Alkermes Plc (ALKS) 2014 Q3 法說會逐字稿

Good morning and welcome to Alkermes plc third-quarter 2014 financial results conference call. My name is Brandon, and I'll be your Operator for today.

(Operator Instructions)

Please note that this conference is being recorded. And I will now turn it over to Rebecca Peterson. Rebecca, you may begin.

Thanks, Brandon. Welcome to the Alkermes plc conference call to discuss our financial results for the quarter ended September 30, 2014. With me today are Richard Pops, our CEO; Shane Cook, our President; and Jim Frates, our CFO.

Before we begin, I encourage everyone to go to the Investors section of the www.alkermes.com website to find the press release and related financial tables, including a reconciliation of the GAAP to non-GAAP financial measures that we'll discuss today. We believe the non-GAAP financial results better represent and reflect the ongoing economics of our business.

Our discussions during the call today will include forward-looking statements. Actual results could differ materially from these forward-looking statements. Please see our press release issued today and our transition report on Form 10-K for the important risk factors that could cause our actual results to differ materially from those projected or contemplated in the forward-looking statements. We undertake no obligation to update the information provided on the call today as a result of new information or future results or developments.

Today, Jim Frates will discuss our financial results and Richard Pops will provide a brief update on the Company. After our remarks, we'll open it up for Q&A. Now I'll turn over the call to Jim.

Thanks, Rebecca. Good morning, everyone.

Alkermes' solid third-quarter results of $160 million in total revenue and non-GAAP net income of $3.9 million demonstrate our strong financial and operational position. Our commercial products are generating significant revenues that we're using to develop our pipeline portfolio. This pipeline has the potential to take the Company to a whole new level of valuation. We ended the third quarter with more than $716 million in cash. This is a strategic amount of capital for us. It gives us the ability to control the development of our wholly owned pipeline and to pursue strategic opportunities as they arise. Taken together, the revenue streams from our commercial products and our strong cash position underpin our financial strength and ability to generate long term and sustainable growth.

Now let me now review some key drivers of our financial performance this quarter. Within our commercial portfolio, worldwide end-market sales of our long-acting atypical antipsychotic franchise, RISPERDAL CONSTA and INVEGA SUSTENNA, were approximately $687 million in the third order compared to $650 million for the same period last year. For the quarter, Alkermes recorded manufacturing and royalty revenues of $68.5 million for this product franchise. INVEGA SUSTENNA continues to show impressive growth as the leading product in the class, with end-market sales of $403 million during the quarter, reflecting nearly 25% growth year over year.

Our partners at Janssen continue to invest in the long-acting atypical antipsychotic space with the PDUFA date in November for the schizoaffective disorder indication for INVEGA SUSTENNA and the expected submission of the NDA for INVEGA SUSTENNA three month to FDA by year end.

For AMPYRA and FAMPYRA, our manufacturing and royalty revenues were $16.5 million for the quarter. For BYDUREON, we recorded royalty revenues of $10.3 million. In September, our partners at AstraZeneca announced the launch of the BYDUREON dual-chamber pen device in the United States, which is the first line extension for the brand. AstraZeneca continues to advance additional line extensions for BYDUREON as it represents an important product within the growing GLP-1 class.

For VIVITROL, the third quarter was our strongest quarter yet, with net sales of $25.8 million compared to $19.2 million for the same period last year, demonstrating growth of approximately 34% versus last year and approximately 19% sequentially. We're pleased with VIVITROL's growth, which is demonstrating a clear upward trajectory as we continue to make inroads in the core commercial business and begin to gain momentum in more nontraditional areas with state and criminal justice programs. This commercial portfolio is diversified across products, partners, markets, and geographies. It has a long expected life and provides incremental growth opportunities in growing classes that address diseases representing some of the biggest burdens on healthcare systems around the world. We continue to be very optimistic about this portfolio and its potential.

In terms of expenses, our total operating expenses for the third quarter were $192.7 million compared to $143.7 million for the same period last year. This increase in operating expenses was driven by investment in our advancing late-stage clinical pipeline and commercial organization. In addition to our ongoing clinical development programs, our third-quarter investments in R&D reflected the expanding activities around our pipeline as follows.

First, the preparation and submission of the new drug application for aripiprazole lauroxil. Second, the initiation of the third study during the quarter, and now all three core efficacy studies in the forward pivotal program for ALKS 5461 are now underway. Third, the completion of enrollment for the ALKS 3831 Phase 2 study for schizophrenia with olanzapine-associated weight gain. And fourth, the initiations of the Phase 1 studies for both ALKS 8700 and ALKS 7106.

Going forward, we expect this level of investment in R&D to continue in 2015. We plan to rapidly and efficiently advance those candidates that are supported by data and offer significant opportunities for value creation.

On the commercial front, our SG&A expenses reflected increased promotional activities for VIVITROL and early preparations for our anticipated launch of aripiprazole lauroxil. With the PDUFA date of August 22, 2015, now assigned, we will continue to build our investment in commercial preparations as we plan for the launch of aripiprazole lauroxil next year.

Regarding our balance sheet, as I noted, we had a strong cash position of $716 million at the end of the third quarter. Subsequent to September 30, our cash balance has increased due to a one-time gain related to the sale of our stake in Civitas when it was acquired last week. We will record gross proceeds of approximately $60 million as a result of this transaction. This one-time benefit will positively affect our GAAP financial expectations for 2014, which we are updating in our press release issued earlier this morning. We continue to expect non-GAAP net income to be in the range of $30 million to $50 million for 2014.

We are in a strong financial position as we aggressively pursue our robust and innovative clinical pipeline and prepare for the launch of aripiprazole lauroxil next year. Operationally, our business is performing well and as we anticipated. And we have the resources to control our pipeline and make the decisions that we believe will result in the most value for our shareholders.

With that, I'll turn the call over to Richard.

That's great, thank you, Jim. Good morning, everyone.

So as we come out of the third quarter and look toward year end, we're right where we'd hope to be at this time, with aripiprazole lauroxil NDA being actively reviewed and our teams preparing to launch into a dynamic market, a potential blockbuster advancing in a broad pivotal program, and on the threshold of exciting new data from multiple new product candidates being tested in highly informative clinical trials. The value of our pipeline is coming into view.

The third quarter was a really important one on several fronts. I'll begin with our most eminent growth driver, once-monthly aripiprazole lauroxil for the treatment of schizophrenia. As Jim noted, last week the FDA accepted the new drug application and assigned a PDUFA action date of August 22, 2015. The opportunity that aripiprazole lauroxil represents for Alkermes is clear -- it has the potential to transform our commercial presence, establish a new foundation for our growth in CNS, and become our most significant product yet.

We'll launch as a new option with distinctive features for the treatment of schizophrenia in the US atypical market, which is currently at $4.5 billion in sales for schizophrenia alone. As we've discussed before, the clinic community is increasingly recognizing the value of earlier use of long-acting injectables and their unique ability to allow patients with schizophrenia, as well as healthcare providers and caregivers, to be assured that antipsychotic medication is dependably on board and to monitor adherence.

Preparing for a major launch is an exciting process and all systems are go as we gear up for August 2015. We're well underway in assembling a seasoned commercial team with extensive experience in CNS in specialty markets, building upon our existing commercial organization for VIVITROL. Scheduled pre-launch activities are proceeding and these will be ramping up progressively through 2015.

And we're not stopping with our first offering either. Aripiprazole lauroxil two month enters the clinic in December and we're actively working on other differentiating features to characterize our products in a competitive market in which we plan to have a major presence for a long time. We have a strong product candidate with features we know are attractive to patients and providers, a good sense of this market and its increasingly favorable dynamics, a clear regulatory pathway to the finish, and tremendous excitement about the launch. So like I said, all systems are go.

Let me move to the clinical programs. During the third quarter, consistent with the aggressive timelines we set as goals at the beginning of the year, new product candidates continue to advance rapidly. We're now entering a data-rich period over the next few months in which we're going to gain a clearer picture of the opportunities ahead of us. To provide some context, let's take as an example ALKS 5461, our novel balanced neuromodulator product candidate for the treatment of major depressive disorder. A year and a half ago, we reported successful Phase 2 results which exemplified the way that data from highly informative studies can create a value inflection point for the company if they provide truly meaningful insights into the therapeutic value of a product candidate. As you know based on these data ALKS 5461 has rapidly evolved and today is a fast-track candidate being evaluated in a comprehensive pivotal program.

Similar to the unveiling of these transformative results for 5461, over the next several months we'll have multiple data readouts for additional candidates in our development portfolio that offer opportunities for significant value creation. We're looking at not just one potential game changer, but data from three innovative product candidates that represent major opportunities to change the treatment landscape in important CNS diseases.

ALKS 3831 directly mirrors our strategy with ALKS 5461 in terms of conducting large, appropriately controlled Phase 2 studies. ALKS 3831 is designed to be a broad spectrum oral antipsychotic for the treatment of schizophrenia. It's composed of samidorphan, a novel potent opioid antagonist in combination with the established antipsychotic drug olanzapine. We're testing it in two areas of unmet medical need: for the treatment of schizophrenia, attenuating the weight gain that's common with olanzapine; and separately, for the treatment of patients with schizophrenia and alcohol use.

In early September, we announced the completion of enrollment in a large, randomized, controlled Phase 2 study evaluating its safety and efficacy in the treatment of schizophrenia and attenuation of olanzapine-induced weight gain. If ALKS 3831 demonstrates an efficacy profile similar to olanzapine, while simultaneously attenuating substantial and notable weight gain associated with its use, it could represent a meaningful new approach in treating patients with this devastating disease. This 309-patient trial will provide a rich data set which should be sufficient to give us a clearer view of the potential value of this candidate, and we're expecting the top line results in early 2015.

With respect to the second development path for 3831, in patients with schizophrenia and alcohol use, we announced in June the start of a Phase 2 study in approximately 450 patients. This is a first-of-its-kind type of study. No company has ever specifically focused on this medically and economically important subset of schizophrenia patients. We have a very strong hypothesis and an innovative study design, and we expect to enroll in this study throughout 2015.

ALKS 8700 is our monomethyl fumarate, or MMF, prodrug that we're developing as a treatment for multiple sclerosis. In July, we began a large randomized double-blind Phase 1 study of 8700, which, in addition to testing traditional safety and tolerability parameters, we'll compare 8700 not only to placebo but to Biogen's TECFIDERA as an active control. With this single study in 125 healthy adults, we expect to have a clear answer on very specific features of ALKS 8700's competitive profile. We're now well into this study and can provide more precision around the timing of the results which we now expect in first quarter of 2015.

ALKS 7106, our novel oral opioid analgesic drug candidate, entered the clinic in August. The opportunity here is significant. We're in the midst of an opioid crisis in the US, fueled in part prescription opioid abuse. We believe that there's a wide recognition among physicians, patients, caregivers, the government, and other stakeholders of the need for effective analgesics with less risk of overdose death and intrinsically lower abuse potential. We're excited about the potential of ALKS 7106 to address this need, and designed the first series of studies to answer key questions early. Our first clinical study is a single ascending-dose study in 80 healthy volunteers. This study will look at the traditional Phase 1 parameters of safety and tolerability in dosing, which, if positive, will enable us to advance quickly into a dental pain study evaluating 7106 analgesic properties. We expect to see results from this first study in the first half of next year.

So that's the development portfolio. So a lot of program progress in the quarter, and I'd like to acknowledge the hard work of many different teams within Alkermes. We've been working hard to make Alkermes a CNS powerhouse with new and innovative treatments with the potential to change the lives of patients and impact society at large.

Because of our focused efforts, today we have a tremendous portfolio comprised of our next important drug with its NDA under FDA review; an innovative product candidate with a new mechanism of action in a comprehensive Phase 3 program; two Phase 2 studies evaluating a new drug candidate for significant patient populations that are underserved or have been traditionally excluded from clinical trials; and three earlier-stage candidates, all with blockbuster potential, and multiple upcoming data readouts.

This is an exciting time to be at Alkermes, and I'm looking forward to reporting a steady stream of news in the coming months. And with that I'll turn it back over to Rebecca for questions.

Thanks, Richard. We'll now open up the call for Q&A.

(Operator Instructions)

From Credit Suisse we have Ari Jahja.

First for Rich, as we think about benchmarking the potential launch of aripiprazole lauroxil, can you share your latest thoughts on Abilify Maintena uptake so far and key learnings from that launch? And then I have two follow-up questions. Thanks.

Good morning, Ari. I think that a couple of things are important about the Maintena launch. Number one, is that it's going well. If you look at the curve, I was just looking this morning at the most recent sales curve including data from September, and some very nice ascending lines, it's doing well. So quantitatively, it's doing well.

But qualitatively, what's important about the launch is that we have another set of salespeople and professionals calling on payers and providers, teaching and advocating for the use of long-acting injectables. So what we're seeing is that we're seeing more utilization of LAIs. Between SUSTENNA and Maintena, you get the sense that the market is on the threshold of really beginning to expand. So in summary, I think the launch is good and it provides exactly the type of foundation for the launch of lauroxil.

Thank you, and then a second question for Rich. On ALKS 5461, I noticed on www.clinicaltrials.gov that the Phase 3 titration study had been completed. Can you give us some color pertaining to the readout timing and utility of the data set since the three core efficacy studies have been underway?

Yes, it's a good question, good observation on that. Remember that we've described the forward program, the overall pivotal program for 5461 as being quite comprehensive. It's anchored by these three core efficacy studies that we've talked about that mirror the SPCD, but it's also got a series of other studies.

The one that just completed is one of those that provides very meaningful data, and you can look forward to us presenting data from the results of it and other studies over the course of the next several months. So the news flow on 5461 will continue all the way up until the time we unveil the pivotal studies in 2016.

Got it, okay. And then last one for Jim, also pertaining to lauroxil, how should we think about the pace of sales force build throughout 2015? Thanks very much.

Yes, thanks, Ari. Our guidance for 2014 includes our build, which is really focused on the leadership team around aripiprazole lauroxil. And as we get closer to the PDUFA date that's now established recently, in August of next year, we'll be adding the sales force months to a few quarters ahead of that time. And we'll give more specific guidance on that in February, when we update traditionally -- at our traditional time for the coming year.

Thank you.

From Citi, we have Jonathan Eckard.

Quickly with regards to the data readouts for 8700 and 7106, I would think that 8700 also has some sort of a single-ascending-dose portion in it before you go into that portion with the different arms, including TECFIDERA. Is the style or the current plan to put all the data out there in one shot or would it come out like the single-ascending-dose data, just so we could see the PK, and then the data that has the comparison to TECFIDERA?

And then on the 7106, you started it in August, it's a single-ascending-dose. Guidance is still for first half 2015. Those are types of -- healthy volunteers, so I'm trying to figure out is there a reason for that timeline, do you have to be particularly selective with patients? Then I might have one more follow up.

Good morning, Jon. No, I think your questions are good, that -- I think what we're going to do is release the data in a complete data set, when we've complete the study through the extent of the whole protocol, rather than piecemeal along the way. Because we want to make sure we come to the correct conclusions based on the totality of the data.

And in both cases, we're making sure that we conduct the study carefully, fastidiously, like we always do. So we're not rushing to complete, we're just simply trying to do it in the most responsible way, and give you guys a sense of when we expect the full data set to be mature enough to present publicly.

And Jon if I may, this is Rebecca, I'll add that we actually moved forward the readout for 8700. And 7106 is consistent with when we originally announced the study start.

Okay, and then the next question is also about opioids. I think the FDA is hosting a workshop tomorrow and Friday on the development around abuse deterrent opioids. I was wondering if Alkermes is planning on participating in that, and what would be the most important takeaways that you hope to learn from that workshop, specifically around 7106?

Jon, to tell you the truth, I don't know whether any of our folks are at the ADT workshop, I wouldn't expect it because our focus is not on ADT, as you know, our focus is on next generation, intrinsically different, molecules. So we have less at the table with respect to abuse deterrent technologies for old opioids.

Okay, very good, thank you.

From JPMorgan we have Cory Kasimov.

Actually, it's Matt Lowe in for Cory today. The first question I have is on understanding you won't -- you're not going to give guidance for 2015 right now, but in terms of operating expenses, could you give us a bit more color potentially on the trends for R&D and SG&A in 2015? Thank you.

Sure, hi Matt, good morning. Well as I mentioned on the -- in the prepared remarks, I think you can use this current quarter as a good run rate as you plan for movement into 2015. We have a full slate of clinical studies going on in R&D now that the full slate of the forward efficacy studies are ongoing, as we started the third one this past quarter, and I think that provides you a good run rate.

In terms of SG&A, as I mentioned earlier, too, we haven't hired the sales force yet. We're targeting a group of between 150 to 200, and they'll come on closer to launch. So I think you'll see that spend in the second and third quarter probably elevate a little bit. But again, I think the run rate from this current quarter is a good one to use as the basis of your models going forward before we give more precise guidance.

The other thing is of course, our 2015 financials are going to be informed by the results of these ongoing studies that Rich and others have been discussing on the call. And those blockbuster candidates, we're going to see that data and we're going to be disciplined about investing and focusing on and following up on those data that are exciting, and we'll be moving forward with those. But that will be dependent on the results that we'll see in the next few months.

Yes, yes that makes sense, very helpful. And a quick follow-up. With FDA's acceptance of 9070's NDA, does this mean that Otsuka's citizens petition has officially been denied? Is there anything you can tell us about that?

Well I think -- this is Rich. I think the [evidence] in the NDA speaks for itself. Now the NDA is being reviewed and the citizen petition, which asked the FDA not to review the NDA, was obviously not successful.

Okay, that's great. Thank you.

From Leerink Partners we have Michael Schmidt.

I had one on 3831, you said the Phase 2 data in the weight gain study will read out in early 1Q. Could you lay out the goalpost a little bit for the data, what are you looking for in the study to move that drug further along in development?

Good morning, Michael. Yes, we're really excited about seeing this data set because as I mentioned in my earlier remarks, it's a big study and we're tracking weight gain in double-blind fashion for the first three months, which of the data we'll provide first, and then another three months in an open-label format. So we'll have a really large data set looking at the weight gain for both olanzapine-alone patients and 3831 patients in a naturalistic setting; it's never really been done before.

So it's -- A, it's going to be a fantastic data set; B, our internal bar is very high for this development candidate, as well as all of our development candidates, in that we're not looking for statistical significant per se of the weight change, we're looking for medically, clinically significant changes in the weight. And obviously the medically and clinically significant weight change relates to the patients who have a propensity to gain a lot of weight, more than 5% or 7% of their body weight are cuts that FDA and the community think are important.

So we're going to be looking at essentially the response profile across the whole data set, looking to see whether we shift the response away from those heavy weight gainers.

Got it, okay. And then on a financial question, your December quarter has historically been very strong on the top line, and I was wondering -- your guidance for the year suggests a slower than historic December quarter. Is there any reason to believe sales will taper off, or growth will slow down rather in December for the legacy business, or do you expect a strong performance similar to historic December quarters?

Yes thanks, Michael. At a high level, I think we're very pleased with how the business is going and I don't think we see anything that is changing. There's always the legacy business as we've talked about, but that's become less and less as a focus as now our major five products are providing more than 75% of our revenues and growing. So I think we gave guidance at the beginning of the year, we're comfortable with where we stand.

And I would say, too, that's a nice part about having a portfolio is that each of these products is doing very well right now and we're maintaining our guidance for the year. And I think I would say too that the key driver for us in terms of a value is going to be that continued growth on the commercial side, but also the data that we're going to be turning over here in the next few months.

Great, thank you so much.

From Mizuho USA, we have Mario Corso.

A couple things I wanted to ask about. Richard, on the long-acting injectables maybe you could share any insight on recent market trends, what you're seeing? And I'm wondering if you see any perceptible impact from Abilify Maintena or whether you think it's completely additive to the market? And on that basis, do you see the three-month SUSTENNA going the same way?

Then in the pipeline, it seems like 3831 may be a little bit less investor-focused there, I'm wondering what your level of excitement is there versus your other products when they were at a similar stage. And samidorphan versus naltrexone, I'm wondering if you could highlight some of the differentiation there. We know there was a paper published recently on naltrexone and the weight gain area and I'm wondering what you think the samidorphan advantages are? Thanks very much.

Great, Mario, great question. So first on LAIs, I think that our view is that this LAI market is just limbering up and starting to get quite exciting. Because SUSTENNA's growth, which has proved the point with a decade now between CONSTA SUSTENNA of outcomes data showing that the medical and economic value of LAIs. But nothing energizes the market like a new entrant. So the new entrant coming in last March has doubled the promotional intensity because now instead of one company there's now two or three companies that are talking about it. And introducing a new agent, in other words Aripiprazole, on top of risperidone and paliperidone.

So we really see to your question I think it's additive, I think it's additive and I think it's going to be synergistic not just arithmetically additive, I think that the market is beginning to catalyze. Because you have to remember the other dynamic is that next April the last big oral Abilify comes off patent. Now Abilify oral is being actively promoted right now still. But next April it goes away.

So you're going to see the replacement of promotional activity from ourselves, Lundbeck, Otsuka, Johnson & Johnson filling a vacuum that's been created by the lack of all the orals. I'm really thrilled with how that market is coming around.

Number two, 3831. 3831 I think underscores our own discipline around Alkermes. In same way, that's why I mention 5461 in the earlier remarks, we told you on 5461 to be interested but skeptical until we got comprehensive Phase 2 data.

And once we got comprehensive Phase 2 data, we said let's hit the gas pedal, we're going to go now. We have enough data that we can move into an aggressive development program.

3831 I feel the same way. The scientific hypothesis is incredibly sound, the pre clinical data is incredibly powerful. The human volunteer study is confirmatory. Now we're asking the definitive question in the patient population of interest with statistical power that should be okay.

And that's -- if the data are positive, we're going to say take this very, very seriously because we think it's a blockbuster opportunity. But we'll know soon enough.

A point on 3831 I have to make though is remember there's a second non-correlated indication, which is the patients with schizophrenia and alcohol use, which is equally interesting and equally medically important I think. Samidorphan, which we call ALKS 33, is the secret sauce within ALKS 3831 right. It's the highly innovative new chemical entity, centrally acting mu-opioid antagonist.

It has advantages over naltrexone because it's more potent, it's metabolized differently. And it's also sublingually bioavailable which naltrexone is not. So we think it's got certain pharmacological advantages, some which we made public, some we haven't, but we think it's a really important component of why 3831 has the potential to be important medicine.

From Cowen and Company we have Ken Cacciatore.

Had a question, such a deep pipeline that you have, I was wondering if you though contemplate any on market asset acquisitions to leverage the commercial scale up? Clearly, your Company is unique in that it's a bit old school that you have such great opportunities coming. But wondering as you turn the card over on 3831 you may be at an interesting moment where folks are going to approach you very aggressively. Was wondering, though, you have such an opportunity to really grow a business around your assets, why not get more aggressive in going after unmarketed assets and go alone more aggressively? Thank you.

Morning, Ken. I think in ways you answered the question in posing it which is we have a tremendous portfolio of differentiated high-value medicines, that's by design. We're not working on things that aren't, and so we're reluctant at this point given how rich the pipeline is to just add commercial products for the sake of adding commercial products, particularly if they don't share that same level of pedigree of the medicines we're developing.

With that said, particularly as we move into different marketing conditions where valuations may begin to change over time, we have strategic amounts of capital. We have a history of making smart acquisitions. We built the Company through these things, types of deals.

So we tend to be hunting elephants here going after blockbusters. And if we could pick up other commercial capabilities around those that augment it, that's fine. But job one is to realize the value of this portfolio for our shareholders and that's what's going to happen over the next few months as we turn over these cards.

Thank you.

From Goldman Sachs we have Terence Flynn.

Maybe two for me on 9070. So first, any update with respect to your plans in Europe there? And then in the US now that the NDA has been accepted, do you have any clarity on if you'll have an adcom panel? Thank you.

Morning, Terence. 9070 we've been seeking scientific advice this quarter as we mentioned before and we have a couple more countries to talk to in Europe. Our plan seems to be coalescing around the idea that we'll run one more study in Europe which we'll seek to probably start in 2015 and we're designing that now as we get the scientific advice.

In the US, I don't think we'll have an advisory committee meeting, although you never know. But our best thinking right now is that we'll likely not have an adcom.

Okay, maybe one follow up on the European trial, would that be a placebo-controlled or active-control study?

It'd be an active comparator pursuant to the European guidelines.

Okay, and any insight on what the comparator would be yet?

We won't talk about that yet until we make the final decision.

Okay, thank you.

From Jefferies we have Biren Amin.

I wanted to maybe get an update on the aripiprazole lauroxil every eight week formulation, see where that's at. Thanks.

Morning, Biren. The Q eight-week formulation goes in the clinic in December. And it will have a couple different versions, doses that we'll test because one of the nice things about working with the prodrug is that we have the ability we think to extend duration. If you just work with native aripiprazole it's very difficult to extend that curve. But with lauroxil, we have the ability to extend the curve.

So we're -- we think that these extended duration formulations -- well we don't think the market is going to shift to the longer durations in total. Having the longer durations available for those patients that are highly compliant gives a physician another reason to choose our drug over any other competitive drug. So we're quite serious about finding durations longer than four weeks.

And do you think based on the PK/PD study that FDA would allow for some sort of a bridging profile or do you think FDA would require a full on Phase 3 program?

I think the former, but that'll be driven by data. So if we can in an eight-week formulation deliver concentrations that are within the ranges that we've just demonstrated in Phase 3 are therapeutic at two different doses. I think there's a strong bridging argument, but of course we'll develop the data and then we'll sit down with the regulators and we'll make that decision.

Great, thank you.

From Bank of America we have Steve Byrne.

Was wondering what your commercial guys would gauge the formulary access of Maintena ads and whether or not that has increased to the point where it's accelerating the revenue gains. And if any of you are aware of whether payers are putting all three of the LAIs on formulary, any selection going on?

Hey, Steve, I think that the formulary access is an important variable in it affects the shape of the launch curve because this is Medicare, Medicaid programs and so it just takes some time. So you can see that, we've guided people all along the way even looking at the Maintena launch. These don't launch in a square wave, it takes time to build.

I think we can get you the specific answers but my sense from the commercial team is that Maintena has built its access over time and they're in pretty good shape. Recall that schizophrenia drugs are part of one of the six protected classes. So there tends to be access and we haven't seen contracting yet that's trying to shunt people into one versus the other at this point.

Okay and then on -- a question on VIVITROL, what percent of your sales are coming from court system directed use? And are you approaching a point where you could really leverage the data you have there and accelerate use?

The interesting -- the actual percentage is still quite low I'd say, I'm looking at Jim, he's saying 10% to 15% or so. But what's exciting is all the action that's happening there and all the proof points that are accumulating that could ultimately lead to more use in those systems. So I do agree with you, I think that the -- it will reach a certain critical mass where it becomes more common practice for counties and states and federal systems to start using VIVITROL and that data is accumulating almost on a daily basis now.

Thank you.

And from Morgan Stanley we have David Risinger.

Good morning, Richard, I had two questions. First, and these are both on 3831, could you describe your commercial vision for the product? And I'm assuming that this would be a product that would be given to heavy weight gainers, Zyprexa patients who need to switch drugs because of significant weight gain. And I just wanted to confirm that's your vision for it based upon the first Phase 2 readout.

And then second, ahead of that Phase 2 data early next year, could you frame the magnitude of weight attenuation you're hoping to demonstrate and maybe comment on that in the context of obesity drugs that are approved by the FDA. Thank you so much.

Good morning, Dave, so I'm not going to restrict our commercial vision for 3831 at this time. What we're doing with 3831 is we're creating a broader spectrum antipsychotic. So we take the spectrum, which is fairly broad for olanzapine, and we add onto it opioid modulation through samidorphan. So it's a different drug.

We're going to test it, in this first clinical trial we're looking primarily at its effect on attenuating weight through interacting with a reward system or the motivation system. And we'll see what the data show. Ideally this ends up being a next-generation antipsychotic drug that better than olanzapine for all patients. But we'll see, that'll be data-driven. But I'm not ready to say at the point that's it's only going to be indicated for people who are heavy weight gainers on Zyprexa, let's let them see what the data says.

And consistent with that, how do we analyze those data, it's like I said in my earlier remarks, this is driven by an analysis of attenuation of clinically significant weight gain. And you can reference it back to the obesity drugs in the sense that obesity drugs, this 5% weight reduction threshold is considered to be clinically significant. I think that we think that 5%, 7% weight gain is meaningful from a clinical perspective based on our conversation with clinicians.

So as I've said many times before, if the median weight change were statistically significant but clinically not, if you took if from 8 pounds to 6.2 pounds with an alpha less than 0.05, nobody will care. The question is, are people going to gain 40, 50, 60 pounds and can we attenuate that weight gain. If we can do that, it presumably means that we're having a shift in the overall curve and this may just be better medicine, that's our hope. But we'll wait and see until we see the data.

All right, everyone, thank you very much for dialing in today. If you have any additional question, please don't hesitate to call us here at the Company. Have a good one and Happy Halloween.

Ladies and gentlemen, this concludes today's conference. Thank you for joining, you may now disconnect.