ago quarter, rather, was a particularly strong one for RISPERDAL CONSTA. So we had slightly less volumes going out the door this year, and that's really what I'd attribute it to. No real movement.

Okay. And does FX to J&J sales of the product affect you in that all your manufacturing cost is here?

Yes. Well, I think the straight way it affects us is because we receive a royalty on sales. When that royalty ex US sales, whether that's in euros or pounds or (inaudible). The -- we're going to translate and get that -- get less sales dollars as we translate that currency. So seeing the dollar weaken, actually now is a benefit to us.

Okay. On the -- moving on, David, on the gosh, I guess it's the alcohol dependence ALKS 33 product. Could you talk about how you see that as different or improved in terms of its potential to address the market vis-a-vis VIVITROL.

It's a good question. What we see is just a huge potential market with lots of untreated patients from a medication assisted therapy standpoint, and when you look at the number of physicians that have adopted VIVITROL and really made the commitment to using an injection, there's obviously a certain number of physicians that will do that. And when we think about ALKS 33, what we're really trying to develop is a unique oral compound that has certain advantages from a safety and efficacy standpoint. Obviously, we need to bear those out in clinical studies which we're yet to be conducted, but assume success there. We believe that having an oral medicine with an improved safety and efficacy profile could really expand the market opportunities above and beyond VIVITROL. So hopefully that gives you a sense of where we're trying to position it and where we see the opportunity going forward.

Right. A couple of clarifications, just house keeping, I suppose. Jim, you gave a range on -- of I think $28 million to $33 million. Did I hear that correctly? And for the next quarter, I believe in -- is that manufacturing revenue? What was that related to?

Yes, Dave. As you'll remember, typically we look out one next quarter because our manufacturing revenues for RISPERDAL CONSTA fluctuate from quarter to quarter, and that's exactly right, $28 million to $33 million is our anticipation for next quarter's manufactured revenues for RISPERDAL CONSTA.

For CONSTA, right, okay.

Yes.

And David, on the next data set on VIVITROL for opioid dependence, is expected when?

Towards -- really towards the end of the year.

Okay. Thank you.

Thanks, Dave.

Our next question or comment comes from the line of Mr. Jon LeCroy from Natixis. Your line is open.

Thanks for taking my call. First on your collaboration profits. Since you're no longer in a collaboration, is there a point where we should model that going away or model it straight as if you're incorporating all the costs in there yourself?

Sure. And, Jon, you'll remember that actually, when we received VIVITROL back from Cephalon on November 1, part of our negotiated agreement with them was that they would cover half the losses for the product going forward, and if there were profits, they'd get a share of half the profits going forward. So we estimated that when we discussed that with you all back in December that that amount was going to be $11 million. So we're recognizing -- that last $11 million is being recognized through net collaborative profit essentially covering half the losses for the product as we move forward. And there's a little bit left that we'll recognize next quarter, but after that, we'll be done with that collaborative profit.

Okay, thanks. And then can you touch on maybe how J&J reps are going to sell both products, or are there different reps for in Invega Sustenna?

Jon, I'll take that one. We really aren't in a position to comment on J&J's marketing strategy. That being said, I certainly think you'll see continued emphasis from the J&J sales force on RISPERDAL CONSTA specific to the bipolar indication.

Okay. Thanks, and then one final one. Is your annual forecast for line items still holding?

We have not provided any update today.

All right. Thank you.

Thanks so much, John.

You're welcome.

Once again ladies and ge -- I'm showing no additional questions at this time.

Excellent. Well, thanks, everyone for dialing in. Have a good summer and if you have any additional questions, please don't hesitate to call either Jim or myself.

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