Alkermes Plc (ALKS) 2011 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 2011 financial results.

(Operator Instructions).

At this time, I'd 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 2011, which ended on June 30, 2010. With me, this afternoon are Richard Pops, Chairman, President and CEO of Alkermes, and Jim Frates, our CFO. Before we begin today, let me remind you that we will make forward-looking statements relating to, among other things our expectations concerning the commercialization of Risperdal Consta, Vivitrol, and Bydureon, our future financial expectations and business performance, our expectations concerning the future of business development transactions, and our expectations concerning the therapeutic value and development of our product candidates.

Listeners are cautioned that these statement are neither promises nor guarantees, but are subject to risks and uncertainties that could affect 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 risks, and other risks in our annual report on Form 10-K, and our quarterly reports on Form 10-Q, 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 revise or update the information provided in this call.

This afternoon, Jim Frates will discuss our first quarter financial results, and Richard Pops will provide an update on the Company. After our remarks we'll open up the call for Q&A. And now I'd like to turn over the call to Jim.

Thanks, Rebecca. Good afternoon, everyone. As we begin fiscal year 2011, I am happy to report another quarter right in line with our expectations. Risperdal Consta continues to achieve solid quarterly sales, and is a blockbuster product that will remain a profitable source of revenue for Alkermes for years to come. During the quarter, we recognized $35.2 million of manufacturing and royalty revenues from Consta. Vivitrol, in the alcohol dependence indication, achieved $6.2 million of net sales, our highest quarter-to-date, and the fourth consecutive quarter of growth.

To give you more detail on this quarter's financials, total revenues were $42.3 million, driven by manufacturing and royalty revenues from Risperdal Consta. Royalty revenues were based on $356 million in end market sales. As Johnson & Johnson stated on it's recent quarterly earnings call Risperdal Consta achieved second quarter sales growth of 3.4% on an operational sales basis. This was driven by very strong growth in Asia. Risperdal Consta continues to be a blockbuster product, and is the only long-acting atypical antipsychotic, approved for both schizophrenia and bipolar I disorder in the United States.

Risperdal Consta is the gold-standard long acting choice around the world, and has patent protection through 2020 in the United States, and 2021 in the EU. One quarter into the fiscal year, we continue to see strength in Risperdal Consta, and we are reiterating our expectations for total revenues for Consta in the range of $135 million to $147 million this year. For our second quarter, we expect manufacturing revenues to be in the range of $25 million to $30 million. Turning to Bydureon, as you know, the FDA has assigned us a PDUFA date of October 22, 2010. We expect Bydureon to provide a substantial revenue stream for Alkermes, upon the launch of this product. Bydureon will be profitable to Alkermes from the the first dollar of sales, and we have a significant stake in the profit. Our agreement with Amylin includes an 8% royalty on the first 40 million units sold in a year, and a 5.5% royalty on units beyond 40 million. The next year, we start over again at 8%. In addition, Alkermes will receive a $7 million milestone payment upon the first commercial sale in the United States, and an additional $7 million upon the first commercial sale in the EU.

Turning to expenses, total operating expenses for the first quarter were $55.4 million, which included $4.5 million of charges for non-cash compensation. This is in line with our expectations, and reduced from $57.5 million for the same period last year. Excluding non-cash compensation expense, we reported a pro forma net loss of approximately $9 million this quarter. On a GAAP basis, we reported a net loss of $13.4 million for a basic and diluted loss per share of $0.14. A full reconciliation of our pro forma net loss to GAAP, as well as details of our quarterly revenues and expenses, is available in the press release issued this afternoon on our website.

The Company ended the quarter with cash and investments of nearly $329 million. This cash position, coupled with the strong recurring cash flows from Risperdal Consta, will allow to us invest in our pipeline as we work toward our near term data milestones. That being said, we will continue to adhere to our disciplined expense management strategy, as we lay the groundwork for our next stage of growth. Subsequent to the end of the quarter, we repurchased the last of our Risperdal Consta notes, making Alkermes a debt free company. This early redemption will result in the charge of $2.2 million in our second fiscal quarter, resulting from the write-off of the remaining deferred financing costs, and a slight premium that we paid on the redemption.

This charge will be offset during the remainder of the fiscal year, as we will have no further interest or accretion expense on the notes. Net of this transaction, Alkermes has more than $282 million in cash and investments. In conclusion, we're pleased with our financial performance this quarter. We're well positioned for the future with data expected on our pipeline, and the potential for two product approvals in the coming months, that should provide significant operating leverage for the Company going forward. For more on those specifics, I'll turn the call over to Rich.

Great. Thank you, Jim. Good afternoon, everybody. So given that it's August, and we're fast approaching some really significant milestones, I'll get right to the key updates since our last call. You've heard me say before, that fiscal 2011 will be a pivotal year for the Company, with news flow unprecedented in our history. From where we are now, we have a pretty clear path of what we think will be major developments in the fall.

At the top of the list, of course, are our PDUFA dates in October, October 12 for Vivitrol opioid, and October 22 for Bydureon. Let's talk first about Bydureon. So, we believe that Bydureon represents a new paradigm for the treatment of Type 2 diabetes, and is a major step forward for the GLP-1 class. It's the first once-weekly product ever for the treatment of diabetes, and it exhibits benefits in terms of glucose control, weight loss, hypoglycemia intolerability. The advantages of Bydureon over earlier GLP-1 products, are made possible by our technology, our proprietary long-acting Medisorb technology.

By applying Medisorb, Byetta becomes Bydureon, and it's clinical advantages become more pronounced. This is not theory. It's supported now by a wide range of data collected from the duration studies showing Bydureon's safety and efficacy. Bydureon and the GLP-1 class in general, were the subject of a tremendous amount of interest and excitement in June, at the American Diabetes Association's Annual meeting in Orlando. As you know, the ADA is the premier forum for thought leaders in the diabetes space, and this year's meeting was very positive for Bydureon for two reasons.

First, more new data was presented, adding to the significant data set already in existence, and reinforcing the safety and efficacy profile of Bydureon on it's own, and in comparison to other important diabetes medications. Second, the competitive landscape continues to shift in favor of Bydureon. As earlier stage compounds progress through more extensive clinical trials, and fail to live up to either expectations, or to the high standards set to date by Bydureon.

When Bydureon is approved, Alkermes will profit from the first dollar of sales. We have a very favorable royalty structure on net sales of Bydureon around the world, as well as additional milestones for the first commercial sales in the US and in the EU. The economic structure of this collaboration with Amylin, puts us in the unique position of adding to our top line revenue upon the first dollar of sales, with no offsetting costs. That's all I was going say about Bydureon.

Turning now to the second PDUFA date in October, this is Vivitrol for opioid dependence. This application was given priority review status by FDA, and has an Action date of October 12. Back in November, we announced the positive top line data, and the results were conclusive. In May, we presented the Phase III data at the American Psychiatric Association's Annual meeting in New Orleans, and these data were highlighted at the APA's media briefing.

Subsequent to the APA, we learned that the FDA has planned an Advisory Committee meeting to review Vivitrol, and it's indications, which is scheduled for September 16. We're looking forward to showcasing our Phase III data in this high profile setting. We feel that the data package is strong, and that Vivitrol offers patients a new non-narcotic approach for opioid dependence treatment in a once monthly formulation. The other interesting thing about opioid dependence, of course,is it's an established medical market. The leading product in that market, Suboxone, has now crossed the $1 billion dollar threshold, with more than $275 million in world-wide sales of the second quarter of the calendar year.

I'm going to shift now to review some of the upcoming milestones, to our other pipeline candidates. So I want to remind you that we have more candidates now in our pipeline than ever before, and this is the emerging story at Alkermes. We expect more progress across the entire portfolio over the next -- over the coming year. We're testing ALKS 33 in multiple indications, including alcohol dependence, binge eating disorder, and potentially other psychiatric conditions. Exploratory data on ALKS 33 in various indications will be presented as part of a symposium, at the upcoming neuroscience conference in November. There will also be an interim analysis of the multi center Phase II alcohol study by the end of the calendar year.

We also expect data from the Phase II study in binge eating disorder in the first half of calendar 2011. For ALKS 37, in opioid-induced constipation, we expect to report top line results from our multi-center Phase II study in the first quarter of calendar 2011. ALKS 9070 is the first candidate we're developing with our LinkeRx technology platform. 9070 is designed to be a once monthly injectable, extended release version of Aripiprazole, known commercially as Abilify. We just filed the IND for ALKS 9070, and we plan to initiate a Phase I clinical study by the end of the year, with top line data expected in the first half of calendar 2011.

Each of these candidates stems from our proprietary platforms. They fit our model, the products that we're choosing to develop, and they'll provide us with fast answers in clinical trials in large markets. This is a very important part of our corporate strategy. So putting it all into perspective, Alkermes is in a unique position, with the potential for two new drug approvals before the end of this year. We continue to record robust revenues for Risperdal Consta, and increasing sales of Vivitrol in alcohol dependence. We have a growing and advancing pipeline of candidates in big markets, with significant inflection points in the next 12 months, as we continue to leverage these novel technology platforms. So we'll it wrap it up. And with that, I'll turn the call back to Rebecca, and we'll do some questions.

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

Thank you.

(Operator Instructions).

Our first question is from Mario Corso from Caris & Company. Please go ahead.

Good afternoon. Thanks for taking my question. Just wanted to ask a couple of questions on Vivitrol and the opiate indication. Number one, concerning the panel. I mean obviously there's a lot of reasons why the FDA can call a panel. And certainly they can do it for rather benign reasons like, just the fact that it's a publicly important indication or a significant indication, But then there's also issues or questions they may be looking for the panel to answer. And I'm wondering what your thoughts are at this point on what the main thrust of the panel is.

And number two, maybe talk a little bit about competitive positioning. I would imagine this is certainly in planning stages right now, and you mentioned Suboxone. And I guess they're used a little bit differently. Do you envision detoxification and tapering with Suboxone, and then that's where you then -- Vivitrol then enters the picture? Maybe just a little bit of thoughts on that. Thank you.

Sure, Mario. It's Rich. I'll answer that for you. First, on the panel as you know, there's a general trend towards more Advisory Committee meetings in general. So we actually welcome that. This is a comprehensive data set. We're looking forward to presenting it. We have not received from the FDA the questions yet, which is also not unusual, they tend to occur fairly late. So we won't speculate as to what the questions will be, that they will present the panel. But we're preparing to present the efficacy and safety data, and really our use strongly for the use of Vivitrol from this indication, because I think the data is so clear.

On the second point, the competitive positioning. It's almost -- we only almost think of it as a competitive positioning, and we don't really see ourselves positioning the product against Suboxone. Suboxone has done a wonderful thing in this patient population, in that it's provided a real treatment alternative for patients. And that it's begun the significant process of medicalizing, and the use of medicines more broadly in the treatment of opioid dependence. Vivitrol is a completely different proposition because it allows patients to become opioid free. So a necessary prerequisite to using Vivitrol will be detoxification. And transitioning from opioid physical dependence to being able to tolerate a Vivitrol injection, first one, and then every month thereafter.

So I almost think of it as a new market that's growing. More patients are being attracted to treatment. In the old days, there was just Methadone. Suboxone brought a lot more patients into treatment. And ironically, the Methadone treatment numbers have gone up since Suboxone has been on the market. Likewise with the presence now of a long-acting antagonist, which provides physicians with another treatment alternative for patients who have different treatment goals. So it's far from a zero sum situation at this early stage.

Operator, we'll take the next question.

Our next question comes from Steve Byrne from Banc of America, Merrill Lynch. Please go ahead.

Hi. Regarding the Vivitrol panel coming up, do you know whether the views of NIDA or the Office of National Drug Control Policy are either going to be presented or solicited from the FDA?

Go ahead, Rebecca.

Steve, that's a good question. So my understanding is that the FDA will probably consult NIDA. They won't be an active part of the add com, itself but clearly NIDA provided early funding support for the development of Vivitrol, and additional tools in the toolkit are certainly welcome and needed.

So as you know, Steve, that would be a good thing because we think NIDA is a real strong supporter of this particular dosage form.

Okay. And with respect to your sales of VIVITROL are your reps able to pick up at all whether or not any of the scripts that are being made out there are for off label use for opioids, or do you think that it's still predominantly for alcohol dependency?

I talked to our commercial team about that today to get the answer to that question, because I expected it. The answer was no, they don't think so. Maybe it's because our commercial team is so concentrated and focused on the alcohol docs that are writing Vivitrol, but we're really not at this point.

And then I just have one last one for you. On the ALKS 9070, do you have any data, pharmacokinetic data, on this, to either animal models or humans to demonstrate the longevity of this product in the body?

Absolutely. If you have any schizophrenic animals that you want treated (Laughter) we have superb data. And we've been working on this for quite some time. So this transition to humans is always a major step, but we do so with a significant amount of preclinical data.

And what can you tell me about it, though?

Basically, we're looking at a monthly regimen, but this is, as you know, this is one of our LinkeRx pro drugs essentially. It's a new chemical entity, designed specifically for intramuscular injection, to serve as a depot without requiring polymers or microspheres. So essentially, it just releases slowly from the muscular compartment, and metabolizes into Aripiprazole. So the study will be super informative, because we'll look at kinetic levels both of the prodrug and of the active [mopane] and if the active [mopait] is within therapeutic concentrations over a time period, it's very easy to model steady state kinetics in the next steps in the clinical program, because we know that Aripiprazole is a very effective atypical antipsychotic.

Okay, thank you.

You're welcome.

Thanks, Steve. We'll take the next question.

Our next question comes from Tom Russo from Baird. Please go ahead.

Hi. Thanks for taking the question. Just wanted to check in, the latest thinking and plans around adding reps for the Vivitrol opportunity. I mean obviously the panel is an important variable, but I guess I'd just ask the question what is the latest thinking on the number and the timing to add to the sales force?

It's entirely consistent with where we've been all along which is we just added then -- and per our plan in the summertime. And those folks will now represent the full cadre that will be on board for launch which puts the total commercial team around 60.

Okay. And then wanted to ask maybe a more philosophical or strategic question, totally understand the strategy for fiscal 2011, and probably a little bit beyond that investing in the pipeline. And as we look further out four of the last five years excluding 2009, the investment in R&D as a percent of sales has been roughly 50%. And I'm just wondering, is there a point in time at which you would manage that to a lower percentage of sales? Obviously, it would depend on the success of the pipeline. But is there a point in time where you would manage that to a lower percent of sales, and if so how would you do that?

This is Rich. I'll answer a bit of it, and then ask Jim for his comments on it. But the important thing to realize is, as we move into the next phase of growth for Alkermes. It really is driven by one's expectation for the launch Bydureon, because our sales line in your parlance is going to be growing significantly. I do not expect our R&D line to keep pace of a sales line that we think is going to ramp pretty significantly.

So we actually have said all along, we feel this pipeline, and we'll prove that this in the next several months. We all can be skeptical until we see the data from this clinical trial. But we just believe these platforms are very productive right now, and allow us to put not just product candidates into the clinic, but product candidates have a really interesting risk profile. Because they tend to be based on known pharmacology, but with real value added through our chemistry, and through our technology.

So we'll put them in demand particularly in those early clinical trials that don't comparatively a whole lot of money and then we'll have assets. We will partner some we believe, and we'll continue to develop some. But we have not historically been solving for R&D as a percentage of any number. It's been pursuing the opportunities as aggressively as we can. Jim?

Yes. And I think, Tom,we've talked about this before, as Rich mentioned the two ways to change that are to spend less on R&D,or to grow the top line. And, we as a management team I think when you said four of the last five years, I thought you were actually going to talk about our profits, which we've been actually cash flow positive for four out of the last five years. So, I think we've been pretty disciplined in how we spend, and what we need to see is growth in Vivitrol, and growth in Bydureon, to be able to deliver that bottom line growth that we're striving for.

Okay. Thanks.

Thanks.

Operator do, we have any additional questions?

(Operator Instructions).

Our next question comes from Dave Windley from Jefferies. Please go ahead.

Hi. Good afternoon. Thanks for taking the questions. A couple small ones, I guess. On Vivitrol, but for the Russia opportunity. we haven't really heard you call anything out on that. I wondered if there was anything to say, any update.

Dave, as you know, Vivitrol is partnered with J&J in Russia, and approved for alcohol dependence.

Right.

The launch to date has been modest in the alcohol dependence arena, although it's our understanding that J&J plans to pursue the opiates dependence indication as well.

Okay. And then I know it's the tail of the opportunity, not the dog here, but on Bydureon on this polymer supply, it looked like there was no margin on that in this quarter. Would you expect to have a positive margin on that?

Yes, Dave, we will ultimately and I think that relates really to just, manufacturing at low levels, as we start here, and as the product starts to is, we'll start to see some margin delivered there.

Okay. Jim, in our conference earlier in the summer you mentioned BD focus kind of having flipped from in licensing to out licensing. Wonder if you or Rich could provide some color on how you see that gating out. How are you thinking about out licensing activities, and when we should expect those to potentially be headlines?

Dave, it's Rich. I think that we're in such a great position right now for a couple reasons. Number one, environmentally, never seen such strong demand from big Pharma to fill pipelines, and that's well commented on. Everybody knows that. We don't need pharmaceutical companies. Typically biotech companies need pharmaceutical companies to partner, in order to have the capital to advance the projects or to provide IP or manufacture support or something.

We don't need any of that. We've got the financial resources to drive these products in the clinic to the real value adding clinical data, and that's kind of the point I was making earlier in my remarks. So we don't really see partnering in anything until we get that data in hand, because we think the value changes dramatically. And we'll kind of rank order the opportunities based on the quality of the data coming out of these early clinical trials. And I'm speaking particularly about 33, 37, 9070, and in particular, which are the ones that are in demand.

Okay, great. Thanks. And then last one, any update -- I believe you've previously talked about 6931?

Yes, Dave. That's in preclinical studies right now. So stay tuned for further development on that.

Okay. Thank you.

Thanks so much.

Our next question comes from Steve Yoo from Leerink Swann. Please go ahead.

Thank you, just had a question about O US opportunity for Vivitrol opiate dependence. I thought I heard you mention that J&J will be pursuing the opiate dependence in Russia, so does that mean they're handling the European filing or what's the situation there?

Hi, Steve, it's Rich. The license for J&J for Vivitrol extends only to Russia and the CIS. So it's very, very narrow because they have a strong commercial presence in those markets. O US exclusive of Russia, we're having discussions now with potential partners on that.

And have you been in discussions with the EME to know whether your current trial is enough, or have they given you guidance for additional trials?

Our judgment right now, it's a very specific question for each individual partner with whom we might collaborate. So we're right now not independently pursuing an approval strategy, separate from knowing what our commercial strategy would be.

Okay. So basically you're going to find a European partner before you file for opiate dependence, right?

Yes. Nothing is cast in stone on, that but that's how we're operating right now.

Okay. Thank you very much.

You're very welcome.

Thanks, Steve.

We have no further questions at this time.

Great. All right. Well, thanks, everyone, for dialing in, it's August, so we'll wrap this up quickly. If you have any additional questions, please don't hesitate to call either Jim Frates or myself. Have a good evening.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.