Alkermes Plc (ALKS) 2013 Q2 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the Alkermes plc conference call to discuss the Company's financial results for the quarter ended June 30, 2013. (Operator Instructions)

Please be advised that this call is being recorded at Alkermes' request. I would like to introduce your host for today's call, Ms. Rebecca Peterson, Senior Vice-President of Corporate Communications at Alkermes. Please go ahead.

Thank you very much. Welcome to the Alkermes conference call to discussion our financial results for the quarter ended June 30, 2013. With me today are Richard Pops our CEO, Shane Cook, our President and Jim Frates, our CFO.

Before we begin today let me remind you that we will make forward-looking statements relating to, among other things, our expectations concerning the commercialization of RISPERDAL CONSTA, INVEGA SUSTENNA, AMPYRA, FAMPYRA, BYDUREON and VIVITROL; our future financial expectations and business performance, and our expectations concerning the therapeutic scope and value and clinical development of our products. Listeners are cautioned that these forward-looking statements are neither promises nor guarantees and are subject to a high degree of uncertainty and risk.

In our press release issued today our annual reports filed with the SEC and our other filings with the SEC identify risk factors that could cause our actual performance and results to differ materially from those contemplated by the forward-looking statements. We undertake no obligation to update or revise the information provided on today's call as a result of new information or future results or developments.

This morning Jim Frates will discuss our financial results and then Richard will provide a brief update on the Company. After the remarks we will open up the call to Q&A. Now, I would like to turn over the call to Jim.

Thanks, Rebecca. Good morning, everyone. This has been another solid quarter for us financially and the business is on track for a strong year. As you may know, last week we hosted an R&D day and highlighted key aspects of our growing pipeline. We are developing important assets with strong competitive positions in major markets. Thanks to the performance of our commercial portfolio especially our five key products, we have the ability to generate cash flow even as we he invest in our pipeline of potential blockbuster products.

Now let me walk you through the results for the quarter. We recorded total revenues of $138.6 million, driven primarily by the growth of our five key commercial products which grew 22% compared to last year and now represent approximately 71% of our total revenue compared to approximately 61% in the same period last year, excluding the $20 million in intellectual property license revenue we received last year. We expect a solid growth of our five key products to continue to drive our business while we develop our pipeline.

Now, let me update you on the results from our commercial portfolio. First, revenues related to our long acting atypical franchise RISPERDAL CONSTA and INVEGA SUSTENNA were once again the most significant contributors to our top line during the quarter. End-market sales for RISPERDAL CONSTA and INVEGA SUSTENNA during the quarter were approximately $627 million. The combined franchise grew approximately 14% on a dollar basis and nearly 15% on operational basis year-over-year due to an increase in combined market share.

For the quarter, Alkermes' recorded manufacturing and royalty revenues of $56.2 million for this product franchise compared to $48.6 million for the same period last year.

Next, manufacturing and royalty revenues for AMPYRA and FAMPYRA were $19.9 million during the quarter. While Acorda has not yet reported end-market sales for the quarter, this morning Biogen reported FAMPYRA sales outside the United States of approximately $17 million for the quarter, and Biogen continues to launch FAMPYRA on a country-by-country basis.

VIVITROL had a very strong quarter with record net sales of $17.4 million, representing a solid quarter of growth. Compared to last year this is an increase of approximately 40%. For BYDUREON, Alkermes recorded royalty revenues of $5.4 million, based on worldwide end-market sales of $66 million, as reported by Bristol-Myers Squibb this morning. Bristol-Myers and AstraZeneca are focused on growing the brand and introducing the pen device to the market in the coming year.

In addition to our five key commercial products, during the June quarter, Alkermes earned revenues from legacy products, the most significant of which were $11.2 million from the combined RITALIN LA/FOCALIN XR franchise. As we mentioned last quarter, our financial expectations for the nine-month period ending December 31, 2013 anticipate the erosion of the FOCALIN/RITALIN franchise, assuming a generic entry for FOCALIN during the summer. To date, we have not seen a generic entry, but that could come any day, so we are watching that market carefully. As predicted, TRICOR 145 revenues continued to decline following generic entry last year. For the quarter, we reported TRICOR 145 revenues of $4.1 million, down from $12.0 million last year.

For the quarter, the business generated non-GAAP net income of $42.9 million and free cash flow of $39.2 million. This was a very solid quarter and the business is performing as we expected. From a cash perspective, as of June 30, 2013, we had $325 million in cash and total investments.

As a reminder, we have changed our fiscal year end from March 31, to December 31 and as part of that transition we will report a nine month fiscal period ending December 31, 2013. We are on track with our financial expectations originally provided on our May conference call and are reiterating those expectations today. Consistent with that, we expect R&D and SG&A expense to trend higher for the remainder of the calendar year.

With an exciting pipeline and a solid commercial business we are very optimistic about the year ahead. With that I will turn the call over to Richard.

That's great. Thank you, Jim. Good morning, everybody. So as Jim just outlined with the strong financial foundation from our commercial product portfolio and our exciting pipeline of NMEs we have built a very distinctive biotech company with multiple opportunities for exceptional growth and value. This balance and optionality is entirely by design and it's key to our strategy of building one of the next major biopharmaceutical companies.

Last week at our R&D day we presented a deeper look into a unique set of capabilities that's resulted in an R&D engine that is differentiated, patient focused, and productive. There are several recurring themes in our development approach and the drug candidates that we generate. Our focus is on developing medications inspired by the real world experience of patients suffering from chronic diseases. We build our development programs on a foundation of known pharmacology and clinical practice and then apply new layers of science and insight to create new medicines with real value for patients and for other stake holders in the treatment system.

We think that there are huge opportunities in leveraging known scientific and clinical understanding, and by tuning it and improving it, and not in a subtle way, we're creating significant incremental value. Our rigorous clinical development process incorporates state-of-the-art clinical trial techniques and robust study design so we can obtain data quickly to make rapid decisions about our pipeline investments and maximize the probability of success.

At our R&D day we unveiled three important new pre-clinical candidates and I encourage you to visit the website for the archived webcast to get a more comprehensive review of those candidates. But I will summarize them here for those of you who weren't able to join us last week. The first is our program for creating novel prodrugs of monomethyl fumarate, or MMF, for the treatment of multiple sclerosis. This program has resulted in novel small molecule produgs designed to rapidly and efficiently convert to MMF in the body and may offer advantages over the currently marketed dimethyl fumarate drug, TECFIDERA.

We also announced that we are developing ALKS 7106 for the treatment of pain. 7106 is a novel, small molecule from our opioid modulator platform and is a potent, oral analgesic designed for the treatment of pain. Its originality derives from its intrinsically low potential for abuse and overdose death, two significant limitations often associated with other opioid medicines. This is an area of great concern as a matter of public health and safety, and ALKS 7106 is designed specifically to be responsive to this need.

And, RDB 1419 is a promising cancer immunotherapy based on IL-2 and its receptors and it's our first biologic to enter a clinic from our labs. It is designed to be a new immunomodulator for the treatment of various cancers, leveraging a vast amount of scientific information on IL-2 biology and improving upon it, and is designed for use in combination with other cancer treatments, including the most modern agents like the checkpoint inhibitors.

These three new candidates are being readied for human clinical trials. Each is important as an individual candidate, but together they reflect our expanded R&D capabilities, remarkable productivity, and in effect, double the size of our pipeline. These product candidates emerged successfully from rigorous preclinical development and are advancing toward the clinic in major disease areas on a strong foundation of scientific evidence.

Our later-stage compounds continue to advance. Last week we announced that we have begun enrolling a phase 2 study for ALKS 3831, our proprietary oral atypical antipsychotic for schizophrenia. 3831 is designed to offer a broad spectrum of benefits by combining the efficacy of olanzapine with the opioid modulating properties of ALKS 33. The Phase II study just initiated will define the benefit of ALKS 3831 in attenuating olanzapine-induced weight gain compared to olanzapine alone.

In addition to that Phase II study we are also planning another phase 2 study for patients with a dual diagnosis of schizophrenia and co-morbid substance abuse. For ALKS 5461, our proprietary opioid modulator with a novel mechanism for the treatment of major depressive disorder, based on the compelling phase 2 study results, we are preparing for our end-of-phase 2 meeting with the FDA and are planning to start our pivotal program in early 2014. For our most advanced candidate, aripiprazole lauroxil for the treatment of schizophrenia, the multinational phase 3 program continues to enroll.

This is a once-monthly, injectable atypical antipsychotic that, once in the body, converts into aripiprazole. We are expecting top line data in the first half of 2014, and expect to launch in 2015 following the patent expiry of oral Abilify. This product represents a major near term opportunity for us and it is designed to be a generational advance in dosing flexibility and in product presentation. You got some insight last week into our commercial preparations which are already gaining momentum.

In addition to these pipeline assets, we have a remarkable portfolio of commercial products RISPERDAL CONSTA, INVEGA SUSTENNA, VIVITROL, AMPYRA and BYDUREON. We believe that each of these products is addressing an unmet medical need in a growing market, and each has a long patent life with little risk of generic competition for many years. Our partnered products are critical growth drivers for our partners. Most of these drugs are early in their commercial lives and are expected to have accelerating growth over time.

Our team here has tremendous enthusiasm and optimism for the future. We believe we are positioned to have a major impact on people's lives. Alkermes' transformation is becoming evident. We are a growing, profitable company, with an industry-leading commercial portfolio and one of the most exciting and diverse development pipelines in biotech.

We are in a unique position and are poised for substantial growth as we move these development programs forward aiming to get them to patients as quickly as possible. We expect many more exciting developments in the year ahead and with that I will turn the call back to Rebecca and we will open for questions.

Great. Operator, we will now open it up for Q&A.

Thank you. (Operator Instructions)The first question from Anant Padmanabhan from Cowen and Company. Please go ahead.

Thanks for taking my question. Actually I have a couple. First on -- I realize you are just coming off the R&D days so I apologize if you are repeating yourself in any way. Could you talk a little bit about the European plans for 9070. I realize you are doing the first phase 3 trial now which seems international. But is that phase 3 European plan underway and how do you expect to execute that?

Morning, Anant, it's Rich. I will answer that one. The program they are running right now for 9070 is an international study focused on US approval. Our agreement with FDA is a single study will support registration in the US and we are running that study with a balance between patients in the US and outside the US.

It is doing two things for us. One, it is allowing us to run the single well controlled study for US registration, but also giving us the infrastructure and experience for these international studies for subsequent studies. For European registration we will run a different study, a second study likely with an active comparator but we have a lot more experience now in running these international studies. It's also the subject of discussions with potential partners.

Okay. And then on VIVITROL is it seems like there is some nice growth here. Could you talk about the potential for price increases on this drug?

I won't. I will just say that we think we have is priced the drug correctly and the price has been relatively constant for the last couple years and what we are starting to see is just more and more traction and use of VIVITROL. It's not something we are going to be focused as much on price as we are as to be focused on increased penetration and utilization.

Great. Thank you.

You're welcome.

Thanks, Anant. All right, Paulette, we will take the next question.

Our next question comes from Jonathan Eckard from Citigroup. Please go ahead.

Thank you very much. I just had a couple similar questions. With regard to VIVITROL, could you talk a little bit about some of the dynamics of growth you are seeing? And the drug seems to be tracking about $80 million a year or so now. Could you remind us what the break even point is from profitability of this franchise and the recent growth has it been more of a bolus effect or is it something where you just have more of a continuous sustainable trend growth that you have seen? And then I have a follow-up on 5461.

Okay Jon. I think what you are seeing with VIVITROL is consistent with what we have been guiding to and what you have seen for the last several quarters which is a steady increase in utilization of this drug. And it is not driven by any discontinuities that this point. For example all of the work that's going on in the states in the criminal justice system still continues to be a small part of the business but very important seeding happening out there in the country. We remain really optimistic about the future of VIVITROL but very conservative about the way we forecast it going forward.

We continue just to believe in the steady consistent growth and that is driven by the efficacy of the product. The break even question I think we are past the break even point now on VIVITROL. It is a self-sustaining product at this point and with a long patent life and starting to get a little bit of momentum. It continues to be a really important part of the portfolio.

Great. Thanks. And then with regards to 5461, and I apologize that I wasn't able to participate last week, has your thoughts on the strategic future of that program changed now that you have outlined a much broader R&D portfolio did you view the strategic advantage to optimize both that value and the value of these other assets differently than what you had maybe a few months ago with regards to establishing a partner to most rapidly develop that asset?

I think there is a couple of questions embedded in there. One is that I think people are beginning to realize just how remarkably diverse and rich this portfolio has become. Six medicines now. Any one of these could be a blockbuster advancing in clinical trials so there is two stages to this. One is what we are going to do in the immediate future. Which is we are going to advance all six of these programs as aggressively as we can.

We have the capital, we have the development resources. We have the clinical interest. We have the infrastructure. It's all very, very positive right now and we know precisely the next stage of studies that we need to do for each of these programs.

The longer term, how do you bring these products to market to get them to the most patients around the world as fast and possible and drive the maximum economic value we believe that collaboration will be an inherent part of that if this whole portfolio advances, and so that is why we are running the experiment continuously. We're in discussions with pharmaceutical companies on a regular basis. And it does two things for us.

One, helps us determine who might be an appropriate partner and determine the economic value of those partnerships but also it helps us -- it gives us a way of doing diligence, if you will, and vetting the data we develop in our own labs and make sure that other people believe and see what we see in the these development programs. And that is very reassuring when you see concordance with sophisticated outside parties.

Very helpful. Thank you very much.

Thanks, John. We will take the next question.

Our next question comes from Cory Kasimov from JPMorgan. Please go ahead.

Good morning, guys. Thanks for taking the questions. Given your thorough pipeline review last week I won't ask specific ones on the pipeline, but from a bigger picture standpoint when we think beyond 2013 can you talk a little bit about how you want to try and strike a balance between your increasing cash flow and properly investing in the growing pipeline? And then my second one is following up on VIVITROL. And Rich can you talk a little bit more about those underlying efforts you spoke to spark uptake in the criminal justice system and when we might ultimately begin to see data presented from the ongoing pilot studies? Thanks.

Cory, I think that we are in such a strong position right now at Alkermes because we had this rich pipeline and this commercial engine that is generating ongoing cash flow to advance these pipelines. And so we think it is -- it is entirely possible to invest aggressively in the pipeline and still maintain significant profitability. So we will guide as we guide on a year-by-year basis driven by the successes and failures in the pipeline as it advances. When we guided for this period we had a strong sense already that the new candidates would be advancing into the clinic. The first clinical trials for these new candidates are relatively inexpensive, and as the 9070, or aripiprazole lauroxil, phase 3 to tail off we have room in the P&L to accommodate that.

We feel quite comfortable we can do what we need to do in the near term. VIVITROL is interesting because as I said in response to Anant's question, or John's question, we have so many things going on in the states now, I think there is 21 plus states now that are running pilot programs in various aspects of criminal justice or in state driven programs. And the data are very, very positive. It's important to state when a county or a prison or a jail or a treatment program runs a study and collects data it is not like data that you are used to seeing. This isn't randomized controlled clinical trials for publication in peer reviewed journals. The data is often fairly sparse and somewhat anecdotal but very powerful in that local system.

Don't look for a major publication of data from these pilot programs, although they are being published and rolled out in certain ways and we can keep you apprised of those as it happens. But to me the most important data is almost the fact that 21 states independently are doing things with VIVITROL in multiple counties. That represents data on its own, showing this pent-up interest in the use of long acting antagonist therapy to compliment what they have been doing with buprenorphine in these states.

That's helpful. Thanks.

We will take the next question.

Our next question comes from Michael Schmidt from Leerink Swann. Please go ahead.

Hi. Thanks for taking my questions. I had one on 9070. Could you update us on the enrollment progress in the trial. How many patients are enrolled rolled to date? And I was wondering, as part of your quality control program in that trial how many patients are excluded as part of the monitoring process? And I was also wondering what prior treatments were patients on enrolling in the trial? And my second question was on AMPYRA and VIVITROL have there been any significant changes in channel inventories for the two products? Thank you.

I'll take the first one. The 9070, we don't give period-by-period updates on the actual number of patients. We will update you when we complete enrollment. I should say qualitatively, the enrollment is going well. We now have a large number of sites up and rolling outside the US to complement what we did in the US. We are very happy with the enrollment.

And what is important about that is the second part of your question which is it is not just number of patients, it is quality of patients. We are testing this drug in the acute schizophrenia setting. Unlike depression this diagnosis is a little bit more clear and so I wouldn't expect to see the same number of rejections from randomization that you would see in a depression study but the focus on quality is the same as it would have been in our 5461 study. AMPYRA and VIVITROL.

I will take the inventory question, Michael. It is Jim. For FAMPYRA and AMPYRA, actually, you'll have to talk to Acorda about channel inventory. We don't have any insight into that although their ordering patterns are steady and on plan for the year. In terms of VIVITROL, we actually haven't seen a major change in channel inventory and so again we are quite happen with the growth and user demand that we are seeing.

Okay great. Thank you.

Thanks, Michael. All right, Paulette, we will take the next question.

Our next question comes from Ami Fadia from UBS. Please go ahead.

Hi, good morning. I had two questions. Firstly, this was a high level question and I wanted to get your thought process around how you will do the tradeoff between continuing to invest on your growing pipeline and allowing some of the profits from the existing portfolio to drop to the bottom line. And the time of the EDT deal I think you alluded to some type of a focus with respect to growing the EBITDA for the Company. Are you at this point willing to give us some type of a target in terms of earnings growth over the next couple of years? And I will come back to the next question after.

Hey, Ami, it's Rich. I think that we have to look at what the basic elements are of the Company right now, which is this financial engine that is going to drive growing revenues for the next several years and this pipeline that has just matured and is maturing in a really explosive and exciting way, probably faster than we would have originally modeled. The other thing is that it is sufficiently broad and sufficiently diverse that there are almost infinite numbers of permutations of business development combinations we can do to attenuate spend, diversify, mitigate risk, and expand the opportunity. There is no answer to the question at this moment because what we are doing is we have just recently come public a week ago with these other pipeline elements.

There is already interest in these things. We're going to move into clinical trials and really establish human proof of concept very expeditiously, and then we're going to have a lot of optionality. So our philosophy is the same, which is we would like to still be known as a company that has significant profitability while still advancing a really exciting group of pipeline projects. But beyond that it's difficult to forecast more than we have given guidance.

Okay, great. I guess, the second questionjust let me make it a two-part question. Firstly, just on AMPYRA the sales or the revenues booked in the quarter, was there catch-up recognition for Germany in the quarter? And secondly, and maybe this is for Jim with respect to the R&D expenses, how should we think of that progressing over the next maybe three years? From your current guidance range? Thanks.

I will answer the second question first. I think it is the answer I just gave you which is referred as answer number one. With question number two on that one, Jim.

With Ampyra there were no real special catch-up revenues this quarter. We took our -- the German pricing was established back in January, so that adjustment would have been made in the March quarter. And -- so AMPYRA was fairly straightforward this quarter from a manufacturing and royalty revenue basis.

Thank you.

Excellent. Thanks, Ami. We will take the next question.

The next question comes from Mario Corso from Mizuho USAPlease go ahead.

Good morning. Thanks for taking my questions and congratulations on a good quarter. A couple of financial oriented questions. On the older products for FOCALIN XR do you have good visibility on the timing of generic entry? I know there was some more recent settlements and I'm not sure if that or the FDA approval of a generic is the gating factor.

On TRICOR 145 I'm wondering if we have hit steady state now or if you see any real change in the small revenue stream there. And then on BYDUREON we haven't seen a lot of growth in the line in the last couple of quarters. I was just wondering if you could talk about how you see that going forward. Thanks.

Sure, Mario, and I think it's really important as we're talking about TRICOR revenue which comes in at $4 million in the quarter. I think on at P&L it's going to do well over $500 million for the year. I think we are not too focused on TRICOR revenue. It will bounce around a little bit depending on how the author -- the generics go. On FOCALIN it is hard to predict when the generic entry will be because it is predicting FDA timing at this point and I think that further as we go forward any upside for that franchise will be very solid for us. But with our big five products being over 70% of our revenue, that is really where the focus is for us as we manage the business.

And on BYDUREON, the attributes are very solid. The first once weekly treatment in diabetes. We believe in the profile and think that that franchise and the GLP franchise as a whole is going to continue to grow over time. One of the benefits of having such a broad portfolio that we have is that we can --if one quarter is particularly light or strong in a given product it tends to be made up by the other products in the portfolio so I think we are seeing that. I think we are optimistic about the future and again the big five products are all doing very well as a whole.

All right. Operator, we have time for one more question. I know it is a busy earnings season so we're going to try to make this call high throughput.

The next question comes from Terence Flynn from Goldman Sachs. Please go ahead.

This is [Yullian] for Terence. A lot of my questions were answered but I wanted to follow up on the two pipeline products. Do you have any timing on the start of the second phase two program for 3831? And on 5461, are you thinking about looking intoother indications outside of depression? Thanks.

Two good questions. The second phase two study for 3831 will be in that dual diagnosis patient. We will start that sometime in 2014 but we don't have precision yet because we're going to meet with FDA for specificity on the dual diagnosis patient. 5461 it is really interesting because we do believe that it has potential utility in indications outside of major depressive disorder. But our clinical focus certainly as we move into 2014 is to launch this broad phase three program. So that will come first. You can bet there will be other exploratory analysis of 5461 in other psychiatric disorders.

Great, everyone. Thanks for dialing in today and if you have any additional questions don't hesitate to call us here at the Company. Have is a good day.

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