Alkermes plc — FY 2014 Form 10-K
Business context and reporting period. Alkermes is a global biopharmaceutical company with more than 20 marketed products and a pipeline focused mainly on central nervous system disorders. This 10-K covers the year ended December 31, 2014. The company changed its fiscal year-end in 2013, so the audited December 2013 comparison covers only nine months; the filing also provides unaudited calendar-year 2013 comparative data. Comparisons below use that reconstructed full-year 2013 data where available.
Financial performance and liquidity
| Metric | FY 2014 | Comparison / detail |
|---|---|---|
| Total revenue | $618.8 million | Up $22.5 million, or about 3.8%, versus unaudited calendar 2013 revenue of $596.3 million. |
| Manufacturing and royalty revenue | $516.9 million | Key contributors included INVEGA SUSTENNA/XEPLION ($127.8 million), RISPERDAL CONSTA ($120.6 million), and AMPYRA/FAMPYRA ($80.9 million). |
| VIVITROL net product sales | $94.2 million | Up from $71.8 million in unaudited calendar 2013; gross sales grew 38%. |
| Operating result | Loss of $87.1 million | Compared with unaudited calendar 2013 operating income of $34.5 million. R&D and SG&A spending rose substantially. |
| Net result | Loss of $30.1 million; diluted loss per share $0.21 | Compared with unaudited calendar 2013 net income of $20.6 million. FY 2014 included $86.8 million of non-recurring gains in other income. |
| Cash from operations | $11.1 million | Down from $147.5 million in unaudited calendar 2013; increased pipeline and commercial spending weighed on cash generation. |
| Cash and investments | $801.6 million | Cash and cash equivalents were $224.1 million; short- and long-term investments were $577.6 million. |
| Debt | $358.0 million | Term loans; $6.75 million current portion. The company reported compliance with debt covenants at year-end. |
| Liquidity | Current assets $876.8 million; current liabilities $130.6 million | Approximate current ratio: 6.7. |
Calculated from reported figures, gross margin before amortization was approximately 71.6% of revenue; operating margin was approximately negative 14.1%. These are simple calculations, not company-reported measures.
FY 2014 investing cash outflow was $263.4 million, largely reflecting net purchases of investments; financing provided $308.8 million, including $248.4 million net proceeds from a January share offering. Capital expenditures were $33.7 million. Year-end accumulated deficit was $512.3 million.
Material changes and unusual items
- Revenue growth was led by INVEGA SUSTENNA/XEPLION, BYDUREON and VIVITROL. Janssen’s reported end-market sales rose for INVEGA SUSTENNA/XEPLION to $1.588 billion, while RISPERDAL CONSTA sales declined to $1.190 billion.
- R&D expense increased $108.1 million to $272.0 million, reflecting advancement of the pipeline; SG&A increased $48.7 million to $199.9 million, substantially due to aripiprazole lauroxil launch preparation.
- Other income included gains of $41.9 million on property, plant and equipment sales, $29.6 million on the Civitas investment, and $15.3 million on the Acceleron investment. These gains materially offset the operating loss in the reported net result.
- The company issued shares for $250 million gross proceeds and received $47.6 million from employee option exercises. Ordinary shares outstanding increased during the year.
- VIVITROL included a $1.4 million charge related to a limited recall for a needle-clog issue. Product returns and other sales deductions also increased with higher sales.
Outlook, pipeline and risks
- Management expected continued growth in its long-acting antipsychotic franchise as INVEGA SUSTENNA/XEPLION expanded internationally, and expected AMPYRA/FAMPYRA, BYDUREON and U.S. VIVITROL sales to grow. These expectations are subject to competition, partner execution, pricing and reimbursement.
- Management expected revenue from mature products, including RITALIN LA/FOCALIN XR and other products, to decline because of generic competition. An Athlone restructuring was expected to produce annual savings of $15–20 million by 2016 and beyond; manufacturing revenue from affected products was expected to continue into 2015.
- Aripiprazole lauroxil’s NDA was under FDA review with an August 22, 2015 PDUFA date. ALKS 5461 was in Phase 3, with core efficacy-study data expected in 2016. ALKS 3831 was in Phase 2, with a pivotal program planned for 2015 following positive results announced in January 2015.
- Post-year-end updates included positive Phase 1 topline results for ALKS 8700 and a decision to discontinue ALKS 7106 after it did not meet criteria to advance to Phase 2. These developments occurred after December 31, 2014.
- Major risks include dependence on partners—Janssen accounted for about 41% of FY 2014 revenue—clinical and regulatory uncertainty, manufacturing concentration and compliance requirements, competition and generic erosion, reimbursement and pricing pressure, patent litigation, foreign exchange exposure, and debt covenants. Management said existing cash, investments and expected operating cash flows should fund anticipated requirements for the foreseeable future; it also forecast approximately $53 million in 2015 capital expenditures.
- The company reported no litigation it believed would have a material adverse effect, while disclosing Paragraph IV and other patent proceedings involving TRICOR, MEGACE ES, AMPYRA and ZOHYDRO ER. No cash dividends were expected in the foreseeable future.
Most important facts for investors to verify
- Reconcile the unaudited calendar 2013 comparator with the audited nine-month transition-period figures; the periods are not directly comparable.
- Assess how much FY 2014 earnings depended on the $86.8 million of non-recurring gains and whether operating cash flow can recover as R&D and launch spending continue.
- Track the aripiprazole lauroxil FDA review and the ALKS 5461 and ALKS 3831 clinical milestones, including any subsequent regulatory or trial updates.
- Monitor Janssen product sales and Alkermes’ concentration in partner-derived revenue, as well as the progress and economics of other partnered products.
- Review debt maturities, interest exposure, restrictive covenants, planned capital spending, and the $272.2 million of reported purchase obligations.
- Check developments in patent proceedings, generic competition, reimbursement and the Athlone restructuring, including whether projected savings are realized.