Alkermes plc — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Financial statements are unaudited. Alkermes is a global biopharmaceutical company focused on developing, manufacturing and commercializing medicines, with a portfolio concentrated in CNS disorders. Key products include VIVITROL and ARISTADA, alongside royalty and manufacturing revenue from partner products.
Financial performance and liquidity
Amounts are U.S. dollars; financial statement figures are in millions unless otherwise noted.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $218.8 | $195.2 | $410.6 | $351.9 |
| Operating loss | $(44.5) | $(47.1) | $(115.4) | $(124.0) |
| Net loss | $(43.0) | $(47.2) | $(111.9) | $(124.6) |
| Basic and diluted loss per share | $(0.28) | $(0.31) | $(0.73) | $(0.82) |
| Cash used in operating activities | — | $(36.2) | $(86.1) |
Revenue grew 12% in Q2 and 17% for the first half. Product sales, net, rose to $88.8 million in Q2 from $57.5 million and to $165.2 million in the first half from $106.9 million, driven by VIVITROL and ARISTADA. Manufacturing and royalty revenue was $129.3 million in Q2, down from $137.0 million, and $243.9 million for six months, roughly flat year over year. Higher INVEGA-family revenue was offset notably by lower AMPYRA/FAMPYRA revenue.
Gross profit and gross margin are not presented as separate headline figures in the supplied filing text. Cost of goods manufactured and sold was $39.8 million in Q2 and $80.2 million for six months, compared with $34.0 million and $61.7 million, respectively. R&D expense was $99.2 million in Q2 and $204.0 million for six months; SG&A was $108.9 million and $211.0 million. Higher commercial and manufacturing costs partly offset revenue growth. Interest expense for the first half was $5.7 million.
At June 30, cash and cash equivalents were $158.1 million and investments were $402.7 million, for total cash and investments of $560.8 million, versus $619.2 million at year-end 2016. Debt carrying value was $282.6 million, including $3.0 million current; the filing separately reports $285.8 million principal outstanding under Term Loan B-1, due September 2021. Total assets were $1.73 billion and current liabilities were $224.6 million. Management expected existing cash and investments to cover anticipated working capital and other cash requirements for at least 12 months from the filing date.
Material changes and business developments
- VIVITROL and ARISTADA sales increased substantially year over year. Net sales in Q2 were $66.1 million and $22.7 million, respectively, compared with $47.3 million and $10.2 million. ARISTADA’s two-month dose was approved and launched in June 2017.
- INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA revenue increased with partner end-market sales. AMPYRA/FAMPYRA revenue declined: Q2 manufacturing and royalty revenue was $25.3 million versus $40.8 million.
- Operating cash outflow improved to $36.2 million from $86.1 million in the first half of 2016, principally reflecting higher customer receipts. Investing activities provided $9.4 million; capital expenditures were $20.7 million.
- Effective January 1, 2017, a share-based compensation accounting change produced a $61.5 million cumulative-effect adjustment reducing accumulated deficit. It also changed the presentation of certain tax benefits; it is not equivalent to operating cash generation.
Outlook, commentary and risks
- Management planned to submit an NDA for ALKS 5461 by year-end 2017. ALKS 3831 met the primary endpoint in the ENLIGHTEN-1 Phase 3 study; ENLIGHTEN-2 results were expected in 2018. The company expected to complete ALKS 8700 registration requirements by year-end 2017 and file an NDA in 2018.
- ALKS 6428 did not meet its primary endpoint in a Phase 3 study; a second Phase 3 study was ongoing. Development timelines and outcomes remain uncertain.
- AMPYRA patent appeals were pending. The district court upheld the company’s formulation patent, expiring July 2018, but invalidated four Acorda patents; generic competition could begin in July 2018 or earlier depending on appeal outcomes. Management expected AMPYRA revenue to decline ahead of generic entry.
- Otsuka’s appeal concerning FDA approval of ARISTADA remained a legal risk. The company also reported receiving a U.S. Attorney subpoena for documents related to VIVITROL and said it was cooperating. No material litigation losses were considered probable at quarter-end.
- Management cited higher marketing, patient-support and staffing costs. The filing reports no material change in market-risk exposure and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether revenue growth and improving losses persist as VIVITROL and ARISTADA expand, and whether their increased commercial costs support profitable growth.
- AMPYRA appeal outcomes, generic-entry timing and the resulting effect on manufacturing and royalty revenue.
- Clinical and regulatory progress for ALKS 5461, ALKS 3831 and ALKS 8700, including reported timelines and trial results.
- Cash burn, investment balances, debt principal and service requirements, and management’s stated 12-month liquidity expectation.
- Developments in the VIVITROL subpoena and other product-related patent or regulatory proceedings.