Alkermes plc — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Alkermes is a global biopharmaceutical company focused on developing, manufacturing and commercializing medicines, with a portfolio and pipeline concentrated in central nervous system disorders. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total revenue | $161.2 | $130.2 | +$31.0 (23.8%) |
| Operating loss | $(27.3) | $(15.9) | Loss widened $11.4 |
| Net loss | $(30.7) | $(24.4) | Loss widened $6.3 |
| Loss per share, basic and diluted | $(0.21) | $(0.17) | |
| Operating loss margin | (16.9%) | (12.2%) | |
| Net loss margin | (19.0%) | (18.7%) |
- Revenue mix: Manufacturing and royalty revenue was $128.7 million, up $17.4 million; net product sales were $31.1 million, up $14.1 million; R&D revenue was $1.3 million, down $0.5 million. VIVITROL net sales rose to $31.1 million from $17.1 million.
- Expenses: R&D increased to $70.3 million from $52.1 million, chiefly reflecting ALKS 5461 clinical studies and higher employee costs. SG&A increased to $63.1 million from $42.6 million, including higher employee-related costs, professional services and prelaunch and marketing activities. Cost of goods manufactured and sold was $40.0 million versus $38.8 million; acquired-intangible amortization was $15.2 million versus $12.6 million.
- Cash flow: Operating activities provided $2.1 million, compared with $3.5 million used in Q1 2014. Investing activities used $28.8 million; financing provided $12.0 million. Cash and cash equivalents declined $14.8 million during the quarter to $209.3 million.
- Liquidity and debt: Cash and investments totaled $805.7 million at quarter-end, versus $801.6 million at December 31, 2014. Balance-sheet debt was $356.4 million, including $6.8 million current. Management stated existing cash and investments were expected to fund anticipated working capital, capital expenditures and debt service for at least the next 12 months. The MD&A separately reports $358.1 million of borrowings outstanding; the filing text does not reconcile that figure to the $356.4 million balance-sheet carrying amount.
- Other balance-sheet measures: Total assets were $1,924.8 million and shareholders’ equity was $1,420.4 million at March 31, 2015. Current assets were $1,003.5 million and current liabilities $114.2 million.
Material changes and business developments
- Revenue growth was primarily driven by a $15.9 million increase in AMPYRA/FAMPYRA manufacturing and royalty revenue and a $14.0 million increase in VIVITROL net sales. INVEGA SUSTENNA/XEPLION and BYDUREON revenues also rose; RISPERDAL CONSTA revenue declined $5.5 million.
- On March 7, Alkermes agreed to sell its Gainesville, Georgia facility, related product manufacturing and royalty revenue, and certain meloxicam rights to Recro. The transaction closed April 10, after quarter-end, for $50.0 million cash and warrants to buy 350,000 Recro shares. Alkermes is also eligible for low-double-digit royalties on specified meloxicam sales and up to $120.0 million in regulatory and sales milestones. The company estimated total consideration at $111.0 million as of closing. The sale was not classified as discontinued operations.
- The Gainesville business contributed $5.2 million of pretax income in Q1. Management expected the divestiture to reduce 2015 manufacturing and royalty revenue by approximately $40.0 million and cost of goods manufactured by approximately $25.0 million compared with 2014.
- Key pipeline updates included ongoing Phase 3 studies of ALKS 5461; FDA review of the aripiprazole lauroxil NDA, with a PDUFA date of August 22, 2015; positive Phase 2 results for ALKS 3831, with a pivotal program planned for 2015; and positive Phase 1 topline results for ALKS 8700, with a pivotal program planned for 2015. Plans for RDB 1450 and ALKS 7119 included initiating Phase 1 studies in the second half of 2015.
Outlook, risks and contingencies
- Management expected SG&A to continue increasing in 2015 as prelaunch planning for aripiprazole lauroxil accelerated. The filing provides no consolidated full-year revenue or earnings guidance.
- Principal uncertainties include clinical and regulatory outcomes, commercial performance and competition, generic erosion of certain products, collaboration and manufacturing arrangements, currency fluctuations, valuation and realization of investments, and the ability to meet debt obligations and restrictive covenants. Forward-looking statements are subject to risks and actual results may differ materially.
- Alkermes reported Paragraph IV patent litigation and other proceedings relating to TRICOR, MEGACE ES and AMPYRA, but stated it was not aware of matters expected to have a material adverse effect. It reported no material changes to the risk factors in its 2014 Form 10-K and no material off-balance-sheet arrangements.
- Management concluded disclosure controls and procedures were effective as of March 31, 2015; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether Q1 revenue growth, particularly VIVITROL and AMPYRA/FAMPYRA, is sustainable and how the Gainesville divestiture affects subsequent revenue and costs.
- The actual closing economics of the Gainesville sale, including the value and terms of Recro warrants, royalty receipts and any milestone conditions.
- Clinical, regulatory and commercialization progress for aripiprazole lauroxil, ALKS 5461, ALKS 3831 and ALKS 8700, and the associated spending needs.
- The debt figure used for leverage and covenant analysis: the filing reports $356.4 million on the balance sheet and $358.1 million of borrowings in MD&A.
- Cash conversion and investment liquidity, along with the effect of rising R&D, SG&A, share-based compensation and intangible-asset amortization on future results.