Alkermes plc — FY2016 Form 10-K
Business context and reporting period
Alkermes is an Ireland-incorporated biopharmaceutical company focused on CNS disorders, including schizophrenia, depression, addiction and multiple sclerosis. This annual report covers the fiscal year ended December 31, 2016; quarterly figures below identify Q4 where relevant. Revenue comes from U.S. sales of VIVITROL and ARISTADA and manufacturing and royalty arrangements with partners, particularly Janssen, Acorda/Biogen and AstraZeneca.
Key financial metrics
| Metric | FY2016 | FY2015 |
|---|---|---|
| Total revenue | $745.7 million | $628.3 million |
| Manufacturing and royalty revenue | $487.2 million | $475.3 million |
| Net product sales | $256.1 million | $149.0 million |
| Operating expenses | $954.4 million | $852.6 million |
| Operating loss | $208.7 million | $224.3 million |
| Net loss / diluted loss per share | $208.4 million / $1.38 | $227.2 million / $1.52 |
| Cash from (used in) operations | $(63.8) million | $(40.4) million |
| Cash, cash equivalents and investments at year-end | $619.2 million | $798.8 million |
| Debt at year-end | $283.7 million | $349.9 million |
The filing does not present a single consolidated gross-margin figure. At December 31, 2016, total assets were $1.73 billion and shareholders’ equity was $1.21 billion. Q4 2016 revenue was $213.5 million and net loss was $21.1 million ($0.14 per share), versus Q4 2015 revenue of $163.1 million and net loss of $69.4 million ($0.46 per share).
Material changes versus prior comparable period
- Revenue grew 19% year over year, driven mainly by higher VIVITROL sales and a full year of ARISTADA sales after its October 2015 launch. Net product sales rose 72% to $256.1 million.
- VIVITROL net sales increased to $209.0 million from $144.4 million; ARISTADA net sales were $47.1 million, compared with $4.6 million in 2015.
- Partner revenue was mixed: INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA revenue rose to $184.2 million, while RISPERDAL CONSTA revenue declined to $87.2 million from $100.7 million. Janssen accounted for 36% of consolidated revenue, down from 40%.
- R&D expense increased 12% to $387.1 million, and SG&A increased 20% to $374.1 million, reflecting pipeline investment and commercial expansion. The operating loss narrowed, but the company remained loss-making.
- Cash and investments fell by $179.7 million. Operating cash use increased, while investing activities provided $127.2 million, primarily reflecting net investment sales.
Outlook, management commentary, risks and unusual items
- Management said existing cash and investments were expected to fund working capital, capital expenditures, and debt service for at least the 12 months after issuance of the financial statements. Planned 2017 capital expenditures were approximately $75 million. No formal full-year revenue or earnings guidance is stated in the supplied filing text.
- Pipeline milestones cited include an FDA decision expected in June 2017 on the ARISTADA two-month dosing sNDA; a planned ALKS 5461 NDA submission in the second half of 2017; and expected ALKS 3831 phase 3 results in late 2017 and mid-2018. ALKS 8700 registration studies and an NDA filing were planned for 2018.
- Clinical outcomes are uncertain: two ALKS 5461 phase 3 studies did not meet their prespecified primary endpoint, while FORWARD-5 met its primary endpoint at the 2 mg/2 mg dose. The ALKS 6428 phase 3 study failed its primary endpoint; Alkermes ceased ALKS 7119 development after tolerability issues.
- Key risks include dependence on partners—Janssen revenue concentration in particular—product acceptance and reimbursement, competition and pricing pressure, clinical and regulatory uncertainty, manufacturing and single-source supply risks, currency exposure, and patent challenges. Seven AMPYRA generic applicants settled with proposed entry in 2025 or potentially earlier; litigation with other applicants and patent reviews remained ongoing. Otsuka’s appeal challenging ARISTADA approval was also pending.
- Debt was refinanced in October 2016: the $288 million term loan was extended to September 2021 at LIBOR plus 2.75%, with a 0.75% floor, and is secured by a first-priority lien on substantially all company assets. Alkermes reported covenant compliance at year-end. It repaid $60.9 million of a separate term loan at maturity in September 2016.
- Unusual/nonrecurring items include a $7.9 million gain from an increase in the fair value of contingent consideration tied to the Gainesville divestiture; the 2015 comparison included a $9.6 million Gainesville transaction gain. A $2.1 million refinancing charge was recorded in 2016.
Most important facts for investors to verify
- Whether growth in VIVITROL and ARISTADA can offset declining RISPERDAL CONSTA revenue and sustain growth in partner royalties.
- Actual cash burn, capital spending and liquidity needs against management’s 12-month sufficiency statement; note that cash and investments declined and operating cash flow was negative.
- Progress and outcomes for ALKS 5461, ALKS 3831 and ALKS 8700, including regulatory timelines and safety/tolerability data.
- Results and potential timing effects of AMPYRA patent litigation and reviews, the pending ARISTADA appeal, and the IPR challenging a patent covering VIVITROL, RISPERDAL CONSTA and BYDUREON.
- Janssen concentration, product reimbursement and pricing trends, manufacturing capacity and supply continuity, and compliance with secured-debt covenants.