Alkermes plc — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; financial statements are unaudited. Alkermes is a global biopharmaceutical company developing, manufacturing and commercializing medicines, with a portfolio and pipeline focused largely on central nervous system disorders.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Total revenue | $156.8 million | $161.2 million |
| Operating loss | $76.9 million | $27.3 million |
| Net loss | $77.4 million; $0.51 per share | $30.7 million; $0.21 per share |
| Operating cash flow | $(57.2) million | $2.1 million |
- Manufacturing and royalty revenue was $106.2 million, down $22.5 million year over year. Product sales, net, rose to $49.4 million from $31.1 million, primarily reflecting VIVITROL growth and ARISTADA sales following its October 2015 launch.
- Research and development expense increased to $101.1 million from $70.3 million; selling, general and administrative expense increased to $89.7 million from $63.1 million. Cost of goods manufactured and sold decreased to $27.7 million from $40.0 million.
- Cash and cash equivalents were $200.0 million and investments were $519.4 million at quarter end, totaling $719.4 million. The company said existing cash and investments should fund anticipated working capital, capital expenditures and debt service for at least the next 12 months.
- Debt carrying value was $348.5 million, including $64.8 million classified as current. The term loan facility’s stated principal outstanding was $351.4 million in MD&A; Term Loan B-2 is due September 2016 and Term Loan B-1 is due September 2019. The filing does not reconcile the stated principal amount to the balance-sheet carrying value in the excerpt provided.
- Capital expenditures were $12.0 million. Cash increased by $18.9 million during the quarter, supported by net investment maturities and sales; operating activities used $57.2 million.
Material changes versus the prior-year quarter
- Revenue declined 2.8%, while net loss widened by $46.8 million. Management attributed the higher loss mainly to increased pipeline R&D investment and ARISTADA launch-related commercial costs. Q1 2015 also included $4.2 million of income from the Gainesville facility, sold in April 2015.
- Within manufacturing and royalty revenue, INVEGA SUSTENNA/XEPLION and INVEGA TRINZA revenue increased $7.7 million, while AMPYRA/FAMPYRA decreased $8.3 million. The prior-year comparison also included $18.4 million from divested products.
- Net product sales rose 58.6%; gross product sales were $80.5 million versus $43.8 million. Net sales were 61.4% of gross sales, compared with 71.0% in Q1 2015, with higher Medicaid rebates contributing to the change.
- Cash used in operations shifted from $2.1 million provided in Q1 2015 to $57.2 million used in Q1 2016, principally reflecting increased payments to suppliers and employees.
Outlook, commentary and risks
- No numerical full-year revenue or earnings guidance is stated in the supplied filing text. Management described liquidity as sufficient for at least the next 12 months.
- ALKS 5461’s FORWARD-3 and FORWARD-4 Phase 3 trials both failed to meet their prespecified primary efficacy endpoints. FORWARD-5 remained ongoing; management planned to consult the FDA about the evidence package if that study produced a clear positive result.
- ALKS 3831 Phase 3 studies had begun. Alkermes expected to file a supplemental NDA for the two-month aripiprazole lauroxil dose in the second half of 2016, and planned ALKS 8700 registration studies with an expected NDA filing in 2018. These are expectations, not assurances of outcomes or timing.
- ARISTADA faced pending Otsuka litigation seeking to overturn FDA approval; Alkermes said it believed the action was without merit. AMPYRA faced generic patent litigation and inter partes review proceedings. Settlements with four generic applicants provide for market entry in 2027, or potentially earlier under certain circumstances; other cases remained pending.
- The company recorded a $1.9 million increase in the fair value of Gainesville-related contingent consideration, primarily due to the shorter time to expected milestone and royalty payments. It reported no legal claims or proceedings with probable losses at March 31, 2016.
- Management reported no material change in risk factors from its 2015 annual report and no material change in market-risk exposures. It noted that investment values could be affected by instability in global financial markets and that foreign-currency movements affect certain revenues and costs.
Investor verification points
- Track FORWARD-5 results and any subsequent FDA discussion of ALKS 5461, given the two failed primary endpoints.
- Verify ARISTADA commercial performance and the outcome and potential timing of the Otsuka litigation.
- Monitor AMPYRA patent litigation, IPR outcomes and the terms or timing of generic-entry settlements.
- Assess ongoing operating cash use, the $64.8 million current debt classification and the September 2016 Term Loan B-2 maturity.
- Review product-sales deductions, particularly Medicaid rebates, and the effect of product mix and divested-product comparisons on revenue trends.