Alkermes plc — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 11, 2021. Alkermes is a global biopharmaceutical company that develops, manufactures and commercializes medicines, independently and with partners. Its portfolio centers on addiction and schizophrenia, with development programs in neuroscience and oncology.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $1,038.8 million | $1,170.9 million |
| Product sales, net | $551.8 million | $524.5 million |
| Manufacturing and royalty revenue | $484.0 million | $447.9 million |
| Operating loss | $112.4 million | $175.5 million |
| Net loss | $110.9 million | $196.6 million |
| Loss per share, basic and diluted | $0.70 | $1.25 |
| Cash from operating activities | $82.8 million | $72.1 million |
FY2020 operating margin was approximately negative 10.8% and net margin approximately negative 10.7%. The company remained loss-making; it reported an accumulated deficit of $1.5 billion.
Fourth quarter: Revenue was $280.0 million, operating loss $30.7 million, and net loss $42.6 million, versus FY2020 quarterly revenue ranging from $246.2 million to $280.0 million. Q4 loss per share was $0.27.
Liquidity and debt at year-end: Cash, cash equivalents and investments totaled $659.8 million, up from $614.4 million. Outstanding term-loan principal was $276.4 million, due March 2023, with $2.8 million current and $272.1 million long-term on the balance sheet. The loans bear interest at LIBOR plus 2.25% (0% floor); the company reported compliance with covenants. Management expected existing cash and investments to cover anticipated requirements for at least 12 months after financial statements were issued. Operating lease liabilities were $135.2 million.
Changes versus FY2019
- Revenue declined 11%, mainly because FY2019 included substantial VUMERITY collaboration milestone/license revenue and FY2020 VIVITROL sales were affected by COVID-19. Product sales and manufacturing/royalty revenue increased, partly offsetting the decline.
- VIVITROL net sales fell to $310.7 million from $335.4 million; ARISTADA and ARISTADA INITIO net sales rose to $241.0 million from $189.1 million. Gross sales of the ARISTADA products increased 39%, while VIVITROL gross sales declined 4%.
- Manufacturing and royalty revenue rose to $484.0 million, including higher revenue from Janssen’s INVEGA products and AMPYRA/FAMPYRA. Janssen collaboration revenue represented about 33% of consolidated revenue.
- Operating expenses fell 15% to $1.15 billion. R&D expense declined $118.2 million, including the absence of FY2019’s $86.6 million Rodin in-process R&D charge; SG&A declined $60.6 million. FY2019 also included $13.4 million of restructuring expense.
- Operating and net losses narrowed, despite lower revenue. Other income improved, including a $8.3 million gain on the Fountain investment and a favorable year-over-year change in contingent consideration fair value.
Outlook, developments and risks
- LYBALVI: The FDA issued a Complete Response Letter in November 2020 following a remote review of manufacturing records at the Wilmington facility. Alkermes resubmitted the NDA in December; the FDA set a June 1, 2021 target action date and requested supplemental records. Approval and timing remained uncertain, including whether an on-site inspection would be required. The company also reported expensing inventory lots no longer considered probable of commercial sale.
- Pipeline: Nemvaleukin was being studied in the ARTISTRY clinical program. The filing provides no numerical revenue or earnings guidance. Management described a value enhancement plan with multi-year profitability targets, cost-structure review, possible monetization of non-core assets and potential strategic collaborations for nemvaleukin; specific target amounts are not provided in the supplied filing text.
- COVID-19: Disruptions to healthcare access and administration of injectable medicines weighed on sales, particularly VIVITROL, and could continue for several quarters. Q4 VIVITROL units sold fell 5% sequentially; ARISTADA units rose 12%. The pandemic also posed risks to trials, suppliers, regulatory inspections and operations.
- Concentration and competition: Revenue depends materially on a small number of proprietary products and licensees. Janssen generated about one-third of FY2020 revenue. Generic challenges and patent litigation affect VIVITROL and Janssen products; management expected possible generic pressure on RISPERDAL CONSTA in 2021. Medicaid rebates and other sales deductions totaled 51.4% of gross product sales in 2020, compared with 48.5% in 2019.
- Legal and contingent matters: The company disclosed VIVITROL-related government information requests and product-liability cases, as well as patent and securities litigation. It stated that no potential material losses from claims or proceedings were considered probable at year-end; outcomes remain uncertain. Up to $850 million of potential Rodin milestone payments were excluded from contractual-obligation totals because payment timing could not be reliably estimated and triggering events were not considered probable.
- Other financial risks: Baudax Bio, the counterparty on contingent consideration from the Gainesville transaction, had disclosed substantial doubt about its ability to continue as a going concern. Foreign-exchange exposure is material: a 10% strengthening of the U.S. dollar was estimated to reduce FY2020 revenue by about $28.9 million, partly offset by lower translated euro expenses. No dividends were paid or expected in the foreseeable future.
Important facts for investors to verify
- Whether LYBALVI received FDA approval, and the resolution of manufacturing-record requests and any inspection requirements.
- Whether COVID-related access disruptions eased, particularly for VIVITROL, and whether ARISTADA growth continued.
- Janssen product sales, generic-litigation outcomes and the resulting effect on Alkermes royalties and manufacturing revenue.
- Progress against the value enhancement plan and profitability targets, including any asset monetization or nemvaleukin collaboration.
- Cash generation, working-capital needs, capital spending and repayment or refinancing plans ahead of the March 2023 term-loan maturity.
- Developments in VIVITROL government inquiries, product-liability matters and patent litigation, and any resulting financial exposure.
PricewaterhouseCoopers issued an unqualified audit opinion on the financial statements and concluded internal control over financial reporting was effective as of December 31, 2020.