Alkermes Plc (ALKS) 2011 Q2 法說會逐字稿

Welcome to the Alkermes second quarter fiscal year 2011 conference call. My name is Christine and I'll be your operator for today's conference. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Rebecca Peterson, Vice President of Corporate Communications. Ms. Peterson, you may begin.

Good afternoon. Welcome to the Alkermes conference call to discuss our financial results for the second quarter of fiscal 2011, which ended on September 30th, 2010. With me this afternoon are Richard Pops, our CEO, and Jim Frates, our CFO.

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, the approval and commercialization of Bydureon, our future financial expectations and business performance, our expectations concerning future business development transactions and our expectations concerning the therapeutic value and the development of our products.

Listeners are cautioned that these statements are neither promises nor guarantees, but are subject to risks and sun certainty that can cause our actual results to differ materially from the results contemplated by these forward-looking statements, including but not limited to the risk that we rely on our partners to inform us in a timely manner about developments concerning the regulatory status of Bydureon and the marketing strategies for Risperdal Consta.

You can kind a list and detailed description of these and other risks in our annual report on Form 10-K and 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 update or revise the information provided on this call. This afternoon, Richard Pops will provide an update on the Company, and Jim Frates will discuss our second quarter financial results. After our remarks we'll open the call for Q&A. Now I'll turn over the call to Richard.

Great, thank you, Rebecca. Hello everybody. So we reported another strong quarter today. The solid top line results, driven by continuing growth for Risperdal Consta, allow us to aggressively drive multiple new product development programs with minimal cash burn, while also maintaining a significant cash balance with no debt. So these financial results reflect the business strategy, which has always been characterized by a diverse portfolio.

I think that this became even more clear this quarter, with our three key products, Consta, Vivitrol, and Bydureon, plus this emerging pipeline, we have built-in diversification. We continue to build this Company without depending on any single program. This leads to a certain resiliency in the business. So we're switching it up this quarter.

I'm going to start with on overview of where we stand as we exit what turned out to be a very eventful October, and as we head into the end of the calendar year. Jim will provide a little bit more granularity on the financials, and then we'll take the questions.

October obviously was a big month for us with two FDA action days. The first was for Vivitrol. On October 12, we announced that the FDA had granted marketing approval for Vivitrol for the prevention of relapse to opioid dependency, following opioid detoxification. As we said then, we're tremendously pleased by the approval, and by the strength of this label, because opioid dependence is characterized by high rates of relapse. Prevention of relapse is a powerful new concept, and represents a paradigm shift for the treatment of the disease.

Opioid dependence is an established medical market. The leading products in the market are Suboxone and Methadone, and their sales exceed $1 billion a year. Vivitrol represents a new treatment option, and it's the first and only non-addictive, non-narcotic, once monthly medication for the prevention of relapse to opioid dependence.

Since the approval, we've been moving quickly. We brought our commercial team together the week before last to review the label and complete initial training. As of Monday of last week, our sales reps were back in the field, and are actively promoting the new indication, targeting physicians who are currently prescribing Vivitrol to introduce the new indication and to discuss the label.

Once sales materials are pre-cleared by DDMAC, we'll continue to broaden the call universe to include new physicians located at both inpatient and outpatient treatment facilities. For more details on the opioid dependence market and our commercialization strategy, you can listen to the replay of our October 13th conference call, which is on our website, www.Alkermes.com. We're excited to be in the market now, talking to doctors about opioid dependence, and we'll update you on the progress we're making in the coming months.

Our other FDA action in October of course was for Bydureon. As you all know by now, on October 19th, we announced that Amylin received a complete response letter from FDA. Per the letter, the FDA would like Amylin to provide two additional studies for review. The first is called a thorough QT study, or a tQT. The tQT study is a standard test conducted to see if a drug has an effect on heart rhythm.

The FDA's second request was for data from DURATION-5, which is a safety and efficacy study of Bydureon that was completed in December 2009. The FDA requested results for the DURATION-5 study to evaluate the efficacy and the labeling and safety effectiveness of the commercial formulation of Bydureon. Neither of these studies was requested in the FDA's first complete response letter, which we received in March.

Amylin has said that they intend to settle on the protocol with FDA and conduct the tQT study as quickly as possible. DURATION-5 is complete and ready for submission, so when the tQT study is done, they expect to submit both studies to FDA. The timing Amylin suggested was by the end of calendar 2011. In the meantime, Bydureon is under review by EMA for potential EU approval. Based on the timing of the filing earlier this year, action is expected in the first half of calendar 2011.

We have a very advantageous economic interest in Bydureon. We stand profit significantly from Bydureon sales around the world, but we do not depend on it. We have transferred the technology, Amylin has built the commercial manufacturing facility, and we have no costs associated be the commercialization in any territory. We continue to believe that Bydureon is a major advance in the treatment of diabetes, that it will ultimately be approved by US and around the world, and that we will receive substantial royalties for many years. For the time being, we fully anticipate that Amylin is going to work hard to complete the new study and submit the response. Here, at Alkermes operationally, we'll continue to focus on our proprietary products and pipeline.

So now with that, let me just quickly review some of the upcoming milestones related to these other product and pipeline candidates. So, ALKS 33 is a very interesting oral opioid modulator. It continues to move forward in clinical trials in three different indications. Last week we announced the results of Phase I study in the ALKS 33 buprenorphine combination for the treatment of cocaine addiction. ALKS 33 is also being tested in a multicenter Phase II study in alcohol dependence.

We're on track to perform a blinded interim analysis of this study by the end of the calendar year. We also expect data from a Phase II study of ALKS 33 in binge eating disorder in the first half of calendar 2011. Data on ALKS 33 in various indications will be presented as a part of a feature symposium at the Annual Meeting of the Society for Neuroscience in San Diego on Tuesday, November 16th. For ALKS 37, in opioid-induced constipation, this study is proceeding as planned and we expect to report top line results from our multicenter Phase II study in the first quarter of calendar 2011.

ALKS 9070, the first LinkeRx candidate, is designed to be a once-monthly, injectable extended release version of aripiprazole. We recently initiated a Phase I clinical study. The first phase of the study involves oral exposures of aripiprazole, and that is underway. This will be followed by injections of ALKS 9070, which are scheduled to occur this month. So we expect to announce top line data from this trial in the first half of 2011, also. For 6931, which is our long acting potential formulation of etanercept, we continue to conduct preclinical studies and we'll wait to file this IND until that work is complete, and we're convinced that we have the most optimized clinical candidates.

So we're making a lot of progress here. We're excited about the scientific engine we've developed here. In particular, the diversify and the quality of the development candidates, coupled with the strategy to move quickly into clinical trials, that result in value-added milestones or value-adding milestones very quickly. The logic of this approach should become even more clear in the next few months, as we obtain data from all of these on going clinical trials.

We've also made progress on additional programs, and we'll look forward to providing you a more complete overview of that progress in the new year. So with that I'll finish. I'll turn the call over to Jim for an update on the financials.

Thanks, Richard. Good afternoon, everyone. From a financial point of view, Alkermes is strong. I'm very happy to report another quarter right in line with our guidance.

Total revenues for the quarter were $49.2 million, driven primarily by Risperdal Consta, which generated $42 million of manufacturing and royalty revenues in the quarter, nearly a 20% increase over the first quarter, with particularly strong growth outside the United States. Our second best quarter ever, from a Risperdal Consta revenue perspective, in fact. And this was not just a quarterly phenomenon. Our Risperdal Consta revenues for the trailing 12 months were $146 million, comparing favorably to the $139 million recorded for the trailing 12 months ended on September 30th, 2009.

Royalty revenues for Risperdal Consta were based on approximately $378 million in end market sales. As J&J stated on its recent quarterly earnings call, during the quarter, Risperdal Consta achieved sales growth of 11% year over year, on an operational basis, with particularly strong growth in Japan. The strong growth of this product outside the United States underscores that this block buster product will continue to be an important revenue stream for Alkermes for the foreseeable future. Risperdal Consta has patent protection through 2020 in the United States, and 2021 in the EU. Also during the quarter, Vivitrol, in the alcohol dependence indication, achieved $6.5 million of net sales, our highest quarter to date and our fifth consecutive quarter of growth. We're on track to break even in the alcohol dependence indication, as we invest judiciously in the launch of our new opioid indication.

Turning to expenses, total operating expenses for the first quarter were $56.3 million, which included a $4.9 million charge for non-cash compensation expense. This is in line with our expectations and flat compared to the same period last year. On a GAAP basis, we reported a net loss of $7.7 million or a basic and diluted loss per share of $0.08. This compares to net loss of $13.4 million during our first fiscal quarter of 2011.

Excluding non-cash compensation expense and the one time charge related to the redemption of our 7% notes, we reported a pro forma net loss of approximately $550,000 this quarter or a basic and diluted loss of $0.01 per share. A full reconciliation of our pro forma net loss to GAAP, as well as the details of our quarterly revenues and expenses, are available on our press release issued this afternoon.

We ended the quarter with cash and investments of nearly $274 million, reflecting the early redemption of our non-recourse Risperdal Consta notes, which makes Alkermes a debt-free company. This early redemption resulted in a charge of $2.2 million during the second fiscal quarter, relating to the write-off of the remaining deferred financing costs and the slight premium 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. Our cash position, combined with the solid revenue stream from Risperdal Consta, growing Vivitrol revenues, and the prudent management of our expenses, give us the wherewithal to support simultaneously two key growth drivers for our future business; the Vivitrol launch in the opioid indication, and the investment in our pipeline.

Based on the complete response letter for Bydureon, we are adjusting our financial expectations for the remainder of fiscal 2011, and I'll briefly talk through those adjustments. You can look to our press release issued this afternoon, for a complete review of our expectations. We're reducing manufacturing revenues by $2 million to $3 million, due to lower expected orders for polymer related to Bydureon, we're reducing royalty revenues by $0 to $5 million, due to no commercial sales for Bydureon this fiscal year.

We're reducing R&D revenues by $7 million, as we will not receive the milestone due open the first commercial sale of Bydureon in the United States this fiscal year, and we're reducing COGS by $1 million to $2 million, due to lower polymer volumes. As a result of these changes, we expect a net loss in the range of $53 million to $68 million, revised from an expectation of $45 million to $55 million.

To finish up, we expect manufacturing revenues from Risperdal Consta in the third quarter to be in the range of $22 million to $27 million. We're pleased with our financial performance this quarter. Risperdal Consta continues to grow and drive our revenues and we believe the launch of Vivitrol in the opioid dependence indication will be an important source of growth looking forward.

We also believe that ultimately, Bydureon will prove to be a major financial contributor as well. Finally, our pipeline continues to advance and we expect key data and clinical progress in the near and medium term. With that, I'll turn the call back to Rebecca.

Thanks, Jim. We'll now open it up for Q&A. Christine?

Thank you. We will now begin the question and answer session. (Operator Instructions). The first question comes from Cory Kasimov from JPMorgan. Please go ahead.

Hey, good afternoon, guys, thanks for taking the question. I have a couple on Vivitrol, then one quick one on Consta. So with regards to Vivitrol, Richard, your reps are out in the field with this. Is there any sort of early anecdotal feedback you can share with the reception you've gotten so far?

Hi Cory. It isn't worth much because it's all going to be positive. The reps are calling on the current prescribing Vivitrol base, many of whom have been waiting for this product for use in opioid dependence, so the early returns are quite positive, but they're just that.

Appreciate the honesty in that answer. With regard to Vivitrol's cost as a treatment for opioid dependence, how big of a factor was cost and reimbursement with the lackluster commercial performance for alcoholism, and how confident are you that you have the right price for opioid dependence?

I don't think it's a major factor. I don't think cost is the impediment. The impediment on the alcohol side was changing the paradigm of using medications for the treatment of the disease and I think on the opioid side, it's going to prove to be pharmaco-economically advantageous. We already have data that we didn't generate prospectively ourselves, but people like Aetna and United Health have looked in their own databases that provide quantitative justification for the cost of Vivitrol at these prices. So I think this is much more about introducing a brand new treatment paradigm into a new market and building from there.

Okay. And then lastly, on Consta, clearly this was very strong quarter for the product, are you seeing anything in J&J's ordering patterns that suggest this trend can continue?

Yes, hey, Cory, it's Jim. Yes, I think I would say, probably the best way to answer that is our guidance last quarter for manufacturing revenue this quarter was $25 million to $30 million, and we just reported 32.6, so those patterns seem to be strengthening and that's good, although it's hard to predict the future in the next year at this point. We'll wait to do that before we guide next year.

Okay. Fair enough. Thanks for taking the questions.

Thanks, Cory.

Next question comes from Amid Fadia from UBS, please go ahead.

Hi. I have a couple of questions. First, here on Vivitrol, could you give sense of where the pricing is today? Price of script? And did you take a price increase recently.

Amid, the list price for Vivitrol is $1,100 a month, and that went into effect on October 1st.

Okay. Could you give us a sense of the rebates on it?

We don't publicly talk about our rebates as it relates to Vivitrol.

You can look in the Q and see our gross to nets, that are in the 20% range.

Okay. Thanks. On Bydureon, could you give us any color at all on the status of the application in Europe? Have you, or has Amylin any kind of communication with regulatory authorities around how the application is progressing either from standard timeframes, within which they're supposed to hear back from the authorities, and if you can give us any colors on that.

Here is what I can tell you that may be helpful. First of all, as it relates to Europe, we're almost twice removed in this case. Our collaboration with Amylin, and as you know, Lilly controlled the OUS regulatory submissions. So the highest fidelity response is for you talk with Amylin. With that said, there's certain things we know from the calendar, as you implied.

Because of timing of the filing earlier this year, that's why we said earlier we expect there to be action on this in the first half of 2011 and Europe operates a little bit different than US in the way the clock stops and starts. We're not completely expert in communicating when the clock stops and starts so you should ask those guys on that. We do expect some type of action in the first half.

Okay. My third question was around the pipeline. How do you think about monetizing the pipeline going forward into next year? You seem to several announcements coming up in the next 12 months, what else can we expect, let's say if the data is positive, how do you think about monetizing that?

There's two ways you can think about monetizing it. One is through building a valuation of the Company by maintaining the rights to these products with more clear value, the other is through collaboration, through partnerships. There's an explicit valuation that's put on it by a third party. We're actually interested in both. The necessary precursor to either those decisions is deploying the data.

When I tell you that we're actually interested in both, I mean that literally. We have the financial resources, which is fantastic, to pursue these as far as we want to on our own. But we also have the interest and the track record of collaborating aggressively on certain development programs as well, so the way we're running it here internally, is that we have, we've committed the capital, if you will, to take these through to these major inflection points, these value adding milestones as I mentioned before.

We'll review those data then we'll make a determination on portfolio basis, how many of those to keep, how many of those to farm out, if they all work, if they all fail, it all changes based on the actual dynamic. That's what's so interesting about Alkermes going in 2011, because as you heard earlier, there's not just one product or candidate that has data in the first half of 2011, there's a whole sequence of them. I think when you get a look at that in total, it will make better and more clear answer to the question.

Thank you so much.

You're welcome.

Your next question comes from Steve Byrne from Banc of America. Please go ahead.

Hi. Just wanted to drill into that ex-US Consta revenue number. Is Japan representing a meaningful contributor to over all ex-US sales or is it being singled out as being a region as where it was a sharp increase in revenue.

Yes,hi Steve it's Jim. I think Japan is beginning to get there. It's been over a year now since it's been in the market and it is still growing fast and it happens to be the third largest single market for schizophrenia in the world. So, J&J has characterized it previously as a must win market in their business for neuroscience in general, and so they seem to be doing quite well there in Japan.

I would say though, that around the world, on a unit basis, and again I like to use, because any one quarter I think is hard to look at. We've been trying to get some distance here. So again over the last 12 months, ex-US has grown 17.2% in terms of units. So, leaving currency aside, et cetera, that's some really nice strong double digit growth and that's really what's driving us now. Again, it's over a $1.5 billion in sales in the last 12 months, as well.

Was there anything in that quarter revenue number that was a hold over from the prior quarter or anything that was -- that you would call out as being exceptional, because there were a couple of quarters where the ex-US Consta revenues were declining and then boom, you have this big number in the September quarter. Was there anything unusual about it?

Yes Steve, that is best directed to J&J. I think if you go back and look historically over time and all these numbers are public. You tend to see a quarter where it doesn't grow, it doesn't grow and then bang, you get big large growth. So that's why I always try and look at 12 month increments to get -- because I think that takes out the quarterly ebb and flow a little bit more. We've seen that kind of thing before. As you track these trends, Consta is still clearly growing. I think publications like we saw this quarter in Neuropsychopharmacology where they published that two year data against Seroquel, is the reason why.

Okay. Can you talk a little bit about your ex-US strategy for Vivitrol in opioid dependence? You have some regions like Russia where they don't even use Suboxone and presumably that could be a big market. So how are you approaching the commercialization outside the US?

Hi, Dave, it's Rich. That's a great question, and you're right. There are certain countries in the world, a number where adding this medication is not either available or indicated, so what we're doing is right now, we're mapping out the regulatory strategy, because we look in the prioritization of these various countries, we look to those where we're most likely to get a file off the US NDA translated into the local language.

Meantime we're having discussions with pharmaceutical companies, both on a regional and global basis about partnering the OUS piece of it. I think it's a two part answer. We're going to figure out the regulatory strategy and dovetail that with the business strategy, but you're right. We do think that we have an opportunity OUS, and I'll just remind you, we do have a deal with J&J for one country, and that's for Russia. That was the deal we signed a couple of years ago. So we believe they'll be filing for approval based on US data in Russia in 2011.

Okay. And then in the US, do you have a sense for what portion of the docs that are prescribing Suboxone are already at the hundred patient a month limit?

I done have that answer immediately at hand.

I'll follow up with you on that, I think there are certainly a concentration of docs who are capped at that 100 patient limit. It's not every Suboxone doctor.

I don't think -- it's not the preponderance of the docs, but there are some, Rebecca is right. But we'll follow up with you. We know that answer is somewhere here.

All right. Thank you.

Thank you.

You're welcome.

The next question comes from Mario Corso from Caris & Company. Please go ahead.

Yes, good evening. Two questions, please. Regarding Bydureon, with the delay, I'm curious how you look at your overall business, and I guess specifically the pipeline. If Bydureon weren't delayed by two years or so versus Bydureon being delayed two years or so, does that change the way you look at the outlicense versus development aspect of some of the different programs? I mean, clearly, if Bydureon were on the market you'd be garnering some significant funds over the next couple of years with which to finance the pipeline. The second question on Vivitrol, with the early anecdotal experience, are you getting any better of view of what off label use of Vivitrol may have been like? Thanks.

On the first question, interestingly, it really doesn't change much at all, because we can finance the development of these programs, and as I answered in the earlier question, we have so much we've learned about pipeline in the next six months, let's say, it gives us a real sense of whether we've got assets that are going to drive future valuation for the Company.

So if Bydureon had been approved, if Bydureon gets delayed, we're still going to hammer through what we're hammering through right now to get through these answers as fast as possible. By the time we get those data, let's say fast forward to mid calendar 2011, not only are we going to know those data, we're also going to have a much clearer sense of what's going on with the thorough QT study, we both have regulatory interactions in Europe and in the US, and we'll have a much higher resolution about the future.

But boy, we really think that the pipeline has the opportunity to really drive evaluation for us. And it's not distant pipeline. This is stuff that's in man, in clinical trials, new chemical entities with strong patent positions that are entirely congruent with the kind of business areas and medical areas we'd like to be in. We're thrilled with it.

On the second question, no, there's not a really good sense. We really don't believe that there was a whole lot of off label use of Vivitrol in the opioid dependence indication, undoubtedly some, but clearly we were never promoting there, and there wasn't reimbursement there, and so, we can tell only anecdotally, but some of the top prescribing Vivitrol docs have said to us that now they can start writing for opioid dependence, which indicates that they weren't writing for it before.

Operator, I think we have time for one more question this evening.

Thank you. Today's final question comes from Ian Sanderson from Cowen and Company. Please go ahead.

Good afternoon. Hopefully you can hear me.

Quite an honor, Ian, you've got the final question.

Actually, Rich, on Vivitrol, at your analyst meeting earlier this year, you talked a little bit about exploring a different group of prescribers for Vivitrol for opioid dependence, and have you done any of that and have you begin expanding the sales forces, call points in any way and a follow-on to that would be, what that mean for this sales force infrastructure around Vivitrol?

Well, we're settled on the sales force. We expanded the sales force by about 10 folks organically over the last few months in preparation for approval in this indication. Suboxone and methadone, existing therapies in the treatment of this disease give us a lamp post to look under, in the sense of there are prescribers who prescribe over $1 billion of pharmaceuticals in this particular indication. And that's something we never had in alcohol. So we've mentioned before there are about 2,000 doctors who prescribe the vast majority of the Suboxone prescriptions. So that's the kind of enriched group that our sales force will be looking at to get through. And that's obviously a quantitatively fairly small number of docs to go through.

The other place that's a very logical place for the sales force to go, is to the inpatient treatment centers. And that may not be quite as obvious as it sounds. Because Vivitrol requires detoxification, so you need to be detoxed from your opioid in order to get your Vivitrol injection. And where does detoxification happen? It happens in inpatient centers in many cases. Many of these centers have typically been detoxing patients and releasing them back into their lives without any pharmacological support, and the recidivism rate is extremely high.

Suboxone, by contrast, is more of an outpatient, doctor's office type of practice. So between inpatients looking at detox centers, that are experienced in detoxification, superimposing Vivitrol on that makes sense, and then in the outpatient setting where doctors are using medication and seeing the benefits of adding this medication, we think many of those doctors will understand the logic of adding to that treatment arm and treating with an antagonist. So those will be the two major points of expansion. The overlap between the alcohol doc and the opioid docs was probably less than we would have imagined going in. This will be some new call points for us.

Okay. And just related to that, Jim, you mentioned that you're now on track or break even for Vivitrol on the alcohol dependence indication. Is that some signal in terms of how you're allocating the sales force. Have you basically pulled everybody over to the opioid dependence indication?

No, really, they're selling both and I think it really relates to the overall expenses, we're going to be spending about $10 million to $15 million to launch the products in opioids. We've talked about that before. And if you look at our over all expenses, prior to that work in opioids, we were in the $30 million range. So once we get close to $30 million, we'll be break even, and then we'll decide after this initial period of six to nine months of launch, how much we continue to decide to continue to invest in opioids, and I think that a lot will depend on the growth and where we're seeing growth, what type of physician, inpatient, Suboxone writers, the alcohol treatment physicians that we've seen previously, so we'll be pretty nimble on how we spend once we learn more in the real world.

Great. Thank you very much.

You're welcome.

Thanks everyone for dialing in tonight, and if you have any subsequent questions, please don't hesitate to call us.

Thank you for participating in the Alkermes second quarter fiscal year 2011 conference call. This concludes the conference for today. You may all disconnect at this time.