Alkermes plc — Q3 2019 Form 10-Q
Business context and reporting period
Alkermes is a global biopharmaceutical company focused primarily on central nervous system disorders and oncology. This unaudited filing covers the quarter and nine months ended September 30, 2019; balance-sheet comparisons are to December 31, 2018. Amounts below are in U.S. dollars unless noted.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $255.2m | $248.7m | $758.2m | $778.5m |
| Operating loss | $(53.6)m | $(37.2)m | $(165.5)m | $(99.1)m |
| Net loss | $(52.9)m | $(34.4)m | $(191.3)m | $(129.6)m |
| Loss per share, basic and diluted | $(0.34) | $(0.22) | $(1.22) | $(0.84) |
- Q3 revenue increased 2.6%; nine-month revenue declined 2.6%. Product sales, net, rose to $138.8m in Q3 and $374.9m year to date, up from $116.0m and $317.7m, respectively.
- VIVITROL and ARISTADA/ARISTADA INITIO sales grew. Nine-month manufacturing and royalty revenue declined to $340.6m from $359.3m, mainly reflecting generic competition reducing AMPYRA-related revenue; nine-month license revenue fell to $1.0m from $48.3m, which included a Biogen option payment in 2018.
- Operating loss margin was approximately 21.0% in Q3 and 21.8% for the nine months, compared with 14.9% and 12.7%, respectively, in 2018. SG&A increased 15% in Q3 and 16% year to date, primarily due to higher employee costs and commercial investment. Nine-month R&D expense was broadly flat at $314.7m.
- Nine-month operating cash flow was $30.0m, versus $38.8m; capital expenditures were $59.0m, versus $51.8m. Cash and cash equivalents ended the period at $261.4m, down from $266.8m.
- Cash and investments totaled $608.6m at September 30, 2019, compared with $620.0m at year-end 2018. Current assets were $997.9m and current liabilities $370.4m. Term-loan principal was $280.0m, with a $277.7m carrying balance; the loans mature in March 2023.
Material changes and notable items
- Net loss widened year over year, reflecting higher SG&A, a $27.8m nine-month reduction in the fair value of contingent consideration following Recro’s second FDA complete response letter for IV Meloxicam, and the absence of the $48.3m Biogen license revenue recognized in 2018.
- Alkermes received $10.0m of contingent-consideration payments from Recro during the first half of 2019. The contingent-consideration asset was $27.4m at quarter-end, down from $65.2m at year-end 2018.
- Operating cash flow remained positive, but capital expenditures exceeded it during the first nine months. The company reported no material off-balance-sheet arrangements.
Outlook, commentary, and risks
- Management said existing cash and investments were expected to fund working capital, capital expenditures, and debt service for at least 12 months from the filing date. No detailed revenue or earnings guidance is provided in the supplied filing text.
- After quarter-end, the FDA issued tentative approval for BIIB098, subject to expiration of patent protection and/or exclusivity. Alkermes expected to submit a single ALKS 3831 NDA for schizophrenia and bipolar I disorder in Q4 2019.
- ALKS 5461 received an FDA complete response letter in February 2019 requesting additional clinical data to support effectiveness. The company disclosed continuing development and regulatory uncertainty.
- On October 18, 2019, the board approved a restructuring including approximately 160 job eliminations. Alkermes expected a $13m–$15m charge in Q4 2019, substantially all payable within 12 months.
- Key disclosed legal and commercial risks include generic competition for AMPYRA, patent challenges involving VIVITROL and RISPERDAL CONSTA, an appeal concerning revocation of a RISPERDAL CONSTA European patent, a government inquiry concerning VIVITROL, and a pending securities class action relating to ALKS 5461. The filing said no material litigation losses were considered probable at September 30, 2019.
Important facts for investors to verify
- Whether VIVITROL and ARISTADA sales growth can offset declining AMPYRA revenue and lower collaboration or licensing revenue.
- Timing and conditions for final BIIB098 approval, and the progress and filing status of the ALKS 3831 NDA.
- Potential cost, timing, and commercial implications of the ALKS 5461 FDA response and other pipeline programs.
- Execution and cash costs of the restructuring, and the adequacy of liquidity in light of ongoing losses and capital spending.
- Developments in generic competition, patent proceedings, government matters, and the contingent consideration tied to IV Meloxicam.