Alkermes plc — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited consolidated results; dollar figures below are in millions except per-share data.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $617.4 | $276.2 | $905.0 | $554.8 |
| Operating income (loss) | $239.2 | $(34.5) | $191.7 | $(61.0) |
| Net income (loss) | $237.1 | $(30.1) | $195.2 | $(66.0) |
| Diluted EPS | $1.38 | $(0.18) | $1.14 | $(0.40) |
| Operating cash flow | Not presented quarterly | $194.4 | $19.4 |
Q2 operating margin was approximately 38.7% and net margin approximately 38.4%, compared with operating and net losses in Q2 2022. Six-month operating margin was approximately 21.2%. These reported results include a substantial Janssen royalty catch-up payment, so reported profitability is not solely indicative of recurring performance.
- Revenue mix: Q2 product sales were $231.5, up $40.7 year over year; manufacturing and royalty revenue was $385.9, up $300.6. Six-month product sales were $446.2, up $84.1, and manufacturing and royalty revenue was $458.8, up $268.3.
- Product sales: Q2 VIVITROL revenue was $102.1, ARISTADA/ARISTADA INITIO $82.4, and LYBALVI $47.0. LYBALVI’s growth was particularly strong, reflecting higher unit sales and price increases; all three products grew year over year.
- Expenses: Q2 cost of goods manufactured and sold was $63.3, R&D $100.8, and SG&A $205.3. SG&A rose $54.9 year over year, primarily from LYBALVI direct-to-consumer marketing and higher personnel and professional-services costs. Six-month R&D was $194.4 and SG&A $379.7.
- Cash and debt: June 30 cash and equivalents were $665.8; short- and long-term investments totaled $241.4. Cash plus investments was $907.2, versus borrowings of $292.0, for approximately $615.2 of net cash on that basis. Total debt principal was $293.3; the term loans mature in March 2026. The company reported compliance with debt covenants.
- Cash flows: Six-month operating cash flow was $194.4. Investing activities provided $193.7, mainly reflecting net investment sales; financing activities used $14.8. Cash and equivalents increased by $373.3 from year-end 2022.
- Liquidity: Management expects existing cash, cash equivalents and investments to fund anticipated requirements for at least 12 months after issuance of the financial statements. The filing reports total current assets of $1,397.4 and current liabilities of $487.2 at June 30.
Material changes and unusual items
- The May 31, 2023 final arbitration award resolved the Janssen dispute. Alkermes received $195.4 in Q2, including $8.1 of late-payment interest, for 2022 U.S. sales of long-acting INVEGA products. Q2 revenue also included $50.2 for first-quarter 2023 U.S. sales and $75.7 for second-quarter worldwide sales. This award and resumption of royalty recognition drove most of the year-over-year revenue and earnings swing.
- The award provides for royalties on INVEGA SUSTENNA through August 20, 2024, INVEGA TRINZA through the second quarter of 2030 (subject to the agreement’s May 2030 expiry), and INVEGA HAFYERA through May 2030. The company also states it is entitled to CABENUVA royalties through December 31, 2036.
- Six-month results included a $3.3 income-tax benefit, primarily associated with enhanced FDII deductions; Q2 had a $2.7 tax provision. Alkermes maintained a $245.8 valuation allowance against Irish deferred tax assets at December 31, 2022 and said future profitability could affect its assessment.
- On July 12, 2023, after quarter-end, Alkermes approved a restructuring affecting about 60 positions and expects a roughly $6.5 charge in Q3 2023, mostly cash costs paid over the following 12 months.
Outlook, commentary and risks
- Alkermes planned to separate its oncology business into an independent company, Mural Oncology, in the second half of 2023, subject to customary conditions, final board approval and tax-related ruling or opinion. After separation, Alkermes expected to focus on neuroscience products and pipeline programs while retaining manufacturing and royalty revenues.
- No numerical full-year revenue or earnings guidance is provided in the filing. Management cautions that interim results are not necessarily indicative of full-year results.
- Management expects long-acting INVEGA royalties to decline over time amid generic competition and patent litigation. RISPERDAL CONSTA revenues are also expected to decline as competition increases. VUMERITY royalties depend on licensee sales and manufacturing arrangements.
- Legal and regulatory exposures include VIVITROL-related government investigations and product-liability claims; the company is cooperating with the investigations and intends to defend the claims. An Acorda petition seeks approximately $66.0 in additional damages; Alkermes says it is without merit. The company reported no material litigation loss considered probable at June 30 and did not expect resolution of existing proceedings to materially adversely affect its business or financial condition.
- Other risks include dependence on licensees, generic competition and intellectual-property disputes, clinical and regulatory development uncertainty, and potential manufacturing, supply-chain or market disruption. Management reported no material change in risk factors from prior filings.
Key facts for investors to verify
- Separate recurring product and royalty performance from the $195.4 Janssen catch-up royalty and related royalty-recognition resumption.
- Track the timing and conditions of the planned Mural Oncology separation, including tax and board approvals, and the costs of the separation and restructuring.
- Monitor generic litigation and royalty timelines for INVEGA products, as well as VIVITROL and VUMERITY legal matters and the VIVITROL government investigations.
- Assess LYBALVI growth against rising marketing and selling costs, and monitor future cash generation, working-capital needs, and debt service through the 2026 maturity.