Alkermes plc — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Unaudited consolidated results; amounts below are in U.S. dollars unless stated otherwise.
Business context
Alkermes is a global biopharmaceutical company developing, manufacturing and commercializing medicines, with a focus on central nervous system disorders. Its business includes proprietary products, including VIVITROL, and manufacturing and royalty revenue from products marketed by partners. The company operates as one business segment.
Financial performance and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $152.7 million | $160.0 million | $465.2 million | $443.6 million |
| Operating loss | $77.4 million | $32.7 million | $157.2 million | $71.5 million |
| Operating margin | -50.7% | -20.5% | -33.8% | -16.1% |
| Net loss | $81.0 million | $40.0 million | $157.8 million | $60.6 million |
| Loss per share, basic and diluted | $0.54 | $0.27 | $1.06 | $0.42 |
Q3 revenue comprised $114.1 million in manufacturing and royalty revenue, $37.9 million in net product sales and $0.7 million in R&D revenue. For the first nine months, those categories were $356.0 million, $106.2 million and $3.0 million, respectively.
For the nine months, cash used in operating activities was $42.8 million, compared with $2.5 million in the prior-year period. Investing activities used $1.3 million and financing activities provided $42.3 million. Cash and cash equivalents ended the period at $222.3 million.
At September 30, cash and investments totaled $815.5 million, versus $801.6 million at year-end 2014. Current assets were $1.00 billion and current liabilities $200.4 million. Reported debt carrying value was $353.2 million, including $66.7 million classified as current; debt maturities include a $63.7 million Term Loan B-2 due in September 2016 and a Term Loan B-1 due in September 2019. Management said existing cash and investments were expected to fund anticipated working capital and other cash needs for at least the next 12 months.
Material changes versus prior comparable periods
- Q3 revenue declined 4.6%, while nine-month revenue increased 4.9%. Net product sales rose to $37.9 million in Q3 and $106.2 million year to date, mainly reflecting higher VIVITROL unit sales and pricing.
- Manufacturing and royalty revenue fell 13.6% in Q3 and 4.7% year to date. Growth in INVEGA SUSTENNA/XEPLION/INVEGA TRINZA, AMPYRA/FAMPYRA and BYDUREON was offset by lower RISPERDAL CONSTA revenue and the Gainesville divestiture.
- R&D expense increased to $92.6 million in Q3 and $250.7 million year to date, primarily due to investment in the CNS pipeline, including ALKS 5461. SG&A rose to $89.5 million and $224.1 million, respectively, mainly from commercial hiring and ARISTADA launch preparation.
- The wider operating and net losses reflected higher R&D and SG&A spending. Nine-month results also included a $9.9 million Gainesville transaction gain; the prior-year period included $12.3 million in property-sale gains and a $15.3 million gain on sale of an Acceleron investment.
- Operating cash use increased year over year, principally reflecting higher employee and supplier payments associated with increased headcount, R&D activity and ARISTADA launch preparation.
Outlook, commentary, risks and unusual items
- ARISTADA received FDA approval on October 5, 2015 and was commercially launched in October, after the reporting period. Management anticipated that 2015 loss of the Gainesville-related product franchises would reduce manufacturing and royalty revenue by approximately $40 million versus 2014, with an approximately $25 million reduction in cost of goods manufactured.
- The Gainesville transaction closed April 10, 2015. Alkermes received approximately $54.0 million cash, warrants valued at $2.1 million and contingent consideration initially valued at $57.6 million, including potential royalties and milestone payments of up to $120 million. Contingent consideration was valued at $60.3 million at September 30; the company recorded a $2.7 million year-to-date fair-value gain.
- Management expected ALKS 5461 Phase 3 data in 2016; planned to advance ALKS 3831 into a pivotal program in Q4 2015; expected to initiate a two-year ALKS 8700 Phase 3 safety study in December 2015 and anticipated filing its NDA in 2018. These are forward-looking plans and subject to development and regulatory risks.
- Otsuka challenged FDA approval of ARISTADA in an action filed October 15, 2015, seeking relief that could include vacating approval or requiring removal from the market. Alkermes said it considered the action without merit and would defend the product. The FDA had denied Otsuka’s citizen petition when it approved ARISTADA.
- The company reported no legal claims or proceedings considered probable of loss at September 30. It disclosed ongoing patent proceedings relating to TRICOR, MEGACE ES and AMPYRA, which it did not believe would have a material adverse effect.
- Management reported effective disclosure controls as of September 30 and no material change in internal control over financial reporting during the quarter. The filing cautions that actual results may differ from forward-looking statements.
Important facts for investors to verify
- ARISTADA’s launch performance and the status and potential impact of Otsuka’s litigation, including any effect on approval or commercialization.
- Cash burn, operating cash flow and the assumptions supporting management’s estimate that liquidity is sufficient for at least 12 months.
- Debt balances and near-term repayment requirements; the balance sheet reports $353.2 million carrying value, while MD&A refers to $354.8 million outstanding under the term loans.
- Commercial and partner-product trends, particularly VIVITROL growth, RISPERDAL CONSTA declines, currency effects and the revenue impact of the Gainesville divestiture.
- Development-program timelines, clinical results, regulatory requirements and the estimates underlying Gainesville contingent consideration.