Alkermes plc — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited. Alkermes is a global biopharmaceutical company with proprietary products, licensed products and manufacturing and royalty revenue; it reports as one operating segment.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $380.9m | $252.4m | $1,285.9m | $807.1m |
| Operating income (loss) | $43.8m | ($60.6m) | $235.5m | ($121.7m) |
| Net income (loss) | $47.8m | ($64.0m) | $243.0m | ($130.0m) |
| Diluted EPS | $0.28 | ($0.39) | $1.42 | ($0.79) |
- Revenue mix: Q3 product sales were $231.8m, up $32.4m year over year; manufacturing and royalty revenue was $149.1m, up $96.2m. Nine-month product sales were $678.0m, up $116.6m, while manufacturing and royalty revenue reached $607.9m, up $364.5m.
- Product performance: Q3 LYBALVI sales were $50.7m versus $27.1m; ARISTADA and ARISTADA INITIO were $81.8m versus $75.7m; VIVITROL was $99.3m versus $96.5m. Nine-month sales increased for all three product groups.
- Profitability and expenses: Q3 operating margin was approximately 11.5%, compared with a loss in the prior-year quarter; nine-month operating margin was approximately 18.3%, versus an operating loss a year earlier. SG&A rose $16.7m in Q3 and $101.0m for nine months, including increased LYBALVI marketing and oncology-separation and shareholder-activity costs. R&D was $97.1m in Q3 and $291.6m for nine months.
- Cash flow: Nine-month operating cash flow was $294.1m, versus $20.0m in 2022. Investing activities provided $74.3m, primarily reflecting net investment sales; financing used $13.2m. Cash and equivalents rose to $647.7m from $292.5m at year-end 2022.
- Liquidity and debt: Cash, cash equivalents and investments totaled $995.6m at September 30, 2023. Balance-sheet debt was $291.4m, including $3.0m current; the MD&A separately reports $292.5m principal outstanding. Term loans mature March 2026, and the company reported covenant compliance. Current assets were $1,464.8m versus current liabilities of $503.1m.
Material changes, outlook and risks
- Janssen arbitration materially affected results: A May 2023 final award entitled Alkermes to $195.4m in back royalties and late-payment interest for 2022 U.S. sales of long-acting INVEGA products; the company received the payment in Q2 and recognized it in nine-month revenue. It resumed recognizing ongoing royalties. The award also provides future royalties for specified products and periods, including CABENUVA through 2036.
- Royalty outlook: Management expects long-acting INVEGA royalties to decrease in the near term. INVEGA SUSTENNA royalties are expected to end August 20, 2024; generic competition and patent litigation create additional uncertainty for INVEGA SUSTENNA and INVEGA TRINZA.
- Planned oncology separation: Alkermes expected to separate the oncology business into Mural Oncology in November 2023, subject to customary conditions, including board approval and IRS ruling and/or tax opinion. Alkermes expected to contribute $275m in cash at completion. Oncology results would thereafter be reported as discontinued operations; management anticipated lower R&D expense after the transfer. A significant tax valuation allowance release was possible but contingent on the separation and future business performance.
- Other unusual items: A July restructuring eliminated approximately 60 positions and generated a $6.0m charge, expected to be paid within 12 months. The company reported a $3.7m net unrealized loss on investments, but determined the portfolio was not impaired and said it had the intent and ability to hold affected securities until recovery.
- Legal and business risks: The VIVITROL patent case against Teva was settled; Teva received a limited license to sell its product beginning January 15, 2027, or earlier in certain circumstances. The company is cooperating with government investigations concerning VIVITROL and faces product-liability matters. Acorda appealed a ruling that declined to increase its award; the company said no material litigation loss was probable at quarter-end. The filing also identifies potential disruption to FDA, SEC and other agencies from funding shortages or government shutdowns, product competition, reimbursement and regulatory risks, and possible ongoing COVID-19 effects.
- Liquidity outlook: Management expected existing cash, equivalents and investments to fund anticipated working capital, capital expenditures and debt service for at least 12 months after issuance of the financial statements. No specific full-year revenue or earnings guidance is provided in the supplied filing text.
Important facts for investors to verify
- How much reported revenue and earnings reflect the $195.4m INVEGA back-royalty award versus recurring product and royalty revenue.
- Timing and completion conditions for the Mural Oncology separation, including the planned $275m cash contribution and tax consequences.
- Expected royalty changes after the stated INVEGA SUSTENNA royalty end date, and the outcome and timing of generic-entry litigation.
- Whether LYBALVI growth and increased marketing spending translate into sustained net sales and improved profitability.
- Progress and potential outcomes of the VIVITROL government investigations, product-liability matters and Acorda appeal.