Alkermes Plc (ALKS) 2017 Q3 法說會逐字稿

Good morning, and welcome to the Alkermes plc Third Quarter Financial Results Conference.

My name is Brandon, and I will be your operator today. (Operator Instructions) Please note, this conference is being recorded.

And I will now turn it over to Sandra Coombs, Co-head of Investor Relations. Sandra, you may begin.

Thank you. Welcome to the Alkermes plc conference call to discuss our financial results for the quarter and year-ended December 30, 2017. With me today are Richard Pops, our CEO; Craig Hopkinson, our Chief Medical Officer; and Jim Frates, our CFO.

Before we begin, I encourage everyone to go to the Investors section of alkermes.com to find our press release and related financial tables, including a reconciliation of the GAAP to non-GAAP financial measures that we'll discuss today.

We believe the non-GAAP financial results, in conjunction with the GAAP results, are useful in understanding 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 Slide 2 of the accompanying presentation, our 2 most recent 10-Qs and also our 10-K for the year ended December 31, 2016, 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 will discuss our financial results, and Richard will provide our perspective on recent news items. We also have a number of pipeline updates to share with you today, starting from the departure from our regular earnings call format. Dr. Craig Hopkinson, our Chief Medical Officer will provide an overview of our development pipeline as well. After our remarks, we will open the call for Q&A.

Now I'll turn the call over to Jim.

Thanks, Sandy, good morning, everyone. Our third quarter results reflect solid top-line performance driven by our proprietary commercial products and our royalty and manufacturing business as well as disciplined expense management.

With only one quarter in 2017 remaining, today we are revising our financial expectations to reflect our results year-to-date and our expectations heading into the last 2 months of the year.

I'll start with the financial highlights from the quarter. During the third quarter, total revenues grew 21% to $217.4 million compared to the third quarter of 2016, driven by solid year-over-year growth of our proprietary commercial products and continued strength from our royalty and manufacturing business.

These revenue results driven by slightly lower-than-expected VIVITROL growth were offset by expense management during the quarter, which allowed us to advance our development pipeline while generating solid bottom line performance.

For the third quarter, we reported a GAAP net loss of $36.3 million and a non-GAAP net income of $4.2 million. Starting with VIVITROL. In the quarter, net sales were $69.2 million, reflecting 24% growth compared to the same period last year, with 5% growth sequentially. These results were lighter than our expectations. We believe this was primarily the result of 3 factors: the drawdown of inventory in the channel, lower-than-expected growth in some of our largest states, which disproportionately affects overall growth, and delays in federal funding related to 21st Century Cures flowing into the treatment system.

Our third quarter results underscore the VIVITROL as a unique product in an unusual market. Looking forward, we continue to monitor new state programs as a leading indicator for interest in VIVITROL and that growth remains strong.

During the third quarter, we saw the number of programs expand from approximately 500 to more than 560 programs. Based on our results year-to-date, we are revising our 2017 expectations for VIVITROL, down to a range of $265 million to $275 million, which reflects approximately 30% growth compared to 2016.

Turning to ARISTADA, third quarter net sales of $24.5 million were within our expectations and represent 8% sequential growth compared to the second quarter. During the quarter, we continue to gain traction in the growing market for long-acting, atypical antipsychotics. ARISTADA market share for new prescriptions in terms of months of therapy in the long-acting aripiprazole market was approximately 24% in the quarter compared to approximately 15% in the third quarter of last year.

Based on these results, we expect fourth quarter net sales of ARISTADA to be in the range of $27 million to $30 million, in line with our expectations for ARISTADA net sales to approximately double for 2017. With the launch of the 2-month dose last quarter and the new progress being made on the ARISTADA product family, we're well positioned to keep growing this important medicine.

Moving on to our partner products. We saw overall revenues of $122.7 million in the third quarter compared to $110.3 million in the third quarter of last year. Of note, this included strong manufacturing royalty revenue of $79.4 million related to RISPERDAL CONSTA, INVEGA SUSTENNA and INVEGA TRINZA, which increased from $73.3 million for the same period last year.

In terms of expenses, our total operating expenses for the third quarter of 2017 were $255.7 million, compared to $241.4 million for the same period last year. This year-over-year increase was driven primarily by investment in the company's development pipeline and commercial organization.

R&D expense during the third quarter was somewhat lighter than expected, primarily due to timing. Therefore, we're lowering our expectations for R&D to a range of $400 million to $420 million for 2017. We're also able to decrease our expectation for SG&A expense to a range of $410 million to $430 million for 2017, driven by disciplined expense management and the timing of certain commercial initiatives.

Overall, we're maintaining our non-GAAP expectations for the year, which continue to be in the range of a non-GAAP net loss of $15 million to a non-GAAP net income of $15 million. As our lower spend offsets the decrease in our expectation for the top line.

Turning to our balance sheet. We are in a strong position and ended the third quarter of 2017 with approximately $569 million in cash and total investments. We continue to focus on executing on our business strategy, to grow our commercial products and invest in the late-stage development programs, that we expect will be our future growth drivers. Our growth expectations for both VIVITROL and ARISTADA remain high and you'll hear more from Rich on these plans. We look forward to a solid fourth quarter as we continue to drive our growth.

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

That's great. Thank you, Jim. Good morning, everyone. We have a lot going on at the company. New drug applications for ALKS 5461 and ARISTADA. New data being generated and presented for 3831, VIVITROL and ARISTADA. And critical milestones approaching for almost every program as we end the year and head into 2018.

There are a number of updates we want you to be aware of today. So we've decided, in lieu of scheduling a separate webcast, to expand this call to include a more extensive R&D update. This also gives me a chance to introduce Dr. Greg Hopkinson, our Chief Medical Officer, who recently joined us from Vertex.

Craig joins the R&D organization led by Elliot Ehrich, who most of you know, and he's already having an impact here. So what we'll do is I'll share my perspective on some of the important developments on VIVITROL and ARISTADA, in particular. And then ask Craig to update on other programs, including a first look at our 4230 immuno-oncology program.

I want to start with VIVITROL. Jim took you through some of the background to the numbers, but from my perspective, the sequential growth during the quarter is more indicative of the unique nature of this market than the long-term potential of the medicine. We are in the midst of a national crisis. VIVITROL is an increasingly important element in addressing it and it's growing and I believe this growth is going to continue.

I believe it so strongly because we're also at the beginning of a paradigm shift in the treatment of opioid dependence in the country. There's a confluence of new data, policy and funding being integrated into a national response to this epidemic.

The status quo is inadequate and will change by necessity. First, let's talk about the data. Just last week, JAMA Psychiatry published important positive results from a first-of-its-kind study directly comparing VIVITROL to buprenorphine-naloxone or SUBOXONE, which is the most widely used treatment for opioid dependence.

VIVITROL performed as we would have expected. The study demonstrated that VIVITROL was as effective as SUBOXONE on retention in treatment and reducing use of heroin and other illicit opioids. Importantly, VIVITROL patients also demonstrated a significant reduction in opioid craving and reported high treatment satisfaction throughout the 12-week study. These comparative data build upon the existing substantial body of evidence supporting use of VIVITROL and the value of medication-assisted treatment, called MAT in general. And there will be more data. Later this year, we expect the results of NIDA's X:BOT study, which also seeks to directly compare VIVITROL to buprenorphine.

Each of these studies has its limitations but in the aggregate, more data supporting the use of MAT will drive change. MAT is grossly underutilized. We're encouraged that the research community is actively generating new data about the utility of VIVITROL and other MAT for this underserved patient population.

The next element is policy. The goal is to evolve the treatment paradigm to a patient-centered approach and ensure that all patients were informed and have access to all available treatment options. This requires action on part of federal and state policymakers as well as other participants in the system. Alkermes is an active player on this front.

Last month, we provided testimony in separate meetings to the Department of Health and Human Services and to the President's Commission on Combating Drug Addiction and the opioid epidemic.

We outlined the role of VIVITROL in treatment landscape and its features as a non-narcotic, long-acting treatment option that is not diverted or sold illicitly.

We also testified about the importance of equal access to all FDA-approved medications for opioid dependence and recommended to the commission they focus on the implementation of the Comprehensive Addiction and Recovery Act, that was passed into law last year.

We look forward to the commission's final recommendations in its report to the president, which is expected just in the coming days and for plans to implement the recommendations coming out of the White House in the weeks ahead.

I also want to note FDA Commissioner Gottlieb's testimony yesterday in front of the House Energy and Commerce Committee. He said and I quote, "FDA will take steps to promote more widespread use of existing safe and effective FDA-approved therapies to help combat addiction. There are several FDA-approved treatments, all of these treatments work in combination with counseling and psychological support. Everyone who seeks treatment deserves the opportunity to be offered all 3 options as a way to allow patients and providers to select the treatment best suited to the needs of each individual patient." This has been our message for the past several years. It's beginning to be heard and to be translated into policy.

On the funding front, new funds are being deployed. Last year's 21st Century Cures Act, provided $1 billion of new funds to address the opioid epidemic. That money has been slow to move from federal to state government and into the community, but it will, as a matter of law and as a matter of necessity.

In statehouses around the country, appropriators are allocating new funds to combat the crisis in their communities. Later today, the president will make an announcement regarding the actions the administration will take to address the opioid crisis. Setting the stage for the commission's report and underscoring the central focus this epidemic is taking in our national dialogue.

So in summary with new data being generated and presented to the treatment community, policymakers focused on solutions and new funding flowing to this treatment, we have the opportunity to change how the country is addressing this public health crisis. VIVITROL and Alkermes are key elements of this discussion and we will continue to be in the front lines, advocating for patients.

Next is ARISTADA. With important new developments to report. Patient-centered solutions have been at the core of our ARISTADA development program since we began work on the program 8 years ago. You can see the product family blossom year-by-year and we've asked you to watch what we do and I think now it's becoming more clear.

This morning, we made 2 announcements that reveal how fast the product family is evolving. First, we revealed that we submitted a new drug application for a new aripiprazole lauroxil formulation, designed to enable simple initiation on to ARISTADA. We have kept this development program under wraps for competitive reasons. As this initiation product adds a critical new dimension of flexibility to the product family. And enables initiation without the need for 3 weeks of oral supplementation.

This new initiation product is a single injection, designed to make starting ARISTADA even easier for both patients and their healthcare providers. Based on our NanoCrystal delivery system, which enables a faster-release profile in the formulation employed in our monthly, 6-week and 2-month dosage forms and it's well suited for initiation of treatment for patients not currently taking oral aripiprazole.

The second announcement builds on the first and relates to the upcoming initiation of an ambitious new Phase IIIb study, comparing ARISTADA to the current market leader INVEGA SUSTENNA. These 2 products offer the greatest flexibility in terms of doses and durations and we want to continue to build the evidence base supporting expanded use of ARISTADA.

The study will employ 2 key features of ARISTADA. Our new initiation regiment I just described along with the 2-month ARISTADA dose. Simple initiation and 2 months of therapeutic coverage may have important real-world utility and particularly useful for patients transitioning from inpatient care to more complex outpatient settings when patients with schizophrenia are particularly vulnerable to relapse.

This study builds upon positive Phase IV data we presented in September to demonstrate that switching patients who had experienced inadequate response or intolerance to INVEGA SUSTENNA to treatment with ARISTADA led to statistically significant and clinically meaningful improvement of schizophrenia symptoms. Taking together, these studies will continue to build the story of ARISTADA's positioning alongside the class leader.

Our vision for ARISTADA is a bold one, to become the gold standard of treatment among the long-acting injectable antipsychotics.

So that's all that I'm going to cover. Now I want to introduce Craig Hopkinson, our new Chief Medical Officer and Senior Vice President of Clinical Development and Medical Affairs, among other things, Craig is enhancing our medical affairs function as we prepare for the anticipated launch of ALKS 5461, where we'll be educating the treatment community on this new mechanism of action for the treatment of depression. Craig is also responsible for the advancement and implementation of our clinical pipeline development programs. And with that, I'll hand the call over to Craig.

Thank you, Richard. I'm excited to be joining Alkermes at such an important time for the company's pipeline of development candidates. I'm pleased to be able to share with you today, important updates across our pipeline portfolio.

I'll start with ALKS 5461, our fast-track designated medicine in development for depression.

First, this is an important medicine and one of the key reasons I joined Alkermes. When introducing a new mechanism of action into an established treatment paradigm, educating physicians and engaging [folk] leaders is critical to launch and to long-term success. This is particularly true in a disease space like depression, where there hasn't been a novel mechanism of action in 30 years.

We know that healthcare providers are eager for safe and effective new treatment options for the millions of patients that do not get adequate relief from standard antidepressant therapy.

[I have no doubt that] the foundational understanding of the endogenous opioid system in the treatment community will be important to the success of 5461. Within the context of this biology, the key attributes of 5461's antidepressant activity and safety profile can be best appreciated.

Regarding the NDA itself during the third quarter, we completed our pre-NDA meeting and initiated the rolling submission of the NDA. The work that got us into a submission of this magnitude is extraordinary, and we're making excellent progress. We have an ongoing dialogue with the FDA and the next module will be submitted to the FDA next month, and we will complete the submission in January. While our regulatory team is focused on preparing the submission, other work streams are well underway to prepare for launch. You can expect to be hearing more about ALKS 5461 in the coming months as we continue to share data from the clinical development program, prepare the key manuscripts for peer review and publication and interact with the scientific and medical communities at multiple congresses and of course, prepare for an expected advisory committee meeting next year.

Next, let's turn to ALKS 3831, a novel oral broad-spectrum antipsychotic drug candidate for the treatment of schizophrenia. We designed 3831 to provide the antipsychotic efficacy of olanzapine while addressing the associated weight and metabolic liabilities by extending olanzapine's pharmacologic spectrum of activity to include opioid receptor modulation.

We're very pleased to successfully complete ENLIGHTEN-1, the first pivotal efficacy study with a clear positive outcome.

This was a critical milestone in the development program, which provides evidence of 3831 safety and efficacy as an antipsychotic agent both relative to placebo and the active comparator olanzapine.

With that data in hand, the focus of the remaining development program now shifts to the weight and metabolic properties of ALKS 3831. We are continuing to deepen our understanding of the mechanism action of this a new medicine and how samidorphan impacts olanzapine-induced weight gain and metabolic changes.

We recently completed the 21-day Phase I translational medicine study in 50 healthy volunteers. Evaluating the metabolic profile of 3831 compared to olanzapine across a number of assessments including glucose, insulin and lipids. Our analysis of the data is at an early stage, but the initial data we've received are consistent with our preclinical work and already suggest a number of important findings.

First, the acute use of olanzapine causes drug-induced metabolic sequelae. Secondly, samidorphan mitigates these abnormalities in a number of metabolic parameters. These findings recapitulate what we observed in our preclinical studies. We still expect to receive additional data sets related to lipid metabolism from the study later this quarter.

Once that data is in-house and we've completed our analysis of the comprehensive data sets, we look forward to presenting the findings of this informative study next year. I believe that these data are going to be very important in the understanding of the mechanistic foundation of ALKS 3831. While this mechanistic work is ongoing outside of the registration program, our second pivotal trial for 3831, ENLIGHTEN-2 continues to advance. ENLIGHTEN-2 is our Phase III study assessing weight gain with olanzapine compared to ALKS 3831 over 6 months.

We're on track to complete enrollment of this 540-patient study early next year with top-line data expected in the fall of 2018.

We believe that ALKS 3831 has the favorable weight and metabolic profile that we designed from the onset and it will continue to reveal itself as we enter the final stages of the clinical development program.

Now on to ALKS 8700 for Multiple Sclerosis. 8700 is also approaching the final stages of clinical development for registration and its unique safety and tolerability profile is now being born out by clinical data. We designed 8700 with distinct physical-chemical properties to harness the efficacy of monomethyl fumarate or MMF with the differentiated safety and tolerability profile compared to TECFIDERA. Tomorrow at the European Committee for Treatment and Research in Multiple Sclerosis medical meeting, known as ECTRIMS. We will present 1-month and 3-month data from our ongoing long-term open-level safety study for ALKS 8700.

The interim data from more than 570 patients demonstrated that 8700 was associated with low rates of gastrointestinal adverse events. The first 3 months are quite important clinically as this is when the majority of discontinuations due to GI tolerability occur compared with TECFIDERA. These data which will be available tomorrow morning will provide the treatment community with additional insight into the potential of ALKS 8700 to provide patients suffering from MS, with an important treatment alternative.

We'll also present study design details from our ongoing elective Phase III study to evaluate the GI tolerability of 8700 compared to TECFIDERA head-to-head in approximately 420 patients. Enrollment is underway and we continue to expect initial data from this important study in the first half of 2018.

On the regulatory side of this quarter, we completed the key clinical requirements for our NDA submission. Recall that the pivotal program for 8700 consists of 2 elements: Pharmacokinetic bridging studies and enabling a 505(b)(2) regulatory pathway embedded from a 2-year safety study. During the third quarter, we completed the safety exposure requirements of 100 patients at 1 year needed for registration.

We are completing a number of standard clin/pharm studies for the registration package and we remained on track despite the NDA in the second half of next year.

Lastly, I'll provide you with an update of an -- on interesting developments on our ALKS 4230 program. This is our novel immuno-oncology candidate designed to selectively activate intermediate-affinity IL-2 receptors and potentially increase the number of tumor-killing immune cells as well as offer improved tolerability compared to high-dose IL-2.

Our first-in-human clinical trial in patients with advanced solid tumors has been underway for some time. We've been escalating doses of 4230 confirming safety and assessing pharmacodynamic markers to identify the optimal dose to advance into the dose-expansion stage of this program.

To date, we have completed 4 dose-escalation cohorts and a total of 24 patients have been enrolled.

The initial data are encouraging and provide evidence of 4230's anticipated pharmacological and biological activity. Data from the first 4 cohorts demonstrated dose-dependent pharmacodynamic effects on circulating CDA T cells and natural killer cells with minimal and non-dose-dependent effects on immunosuppressive regulatory T cells.

This is the effect that we are looking to achieve and clearly are now in the biologically active range of doses.

We expect to present the complete dose escalation results at a medical meeting in 2018.

In the meantime, early next month, at the Society for Immunotherapy of Cancer meeting, a preclinical collaborator from the Cleveland Clinic with Dr. Brian Gastman will present interesting new data on 4230 in a preclinical xenograft model of melanoma.

Importantly, this presentation will be made and will be the first to disclose ALKS 4230's effects in the tumor microenvironment. We'll continue to build the body of evidence supporting the unique profile of 4230 and we look forward to advancing this program in the clinic in the coming months.

That is today's update. We have a very robust development program underway here at Alkermes. To summarize, each of these medicines has the potential to provide a clinically meaningful medically advanced in their disease areas and reflect Alkermes' commitment to developing patient-centered solutions.

We are making important progress across our pipeline portfolio of candidates and I'm delighted to be part of this organization at this exciting time.

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

That's great. Thank you, Craig. And I'll assume -- finish quickly by simply saying that you can see that our development program is advancing and 2018 will be a transformative year for the company with significant clinical milestones. We'll enter the regulatory review phase and prepare for the launch of 5461. For ALKS 3831, we expect to complete the pivotal program and report data from the 6-month lead study in the second half.

For 8700, we plan to prepare and submit the NDA. And for 4230, we expect to report proof-of-concept data and advance in development program. Each of these has the potential to create significant value and we're gearing up for an intensive active and exciting year ahead.

So with that, I'll turn the call back over to Sandy for the Q&A.

Thank you, Richard. We will now open the call to questions.

(Operator Instructions) From JPMorgan, we have Cory Kasimov.

I have one on VIVITROL and one on ARISTADA. So I guess, first on VIVITROL, curious of what you expect. (inaudible) the impact of the recent head-to-head study of your product versus buprenorphine to be the one published in JAMA? And then a follow-up on ARISTADA.

Cory, it's Rich. I'll take that, and then I'll ask Craig if he has any point of view on it. But this study published last week in JAMA Psychiatry was the first head-to-head study of VIVITROL compared to SUBOXONE. And you've heard us say in the past that we really think some of these head-to-head comparisons are misplaced because the medicine, as other observers have mentioned, they're diametrically opposite approaches to treating the disease. With that said, it was a very positive study for VIVITROL because it showed equivalent efficacy to the -- what's considered to be the gold standard treatment that is SUBOXONE. But importantly, what we noticed and other commentators notice was things that related to craving and particularly, patient satisfaction with the treatment were quite high. So I think it's another brick in the wall. Another piece of substantial evidence from third parties in the rigorous study showing that VIVITROL is mainstay medicine. Craig, do you have any thoughts?

Yes. I mean, Rich, what I would add to that is that I think importantly, this adds to the well-established efficacy profile that we've already seen with VIVITROL. So this is a study that was conducted independently of the company. And so I think that's an important point. But I think fundamentally and one of the most important outcomes from me is that it really builds on the foundation of evidence that demonstrates the importance of medication-assisted therapies for these patients suffering from opioid use disorder. And I think it's also important to note that there's no single treatment that is right for every patient and that an individualized approach for patients is going to be important and that patients get access to all FDA-approved medications in this space because they're all being underutilized. And so this study addresses many of those questions and I think we'll see further data merge later this year.

Okay, great. And then the follow-up on ARISTADA, with regard to the Phase IIIb study you announced with ARISTADA and INVEGA SUSTENNA. Really what you're hoping to show with this trial, is this designed to demonstrate non-inferiority? And how long would you expect it to accrue, I believe, it's 180 patients, given that everyone will be going on to an active treatment?

So I'll, again, Cory, I'll start on that one, just as background. So, INVEGA SUSTENNA, to those of you who don't follow us closely, is the pre-eminent, long-acting injectable product in the U.S, it's about $1.6 billion drug growing rapidly. It has always had the most features in terms of its flexibility doses and durations and ease of use in initiation. So with the announcements that we made today, I think that we've leveled the playing field in terms of the features with our 4-week, 6-week, 2-month initiation dose and the ease of use in the clinic. I think we have a really strong product offering. What SUSTENNA has always had -- the aura around it is viewed as the most efficacious of the medicines. And the data we presented in September, and that I mentioned in my earlier remarks, showed that ARISTADA can provide excellent control for patients who are not getting adequate clinical satisfaction from INVEGA SUSTENNA i. e., our efficacy story on ARISTADA has always been extremely strong. This is a study that will manifestly demonstrate this in a setting that's directly relevant to the treatment of this disease in the community, particularly, ease the initiation with our initiation dose and then discharge from the hospital with 2 months of coverage in the community, which is a period that's fraught with risk for patients re-establishing healthcare in the community. So it's both an explicit demonstration of our efficacy head-to-head versus SUSTENNA in a real-world setting that is directly applicable to real life in the community for these patients. So, Craig.

Yes. I absolutely concur with what Richard just said. I think this is an incredibly important study, I think one of the big challenges in the treatment of schizophrenia is adherence and relapse. And so in a patient population that is acutely ill, transitioning from hospital care into the community, is a really important aspect to be studying. We believe that this new initiation regimen, and the 2 -- in combination with our 2-month dosage actually provides cover for an extended period of time and allows easy administration of ARISTADA. This particular study will basically answer both questions on the initiation regimen and will provide us data out to 6 months, both within group but also in comparison to INVEGA SUSTENNA. So overall, I believe it's an incredibly important study for us to commit to.

And Cory, on the timing, I'm not ready to say how fast we will roll, we'll launch the study in the next couple of weeks. And like what we already do, let's see how the momentum builds, we can then project from the curve, and we'll give you guidance once we get underway.

From Crédit Suisse, we have Vamil Divan.

So one just on VIVITROL. I appreciate the comments you made, but just in terms of the sort of current progress with the product, you mentioned 5% sequential growth. But I think if we -- so the $3 million onetime charge that lowered 2Q, so I just want to get a sense of what the dynamics for this quarter, you mentioned, inventory channel impact maybe you can quantify that? I think you also said slower growth in some of your key larger states. Just what sort of changed there to maybe impact the trajectory and it doesn't sound like you're changing your long-term outlook, but is there anything that could impact the next few quarters going forward? And then I have one follow-up on after that.

Yes. I think it's important to look over time, at VIVITROL as well, because you've seen in the past, there are some fluctuations quarter-to-quarter and I think we expect to continue to see those. So this really -- 24% growth year-over-year, we saw this quarter. That's what our projections would lead you for the balance of the year. And so looking at 30% year-over-year growth, really -- which is slightly down from where we started in the beginning of the year. But on a state-by-state basis, VIVITROL is an unusual product and there's -- every state's a little different. We've talked about the ecosystems a lot. And literally, there could be county-by-county differences among the states. So when we looked at the variability this quarter, we didn't see anything systematic, but there's a few issues that were affecting growth in some of our larger states. Some of them are related to reimbursement. For instance in Colorado, there was a change in the Medicaid payment vendors which caused a delay and the disruption in payments throughout the state, so that affected growth. In Ohio, we saw more than 100% growth last year, there were some funding delays, some statewide jail-transition programs using VIVITROL were delayed until 2018. And a new drug core program was delayed its start until September. So that growth in Ohio slowed to 40% this year versus over 100% last year. And then there's always the individual provider issue right when a key prescriber leaves the practice or retires or moves to a different one, that causes a drop in the overall prescriptions very quickly that takes some time for it to be built up. So VIVITROL sales are very concentrated. It's going to continue to fluctuate quarter by quarter, it's hard to predict in the short term, but in the long term, we're very confident in the growth for the reasons we've outlined earlier today and that you know so well about VIVITROL.

Okay. I also have one follow-up on ARISTADA and just on this NanoCrystal dispersion filing. So just so I understand, it looks like a onetime dose you give at the start of treatment. So is this something you would just be sort of supplying as samples to be stocked in physicians' offices when it's needed? Or I'm just trying to understand like how it would work commercially or would patients need to get a prescription for that, and then get that shot and start the product at that time.

Yes, Vamil. This is absolutely a commercial embodiment, it's a new product offering. And there will be certain patients who might be taking oral aripiprazole, where the 3-month -- 3-week oral lead-in is not a problem at all. They get their injection. They continue their oral medication. That's what we've been doing up until this point. But for people who want to initiate quickly in the hospital without any fear of adherence, this is an important new offering.

From Jefferies, we have Biren Amin.

Maybe just on ARISTADA. I think you said your aripiprazole market share is at 24% compared to 15% a year ago. So I guess, is this an expected trajectory you thought you would achieve at this point? And when would you hope to achieve a majority share in aripiprazole market?

Biren, I'll just say we guided this year at the very beginning of the year to the idea of sale doubling, and as Jim reiterated, and that's the track that we're on. So it's proceeding as we would have expected. But also, what we knew that you all didn't know at the beginning of the year is how we expected to build out this product family. And knowing that this initiation dose was coming, and knowing what we're doing with this transition study from SUSTENNA. What we're doing is we're building a stronger and stronger foundation year-by-year, to support more growth as we go forward. So I don't know when we're going to cross 50%, but that's our ambition and we're hard at it.

All right. And then just on the traction for the more extended formulation for ARISTADA. What are you guys are seeing out there? I know it's early but are you seeing greater traction with that formulation compared to the original formulation?

Yes. I think we're seeing 2 months grow nicely. I would say we're at or ahead of our expectations. It's never going to be -- as we've talked about when TRINZA was launched it's never going to be the probably the broadest dose used. But -- and again, particularly in this study, the transition, if we can get people started in the hospital on 2 months, that transition to the outpatient care, where most schizophrenics are taken care of, on a daily basis, is really, really important. And the losses across all the LAI's, frankly, when people move in to community-based programs are dramatic. So we think that initiating earlier on with the 2-month potential in the hospital with this and that's what we're going to be studying, is going to be an important factor to improve long-term use of LAI's because still, it's under 6 months of therapy across the class, which is not very good medicine. So we'll be focused on that. And the 2-month and the Initio are both coming this year. Now they're both unveiled and people know about them, that's a pretty exciting growth prospect for us as we look at this franchise going forward.

And just a couple of things on the trials. Richard, I think you mentioned X:BOT trial. How does that design compared to the European study that was published in JAMA. And do you expect that, that would be a bigger driver for VIVITROL? And what percentage of prescribers currently don't prescribe VIVITROL because of the lack of head-to-head versus SUBOXONE?

So recall that the X:BOT, the (inaudible) funded study that is a head-to-head study of VIVITROL versus SUBOXONE. We -- the design is quite different than the -- from the European study only in the sense that patients are randomized in the X:BOT study before detoxification rather than after detoxification. That sounds like a subtle distinction, but it's critical, because remember, the people who want to go on VIVITROL need to go through detoxification. So if you get randomized to a detox arm before that happens, you can have a lot of dropouts of people who were actually in the study to get on buprenorphine. So we've registered our disagreement with the study design, and I think that's well known out there. That said, just like you see with the Tanum paper in JAMA Psychiatry, VIVITROL is VIVITROL. So what we expect to happen in X:BOT is, VIVITROL will perform just fine. Patients who want VIVITROL and get that injection every month will be prevented from relapsing to opioid dependence. And what we saw on the Tanum study that I underscored earlier was high levels of patient satisfaction with their treatment and this reduction in craving, which is so important in the real world for patients. So we look forward to seeing the data, but it's -- as I said, each of these studies has its design limitations because fundamentally right, you're comparing 2 totally different medicines, one is an agonist, one is an antagonist, one requires detox, one doesn't. And it really is reflective more of what the particular patient wants to do in the form of their own treatment. But all the data is important and I think, we're just building a bigger evidence base for the use of MAT in general. Craig, do you want to add any color to that?

No. I mean, I completely agree with what Rich has just said. I think the challenges we face are really -- that these medicines are fundamentally different. And so you can't design one trial that meets the requirements of all. I think the way that Tanum approached his study where we have a very well controlled standardized detoxification regimen was ideal for studying the effects of VIVITROL. I think the way that the X:BOT study has been designed really allows for each study site to use the standard practice and some patients would be enrolled in the study early in detoxification and others late. And so I think the important aspect here is that both studies are going to add to understanding of the value of medication-assisted therapies. And I think it's both important for that reason.

From Cowen, we have Chris Shibutani.

Just some questions on VIVITROL. In the past, you've described kind of the underlying drivers to include things such as number of key treatment providers, the number of patients each of those providers is taking care of, the duration of treatment use. Can you comment about any trends you're seeing on any of those fundamental drivers? And then I have another follow-up question.

I would say that those trends are very much in line with what we've seen historically. For instance, the number of providers is expanding at about 30%. And so that fits in -- that's another one of the ways we triangulate our expectations for growth in the long term, is that group of providers is still expanding. I would say just back to touch on Biren's question as well, the number of VIVITROL prescribers compared to the number of buprenorphine prescribers and users is quite low, all right. We have a market share below 5%. So as more and more data comes out, looking across the treatment areas, we expect our provider-base to grow because VIVITROL is part -- should be part of the standard of care as we've discussed. So the key metrics on VIVITROL are still growing very nicely. And we'll continue to update you on those. As if and when that changes.

And then as far as the contributing subgroups of patient populations who are actually taking VIVITROL, broadly speaking, you in the past have characterized in terms of the Medicaid population growth, in terms of units compared to the non-Medicaid private insurance group. Can you perhaps update us on some of the trends that you're seeing there and what you're looking for in fourth quarter? And then lastly, I know it's not a significant portion, but obviously, the treatment of alcohol addiction continues be a component of the VIVITROL revenues. Was there any variability there that is going on, that contributed to the weaker-than-expected third quarter results and lowering your guidance?

Yes. I would say, that maybe in reverse order, the alcohol growth, again, has been consistent for us. We think it's in that range of 15% of the total usage of VIVITROL. That scenario, where we see potential growth is as I think again, people understand the safety and utility of VIVITROL and recognize the patient satisfaction on VIVITROL is actually quite high. So that's a potential future growth area for us. I think as we look at -- sorry, the first part of the question, can you remind me of ...?

Patient mix. Medicaid versus non-Medicaid...

Oh, patient mix and Medicaid. Sure. I'm sorry.

Yes, gross has been added on that. Sorry.

Right. No, so the gross-to-nets have remained stable, as has the growth in the Medicaid and commercial side. Roughly 50% of our patients are coming from the Medicaid side. And so we haven't really seen changes in those trajectories either. And again I would say, this is one where the idiosyncratic nature of the VIVITROL market on a state-by-state basis caused a bit of a slowdown this quarter and really only because there's 2 months left. We are bringing our guidance down for the year but we don't have a real difference in the long-term growth prospects for VIVITROL.

And from Leerink Partners, we have Paul Matteis.

A couple of questions. Not to belabor the point on VIVITROL, but, Jim, I was wondering if you could kind of help us clarify how we should be considering the long-term growth curves. I think the 5-year CAGR is about 40%. Year-over-year growth in 2015 was 57%, last year it was 44% and this year with the new guidance, it looks like it's about something like 30% year-over-year. So just wondering if that reflects kind of a decelerating growth trends and what you're thinking is for sort of the next 3 or 4 years and then I have a couple of quick follow-ups.

Yes, thank you, Paul. I think you hit the growth numbers right, our guidance does look at 30% growth. I think one of the things we've always said about VIVITROL is it's very difficult to predict in the short term. And what we've done consistently is giving you guidance expectations based on the most recent growth expectations that we've seen. So I would say, unequivocally, that our long-term growth prospects for VIVITROL and our excitement about what this product can do and its importance in this field are not changed at all. We have seen a slight deceleration of growth, which is why we adjusted our current guidance. But against a backdrop of more data coming out, our own data coming out with the 6428 program, the Tanum study, the X:BOT study coming, and a broader appreciation that this -- that what we're doing now in the opioid crisis isn't solving it. I think we view the long-term opportunities for VIVITROL as bullishly as we have in the past. But you're right, this has been a slight-growth quarter -- a deceleration in the growth. But I would also say, take a look at the slides that we provided today, with that quarterly growth, quarter by quarter in the bar charts. We just have to be cautious not to make too much of a slow quarter either. And let's see how things progress to the rest of the year and into next year.

Okay, okay. Fair enough. And then just a couple quick follow-ups. I know you talked about the Tanum study and I know X:BOT was well covered. I was wondering if you had any perspective on the study of addiction that was recently published that looked at the cost-effectiveness of VIVITROL. I think it was Murphy et al. And then just maybe if there's any quick update you can provide? I know in the 10-Q for 2Q, you disclosed the subpoena regarding -- from the U.S. attorney regarding documents related to VIVITROL, if there's any update you could provide there.

Yes. I might take that cost-effectiveness paper which actually, I think you have to read the whole paper to get an understanding of the study. The summary is -- it doesn't -- in my view, doesn't actually reflect what the overall paper said. The other thing, I think, you have to keep into account that we've seen and others have seen is that patients generally on VIVITROL now are much sicker than patients on a broader standard practice. So one of the -- well, I just think that's a point. And you'll see more data coming out on that next year but again, patients on VIVITROL often have many other co-occurring disorders than patients that are looked at in the standard overall pool of patients, if that makes sense. So I think also, you wouldn't see these state programs expanding, Paul if -- and frankly, the success and the growth that we have in these state programs, if those state providers: Medicaid, criminal justice system, jails, drug courts weren't seeing success. And it's also very hard to count the economic value of having someone no longer addicted to opiates. You can look at healthcare utilization, but there's a lot of benefits to having someone opiate-free in terms of their employment, in terms of their jobs, and we just don't have a very good way of quantifying that right now. And that's something we're also continuing to work on in the long-term, but I would just say, ask a family member, what it's like to have somebody free of this addiction rather than into it and I think you get a lot more value out of that than just some of the cost models that look historically that aren't really modeled for opioid dependence.

From Barclays, we have Douglas Tsao.

Just in terms of the prescribers for VIVITROL. Can you provide a little context for how concentrated your dock physician base is? And then just as a follow-up in terms of the guidance, we obviously had some reduction in top-line expectations. I saw the COGS guidance was basically maintained. So just curious in terms of how we should be thinking about sort of the operating leverage and gross margins moving forward?

Yes. In terms of the prescriber concentration. I mean, I think that, we've talked about -- obviously, the difference between the number of prescribers for buprenorphine and for VIVITROL. I think our prescriber base is growing, as I mentioned, around 30% year-over-year. We gave some detail on that last year at our analyst day. So you roughly say 75% of the prescriptions are being driven by roughly 6,000 prescribers. I don't think that's terribly different from other specialty medications. And as we continue to broaden the knowledge of, and data that's out there on VIVITROL, I think we expect that provider base to grow. In terms of the margins, I think, we're doing quite well this year. And the adjustment of roughly $10 million of that range, that just makes sense because as we brought the revenue range down, you simply didn't have to change the percentage on cost of goods sold.

We have time for one more question. From Evercore ISI, we have Umer Raffat.

I wanted to ask a couple on 8700, one on VIVITROL and one on 4230, if I may. So maybe in no particular order, first, VIVITROL. Just, Richard, I know you've commented on this in the past too, but consensus has 30%, 35% growth on VIVITROL next year and I'm just curious how you think about: a, the ongoing rollout of new states, the new funding, but then also potentially new monthly buprenorphines coming in. How do you think about growth over the next couple of years? And I understand choppiness near-term, but over the next year to year, how do you think about a stable run rate on growth rate? What's that number to you, one? On 8700, your ECTRIMS presentation have no serious GIAs and half a percent GI discontinuations but I'm curious, what's the comp in your mind for TECFIDERA because the other thing that we noticed is flushing looks kind of comparable so we're just curious how you're thinking about the 1st month's worth of GI data at ECTRIMS. As well as -- I know you're tracking efficacies on 8700, any preliminary read on what the event rate is on relapses in this open-label trial? And then finally, on 4230 efficacy, is it just anti-tumor activity? Or is it just T cell activation data? Or are you going show data on anti-tumor activity as well? Sorry if I had a lot of questions.

Those are good. Those are excellent questions Umer and I'll try to remember them all and answer them all. So on the VIVITROL, and I don't want to sound defensive about this because I think it's just really a statement of fact about how unusual this product is in such an unusual market because the growth is so dependent upon the combination of the classic things that one would do in introducing a new pharmaceutical or product to a physician community, but also these huge tectonic plates of public policy. And later today, the president is going to announce things that their administration's going to do about this, like President; the Christie commission next week or the 1st week of November is going to put their report for. And then you ask, "Okay. How is the world going to change in response to that to deal with an epidemic where 60,000 people are going to die?" So the over -- the cone of possibilities for VIVITROL with under 5% market share in the face of a national epidemic is incredibly broad. And I almost hate to express it in terms of growth in that way, because what it really is, is responding to a tragedy that's happening in this country. And the Tanum data and the X:BOT data are just underscoring the fact that VIVITROL went from being a completely peripheral unknown medicine to becoming increasingly a mainstay medicine in addressing this epidemic. So we are building more production capacity for 2020 and beyond. We are really strongly committed to making sure this medicine gets to patients who really needed it. So it's hard to put a numeric growth on it. Jim said we really just swing vine-to-vine. And I've often said, as we get any new information, we share it with you guys. We guide to the next quarters, the next period. And we're super transparent about it, recognizing that there's a whole lot of potential outcomes ahead. But the medicine is incredibly important. It's increasingly supported by more and more data. The critics who say there is a paucity of data are slowly being retired and so here we are and we're quite optimistic about where it's going to go from here because we're quite committed to the value of this medicine for patients. On the long-acting injectable bupes, we think those are important medicine, and I think it has a salutary effect on the market. And if more doctors are trained to access branded medicines from specialty pharmacies and give injections and monitor patients on a monthly basis, that's exactly the type of medicalization of this treatment paradigm that is necessary for more expanded use of VIVITROL. 8700, I'll let Craig put any color. But the comps, you can decide. You'll see yourselves. We're going to -- will show you that the AE data in the 1- and 3-month period, I think it speaks for itself. You see it's quite positive. The flushing piece though is important because the systemic -- the flushing is on the systemic side. That's on -- that's outside the GI and we've seen equivalents on flushing. which is what we've predicted because the MMF, the active ingredient of this is doing the same thing on the systemic side that we believe TECFIDERA and MMF will be doing. So the action is on the luminal side, on the GI side, where we think we've got a differentiated product for the various reasons that we design physically, chemically into the molecule. And in terms of the efficacy data, I actually don't know the answer to that question. I'll look to Craig to that. but we're not going to provide any efficacy data from an open-label safety study.

Yes, just add to what Rich has already said, I think the data what you'll see presented tomorrow, I think our incredibly pretty impressive from GI perspective. We do think they are very differentiated and well below what we would expect to see with TECFIDERA. In terms of the long-term data, as you know, we are collecting data on relapse as well as MRI. And it's still premature for us to be able to comment on that. And as soon as those data mature, we'll be presenting those data, and we'll be able to speak to that.

On 4230, the [CDC] presentation is worked out of Cleveland Clinic, that's preclinical models looking at the effects of 4230 on -- infiltrates in the tumor microenvironment, so is another piece of the story about what the medicine's doing in vivo. I just want to make sure you didn't confuse that. That's wont be human data, the human data will come later in 2018 as we complete that escalation cohort.

I'll turn it back to Sandy for closing.

Great. Thanks, everyone, for joining us on the call today. Please don't hesitate to reach us in the company if you have further questions.

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