Alkermes plc — Form 10-Q summary
Business context and period. This report covers the three months ended June 30, 2012, Alkermes’ first quarter of fiscal 2013. Alkermes develops, manufactures and commercializes medicines, with a portfolio of more than 20 products and a pipeline focused largely on central nervous system disorders. The September 2011 acquisition of Elan’s EDT business makes the comparison with the prior-year quarter significantly different: 2012 includes EDT, while 2011 reflects Old Alkermes alone.
Financial performance
Amounts are in millions of dollars except per-share data. Comparisons are with the three months ended June 30, 2011.
| Metric | Q1 FY2013 | Prior-year quarter |
|---|---|---|
| Total revenue | $152.2 | $61.9 |
| Operating income (loss) | $32.1 | $(13.9) |
| Net income (loss) | $22.4 | $(13.2) |
| Diluted EPS | $0.17 | $(0.14) |
| Cash used in operating activities | $(4.7) | $(18.3) |
- Revenue rose 146%, primarily from the acquired EDT product portfolio and a $20.0 million license sale of intellectual property unrelated to key clinical programs.
- Manufacturing and royalty revenue was $138.4 million, up from $48.9 million; product sales, net, were $12.4 million, up from $9.7 million; R&D revenue was $1.5 million, down from $3.3 million.
- Operating expenses increased 59% to $120.1 million. Cost of goods sold was $42.1 million; R&D was $37.8 million; SG&A was $29.8 million; and acquired-intangible amortization was $10.4 million. Management attributed higher costs mainly to EDT and increased clinical activity; lower SG&A reflected fewer merger-related costs.
- Calculated operating margin was approximately 21.1% versus a prior-year operating loss; net margin was approximately 14.7%. These comparisons are affected by the acquisition and the one-time IP sale.
- At June 30, cash and cash equivalents were $85.6 million and investments were $146.3 million, totaling $232.0 million, down from $246.1 million at March 31. Working capital was $281.2 million.
- Debt carrying value was $444.2 million, including $3.1 million current. Term loans had $448.5 million of outstanding principal per MD&A. Interest expense was $10.2 million; the loans bear floating rates of three-month LIBOR plus 5.25% and 8.00%, subject to a 1.50% LIBOR floor.
Cash flow, outlook and risks
- Operating cash outflow was $4.7 million; investing activities provided $9.4 million, principally reflecting net investment sales; financing activities used $2.7 million. Capital expenditures were $6.7 million.
- Management said cash, investments and anticipated revenues should be sufficient for anticipated liquidity and capital needs for the next 12 months. It expected fiscal 2013 interest expense to increase due to a full year of term-loan interest, then decline as debt is repaid. Estimated annual intangible amortization was approximately $42–$70 million through fiscal 2018. No overall revenue or earnings guidance was provided in the supplied filing text.
- Management expected growth in AMPYRA/FAMPYRA and the INVEGA SUSTENNA/XEPLION franchise, while warning of competition and pricing pressure. It anticipated generic-related revenue erosion for TRICOR 145 and RITALIN LA/FOCALIN XR, assuming generic entry in mid-2012.
- VIVITROL sales, net, increased with unit growth. The company expected to change its revenue-recognition approach for channel shipments in the quarter ending September 30, 2012, once it had sufficient return history; management expected this to increase net sales in that quarter.
- ALKS 37 did not meet criteria for advancement to Phase 3, and no further studies were planned. ALKS 9070 Phase 3 data were expected mid-2013; ALKS 5461 Phase 2 data were expected in the first half of 2013. Zogenix’s ZOHYDRO ER application was accepted for FDA review, with a target action date of March 1, 2013.
- The company reported ongoing Paragraph IV and similar patent litigation but said it knew of no proceeding expected to have a material adverse effect. It reported no material change in risk factors, no material off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- How much of the revenue and earnings improvement is sustainable after excluding the $20.0 million IP sale and accounting for the acquired EDT portfolio.
- Actual generic-entry timing and resulting erosion in TRICOR 145 and RITALIN LA/FOCALIN XR, alongside growth trends in key partnered products.
- The effect and timing of the revised VIVITROL channel-revenue recognition, including estimates for returns and channel inventory.
- Liquidity and debt-service capacity given negative operating cash flow, floating-rate term loans and management’s 12-month sufficiency assessment.
- Clinical and regulatory milestones, especially ALKS 9070, ALKS 5461 and ZOHYDRO ER, and the impact of development outcomes on spending and future revenue.