Alkermes Plc (ALKS) 2015 Q2 法說會逐字稿

Welcome to the Alkermes conference call to discuss the Company's second-quarter financial results.

(Operator Instructions)

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 Brandon. Welcome to the Alkermes Plc conference call to discuss our financial results for the quarter ended June 30, 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 a reconciliation of the GAAP to non-GAAP financial measures that we'll discuss today. We believe that the non-GAAP financial results better reflect and represent the ongoing economics of our business.

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

We undertake no obligation to update or to revise the information provided on the call today as a result of new information or future results or developments. So on the call today, Jim will discuss our financial results, and Rich will provide an update on the Company. After that, we'll open it up l for Q&A. Now, I'd like to turn over the call to Jim.

Thanks, Rebecca. Good morning, everyone. We're pleased to report our results for the second quarter of 2015, which were characterized by strong revenues from our portfolio of core commercial products and important investments in our pipeline and our commercial organization, ahead of the launch of ARISTADA, which is our proposed brand name for aripiprazole lauroxil. Today, we are also improving our financial guidance for 2015, based primarily on the solid growth we have seen in VIVITROL net sales. The strong results generated by our commercial team for this specialty injectable product are particularly encouraging as we prepare to launch ARISTADA.

I will provide the highlights from our updated guidance, but first, we'll review our second-quarter performance. In the second quarter, we generated $151.4 million in total revenues and recorded $13.6 million of non-GAAP net loss. Within our key commercial portfolio, worldwide end-market net sales of our long-acting atypical antipsychotic franchise, RISPERDAL CONSTA and INVEGA SUSTENNA, were approximately $683 million in the quarter, compared to $696 million for the same period last year. Within that, the franchise experienced underlying unit growth which was offset by 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 $253 million during the quarter, reflecting approximately 25% growth year over year. For the quarter, Alkermes recorded manufacturing and royalty revenues of $60.8 million for this long-acting injectable product franchise.

Also during the second quarter, our partners at Janssen received FDA approval for INVEGA TRINZA, a three-month formulation of INVEGA SUSTENNA for the treatment of schizophrenia. That product was launched in recent weeks, and will be included in our INVEGA SUSTENNA royalty structure. For AMPYRA and FAMPYRA, our manufacturing and royalty revenues were $26.9 million for the quarter, compared to $19.5 million for the same period last year. VIVITROL had a strong quarter, with net sales of $37.2 million, compared to $21.6 million for the same period last year, demonstrating growth of 72%. Sequentially, the product grew 19% from last quarter. We are encouraged by the momentum we've seen as more patients, providers, governments and payers better understand the benefits of VIVITROL.

In terms of expenses, our total operating expenses for the second quarter were $203.9 million, compared to $176.2 million for the same period last year. This planned increase in operating expenses was driven primarily by investments in ARISTADA launch preparations, which included the hiring of the 175-person field sales force, and by investments in our rapidly advancing, late-stage clinical pipeline. We expect SG&A expenses to continue to increase into the third quarter, in conjunction with the activities surrounding the expected launch of ARISTADA in September, and to decrease slightly post-launch in the fourth quarter. We expect that R&D expenses will continue to ramp throughout the remainder of the year as additional clinical trials get underway, particularly the pivotal development programs for ALKS 3831 and ALKS 8700, which are expected to commence in the fourth quarter.

We ended the second quarter with approximately $832 million in cash and total investments, which included net proceeds of approximately $50 million related to the strategic divestiture of the Gainesville facility during the second quarter. With respect to our financial expectations for 2015, we are improving our guidance today to reflect the accelerating growth trend for VIVITROL and are increasing our expectations for VIVITROL net sales by $10 million, to a range of $135 million to $145 million and our expectations for total revenues to a range of $610 million to $640 million. This increase drives an $8 million improvement in our expectation for non-GAAP net loss, which we now expect to be in the range of $47 million to $67 million, from our previous range of $55 million to $75 million.

Our complete financial expectations for 2015 are outlined in our press release issued earlier this morning. We are pleased with our solid performance this year as our commercial business, led by INVEGA SUSTENNA and VIVITROL, is ahead of plan; our team to launch ARISTADA into a long-acting atypical market that continues to grow is in place; and our development pipeline continues to progress. We are focused on executing on our business plans and building significant value. With that, I will turn the call over to Richard.

That's great. Thanks, Jim. Good morning, everyone. We're going to try to keep this call short since it's summer and we've got a lot of things to cover, so we'll get right into it. First of all, at the highest level, our distinctive strategy to pursue large, chronic diseases of the CNS with highly differentiated medicines responsive to the needs of multiple elements of the healthcare ecosystem is playing out as planned. We are now on the threshold of what will be a transformative period for Alkermes.

In the space of the next six months, we expect to receive FDA approval for and launch ARISTADA, we will get the first data from the core efficacy studies from the ALKS 5461 pivotal program in major depressive disorder, as well as other important supporting studies. Two of our additional emerging blockbusters, ALKS 3831 and ALKS 8700, will enter their pivotal programs on the strength of positive clinical trials completed earlier this year, and two exciting new drug candidates will enter the clinic. Those are just the most highly visible milestones. We will have other important advances across the pipeline and across the commercial portfolios. In the case of each of our products, they are designed to make a significant impact in major chronic diseases where current treatments fall short of addressing the needs of patients, healthcare providers and payers.

I'm going to start with ARISTADA, which is rapidly approaching its August 22 PDUFA date. Our team is gearing up for launch in September and final preparations are underway. We designed ARISTADA to be the product that has the key attributes that psychiatrists are looking for when they treat with a long-acting injectable antipsychotic: clear efficacy, a wide range of doses and ease-of-use. We are well-positioned to launch ARISTADA. Last month, we completed hiring the field sales force of 175 professionals and we're excited by the caliber of talent that we've recruited. We had over 4,000 applicants and selected a superb team with average experience of 16 years, most all having deep CNS experience, and many having experience with long-acting injectables. This group is in final stages of training and preparation for launch.

Separate from assembling our new commercial team, we presented data to the medical and scientific community on aripiprazole lauroxil at the recent ASCP and APA meetings. One of the very encouraging overarching themes at these meetings was the increasing recognition that use of an LAI earlier in the treatment of schizophrenia can lead to better outcomes. While we have been observing this benefit for many years, it is very exciting to have it discussed at major medical meetings and we believe this is an important step toward evolving the treatment paradigm in schizophrenia. ARISTADA is just the first of the next wave of our innovative CNS medicines approaching the market. The next of our emerging blockbusters that I want to touch on is ALKS 5461 for patients with major depressive disorder. ALKS 5461 is based on a new mechanism of action, and is designed specifically for those patients who are not getting adequate relief from standard therapy. 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 cost of any disease.

Based on the compelling Phase 2 data, and with Fast Track designation in hand, last year, we initiated the comprehensive FORWARD pivotal program. The three core efficacy studies in the FORWARD program are enrolling well, and we can report today further refinement and acceleration in our anticipated completion schedule. We expect the first study, FORWARD-4, to be completed in early Q1 2016, with a potential for it to move into late Q4 2015. The next will be FORWARD-3, which we now anticipate will likely complete in Q1 2016, which is an improvement from our original Q2 estimate. FORWARD-5 is the third. It's at an earlier point in its enrollment, so we will not change our Q3 2016 estimate at this time. We have invested a tremendous amount of time and energy in conducting the FORWARD program with the highest level of care, always as we prefer to say, putting quality ahead of timing.

But we're excited to see that we're achieving both as the concluding stage of the program comes into view. In addition to the core efficacy studies, we are running a comprehensive set of supporting studies to support US registration and wide utilization of this medicine. We'll start to see data from these studies soon, including the Human Abuse Liability study later this year, which will provide the clinical community with important confirmation of ALKS 5461's non-addictive properties. This is an important new medicine in the field of depression, with the potential to affect the lives of many people, and we are entering an incredibly data-rich phase of its development.

Moving to ALKS 3831, which is our novel, oral broad-spectrum antipsychotic drug candidate designed to deliver the efficacy of olanzapine without the associated weight gain. This program is also making excellent progress. We presented the full six-month data from the Phase 2 study at the recent ASCP meeting, which showcased the ability of ALKS 3831 to arrest olanzapine-associated weight gain. These data have generated real interest in the clinical community, which has been seeking new agents with powerful efficacy and favorable side effect profiles. We are in the final stages of designing of the pivotal program following meeting with FDA, and we will provide an update on the design of that in September. We are on track with our plans to initiate the pivotal program in the fourth quarter of 2015.

Turning to the next compound in the pipeline, ALKS 8700 is our monomethyl fumarate, or MMF, molecule, for multiple sclerosis that is designed to provide the efficacy of the active moiety of TECFIDERA and offer favorable tolerability. As you know, we completed a large Phase 1 study earlier this year which showed that ALKS 8700 provided MMF exposures equivalent to TECFIDERA, with favorable gastrointestinal tolerability. We meet with FDA next month to discuss the design of the pivotal program and we're on track to start it in the fourth quarter of this year. In addition to our late-stage pipeline, we have two pipeline candidates approaching the clinic, ALKS 7119 and RDB 1450. ALKS 7119 is our multivalent NCE for the treatment of Alzheimer's agitation and other psychiatric indications. Based on our interactions with FDA, we are conducting one additional preclinical study ahead of entering the clinic, so we now expect to initiate the first clinical study of ALKS 7119 in early Q1 2016. For RDB 1450, our immuno-oncology candidate, we filed the IND, and we are excited to get our first biologic into the clinic in the fall.

Let me finish with VIVITROL. VIVITROL has always been important medicine, and it is exciting to see a clear uptick in momentum. Our efforts are paying off, and we have additional plans in the works for growing the use of VIVITROL in commercial and in government settings. One new initiative that we'll disclose today is the initiation of a new Phase 3 program we call ALKS 6428. ALKS 6428 is a seven-day taper kit, designed to help physicians transition patients from opioid agonists to antagonist therapy in an outpatient setting and then successfully initiate treatment with VIVITROL. We will begin the Phase 3 study of ALKS 6428 in the third quarter of 2015. With increasing use of VIVITROL, there is a growing need for tools to facilitate its use and the ALKS 6428 taper kit could be the important new element in the treatment paradigm for opioid dependence. It's exciting to see what is happening with VIVITROL in the community, and we look forward to the growth ahead for this important product.

So as I wrap up, let me say that the level of activity, growth and excitement at Alkermes right now is unprecedented, as we execute our plans to create value in our late-stage pipeline and grow the business. We look forward to updating you as we approach our next big milestone, which is the PDUFA date for ARISTADA, in just a few weeks. With that, I'll turn it back over to Rebecca.

Thanks Richard. We will now open up the call for questions. Operator?

(Operator Instructions)

Cory Kasimov, JPMorgan.

Thanks for taking the questions. Nice quarter. Two questions for you, one on VIVITROL and one on ALKS 8700. So first on VIV, I'm just trying to understand if there's anything unique or one-time about the performance this quarter or if it's really just a sign of you're gaining traction. I'm asking this to try and put your updated guidance into perspective, because that seems to assume, even though it's higher, really, no growth at all on the low-end or minimal growth on the high end in the second half of the year.

So are you just being conservative there or is there some particular headwind that you might be anticipating later this year? And then I have a follow-up on ALKS 8700.

Sure, Cory. Good morning. Thanks. It's Jim. No. There aren't any specifics in the quarter; inventory didn't change a great deal and we are seeing momentum in the field at the local level as more physicians, and with better reimbursement, lower hurdles to reimbursement and things like that.

I think ultimately, we're just being conservative with VIVITROL; it's obviously a very large growth rate, 72% over last year, and so if we continue to see these trends going forward, which we're working hard to ensure, we'll update you in the future as we see those trends continue. Two points in a line are one thing but we'll wait until see some more before we call a specific change going forward at that rate.

Okay. Sounds good. And then on ALKS 8700, just curious about your views of the MS market opportunity following the recent issues encountered by Biogen. Wondering if these developments alter your opinion at all on the ultimate potential for ALKS 8700?

Good morning Corey. It's Rich. I actually -- they underscore our excitement and actually, if you look at the core of the Biogen's report on Tecfidera, it was approaching $900 million, so this was over $300 billion drug, and also represents the fact that it's not a perfect drug and I think that Biogen is currently enjoying that market entirely to themselves. So ALKS 8700 going into a pivotal program with a significant risk reduction having done the work that we've done in advance of that, I think is really exciting for us.

All right. Great. Thanks guys. I'll hop back in the queue.

Thanks Corey. Operator, we will take the next question.

Tyler Van Buren, Cowen and Company.

Thanks for taking my question. Given that the 175 ARISTADA sales force is now hired, just want to get your thoughts on potentially leveraging that with another product in the reps' bag and if --clearly, you have a lot going on in the clinic and if you could continue to focus on the clinical side of things, why would it may be not make sense to add a product to those reps' bag? Thank you so much.

Good morning. I think it's a good question, but I think it reflects the fact that we're moving across a really important threshold now. We've been in the commercial market with VIVITROL for the last few years, building our bona fide days as a strong sales force being able to commercialize it, a complicated product. As we launch aripiprazole lauroxil, ARISTADA, we really significantly augment that in terms of the size and the capability of that sales force.

Now, for the purposes of the launch, this is a group that's going to be very focused. You've seen the LAI. The sales force focusing on LAIs is not a multi-product in the bag sales force. This is a very, very dedicated sales force working on a complex product in complex reimbursement environment.

But the general condition that you point out is absolutely right. We are moving into a bigger commercial phase in this Company's history and we will absolutely augment that product portfolio through internal development and hopefully over time through acquisitions and licensing as well.

Great. Thanks so much.

Biren Amin, Jefferies.

Thanks for taking my question. Maybe I'll start with ALKS 6428. What is this taper kit consist of? Just from a non-chemical entity perspective?

Hi, Biren. It's actually quite straightforward and what we're seeking to do is codify things that are happen spontaneously in the community and certainly there is academic literature this on this as well. So essentially, it's a way to tapering down the opioid agonists and tapering up through a small incremental doses of oral naltrexone to the point where the patient has clearly established the ability to be beyond long-acting agonists

Got it. And then what would the Phase 3 trial consist of? Is this mainly like a 12-week study and what are timelines for completion of this Phase 3?

We'll give timelines now. It's a fairly large study; it's about 300 patients and so we really want to do this quite broadly. The taper itself occurs over seven days and the endpoint is really the idea of successful initiation on to VIVITROL. So it's not a -- it will be a long enrollment and a short in life phase but we'll guide to that as we get into it. We'll start in Q3 but I think it's important to understand why are we doing this now? We're doing it now because we're seeing a larger range of doctors who are getting interested in the use. It's not just those core people who understand how to do toxication and transition to an antagonist. More and more doctors are realizing this may be a wave of the future and they want to understand the tools of transition from opioid agonism all the way to a full antagonist.

Got it. And then maybe just on aripiprazole lauroxil, can you give us an update on every six or eight-week formulation?

You're going to have to get used to not seeing aripiprazole lauroxil soon here; we've gotten so used to the mouthful. But ARISTADA, hopefully, will be the name that comes out of the approval. And we like that name very much, actually. And I think that we're in the clinic with the six and the eight week durations based on the inherent properties of ARISTADA. We believe that we will get that type of interval and we think that interval, both the six and the eight-week, could be really important differentiators in the marketplace that's driven by the need for flexibility for patients.

Great. Thank you.

Thanks Biren.

Marc Goodman, UBS.

Hi, this is Ami Fadia for Marc Goodman. Maybe a follow-up on the comment on ARISTADA. Could you elaborate around the clinical benefit and the need for the six and eight-week duration? Secondly, on ARISTADA itself, what data point are you looking for over the next couple of months as you launch the product that might give you comfort on the longer-term potential for the product? And I'll stop here.

Good morning, Ami. I think the whole idea of ARISTADA is one about flexibility and accommodating the needs of patients and physicians and nurses. That's why a range of doses matters. It's why the product presentation itself and the easy-to-use syringe matters and it's why the flexibility of durations matter because every patient is different.

Four-week intervals, six-week integral, eight-week interval, it all allows a customization of the treatment approach for the particular patient, family, lifestyle circumstances and that's something we've learned through the work we've done with [original concept], which is fairly rigid in its presentation. Two weeks, reconstitution, that was pretty much what you got; all the way through now to what's happening in the real world with SUSTENNA where we see the range of doses and flexibility is so attractive.

So we've integrated that into our product design for aripiprazole lauroxil, ARISTADA. I think that, that six-week dosing interval is another reason to use ARISTADA versus a competitive product. We add eight weeks to that, another reason. And it's just part of this suite of flexibility.

The key data points we're going to be looking at in the launch actually, to play your question back, we actually have tremendous confidence in long-term future of this market for the reasons that you can see playing out in the market right now. There are multiple entrants for the first time. The orals have gone away.

The growth rates in the long injectable market are significant. There's a compelling public health as well as public economic reasons for more use of LAIs. So long term, we're really confident in this market and the role ARISTADA is going to play in it. In the short term, it's about access, I believe. It's about making sure we get on formulary; we educate about the existence of the products and we deploy our field force in a way to ramp the products so it becomes everyday medicine for many sites.

So we've guided to a launch that basically mimics what we saw with the Otsuka's ABILIFY MAINTENA launch because our thesis was that it's a good drug sold by a strong company. So I think it represents a natural uptake rate for LAI in this primarily government paid market but we expect it to take the growth and continue to really grow.

Thank you and if I may ask another question on VIVITROL. When do you expect the study for the ALKS 6428 to be completed and I'm curious, do you think that having that data more, call it, codified could help with acceleration in sales of VIVITROL?

Well, the whole purpose of it is to build a broader foundation of initiatives to increase the growth of VIVITROL over time but it won't happen overnight. It will take us and we'll guide to the completion of the studies as we get into it and -- but as I said before, it's a fairly large study and there's a lot of different sites and there is an educational component to the whole thing as well.

So I'm not so much obsessed on getting it done super fast. I'm more excited that we're starting it and the community is beginning to rally around the idea of how to transition people from agonist to antagonist, because you remember, that was heretic years ago. And it's quite exciting that people are beginning to feel the wind shift.

Thank you.

Thanks so much. Next question?

Terence Flynn, Goldman Sachs.

Thanks for taking the question. Maybe just two for me. First on ALKS 5461. Thanks for the update on the program. Just wondering if you can remind us that there is any differences across those three trials and then insight into any of the baseline characteristics and maybe how that compares to your earlier Phase 2 trial? And then just on ALKS 9070, the sales force footprint, can you give us a sense of how many prescribers you're going to plan to target there? Thank you.

Good morning, Terence. ALKS 5461, the three studies I would describe is the shades of the same color. They all employ the sequential parallel comparison design we've talked about before, which we saw in Phase 2 to minimize the placebo response so there all conducted in these two phases, with re-randomization of the placebo non-responders which were -- we think is a really important design feature.

The baseline characteristics are very, very similar if not identical to the patients that we enrolled in Phase 2, which are patients who are non-responsive to one or more courses of SSRIs. They'll stay on that background therapy. So we'll be using ALKS 5461 in the adjunctive setting formally, so it is very much the patient population we saw in Phase 2 and the patient preparation that we saw in forward one, the data that we had shown earlier this year. So the patient preparation, we're quite comfortable testing ALKS 5461 in.

With respect to the ALKS 9070, aripiprazole lauroxil, ARISTADA, footprint, its size -- there will be 175 people in the field force and 20 people that are doing more of the national accounts stuff. We will not probably disclose at this moment our calling strategy on that but I think it's fair to say in contrast to something like VIVITROL, where we were creating this market, this is a very well-established group of doctors.

There's only about 1,700 doctors who write half of the prescriptions right now of LAIs and only about almost 6,000 doctors who write about 80%. So it's a very concentrated opportunity right now at launch. But the great opportunity, the great promise is, of course, that there's another 20,000 or 30,000 prescribers who have written an LAI before, but don't write any great level of intensity. So there's a tremendous amount of education and marketing expansion as potential with multiple entrants now calling on these docs.

Great. Thank you.

Thanks. Operator, I think we have time for one question if anyone is in the queue.

Actually, there is nobody in the queue right now. We'll turn it back to you for closing remarks.

All right. Thanks everyone for dialing in today. Should you have any additional questions, please don't hesitate to call us here at the Company. I know a lot of folks are reporting today but happy summer. Take care.

Ladies and gentlemen, thank you for joining. This concludes today's conference. You may now disconnect.