Alkermes plc. — Q3 2020 Form 10-Q
Business context and period: Alkermes is a global biopharmaceutical company focused on CNS medicines, including addiction and schizophrenia products, with neuroscience and oncology programs in development. This unaudited report covers the quarter and nine months ended September 30, 2020; comparisons are with the same 2019 periods. Amounts below are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $265.0m | $255.2m | $758.8m | $758.2m |
| Operating loss | $(10.7)m | $(53.6)m | $(81.7)m | $(165.5)m |
| Net loss | $(0.1)m | $(52.9)m | $(68.2)m | $(191.3)m |
| Loss per share, basic and diluted | $(0.00) | $(0.34) | $(0.43) | $(1.22) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $15.5m | $30.0m |
- Q3 revenue increased 3.8%. Product sales were $142.7m, manufacturing and royalty revenue $120.4m, R&D revenue $1.0m and license revenue $1.1m.
- For the first nine months, revenue was essentially flat. Product sales rose to $402.8m from $374.9m, and manufacturing and royalty revenue rose to $353.1m from $340.6m; R&D revenue fell to $1.8m from $41.7m, largely following VUMERITY’s 2019 approval and reduced services under the Biogen agreement.
- Operating expenses declined year over year: Q3 expenses were $275.7m versus $308.9m; nine-month expenses were $840.5m versus $923.8m. Lower SG&A and R&D costs drove most of the reduction.
- Q3 operating margin was approximately -4.0% (2019: -21.0%); nine-month operating margin was approximately -10.8% (2019: -21.8%). These are calculated from reported revenue and operating loss.
- Q3 net loss was close to break-even despite an operating loss, supported by $12.9m of other income, including an $8.3m gain from the sale of investments in two Fountain portfolio companies and a $3.9m favorable change in contingent consideration fair value. The nine-month other-income total was $26.8m, including a $16.6m favorable contingent-consideration revaluation.
- At September 30, cash and cash equivalents were $240.9m and investments were $356.3m, totaling $597.2m, compared with $614.4m at December 31, 2019. Current assets were $1,024.9m and current liabilities $378.2m.
- Debt principal outstanding was $277.1m, due March 2023, with interest at LIBOR plus 2.25% and a 0% LIBOR floor. The company reported compliance with debt covenants. Total liabilities were $792.5m and shareholders’ equity $1,084.4m.
- Nine-month capital expenditures were $36.8m, down from $59.0m. Cash increased by $37.1m during the period, principally reflecting operating cash generation and net investment maturities/sales.
Material changes, outlook and risks
- VIVITROL net sales declined to $80.3m in Q3 from $85.2m a year earlier; ARISTADA and ARISTADA INITIO sales increased to $62.4m from $53.6m. Q3 units sold versus Q2 rose 22% for VIVITROL and 7% for ARISTADA.
- Management said COVID-19 continued to disrupt healthcare access and sales of injectable medicines. It expected commercial sales, particularly VIVITROL, to remain affected over the next few quarters; lower patient volumes in earlier quarters could weigh on VIVITROL demand in Q4 2020 and beyond. The company reported gradual normalization but said the extent and duration were uncertain.
- COVID-19 could also affect clinical-trial enrollment and timelines, suppliers, manufacturing, reimbursement, healthcare systems and regulatory interactions. Alkermes said its manufacturing facilities remained operational and it continued clinical and R&D activities, while some early-stage research and trial timelines had been affected or could be affected.
- Alkermes stated that existing cash and investments were expected to fund anticipated working capital, capital expenditures and debt service for at least 12 months after the filing date. No specific revenue or earnings guidance was provided in the supplied filing text.
- ALKS 3831’s NDA had an FDA target action date of November 15, 2020; an FDA advisory committee meeting took place October 9, 2020. ALKS 4230’s ARTISTRY-3 Phase 2 study began in August 2020. Development timing and outcomes remain uncertain.
- Notable contingencies include a VIVITROL generic-related patent lawsuit against Teva, government information requests concerning VIVITROL, securities litigation, product-liability matters and an appeal concerning a RISPERDAL CONSTA-related European patent. The company said no material litigation loss was considered probable at September 30, 2020.
- Other unusual items include a $1.0m impairment of a corporate debt security and commencement of the 900 Winter Street lease, which increased reported operating lease liabilities. The company also amended timing of a $5.0m ANJESO milestone payment; $2.5m was received in August, with the balance due by December 2020 and June 2021.
Most important facts for investors to verify
- Whether VIVITROL demand and patient access recovered after Q3, and how COVID-19 affected Q4 sales and Medicaid rebates.
- Whether ARISTADA growth and Janssen-related royalties continued, and whether RISPERDAL CONSTA sales and royalty trends deteriorated further.
- The FDA’s decision and subsequent commercial prospects for ALKS 3831, as well as clinical progress, costs and timelines for ALKS 4230.
- The quality and repeatability of near-break-even quarterly results, given the contribution from investment gains and contingent-consideration revaluation.
- Cash generation, investment balances, lease obligations, debt-service capacity and covenant compliance as the 2023 debt maturity approaches.
- Developments in the VIVITROL investigations and litigation, patent disputes, securities litigation and other product-liability proceedings.