Alkermes plc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports fourth-quarter results; figures are in U.S. dollars. Alkermes is a global biopharmaceutical company with U.S.-marketed products and royalty and manufacturing revenue from products commercialized by partners.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $1,094.3 million | $903.4 million |
| Operating loss | $99.1 million | $147.9 million |
| Net loss | $139.3 million | $157.9 million |
| Basic and diluted loss per share | $0.90 | $1.03 |
| Cash and cash equivalents | $266.8 million | $191.3 million |
| Cash, cash equivalents and investments | $620.0 million | $590.7 million |
| Debt outstanding | $282.1 million | $281.4 million |
| Operating cash flow | $99.3 million | $19.2 million |
Revenue rose 21%, principally from higher ARISTADA sales and BIIB098 collaboration revenue. Product sales, net, grew to $450.3 million from $362.8 million; manufacturing and royalty revenue was $526.7 million versus $505.3 million. R&D expense was $425.4 million and SG&A was $526.4 million. Operating expenses increased 14%, but revenue growth narrowed the operating loss. The filing does not provide a single reported gross-margin figure.
Fourth quarter: Revenue was $315.8 million versus $275.4 million in Q4 2017. Operating income was approximately $0.02 million versus $5.8 million; net loss was $9.7 million versus $9.8 million.
At year-end, current assets were $983.3 million and current liabilities $339.8 million. Management stated cash and investments were expected to cover anticipated working-capital needs, capital expenditures and debt service for at least 12 months after the financial statements were issued. Planned 2019 capital expenditures were approximately $95 million.
Changes and unusual items
- VIVITROL net sales increased to $302.6 million from $269.3 million; ARISTADA and ARISTADA INITIO net sales rose to $147.7 million from $93.5 million. ARISTADA INITIO launched in July 2018.
- Janssen-related revenue represented 29% of consolidated revenue, down from 33%. INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA revenue increased, while RISPERDAL CONSTA revenue declined to $71.1 million from $84.9 million.
- AMPYRA/FAMPYRA revenue fell to $107.1 million from $117.0 million, primarily reflecting lower AMPYRA shipments after generic versions entered the U.S. market in September 2018.
- Alkermes recorded a $19.6 million decrease in the fair value of contingent consideration, principally reflecting the FDA response to Recro’s IV meloxicam application and revised sales assumptions. The 2018 debt refinancing extended maturity to March 2023 and reduced the spread to LIBOR plus 2.25%; it generated a $2.3 million charge.
- The company adopted ASC 606 in 2018 using the modified retrospective method. Comparative 2017 figures remain under the prior revenue standard. The filing’s 2018 pro forma presentation without ASC 606 shows revenue of $1,096.3 million and net loss of $136.7 million, versus reported revenue of $1,094.3 million and net loss of $139.3 million; operating cash flow was unchanged.
Outlook, programs and risks
- Management expected U.S. product sales to continue growing through VIVITROL market penetration and ARISTADA share gains, while anticipating continued declines in AMPYRA from generic competition. These are expectations, not guarantees.
- For ALKS 3831, phase 3 ENLIGHTEN-2 met its weight-gain co-primary endpoints; Alkermes planned an FDA pre-NDA meeting and an NDA submission in mid-2019. For BIIB098 (diroximel fumarate), an NDA was submitted in December 2018; topline results from an active comparative tolerability study were expected in mid-2019. Alkermes could receive a $150 million FDA-approval payment under the Biogen agreement, subject to its terms and deadline.
- ALKS 5461 received an FDA complete response letter on February 1, 2019 requesting additional clinical data to establish effectiveness. An FDA advisory committee had voted that its benefit-risk profile did not support approval. Management planned to discuss the letter with FDA; the filing does not establish a viable development path.
- Key risks include reliance on licensees—especially Janssen, which accounted for 29% of revenue—product and partner concentration, generic competition, reimbursement and pricing pressure, clinical and regulatory uncertainty, manufacturing and supply dependence, foreign-exchange exposure, and debt covenants. The company reported $282.1 million of term-loan principal due in 2023 and was in covenant compliance at year-end.
- Legal and regulatory matters include U.S. Attorney requests for VIVITROL-related documents, securities class actions concerning VIVITROL marketing and ALKS 5461 disclosures, an instituted U.S. patent review concerning VIVITROL, and a European patent opposition involving RISPERDAL CONSTA. Management said no potential material litigation losses were considered probable at December 31, 2018.
Investor verification priorities
- Check whether 2019 product growth and the expected decline in AMPYRA were borne out, including the commercial effects of generic entry.
- Verify subsequent FDA actions and trial data for ALKS 3831, BIIB098 and ALKS 5461, and the status and terms of any Biogen milestones.
- Review Janssen product sales, royalty terms and RISPERDAL CONSTA manufacturing volumes, given the revenue concentration and declining product revenue.
- Track outcomes of the VIVITROL government inquiry, patent proceedings and securities litigation, and any resulting financial or operational exposure.
- Assess cash generation against the planned $95 million in 2019 capital expenditures, debt service and stated liquidity expectations; review ASC 606 effects when comparing periods.