Alkermes Plc (ALKS) 2015 Q1 法說會逐字稿

Welcome to the Alkermes conference call to discuss the company's first quarter 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 that 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, Senior Vice President of Corporate Communications at Alkermes. Please go ahead.

Thanks, Brendan. Welcome to the Alkermes PLC conference call to discuss our financial results for the quarter ended March 31, 2015. With me today are Richard Pops our CEO, Shane Cook our president, and Jim Frates our CFO. Before we begin today, I encourage everyone to go to the Investor Relations section of alkermes.com to find our press release and related financial tables, including our reconciliation of the GAAP to non-GAAP financial measures that we'll discuss today. We believe that the non-GAAP financial measures better represents the ongoing economics of our business.

Our discussions during the conference call will include forward-looking statements. Actual results could differ materially from these forward-looking statements. Please see our press release and quarterly report on form 10Q issued today and our most recent annual report on form 10-K for the important risk factors that could cause our actual results to differ materially from those expressed or contemplated 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.

Today Jim Frates will discuss our financial results and then Rich Pops will provide a brief update on the company. After our prepared remarks we'll open up the call for Q&A.

Now I'll turn the call over to Jim.

Thanks Rebecca. Hello everyone. We're pleased to report our results for the first quarter ended March 31, 2015, which were characterized by strong revenues from our portfolio of commercial products and focused investments in our pipeline. In the first quarter we generated $161.2 million of total revenues and earned $9.2 million of non-GAAP net income. Within our key commercial portfolio, worldwide end market net sales of our long acting atypical antipsychotic franchise, RISPERDAL CONSTA and INVEGA SUSTENNA, were approximately $665 million in the first quarter, compared to $683 million for the same period last year, Primarily reflecting the unfavorable impact of currency movements. In the United States INVEGA SUSTENNA sales showed impressive growth as the leading product in the class with end market sales of $228 million during the quarter, reflecting approximately 25% growth year over year.

For the quarter, Alkermes's recorded manufacturing royalty revenues of $46.9 million for this product franchise. As a reminder our tiered royalty rate on INVEGA SUSTENNA sales recessed to 5% at the beginning of each calendar year and increases as end market sales achieve certain thresholds and we expect to enter the 9% tier for the remainder of the year during the second quarter. As our partners at Janssen await approval for the INVEGA SUSTENNA three-month formulation midyear, and as new extended durations become an important driver of growth in this market, we expect its franchise to continue to expand.

For AMPYRA and FAMPYRA our manufacturing royalty revenues were $36.5 million for the quarter, compared to $20.6 million for the same period last year. This increase is driven in part by the timing of manufacturing shipments in the quarter, and as usual we recommend looking at a rolling four quarter period to understand long term trends.

VIVITROL is off to a strong start with first quarter net sales of $31.1 million, compared to $17.1 million for the same period last year, demonstrating growth of 82%. Sequentially the product grew 5% and we see solid trends in VIVTROL which support our belief in the long term potential for this important medicine.

In terms of expenses, our total operating expenses for the first quarter were $188.5 million, compared to $146.1 million for the same period last year. This planned increase in operating expenses was driven primarily by investments in our rapidly advancing late-stage clinical pipeline, preparation for our anticipated launch of aripiprazole lauroxil, and increased promotional activities for VIVITROL. We ended first quarter with over $805 million in total cash and investments, and are well-capitalized to execute on our development pipeline and commercial plans.

As we sharpen our focus on the key drivers of our future growth earlier this month we closed a transaction selling noncore assets including our Gainesville Georgia manufacturing facility and associated manufacturing and royalty revenues to Recro Pharma in exchange for gross proceeds of $50 million and future payments related to Meloxicam IV IM including milestone payments of up to $120 million and royalties on net sales. With this transaction, we've taken an important step and streamlined our manufacturing operations and our organizational complexity as we focus on bringing our portfolio of new medicines to market.

Today we are reiterating our guidance for 2015 as we remain on track with our financial expectations that we put forth on the March 9 following our announcement of this deal. Going forward, we're focused on maximizing the opportunities ahead as we build a major biopharmaceutical company. This includes planning for the FDA approval and launch of aripiprazole lauroxil. We're now less than five months away from the expected launch and preparations are intensifying as we continue to build out the commercial team and begin to hire the field sales force during the second quarter.

We're also managing the business for disciplined execution of our investments in R&D, which will ramp throughout the year driven by the ongoing Phase III forward program for ALKS 5461, the initiation of pivotal programs for ALKS 3831 and 8700 for the end of the year and the initiation of the first clinical studies for RDB 1450 and ALKS 7119 in the third quarter. Collectively, this is one of the most robust late stage CNS pipelines in the industry, with multiple medications that each represent a potential blockbuster opportunity. We're pleased with our financial performance and outlook and we're focused on executing on our plan to build significant value.

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

That's great. Thank you, Jim. Good morning everyone. So when we were together last at our analyst and investor event in early March, we highlighted just how distinctive a company Alkermes has become with this unusual focus of large chronic diseases of the CNS, affecting millions of people and with an incredible diverse pipeline of late stage medicines. The potential value of this pipeline has come clearly into view. Aripiprazole lauroxil for schizophrenia, ALKS 5461 for major depressive disorder, ALKS 3831 for schizophrenia and ALKS 8700 for multiple sclerosis -- for each of these candidates we completed the human proof of concept studies to give us confidence in their medical and economic value. We can see how these products can enter large dynamic markets where despite the existence of many medicines including generics, there are clear opportunities to address important needs of patients, physicians, while offering a value proposition attractive to payers and large systems.

The early months of 2015 have been extremely productive. There's been a flurry of data. I'll take a minute now to quickly review some of the progress we've made year to date. I'll start with ALKS 3831 our novel oral broad-spectrum antipsychotic drug candidate, that's designed to deliver the efficacy of olanzapine without the associated weight gain, and also to have utility in patients with schizophrenia and co-occurring alcohol use. You're all well aware by now that we've obtained very compelling data from the first large Phase II study of 3831 in schizophrenia testing its efficacy and its effect on weight compared to olanzapine. The results of the complete six month study were announced earlier this month. These complete data extended the findings from the first three-month period and provided further confirmation of the positive weight effects and antipsychotic efficacy of ALKS 3831. Specifically for the patients who received ALKS 3831 for the entire six months the beneficial effect on weight gain observed during the initial three months was maintained during the second three month stage indicating a consistent and durable blockade of olanzapine-induced weight gain. For the patients who received olanzapine in the initial three month stage and who were then transitioned to ALKS 3831 in the second three month stage, overall no further weight gain was observed providing the first evidence of the beneficial weight effect in patients switching which demonstrates just how powerful ALKS 3831 can be in arresting olanzapine weight gain.

We'll be presenting data from this study in June at the meeting of American Society of Clinical Psychopharmacology or ASCP in Miami and plan to initiate the pivotal program for ALKS 3831 in the fourth quarter. In addition to our studies of 3831 in weight attenuation, we also have an important ongoing Phase II study with patients with schizophrenia and alcohol use which comprises about a third of patients with schizophrenia and that study is continuing to enroll. With a novel pharmacological approach designed for the real world needs of patients in mind, and a strong foundation of confirmatory data now in hand, we think ALKS 3831 has the potential to have a profound impact on the treatment of schizophrenia.

Next, ALKS 5461, for patients with major depressive disorder and an inadequate response to standard therapies. 5461 is based on a new mechanism of action, opioid modulation. And it's designed specifically for those patients who are not getting adequate relief from first line treatments. There are millions of patients in this category each year in the US, reflecting the reality that depression causes one of the greatest burdens of suffering and costs of any disease. Based on the compelling data from the Phase II program, and the fast-track designation from FDA in hand, last year we initiated the comprehensive forward pivotal program with the goal of conducting a robust series of studies to support US registration and wide utilization of this medicine. Early in the first quarter, we announced data from the first study in the pivotal program forward one. These data were positive and clearly replicated results from our Phase II study showing a significant effect on reducing depressive symptoms over an eight week treatment period with patients with an inadequate response to standard therapy. We'll present more complete data from this study at the ASCP meeting as well.

The three core Phase III efficacy studies in the forward program are underway and enrolling well. Based on favorable trends, in March we provided an update on our time lines for data readouts from those studies, and are expecting the first efficacy study to read out in the first quarter of 2016. In addition we expect to have data from other studies in the forward pivotal program later this year.

Turning to ALKS 8700, our monomethyl fumarate, or MMF molecule for multiple sclerosis. We designed this molecule to provide the efficacy of the active moiety of Tecfidera, and to offer favorable tolerability by applying our chemistry and oral formulation capabilities. In February, we announced the positive results from a large Phase I study which showed that ALKS 8700 provide MMF exposures equivalent to Tecfidera, with a favorable gastrointestinal tolerability profile. Based on these data we made the decision to initiate the pivotal development for this program in the fourth quarter. In the meantime we started our second study testing the pharmacokinetics of multiple doses of ALKS 8700 in healthy volunteers.

With all of this going on, our R&D engine continues to be productive in generating additional novel drug candidates. In March we announced the most recent addition to our pipeline, ALKS 7119. 7119 is a multivalent NCE that will enter the clinic this year with applicability in a number of psychiatric disorders including agitation in Alzheimer's disease and major depressive disorder. We have completed the preclinical work and plan to initiate the Phase I program in the third quarter of this year. To make the Phase I program as informative as possible, we will include an extensive array of neuropsychiatric assessments to determine the profile of the drug early in the clinic.

I want to spend a moment on the opportunity in agitation in Alzheimer's disease. We've been doing work on this over the last several years and it is very clear to us that there's a major unmet medical need expressed by caregivers, physicians and patients. There are 5.2 million patients with Alzheimer's in the US today, with rapid growth expected as the baby boomer generation ages. Interestingly it's the psychiatric symptoms, not the cognitive decline that are leading cause of morbidity and caregiver burden in Alzheimer's disease, and there are currently no approved therapies to treatment of agitation in Alzheimer's disease. So we are very excited about the potential for 7119 and it reflects our distinctive approach to creating medicines that are designed to offer meaningful value for patients, their caregivers and the healthcare system.

7119 is one of two early stage compounds that will enter the clinic this year. RDB 1450, our immuno-oncology molecule, will also advance into the clinic in the third quarter. The molecular biology and immunology referring this program are very interesting, and we presented preclinical data for the first time at the AACR meeting last week. We're excited with the progress we've made with this molecule and we're looking forward to moving into the clinic this year.

I want to finish with our most advanced product candidate aripiprazole lauroxil, which is rapidly approaching its August 22 PDUFA date. Our team is gearing up for launch in September and with less than five months to go, our prelaunch activities are gaining momentum as we approach the market with a strong underlying fundamental profile and an excellent growth trajectory. Interestingly, our hard fought successes with VIVITROL are paying off as we prepare to launch aripiprazole lauroxil. Alkermes' commercial team has gained valuable experience through VIVITROL, which is one of the most complex commercial environments imaginable. We've come to understand the issues associated with launching and injectable specialty medicine into a difficult payer environment for the serious needs of a stigmatized patient population.

On the regulatory front, all systems are go. The pre-approval inspection was completed specially two weeks ago at our GMP production facility in Wilmington and we're preparing now to launch quantities of aripiprazole lauroxil. Our marketing teams are in active production of marketing materials and building our patient support services infrastructure, which is critical to a successful launch. Additionally, we're increasing aripiprazole lauroxil's visibility in the scientific community and we'll be presenting posters on it at upcoming ASCP and APA meetings. We've also submitted the Phase III data for publication. All of these efforts represent important investments we're making now to support the successful launch in the fall.

We have all the elements in place to deliver on the multidimensional growth we expect Alkermes to experience in the months ahead. Across all aspects of our business from our commercial portfolio, to our emerging blockbusters, to our earlier pipeline, we have many catalysts ahead that would drive further value. Our team is executing well on the significant opportunities ahead of us and we're incredibly excited to bring our pipeline of CNS medications to the marketplace.

And with that I'll turn the call back over to Rebecca.

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

Thank you. (Operator Instructions). And from JPMorgan we have Cory Kasimov on the line. Please go ahead.

Hi, good morning and thanks for taking the question. This is Whitney on for Cory. For 9070, I guess how should we be thinking about that launch trajectory, well is it similar to MAINTENA or is there a reason to think that it might be different?

Hi, Whitney. It's Rich, I want to pull you back to the comments we actually made in March, where I think that our modeling of this is basically replicating the [indiscernible] launch for ABILIFY MAINTENA. Because many of the factors that drive the shape of that launch were driven by exogenous factors in this market, which is largely a Medicaid and Medicare market, with a series of steps one needs to get through to get on the formulary and to start getting utilization. We think that their launch profile is a reasonable one and we just expect over time to take the growth in the market. That numerically drives a $5 million to $10 million expectation for the fourth quarter of this year for us.

Great, that's helpful. Thanks for taking the question.

Sure.

Thanks, Whitney. Operator, we'll take the next question.

From Credit Suisse we have Ari Jahja on line. Please go ahead.

Good morning and thanks for taking my questions. I have threehere. First for Rich, Alkermes is well capitalized and Irish-domiciled. So in light of the stock's recent weakness can you share your perspectives on the M&A environment and where you're thinking the company is positioned? And then I have two more in pipeline. Thanks.

Well, I think we've got probably the most explosive late stage pipeline in CNS and maybe in pharma in general. So I'm very mindful where our valuation is and it's our job to make sure that valuation continues to grow to reflect the value that we're building in this pipeline. That's what's so exciting about the second half of the year. There are so many catalysts, there are so many things that are going to happen that are going to make more even concrete, the progress that we've made over the course of 2015.

Got it, okay. And then I appreciate your insight there. And then second, as it relates to 3831 and 5461, can you share additional color on what we can expect to learn at the ACP meeting in June?

Well, we'll be presenting data on both of those and I think it's really important. 3831, as you know as well as anybody, Ari, is a really exciting molecule and the data set has never really been presented in the scientific meaning in the comprehensive way, so people didn't get a full flavor of the distinctive profile of 3831 versus olanzapine. So we think with the ability to present the full data set and also with experts and peers around to comment on, I think investors will get a better sense of why we're so excited about this as a new entrant in the oral antipsychotic market.

5461 is just really an exciting new area in the field of depression. As you know that whole field has been starved for a new mechanism of action, different than monoamine reuptake inhibition that has the potential to be used on top of the standard therapies for patients and the millions of patients who are not getting adequate clinical relief. So as we continue to grow more data on 5461, people will see that the quality of the data, the difference from the SSRIs, and to also have a chance to interact with people in the community to understand how this drug will be used. Specifically we'll be giving an oral presentation on the titration data preparation from FORWARD-1, so people will get a better sense of that data as well.

Got it, thank you. And then lastly on lauroxil, we saw that generic version of oral ABILIFY has been launched. And separately, [indiscernible] ABILIFY to maintain that growth? It seems to decelerate. So how do these dynamics affect your launch preparation? Thanks.

Ari, I didn't hear the second part. You said the growth of MAINTENA is accelerating or decelerating?

Decelerating.

Well, I think ABILIFY MAINTENA is actually ramping very nicely and I think it's running at over $250 million a year now and I said the launch profile of these long-acting injectables in the antipsychotic space are different than an oral brand launching different to these indications. We think that it's well on its way to being a significant product and that's why aripiprazole lauroxil, we're so excited to launch into a market that's preconditioned to be using more and more long acting ABILIFY. So the generic launch that was previously -- it was essentially irrelevant. Our gaining element to launching into this market with our own development timing and the expiration of the patent which expired a couple of weeks ago. All so systems are go and we're looking forward to launching into this market.

Got it, thank you.

From Leerink Partners we have Michael Schmidt on the line. Please go ahead.

Hey, good morning. Do you guys expect a panel, an FDA panel for aripiprazole lauroxil?

No, we won't have a panel.

Okay, great. And I guess on 1450, how do you think about the strategic fit of that molecule? I know it's obviously very early in development still, but do you foresee that to being developed in-house or do you see that as part of a partnering strategy long term?

Let me say it this way Michael -- blockbusters always a strategic fit. So our job is determined at the clinic, what the profile is of this medicine, which is easy to do. We're going to put this in demand, we're going to get a real sense of how this drug behaves and then we'll make decisions from there.

Yes, got it, okay. And then is it too early to talk about possible of Phase III design for 3831 and 8700 later this year?

3831, we'll meet with FDA in a couple of months' time on that one and we'll meet with FDA on 8700 a little bit after. Both of those we're kind of honing in on what the final designs would be. For 3831, I expect it to be fairly similar to what we just did in Phase II i.e., a study in schizophrenia, with the primary end point being a measurement of the antipsychotic efficacy of 3831 because really what we're delivering to patients is the opportunity to experience a olanzapine-level efficacy with a better metabolic weight gain profile. So I would expect a six month study, where we look at primary end points being antipsychotic measurements, while a quantitative assessment of weight versus the active comparison of olanzapine and we would expect to win.

Okay and 8700, I guess you're still making plans there I suppose?

That's right. We're still working that, there's a couple of flavors of Phase III programs. You saw what FORWARD is doing and so we'll work that out as we go through with the FDA over the next couple of months.

Okay, great. Thanks so much and congrats on a good quarter.

Thanks so much Michael. We'll take the next question.

From Jefferies we have Biren Amin on line. Please go ahead.

Yes, thanks for taking my questions. Maybe I'll start with 8700, could you give us an update on the once-daily formulation?

Yes, Biren as you know in our first study we ran a series of different approaches, formulations on potential once a day formulations. And we learned a lot, but we don't have anything that's ready to go. So we will reiterate, we have certain scientific insights now. We think we're proprietary and quite interestingly we're back at it. But we're not ready to say that we have a formulation ready to be given once a day.

All right. And then I guess on 5461, I noticed the company recently started a abuse liability study. Do you expect for 5461 to be a classified agent?

There is two simultaneous questions buried in that, right? So 5461 will have a certain status by virtue of the fact that it contains buprenorphine. So it will be scheduled like with schedule III by virtue of that fact simply because it has buprenorphine. Recognizing the absolute levels of buprenorphine are very, very small, but we're testing 2 milligrams and 0.5 milligrams, but by virtue of its inclusion in the dosage formulation, it will have that schedule.

Separately, where we believe that 5461 will have the zero abuse liability as a drug and that's where we're testing the human abuse liability study and we think that's actually central to the positioning of the drug. Because when people hear the idea of an opioid modulator, the default assumption is that it has addictive potential. And one of the exciting news about 5461 is that we've had this profound effect on mood without the potential for addiction and that's what we'll elaborate in the studies that are underway.

Okay, and then I guess just a final question on lauroxil. I know you're running the Q6/Q8 week formulation trials, when can we expect data and what would be the next steps after you have the data set?

Let me just say something, thanks for the question. I'm really excited about the Q6 and the Q8 because as you've heard us say before, it's not that we think the market is going to shift Q6 to Q8 entirely. The center of, the modal value will always be once a month, but it's just another reason for those patients who prove to be well adhering to the LAIs, it just gives them another reason to choose aripiprazole lauroxil versus any other brand because they have the dosing flexibility in minimizing the number of injections they get over the year. So to answer to the question, we began that study in Q4 and we expect data from Rebecca of what we think publically on that.

We haven't given a timeline, but what he said is we would update you this year. So stay tuned.

Yes, I expect it. You'll get an update on the dosing interval step this year for sure.

Great, thank you.

You're welcome.

From UBS we have Marc Goodman on line. Please go ahead.

Hi, this is Ami Fadia for Marc Goodman. I have three questions.

Hi, Ami.

Hi, how are you?

Welcome back.

Thank you, we will have to catch up later.

I have some questions to ask you.

Okay. Maybe get to my questions. Firstly, for 9070 what type of formulary that is relative to the Otsuka drug and the Generic ABILIFY do you expect or that you're targeting for your product? And I'll come back for the next two.

We expect to have equivalent formulary status for 9070 as the other brand is long acting atypical to generic to generic, that's a separate category. Although we expect all patients will start on oral generic and ultimately cycle through them. But because this is a protected class, this is one of the medicines that we think all patients could have access to.

Got it. Secondly, what are your business development priorities with respect to either out-licensing or partnering on any of your current pipeline asset? And also what would need to happen for you to consider end licensing or adding another product to leverage the sales force infrastructure you're building?

Yes, on the out-licensing setup, our interest in out-licensing is a general matter relate to commercialization on a global basis rather than development. We have a really strong development team that's actually got much stronger even in the last couple of years as we lunched these pivotal programs. And we really loved the ability to run unencumbered. We have the capital, we have the people with the expertise. We have more domain knowledge now, we are building a real name for ourselves in psychiatry both in the clinical setting and also in the regulatory settings and we like that. Ultimately we want these medicines to get to patients all over the world and we just don't have the infrastructure in Malaysia, in Sri Lanka and places like that and over time we hope that we'll enter into collaborations likely to do that.

What would need to happen in terms of our end licensing something for the pipeline, given how abundant the pipeline is right now, what would need to happen is it would have to be a really good molecule. And we're out there looking all the time because there's never enough and the portfolio can always be strengthened, particularly we seem to have a different risk profile and a different technological approach. As you know the whole environment has been so buoyant recently that most assets are really highly valued right now. And that tends to ebb and flow over time, but we've got strategic levels of capital to do what we want to do and we have certain amount of expertise other people don't have. So we are always looking.

Got it, thank you. And maybe a last housekeeping question. With respect to share count, came in around 157 million, which is a little bit above your guidance. Could you recap any plans for share buyback?

Hi, Ami. It's Jim.

Hi, Jim.

I think we're comfortable with the year's guidance on a fully diluted basis and in terms of a share buyback, I think right now our plans are focused on investing in that pipeline as Rich talked about. I mean we're on the cusp of -- we've had some great success over the last few months. So pushing that pipeline forward will be the focus for us. We've done share buybacks in the past, and while I'm sure we'll continue to do that in the future, but at this stage we're focused on investing in that pipeline.

Thank you.

Great. Operator, we'll take the next question.

From Goldman Sachs Credit Suisse we have Terence Flynn on line. Please go ahead.

Hi, this is Cameron filling in for Terence, thanks for taking my question. I understand you don't want to provide 2016 guidance at this point, but perhaps could you -- given your pipeline progress with multiple programs and late stage development, should we be expecting R&D in 2016 to increase relative to 2015 or do you think you can keep this relatively flat? Thanks.

I think you answered your own question. So we won't give 2016 guidance now. We'll see how the pipeline plays out over the year because the guidance will be driven by the work we need to do in that year and that will be determined by the cards we turn over, over the course of the year.

Yes, our philosophy has been to invest into success. And as you know we have a very broad R&D pipeline, but we're also very pragmatic in so far as determining which candidates warrant moving forward with, and we're judicious about our investments. So I think we maintain that discipline.

Great, thanks.

Thanks so much. Operator I think we have time for one more question.

Yes, from Bank of America Merrill Lynch we have Steve Byrne on line. Please go ahead.

Hi, this is Sarah on for Steve. Thanks for taking our question. So we conducted a survey that indicated that not all LAIs are covered on formulas and you've talked a little bit about this, though. What's specifically given that [indiscernible] has a protected cost, but what is the process needed to ensure access for aripiprazole, and what steps have been taken thus far?

Well, we won't go into the whole asset strategy that we have for the launch of aripiprazole lauroxil. Just know that particularly because we have a differentiated medicine, we've an offering that has real features for patients and physicians. We expect to be on these formularies. Now, some of them take time and so the fact that, if you look at a snapshot in time, if there are certain formularies that aren't providing all the LAIs, it can be a timing issue and sometimes some of the timing can be annoyingly, annoyingly slow. But we have the models from both CONSTA and SUSTENNA as well as ABILIFY MAINTENA, so there's a very well lit path that we will follow.

Okay, thanks and do you expect to be sampling outpatients in the early part of the launch?

Well, we're not going to disclose today, any of our launch strategy.

Okay, thank you.

You're welcome.

Thank you Sarah. Everyone, thanks for dialing in today. If you have any additional follow up questions, please don't hesitate to give us a call here at the company. I know there is a lot of earnings results being reported this morning, but we're here at the ready should you need any more information. Thanks so much and have a great day.

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