Alkermes plc — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited. Alkermes is a global biopharmaceutical company developing, manufacturing and commercializing medicines, with a portfolio focused largely on central nervous system disorders.
Financial results and liquidity
Amounts are in millions of U.S. dollars except per-share data.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Total revenue | $191.8 | $156.8 |
| Operating loss | $(70.9) | $(76.9) |
| Net loss | $(68.9) | $(77.4) |
| Loss per share, basic and diluted | $(0.45) | $(0.51) |
| Cash used in operating activities | $(13.7) | $(57.2) |
- Revenue increased 22%. Manufacturing and royalty revenue was $114.7 million, up from $106.2 million; product sales, net were $76.5 million, up from $49.4 million. Research and development revenue was $0.6 million.
- VIVITROL net sales were $58.5 million versus $43.8 million; ARISTADA net sales were $18.0 million versus $5.6 million. Janssen royalties from INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA also increased. RISPERDAL CONSTA revenue declined.
- Total expenses rose to $262.6 million from $233.7 million. Cost of goods manufactured and sold increased $12.7 million and selling, general and administrative expense increased $12.4 million; R&D expense increased $3.8 million to $104.8 million.
- The filing does not present a gross-margin figure. Product sales net of deductions were 57.7% of gross product sales, compared with 61.4% a year earlier; deductions included Medicaid rebates, discounts and chargebacks.
- At March 31, cash and cash equivalents were $181.3 million and investments totaled $408.1 million, for combined cash and investments of $589.4 million, down from $619.2 million at year-end 2016. Current assets were $758.9 million and current liabilities $210.7 million.
- Debt carrying value was $283.1 million, including $3.0 million current; the filing reports $286.5 million of principal outstanding. The term loan matures September 2021 and bears interest at LIBOR plus 2.75%, subject to a 0.75% LIBOR floor.
Changes and notable items
- Net loss narrowed by $8.5 million year over year, primarily as $35.0 million of revenue growth more than offset higher operating expenses.
- Operating cash use improved by $43.5 million, which management attributed mainly to higher customer receipts and lower supplier payments, partly offset by increased employee payments. Investing activities provided $15.5 million; financing activities used $6.8 million.
- Effective January 1, 2017, a share-based compensation accounting change resulted in a $61.5 million cumulative-effect adjustment to accumulated deficit. Q1 2017 also included a $3.7 million income tax benefit, versus a $0.4 million provision in Q1 2016, primarily reflecting excess tax benefits on share-based compensation.
- Contingent consideration increased $1.6 million to $64.8 million, recorded as expense, reflecting updated valuation of potential Gainesville transaction milestones and royalties.
Outlook, commentary and risks
- Management said existing cash and investments should fund anticipated working capital, capital expenditures and debt service for at least 12 months after the filing date. The filing provides no quantified full-year revenue or earnings guidance.
- Pipeline milestones included an expected June 5, 2017 FDA action date for the ARISTADA two-month dosing option; planned ALKS 5461 NDA submission in the second half of 2017; and anticipated ALKS 3831 pivotal-study results in mid-2017 and mid-2018. ALKS 8700 registration requirements were expected to be completed by year-end, with an NDA filing planned for 2018.
- ALKS 6428 failed its primary endpoint in a Phase 3 study; the company said analysis continued and a second Phase 3 study was ongoing. For ALKS 3831, a Phase 2 study in patients with schizophrenia and alcohol use disorder did not show a difference on its prespecified composite endpoint.
- AMPYRA patent litigation presents a revenue risk: a March 2017 court decision upheld the company-owned patent expiring July 2018 but invalidated four Acorda-owned patents. Appeals remained possible, and settlements permit certain generic entrants at specified future dates. Management warned of possible generic competition as early as July 2018, or earlier depending on appeals, and expected revenue pressure in advance of generic entry.
- Otsuka continued its appeal challenging ARISTADA approval. A separate patent review concerning a patent relevant to BYDUREON, RISPERDAL CONSTA and VIVITROL was pending. Management reported no legal losses it deemed probable at quarter-end.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It noted no material change in market-risk exposure since year-end 2016.
Investor facts to verify
- Subsequent AMPYRA patent appeal decisions, generic-entry timing, and the effect on manufacturing and royalty revenue.
- ARISTADA commercial growth and the outcome of Otsuka’s appeal, alongside VIVITROL sales and rebate trends.
- Clinical and regulatory outcomes for ALKS 5461, ALKS 3831 and ALKS 8700, including milestones and spending.
- Cash and investment levels, operating cash use, debt principal and interest costs, and the assumptions underlying management’s 12-month liquidity assessment.
- Potential future impact of the share-based compensation accounting change, contingent consideration remeasurement and product-sales deductions.