Alkermes plc — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Alkermes is a global biopharmaceutical company focused on CNS medicines, with marketed products and development programs in neuroscience and oncology. Figures below are in U.S. dollars; financial statements are unaudited.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $246.2 million | $223.1 million | +10% |
| Product sales, net | $129.7 million | $99.5 million | +30% |
| Manufacturing and royalty revenue | $116.3 million | $108.9 million | +7% |
| Research and development revenue | $0.2 million | $14.7 million | Down $14.5 million |
| Total expenses | $283.6 million | $299.1 million | Down $15.5 million |
| Operating loss | $37.4 million | $76.0 million | Improved $38.6 million |
| Net loss | $38.7 million | $96.4 million | Improved $57.7 million |
| Basic and diluted loss per share | $0.24 | $0.62 | Improved $0.38 |
| Operating margin | (15.2%) | (34.1%) | Improved |
| Net margin | (15.7%) | (43.2%) | Improved |
Product-sales growth reflected higher unit sales: VIVITROL net sales were $78.8 million versus $69.2 million; ARISTADA and ARISTADA INITIO were $51.0 million versus $30.3 million. Janssen end-market sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA rose to $883 million from $790 million, supporting royalty growth. Lower R&D revenue mainly reflected reduced VUMERITY collaboration services after FDA approval in October 2019.
R&D expense was $93.3 million, down from $102.6 million, while SG&A was $133.4 million, down from $141.2 million. The improvement in net loss also reflected a $6.8 million gain from the change in fair value of contingent consideration, compared with a $22.6 million expense in Q1 2019. The 2020 gain followed FDA approval of ANJESO in February and increased milestone probability assumptions. The company recorded a $7.3 million income-tax provision, versus a $3.9 million benefit a year earlier.
Cash flow, liquidity and debt
- Operating cash flow was negative $40.3 million, compared with positive $22.2 million in Q1 2019. Management attributed the change primarily to 15% lower cash receipts from customers and 13% higher cash paid to suppliers.
- Investing activities provided $17.5 million, largely reflecting net investment sales; capital expenditures were $19.8 million. Financing activities used $4.9 million.
- Cash and cash equivalents were $176.1 million at March 31, down from $203.8 million at year-end. Cash plus short- and long-term investments totaled $549.7 million, versus $614.4 million at year-end.
- Debt had a $276.6 million carrying value on the balance sheet; the filing reports $278.6 million principal outstanding. The term loans mature March 26, 2023, bear interest at LIBOR plus 2.25% (0% LIBOR floor), and the company reported compliance with covenants.
- Management expects cash and investments to cover anticipated working capital, capital spending and debt-service needs for at least 12 months following the filing date, while noting COVID-19 could adversely affect commercial prospects and projected cash.
- The January commencement of the 900 Winter Street lease increased reported right-of-use assets to $114.5 million and operating lease liabilities to $117.6 million, from $12.4 million and $13.8 million, respectively, at year-end.
Outlook, risks and unusual items
- COVID-19: The pandemic had no significant impact on Q1 results or financial condition, but the company reported emerging Q2 commercial effects: April VIVITROL shipments were below pre-pandemic expectations, and ARISTADA prescription data and factory shipments had flattened. It expected sales of injectable products administered by healthcare professionals to be adversely affected. Manufacturing continued, with no supply interruptions anticipated at the filing date; clinical-trial and early-stage research timelines could be affected. The company said the overall future impact could not be predicted.
- Development and regulatory outlook: ALKS 3831’s NDA was accepted, with an FDA PDUFA target action date of November 15, 2020; an advisory committee meeting was planned. ALKS 4230 phase 1/2 studies were ongoing. The filing provides no numerical full-year revenue or earnings guidance.
- Contingencies: The company was cooperating with government investigations concerning VIVITROL following a subpoena and civil investigative demands. It also disclosed two VIVITROL product-liability lawsuits, a putative securities class action, and patent proceedings relating to RISPERDAL CONSTA. No material litigation losses were considered probable at March 31, 2020. Janssen, not Alkermes, is a party to the disclosed INVEGA SUSTENNA generic-ANDA lawsuits.
- Other notable items: A 2019 restructuring affecting approximately 160 employees had $4.6 million of accrued costs remaining at March 31. No shares were repurchased under the authorized buyback program during Q1.
Most important facts for investors to verify
- Whether COVID-related reductions in VIVITROL shipments and ARISTADA activity persisted or deepened after Q1, and the resulting effects on sales, rebates and cash flow.
- Whether the company’s $549.7 million cash-and-investment balance and stated 12-month liquidity expectation remained adequate given negative Q1 operating cash flow and debt service.
- Progress and FDA outcome for ALKS 3831 against its November 15, 2020 target date, as well as any COVID-related delays to clinical programs.
- Whether Janssen product sales, VUMERITY-related economics and other partnered revenues remained supportive of Alkermes’ revenue mix.
- Developments in the VIVITROL investigations and product-liability cases, securities litigation, patent disputes, and the contingent consideration tied to ANJESO.