Alkermes plc — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Alkermes is a global biopharmaceutical company with proprietary medicines, licensed products and manufacturing and royalty revenues. All figures below are in U.S. dollars; financial statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / prior balance |
|---|---|---|
| Total revenue | $278.5 million | $251.4 million; up 10.8% |
| Product sales, net | $171.3 million | $130.0 million; up 31.8% |
| Manufacturing and royalty revenue | $105.2 million | $119.8 million; down 12.2% |
| Operating loss | $26.6 million | $16.4 million |
| Net loss / diluted loss per share | $35.9 million / $0.22 | $22.4 million / $0.14 |
| Operating cash flow | Provided $21.7 million | Used $45.1 million |
| Cash and cash equivalents | $282.6 million | $337.5 million at Dec. 31, 2021 |
| Cash, cash equivalents and investments | $758.7 million | $765.7 million at Dec. 31, 2021 |
| Debt | $295.2 million carrying value; $297.0 million principal outstanding per MD&A | Due March 2026 |
Operating margin was approximately negative 9.5%, versus negative 6.5% in Q1 2021. The company attributed its higher net loss chiefly to increased operating expenses and a $19.1 million adverse fair-value change in contingent consideration, partly offset by higher product sales. The Q1 2022 income tax benefit was $9.1 million, primarily associated with the tax treatment of research and development costs under Section 174.
Q1 operating cash flow improved year over year, primarily reflecting working-capital movements, including cash collected on receivables. Investing activities used $60.6 million, principally for net investment purchases; financing activities used $16.0 million, including $17.1 million of employee tax withholding on share awards and $0.8 million of debt principal payments. Management stated existing cash and investments were expected to fund anticipated requirements for at least 12 months after issuance of the statements.
Business changes and comparisons
- Net product sales rose $41.3 million. VIVITROL sales were $84.9 million, up $10.4 million; ARISTADA and ARISTADA INITIO were $72.5 million, up $17.0 million; and LYBALVI contributed $13.9 million following its October 2021 launch.
- Manufacturing and royalty revenue fell $14.6 million. Long-acting INVEGA revenue declined $24.5 million to $37.1 million after U.S. royalties ceased under Janssen’s partial license termination, effective February 2022. VUMERITY revenue increased $17.2 million to $30.6 million, while RISPERDAL CONSTA revenue rose $3.2 million to $17.4 million.
- Total expenses increased $37.3 million to $305.1 million. SG&A rose $19.9 million, primarily from commercial launch-related spending for LYBALVI and higher employee and professional-service costs. Cost of goods manufactured and sold increased $14.1 million; R&D expense increased $3.7 million.
- Cash and investments together decreased $7.0 million from year-end. Current assets were $1.015 billion and current liabilities were $462.4 million at March 31, 2022. The company reported compliance with debt covenants.
Outlook, risks and unusual items
- No numerical full-year guidance is provided in the supplied filing text. Management stated that existing liquidity should cover anticipated needs for at least 12 months. It cautioned that results may be affected by market conditions and other uncertainties.
- Janssen’s U.S. partial termination eliminated recognized U.S. royalties on INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA. Alkermes commenced binding arbitration in April 2022 seeking, among other remedies, a determination of Janssen’s continuing royalty obligations. The amount and timing of any future related revenue depend on the dispute’s outcome.
- For contingent consideration related to the Gainesville transaction, Alkermes raised its estimated probability of Baudax default to 100% and lowered the assumed recovery rate to 9%, citing Baudax’s going-concern disclosures and partial payment of an installment. Fair value fell from $23.0 million at year-end to $3.4 million, producing a $19.1 million expense. Of the $6.4 million installment due in March, Baudax paid $0.5 million; Alkermes stated it had not waived its claim to the balance.
- Management cited continuing COVID-19 uncertainty, including possible effects on healthcare access, product demand, manufacturing labor and supply chains, and clinical-trial timelines. Injectable products and reliance on third-party partners are additional exposure points.
- Other risks include potential generic competition and patent litigation affecting INVEGA, RISPERDAL CONSTA and VIVITROL; VIVITROL-related government investigations and product-liability proceedings; and dependence on licensees for commercial revenue. The company reported no material change in its stated risk factors and no claims or proceedings it considered probable of causing a material loss at March 31.
- The development portfolio includes nemvaleukin, with the ARTISTRY-7 Phase 3 study in platinum-resistant ovarian cancer ongoing. Management noted that development timelines and spending can change.
Key facts for investors to verify
- Developments and outcomes in the Janssen arbitration, including whether U.S. royalties resume and the effect on future revenue.
- Baudax’s ability to meet the remaining contingent-consideration payments and any future change in their fair value.
- Product-level sales trends, especially LYBALVI’s commercial uptake, VUMERITY growth and changes in INVEGA-related revenue.
- Progress, costs and results of nemvaleukin’s clinical program, particularly ARTISTRY-7.
- Cash generation, investment portfolio values and liquidity relative to operating needs, debt service and the March 2026 term-loan maturity.
- Potential impact of generic competition, litigation, government inquiries and COVID-19-related disruptions.