Alkermes plc — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Alkermes is a global biopharmaceutical company focused on CNS medicines, with marketed products and neuroscience and oncology development programs. Figures below are in millions of dollars except per-share amounts.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $247.5 | $279.9 | $493.7 | $503.0 |
| Operating loss | $(33.7) | $(35.9) | $(71.0) | $(111.9) |
| Net loss | $(29.4) | $(42.0) | $(68.1) | $(138.4) |
| Basic and diluted loss per share | $(0.19) | $(0.27) | $(0.43) | $(0.88) |
| Operating margin | (13.6%) | (12.8%) | (14.4%) | (22.3%) |
Revenue declined 11.6% year over year in Q2 and 1.8% for the first half. Net loss narrowed in both periods, mainly because operating expenses fell: 11% in Q2 and 8% in the first half, including lower SG&A and R&D. Q2 operating margin nevertheless declined modestly.
- Product sales: Q2 net sales were $130.4 versus $136.6; first-half sales were $260.1 versus $236.1. VIVITROL sales were $71.6 in Q2 and $150.4 for the first half, down year over year. ARISTADA and ARISTADA INITIO sales were $58.8 and $109.7, respectively, both up year over year.
- Manufacturing and royalty revenue: $116.5 in Q2 versus $127.9; $232.8 for the first half versus $236.8. INVEGA-related royalties increased, while RISPERDAL CONSTA manufacturing and royalty revenue declined.
- R&D revenue: $0.6 in Q2 and $0.9 for the first half, down from $14.3 and $29.0, respectively, largely because services under the Biogen VUMERITY agreement declined after FDA approval.
- Cash flow: Operating activities used $44.7 in the first half, compared with $1.0 used in 2019. Investing activities provided $31.8, including proceeds from investment sales and maturities; capital expenditures were $30.4. Cash and cash equivalents decreased $14.8 to $189.0.
- Liquidity and debt: Cash and investments totaled $539.6 at June 30, 2020, versus $614.4 at year-end 2019. Borrowings were $276.1, including $273.2 classified as long-term debt and $2.8 current; term loans mature in March 2023. The company reported compliance with debt covenants and expects existing cash and investments to cover anticipated needs for at least 12 months after filing.
- Other balance-sheet items: Total assets were $1.80 billion and shareholders’ equity was $1.06 billion. Operating lease liabilities rose to $114.7, primarily reflecting commencement of the 900 Winter Street lease in January 2020.
Changes and notable items
- VIVITROL units sold fell 9% in Q2 versus Q1, which management attributed mainly to pandemic-related disruption to patient practices and access to healthcare facilities. ARISTADA gross sales increased 11% versus Q1.
- Year-over-year VIVITROL gross sales fell 20% in Q2, primarily on a 22% decrease in units; ARISTADA and ARISTADA INITIO gross sales rose 35%, primarily on 25% unit growth and price increases.
- Alkermes recorded a $12.7 increase in the fair value of contingent consideration for the first half, versus a $29.1 decrease in 2019. The change followed FDA approval of ANJESO in February 2020 and a higher probability of success in the valuation. This noncash remeasurement improved reported other income.
- In October 2019, the company announced a restructuring involving approximately 160 employees. It paid $7.0 of the accrued costs in the first half of 2020; $2.2 remained accrued at June 30.
Outlook, risks and contingencies
- Management expects commercial sales of injectable products, particularly VIVITROL, to remain affected by COVID-19 over the next few quarters. Lower Q2 VIVITROL patient volume may weigh on second-half unit demand. Management said the pandemic had not significantly affected results or financial condition to date except for VIVITROL sales, but noted substantial uncertainty.
- COVID-19 may disrupt clinical-trial enrollment and timelines, supply chains, manufacturing, healthcare access, reimbursement and regulatory processes. Manufacturing facilities remained operational; the company continued R&D and clinical trials while monitoring potential disruptions.
- The ALKS 3831 NDA was accepted by FDA, with a November 15, 2020 target action date and an advisory committee meeting planned for October 2020. The filing provides no quantified full-year financial guidance.
- ALKS 4230 clinical development continued, with increased program spending. The company reported that ALKS 5461 activity had wound down after an FDA complete response letter in 2019.
- Legal matters include VIVITROL-related government investigations, two VIVITROL product-liability suits, a securities class action, and patent proceedings involving RISPERDAL CONSTA and INVEGA SUSTENNA. The company said no potential material legal losses were considered probable at June 30, 2020.
- Management identified potential risks from COVID-19, including increased Medicaid rebates if the U.S. CPI-U becomes negative. It also noted that investment values, foreign-exchange movements, product competition, reimbursement and IP disputes may affect results.
Important facts for investors to verify
- Whether VIVITROL demand and healthcare-provider access recover, and the resulting effect on second-half sales and Medicaid rebates.
- Whether ARISTADA growth and INVEGA-related royalties offset declines in VIVITROL and RISPERDAL CONSTA revenue.
- ALKS 3831’s October advisory committee process and November 15, 2020 FDA action date.
- Operating cash use, capital expenditure needs, and the $539.6 cash-and-investment balance relative to the 2023 term-loan maturity and lease commitments.
- Developments in the listed legal matters and the valuation assumptions supporting the $45.1 contingent-consideration asset.