Alkermes plc — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; comparisons are with the corresponding 2015 periods. Alkermes is a global biopharmaceutical company focused on developing, manufacturing and commercializing medicines, with a portfolio and pipeline centered largely on CNS disorders.
Financial performance
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Total revenue | $195.2 million | $151.4 million | $351.9 million | $312.6 million |
| Operating loss | $(47.1) million | $(52.5) million | $(124.0) million | $(79.8) million |
| Net loss | $(47.2) million | $(46.1) million | $(124.6) million | $(76.8) million |
| Loss per share, basic and diluted | $(0.31) | $(0.31) | $(0.82) | $(0.52) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(86.1) million | $(13.3) million |
Q2 revenue increased about 29% year over year; first-half revenue rose about 13%. First-half net product sales were $106.9 million, up from $68.3 million. The filing does not provide a clear consolidated gross-margin percentage.
At June 30, 2016, cash and cash equivalents were $196.4 million and investments were $481.2 million, totaling $677.7 million, versus $798.8 million at December 31, 2015. Total debt on the balance sheet was $347.0 million, including $63.9 million current; the company expected to repay the $60.9 million Term Loan B-2 balance due September 25, 2016. Current assets were $929.3 million and current liabilities $236.3 million. Management stated existing cash and investments were expected to fund working capital and other anticipated cash needs for at least 12 months.
Material changes and operating drivers
- Manufacturing and royalty revenue was $137.0 million in Q2, up from $113.2 million, led by higher royalties on Janssen’s INVEGA products and increased AMPYRA/FAMPYRA revenue. RISPERDAL CONSTA revenue declined.
- Net product sales increased with higher VIVITROL unit sales and the addition of ARISTADA, launched in October 2015. Medicaid rebates and other sales deductions increased: net sales were 54.7% of gross sales in Q2 2016, compared with 70.1% in Q2 2015.
- R&D expense rose to $198.1 million for the first half from $158.2 million, principally reflecting development investment, including ALKS 3831 Phase 3 trials and the $10.0 million Reset upfront payment.
- SG&A expense rose to $185.8 million from $134.6 million for the first half, primarily due to ARISTADA commercialization, higher headcount, marketing and professional fees.
- First-half operating cash use increased to $86.1 million, attributed in part to higher supplier and employee payments. Investing activities provided $101.1 million, largely reflecting net investment sales; capital expenditures were $22.3 million.
Outlook, risks and notable items
- No specific full-year financial guidance is stated in the provided filing text. Management’s liquidity outlook was that available cash and investments would cover anticipated needs for at least the next 12 months.
- ALKS 5461’s FORWARD-3 and FORWARD-4 Phase 3 studies did not meet their prespecified primary efficacy endpoint. FORWARD-5 remained ongoing; management said a positive result could prompt discussions with the FDA about the evidence needed for an application.
- Other pipeline programs included Phase 3 studies of ALKS 3831, ALKS 8700 and ALKS 6428. The company planned to submit an ARISTADA two-month dosing supplemental application in the second half of 2016 and expected to file an ALKS 8700 NDA in 2018, subject to study results and regulatory requirements.
- Otsuka’s challenge to FDA approval of ARISTADA remained pending. AMPYRA generic patent litigation and patent-review proceedings continued; settlements with four generic filers permit entry on a specified date in 2027 or potentially earlier under certain circumstances. Separate challenges involving a patent covering BYDUREON, RISPERDAL CONSTA and VIVITROL were also disclosed.
- The company recorded a $4.1 million first-half increase in the fair value of contingent consideration related to the Gainesville divestiture, primarily due to a shorter expected time to milestone and royalty payments. The asset was valued at $59.4 million at quarter-end and depends on future regulatory and sales milestones and royalties.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material changes to the risk factors disclosed in its 2015 Form 10-K.
Most important facts for investors to verify
- Whether the $60.9 million Term Loan B-2 due in September 2016 was repaid or refinanced, and the resulting liquidity and debt position.
- Subsequent results and regulatory implications of the ongoing ALKS 5461 FORWARD-5 study after two pivotal studies missed their primary endpoint.
- ARISTADA commercial uptake, net pricing and rebate trends, alongside the outcome of Otsuka’s pending litigation.
- Progress and outcomes of AMPYRA generic litigation and patent-review proceedings, and potential effects on manufacturing and royalty revenue.
- The assumptions and realizability of Gainesville-related contingent consideration and its potential milestone and royalty cash flows.