Alkermes Plc (ALKS) 2016 Q3 法說會逐字稿

Good morning, and welcome to the Alkermes plc third-quarter 2016 financial results. My name is Brandon, and I will be your operator for today.

(Operator Instructions)

Please note this conference is being recorded, and I will now turn it over to Sandra Coombs. You may begin.

Welcome to the Alkermes plc conference call to discuss our financial results for the quarter ended September 30, 2016. With me today are Richard Pops, our CEO, and Jim Frates, our CFO.

Before we begin, I encourage everyone to go to the investor 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. In conjunction with our GAAP results, we believe the non-GAAP financial results better represent the ongoing economics of our Business.

Our discussions during this conference 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 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 our remarks, we'll open the call for Q&A. Now I'll turn the call over to Jim.

Thanks, Sandy. Good morning, everyone. The positive results for ALKS 5461 have dominated our recent news, and we're excited to be back on track with that program.

The strength of our business model is its diversity and opportunity for operating leverage, and we're seeing that play out in our results. We're on plan with our revenues growing and our non-GAAP net loss narrowing year over year. In the third quarter, we generated total revenues of $180.2 million, an 18% increase over the third quarter of 2015. And we reported a GAAP net loss of $62.7 million and a non-GAAP net loss of $14.1 million.

These solid results were driven by the growth of our proprietary commercial products, and notably, the continued emergence of VIVITROL, as it begins to make an impact in the treatment of opioid dependence. On that point, as most of you know, at the end of September we hosted an investor event focused on VIVITROL to provide new information that is useful in understanding the complexities and opportunities in the addiction treatment landscape and the recent growth trends for VIVITROL.

During the quarter, VIVITROL net sales grew to $55.8 million, compared to $37.9 million for the same period last year. These results reflect 47% growth in net sales and 66% growth in units year over year. Gross to nets improved slightly versus last quarter, mainly reflecting quarter-to-quarter fluctuation of the timing of state Medicaid rebates.

We continue to see strong growth in both Medicaid and commercial segments. During the third quarter, Medicaid accounted for approximately 45% of our total VIVITROL units sold, reflecting organic growth within the states and criminal justice programs.

VIVITROL net sales have grown at a compounded annual growth rate of 39% in recent years. Even with this robust growth, VIVITROL's market share is only 1% to 2% of the drug-treated opioid dependence market, and there remains significant opportunity ahead. With the opioid epidemic worsening, and the passage of the Comprehensive Addiction and Recovery Act, or CARA, this summer, there are many reasons to believe that the growth of VIVITROL will remain strong.

Let's turn to ARISTADA, which we see joining VIVITROL as another major driver of our long-term growth. The launch is progressing as planned. In the third quarter, we generated net sales of $14 million, the mid-point of the expectation that we provided on our Q2 call in July.

On a prescription basis, the overall atypical LAI market grew 10.2%. The aripiprazole share of the atypical LAI market also continued to expand, with ARISTADA contributing 42% of the growth in the last quarter. Looking ahead, we expect that fourth-quarter ARISTADA net sales will be in the range of $16 million to $19 million.

Moving on to our royalty and manufacturing business, overall we recorded total revenue of $110.2 million, which included $73.3 million of revenues related to RISPERDAL CONSTA, INVEGA SUSTENNA, and INVEGA TRINZA, compared to $67.6 million for the same period last year, driven by strong growth of INVEGA SUSTENNA and INVEGA TRINZA. During the quarter, we also recorded $12.9 million in revenue related to AMPYRA and FAMPYRA, compared to $22.1 million for the same period last year, reflecting the timing of manufacturing shipments. While our manufacturing and royalty revenues for AMPYRA are lumpy quarter to quarter, the underlying growth trend in end-market sales remains solid.

So, during the third quarter, revenue grew by 18% year over year; and with disciplined cost management, operating expenses grew by only 5% to $241.4 million. These solid results demonstrate our operating leverage as we grow our proprietary commercial portfolio. Based on these results, we are reiterating our financial expectations for 2016, which we provided on July 28.

Turning to our balance sheet, we're in a strong position, and ended the third quarter with $624.6 million of cash and total investments. In September, we repaid $60 million of our debt at its maturity, and in October we extended the maturity of our remaining $286 million of debt by two years to September 2021, at the same interest rate.

The underlying trends of our Business are strong and evident in our results. We continue to capture important operating leverage as our top line grows and we take advantage of our efficient operating structure.

As we approach year end, we're in a strong financial position, as our commercial business accelerates, driven by the growth of VIVITROL and ARISTADA. Our pipeline of late-stage product candidates is advancing, and we're preparing for our next commercial opportunities. With that, I'll turn the call over to Richard.

That's great. Thank you, Jim. Good morning, everyone. Well, this was an excellent quarter, and an exciting past couple of weeks. And as we approach the end of 2016, the future potential of Alkermes is coming more clearly into focus.

VIVITROL and ARISTADA are continuing on their growth trajectories. ALKS 8700 and ALKS 3831 are well into their pivotal studies. And following the positive results from the FORWARD-5 study two weeks ago, we are already preparing for a meeting with FDA and our planned NDA submission for ALKS 5461. We are building a major biopharmaceutical company here.

Let me start briefly with VIVITROL, which, as Jim mentioned, was the subject of a Deep Dive presentation in late September. I recommend you take a look at the archived webcast if you're interested in learning more about this remarkable medicine, which is getting its legs at last, and growing into a really significant medicine for this Company, and ultimately, we believe, for the country.

The addiction treatment ecosystem in which we operate is unique and incredibly fragmented. In order to foster adoption of VIVITROL, you've heard us describe the three critical elements: first, a broad provider network, capable of addressing local patient needs that incorporates detox and medication-assisted treatment, and that fosters continuity of care in the community.

Second, favorable access and reimbursement -- by that, we mean not only will payers reimburse for VIVITROL, but barriers such as prior authorizations and fail first requirements are eliminated. And third, a favorable policy environment, where government officials are focused on the opioid epidemic, with funding available for treatment, and a criminal justice system that is motivated to move from incarceration to treatment. In order to address these unique and complex challenges, we've established an equally unique commercial approach and organization, and the trends speak for themselves.

Looking ahead, to further support the increasing use of VIVITROL, we continue to develop new tools to assist physicians in transitioning their patients from opioid dependence to initiation of treatment with VIVITROL. Our phase 3 study of ALKS 6428 has completed enrollment, and we continue to expect data in the first half of 2017.

Turning now to ARISTADA, during the third quarter we made excellent progress in the ongoing nationwide launch. Our key priority for the ARISTADA launch in 2016 was working through the process to secure favorable access and reimbursement on a state-by-state and plan-by-plan basis. We're carefully and successfully executing that plan.

ARISTADA is now available at parity access on 6 of the top 10 Medicare Part D plans, 6 of the top 10 managed Medicaid plans, and 80% of state plans. We expect to pick up a few more Part D plans this quarter, as we finalize contracts for the 2017 formularies. These successes we've had in terms of access and reimbursement will take full effect in 2017, when we expect to be essentially at parity access with the other long-acting atypicals. This will mark the beginning of the second stage of the ARISTADA launch, where access and reimbursement are better established, and ARISTADA can compete in the marketplace on its merits, which are quite clear.

Beyond our current offering, our work to expand the ARISTADA product family continues. We submitted the sNDA for the two-month 1064 dose of ARISTADA in August, and it was recently accepted for filing by FDA, with a PDUFA date in June 2017. We look forward to bringing this additional option to market, expanding ARISTADA's offering of doses and durations to allow physicians to provide highly individualized treatment plans for their patients.

We've also made important progress in the development pipeline. Two weeks ago, we announced positive phase 3 results from FORWARD-5 for ALKS 5461 for the adjunctive treatment of major depressive disorder. ALKS 5461 represents a new mechanism of action in a treatment landscape dominated by SSRIs and SNRIs, which fail to provide relief to more than 5 million patients in the US with major depressive disorder, a disease that can be fatal without effective treatment.

FORWARD-5 was a double-blind, placebo-controlled study that evaluated the safety, tolerability, and efficacy of two dose levels of ALKS 5461 in 407 subjects. The efficacy results from FORWARD-5 were clear and positive. The safety results were equally important, with potential use in millions of patients. We believe the safety profile of ALKS 5461 will be one of its most meaningful attributes.

In FORWARD-5, we had a very high completion rate of 83%. 5461 was generally well tolerated, and the most common adverse events were nausea, dizziness, and fatigue. These events were generally mild, transient, and typically occurred around the time of treatment initiation.

So, the results from FORWARD-5 are clear and robust. And importantly, the study does not stand alone. We've amassed an extensive data set that encompasses more than 14 clinical trials, data from more than 1,500 subjects who participated in the 5461 clinical efficacy program, and 1,500 patients who have enrolled in the long-term safety study, nearly 600 of whom have already completed 12 months of treatment.

What's perhaps the most striking about ALKS 5461 is the consistency of the totality of the data, in terms of antidepressive effects, as well as its safety profile. So we believe that the positive FORWARD-5 study, taken together with the confirmatory results from our randomized controlled phase 2 study, the supportive data from the FORWARD-4 study that were reported earlier this year, and data from the collective 5461 clinical program provides substantial evidence of efficacy in support of a regulatory submission.

With the results of FORWARD-5 now in hand, we are preparing our NDA submission for this fast-track-designated medicine. And we will request a meeting with FDA to review the data from the entire FORWARD program. We expect that meeting to occur in the first quarter of 2017.

So turning now to ALKS 3831, our novel, oral, broad-spectrum, anti-pyschotic drug candidate for the treatment of schizophrenia, the pivotal program is up and running, with most trial sites now online, and several months of enrollment experience under our belt. ENLIGHTEN-1, the four-week phase 3 study evaluating the anti-psychotic properties of ALKS 3831 versus placebo, and ENLIGHTEN-2, the six-month phase 3 study evaluating weight gain compared to olanzapine, are both well under way. We will provide an update on expected timing for those studies as we get a bit more resolution early in 2017.

During the third quarter, we initiated a metabolic study that will give us a greater insight into ALKS 3831's mechanism of action, including its effect on mitigating the metabolic effects induced by olanzapine. We expect data from this study in the first half of 2017.

ALKS 8700 for the treatment of multiple sclerosis is also enrolling in its pivotal program. The pivotal program consists of pharmacokinetic-bridging data, enabling a 505(b)(2) regulatory pathway, referencing Tecfidera, and a two-year safety study. We expect to complete the PK bridging work by year end. The open-label safety study in approximately 600 patients with MS is on track and enrolling as expected.

The preliminary data from the open-label study are encouraging, and we look forward to initiating an elective study in the first half of next year to evaluate the GI tolerability of ALKS 8700 compared to Tecfidera head to head in approximately 420 patients. We continue to expect to complete the studies required for registration and file the NDA in 2018.

Moving now to ALKS 7119, which reminds us that not everything always goes according to plan. Just in the past few days, we made a decision to terminate further development of ALKS 7119. Following the positive results from the single-ascending dose study earlier this year, we initiated a multiple-ascending dose study in healthy volunteers.

In that study, we began to see unacceptable side effects. These were mild in nature, and resolved in the small number of patients that were affected. They were not observed in the single-ascending dose study, nor predicted based on pre-clinical models. However, initial analysis does suggest that they were drug-related and dose-dependent.

Given the elderly population affected by Alzheimer's agitation, we established at the outset that excellent tolerability was a critical performance factor. ALKS 7119 is not living up to that standard, so we're done. I want to thank the teams that worked so hard on this program, and the clinical researchers and volunteers who participated in the studies.

To finish up, we are at an unprecedented place in Alkermes' evolution, with two proprietary products growing in the market; a potential blockbuster product in ALKS 5461 advancing again at full speed; and two additional late-stage candidates, well into their pivotal programs. We are right where we want to be, well positioned for near- and long-term growth, and well on our way to building a major biopharmaceutical company. And with that, I'll turn it back over to Sandy for the Q&A.

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

(Operator Instructions)

Cory Kasimov, JPMorgan.

Hey, good morning guys, and thanks for taking the questions. One on VIVITROL and another on Maintena-ARISTADA competition. On VIVITROL first, just regarding utilization on the state level, can you talk about the progress that's being made on getting beyond those five or six core states that you've referenced in the past, and when we can expect to see others moving into that group? And then have the others on ARISTADA.

Hello, Cory, it's Richard. I won't give you the absolute specifics on it, because I really don't want to track this on a quarter-by-quarter basis, state-by-state, because some of it is actually pretty confidential information.

But with that said, we were just reviewing some additional states yesterday, as a matter of fact, and yes, there are those that are moving left to right on that graph we showed you, and beginning to kind of move into the category of a highly-developed ecosystem where we expect to drive more utilization. So just suffice to say that it's progressing, and I think it's going to continue to progress quarter-by-quarter.

Okay. And then with regards to ARISTADA, and given the fact that you're poised to be operating now at parity with the competition, how do you look at the share -- kind of the steady climb in Maintena share that I now believe is up to 16% or 17% of the overall LAI market. Does that give you added confidence in the potential of ARISTADA given that I believe you said in your prepared comments that product contributed I think was 42% of the overall aripiprazole growth in the quarter?

That's right. I think that there's a real opportunity in the marketplace for a long-acting aripiprazole formulation. Maintena, being the first, has the opportunity to get there and demonstrate that, but I think with the features that we have with ARISTADA, we're incredibly well-positioned for the long-term.

So I think that two fundamental things are happening. Number one -- you've seen it from the charts that you've generated and we've provided -- the overall growth in the LAI market is continuing to grow. And from a public policy point of view, we really see that's a trend that should continue in the US The treatment of schizophrenia is so fragmented and so poor that there's a real opportunity for more utilization of long-acting injectables in general.

Within that, I think that aripiprazole itself has a very favorable profile, particularly for early initiation of patients and earlier in their disease. And within the aripiprazole formulations you've heard us say, of course, that we think that ARISTADA has the market-leading features. So we've been working for a year to get to the point where we can compete equally. We'll move into 2017 essentially at parity with the other LAIs. And as I said earlier, that marks the beginning of phase 2 of the launch, really.

Just as a follow-up to that, what are you learning from the trends of launch in terms of the market's desire for even longer-acting therapies?

Well, it's a great question and it really underscores our excitement about the June PDUFA date for the two-month that we have. I think you've heard it said all along, that the existence of trends, or the existence of our two-month, is not that the whole market is shifting to longer durations-- we're still trying to get the world to shift to the use of LAIs in general -- but when you're choosing among LAIs, it gives you an additional level of flexibility for your patient, if you are a physician. Because you can say, should my patient do well on this medication and be adherent, we can minimize the number of injections per year. So we think that this flexibility in dosing is a really important advantage on a competitive basis.

Okay. Appreciate the color. Thank you.

Chris Shibutani, Cowen and Company.

Yes. Thank you. Two questions. One related to VIVITROL. Jim, I believe that you provided some metrics, which has helped us to model talking about average duration of use and average net pricing. If you could perhaps provide some update on what the trends are during the quarter, that would be helpful. And then I have a follow-up on 5461.

Yes. Hello, Chris, good morning. We obviously gave the deep dive in September at our analyst call -- the analyst day -- which both Rich and I mentioned, and I think from a duration perspective, we are still seeing that in the four-month range for VIVITROL. I think we are seeing positive trends there. As we continue to grow, that is staying steady.

But not a whole lot of update here -- 30 days later there. On the price side, we actually had a relatively good quarter. It was slightly more positive than the previous quarter, with our average net selling price a little bit over $700 this month. And I think that really just relates to the fluctuation we talked about, as the timing of various state Medicaid rebates come through. You know, I think the modeling exercise that we did in September had us using prices between $600 and $700 for the long-term, so an average of $650. You know, we just saw a quarter slightly above $700, so I think we're very comfortable with those averages long-term.

And I think it underscores really what is happening with VIVITROL is that growth in units is accelerating. We are still very low-market penetration, again as both Rich and I mentioned, and unfortunately this problem is only getting worse in the country, as we see day-to-day continued headlines about the opiate crisis getting worse. And VIVITROL's knowledge and people's experience with it is growing, and so we're looking forward to a protracted period of growth here with VIVITROL.

Thanks, and on 5461, so the statistical analysis that you did was revised in FORWARD 5. When will we be able to see that data? And in particular you commented that when you applied that form analysis to FORWARD 4, that you were able to also get favorable types of results. Can you give us a sense for when we will be able to see the details on that statistical analysis?

And then also with by 5461, I believe the combination of buprenorphine with the samidorphan has the potential quality of addressing the addictive properties in buprenorphine. Can you give us some sense for when we will be able to get a better understanding of that aspect of 5461's profile? Thank you.

Sure, Chris. We are looking right now at what the most appropriate scientific meeting for presentation would be. It's likely not to be until the spring. But we're working on that real-time.

Our probably most important, most immediate audience is obviously with FDA as we start putting together the plans for filing the NDA. Indeed, when you look at the statistical analysis plan that was changed for FORWARD 5, it's actually fairly straightforward, and I think most of you had predicted it, which is instead of relying on a single time point for the analysis of the change from placebo, we looked at an average of multiple time points to give a more correct description of the separation of two curves.

When you apply that same analysis to FORWARD 4, it very easily becomes a very positive study. The other thing that's interesting, and I think it's a separate point, but because FORWARD 4 and FORWARD 5 are essentially designed identically, we can pool the results of those two studies, and that's where you start seeing even larger sample sizes in each of the analytical cells, and you start getting even stronger statistical significance, albeit it's a post-hoc, but pre-specified pooling that we had put in place.

So as I said earlier, I think the robustness of the data -- of the consistency of the data -- is what is so striking. Any single study can be informative, but when you put them all together, that's where I think the power of the 5461 data set lies.

I think that the buprenorphine-samidorphan combination -- its original design intent was to do just what you suggested. It's to ablate, or removed the addictive potential of buprenorphine. Buprenorphine at two milligrams is not a drug that physicians would feel comfortable administering to patients for the treatment of depression because of its addictive potential. In fact, buprenorphine's widespread use in the community is something that we're living with as we deal with VIVITROL on the opioid epidemic.

So it's an essential component of 5461-- does the samidorphan component attenuate the addictive potential of the opioid. So, we have data that support that, and it comes in a number of different ways. One -- and most directly -- we look at what we call the human abuse potential, or HAP study, which we completed last year. We gave you the top line data on that; we have not yet presented that, and we will. The other thing is just in the context of testing 1,500 patients, you look at things like withdrawal, if there is any withdrawal indication when people come off of 5461, which there is not.

You look at whether there is any AEs assisted to euphoria or other opioid-like effects, which there are not. You also look for even more subtle or maybe less subtle explicit things like do patients refuse to return their drug at the end of the study? Does the drug get diverted within the context of the study? These are all part of what FDA calls that their eight factor analysis that helps them determine the scheduling liability or potential of a particular medicine.

All those things now. This isn't theoretical anymore. We have a lot of data, over a lot of patients, over a lot of time and so we're really excited about that aspect of this medicine.

Thanks. We'll be watching for that spring meeting. Thank you.

You're welcome.

Paul Matteis, Leerink Partners.

Hello, this is Jeffrey Lin on for Paul Matteis. Thanks for taking my question, and congratulations on the completion of another quarter. So on 5461 as you prepare for your FDA meeting, would you perhaps give us a little bit of -- as you go into the meeting, what are your expectations in regards to the -- what do you expect to receive from the FDA in terms of the approvability of your data package? And would you consider running another current phase 3 as you are preparing for your NDA filing? And a follow-up question after this.

Yes. Our presumption right now is we're going to go ahead and file the NDA for 5461 based on a substantial amount of evidence that we've developed through multiple clinical trials. Really, our meeting with FDA is to review the data from the entire FORWARD package and talk about our regulatory approach. This is a fast-track designating medicine. We've had multiple conversations with FDA about this medicine along the way, and we really consider it to be part of an ongoing update on our registration pathway for ALKS 5461.

As it relates to another study, I think that we believe that 5461 is going to be a really important product, and so we start in the adjuvant setting in patients with inadequate clinical response to SSRIs, or SNRIs. But I don't think it stops there. And so we certainly will be running additional studies over time in different indications and different patient subsets, but I think for the purpose of initial registration, we feel like we have an adequate data set. Right now we are actually planning next studies of 5461 as we think about it becoming an important product over the next many years.

Okay. Thanks for the color. Also, I know it wasn't mentioned on this call, but could you possibly give us a little bit of insight on the status of your IL-2 program and when do you expect to see data from it?

Yes. That's 4230, and we're enrolling in the dose escalation phase, so the first phase of our first program. So we will escalate up for the next several months, and then we'll move into an expansion phase, if we see the type of profile that we expect to see and hope to see. So it is still early days.

Right. Thank you very much.

You're welcome.

Umer Raffat, Evercore ISI.

Hello, guys. Thank you for taking my question. Richard, would you initiate a new trial on 5461 while the FDA review is ongoing? Sort of like what Shire did with Xiidra when it wasn't clear if they would get an approval based on their existing data, but the drug appeared to be active.

And then also perhaps just to ask, perhaps Elliot, FORWARD 5-- is it stat sig on matter asset week five as in the same endpoint as -- as if it were to be the same primary endpoint as FORWARD 4? Finally, on 8700, just curious, any feedback from the opioid label to your safety trial as well as, we noticed you guys added some European sites in there, so just wanted to understand the thought process. Thank you.

Good morning. We are actually discussing whether we will initiate additional studies on 5461 while we are going. And part of it is just bandwidth. We have a lot to do on 5461. We're really excited about it. We think it's going to be really important drug; it has the potential to be used in a range of different patients, other than patients simply adjunctively in major depressive disorder.

We're digesting the data right and now figuring out our next moves. I wouldn't look to us to initiate a study as an insurance policy, because we not confident in the data from the program as we currently have it configured. But we'll try to ask and answer probably a different question, scientifically, because we feel like we've really done a pretty good job of interrogating the use of it in the first approval setting.

The 8700, yes, it's an open-label study with 600 patients, so we need a lot of sites, and we want to include sites from all over. And we are actually reviewing the AE data on open-label basis, so it is quite encouraging. The weakness of that observation, of course, is that there is no comparators, so we're looking forward to starting that head-to-head comparison, but nothing we have seen so far has diminished our original hypothesis that we have an opportunity to differentiate. So we look forward to doing that in 2017.

And the FORWARD 5 on week five?

We haven't disclosed anything other than we disclosed in the press release in terms of the further analyses of the efficacy. But I think you can pick individual time points and see significance, but I think our whole point is that individual time points aren't really the most correct way to look at this, because of the week-to-week fluctuations that you see. So we are really convinced that the most appropriate analytical method is to look at the separation of the curve by averaging multiple points.

Thank you very much.

You're very welcome.

Biren Amin, Jefferies LLC.

Yes, thanks guys for taking my questions. Maybe just start on VIVITROL. The guidance -- I guess full-year guidance, when you back out everything that you've reported, suggests a slightly down Q4. Is that just the Company being conservative, or do you expect Q4 to be impacted by rebates, or I guess will holidays impact administration schedules? I'd just like to get additional--

Hello, Biren. We don't expect a down Q4. I think if you look at the totality of guidance, which was $192 [million] to $210 [million], we could have raised the bottom end of the guidance to make that clear, but we are definitely expecting growth in VIVITROL in the next quarter. Rather than updating the bottom end of one part of our guidance, we just thought that we would let people look at the trends of VIVITROL and make that conclusion. So we are definitely expecting continued growth.

Got it. And then just on ARISTADA, I think Richard, you mentioned second stage of launch in 2017, with reimbursement and access coming online. Do you expect to anticipate increase in sales force numbers in 2017, or do feel that you are fully staffed?

I think we are good about where we are on the commercial side, so I think the other element of the second stage of the launch, of course, would be the approval of the two-month in the summertime. So I think we've got not only the access settling itself out, we've got a good team in place, and we also have kind of the adrenaline shot of another dosage form coming to market. So I think we are feeling real good about it.

Great. Thanks for taking my call.

You're welcome.

Morgan Williams, Barclays.

Good morning, and congratulations on the progress, and thanks for taking my questions. So following up on a previous question, could you maybe elaborate little bit more on what type of unanswered question you'd be looking to answer with the additional studies for 5461, if you choose to initiate that study? And if you do, would this trial be included in the filing?

And then secondly, on VIVITROL, as you kind of laid out those three factors that we can use to evaluate as drivers for growth, do you have expectations for when we'll see especially access improvements and policy initiatives kind of phase in and how we can think of that over the next few years?

On the first, I think that a couple of things come immediately to mind. One is the idea of -- and again we haven't settled on any of these -- but just the ones that come immediately to mind. We are testing 5461 in the adjunctive setting in patients with refractory depression, but the interesting question about monotherapy in earlier-diagnosed patients. Given the profile, the safety profile, and the rapidity of onset of the antidepressant effects, that's a really interesting scientific question.

Obviously, other indications -- there are other indications where the opioid system is implicated, and we could see some benefit. There's also sub-populations: we are interested in adolescents, we are interested in people with more or less refractory disease, and trying to tease apart phenotype and map onto that the use of a new approach like this, which is a different mechanism than the SSRIs or the other monoamine reuptake inhibitors.

So it suggests there may be areas where we actually do better for patients than their current antidepressants. There's a lot to learn yet on 5461, and I don't expect those to be part of the initial submission.

Maybe I'll take the VIVITROL one. I think as Rich mentioned earlier, it's hard for us to talk about every single win on a reimbursement side or on a state program. We do try and track the number of programs, and they have expanded very dramatically last year, as we've talked about that organic growth, where programs are starting now without our involvement, really, as people see success in their pilot programs and they expand both within states and into adjacent states and across the country.

So I think what you have seen, though, is an acceleration of the growth in VIVITROL in 2016 compared to 2015. We're now consistently seeing unit growth, year-over-year, in the 60%-plus range, and we showed 47% net sales growth this quarter, year-over-year. So that growth is accelerating.

It is going to be fed by breadth and also depth in the individual states, and so we will continue to update you broadly on that, but I think we won't talk about individual programs. Rather, I think you can just really start to look at the sales curve and make some assumptions going forward, which is why we're confident about the growth, given that were still early in the penetration curve, with roughly a 1% to 2% penetration currently across the country.

Okay. Thank you. That's helpful.

Sure.

Mark Goodman, UBS.

Hello, this is Ami Fadia on behalf of Mark. Maybe a little bit more clarity on VIVITROL. Could you give us a sense of where the gross to nets are, and where some of the mix is with respect to channels -- Medicare and Medicaid. And you mentioned that you've picked up more volume, or more states, during the course of 2016.

How much of it is annualized, and how should we think about sort of the impact going into 2017, just from the annualization of the effect from 2016. And then also as we think about 2017, what else should we be expecting, and anything that you have visibility into would be helpful. And then I have another one on ARISTADA. Thanks.

Sure, Ami, thanks good morning. First on the gross to nets, I think I mentioned we're at 45% gross to nets now, which is slight improvement. Last quarter, we were at 48%. And that really has to do with the fluctuation of various states. As you know, the mix of Medicaid will be different in state-to-state, and they are sometimes slow with their reporting. But we are seeing growth both in the commercial business and in the Medicaid business.

We talked about it last quarter, but we are seeing Medicaid growth well over 100%, and commercial growth in the 30% range. That is continuing. I think the best place to go -- I won't reiterate a lot of the things we said in September at our analyst day -- but that's the best place to go for trends. And I think the story there is very consistent, which is we are really beginning a protracted period of growth for VIVITROL into states as we broaden our provider network in the states, as we improve access, and it's plan-by-plan.

But we are seeing these go really in one direction as people get experience with VIVITROL and see the outcomes. I'm not sure of a state program that's gone backwards, if they haven't continued to expand in the six or seven years we've been focused on this, particularly in opioid dependence. So we see these trends continuing.

And as we expand from a small number of states driving the business-- we've talked about five or six driving 50% of our business-- as that expands through the country we see, I guess you could say it, that growth continuing to annualize, as you say. But as we bring on new states, unfortunately, as I mentioned earlier too, the epidemic is only getting worse.

So I think that VIVITROL growth trend is going to continue and there are lots of things at a policy level in states and also at federal policy levels -- we've talked about CARA-- that are going to continue to drive that growth in the next year and beyond. So hopefully that gives you a little bit of color, but we definitely see -- we won't guide to 2017 yet, but we certainly seethe growth in VIVITROL continuing for many years to come.

Got it. Actually, maybe if I could ask a question on 5461. As you think about the submission, and if everything goes well with the FDA meeting, when would you start to prepare the organization for a launch, and could you elaborate a little bit about what type of investments you may need to make to launch the product? Thanks.

What is so exciting about the 5461 progress is the way it builds in a step-wise manner on what we've been doing commercially already. As VIVITROL has gotten its legs, and as ARISTADA now ramps, we've started from a very focused core of 70 people or so selling VIVITROL, added on the 175, which gives us a true national footprint, calling on community mental health centers for schizophrenia. And all the associated infrastructure in the Company necessary to support the marketing and the compliance around doing that.

As 5461 moves into the registration phase, we see adding another sleeve of sales representatives, something on the order of perhaps 300 or so, to be determined. But you have heard us say before, we think a salesforce of that size could call on the top deciles writing prescriptions for this indication, but that goes on top of this foundation that will be generating what we think is several hundred million dollars of revenue already. So I think that build out of the commercial team, on the sales rep side, would happen more around the time of approval, and we don't really need to build out the foundational piece of it, because we already have it in place.

I think we have time for one more question.

Terence Flynn, Goldman Sachs.

Hello, thanks for taking the questions. Maybe just two from me. Rich, just wondering if you can confirm if you had any communication with FDA yet following the FORWARD 5 data? And then Jim, as we think about R&D heading into 2017, just given the completion of the 5461 phase 3 program now, is it fair to assume there is some downward pressure on this line?

Terence, on the first, as a normal matter of course, we have sent the FDA the press release on the day of the announcement, or probably immediately beforehand, and we will be following up with a formal meeting request in the next couple of weeks or so. So, that's the extent of our interactions right now.

Yes, good morning Terence, and on the R&D spend, you're right, 5461 is winding down this year. I think with the opportunity for us is that actually 3831 and 8700 are moving into a broader phase 3 program. I think that we won't guide right today for 2017; we are doing our budgets now.

But as we wind down one phase 3 program, we're winding up two, and I think the value of our pipeline is evident to a lot of folks, and next year you will see a lot of focus I think on 3831 and 8700 as well, even as we have success in our commercial business and with 5461. So we feel like we're hitting on all cylinders, and we certainly have the financial resources to manage all those programs. So we will give you more guidance when we update for next year. At least some trends to think about.

Okay. Thanks a lot.

You are welcome.

Thank you. We will now turn it back to Sandy Coombs for closing remarks

Thanks, everyone, for joining us on the call this morning. If you have any follow-up questions, we will be available at the Company for the rest of the day. Thank you.

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