Alkermes plc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Alkermes is a global biopharmaceutical company developing, manufacturing and commercializing medicines, with products focused on addiction, schizophrenia and bipolar I disorder and a development pipeline in cancer and neurodegenerative disorders. Amounts below are in U.S. dollars.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $294.1 million | $265.0 million | $849.3 million | $758.8 million |
| Operating loss | $19.7 million | $10.7 million | $31.7 million | $81.7 million |
| Net loss | $29.0 million | $0.1 million | $49.0 million | $68.2 million |
| Loss per share, basic and diluted | $0.18 | $0.00 | $0.31 | $0.43 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $70.7 million | $15.5 million |
Product sales, net were $157.7 million for Q3 and $448.5 million year to date. Manufacturing and royalty revenue was $136.3 million and $398.4 million, respectively. Q3 product sales, net, equaled 46.6% of gross product sales, compared with 46.8% a year earlier; year-to-date net sales were 47.0% of gross, versus 48.9%.
Liquidity, debt and cash flow
- At September 30, cash and cash equivalents were $310.4 million; short- and long-term investments totaled $437.7 million. Cash and investments combined were $748.2 million.
- Current assets were $1.053 billion and current liabilities were $453.0 million. Total assets were $1.995 billion; shareholders’ equity was $1.096 billion.
- Carrying value of debt was $296.4 million, including $3.0 million current; principal outstanding was $298.5 million. In March 2021, Alkermes refinanced its term loans, extending maturity from 2023 to 2026. The stated rate is LIBOR plus 2.50%, with a 0.50% LIBOR floor. The company reported covenant compliance.
- For the first nine months, investing activities used $65.5 million, including net purchases of investments; capital expenditures were $19.4 million. Financing activities provided $32.3 million, including $23.6 million of debt proceeds. Cash increased by $37.5 million from the start of the year.
- Management said existing cash and investments should fund anticipated working capital and other cash requirements for at least 12 months from the filing date.
Changes versus comparable periods
- Revenue rose $29.1 million in Q3 and $90.5 million year to date. Growth included higher VIVITROL and ARISTADA/ARISTADA INITIO sales, increased royalties and manufacturing revenue for VUMERITY, and higher INVEGA franchise royalties.
- Q3 net loss widened from near break-even a year earlier, despite revenue growth. Operating expenses rose $38.1 million, including a $25.0 million ALKS 1140 development milestone in R&D. Other expense also worsened, including a $5.2 million Q3 reduction in the fair value of contingent consideration and the absence of prior-year Fountain investment proceeds.
- Year-to-date net loss narrowed by $19.2 million, primarily reflecting revenue growth and lower operating loss, partly offset by less favorable contingent-consideration valuation changes and the absence of prior-year Fountain proceeds.
- R&D expense was $118.4 million in Q3 and $308.2 million year to date, up $23.4 million and $25.7 million, respectively. SG&A was $136.2 million in Q3 and $400.6 million year to date.
Outlook, commentary and risks
- The filing provides no specific full-year financial guidance. Management expects near-term growth from the INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA franchise, while expecting long-acting atypical franchise revenue to decline over time. Generic competition and pricing pressure are identified risks.
- LYBALVI’s manufacturing line was validated in September and the product launched commercially in October 2021. Nemvaleukin’s ARTISTRY clinical program continued; a Phase 3 study in platinum-resistant ovarian cancer began in October 2021. The FDA granted nemvaleukin Fast Track designations for mucosal melanoma and, with pembrolizumab, platinum-resistant ovarian cancer.
- COVID-19 had adversely affected commercial sales of injectable medicines to varying degrees and had at times affected research and clinical-trial timelines. Alkermes reported continuing manufacturing and medicine supply, while warning that pandemic effects remain uncertain.
- Contingent consideration from the Gainesville transaction was valued at $23.8 million, down from $32.5 million at year-end 2020, reflecting increased non-payment risk following Baudax Bio’s going-concern disclosure. The company’s valuation applied probability-weighted scenarios.
- The company accrued a $25.0 million ALKS 1140 milestone, expected to be paid in Q4 2021. It reported no material probable litigation losses at September 30. Disclosed matters include VIVITROL-related government investigations, product-liability cases, patent disputes and an appeal in securities litigation. Alkermes was not a party to the noted Janssen INVEGA ANDA cases.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. It stated that there were no material changes to the Annual Report risk factors.
Important facts for investors to verify
- Whether LYBALVI’s October launch generates meaningful sales and what commercial costs accompany its rollout.
- Trends in VIVITROL and ARISTADA sales, payer rebates and discounts, and the impact of COVID-19 and generic competition.
- VUMERITY and INVEGA-related partner sales and royalties, including the concentration of revenue from licensees.
- Baudax’s ability to make the remaining contingent-consideration payments and the sensitivity of the $23.8 million valuation.
- Progress, spending and outcomes for nemvaleukin and other development programs, along with the timing and resolution of material legal and regulatory matters.