Alkermes plc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Comparisons are with Q1 2018 unless otherwise noted. Alkermes is a global biopharmaceutical company developing, manufacturing and commercializing medicines, with a portfolio focused on CNS disorders, multiple sclerosis and oncology.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue | $223.1 million | $225.2 million; down 0.9% |
| Operating loss | $76.0 million | $61.9 million |
| Net loss | $96.4 million; $0.62 per share | $62.5 million; $0.40 per share |
| Operating cash flow | $22.2 million provided | $26.8 million used |
| Capital expenditures | $23.6 million | $18.5 million |
| Cash and investments | $625.1 million | $620.0 million at December 31, 2018 |
| Borrowings | $278.8 million principal outstanding | $279.3 million at December 31, 2018 |
Revenue mix: manufacturing and royalty revenue was $108.9 million, product sales net was $99.5 million, and R&D revenue was $14.7 million. Operating margin was approximately negative 34.1% and net margin approximately negative 43.2%, calculated from reported revenue and losses. Product sales net represented 50.7% of gross product sales, versus 51.7% a year earlier, as sales deductions rose to 49.3% of gross sales.
At March 31, current assets were $962.7 million and current liabilities $327.7 million. Cash and cash equivalents were $225.2 million; short- and long-term investments totaled $399.9 million. Management said existing cash and investments were expected to fund anticipated working capital, capital expenditures and debt service for at least 12 months after the filing date. The company reported no material off-balance-sheet arrangements.
Material changes versus Q1 2018
- Net loss widened by $33.9 million. The principal drivers were a $22.6 million fair-value reduction in contingent consideration and a 20% increase in SG&A expense.
- SG&A increased $23.1 million to $141.2 million, primarily due to higher employee costs and marketing and professional services.
- R&D expense declined $5.8 million to $102.6 million, while R&D revenue declined $4.0 million to $14.7 million, mainly reflecting the timing of the Biogen collaboration program.
- Product sales net increased $7.6 million to $99.5 million. VIVITROL sales were $69.2 million and ARISTADA sales were $30.3 million. Higher sales were partly offset by increased Medicaid rebates and Medicare Part D claims.
- Manufacturing and royalty revenue decreased $5.7 million. Growth in Janssen’s INVEGA franchise was offset primarily by an $16.1 million decline in AMPYRA/FAMPYRA revenue; generic AMPYRA entered the U.S. market in September 2018.
- Operating cash flow improved to positive $22.2 million, principally reflecting higher customer cash receipts, including receipts associated with the Biogen collaboration. Cash decreased $41.5 million during the quarter, primarily as net investment purchases and capital expenditures exceeded operating and financing cash inflows.
Outlook, developments and risks
- Pipeline and regulatory outlook: The FDA accepted the diroximel fumarate (BIIB098) NDA for review and assigned a PDUFA target action date in Q4 2019; topline results from a comparative tolerability study were expected in mid-2019. Alkermes planned a pre-NDA meeting for ALKS 3831 in Q2 and an NDA submission in mid-2019. These are management plans, not assurances of approval.
- ALKS 5461: The FDA issued a Complete Response Letter in February 2019 requesting additional clinical data to establish effectiveness for adjunctive treatment of major depressive disorder. Alkermes said it was evaluating next steps.
- Post-quarter update: In April 2019, Alkermes reported positive topline results from the ALPINE study of ARISTADA and INVEGA SUSTENNA. This occurred after the reporting period.
- Contingent consideration: Following Recro’s second FDA Complete Response Letter for IV Meloxicam in March, Alkermes reduced the estimated value of contingent consideration from $65.2 million at year-end to $37.6 million, recording a $22.6 million noncash charge. A $5.0 million payment was received in Q1 and another $5.0 million was expected in Q2; potential future milestones and royalties depend on regulatory and commercial outcomes.
- Debt and accounting: The 2023 term loans mature March 2023, with a stated interest rate of LIBOR plus 2.25% and a 0% LIBOR floor. Alkermes adopted the new lease accounting standard in January 2019, recognizing $18.0 million of right-of-use assets and $19.8 million of operating lease liabilities at March 31.
- Legal and commercial risks: Generic competition is affecting AMPYRA revenue. The company disclosed patent disputes involving INVEGA SUSTENNA, VIVITROL and RISPERDAL CONSTA; the European Patent Office revoked a RISPERDAL CONSTA-related patent in April, after quarter-end. The company was cooperating with U.S. government inquiries concerning VIVITROL. A securities case concerning VIVITROL marketing was dismissed with prejudice, but a reconsideration motion was pending; separate securities actions concerning ALKS 5461 were consolidated. Management reported no material change to the risk factors in its 2018 annual report and no probable material litigation loss at quarter-end.
Most important facts for investors to verify
- Whether BIIB098 and ALKS 3831 meet their stated regulatory milestones, and the commercial implications of the ALKS 5461 CRL.
- Whether growth in VIVITROL and ARISTADA can offset generic-driven declines in AMPYRA-related revenue and higher selling costs.
- The assumptions and sensitivity underlying the $37.6 million contingent-consideration valuation, including Recro’s IV Meloxicam regulatory and sales prospects.
- Cash generation, investment liquidity and capital spending relative to the company’s stated 12-month funding outlook and 2023 debt obligations.
- Developments in product patent proceedings, government inquiries and securities litigation, including events disclosed after March 31, 2019.