Alkermes Plc (ALKS) 2015 Q3 法說會逐字稿

Good morning and welcome to the Alkermes plc third-quarter 2015 financial results conference call. My name is Brandon and I will be your operator for today.

(Operator Instructions)

Please note this conference is being recorded. And at this time, I will now turn the call over to Sandra Coombs, Associate Director of Corporate Communications at Alkermes. You may begin.

Good morning. Welcome to the Alkermes plc conference call to discuss our financial results for the quarter ended September 30, 2015. With me today are Richard Pops, our CEO; Shane Cooke, our President; and Jim Frates, our CFO. Before we begin, I encourage everyone to go to 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, which we believe better represent the ongoing economics of our business.

Our discussions during this call will include forward-looking statements. Actual results could differ materially from those forward-looking statements. Please see our press release and quarterly report on Form 10-Q issued 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 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 Richard Pops will provide an update on the Company. After, we will open the call for Q&A. Now I'll turn the call over to Jim.

Thank you, Sandy. Good morning, everyone. We're pleased to report our results for the third quarter of 2015, which were characterized by solid revenues from our portfolio of commercial products and investments in our late-stage pipeline, as well as the final preparations for the launch of ARISTADA, our new long-acting injectable anti-psychotic for the treatment of schizophrenia, which was approved by the FDA on October 5. In the third quarter, we generated $152.7 million of total revenues and recorded $26.2 million of non-GAAP net loss.

Worldwide end-market net sales of RISPERDAL CONSTA, INVEGA SUSTENNA, and INVEGA TRINZA, which are sold by Janssen Pharmaceuticals and use Alkermes' technology, were approximately $694 million in the quarter, compared to $687 million for the same period last year. Taken together, these products experienced underlying operational growth of 10%, which was offset by the unfavorable impact of currency fluctuations. In the US, INVEGA SUSTENNA sales showed impressive growth, as the leading product in the class with end-market sales of $277 million during the quarter, reflecting approximately 29% growth year over year.

For the quarter, Alkermes recorded total manufacturing and royalty revenues of $67.6 million related to RISPERDAL CONSTA, INVEGA SUSTENNA, and INVEGA TRINZA. For AMPYRA and FAMPYRA, our manufacturing and royalty revenues were $22.1 million for the quarter, compared to $16.5 million for the same period last year. And for BYDUREON, our royalty revenues were $13 million, compared to $10.3 million for the same period last year.

VIVITROL had another strong quarter with net sales of $37.9 million, compared to $25.8 million for the same period last year, demonstrating net sales growth of 47%. We are excited and encouraged by the increasing awareness and incorporation of VIVITROL into the treatment paradigm in a broad range of treatment settings, including criminal justice and drug court programs. These important initiatives have the potential to dramatically improve the way addiction is addressed in our society, and we believe that VIVITROL's value is just beginning to become evident.

Moving on to expenses, our total operating expenses for the third quarter were $230.1 million, compared to $192.7 million for the same period last year. This planned increase in operating expenses was driven primarily by investments in ARISTADA launch preparations, including the first full quarter with the 175-person field sales force on board, and by investments in our rapidly advancing, late-stage clinical pipeline.

We expect SG&A expenses to increase into the fourth quarter as we record expenses related to the October launch of ARISTADA. We also expect that R&D expenses will increase in the fourth quarter as the pivotal development programs for ALKS 3831 in schizophrenia and ALKS 8700 in multiple sclerosis get underway.

Turning to our balance sheet, our business remains strong. We ended the third quarter with over $815 million in cash and total investments and $353 million of debt. Today, we are reiterating our financial expectations for the remainder of 2015 that we outlined on our August earnings call. One small update: We continue to expect that total revenues will be in the range of $610 million to $640 million.

Within that, we now expect ARISTADA revenue for 2015 to be approximately $3 million. We're more excited than ever about the launch of ARISTADA, and this adjustment simply reflects the launch shifting into October. Overall, the business is performing as planned, and we are well-positioned to execute on the launch of ARISTADA, drive the growth of VIVITROL and advance the pivotal programs for three of our emerging blockbusters.

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

We have a lot to cover this morning. The past few months have been jam packed with important events, highlighted by the approval and launch of ARISTADA, the strong progress in the ALKS 5461 pivotal studies, and FDA meetings for both 3831 and ALKS 8700, which clarified advantageous registration pathways for these two important medicines. The pipeline is really coming together, and critical elements have been substantially de-risked.

As we approach the end of the year, we are on track for accomplishing what we set out to do in 2015. At the highest level, this means advancing multiple product development programs to the point where it is apparent that Alkermes controls one of the most important pipelines of new medicines in the industry, medicines designed to address serious patient needs in large, chronic CNS disease areas. This is an unusual position, and one we think is well-suited to the current environment where there is serious public skepticism about the real value of medicines and the role biopharmaceutical companies play in improving human health.

We are developing product candidates addressing specific, patient-driven needs in large, chronic diseases of the CNS and testing these medicines, often head-to-head, against existing state-of-the-art treatments. We are designing them to improve upon what precedes them. The number of people affected by these conditions is so large, and the associated costs so significant, that, if we are successful, we have the opportunity to price our medicines responsibly so that the whole ecosystem has the potential to benefit.

As we close out 2015 and enter 2016, just look at what is happening. We plan to start ramping up the registration programs for ALKS 3831 in schizophrenia and ALKS 8700 in MS, and complete and obtain the results from our core efficacy studies from the ALKS 5461 FORWARD pivotal program in major depressive disorder. We will also start the clinical program for ALKS 7119, which we are developing for the treatment of agitation associated with Alzheimer's disease, and move forward with our biologic, RDB 1450.

All of this will be happening against the backdrop of a major commercial launch for ARISTADA. So we are at a historic level of activity and productivity, with major milestones ahead of us.

So, let's start with ARISTADA, for which we received FDA approval on October 5. The nationwide launch of ARISTADA is well underway, with our team actively targeting a well-defined group of physicians who have a history of prescribing LAIs for the treatment of schizophrenia, as well as payers to secure broad access for ARISTADA.

ARISTADA embodies key attributes important to patients and healthcare providers. Those are efficacy, range of doses and durations, in a ready-to-use product format.

This is the profile we designed at the outset. We realized it with ARISTADA and now we can bring it to the community. The opportunity that ARISTADA 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. So here we go.

Moving to the late-stage pipeline, we have a number of important updates today. I'll begin with ALKS 8700, our monomethyl fumarate, or MMF, oral molecule that is designed to provide the efficacy for the treatment of multiple sclerosis and offer favorable tolerability. This morning we announced important developments related to the registration program, including positive clinical trial results and a streamlined regulatory pathway.

Based on a meeting we held with FDA in August, we have agreement that a 505(b)(2) strategy referencing TECFIDERA is an appropriate registration pathway for ALKS 8700. The foundation of this pathway is FDA's view that the therapeutic rationale for both ALKS 8700 and TECFIDERA is to provide patients with therapeutic concentrations of MMF.

Therefore, there are two essential elements of this New Drug Application, or NDA; data from pharmacokinetic bridging study, or multiple bridging studies, comparing plasma concentrations of MMF achieved by both ALKS 8700 and TECFIDERA, and a 600-patient, two-year safety study. Importantly, this means that we will not need to conduct a separate, lengthy, and expensive efficacy study in patients with MS.

In addition, we are very interested in determining the gastrointestinal tolerability of ALKS 8700, so the registration program will include a randomized, head-to-head comparison of the GI tolerability of ALKS 8700 compared to TECFIDERA in approximately 420 patients, which we'll initiate in mid-2016. These patients will have an opportunity to roll over into the safety study.

On the clinical side, this morning we announced results from a randomized, double-blind pharmacokinetic study, which was designed to answer the central question raised by FDA's regulatory input: can ALKS 8700 provide the same plasma levels of MMF as TECFIDERA? It was a clear success. Initial data from this study demonstrated that ALKS 8700 can provide plasma concentrations of MMF equivalent to those achieved with TECFIDERA.

The most common adverse events for ALKS 8700 in the study were flushing, dizziness, and constipation. We will still need to conduct additional PK bridging studies to further support the PK comparability in our NDA, but believe we have answered the key question. So with these results and agreement with the FDA, we have achieved key go criteria for ALKS 8700, and we look forward to getting the registration program underway in December. We expect to be able to submit the NDA for ALKS 8700 in 2018.

Turning now to ALKS 3831, our novel, oral broad-spectrum antipsychotic drug candidate designed to harness the antipsychotic properties of olanzapine but without the associated weight gain. Here we had another productive recent interaction with FDA. In this case, with the Division of Psychiatry, and we plan to begin the pivotal program later this year.

The basic architecture of the registration program is very straightforward. Two studies: a four-week efficacy study, primarily comparing ALKS 3831 to placebo, and secondly, a phase 3 study, very much like our phase 2 study, with a focus on weight gain compared to olanzapine over six months. Both of these studies will roll over into longer-term safety studies.

The first study will be a very simple four-week efficacy study to evaluate the antipsychotic properties of ALKS 3831 compared to placebo that will enroll approximately 390 patients with acute schizophrenia, and we'll begin in the fourth quarter. The efficacy study will include an olanzapine comparator, with the primary analysis being ALKS 3831's effect on PANSS scores compared to placebo. The weight gain study will essentially be a simplified version of the highly successful phase 2 program that you've seen. It will involve six months of comparison data between ALKS 3831 and olanzapine, without the one-week olanzapine lead-in.

The study is planned to begin in Q1 2016 and will randomize approximately 500 patients with stable schizophrenia to receive ALKS 3831 or olanzapine. The primary endpoint will evaluate change in percent bodyweight from baseline over six months. This is an important feature of the study, with weight as the primary endpoint that will support its inclusion in the label. We expect this program will enroll throughout 2016, and, like we have done with past programs, we will update you on our progress and our estimated completion window as we get underway.

As with ALKS 8700, following a meeting with the FDA, the path to approval for ALKS 3831 has been clarified. This program is designed to clearly demonstrate the efficacy and weight attenuating features of ALKS 3831 and will provide a robust data package for our NDA submission. This is a straightforward program from this point on, and we are very excited to get the registration program underway as soon as possible.

Moving to our most advanced clinical candidate, ALKS 5461, is our novel opioid modulator being developed for patients with major depressive disorder getting inadequate relief from standard therapies. We are approaching data readouts for the pivotal program.

We're on track to have data from FORWARD-4 in early Q1 2016, data from FORWARD-3 later in that same quarter, and data from FORWARD-5 in Q3 2016. This is potentially a really important medicine that impacts a lot of peoples' lives. We're pleased with the way the program has proceeded and we're excited to see the upcoming results.

In addition to our late-stage pipeline, we have two candidates approaching the clinic, ALKS 7119 and RDB 1450. For RDB 1450, our immuno-oncology candidate, we received feedback from the FDA which requires some additional work on our part. So we now plan to file the IND in Q1 of next year and enter the clinic in Q2. ALKS 7119, our oral multivalent NCE for the treatment of Alzheimer's agitation and other psychiatric indications, is on track to enter the clinic in early Q1 2016.

The double-blind, placebo-controlled study will evaluate the safety and tolerability of single-ascending doses of ALKS 7119, and will also include a battery of psychometric assessments, which are intended to give us an early look at the human pharmacodynamic response. With a major product launch underway with ARISTADA, VIVITROL continuing to grow, and three potential blockbuster product candidates in, or entering, pivotal development, the level of activity has never been higher at Alkermes. We are delighted to be in the position we are in, and we are looking forward to this exciting and productive time in the Company's evolution as a leading innovator of CNS medicines.

With that, I'll turn the call back to Sandy to handle the questions.

Thank you, Richard. Brandon, we'll now open the call up for questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Barclays, Jon Eckard.

Jon, are you there?

Jon Eckard, your line is open.

I think we will come back to John, Brandon.

JPMorgan, Cory Kasimov.

Thank you. I have for one for you on ARISTADA, and then another on 8700. First on ARISTADA, I realize this is very early, but I'm interested from a prescriber standpoint. On the early receptivity, your sales force has seen to another LAI in the market. Now that you're out there with her own product, do you notice the disconnect that we've been talking about in terms of interest in this class compared with the relatively modest share that it has?

Cory, it's really exciting for this team to be out in the field with a product approval and a label and they can really go talk to these docs. As we referred to in the earlier remarks and I think that at launch we're really going first to the doctors who have some background in prescribing LAIs, rather than trying to educate a whole new cadre of docs at launch. Go where the business is and where the prepared minds are already. With that said, the differentiating features of ARISTADA are almost self-evident and they're captured in the label as well. So we are really excited to be calling on these docs.

Okay. And then the next question as it relates to 8700. Were you expecting the FDA to require a Phase 3 efficacy study? And then from the safety side of things, did PML come up as a topic of interest in these discussions?

The answer to the second question is no. I think that PML as a feature of these immuno-modulators is something that everybody will always pay attention to clinically. We were -- and you followed us all along with 8700, we were very, very agnostic about what the Phase 3 program would look like and really looked to FDA for guidance on what to do. And that spanned the idea of going all the way to two-year efficacy studies, looking at relapse rates and radiological endpoints to this PK bridging approach. So we were thrilled that the more accelerated or streamlined pathway is what FDA recommended.

Okay. Thank you, Rich I will hop back in the queue.

Thank you, Cory.

Jon Eckard, Barclays.

Good morning, can you hear me?

Now we can hear you, Jon

Great. Thanks. Quickly on the timing of 5461, I think in prior quarters you had suggested the data could come as early as late 2015. When looking at the clinicaltrials.gov, I know the trial FORWARD-4 completed enrollment in early September. Is that something where we could still see a year-end surprise? Or do you think based on what you know now that first quarter is really the time we're going to get it?

Well I'll tell you what we told the teams, which is it is consistent with the theme of this whole program, which is we will trade quality for time every time. The team is operating under the mandate of when the data are ready, that's what we'll be done. That's why in putting together for this call, we said let's just say early Q1 2016 and it will settle out where it settles out, and it'll be ready when the clinical operations team is ready to tell us it's ready.

Perfect. And then the Human Abuse Liability study, that was also guided for before year end, is that still on track for us to get results from that?

With the same caveat I just gave to the other one, yes. We do believe we're on track for data on that for this year.

Perfect. And then the last question before I jump back is that now you're going to have 8700, 5461, 3831, there's some overlap, like 3831 ARISTADA for example maybe. But when it comes to strategic thoughts going forward about how to best monetize these assets, are you guys currently thinking that you're going to keep all these and become like a Pfizer or are you thinking about partnering? How could you think about strategically positioning your pipeline going forward?

I think putting together a commercial operation to commercialize our assets in mental health is very straightforward in the US, and that's the base plan is to build that out. And there is no other company that controls a pipeline with this much explosive potential and medical benefit that is wholly owned. So we really like that position we're in right now. I think unless we see business opportunities that get these medicines to more patients, faster, that drive the value for our shareholders, we're going to carry on.

Great. Well, hanks so much. I will get back in the queue.

Thank you, Jon.

Leerink, Paul Matteis.

I have a few questions on 3831 and one on 7119. First on 3831, can you talk about two things: one, how you will handle olanzapine experience in the patients you enroll in the Phase 3? And secondarily, any restrictions that are imposed in physicians' ability to treat symptomatically weight gain or metabolic side effects in the program?

Paul, welcome aboard. The 3831 program, if you look at what we did in the large, randomized Phase 2 study, we exclude patients from that study who would've had weight gain on olanzapine in recent memory. I don't think that they were completely excluded from ever having been on olanzapine, Jim? But there's a fairly protracted period where they shouldn't have been on olanzapine. And the whole idea is not to, in the context of the study, to try to use metformin or other therapeutic or pharmacologic approaches to attenuate weight. This is a straight-up comparison of the weight gain propensity of 3831 versus olanzapine in a randomized, controlled fashion.

Okay. Got it. And then on 7119, can you talk about the age of the patients you're going to enroll into Phase 1, knowing that different products like benzodiazepines or anything else that can affect sedation or agitation in Alzheimer's can have really different PK/PD in elderly patients versus young, healthy individuals? Thanks.

It's a great question and obviously, elderly is a critical focus for this program over time. We will start in the responsible way, which is single ascending doses in healthy volunteers, adult volunteers. We're not quite sure of the age restriction, but it won't be shunted toward the elderly. In so doing though, we are looking at this interesting battery of psychometric assays to give us some sense, we hope, of properties like sedation or agitation, things like that, in healthy volunteers. And then we will move quickly to integrate elderly patients into our dose-ranging studies in Phase 2.

Okay, got it. Maybe if you don't mind, I might just ask one quick one in ARISTADA. I know for competitive reasons you're not going to expound upon your strategy for attaining formulary access, which is understandable. But do what you see as a realistic goal for formulary access and I guess, having the same level of access as something like Abilify maintained at what that's attained right now?

Yes, that would be the goal. I think that we expect to have parity. In this business, it just takes a matter of time to achieve it. But early returns are quite favorable. These are patients with serious diseases; these medicines are priced fairly. Physicians need choices, so we have a differentiated product, and it's one of those six protected classes under the ACA. So I think it's just more of a goal of ours of just as expeditiously as possible to get to a level where we and J&J and Otsuka have similar formulary placement.

Okay. Great. Thanks very much.

Credit Suisse, Vamil Divan.

Thank you so much for taking the question. Sorry, I jumped off for a second earlier, so I apologize if any of this was covered. One on 8700 and one on 3831. So on 8700, I was just -- I appreciate the update you gave on the clinical side. Can you talk a little bit more on the IP side of things there? We get some questions from time to time in terms of how you feel and in terms of protection there.

And then on 3831, again, apologies if you mentioned this, but in terms of the endpoints, I think you mentioned for the Phase 3 would be focused on weight gain. Will there be specifics or metabolic endpoints? And how do you think about the ability, ultimately based on the way you're designing your program, to be able to talk on the metabolic endpoints beyond just the weight impacts that you saw? Thank you.

Good morning, Vamil. Those are two good questions. On the IP side 8700, it's really important to understand that we have a new chemical entity and that's a separate patented NCE. This is a new molecule that never existed before that metabolizes reliably into MMF and provides therapeutic MMF concentrations over time after oral administration. So it's really, it's got its own IP foundation and that's been validated by the issuance of the patent. And we will defend it and advance that throughout the context of the program.

3831, the question is a good one, that in many ways, the end result of the metabolic changes that are induced by 3831 need to manifested in weight. The weight changes are the ones that are most important. Having said that, we actually expect, within the umbrella of time provided by that Phase 3 program, to run some smaller freestanding studies to look at the metabolic effects of 3831. That, by the way, is being augmented as we speak by really exciting pre-clinical work that's going on here trying to further deconvolute the mechanism of action of 3831 in attenuating weight gain induced by olanzapine. We think it's a [furlary] for science. And the clinical endpoint is focused on the most important clinical endpoint, as opposed to an esoteric metabolic change, what's the gross manifestation of it in terms of weight? But we intended to interrogate that during the course of the phase 3 program.

Okay, thank you.

You're welcome.

Goldman Sachs, Terence Flynn.

Maybe just two quick ones for me on 8700 also. I'm just wondering if you can tell us what the primary endpoint will be of the 600-patient safety study? And then if it also says on the release that you guys are going to have to conduct additional pre-clinical studies to further support PK comparability to TECFIDERA. Can you just give us any insight there? Thank you.

Sure, good morning, Terence. The safety study is literally just a safety study. We have a -- we want to enroll a certain number of patients and have exposures for six month, a year, and beyond, and just make sure there is no differential safety effects, which we don't expect. Because we expect to be similar to TECFIDERA in that regard. The differences we expect to exploit in the head-to-head comparison on GI tolerability. The pre-clinical studies, I'm sorry I forgot the question?

He asked if there were additional preclinical --

I'm sorry. It's on the PK bridging stuff. Yes. There's a formal number of studies in elements of the submission for the PK bridge. For example, you do [fed] fast and you do other things like that, but the key question that we wanted to ask was in this first study to look at the basic AUC/PK comparison in which we were quite confident that we can make that PK bridge. So we'll fill in around that with the studies that are required for the NDA, but we don't expect a lot of scientific drama.

Thank you.

You're welcome.

(Operator instructions)

We'll give it a second. If not --

We have follow-up from Paul Matteis.

Thank you. One more quick one. Can you talk about the dose that you're moving forward for 8700 and what you saw with GI tolerability rates for this compared to TECFIDERA? And if the actual rates were comparable for what you reported for all doses in the prior Phase 1 study. Thank you.

Paul, we won't disclose the dose right now. We will as we start the program. You've seen previous data on 8700 and its GI tolerability, and I will just say that across all the studies that we've done and we've just seen a very, very low level of GI issues with 8700. So we will go ahead and move into the definitive comparative study now, because I think we're all reluctant to make cross-study comparisons or comparisons to important drugs like TECFIDERA on limited data sets. But we feel like inherently, we have a very well-tolerated medicine and we're going to test that head-to-head, which is a very Alkermes thing to do, right? Like we go up against olanzapine, we go it against SSRIs. We like to know the answer because we know patients and payers like to know the answer too.

Fair enough. You'd said in the press release that you're going to present the data at a medical meeting. Can you give any timing on that?

Not yet. We will update you when we know.

Okay. Great. Thank you, Rich.

Thank you, everyone, for joining us on the call this morning. If you have any additional questions, please don't hesitate to reach out to us at the Company. Thank you.

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