Alkermes Plc (ALKS) 2012 Q3 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 third-quarter fiscal year 2012 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 this call is being recorded 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.

Thanks. Good morning and welcome to the Alkermes plc conference call to discuss our financial results for the third quarter of fiscal 2012, which ended on December 31, 2011. With me this morning are Richard Pops, our CEO; Shane Cooke, our President; 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, INVEGA SUSTENNA, AMPYRA/FAMPYRA, BYDUREON, and VIVITROL; the financial and operational impact of the merger between Alkermes, Inc., and Elan Drug Technologies, which we will refer today to as EDT; our future financial expectations and business performance; and our expectations concerning the therapeutic value and clinical development of our product candidates. Listeners are cautioned that these forward-looking statements are neither promises nor guarantees and are subject to a high degree of uncertainty and risk.

Our press release issued today, our Registration Statement on Form S-4 effective on August 4, 2011, filed with the SEC, and our other filings with the SEC identify risk factors that could cause our actual performance to differ materially from those projected or suggested in the forward-looking statements. We undertake no obligation to update or revise the information provided on this call as a result of new information or future results or developments.

This morning, Jim Frates will discuss our third-quarter financial results and Richard Pops will provide an update on the Company. After our formal remarks, we will open it up for Q&A. Now, I would like to turn over the call to Jim.

Thanks, Rebecca. Good morning, everyone. Today we are reporting the first full quarter of results for Alkermes plc, which we believe provide a clear indication of the financial strength of the combined Company following the merger of Alkermes, Inc., and EDT in September. This morning I will be discussing the financial performance of the Company, which is driven by our key commercial products and the financial discipline we apply to investments in our pipeline, and I will also outline improvements to our financial expectations for fiscal 2012.

Let me start by providing some highlights of our third-quarter results. We recorded total revenues of $126 million, which is more than a 185% increase over the third quarter of last year, reflecting the breadth and scale of the combined companies' commercial portfolio. Revenues were driven by the growth of our key commercial products and the strong performance of some of the more mature products.

Revenues related to RISPERDAL CONSTA and INVEGA SUSTENNA, our long-acting atypical franchise, were the most significant contributors to our top line during the third quarter and provide the most obvious example of the transformative nature of the merger. Together, RISPERDAL CONSTA and INVEGA SUSTENNA are the dominant long-acting atypical franchise in the world. As J&J stated on their recent earnings call, quote -- the total sales of our long-acting injectables, including INVEGA SUSTENNA, increased nearly 20% operationally versus a year ago due to an increase in combined market share; end quote.

For the quarter, Alkermes recorded manufacturing and royalty revenues related to RISPERDAL CONSTA and royalty revenues related to INVEGA SUSTENNA, which is marketed as XEPLION in the EU, of approximately $47.6 million. For the calendar year ended December 31, 2011, worldwide sales of RISPERDAL CONSTA and INVEGA SUSTENNA were estimated to be approximately $2 billion.

On average, we anticipate our net economics on RISPERDAL CONSTA and INVEGA SUSTENNA will be roughly equal. However, for modeling purposes, I want to remind you that INVEGA SUSTENNA's royalty rate is tiered annually between 5% and 9%, so our royalties will be at the lower end of this range at the beginning of the calendar year and will tier up as certain sales milestone levels are reached.

Manufacturing and royalty revenues for AMPYRA and FAMPYRA were $10.2 million during the third quarter. Acorda's unaudited net sales of AMPYRA during the quarter were approximately $57 million in the United States. For the calendar year, unaudited net sales of AMPYRA in the US were approximately $210 million.

Biogen Idec continues to launch FAMPYRA on a country-by-country basis in the EU, and early indications are very positive. Just this week, Biogen reported quarterly sales of FAMPYRA of $10.4 million. As a reminder, our economics on the product are a combined manufacturing and royalty rate of 18% of worldwide net sales, of which we net roughly 15% to 16% after our cost of goods.

Acorda recently guided that they expect $255 million to $275 million in AMPYRA in net sales in the United States in calendar 2012. With this anticipated growth in the US and additionally the launch of the product around the world by Biogen, we are confident that the AMPYRA/FAMPYRA franchise will be an important source of growth for the Company.

Net sales of VIVITROL for the third quarter of fiscal 2012 were $10.6 million, representing the 10th consecutive quarter of growth. This reflects 7% growth sequentially and 38% growth over the same quarter last year, on an operational basis.

Turning to BYDUREON, last week we and our partners at Amylin announced that BYDUREON had been approved by the FDA, making BYDUREON the first and only approved once-weekly treatment for type 2 diabetes. Amylin's preparations are under way, and they plan to launch the product in the coming weeks in the United States, which will trigger a $7 million milestone to Alkermes that we expect to recognize in our fourth-quarter fiscal 2012 results. BYDUREON is now approved in 31 countries, and commercial launches are underway in 10.

As a reminder, BYDUREON is profitable to Alkermes from the first dollar of sales. Alkermes receives an 8% royalty on the first 40 million units sold in a year and a 5.5% royalty on units exceeding 40 million in a year. Each calendar year, the royalty rate resets to 8%.

In addition to our five key commercial products, during the third quarter of fiscal 2012 Alkermes earned stronger than expected revenues from some of our mature products including $15.7 million from TRICOR 145; $11.6 million from RITALIN LA and FOCALIN XR; and $6.6 million from VERELAN. These revenues provided upside to our results this quarter and proved to be more resilient than we originally modeled.

That said, with generic entrants expected or already on the market for some of these products, we anticipate the revenue contribution from these products will decrease in the near term. As we have said previously, in five years we expect revenues from more mature products to be approximately $80 million annually. However, this decline is expected to be more than offset by the growth of our five key commercial products.

Turning to expenses, total operating expenses for the third quarter were $130.6 million. The increase in R&D expenses from the second quarter of fiscal 2012 reflects the inclusion of expenses associated with the former EDT business and the advancement of pipeline candidates in their later stage development. The increase in SG&A expenses was also primarily due to the inclusion of expenses related to the former EDT business and $4.4 million of one-time merger-related expenses.

During the quarter, we incurred a non-cash expense for the amortization of intangible assets of $11.9 million related to the purchase of EDT. As we have said previously, we expect annual charges related to the amortization of the deal in the range of $40 million to $80 million, which will follow a bell curve over approximately the next 10 years.

Net interest expense for the quarter was $10.1 million, which included $10.5 million of interest expense incurred on the $450 million of term loan secured to fund the merger with EDT. Included within interest expense is $8.7 million of cash interest and $1.8 million of amortized financing costs.

Finally, our adjusted EBITDA for the quarter was a positive $29.7 million compared to an adjusted EBITDA loss of $4.1 million for the same quarter last year. This is the second obvious place where you can see the powerful effect of the merger on our financial results, as we have moved from a loss position to one of generating substantial positive adjusted EBITDA, not just this quarter or this year but for the foreseeable future.

We believe adjusted EBITDA is the most appropriate financial measure of our ongoing business operations since it provides a clear picture of the fundamentals of our business. For a full reconciliation of our adjusted EBITDA to GAAP, please review the press release issued earlier this morning.

As of December 31, 2011, we had approximately $234 million in cash and total investments. The decrease in cash from the September 30 balance of approximately $241 million was primarily related to the payment of merger-related expenses, interest and taxes, and changes in working capital.

With respect to our financial expectations for fiscal 2012, we are increasing our total revenue expectations and maintaining our expense expectations, resulting in an improvement in the GAAP net loss and increased adjusted EBITDA. I will now walk you through the key elements of our improved expectations for the remainder of fiscal-year 2012.

We're increasing total revenue guidance to a range from $370 million to $400 million, up from a range of $350 million to $380 million. Within this new guidance we are maintaining our previous revenue expectations for RISPERDAL CONSTA and VIVITROL. This strong base of revenues represents a diversified portfolio, and we expect growth to be driven by our five key commercial products.

Consistent with our increase in revenues we now expect a lower GAAP net loss in the range of $70 million to $82 million, improved from a previous expectation of a GAAP net loss in the range of $90 million to $102 million. Likewise our expectations for adjusted EBITDA are improving to a range of $65 million to $75 million, up from our previous range of $45 million to $55 million. Our complete financial expectations for fiscal 2012 are outlined in the press release issued this morning.

The results we reported today from the first full quarter of the combined Company underscore the financial strength and scale of the new Alkermes plc, and we believe all the elements are in place to drive strong financial performance. As usual, we will provide our fiscal 2013 guidance on our year-end conference call in May; but we have recently given a ballpark fiscal 2013 revenue expectation approaching $500 million. We are off to a great start for the combined business, with near- and long-term growth opportunities.

And with that, I will turn the call over to Rich.

That's great. Thank you, Jim. Good morning, everyone. So this was a fantastic quarter for Alkermes and it caps off a remarkably productive six-month period with significant progress made across the Company, including the close of the EDT merger, the launch of BYDUREON in EU and the approval of BYDUREON by the FDA, positive data on ALKS 9070 and start of our Phase 3 clinical program, and encouraging data on ALK 5461 and the accelerated start of that Phase 2 study in major depressive disorder.

Alkermes now has the elements in place to become a major biotechnology company. It is not by accident. It's the result of putting in place an amalgam of people, technologies, manufacturing capabilities, commercial products, financial resources, scientific expertise. All of these elements enabled the two major growth drivers for calendar 2012.

First, we have a very powerful financial engine in place and we have set clear financial targets that we are managing the business to meet. Second, we have an increasingly valuable late-stage pipeline and an R&D strategy that is focused on return on investment. And I will cover these in turn.

The financial engine is driven by these five key commercial products -- RISPERDAL CONSTA, INVEGA SUSTENNA, AMPYRA, VIVITROL, and BYDUREON. Each of these products is a singular product in its class, on patent for a long time, and in a way these products have hardwired growth potential into our P&L for the next several years.

So, let's start with BYDUREON. As I am sure you know by now, we and our partners at Amylin announced last Friday that BYDUREON was approved by the FDA, making it the first and only once-weekly GLP-1 approved in the US. Congratulations to our colleagues at Amylin and to the many Alkermes employees who have worked so hard on BYDUREON for so many years.

So now, BYDUREON joins our expanding list of commercial products available to patients in the US and around the world. In the US, Amylin will be responsible for the sales and marketing of BYDUREON. We are encouraged by their commitment and focus on successful execution. Amylin will use a commercial force of 650 diabetes sales specialists, many of whom have previous market experience with both Byetta and Symlin.

Outside the US, Amylin intends to seek a commercial partner, and we understand that those discussions are underway in earnest.

BYDUREON is a game-changer in the treatment of type 2 diabetes, and we are very proud of our role in its development. We expect it to be a meaningful contributor to our growth and margin expansion since we have no costs associate with the product, just pure royalties on net sales.

Amylin announced the price for BYDUREON on their conference call last week of approximately $323 per month, which is a slight premium to Byetta and a discount to high-dose Victoza. We think that's smart, and this is -- at this price point, for the only once-weekly diabetes medication that provides continuous glycemic control. This will be attractive to physicians, patients, and importantly payers.

Turning to the atypical franchise, on a combined basis RISPERDAL CONSTA and INVEGA SUSTENNA sales are growing at a double-digit rate. Recall that RISPERDAL CONSTA is approved in more than 90 countries, with the majority of its sales coming from outside the US, and that the EU launch of INVEGA SUSTENNA, or XEPLION, is just now beginning. So we believe we're at the beginning of a protracted period of expansion for this franchise.

For AMPYRA, at the beginning of January our partners at Acorda announced strong, unaudited net sales for the fourth quarter as the US launch continues to gain momentum. Outside the US, Biogen has now launched the product in Germany, Australia, the UK, Norway, Denmark, and Iceland, and we expect the EU launch to roll out to additional countries as reimbursement discussions are finalized.

Acorda has also stated that they are advancing the development of potential new indications for AMPYRA in MS and other CNS diseases. These potential new indications represent large markets with significant unmet medical need, and it's exciting to see the extent of the clinical research supporting the future potential of AMPYRA.

On the VIVITROL front, this quarter marked our 10th consecutive quarter of growth as we continue to roll out the opioid-dependence indication. Looking over the longer term, you have heard us talk about and we continue to be interested in the opportunities for VIVITROL in states and in the criminal justice system. This is a part of the market that we think VIVITROL has the ability to essentially dominate as the only once-monthly nonaddictive opiate receptor antagonist that prevents relapse to opioid dependence.

So these five commercial products, each with intrinsic growth, will drive our financial performance. They are complemented by the late-stage pipeline. Before I provide an update on some of the late-stage candidates themselves, let me just discuss briefly our targeted ROI-driven R&D strategy.

The idea is to do very little basic discovery work. We design molecules rationally in order to solve a particular clinical or medical opportunity, characterize them rigorously pre-clinically, and then move quickly into cost-effective studies in humans that can give us a clear proof of concept. This approach allows us to assess the viability of new pipeline candidates early and devote our resources to advancing the most promising candidates quickly to registration-stage trials. This approach has been incredibly productive and has yielded what we believe is an exciting CNS pipeline that we expect will generate meaningful new drugs, ones that become important new treatment options in their classes and also sources of significant revenue for Alkermes into the next decade and beyond.

Consistent with this approach, ALKS 9070 is a proprietary, injectable, long-acting new chemical entity that metabolizes in the body into aripiprazole, which is available commercially as ABILIFY. We knew exactly the type of molecule we needed to design in order to meet pre-specified clinical and commercial criteria.

A Phase 3 study of ALKS 9070 is under way and enrolling patients. This multicenter trial is designed to include 690 patients with schizophrenia and will be enrolling throughout this year. Data from this study are expected in mid-calendar 2013.

We're very excited about the prospects for ALKS 9070. Separate from the inherent features of aripiprazole as an antipsychotic, namely the efficacy and tolerability, we see two key differentiating features of 9070 -- the range of doses we can deliver and the product presentation itself.

Based on our human Phase 1 PK data, we believe we can offer 9070 dose strengths to cover the full range of oral ABILIFY doses, including the highest doses commonly used to treat schizophrenia. This is an important attribute as it will allow clinicians to easily transition a patient from any daily dose of oral ABILIFY to a corresponding monthly dose of ALKS 9070.

In addition, we learned through our experience with CONSTA and SUSTENNA that product presentation matters in the real world. We are designing ALKS 9070 to be a ready-to-use pre-filled syringe. This is a huge opportunity for us, one that leverages much of our experience, and we are very excited to be advancing this program.

ALKS 37 is a drug you will be hearing a lot more about in the coming year. ALKS 37 is our orally-active peripherally-restricted opioid antagonist for the treatment of opioid-induced constipation. 280 million prescriptions were written for opioid analgesics in the US in 2010, which is an incredible number when you think that there are only about 300 million people in the entire country.

Most patients on opioid therapy will experience GI motility problems. We designed ALKS 37 to have precise opioid receptor selectivity and to be orally available and metabolically robust, so that it can be dosed once a day. Further, in addition to designing it not to cross the blood-brain barrier, we designed it to stay in the GI tract, with low systemic exposure, with a goal of making it not only effective but very well tolerated.

We saw evidence of these features in the Phase 2 data we presented last year, and we expect to see these qualities reinforced in the clinical data from our ongoing Phase 2b program, which includes more than 200 patients and is expected to read out in mid-calendar 2012. We then plan to move forward with two parallel Phase 3 studies.

Another proprietary CNS candidate, ALKS 5461, is a sophisticated opioid receptor modulator. Just a few weeks ago, we announced positive results of a Phase 1b study in 32 patients with major depressive disorder who failed standard therapy. Two things about the data caught our attention -- first, the magnitude of the antidepressive effect; and second, the rapid response that patients had to treatment with 5461.

At day 7 of the study, ALKS 5461 was shown to significantly reduce depressive symptoms as measured by the Hamilton Depression Rating Scale. As you may know, SSRIs and other medications can take weeks to elicit a pharmacologic response. So to see such a clear signal in a small number of patients and achieve statistical significance by day 7, you can see why we have moved very quickly to expand and elaborate these findings in a bigger Phase 2 study, which is now underway. We expect to have data in hand in the first half of calendar 2013.

This is a large market, with an estimated 6 million patients in the US who don't adequately respond to their first course of treatment and who need a well-tolerated, nonaddictive treatment with a new mechanism of action.

So, I will end where I began. This was an excellent quarter, and the beginning of something very important. These two elements -- a powerful financial engine coupled to an increasingly valuable and late-stage pipeline -- create a really exciting Company with all the elements in place to build what we think is going to be one of the next big biotechnology companies. So, with that, I will finish and turn the call back to Rebecca for questions.

Thanks, Rich. We will now open up the call for Q&A. Operator?

(Operator Instructions) Graig Suvannavejh, Jefferies.

Good morning, guys. Congrats on the quarter, and thanks for taking my questions. I've got just three.

First of all, I am sure we were all pleased to see the increase in revenue guidance for the year. I know you have maintained CONSTA and VIVITROL as a constant. Is there any one other particular driver that is giving you increased confidence in terms of raising that revenue guidance?

My second question just has to do with current expectations around Elan and their potential plans to sell down their stake in Alkermes stock.

And then my last question, if I could, is just going back to BYDUREON, and congrats on that approval there. Have you been able to calculate the sales threshold, I guess, in which that BYDUREON royalty steps down from 8% to 5.5%? Thanks.

Jim, why don't you go ahead?

Yes, I will take the financial questions, Graig. Good morning. Yes; so on revenue guidance I think one of the key drivers is across-the-board the products are doing well, particularly the mature products as we mentioned. And now that we have clarity about the timing of Amylin's expected launch of BYDUREON, that is an additional $7 million milestone for us that we expect to receive in the February/March time frame. That is on first commercial sales, so that is probably the largest part of the increase.

But across-the-board, all the products are doing well.

Secondly, on BYDUREON and the calculation of the step down in royalties, as it were, I think we are very pleased with the pricing, as Rich mentioned. And if you do the calculation based on -- you have to make some certain assumptions about gross to net, which we don't know, and also the mix between the US and Europe. But we have made a conservative 50-50 assumption about the mix, the US and ex-US. And that gets you to roughly $2 billion in sales.

So we look forward to the time when we have to be doing this calculation with you all in more detail. So $2 billion in sales is around the time we need to think about the royalty changing from the 8%.

Then on the Elan stake, this is going to be governed by the shareholder agreement that we have with Elan. They are really in the driver's seat there, and you can refer to that. There is basically a six-month lockup from the closing of the deal, so nothing can happen before then.

I think you can expect it to be orderly. It is going to be in a marketed transaction that we will be involved in, and I think everybody will see it when it is happening.

Okay, great. I will just hop back in the queue.

Ami Fadia, UBS.

Hi, I actually just had two quick questions. Firstly, you mentioned ALKS 37, and I wanted to sort of go back to the data that was presented last year and dig further on the slight trend towards the decline in the pain effect of the drug in some cases -- or I think it was in one particular dose. Could you address that and give us a sense of why you think that may not be an issue going forward?

Then just secondly, at this point where do you think investors are under-appreciating some of the growth drivers? You have talked about the five products. Where do you think -- or which product you think is least appreciated at this point? Thanks.

Hi, Ami; it's Rich. I'll take your question. The great thing about ALKS 37 is that nobody will need to try to figure out the data that we presented last year, because we're going to have 200 patients with new data coming midyear. That's a point I am trying to make, is that any questions or any concerns or even any features that maybe we think are very positive will be completely elaborated in this bigger data set.

So we will have a better sense of the range of doses. We will have a sense of the appropriate endpoints. We will have a better sense of the duration of effect. We will have all of the variables that are being tested in this series of clinical trials.

So I really look forward to getting that date in midyear, because then I think we will be able to position this product versus data we have seen from other competitive products that are in development right now. But as I have said before, we are playing the game to win, which is why we are investing so much in Phase 2b, to really get a clear profile that you all can see and compare to other drugs as well.

On the portfolio, I actually think that this quarter is really important because it, for the first time, allows the numbers to speak for themselves. To the extent that we're under-appreciate it -- I am not sure whether we are or we aren't -- it is very difficult to be under-appreciated when you begin to see the transformative financial impact of this deal. We are generating significant amounts of EBITDA. We have significant amounts of growth quarter on quarter.

And we have got products that are really in the beginning -- with the exception of CONSTA, which has been around for a bit -- really at the beginning of their life cycles. So as I said in my earlier remarks, in many ways there is hardwired growth in the P&L as these products continue to grow.

The pipeline, I think, is where people are going to be getting a lot of more appreciation, just because it is getting so much later stage. ALKS 9070 in Phase 3, and you will be able to build models around the impact of a long-acting ABILIFY in the schizophrenia market. ALKS 37, we just talked about; with that data this year you will be able to position it and begin to get a sense of what this market is going to look like.

5461 is the more recent one to add to the portfolio, and that is one that I think has a real potential to surprise people, as people begin to understand both the market and the role of a new mechanism in patients that have failed standard therapy.

So, I think it is a year where a lot of it comes together and people began to get a new appreciation for the business.

Thank you.

Cory Kasimov, JPMorgan.

Good morning, guys. Thanks for taking my questions. I have a couple on your commercial portfolio and one on the pipeline.

So, first of all, how is the BYDUREON royalty paid? Do you receive the 8% of sales in the quarter those sales are generated, or is there a lag to that?

No, Cory; we will be recognizing the revenue in the quarter that the sales are made; and we will be paid 30 days after the end of the quarter. So the cash will come in under a normal contract in the normal course. But we will be recognizing revenue in the quarter those sales are generated.

So we can just back in based off of your royalty to what the actual sales were?

Yes. Exactly.

Okay. Then is it possible for you to break down the revenue between SUSTENNA and CONSTA? That $48 million number, can you tell us what was what?

Well, you know, we are under a little constraints because J&J hasn't guided to what SUSTENNA is. But I think you can use the 20% growth that we have seen and the fact that $38 million of that $47 million or so that we reported this quarter is related to RISPERDAL CONSTA. That will be in our Q.

Okay, all right. Perfect. Then on the pipeline, I realize it has only been about six weeks now, but do you have any early insights from the ALKS 9070 Phase 3 with regard to maybe accrual, but more importantly investigator interest in the program?

Accrual is a little early to say. As you said, we are just a few weeks into it, although we are accruing. But I think the investigator interest is quite high.

Okay, great. Thank you.

Anant Padmanabhan, Cowen and Company.

Yes, hi. Thanks for taking my questions. I have a couple.

I want to follow up on ALKS 37. Given the partnering activity in the OIC space historically, how should we think about your plans to partner this product? Should we assume that any partnership will be after the Phase 2b results?

Yes, I think that is probably the best assumption, is -- the most general comment I will make is that we are not really limited in developing ALKS 37 by waiting for a partner. We will look for a partner that can maximize the commercial potential globally for the product; and in the meantime, we are hammering on the clinical program ourselves.

We have the resources, we have the capability, we have the desire and the finances to do it. So that puts us in a really nice position, because we are already talking to pharmaceutical companies. As we meet with them and they learn more about the program they have questions, and many of those questions will be answered with data.

So I think that that data readout midyear will be important not only for the partners but for us as well in terms of the competitive positioning.

Okay, thanks. Then just on the royalty streams, you just talked about BYDUREON. But taking a step back, could you comment on -- of your four royalty streams, which of these could be accurately predicted by prescriptions and reported sales, and which of them will tend to be fairly lumpy over the course of the next couple of years? Thank you.

Yes, I will try and give some color on that. I mean I think again, with the five key products, each of them have different channels, obviously. I think the best trends to rely on are the ones with longer histories, so you can actually relate the IMS sales to the trends that are there. But I also think that we will be very focused on providing the end sales of each of the products so you can track them.

Anant, I will just add to that. Really any agreement that has a manufacturing component, those are the ones that are the more lumpy in nature. Ones that are pure royalty on sales, those are more predictable in nature.

So it is really just looking at each agreement and understanding whether there is a manufacturing component.

Okay, thank you.

Tom Russo, Baird.

Good morning and thanks for taking my question, and another congratulations on BYDUREON.

Thank you.

Thank you.

Just had a question, looking for a little additional color on the other EDT business. I think -- I know you made comments it was strong in the quarter. It looked to me like it was the highest in maybe two years. Was there anything specifically that drove that?

No, Tom, I think actually it has been pretty consistent. Certainly as you look back to a year-ago quarter, it was a strong quarter. I think the main thing would be actually in December. Since this is the year-end for a lot of the larger pharmaceutical partners that we have, oftentimes you see if the sales are doing well in a particular year, the December quarter will be higher than the September quarter or the following March quarter. So I think that has got a lot to do with it.

I think it is also having a portfolio of 20-plus products, and most of them came in at the higher end of our expectations. And so therefore we had the opportunity to raise guidance for the year.

Okay. Then on the topic of guidance, the revenues guidance increased by about $20 million at the midpoint, and COGS was not changed. Is that more because the BYDUREON royalty was a big driver of the increased guidance, or the width, the breadth of the range for COGS? Is there some explanation for why COGS wouldn't go up with revenues?

No, I think we are still in the range, Tom, for the COGS. Again, some of the key drivers -- you're right, BYDUREON and INVEGA SUSTENNA are pure royalties, so as they added into the business going forward we are going to be seeing improving COGS.

I also say I think we are trying to manage in a disciplined manner, and we are really proud of the fact that we are increasing revenue guidance by that average of $20 million and we are also increasing our adjusted EBITDA guidance by that same $20 million as we try and manage our expenses well.

Okay. Then maybe last question. I don't know if you will comment on this yet, but if you just annualized this quarter and also if you look at what you are implying at the midpoint for the fiscal fourth quarter, you're already at a $500 million run rate. The Street I think is looking only for about 3% revenue growth off of that in 2013. Is that -- would your view be that that is too conservative?

Or I guess you made the comment about roundly $500 million next year. But it seems like that would be very conservative based on this quarter and what you are implying for next quarter. So I just would love to hear any thoughts on that.

Yes, well, Tom, again I think that we are pretty pleased with the circa $500 million. And it is early, so we haven't given guidance yet for 2013, so I would say that.

I would also say that, again, this is a very good quarter for us on a revenue basis. And as I mentioned, that push that many of our partners have had in the fourth quarter, one can't annualize that through the year. It was a very good quarter for many of our products.

Then finally, I think the move -- the $14 million of milestone payments that were received from BYDUREON for those first commercial sales also have to be built in. We certainly -- we're not planning on that second royalty -- excuse me, milestone for the launch in the US being in fiscal year '12 when we first gave our guidance in the beginning part of the year, just out of conservatism.

So I think we will see the growth of the portfolio is doing well. We will see how we progress during the year. And we are trying to maintain and manage on a conservative basis and hopefully continue to beat expectations.

Okay. Thanks, Jim.

You're welcome.

Steve Byrne, Bank of America.

Jim, you mentioned that your CONSTA sales are near $38 million. That would suggest J&J didn't have much of an inventory drawdown. Is that in line with your view?

Are you expecting somewhat of an inventory drawdown in the fiscal fourth quarter, given they had a build in the last couple quarters?

Yes, thanks, Steve. I think as I mentioned in the remarks, we are not changing our RISPERDAL CONSTA manufacturing guidance. So I think that is really progressing as we planned.

We did start off with two very strong quarters, but that has been the trend in the last few years, is that the first couple quarters of the year -- again, which is the beginning of their calendar year -- our June and September quarters have historically been strong.

So RISPERDAL CONSTA is doing well. Actually, units were up around the world this quarter. I think we like to look at it as a combined business, which for the last two quarters have been growing close to 20%, which if you are talking about a major aspect of the long-term opportunity this sustainable, long-acting injectable franchise is, I think, the key to our long-term growth.

Then a question about 9070, the trial you have underway is a placebo-controlled. Do you have plans for or believe you need to compare 9070 to, say, oral antipsychotics?

Yes, Steve, it's Rich. I think for Europe we will want to run a comparative study, but we haven't started that study yet.

And let me just build on what Jim said about the CONSTA/SUSTENNA franchise, because the fact that it is $2 billion of business growing at double-digit rates, that is exactly the platform that we want to build 9070 off of. Because this long-acting atypical market is getting more and more traction around the world, more clinicians are getting exposed to the benefits of long-acting injectables. But the market is satisfied only with risperidone and paliperidone, which are basically the same molecule. So it is creating this growing opportunity, the slipstream, for a long-acting formulation of a drug like ABILIFY, which is a really well tolerated drug.

Okay, thank you.

Mario Corso, Caris & Company.

Yes, thanks for taking my question. Can you talk a little bit about VIVITROL and what you see going on there, and what is going -- what is happening going forward? I know you are starting the new prison-based study.

Then also in terms of the mature products from EDT, can you talk a little bit about your expectations on the timing and magnitude of generic competition? Thanks a lot.

It's Rich. I'll take that. VIVITROL continues just to make the steady progress with its 10th consecutive quarter of growth, as both Jim and I mentioned on the call. We expect it to fall within the range that we guided to, and we will guide on its continued growth in the following year.

But the point you raised about the criminal justice study is an important one. There's a number of exciting pilot-level programs that are happening in states around the country, most recently in the announcement we made yesterday about this study in patients leaving prison, that we think are indicative of a potential general trend in the future for the use of a long-acting monthly injectable that prevents relapse to opioid dependence.

So one of the nice things about the EDT transaction is it gives -- in the portfolio it gives time for VIVITROL to grow into what VIVITROL is going to become. So we remain quite enthusiastic about that.

On the mature products, it is such a massive simultaneous equation of all these different products that essentially what we have said is what we have said before, which is -- if you fast-forward five years from now, we expect revenues from mature products to be about $80 million a year. How it gets from here to there will be not in a straight line, depending on what happens in the courts and what happens with competitors and what happens with patents and so on. But we think generally, that is the general trend and we understand how the story will end.

Mario, I will just add to that further. We expect that the decline in revenue from the mature products would be more than offset as these key commercial products that we have mentioned today ramp up in sales.

Bill Tanner, Lazard Capital Markets.

Thanks for taking the question. I have a few. Maybe, Jim, just on R&D, how to think about that going forward; and I appreciate you that you guys in a quarter or so will provide 2013 guidance. But if you are a $160 million run-rate-ish now, just what we should think about as puts and takes that might impact that 2013?

I guess I am looking for -- perhaps some reiteration of the philosophy really isn't an R&D budget, it is a percent in sales versus really just dedicated to the specific programs. And I have a couple other questions.

Yes, sure, Bill. No, I think you are right, and as I said the remarks -- maybe too subtly -- but the R&D expense that we have seen, which is around $40 million this quarter, does include all the expenses from the new EDT business and an increase in the spending as we have started the Phase 3 in 9070.

I think you will see the takes are the rolling over of the studies. Those pretty large Phase 2 studies in 37 is part of it. There's a number of other studies that are ongoing that will stay at the smaller level. But the main driver is that Phase 3 9070 study, and that is well within our budgeted plans.

And we said at our analyst day in the summer that we think that spending between $150 million, $180 million on R&D will give us plenty of opportunity to advance this pipeline over time. We will move over time to -- like every other big biotech company -- to the sort of standard margins. But at this stage we are looking at it as an amount of money to spend on R&D and working our R&D budget within that.

We also have, obviously, partnerships. Those will be quite lumpy. We are not planning on those as we plan out our budgets, but that will be something over time as we have talked about. There are some very good commercial reasons to do partnerships around these products if they are successful.

Okay. Then, Rich, just on VIVITROL, I am just kind of curious. I guess the commercial opportunities may or may not have unfolded as expected; and the incarceration study, the pilot study, I am sure is not a very big number. But I'm just curious, your thoughts on continued investment in that product.

Well, I think that we see VIVITROL as having a really long patent life and no competition other than the inertia of rest, of inaction. And because it is incredibly efficacious and because of its particular mechanism of action in the opioid-dependent setting, where it blocks the opioid receptors and has a label that says that it prevents relapse to opioid dependence, there's a number of places where we think we can really create a dominant presence for VIVITROL compared to any other treatment approach. That is the good news.

The bad news is that requires changes in the way that large systems operate. So I think it just -- it's worth our time to just keep chipping away at it. Pilot programs tend to work. They tend to lead to bigger opportunities for VIVITROL, and we are just going to let this gestate.

Then maybe just one last question on BYDUREON. I know in fiscal 2013, it is probably not going to be -- the royalties aren't going to be a big revenue component. But are your BYDUREON protections going forward or the royalties for the drug, are those in-house determined? Or are you getting some help from the folks at Amylin in terms of what their expectations for the drug sales are going to be?

I think it is both. But I think it's very much in flux right now with the drug just having gotten approved. They are just getting ready to launch, so they will set the trajectory at launch.

Europe is still a bit in flux, with Lilly transitioning to a partner to be determined. I think that we have a sense that there is a real opportunity. We saw numbers this morning from Novo that they sold $1.1 billion of Victoza in 2011, and I think that is a fantastic and necessary prerequisite to BYDUREON being a big drug. So I think we are going to be quite optimistic.

But longer term, there should be some concordance between what your expectations are for royalties and what Amylin thinks they are going to sell, I guess.

Yes, you would think.

Okay, thank you.

All right, operator. I think we have time for one more question.

Terence Flynn, Goldman Sachs.

Hi, good morning. Thanks for taking the question. Rich, you had mentioned the study for 9070 that I guess one of the potential advantages of your compound is the formulation or delivery device, and that at time of launch you would have a pre-filled syringe. I was just wondering what current device you are using in the ongoing Phase 3 study, if that is the commercial device or if there is more work that has to be done on the device? And then what those gating steps might be. Thanks.

Hi, Terence. No, we are not using the final commercial device yet, but we are injecting a suspension of 9070. But that is on the development plan to be ready for launch.

What are some of the gating steps left, I guess?

In that formulation?

In the commercial formulation, yes.

Oh, it is just straightforward in time. It is -- as you may know, putting together a prefilled syringe is almost a separate development project, separate from developing the NCE and testing it to effect in man. So we decided to move as fast as we can on the NCE side of it and run the device development in parallel.

But it's a fairly straightforward -- this is an IM injection, so we are not looking for tiny needle gauge or small injection volumes. We are simply looking for a stable suspension that we'll swap over to for commercial launch.

Okay. Thanks a lot.

You're welcome.

All right. Thanks, everyone, for dialing in today. And of course if you have any additional questions, please don't hesitate to contact the Company. Have a good day.

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