Alkermes plc — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; unaudited. Alkermes is a global biopharmaceutical company with more than 20 commercial products and a CNS-focused development pipeline. Unless noted otherwise, financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Total revenue | $130.2 million | $163.4 million |
| Operating income (loss) | $(15.9) million | $19.0 million |
| Net income (loss) | $(24.4) million; $(0.17) per share | $3.0 million; $0.02 per share |
| Operating cash flow | $(3.5) million | $55.3 million |
| Cash and cash equivalents | $156.3 million | $167.6 million at Dec. 31, 2013 |
| Total investments | $545.4 million fair value | $282.4 million at Dec. 31, 2013 |
| Cash, cash equivalents and investments | $701.8 million | $450.0 million at Dec. 31, 2013 |
| Working capital | $684.0 million | $469.2 million at Dec. 31, 2013 |
| Debt carrying amount | $362.7 million | $364.3 million at Dec. 31, 2013 |
Revenue less cost of goods manufactured and sold was $91.4 million, or approximately 70% of revenue, versus $115.4 million, or approximately 71%, a year earlier; amortization of acquired intangibles is presented separately in the income statement. The operating margin was approximately (12.2)%, compared with 11.6% in Q1 2013.
Manufacturing and royalty revenue fell $35.6 million to $111.3 million, while net product sales rose $2.5 million to $17.1 million. Operating expenses increased to $146.1 million from $144.4 million: R&D rose to $52.1 million from $35.8 million, SG&A to $42.6 million from $34.7 million, and acquired-intangible amortization to $12.6 million from $10.3 million. There were no restructuring or long-lived-asset impairment charges in Q1 2014, compared with $12.3 million and $3.3 million, respectively, in Q1 2013.
Investing cash outflow was $272.7 million, mainly reflecting net investment purchases; financing cash inflow was $264.9 million, including net proceeds from an ordinary-share offering. Cash decreased by $11.2 million during the quarter. The filing reports debt of $362.7 million on the balance sheet, while MD&A cites $364.9 million outstanding; the difference appears to reflect carrying value versus outstanding principal and should be checked against the debt note.
Material changes and business developments
- Q1 2013 revenue included $30.0 million of IP license revenue unrelated to key development programs, contributing to the year-over-year revenue decline.
- INVEGA SUSTENNA/XEPLION revenue increased $6.2 million as Janssen end-market sales rose to $373 million from $284 million. AMPYRA/FAMPYRA revenue decreased $4.1 million, partly due to lower product shipments and European sales. BYDUREON revenue increased $2.9 million as estimated end-market sales rose to $96 million from $61 million.
- VIVITROL gross sales grew 27%, but net sales included an approximately $1.4 million charge related to a limited recall for a needle-clog issue. Total adjustments to gross product sales rose to 34.0% from 28.1%.
- In January, Alkermes sold approximately 5.9 million shares for $250 million gross proceeds ($248.4 million net), increasing liquidity and shares outstanding.
- In February 2014, AstraZeneca assumed sole responsibility for BYDUREON development and commercialization.
Outlook, commentary and risks
- Management said operating cash generation was expected to fund anticipated working capital, capital expenditure and debt-service needs for the foreseeable future. The company also cited potential incremental term-loan capacity, subject to conditions. No numerical revenue or earnings guidance is provided in the filing.
- Management expected SG&A to continue increasing in calendar 2014 as launch planning for aripiprazole lauroxil accelerated. R&D spending reflected initiation of the ALKS 5461 pivotal program and investment in other pipeline candidates.
- In April 2014, Alkermes reported positive topline Phase 3 results for aripiprazole lauroxil and planned to submit an NDA in Q3 2014. The company also expected to begin clinical testing of a two-month formulation. These are forward-looking plans, not completed regulatory actions.
- The ALKS 5461 FORWARD program comprises 12 planned studies; the three core Phase 3 efficacy studies were expected to begin in mid-2014. The company also described expected mid-2014 IND and study starts for ALKS 8700 and ALKS 7106.
- Management generally expected revenue from older commercial products to decline due to generic competition. Risks include clinical and regulatory outcomes, product demand and competition, collaboration performance, investment-market and currency fluctuations, and the ability to meet debt obligations and covenants.
- Various patent proceedings concerning FOCALIN XR, TRICOR, RITALIN LA and MEGACE ES were ongoing; the company did not believe they would have a material adverse effect. Contractual obligations were not materially changed from the prior report, and no material off-balance-sheet arrangements were reported.
- After quarter-end, Alkermes completed the sale of certain land, buildings and equipment at its Athlone facility. Management reported effective disclosure controls as of March 31, 2014 and no material change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile the $362.7 million balance-sheet debt carrying amount with MD&A’s $364.9 million outstanding-borrowings figure, including unamortized discounts or other adjustments.
- Assess whether the $30.0 million prior-year IP license revenue and product-specific sales trends distort comparisons of recurring revenue.
- Track VIVITROL recall-related costs and the level of rebates, discounts and other sales deductions.
- Monitor spending and milestones for ALKS 5461, aripiprazole lauroxil and other pipeline programs, including the stated NDA and trial timelines.
- Review the Athlone asset-sale terms and proceeds; the filing text does not provide a clear value for the transaction.