Alkermes plc — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 21, 2024. Alkermes is a neuroscience-focused biopharmaceutical company with U.S. proprietary products VIVITROL, ARISTADA, ARISTADA INITIO and LYBALVI, plus manufacturing and royalty revenue from products commercialized by partners. The oncology business was separated into Mural Oncology in November 2023 and is reported as discontinued operations.
Key financial results
| Metric | FY2023 | FY2022 | Change / context |
|---|---|---|---|
| Total revenue | $1,663.4 million | $1,111.8 million | Up $551.6 million, or about 50% |
| Product sales, net | $920.0 million | $777.6 million | Up $142.4 million, or 18% |
| Manufacturing and royalty revenue | $743.4 million | $332.0 million | Up $411.4 million, largely due to the Janssen arbitration award and resumed INVEGA royalties |
| Operating income (loss) | $414.1 million | $(6.1) million | Operating margin was about 24.9%, versus an operating loss |
| Net income (loss) from continuing operations | $519.2 million | $(33.2) million | Includes a $97.6 million income tax benefit |
| Net income (loss), including discontinued operations | $355.8 million | $(158.3) million | Includes a $163.4 million discontinued-operations loss |
| Operating cash flow | $401.4 million | $21.0 million | FY2023 includes the consolidated company and the $195.4 million Janssen back-royalty and interest receipt |
Product sales: VIVITROL net sales were $400.4 million, up 5%; ARISTADA and ARISTADA INITIO were $327.7 million, up 8%; LYBALVI was $191.9 million, up 100%. Product sales gross-to-net adjustments were $935.4 million, or 50.4% of gross sales, compared with $771.3 million, or 49.8%, in 2022.
Fourth quarter: Revenue was $377.5 million; continuing-operations net income was $160.6 million; total net income was $112.8 million after a $47.8 million discontinued-operations loss.
Expenses and margins: R&D expense was $270.8 million, down slightly from $272.7 million. SG&A was $689.8 million, up $99.0 million, primarily due to LYBALVI direct-to-consumer marketing and higher commercial personnel costs. The filing does not provide a single conventional gross-margin figure.
Liquidity and debt: At year-end, cash and cash equivalents were $457.5 million and investments were $355.9 million, totaling $813.4 million. Debt was approximately $290.7 million, leaving cash and investments above debt by about $522.7 million. The term loans mature in March 2026, bear interest at SOFR plus a 2.5% margin, and were reported in covenant compliance. 2023 capital expenditures were $48.0 million; management expects approximately $35.0 million in 2024.
Material changes and unusual items
- The Janssen arbitration reinstated royalties on the long-acting INVEGA products and resulted in $195.4 million of back royalties and late-payment interest received in Q2 2023. Reported FY2023 INVEGA royalty revenue was $486.1 million, including the back payment; ongoing royalty revenue was approximately $290.7 million.
- Management expects INVEGA SUSTENNA royalties to end on August 20, 2024; royalties for INVEGA TRINZA and INVEGA HAFYERA are expected to continue through 2030, subject to the stated agreement terms. Generic patent litigation involving INVEGA products is ongoing.
- The Mural separation transferred $275.0 million of cash to Mural; separation costs were $36.0 million in 2023. Oncology results are excluded from continuing operations, so year-over-year comparisons should use the recast figures.
- The company agreed to sell its Athlone, Ireland facility to Novo Nordisk, with closing expected in mid-2024, subject to conditions. Alkermes expects to continue certain activities through subcontracting arrangements, potentially through 2025.
- A $97.6 million continuing-operations tax benefit was primarily due to a partial release of the valuation allowance against Irish deferred tax assets. The filing also warns that tax treatment of the Mural separation could be challenged despite tax opinions and an IRS private letter ruling.
- A July 2023 restructuring eliminated about 60 positions and generated a $6.0 million charge. In August 2023, Alkermes settled VIVITROL generic litigation with Teva, permitting U.S. generic entry from January 15, 2027, or earlier in specified circumstances; an earlier Amneal license also permits entry on specified terms.
Outlook, risks and contingencies
Management expects proprietary product sales to continue growing, citing VIVITROL market penetration, ARISTADA share gains and LYBALVI growth. This outlook is subject to pricing and reimbursement pressure, competition, product adoption, manufacturing execution and other risks; the filing provides no quantified full-year 2024 revenue or earnings guidance. Management says existing cash, cash equivalents and investments should fund anticipated requirements for at least twelve months from issuance of the financial statements.
- Key risks include reliance on major products and licensees, generic competition, payer restrictions, and dependence on third-party suppliers and wholesalers. Janssen-related revenue was about 31% of consolidated revenue in 2023.
- VIVITROL is subject to government information requests and civil investigative demands; the company says it is cooperating. Product-liability matters include claims alleging inadequate VIVITROL labeling. Management states no material loss from claims or proceedings was considered probable at year-end.
- The company had $1.3 billion of Irish net operating loss carryforwards and $195.3 million of net deferred tax assets. Realizability depends on future taxable income; Irish tax rules and the Athlone sale may affect tax positions.
- The SOFR-based debt is floating rate; the filing estimates a 10% increase in the one-month SOFR rate would raise annual interest by about $2.3 million, based on the year-end rate.
- On February 15, 2024, the board authorized a share repurchase program of up to $400 million. No dividends are expected in the foreseeable future.
Important facts for investors to verify
- Separate recurring operating performance from the one-time Janssen back-royalty receipt and the significant tax benefit; assess the underlying continuing-operations earnings and cash generation.
- Confirm the timing and financial effect of the August 2024 end of INVEGA SUSTENNA royalties, and monitor generic litigation and sales trends for the other INVEGA products.
- Track LYBALVI growth against its materially higher marketing expense, and monitor gross-to-net deductions and payer access across proprietary products.
- Verify completion and terms of the Athlone facility sale and continuity of VUMERITY and other manufacturing through the planned transition.
- Review the status and potential exposure from VIVITROL government inquiries, product-liability litigation, patent disputes and the tax-free treatment of the Mural separation.
- Assess the use of the $400 million repurchase authorization alongside 2026 debt maturities, capital spending and evolving cash needs.