Alkermes plc. — 2015 Form 10-K
Business context and reporting period. Alkermes is a global biopharmaceutical company developing, manufacturing and commercializing CNS and other medicines, both directly and with partners. This filing reports the year ended December 31, 2015, compared with the twelve months ended December 31, 2014. The 2013 audited comparative period in the financial statements is nine months and is not directly comparable. The filing also reports unaudited fourth-quarter results.
Financial results and key metrics
| Metric | 2015 | 2014 | Change / context |
|---|---|---|---|
| Total revenue | $628.3 million | $618.8 million | Up 1.5% |
| Manufacturing and royalty revenue | $475.3 million | $516.9 million | Down $41.6 million, including revenue lost with the Gainesville divestiture |
| Net product sales | $149.0 million | $94.2 million | Up 58.3%, led by VIVITROL growth and the ARISTADA launch |
| Operating loss | $224.3 million | $87.1 million | Loss widened as R&D and SG&A spending increased |
| Net loss | $227.2 million | $30.1 million | Loss per share was $1.52 versus $0.21 |
| Operating cash flow | $(40.4) million | $11.1 million | Cash used increased by $51.5 million |
| Cash and investments | $798.8 million | $801.6 million | At December 31 |
| Debt carrying amount | $349.9 million | $355.8 million | Includes $65.7 million classified as current at year-end |
Research and development expense increased 26.6% to $344.4 million; selling, general and administrative expense increased 55.8% to $311.6 million. Cost of goods manufactured and sold declined to $139.0 million from $175.8 million, mainly following the Gainesville sale and Athlone restructuring savings. The filing does not provide a single reported gross-margin percentage.
In the fourth quarter of 2015, revenue was $163.1 million and net loss was $69.4 million, compared with revenue of $175.2 million and net income of $30.5 million in fourth-quarter 2014.
Material changes versus the prior comparable period
- Revenue increased modestly overall, but the composition shifted: net product sales rose while partner manufacturing and royalty revenue declined. Excluding the lost Gainesville revenue, management said revenue increased $62.8 million; VIVITROL contributed $50.3 million of that increase.
- Janssen products generated approximately 40% of 2015 revenue, versus 41% in 2014. INVEGA SUSTENNA/XEPLION and INVEGA TRINZA revenue increased, while RISPERDAL CONSTA revenue declined.
- Operating loss widened substantially as Alkermes advanced its development pipeline and expanded commercial operations ahead of the ARISTADA launch. The company reported $97.3 million of share-based compensation expense in 2015, up from $59.6 million.
- 2014 other income included sizable gains on asset and investment sales. In 2015, other income included a $9.6 million Gainesville transaction gain, partly offset by a $2.3 million fair-value decrease in contingent consideration.
- Cash and investments were broadly stable, but operating cash flow turned negative. Capital expenditures were $52.9 million, and financing cash flow included no new public share issuance, unlike the $248.4 million raised in 2014.
Outlook, management commentary, risks and unusual items
- Management expected existing cash and investments to fund anticipated working-capital and other cash needs, including capital expenditures and debt service, for at least the next 12 months. It estimated 2016 capital expenditures of approximately $45 million. No specific revenue or earnings guidance is provided in the filing.
- Management expected continued growth in product sales, including VIVITROL and ARISTADA, and in certain partnered products. These expectations depend on market uptake, reimbursement, manufacturing performance, competition, foreign exchange and partner execution.
- After year-end, Alkermes reported that ALKS 5461 phase 3 studies FORWARD-3 and FORWARD-4 did not meet their prespecified primary efficacy endpoint. FORWARD-5 remained ongoing; management planned to consult the FDA if its results were clearly positive. This is a material subsequent development, not a 2015-period result.
- ARISTADA was approved and launched in October 2015. Otsuka’s lawsuit challenging the FDA’s approval remained pending at the filing date; a successful challenge could affect approval or require removal of the product from the market.
- Ten generic applicants challenged patents covering AMPYRA. Settlements with four applicants allowed U.S. generic marketing from a specified date in 2027, potentially earlier under certain circumstances; litigation with other applicants continued. Separate inter partes review petitions also challenged patents.
- The Gainesville facility and associated products and meloxicam rights were sold to Recro in April 2015 for $54.0 million cash, warrants and contingent consideration. Alkermes may receive low-double-digit royalties and up to $120 million in regulatory and sales milestones; the contingent consideration was valued at $55.3 million at year-end and is subject to estimation uncertainty.
- Debt is secured by a first-priority lien on substantially all company and guarantor assets and includes restrictive covenants. The company reported covenant compliance at year-end. Scheduled principal payments include $65.8 million in 2016 and $281.3 million in 2019.
- Other key risks include reliance on partners (including Janssen), limited manufacturing flexibility and single-source suppliers, reimbursement and pricing pressure, clinical and regulatory uncertainty, patent litigation, and currency exposure. The filing reported no litigation losses considered probable at December 31, 2015.
Important facts for investors to verify
- FORWARD-5 results and the FDA’s view of whether the ALKS 5461 evidence supports an application.
- Outcome and potential commercial impact of Otsuka’s ARISTADA litigation.
- Progress of remaining AMPYRA patent litigation and the terms and timing of generic settlements.
- Commercial uptake, net sales and rebate burden for ARISTADA and VIVITROL, and trends in Janssen product sales and royalties.
- Cash generation, planned capital spending, and ability to meet the 2016 debt principal payment and later maturities.
- Value and timing of potential Gainesville-related royalties and milestone payments, which depend on development, regulatory and sales outcomes.