Alkermes plc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts below are in millions of dollars unless otherwise stated. Alkermes is a global biopharmaceutical company with marketed neuroscience products and development programs in neuroscience and oncology.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $252.4 | $294.1 | $807.1 | $849.3 |
| Product sales, net | $199.4 | $157.7 | $561.4 | $448.5 |
| Manufacturing and royalty revenue | $52.9 | $136.3 | $243.4 | $398.4 |
| Operating loss | $(60.6) | $(19.7) | $(121.7) | $(31.7) |
| Net loss | $(64.0) | $(29.0) | $(130.0) | $(49.0) |
| Loss per share, basic and diluted | $(0.39) | $(0.18) | $(0.79) | $(0.31) |
- Q3 product sales growth included VIVITROL $96.5, ARISTADA and ARISTADA INITIO $75.7, and LYBALVI $27.1. LYBALVI launched in October 2021.
- Operating expenses were $313.0 in Q3 and $928.8 year to date. R&D expense was $100.4 and $289.3, respectively; selling, general and administrative expense was $152.8 and $448.2.
- Operating cash flow was $20.0 for the first nine months, versus $70.7 in 2021. Investing cash flow was $(92.3); financing cash flow was $(1.3). Cash and cash equivalents ended the period at $264.0.
- Cash and investments totaled $747.1 at September 30, 2022, compared with $765.7 at year-end 2021. Carrying-value debt was $293.9, with $3.0 current; principal outstanding was reported as $295.5. The 2026 Term Loans mature in March 2026 and bear interest at LIBOR plus 2.50%, subject to a 0.5% floor. The company reported covenant compliance.
- Current assets were $1,053.8 and current liabilities $469.6. Management said existing cash, cash equivalents and investments should fund anticipated requirements for at least 12 months after issuance of the financial statements.
Material changes versus prior periods
- Revenue declined 14% in Q3 and 5% for the nine-month period. Product sales increased $41.6 in Q3 and $112.9 year to date, but manufacturing and royalty revenue fell $83.4 and $155.0, respectively.
- Long-acting INVEGA revenue decreased following Janssen’s partial termination of the U.S. license, effective February 2022; Alkermes stopped recognizing U.S. royalties and is pursuing arbitration. Q3 and year-to-date long-acting INVEGA revenue was $26.7 and $90.4, versus $79.4 and $222.0.
- Manufacturing and royalty revenue includes $21.5 of AMPYRA royalty reversals after an arbitration ruling. Alkermes paid Acorda $16.5 in October 2022 and expected to repay another $1.8 in Q4; it also reversed $3.2 of previously recognized royalty revenue.
- Net loss increased as lower partner-related revenue and higher SG&A outweighed product growth. Year-to-date expenses rose $47.8; the company also recorded a $21.8 charge from reducing Baudax-related contingent consideration to zero.
- VUMERITY revenue increased year to date, supported by higher royalties, but the company said a continuing manufacturing issue could constrain manufacturing revenue and potentially royalties. VUMERITY net sales reported by Biogen were $402.6 for the first nine months, versus $285.0.
Outlook, risks, contingencies and unusual items
- No numerical full-year revenue or earnings guidance is provided in the supplied filing text. Management expects existing liquidity to cover anticipated needs for at least 12 months.
- On November 2, 2022, Alkermes announced it would explore separating its development-stage oncology business into an independent public company, with completion targeted for the second half of 2023, subject to approvals and other conditions. This is a post-quarter event, not a completed transaction.
- Material uncertainties include the Janssen arbitration over royalties on U.S. INVEGA products and generic-entry litigation affecting INVEGA and VIVITROL. The company is also responding to government information requests concerning VIVITROL and defending product-liability matters; it reported no probable material litigation loss at September 30.
- Other stated risks include reimbursement and drug-pricing changes, including provisions of the Inflation Reduction Act, competition and generic erosion, reliance on licensees and suppliers, clinical and regulatory uncertainty, and possible COVID-19-related commercial, manufacturing or trial disruption.
- Unusual charges and accounting effects included the $21.8 contingent-consideration fair-value reduction, a $0.5 impairment of a related-party investment, and an $8.7 write-off of Meloxicam-related construction in progress. The company also recognized income tax benefits of $3.4 in Q3 and $15.6 year to date, primarily associated with the amended U.S. R&D expense capitalization rules and resulting FDII deduction.
Important facts for investors to verify
- Developments and potential financial recovery in the Janssen arbitration, and the resulting outlook for INVEGA royalties.
- Whether the announced oncology separation proceeds, its structure, costs, tax treatment and expected timing.
- VUMERITY manufacturing remediation and the effect on production, royalties and revenue.
- Product sales trends, rebate assumptions and LYBALVI launch economics relative to increased commercial spending.
- Cash generation, investment values, debt service and continued compliance with debt covenants.
- Outcomes of generic competition, VIVITROL-related government inquiries and litigation, and other contingencies.