Alkermes plc — Q2 2019 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2019. Amounts are in U.S. dollars; financial statement figures are unaudited. Alkermes is a global biopharmaceutical company focused on CNS disorders and oncology, with marketed products, royalty and manufacturing revenue, and a development pipeline.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $279.9 million | $304.6 million | $503.0 million | $529.8 million |
| Operating loss | $35.9 million | $0.1 million | $111.9 million | $62.0 million |
| Net loss | $42.0 million | $32.6 million | $138.4 million | $95.2 million |
| Loss per share, basic and diluted | $0.27 | $0.21 | $0.88 | $0.61 |
| Cash flow from operations | Not stated for the quarter | Not stated for the quarter | $(1.0) million | $5.3 million |
The filing does not provide a clear headline gross-margin figure. Q2 product sales, net, were $136.6 million, up 24% year over year; manufacturing and royalty revenue was $127.9 million, roughly flat. R&D revenue was $14.3 million, and license revenue was $1.0 million, compared with $48.3 million in Q2 2018. For the first half, total expenses rose to $614.9 million from $591.8 million.
Q2 product sales growth reflected VIVITROL sales of $88.2 million (up from $76.2 million) and ARISTADA/ARISTADA INITIO sales of $48.4 million (up from $33.6 million). Royalties from INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA increased, while AMPYRA/FAMPYRA revenue fell following U.S. generic entry; Alkermes said it did not expect to manufacture AMPYRA for Acorda during the rest of 2019.
Liquidity, debt and financial position
- At June 30, cash and cash equivalents were $196.0 million and investments totaled $397.6 million, for cash and investments of $593.6 million, down from $620.0 million at year-end 2018.
- Outstanding borrowings were $278.2 million at June 30, principally term loans due March 2023. The balance sheet reports $2.8 million current and $275.4 million long-term debt.
- Current assets were $994.6 million and current liabilities were $334.1 million. Total assets were $1.752 billion; shareholders’ equity was $1.091 billion.
- First-half investing cash outflow was $72.0 million, including $39.5 million of property and equipment additions. Cash declined by $70.8 million during the period.
- Management expected existing cash and investments to fund anticipated working capital, capital expenditures, and debt service for at least 12 months after the filing date. No material off-balance-sheet arrangements were reported.
Material changes and notable items
- Revenue decreased 8% in Q2 and 5% for the first half versus 2018. The principal comparison was the $48.3 million Biogen license revenue recognized in Q2 2018, which did not recur.
- SG&A increased 12% in Q2 and 16% in the first half, primarily due to employee-related costs and greater commercial and patient-access investment. R&D expense declined to $104.4 million in Q2 and $207.0 million for the first half.
- Net loss included fair-value reductions in contingent consideration of $6.5 million in Q2 and $29.1 million for the first half. These reductions followed Recro’s second FDA complete response letter for IV Meloxicam and lowered the estimated value of potential milestone and royalty proceeds. The contingent consideration asset was $26.1 million at June 30, versus $65.2 million at year-end; Alkermes received $10.0 million from Recro during the first half.
- Operating cash flow was nearly breakeven for the first half, versus positive operating cash flow in 2018. Management attributed the change primarily to higher employee cash payments, partly offset by increased customer receipts.
- Alkermes adopted the new lease accounting standard in January 2019. At June 30 it reported $15.9 million of right-of-use assets and $17.6 million of operating lease liabilities. A new 220,000-square-foot Waltham facility was expected to be occupied in early 2020; its future lease payments were not included in the June 30 lease-liability table.
Outlook, pipeline and risks
- No formal financial-year revenue or earnings guidance is provided in the supplied filing text. Management stated that liquidity should cover anticipated needs for at least 12 months from filing.
- BIIB098 (diroximel fumarate) was under FDA review, with a PDUFA target action date in Q4 2019. Alkermes expected an additional $26.9 million of Biogen R&D revenue through 2021.
- Management anticipated submitting an ALKS 3831 NDA for schizophrenia and bipolar I disorder in Q4 2019. ALKS 5461 received an FDA complete response letter in February 2019 requesting additional clinical data on effectiveness.
- Key risks include generic competition and patent disputes affecting AMPYRA and other partnered products; uncertain clinical, regulatory and commercial outcomes; and litigation. The filing also notes U.S. government requests for VIVITROL-related documents, a VIVITROL patent review, and securities litigation related to ALKS 5461 disclosures. Management reported no material legal loss considered probable at June 30.
- Clinical topline or interim results may change as additional data are collected and verified. The company also identifies investment-market and foreign-currency exposure, and cautions that actual results may differ materially from forward-looking statements.
Important facts for investors to verify
- Whether BIIB098 received FDA action on the stated Q4 2019 timetable, and the outcome of the ALKS 3831 NDA submission and review.
- Whether commercial growth in VIVITROL and ARISTADA offsets generic-related erosion in AMPYRA and any competitive pressure on royalty products.
- How SG&A, R&D spending, cash flow and the cash-and-investment balance evolve against management’s stated liquidity horizon.
- Whether Recro’s IV Meloxicam regulatory outlook changes the contingent consideration valuation or potential future payments.
- Developments in the VIVITROL, AMPYRA, RISPERDAL CONSTA and INVEGA patent matters, government inquiry and securities litigation.