Alkermes plc — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2016. Unaudited consolidated results. Alkermes is a global biopharmaceutical company developing, manufacturing and commercializing medicines, with a focus on central nervous system disorders.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $180.2 million | $152.7 million | $532.2 million | $465.2 million |
| Operating loss | $61.1 million | $77.4 million | $185.1 million | $157.2 million |
| Net loss | $62.7 million | $81.0 million | $187.3 million | $157.8 million |
| Loss per share, basic and diluted | $0.41 | $0.54 | $1.24 | $1.06 |
- Q3 revenue increased 18% year over year, while nine-month revenue increased 14%. Product sales, net, were $69.8 million for Q3 and $176.7 million for the nine months, compared with $37.9 million and $106.2 million, respectively, in 2015.
- Management attributed product-sales growth chiefly to higher VIVITROL unit sales and ARISTADA, which launched in October 2015. Q3 VIVITROL net sales increased 47% year over year; VIVITROL unit sales rose 66% in the nine-month period.
- Manufacturing and royalty revenue was $110.3 million in Q3 and $353.4 million for nine months. Growth in Janssen’s INVEGA franchise was offset by lower AMPYRA/FAMPYRA and RISPERDAL CONSTA revenue and the absence of revenue from products divested in 2015.
- For nine months, R&D expense rose to $297.5 million from $250.7 million, and SG&A rose to $277.0 million from $224.1 million. The company cited greater pipeline investment and costs supporting ARISTADA commercialization. Cost of goods manufactured and sold fell to $97.2 million from $104.2 million, primarily reflecting the Gainesville divestiture.
- Q3 net loss improved year over year, chiefly on VIVITROL growth and ARISTADA sales. Nine-month net loss widened, mainly because of increased R&D and SG&A spending; 2015 also included $4.5 million of pre-tax income from the Gainesville facility before its sale.
Cash, liquidity and debt
- At September 30, 2016, cash and cash equivalents were $202.2 million and short- and long-term investments totaled $422.4 million; combined cash and investments were $624.5 million, down from $798.8 million at December 31, 2015.
- Current assets were $807.3 million and current liabilities were $190.2 million. Total assets were $1.707 billion and shareholders’ equity was $1.210 billion.
- Nine-month operating cash use was $71.4 million, versus $42.8 million in 2015. Investing activities provided $148.1 million, while financing activities used $55.6 million. Cash and cash equivalents increased by $21.1 million over the period.
- Debt carrying value was $285.6 million at quarter-end. Alkermes repaid $60.9 million of Term Loan B-2 when it matured in September. In October, it amended Term Loan B-1 to extend maturity from September 2019 to September 2021. Management said existing cash and investments were expected to fund anticipated working-capital and other requirements for at least 12 months.
Outlook, developments and risks
- No specific revenue or earnings guidance is provided in the filing. Management expects substantial continuing investment in R&D and commercialization; pipeline spending may change based on clinical, regulatory and commercial assessments.
- After quarter-end, Alkermes reported positive topline FORWARD-5 Phase 3 results for ALKS 5461 at the 2 mg/2 mg dose. Earlier FORWARD-3 and FORWARD-4 studies had not met their prespecified primary endpoint. Alkermes planned to seek an FDA meeting to discuss filing strategy; regulatory prospects remained uncertain.
- Other pipeline updates: the two-month aripiprazole lauroxil supplemental NDA was submitted in August and accepted in October; ALKS 3831 Phase 3 studies were underway; ALKS 8700 registration studies and an NDA were expected in 2018; and ALKS 6428 Phase 3 results were expected in the first half of 2017. Development of ALKS 7119 was discontinued in October 2016 following tolerability issues in a small number of subjects.
- Key legal and intellectual-property risks include Otsuka’s appeal seeking to overturn ARISTADA approval; AMPYRA generic patent litigation and challenges to patents; and pending inter partes review petitions involving patents for AMPYRA and, potentially, BYDUREON, RISPERDAL CONSTA and VIVITROL. Settlements with several AMPYRA generic applicants permit entry in 2027 or potentially earlier under certain circumstances.
- The Gainesville divestiture contingent consideration was valued at $58.4 million at quarter-end and is subject to milestone, royalty, timing and valuation assumptions. The company reported no legal or asserted claims it considered probable of loss at September 30.
- Alkermes disclosed no material changes to its risk factors or market-risk assessment, and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether growth in ARISTADA and VIVITROL can offset pressure or variability in royalty and manufacturing revenue, particularly AMPYRA/FAMPYRA and RISPERDAL CONSTA.
- ALKS 5461’s full clinical evidence, FDA feedback and filing pathway, considering mixed results across the pivotal studies.
- Outcomes and timing of the ARISTADA appeal, AMPYRA patent cases and relevant patent-review proceedings, including possible earlier generic entry.
- Cash burn, commercialization and R&D spending, and liquidity after the October 2016 loan amendment; confirm the refinancing’s final accounting and terms in subsequent filings.
- Assumptions behind product-sales deductions, including the increased Medicaid rebate burden, and the valuation and timing of Gainesville contingent consideration.