Alkermes Plc (ALKS) 2016 Q2 法說會逐字稿

Good morning, ladies and gentlemen. And thank you for standing by. Welcome to the Alkermes conference call to discuss the Company's second quarter financial results. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. Please note this conference is being recorded and I will now turn it over to Sandy Coombs, Director of Investor Relations at Alkermes. Sandy, you may begin.

Welcome to the Alkermes PLC conference call to discuss our second quarter 2016 financial results. With me today are Richard Pops, our CEO, and Jim Frates, our CFO. Before we begin I encourage everyone to visit Alkermes.com to find our press release and related financial tables, including a reconciliation of the GAAP to non-GAAP financial measures that we will discuss today. We believe the non-GAAP results better represent the ongoing economics of our business.

Our discussions during this call will include forward looking statements. Actual results could differ materially from these forward-looking statements. Please see our press release and 10-Q issued today and also our 10-K for the year ended December 31, 2015, for important risk factors that could cause our actual results to differ materially from those expressed or implied in the forward looking statements. We under take no obligation to update or revise the information provided on this call as a result of new information, 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 the call for Q&A. Now I'll turn the call over to Jim.

Thanks, Sandy. Good morning, everyone. We're happy to report strong second quarter results. Highlighted by the performance of our proprietary commercial products, VIVITROL and ARISTADA, as well as robust results from our royalty and manufacturing business. Let me start with an overview of our financial highlights for the second quarter. We generated total revenues of $195.2 million, a 29% increase over the second quarter of 2015. A GAAP net loss of $47.2 million and a non-GAAP net loss of $1.6 million.

We're pleased with these solid results, which reflect the growth of end market sales of our diverse commercial portfolio and also the timing of certain manufacturing shipments to partners. Today we're increasing our financial expectations for 2016, driven by the performance of VIVITROL, which continues to grow robustly and certain changes to our non-GAAP measures pursuant to guidelines recently issued by the SEC.

In the quarter, VIVITROL net sales grew to $47.2 million, compared to $37.2 million for the same period last year. We're continuing to see accelerating sales growth in both commercial sales and even more so in Medicaid sales driven by our focus on criminal justice programs and our organic growth within the states.

These programs broaden access to VIVITROL and expand our pool of patients and treatment providers which we expect will ultimately lead to increased adoption of VIVITROL in both Medicaid and commercial settings. VIVITROL is performing ahead of our projections and we now expect VIVITROL net sales to increase approximately 40% year over year for 2016, which is reflected in our updated financial expectations.

Turning to ARISTADA our second quarter net revenue of $10.3 million came in ahead of expectations. The launch is progressing as we work through the Medicare and Medicaid reimbursement cycle for a new product and ARISTADA is growing nicely in a Long Acting Injectable, or LAI market, that continues to grow at double digit rates. That for us is the key at this stage. The market is growing and our product attributes are becoming increasingly recognized in the field. Looking ahead, we expect the third quarter ARISTADA net sales will be in the range of $13 million to $15 million.

Moving on to our royalty and manufacturing business, overall we recorded total revenue of $137 million, which included $69.6 million of revenue related to RISPERDOL CONSTA, INVEGA SUSTENNA and INVEGA TRINZA, compared to $60.8 million in the same period last year, driven by strong growth of the INVEGA SUSTENNA franchise. During the quarter we also recorded $40.8 million in revenue, related to AMPYRA and FAMPYRA, compared to $26.9 million for the same period last year.

This higher than expected revenue was due to the timing of manufacturing shipments and as a result we expected our third quarter revenues related to AMPYRA and FAMPYRA will be in the range of $15 million to $20 million. As we've seen before while our manufacturing and royalty revenues for AMPYRA are lumpy in nature the underlying growth trend in end market sales remains solid. In terms of expenses our total operating expenses for the second quarter of 2016 were $242.3 million, compared to $203.9 million for the same period last year. This year over year increase in operating expenses was driven primarily by the launch of ARISTADA, including a full quarter investment in the ARISTADA sales team which was fully on boarded last year in June as well as the growth in VIVITROL and the ongoing pivotal programs for ALKS 3831 and ALKS 8700.

With respect to our financial expectations for 2016, we're improving our guidance today to reflect the accelerating growth trend for VIVITROL and our increasing expectations for VIVITROL net sales by $10 million to a range of $190 million to $210 million and our expectation for total revenues to a range of $710 million to $760 million. This increase drives a $10 million improvement in our expectations for GAAP net loss which we now expect to be in the range of $215 million to $245 million.

On a non-GAAP basis, our increased expectation for VIVITROL along with a $10 million adjustment related to the SEC's recent guidelines on non-GAAP measures drives a $20 million improvement in our expectations for non-GAAP net loss, which we now expect to be in the range of $5 million to $35 million from our previous range of $25 million to $55 million. Our complete financial expectations for 2016 are outlined in our press release issued earlier this morning.

Taking a step back, our second quarter results demonstrate the ability of our business model to efficiently capture operating leverage as our top line grows. As we enter the second half of the year we're in a strong position financially to focus on accelerating the growth of VIVITROL and ARISTADA and advancing our proprietary pipeline of development candidates. With that I'll turn the call over to Richard.

That's great. Thank you, Jim. Good morning, everyone. Here at the midpoint of the year Alkermes is strong, operating effectively and according to our plans. Our commercial business is hitting its stride and generating significant revenues as VIVITROL and ARISTADA make exciting progress. In our late stage pipeline continues to advance on multiple fronts. We're building a Company focused on addressing two of our country's major public health priorities, addiction and serious mental illness.

These disease areas characterized by stigmatized patient populations in broken treatment systems, further challenged by the reality that many of these patients are poorly positioned to advocate for themselves. These diseases have a disproportional impact on health care costs, on our criminal justice systems and on long-term care. This is where a bio pharmaceutical company has the opportunity to shine and demonstrate the value that important new medicines can bring to society. To address these challenges, we've evolved the traditional pharmaceutical sales model into a dynamic, patient centric organization that incorporates policy, patient engagement and economics into the daily execution of our strategy.

These elements play a significant and increasingly important role in the treatment of mental illness and addiction. As an example just last week President Obama signed into law the Comprehensive Addiction Recovery Act, or CARA, following broad bipartisan support in Congress. CARA is the first major piece of addiction legislation to pass in almost two decades. An emergence during an epidemic that has grown to claim 129 lives a day in our country.

CARA's passage is the culmination of efforts of a broad coalition of advocates that came together in support of the legislation and its implications are profound. By empowering communities to respond and implement solutions and by strengthening the role of the criminal justice systems will play, CARA has the potential to dramatically change the way opioid dependence is addressed. In practice this will be done through statutory changes complimented by funding initiatives. CARA includes provisions that reform opioid addiction treatment in several critically important ways. Office based opioid treatment prescriber's who are the buprenorphin prescriber's are now required to be trained on and as law states, "Provide directly or by referral all drugs approved by the FDA for the treatment of opioid use disorder."

There are only three active agents approved by the FDA for the treatment of opioid dependency. As an opioid antagonist and the only medication approved for the prevention of relapse to opioid dependence, VIVITROL is uniquely positioned within this group of medicines. The other key aspect of CARA is grant money. Grants will enable criminal justice organizations to implement treatment systems in their communities, promote recovery, and help individuals lead drug-free lives. Against a backdrop of the current treatment landscape and a raging national epidemic VIVITROL is beginning to experience robust growth, yet still has only 1% to 2% market share in the treatment of opioid dependence. VIVITROL was being incorporated into a rapidly growing number of state, county and municipality criminal justice systems and health care systems.

At last count, the number of programs in the states had expanded to more than 200, up from 100 at the beginning of the year. These programs start small and they play an important role in broadening the utilization of VIVITROL in these communities. Looking forward, you can see that the opportunity is significant because the country is beginning to activate to address this serious epidemic. With this newly passed legislation we are developing and implementing initiatives that build on CARA and have the potential to foster the long-term growth of VIVITROL ecosystems around the country.

Turning now to ARISTADA. During the second quarter we made excellent progress in the ongoing nationwide launch. On a prescription basis the LAI market grew 10% in the second quarter compared to last year. The Aripiprazole share of the LAI market also continued to expand and ARISTADA contributed nearly half of the growth in the last quarter. Importantly, our most recent data for the month of June showed that three quarters of ARISTADA starts came from patients on oral anti-psychotic medicines. This is what is fueling the growth of the market. Converting patients from oral as physicians increasingly see the benefits of LAIs. Reimbursement and access are the focus of this launch year.

During the second quarter, we continued to make significant progress to secure parity access for ARISTADA on Medicare part D and Medicaid formularies. As you heard us say again and again over the past year, securing parity access for ARISTADA is a key priority for 2016. In April, we reported that we secured parity access for three of the top ten Medicare part D plans, three of the top ten managed Medicaid plans and two-thirds of state plans.

I'm pleased to report that ARISTADA is now available at parity access at five of the top ten part D plans, six of the top ten management Medicaid plans and more than 80% of state plans. Part D plans will also lock in their 2017 formularies over the summer and we expect to be well positioned as those formularies are finalized and implemented next year. Our goal is to enter 2017 with ARISTADA essentially on the same playing field with the other long acting injectable anti psychotics. Then we can compete on our merits, which are explicit.

We are designing the product offering to be unique and characterized by its flexibility, providing options for patients, physicians and nurses. Beyond our current product offering for ARISTADA, which includes three doses in four and six-week durations we're on track to submit the supplemental NDA in the second half of 2016 for the 1,064 milligram two month dose. And we won't stop there. New product development continues and you'll hear us describe other initiatives to expand the ARISTADA family.

Turning now to ALKS 3831 our novel, oral, broad spectrum anti-phychotic drug candidate for the treatment of schizophrenia. The pivotal program is well underway and will enroll throughout 2016. As a reminder, the program consists of two core phase III studies, Enlighten One, evaluating the anti-psychotic properties of ALKS 3831 versus placebo, and Enlighten Two, evaluating weight gain compared to Olanzapine. In addition to the core pivotal studies we also plan to evaluate the metabolic parameters of ALKS 3831 in healthy volunteers.

This study will build upon the exciting data we're generating pre-clinically which are giving us greater insight into ALKS 3831s mechanism of action both central and peripheral, including its effect on mitigating the metabolic effects initiated, or induced by Olanzapine.

ALKS 8700 for the treatment of multiple sclerosis is also enrolling in its pivotal program. The pivotal program is straight forward. It consists of pharmacokinetic bridging data enabling a 505-B2 regulatory pathway referencing Tecfidera and a two year safety study. The PK bridging work is well under way and will include data from both fed and fasted studies. The open label safety study, in approximately 600 patients with MS, is on track and rolling as expected.

Because of the encouraging data we've observed in our early studies next year we also plan to begin an elective study to evaluate the GI tolerability of ALKS 8700 compared to Tecfidera head to head in approximately 420 patients. We expect to complete the studies required for registration and file the NDA in 2018. Now, onto 5461 for the treatment of depression. At the beginning of June at the ASCP meeting we shared with you and the scientific community the full data set and study design details from Forward-3 and Forward-4. The totality of the data across studies showed the consistent anti-depressant profile of ALKS 5461 and, also, the challenge of controlling placebo response in depression studies.

The replay of that website is available on our website. Looking ahead we've taken our learnings from Forward-3 and Forward-4 and made important adjustments to the third core efficacy study, Forward-5 for which we continue to expect top line data by year end. We also continue to advance our newer development candidates. We recently initiated the multiple ascending dose study for ALKS 7119 in Alzeiheimer's agitation based on encouraging data from the single ascending dose study. And ALKS 4230, our immuno-oncology candidate, entered the clinic during the second quarter.

Let me close by saying our business is operating in high gear. Our teams are highly productive across an unprecedented number of pipeline programs and commercial activities. Our proprietary products, VIVITROL and ARISTADA, are ramping up at a time when substance abuse and mental illness are in the public consciousness more than ever. Our pipeline of late stage product candidates is continuing to advance and we look ahead to important data read-outs in the coming months. We couldn't be more excited about the prospects ahead for Alkermes. With that, I'll turn it back to Sandy for the Q&A.

Thank you. Brandon will now open the call for questions.

Thank you. We will now begin with the question and answer session. (Operator Instructions). From Barclays we have Jon Eckard on the line.

Good morning. Thanks for taking the question. Congrats on the progress. I have a question on VIVITROL. So you highlight today 200 VIVITROL programs, Rich. If I'm not mistaken, the last update you made was in the beginning of June, which was 150. This is a pretty meaningful jump in a short period of time. How should we be looking at that number with regards to how it could play out with regard to growth of the use of VIVITROL going forward?

Good morning, Jon. I had a hunch you'd pick up on that number. Yes, it's quite remarkable. In fact, I think a number of us as we prepared for the call as we went back to refresh that number were surprised by how quickly that number has grown. And I think it's just indicative of a fact that there's a little bit of a propagation wave that's going across the country as drug courts, criminal justice systems in particular, adopt VIVITROL programs. As I said earlier, they start small, as you know.

But I think they're just representative of fundamental tendency in the country now as embodied in CARA as well, people are getting upset with status quo. There's too many opioid deaths happening. When you hear 129 deaths a day in the country from opioid overdose there's a major problem here and people are beginning to activate. So I think that we're going to continue to see that number grow and I think those are basically we think of them as seeds that begin to bear fruit several quarters from now.

Okay. So with regards, you know, don't look at this as a, you know, linear from a script perspective but look at it as a beginning, keep track of the growth of these, basically.

Exactly. I think they are a true leading indicator of things that will trail some periods behind this. None of us really know precisely what the correlation is but we know that generally things are changing around the country in favor of use of more VIVITROL.

And previously for VIVITROL you said I think it was either five or six states drove 50% of the revenues for VIVITROL. Are you seeing a dilution or a spreading of that revenue or is that still fairly concentrated in those states?

I'll let Jim give you more specifics but it's still remarkably concentrated which also tells you we're at the beginning of a more general phenomenon.

The specific numbers are pretty much the same, Jon. They traited by basis points, not really by major percentages, so, five states are 48% and six states are 52% or 53% of our growth. The one thing that is interesting, too, is those states, our largest states are growing the fastest and that to me just again reiterates how early we are in this growth curve. We have more states to expand into as the pilot programs expand, and even the states where VIVITROL is selling, we're selling the most VIVITROL are continuing to expand at the fastest rate. So, again, we're just early in the growth curve here as people figure out how to use, implement, and adopt VIVITROL in the treatment paradigm.

Great. I'll get back in the queue, let other people ask questions. Thank you very much.

You're welcome, Jon.

From Cowan and Company we have Chris on the line. Please go ahead.

Thank you. Congrats on the progress as well. Keeping the topic on VIVITROL, which is guiding your raised guidance, and a little bit more granular, you talked about how the largest states are driving. You've talked previously about core providers. Can you update us on what you think that core provider number is and also what you think the mix is in terms of institutional versus community? And then, finally, in terms of the core providers, what are you seeing in terms of the ability to extend the number of doses per patient and the number of patients that those core providers are treating? Those must be trends that I would imagine are helping contribute why the strong states are growing the fastest. Thank you.

Yes, Chris. Good question. We do track those numbers. We obviously have to make some estimates about the exact number of injection that's physicians are using per patient, that sort of a thing, but we're focused now on we see about 1,500 doctors, which is an increase, of core providers. And they're using about 75% of our sales, our scripts. And so that growth is positive. And broadening that provider base is something that we are very focused on. We're also beginning to see a change and improvement on duration of therapy. You know, a year ago in March we talked about a little over three months duration of therapy and that seems to be ticking up.

The average might be around four months now. Again, those numbers are done by surveys by us and, you know, we do that in-depth kind of once a year so we'll update more clearly on that as we move through the year but all the trends in VIVITROL as we see it are positive. We're getting broader number of providers. We're going deeper in the providers that are using VIVITROL. And we're really seeing, as Richard said before, these are kind of one way valves when people start using VIVITROL and they understand the right sort of patient to use it for they tend not to stop using VIVITROL, at least in our experience to date.

And with the core providers can you give us a rough break-out between the community versus the institutional?

That's a harder number to come by, I think, just because it's such a disjointed, treatment/provider system. But, I know of providers in both; the large nationally known institutions that are adopting VIVITROL more widely, but also the single individual programs that are associated with smaller community hospitals and community programs. So I would say that growth is pretty even across the board and we're seeing growth in each of those areas.

Thank you.

You're welcome.

From Evercore ISI we have Umer Raffat on line. Please go ahead.

Thanks for taking my questions. I have a few here. First, Richard, you said you've made important adjustments to Forward-5. Just wanted to understand what exactly is this new updated statistical plan and how will the end point be measured, one? Secondly, the 8,700 head to head trial versus Tecfidera, that's delayed out to 2017. I just want to understand the thought process behind that. What happened to make you guys think you should push it out six months? Third, so the (inaudible) open label trials ongoing for 8700 and I just wanted to understand what are you seeing early on on GI tolerability in that two year safety trial? Because you presumably have a decent amount of patients enrolled and you're getting a good amount of data open label on that. Finally I noticed there was a PK trial for 3831 initiative in June. I wasn't quite sure why that happened for a drug in phase III. I just want to understand the rationale there. Thank you.

So I'll take those in sequence. Forward-5, as we've said a number of times, we will not disclose the specific statistical plan because of the fact that the study is ongoing and we don't want to change placebo response by people understanding the analytical method that we're going to use. But you've heard us talk about before the reasons why we might have missed on Forward-3 and Forward-4 and how we can integrate other statistical methodologies to more accurately model the difference between the curves, if it exists. So we'll kind of stick with that. Like I've always said don't try to anticipate Forward-5.

Let's let it play out and see thousand looks and we should all be skeptical until such time as we get the data and we can look at it. 8700, the head to head comparison with Tec, because it wasn't originally on the critical path for registration, because the safety study has always said that we'll file this drug in 2018, and I think we're running something like 70 clinical trials at Alkermes this year, so it was one we could shift as we had just things stacking up in the regulatory and clinical operations queue.

With that said though the question you asked about the open label is absolutely true. We are enrolling patients in the open label study and without giving specifics I'll just say we're very pleased with the profile of 8700. It's quite consistent with what we've seen historically. So all systems are go on that and we're quite excited to run the head to head comparison with Tecfidera. And ultimately integrate that into the product profile because we think it's an important part of the drug.

The 3831 PK study I'm not really aware. We have a whole bunch of (inaudible) studies that run around the context of a pivotal program so there's nothing particularly exciting about that. Sandy, I don't know if you have any more detail about that?

No, just the standard.

We can look into it, Umer, but it's not anything particularly exciting.

Got it. But just to be clear, Richard, do you still think 8700 is differentiated versus Tecfidero and GI based on everything you're seeing so far?

I do. I do. Again, we always say that with the caveat, that's why we run experiments. We want to make sure. But that's why the definitive study will be when we go head to head but we're really pleased with what we're seeing so far as we accumulate more data our confidence in that continues to build. So that and a controlled study will give us the answer.

Got it. Thank you very much.

You're welcome.

From Credit Suisse, we have Vamil Divan online. Please go ahead.

Great. Thanks so much for taking my questions. On VIVITROL, going back to that one, obviously very good volume. Can you give a little more color around the pricing side of that? Maybe a level of net pricing you're receiving for that product? And then my second one just on 5461, have you had any furthers or direct discussions with the FDA since you gave us the last update back in the June time frame? And, any other thoughts that they have in terms of the changes you've made to Forward-5? Thanks.

Sure. Just on VIVITROL, gross to nets did increase this quarter as we saw, Medicaid growth year over year actually over 150%. And commercial growth well over 30%. So the product is growing very, very nicely. Our gross to nets for VIVITROL are now in the high 40s, up from 40% in Q1. Again we're predicting that slow increase over time but it is going to start to moderate that growth obviously as Medicaid becomes a larger proportion of overall sales.

The impact on the pricing will diminish over time. So, I think VIVITROL growth is going extremely well and we're very pleased with where we're headed there.

On the 5461, as I've said before, we'll submit the statistical plan to FDA before we unblind, obviously, and we'll have interactions with the FDA on the standpoint at that point, but we probably won't update on FDA interactions other than that.

Okay. Thank you.

You're welcome.

From JP Morgan we have Cory Kasimov online. Please go ahead.

Good morning, guys. Thanks for taking the questions. First of all, wanted to follow up on those core five or six states for VIVITROL, and learnings that you can glean from them that can perhaps be applied to other states. Really kind of curious how their pilot programs evolved over time and maybe how long it took to work through the process, which I assume is going to continue to gain momentum as there's more of a ground swell support fore for this initiative now? And then I have a follow-up.

Corey, if you look at those leading states, leading edge, Ohio and Massachusetts in particular it really is a story about building an ecosystem in the state on a county by county basis. Even Ohio, for example, with 80 some odd counties is still not firing on all counties right now. There's probably ten or so counties, Jim will tell you.

50% of the sales.

50% of the sales. So it's about local treatment systems and integrating with the criminal justice system and the drug courts along with state-based appropriations and behavioral changes that lead to linking in with detoxification capabilities, there's just a lot of different elements. And if you could come here and walk into the war room, what you'd see is basically a profile of the entire nation, of the states that are at that leading edge already. The ones that we think are on deck to become those next states. The ones that are a little bit behind that and the ones that are just getting out of the starting blocks. So we have a whole staged approach to maturing these states. We don't drive it all. Right? A lot of it has to happen within the state itself. We have a pretty good sense now of the activation level of various states across the country.

Okay. Great. And then my second question is a follow-up. Umer asked about the head to head with Tecfidera being pushed out to 2017. How much of that has to do with waiting to see how the Tecfidera IP situation plays out?

Zero.

Okay. Perfect. Thank you.

This is just a question of, this place is so busy, I mean, even it takes ten minutes for me to go through a summary of all the lead stage pipeline programs. We have so many studies going on, it's so active around here, and sometimes you just have to prioritize. And we've got so much going on and that study is a relatively straightforward study so we pushed it out a bit.

Got it. All right. Thanks, Rich.

We have time for one more question.

From Jeffries we have Biren Amin online. Please go ahead.

Thanks for fitting me in, guys. Just on the VIVITROL guidance for the year, are you assuming any price increases in the second half?

No, we're not, Biren. We haven't taken a price increase this year and that's not part of the assumption at this stage.

Okay. Just on the CARA Act, what initiatives are you going to start that takes advantage of the CARA Act and I guess I'm just trying to get some color around the (inaudible) clinics. How many (inaudible) currently to your knowledge do not prescribe VIVITROL?

I would say for the purposes of this conversation, no (inaudible) clinics prescribe VIVITROL. These, what are called OBOTs, the Office Based Opioid Treatment, OBOT docks, there's something like 30,000 certified OBOT docs, in which I think about half are active. About 15,000 OBOT docks. They really are (inaudible) providers. And so I think post CARA you can think about it in two simple domains. One is what are we going to do to make the law reality and that all treatment providers need to be trained on all FDA medicines. That's one opportunity. The second major opportunity is within criminal justice itself. Because CARA elevates the role of criminal justice providers in the community to be central on the treatment of this opioid epidemic and VIVITROL is uniquely suited for use in the criminal justice system because it's non-divertable and has no street value. So we have a particularly advantaged position in the criminal justice world as well. So we'll be working initiatives on both sides of that opportunity.

So just a follow-up on the (inaudible) clinics. Do you think that you would need sales force expansion to cover these clinics adequately?

At the moment, we don't. But we are contemplating putting kind of a new team of people into various communities where the ecosystem is mature to help drive change like that post CARA. But we'll keep you posted on that. We're just evolving that thinking right now within the Company.

Great. Thank you.

You're welcome.

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

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