Alkermes plc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021. Unaudited consolidated results; dollar amounts below are in millions unless stated otherwise.
Business context
Alkermes is a global biopharmaceutical company operating as one segment. Its proprietary marketed products include VIVITROL and ARISTADA; LYBALVI was approved in the U.S. and was expected to launch in the fourth quarter of 2021. The company also earns manufacturing and royalty revenue from partner products, including Janssen’s long-acting antipsychotics and Biogen’s VUMERITY.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $303.7 | $247.5 | $555.1 | $493.7 |
| Operating income (loss) | $4.4 | $(33.7) | $(12.0) | $(71.0) |
| Net income (loss) | $2.4 | $(29.4) | $(20.1) | $(68.1) |
| Basic and diluted EPS | $0.01 | $(0.19) | $(0.13) | $(0.43) |
| Operating cash flow | Not separately presented | Not separately presented | $(12.1) | $(44.7) |
Q2 revenue rose 23% year over year; operating margin was approximately 1.5%, compared with negative 13.6% in Q2 2020. Six-month revenue increased 12%; operating margin was approximately negative 2.2%, compared with negative 14.4%. Net income in Q2 and the reduced six-month loss reflected higher revenue, partly offset by higher expenses. The filing does not present a single gross-margin percentage.
- Revenue mix: Q2 product sales were $160.8 million, up from $130.4 million; manufacturing and royalty revenue was $142.3 million, up from $116.5 million. Six-month amounts were $290.8 million and $262.1 million, respectively.
- Product sales drivers: Q2 net VIVITROL sales were $88.4 million and ARISTADA/ARISTADA INITIO sales were $72.4 million. Growth reflected increased unit sales, partly recovering from pandemic disruption, and April 2021 price increases. Gross-to-net deductions were 53.2% of gross product sales in Q2, versus 49.7% a year earlier.
- Partner-product trends: Q2 VUMERITY manufacturing and royalty revenue increased to $20.3 million from $2.6 million, driven by higher product sales. INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA revenue rose to $81.1 million from $69.4 million. Six-month RISPERDAL CONSTA revenue declined $12.4 million to $28.6 million.
- Expenses: Q2 total expenses were $299.3 million, up $18.1 million year over year; six-month expenses were $567.2 million, up $2.4 million. Six-month R&D expense was $189.7 million; nemvaleukin spending rose as clinical studies advanced.
Liquidity, cash flow and debt
- At June 30, 2021, cash and cash equivalents were $258.3 million and investments totaled $411.0 million, for total cash and investments of $669.3 million. Current assets were $1,037.8 million and current liabilities $383.4 million.
- Six-month operating cash use was $12.1 million. Investing activities used $33.8 million, including net investment purchases; financing activities provided $31.2 million. Cash declined $14.6 million from year-end 2020.
- Debt carrying value was $297.1 million, including a $3.0 million current portion. In March 2021, Alkermes refinanced its term loans, extending maturity from 2023 to March 2026 and changing the interest spread to LIBOR plus 2.50%, with a 0.50% LIBOR floor. The company reported compliance with covenants at quarter-end.
- Management stated that existing cash and investments should fund anticipated working capital, capital expenditures and debt service for at least 12 months after filing.
Outlook, risks and unusual items
- Management expected a fourth-quarter 2021 commercial launch of LYBALVI. It anticipated near-term growth in Janssen’s INVEGA franchise but warned that generic competition could pressure RISPERDAL CONSTA and that generic challenges also existed for INVEGA products.
- COVID-19 had adversely affected commercial sales of products administered by healthcare professionals and at times affected clinical and discovery timelines. Alkermes continued manufacturing and supply operations; the future impact remained uncertain.
- The Q2 increase in fair value of contingent consideration contributed $3.2 million to other income. The related asset, due from Baudax Bio under the Gainesville transaction, was valued at $29.1 million; the valuation incorporated Baudax’s disclosed going-concern uncertainty.
- A $1.0 million other-than-temporary impairment was recorded on a corporate debt investment. The six-month income tax provision included $6.6 million of discrete tax expense related to employee equity activity. The March debt refinancing resulted in a $2.1 million charge.
- Legal and regulatory matters include VIVITROL-related government investigations and product-liability litigation, patent disputes involving VIVITROL and VUMERITY, and an appeal in securities litigation that had been dismissed at the district-court level. Management reported no material probable litigation loss at June 30 and said existing matters were not expected to have a material adverse effect, while noting outcomes are uncertain.
- The filing reported no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements and effective disclosure controls.
Important facts for investors to verify
- Whether LYBALVI launched on the expected timetable and how its commercial uptake and launch costs developed.
- Whether growth in VIVITROL, ARISTADA, VUMERITY and Janssen royalties persisted, and how gross-to-net deductions and generic competition affected net revenue.
- Whether operating cash flow improved and cash and investments remained adequate relative to debt service and other obligations.
- Developments in Baudax’s ability to pay contingent consideration, as well as the VIVITROL investigations, product-liability cases and material patent litigation.
- Clinical progress, trial timelines and spending for nemvaleukin, including potential continuing effects from COVID-19.