Alkermes plc — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results; amounts below are in U.S. dollars.
Business context
Alkermes is a global biopharmaceutical company developing, manufacturing and commercializing medicines in neuroscience and oncology. Its proprietary U.S. products include VIVITROL, ARISTADA, ARISTADA INITIO and LYBALVI; it also earns royalties and manufacturing revenue from partnered products, including long-acting INVEGA products, RISPERDAL CONSTA and VUMERITY. LYBALVI launched in October 2021.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $276.2m | $303.7m | $554.8m | $555.1m |
| Product sales, net | $190.8m | $160.8m | $362.1m | $290.8m |
| Manufacturing and royalty revenue | $85.3m | $142.3m | $190.5m | $262.1m |
| Operating income (loss) | $(34.5)m | $4.4m | $(61.0)m | $(12.0)m |
| Net income (loss) | $(30.1)m | $2.4m | $(66.0)m | $(20.1)m |
| Diluted EPS | $(0.18) | $0.01 | $(0.40) | $(0.13) |
Q2 operating margin was approximately negative 12.5%, versus positive 1.5% a year earlier; first-half operating margin was approximately negative 11.0%, versus negative 2.2%. R&D expense was $92.9m in Q2 and $188.8m for the first half. SG&A was $150.4m and $295.4m, respectively.
- Product sales: Up 19% in Q2 and 25% in the first half. Q2 sales included VIVITROL $96.1m, ARISTADA and ARISTADA INITIO $74.6m, and LYBALVI $20.1m. LYBALVI had no comparable 2021 sales.
- Cash flow: Operating cash flow was $19.4m for the first half, versus cash used of $12.1m in 2021. Investing activities used $101.2m, mainly reflecting net purchases of investments; financing activities used $1.1m.
- Liquidity: At June 30, cash and cash equivalents were $254.6m, short- and long-term investments totaled $505.3m, and cash plus investments totaled $759.9m. Current assets were $1,046.0m and current liabilities $438.5m.
- Debt: Reported current and long-term debt totaled $294.5m; the 2026 Term Loans mature March 12, 2026. The company reported compliance with debt covenants.
Material changes and notable items
- Total revenue declined 9% in Q2 and was nearly flat for the first half. Product-sales growth was more than offset by lower manufacturing and royalty revenue.
- Long-acting INVEGA revenue fell $54.4m in Q2 and $78.9m in the first half. Janssen’s U.S. royalty payments on INVEGA SUSTENNA, TRINZA and HAFYERA ceased after a partial license termination became effective in February 2022. Alkermes began binding arbitration in April, seeking, among other relief, a declaration of breach and resumption of royalties. The outcome and related revenue are uncertain.
- VUMERITY revenue increased to $26.2m in Q2 and $56.8m in the first half, supported by higher royalties. Alkermes disclosed a manufacturing issue involving Biogen and one of its suppliers; if it persists, it could reduce manufacturing and potentially royalty revenue.
- Operating expenses rose $11.4m in Q2 and $48.6m in the first half. First-half increases included cost of goods sold and SG&A, with commercial launch spending for LYBALVI contributing to higher selling and marketing costs.
- A $18.2m first-half reduction in the fair value of contingent consideration was recorded as expense, primarily reflecting increased risk that Baudax Bio would not meet payment obligations. The carrying value fell from $23.0m at year-end 2021 to $3.8m at June 30, 2022; Alkermes applied a 100% probability of default and a 9% recovery rate.
- Income-tax benefits were $3.1m in Q2 and $12.2m in the first half, primarily associated with the Section 174 R&D capitalization and amortization rules and the resulting FDII deduction.
Outlook, risks and contingencies
Management stated that existing cash, cash equivalents and investments were expected to fund anticipated working capital and other cash requirements for at least 12 months after the financial statements were issued. No quantified revenue or earnings guidance is provided in the supplied filing text. Nemvaleukin’s ARTISTRY program includes ongoing studies, including a Phase 3 study in platinum-resistant ovarian cancer; management cautioned that development programs, timing and spending may change.
Key disclosed risks include the Janssen arbitration and potential loss of U.S. INVEGA royalties; generic competition and patent litigation involving INVEGA and VIVITROL; VIVITROL-related government investigations and product-liability claims; reliance on licensees and third parties; possible COVID-19-related commercial, supply-chain or clinical delays; and Baudax’s ability to pay contingent consideration. The company reported no material changes to its Annual Report risk factors and no material probable litigation losses as of June 30, 2022.
Most important facts for investors to verify
- Progress, timing and potential financial impact of the Janssen arbitration, including whether U.S. INVEGA royalties resume.
- LYBALVI adoption and whether product-sales growth can offset declining partnered-product revenues.
- Whether the Biogen-related VUMERITY manufacturing issue persists and affects supply, manufacturing revenue or royalties.
- Baudax’s ability to meet contingent-consideration payments and any resulting valuation changes.
- Cash burn, investment values and liquidity relative to debt service and planned R&D and commercialization spending.
- Developments in generic patent litigation, VIVITROL investigations and product-liability proceedings.