Alkermes plc — Form 10-Q Summary
Reporting period: Three months ended June 30, 2013, compared with the three months ended June 30, 2012. The company announced a change in fiscal year-end from March 31 to December 31; results are unaudited. Unless stated otherwise, amounts below are in millions of dollars.
Business context
Alkermes is a global biopharmaceutical company with more than 20 commercial products and a CNS-focused development pipeline. It earns revenue from manufacturing and royalties on partner products, as well as U.S. sales of VIVITROL.
Financial performance
| Metric | Q ended June 30, 2013 | Q ended June 30, 2012 |
|---|---|---|
| Total revenue | $138.6 | $152.2 |
| Operating income | $13.5 | $32.1 |
| Net income | $7.3 | $22.4 |
| Diluted EPS | $0.05 | $0.17 |
| Operating cash flow | $12.7 | $(4.7) |
- Revenue declined 8.9%; manufacturing and royalty revenue fell $18.6 million to $119.8 million, while product sales rose to $17.4 million from $12.4 million. R&D revenue was $1.5 million.
- Net income declined 67%. The prior-year quarter included $20.0 million of intellectual-property license revenue unrelated to key development programs. Lower revenue and higher costs also weighed on operating income.
- Cost of goods sold was $46.0 million versus $42.1 million. Approximate gross margin, calculated as revenue less cost of goods sold, was 66.8% versus 72.4%. Operating margin was 9.8% versus 21.1%; net margin was 5.3% versus 14.7%.
- R&D expense decreased to $33.5 million from $37.8 million; SG&A increased to $32.9 million from $29.8 million; acquired-intangible amortization increased to $12.7 million from $10.4 million.
- Interest expense fell to $3.5 million from $10.2 million, following prior-year refinancing that reduced principal and the blended interest rate. The tax provision was $2.7 million versus $0.8 million and included a $3.0 million discrete benefit from resolving substantially all uncertain tax positions.
- Operating cash flow improved to $12.7 million, mainly reflecting working-capital changes, including a reduction in receivables; management reported a $35.2 million year-over-year improvement in cash from working capital. Investing cash flow was $(5.4) million and financing cash flow was $12.1 million.
Balance sheet, liquidity and debt
- At June 30, cash and cash equivalents were $116.4 million, short-term investments $112.1 million and long-term investments $96.4 million; total cash, cash equivalents and investments were $325.0 million. Working capital was $349.5 million.
- Debt carrying value was $367.4 million, including $6.8 million current and $360.7 million long-term. Management reported outstanding principal of $369.9 million. The term loans mature in 2019 and 2016; the company reported an incremental borrowing capacity of $140 million, subject to conditions.
- Total assets were $1.478 billion and total liabilities $495.9 million. The company reported no material off-balance-sheet arrangements.
Changes, outlook and risks
- Product trends were mixed: INVEGA SUSTENNA/XEPLION revenue rose $10.0 million, AMPYRA/FAMPYRA $2.7 million and BYDUREON $2.4 million. RISPERDAL CONSTA fell $2.4 million and TRICOR 145 fell $7.9 million, reflecting lower sales after generic entry. “Other” manufacturing and royalty revenue fell $23.7 million, largely because the prior-year period included the $20.0 million license revenue.
- VIVITROL gross sales increased 37% in units; net sales were $17.4 million. Management expected VIVITROL growth and continued growth in the INVEGA SUSTENNA/XEPLION franchise, while anticipating erosion in older products from generic competition, including possible generic entry for certain FOCALIN XR doses.
- The Athlone restructuring, approved April 4, 2013, is expected to reduce headcount by up to 130 and generate annual savings of $15–$20 million by 2016 and beyond. A $12.3 million severance charge had been recorded in the prior fiscal year. Management expected accelerated depreciation charges of $7.5 million in the nine months ending December 31, 2013 and $7.8 million in 2014.
- Pipeline outlook included expected phase 3 aripiprazole lauroxil data in the first half of 2014 and a planned pivotal program for ALKS 5461 in early 2014. Other disclosed development timelines included phase 2 ALKS 3831 results expected in the first half of 2015 and planned IND filings for MMF prodrugs and ALKS 7106 in mid-2014. These are forward-looking plans, not guarantees.
- Management expected operating cash generation to fund foreseeable working-capital, capital expenditure and debt-service needs. Risks include generic competition, clinical and regulatory uncertainty, product commercialization and collaboration dependence, foreign-exchange exposure, investment-market risk, and the possibility that deferred tax assets may not be realized. Management reported no known legal matter expected to have a material adverse effect, while noting ongoing Paragraph IV litigation.
- A $1.0 million out-of-period adjustment corrected a prior-year over-accrual; management considered it immaterial to both periods. Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- How much of the year-over-year earnings decline reflects the prior-year $20.0 million license revenue versus underlying product and cost trends.
- Whether growth in INVEGA SUSTENNA/XEPLION and VIVITROL offsets generic-related erosion in TRICOR 145 and other products.
- Progress and spending against the clinical and regulatory timelines disclosed for key pipeline programs.
- Execution, cash costs, expected depreciation charges and realized savings from the Athlone restructuring.
- Debt principal, repayment requirements and borrowing capacity under the term-loan facility, alongside cash-flow and liquidity trends.