Alkermes plc. — Form 10-K summary
Reporting period: Fiscal year ended March 31, 2013. Although the request identifies “2012 Q4,” this is an annual 10-K; the filing also reports the quarter ended March 31, 2013. FY2013 includes a full year of the former EDT business, while FY2012 includes it only from its September 2011 acquisition, limiting year-over-year comparability.
Business context and reporting period
Alkermes is a global biopharmaceutical company with more than 20 commercial products, proprietary drug-delivery technologies, and a CNS-focused pipeline. It earns manufacturing and royalty revenue from partner-marketed products and sells VIVITROL in the U.S. Its five key products are RISPERDAL CONSTA, INVEGA SUSTENNA/XEPLION, AMPYRA/FAMPYRA, BYDUREON and VIVITROL. The company changed its fiscal year-end from March 31 to December 31, effective for the transition period ending December 31, 2013.
Financial results and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Total revenue | $575.5 million | $390.0 million |
| Operating income (loss) | $81.8 million | $(88.3) million |
| Net income (loss) | $25.0 million | $(113.7) million |
| Diluted earnings (loss) per share | $0.18 | $(0.99) |
| Cash from operating activities | $126.6 million | $(2.5) million |
| Cash, cash equivalents and investments | $304.2 million | $246.1 million |
| Working capital | $322.7 million | $250.0 million |
| Debt, carrying value including current portion | $369.0 million | $444.5 million |
Revenue grew 48%. Manufacturing and royalty revenue increased to $510.9 million from $326.4 million; net VIVITROL product sales rose to $58.1 million from $41.2 million. Calculated operating margin was approximately 14.2% and net margin approximately 4.3% in FY2013. Cash used in investing activities was $68.1 million and cash used in financing activities was $45.0 million.
FY2013 manufacturing and royalty revenue included $50.0 million from an option exercised to license certain intellectual property. Net VIVITROL sales included a one-time $1.7 million benefit from a change in revenue recognition. The filing reports $371.6 million of term-loan principal at year-end, versus $369.0 million carrying value on the balance sheet.
Quarter ended March 31, 2013
Revenue was $163.4 million, operating income was $19.0 million, and net income was $3.0 million. In the comparable quarter of FY2012, revenue was $130.5 million, operating loss was $57.7 million, and net loss was $63.4 million; the prior-year quarter included a $45.8 million impairment charge.
Material changes versus the prior comparable period
- Revenue and operating results improved substantially, reflecting growth in key products and the full-year inclusion of EDT products and costs. The acquisition-related scope difference means reported growth is not purely organic.
- INVEGA SUSTENNA/XEPLION revenue rose to $63.5 million from $18.0 million, and AMPYRA/FAMPYRA revenue rose to $65.0 million from $24.6 million, principally reflecting broader sales and a full year of royalties.
- RISPERDAL CONSTA revenue declined to $133.6 million from $168.3 million, driven by a 24% decline in units shipped and lower partner sales.
- Interest expense increased to $49.0 million from $28.1 million, including $19.7 million of refinancing and repricing charges. Management estimated the revised debt terms would save about $91.4 million in contractual cash interest over the remaining loan life.
- Operating cash flow improved from a $2.5 million use to $126.6 million provided. Debt declined following refinancing that repaid the second-lien loan.
Outlook, management commentary, risks and unusual items
- Management expected key-product revenue growth to support near- and medium-term goals, but provided no specific consolidated revenue or earnings guidance in the supplied filing text.
- Management expected FY2014 R&D expense to increase as ALKS 5461 and ALKS 3831 advance and aripiprazole lauroxil approaches completion of its Phase 3 trial. Aripiprazole lauroxil data were expected in the first half of calendar 2014; an NDA was anticipated to be based on those results.
- Following an April 2013 restructuring plan for the Athlone facility, the company accrued a $12.3 million charge, expects to eliminate up to 130 positions, and estimated annual savings of $15–20 million by FY2016 and thereafter. It also anticipated non-cash accelerated depreciation charges of about $10 million in FY2014 and $7 million in FY2015.
- Management expected approximately $20 million in capital expenditures during the nine months ending December 31, 2013, and said operating cash generation should cover anticipated working-capital, capital and debt-service needs for the foreseeable future.
- Key risks include dependence on partners—Janssen generated approximately 35% of FY2013 revenue—clinical and regulatory uncertainty, generic competition, manufacturing and supply-chain concentration, reimbursement and pricing pressure, patent litigation, foreign-exchange exposure, and debt covenants. The company reported compliance with debt covenants at March 31, 2013.
- Pipeline developments included positive preliminary Phase 2 results for ALKS 5461 announced in April 2013 and plans to advance it toward pivotal development; ALKS 3831 was planned for Phase 2 in mid-2013. ZOHYDRO ER faced delayed FDA action after an advisory committee voted against approval; timing and outcome remained uncertain.
- The company reported $499.9 million of accumulated deficit despite FY2013 profitability and cautioned that sustained profitability was not assured. Auditors gave an unqualified opinion and concluded internal control over financial reporting was effective.
Most important facts for investors to verify
- How much of revenue growth reflects underlying product demand versus the full-year contribution of acquired EDT products and the $50 million IP license option payment.
- Whether growth in INVEGA SUSTENNA/XEPLION, AMPYRA/FAMPYRA, BYDUREON and VIVITROL can offset declining RISPERDAL CONSTA and generic erosion in mature products.
- Actual cash interest savings from refinancing, debt repayment progress, covenant headroom, and the reconciliation of principal to carrying value.
- Restructuring execution, workforce reductions, one-time and accelerated depreciation costs, and delivery of projected savings.
- Clinical and regulatory milestones for aripiprazole lauroxil, ALKS 5461 and ALKS 3831, including any changes to expected timelines or development costs.
- Partner concentration, product reimbursement, manufacturing continuity, patent-litigation outcomes, and currency sensitivity.