Alkermes, Inc. (NASDAQ:ALKS)
J.P. Morgan Healthcare Conference Call
January 8, 2013 11:00 ET
Richard Pops - Chairman and Chief Executive Officer
Cory Kasimov - J.P. Morgan
Cory Kasimov - J.P. Morgan
Alright. Good morning, everybody. I am Cory Kasimov, biotech analyst at J.P. Morgan. It’s my pleasure to introduce our next company, which is Alkermes. Presenting for Alkermes is the company’s Chairman and CEO, Richard Pops tell us about the story, the outlook for 2013 and what we expect to be more of a pipeline year than what we normally see from this guy. So, I am interested to hear his presentation. And there will be a breakout just after down the hall in the Olympic Room. So with that, I will turn it over to Richard.
Thank you, Cory. Good morning, everybody. So, my job this morning is to convey on behalf of all of us at Alkermes, the business that we are building, the excitement about it, and the optimism that we have about the company that we are going to build. A year ago at this meeting, the theme of the presentation was building the next big biotechnology company and that underscores the ambition that we have at the company to really build a significant enterprise with multiple drugs treating important diseases for helping lots of patients around the world.
This year’s theme is this idea of two portfolios. To understand what we have been doing now for the last couple of years is to understand that the company can be characterized by the existence of these two distinct portfolios. We are not going to spend a lot of time looking backwards we’re going to spend most of the time looking forward. So please recognize that we will make forward-looking statements. And as I always say to you all, despite our optimism, this is a risky business. And we ask you to take a look at the disclosures that we make to try to capture the risks that we face in building this dynamic company.
So, if you think about the two portfolios, you would name them in two ways. One is our commercial portfolio and the other is our emerging pipeline, as Cory referred to. The commercial pipeline is quite robust. It’s characterized by these five major products that are approved by the FDA and by regulatory authorities around the world, launching or in the midst of growing around the world with long patent lives. This is RISPERDAL CONSTA and INVEGA SUSTENNA, our long-acting atypical antipsychotic franchise that is partnered with Johnson & Johnson.
VIVITROL, our drug for the treatment of alcohol dependence and opioid dependence; AMPYRA sold by Acorda in the U.S. and Biogen Idec OUS for improving walking in patients with multiple sclerosis; and BYDUREON now sold worldwide by Bristol-Myers Squibb and AstraZeneca, singular products in their classes, long patent lives, important medicine, and the basis for the future of the company’s future revenue growth.
While we were building that portfolio, which a lot of folks were focused on over the last 12 months, we have also been building this pipeline. This is the work that we started years ago, and what’s so gratifying as we move into 2013 is how exciting this late-stage pipeline is beginning to look, how populated it is with interesting new medicines, and the potential for blockbusters that are emerging from this pipeline.
Aripiprazole lauroxil, known many of you as 9070 is our long-acting injectable pro-drug of aripiprazole currently in Phase 3. ALKS 5461, a drug for the treatment of treatment-resistant depression currently completing a 130-patient Phase 2b study. ALKS 3831, first disclosed last week, a new molecule for us, a new oral antipsychotic drug that we think has really interesting features. And then of course, line extensions building on our commercial portfolio and other things on our labs that we haven’t disclosed yet that we see as recurring source of new product innovation for the company going forward.
So, the commercial pipeline, if you look at these group of products, it’s quite remarkable because of the diversity of the offering that the lack of covariance between the various products, how early they are in their commercial lives, the intensity with which our partners are promoting these products and building these markets and the potential for growth in the future. This portfolio in our view by itself would represent a very exciting biotechnology company, but it’s important for you to understand that within the company, the way they were operating, the way they were oriented is the idea that we are using this as a foundation to build a much bigger company.
So, the reference frame actually shifts. Not only can this commercial portfolio of products have its intended growth, the growth from those products is still indeterminate. How big a drug is BYDUREON going to be, how big a drug is VIVITROL going to be, and that applies to each of these different drugs. So, there is still this non-linear potential for the growth of this portfolio, because of its long patent life and the unmet medical needs of these drugs are addressing, but the story doesn’t end there of course. What is important for people to understand is it the way we are building the company is the idea that’s superimposed on top of this inherent growth, is the idea that we are building opportunities for blockbuster breakout products.
Aripiprazole lauroxil our own proprietary entrant in a multibillion dollar category, 5461, 3831, and the like, because we are at a scale now, where we can finance our own R&D aggressively in perpetuity effectively. And we have such good science and such proven capabilities, we view that the probability of our breaking out with one of these drugs is extremely high. Each one has its own risks and potential liabilities, but in the aggregate from a portfolio point of view, the probability of our building, the next leg of the company through the successful development of one of these major breakout products we see as extremely high. So, that’s part of the reason why we are so optimistic about the future. In a single picture, you can capture what happened over the past year through the transformation of the company financially, through the acquisition of EDT.
Last year, when we stood up here, we talked about how this should play out in the following way, but now it’s in the record books. This is what the company looks like now. We have grown the company’s revenues. We have grown the company’s profits. And we have gotten to the scale now, where we can fund R&D aggressively without having to grow the R&D line as quickly as the other lines. So, we went from a $180 million revenue company to a $550 million revenue company. We went from a money losing company investing aggressively in this R&D pipeline to a money-making company, while still being able to fund R&D at the levels that we think are appropriate. So, it’s really fundamentally a transformation in the company over the last 12 months or so.
So, when we look at specifically then at this commercial pipeline, the drugs that comprise them are quite remarkable in the sense of the longevity that they have in the marketplace and their future potential as well. The long-acting injectable antipsychotic franchise that we collaborated with J&J now is now I think J&J’s second biggest product area, the J&J Pharma. It’s a $2 billion global franchise. And you can see from the plot, this has been growing consistently for the last several years. It’s still – these medicines are still underutilized in the U.S.
The market share of long-acting injectable antipsychotics is still underutilized in the U.S. compared to certain European countries. And based on the inherent value of these medicines, we see opportunities for more growth in this market as more entrants come into the market. And moreover, our partners at J&J are aggressively building the market with launching INVEGA SUSTENNA in multiple countries around the world and currently in a large Phase 3 program for the next step in the evolution of this product franchise, in this case a three-month version of INVEGA SUSTENNA. So, we project further growth for this franchise going forward.
The success of the long-acting injectable antipsychotics actually led us to the development of VIVITROL, an example where injectable medicine driving increased compliance and better outcomes over time can change markets. VIVITROL is our drug, a differentiated product in a new market, alcohol and opioid dependence to singular product and what we are seeing is from a very small base consistent, continual growth, and I’ll talk about later in the presentation, indications from all of different places within the country of an increased interest in the utilization of VIVITROL to help solve problems that states, criminal justice systems, physicians, and payers are facing. We have a diverse array of programs in place that are seeding the future for this drug. So, we are quite optimistic about the future of VIVITROL as well.
AMPYRA is already a major success. This is a drug that is the one-of-a-kind product. And it’s the only product that’s approved to improve walking in patients with multiple sclerosis. Acorda reported their results yesterday, they did $266 million of sales in the U.S. in the last calendar year and I am guiding to something on the order of $300 million going forward in the U.S. Biogen Idec sells the product in Europe. We receive 18% of the top line sales of this product around the world. So, it’s a singular product in this class. It’s being tested in additional indications. It’s on pattern for a long time and has a bright future for us.
In BYDUREON, the story is just beginning. This has been one of the most observed product development programs over the last several years I mean and you participated in the dramas around it. It’s now approved around the world. And our partners that we started this project with Amylin were acquired by Bristol-Myers Squibb and AstraZeneca in a $7 billion in transaction this summer. And the $7 billion consideration was really to gain control of BYDUREON. This is a drug and it’s the only once a week product for type 2 diabetes. It’s a remarkable product. It has a long future and a long patent life. And I think we are going to see the application of an entirely new level of scale to the commercial marketing of BYDUREON around the world.
So, if you look at that group of five, what’s interesting about it is as we tick through it is that they are very different products, they are sold by different companies, they are integral to the strategies of these companies, and the patent lives are incredibly long. It’s rare in pharma to see an aggregation of important products with such long patent lives in the U.S. and Europe. This provides that foundation that I mentioned at the outset for the future growth of the company. So, we think it’s incredibly stable base than to look for additional blockbusters to gap the valuation of the company going forward.
So, let’s talk about that pipeline now. The second portfolio is the pipeline. And this pipeline, this bar chart represents everything in the pipeline. And we’ll focus today really on three elements of it. Aripiprazole lauroxil, our long-acting injectable form of aripiprazole, currently in Phase 3, ALKS 5461 in Phase 2 for depression, and ALKS 3831, a drug, an oral candidate for schizophrenia.
Let’s start with that, because that’s the newest and I think most unusual. 3831 is designed to compete with the best-in-class oral antipsychotic agents. We are playing to win with this drug and our standards are extremely high. The idea here is can you create a drug with the efficacy of ZYPREXA without the metabolic side effects of ZYPREXA. ZYPREXA or olanzapine is the most efficacious antipsychotic product, and that’s if you read the CATIE study that was published in The New England Journal several years ago, it’s the most efficacious drug, but it comes with a high price and that is severe weight gain and not a trivial amount of weight gain, a significant amount of weight gain. Patients can gain 30, 40, 50 pounds of weight. And it actually can lead to metabolic disorders, including type 2 diabetes, but the disease is so severe that’s often you need a drug as efficacious as olanzapine to treat the underlying symptoms of schizophrenia. So, it requires putting up with these types of side effects. We really had a hypothesis at opioid modulator, something we are quite profession at could play a role in attenuating weight gain in the context of patients receiving olanzapine. And this was a hypothesis we began to test that pre-clinically and it proved out so far to be accurate.
Say, why olanzapine? Olanzapine is a remarkable drug. It’s a multi-billion dollar drug around the world, now off-patent. And what’s fascinating about it is that in the data shown here, this is certainly of doctors asking them why do you change a patient off of the antipsychotic medication, which you are using? The tall blue bars for each of the different drugs is the reason that they would have changed is because of efficacy. So, you will see for risperidone, aripiprazole, quetiapine, ziprasidone, the principal reason patients were shifted off of those drugs is because of efficacy. Only olanzapine is the drug what physicians say we don’t switch patients because of lack of efficacy, we shift them because they gain too much weight. So, if you could attenuate the weight gain associated with olanzapine, it would be the primary choice for physicians in the treatment of this disease. So, this is not a novel concept.
I think in the neuroscience community for last many years, there has been a goal to see whether you could decouple olanzapine’s efficacy from its metabolic side effects. Because of our work in opioid modulation, we had a different approach to it, a different insight into how one might do that, and that’s led to this exciting work with 3831. We saw this first in the rodent, but then we moved quickly to the primate. And it’s very simple to test this in animals. You simply administer olanzapine or olanzapine in combination with our proprietary opioid modulator, which we call 3831. And we could see that we could attenuate the weight gain in these animals that were taking olanzapine.
So, before going public with this as a program, we were sufficiently skeptical that we said let’s take one more step and that has actually moved to a human proof-of-concept study. So, we have got these data in the fourth quarter of last year. This was a 106-patient study actually in healthy volunteers who are willing to take olanzapine at therapeutic doses for three-week period of time. And during that brief three-week period of time for people without psychosis, they reliably gain weight. So, it becomes a test system, a model system for looking at whether or not you can attenuate that weight gain with a test agent. And so we saw that daily oral ALKS 3831 attenuated the weight gain.
And I would point out that we really don’t look so much to the difference between those two bars quantitatively. 3.4 kilograms versus 2.5 kilograms has been indicative of the general potential on this drug. This is recall at three weeks only in normal volunteers gaining weight. We simply are recapitulating what we saw in the non-human primate that is the biological activity of attenuation of the weight gain through the application of ALKS 33 in the form of 3831. These are very exciting data. We’ll present them later in the spring hopefully at a scientific meeting, but this let us now to announce the existence of this program and our decision now to move into the population of interest which is patients with schizophrenia taking olanzapine. And of course, these patients don’t gain 3.4 kilograms in three weeks they can gain 34 pounds or 55 pounds very quickly. In fact, over a 50% of patients gain more than 7% of their body weight on olanzapine within the first year, and that can continue. So, this is something we are quite excited about. We’ll start that Phase 2 study in schizophrenia this year with data next year.
Move now to ALKS 9070 and the first point I like to make with ALKS 9070 is the name of it now that you will hear us refer to it as aripiprazole lauroxil. As we move into 2013, you will see us present a lot less about pharmacokinetic results and clinical trial designs. We are now preparing for the market for this drug. This drug, its generic name is aripiprazole lauroxil. It’s important to know, because we will be selling an aripiprazole product. This is based on aripiprazole the active (mode) is aripiprazole, but the molecule we have developed is a new chemical entity called aripiprazole lauroxil. It’s a pro-drug of aripiprazole designed specifically to be administered via injection into a muscle and released over a month period of time. This drug is currently in Phase 3. And this is a new picture you haven’t seen, but it’s – this is what it looks like as simple as that picture looks is probably the most important aspect of it. It’s a pre-filled syringe with a very stable suspension that is room temperature stable and ready for injection in the clinic. This is a key differentiating feature of this product.
More also, last week we announced the issuance of the new patent, which gives us protection into 2013 and beyond. So, this is a very, very stable platform for us to think about building our next commercial product around. The Phase 3 registration study is underway. It’s a 690-patient study. It’s being conducted in eight countries in over 80 sites. And we expect data from that study at the end of this calendar year. This drug was designed to be the best-in-class, because of two attributes. Number one, what I just talked about that, product presentation, its storage, and its handling. The second is the range of doses we expect to be able to cover, meaning that for patients on oral aripiprazole, we expect to have injectable depot doses that cover any of those doses, which gives the physician flexibility in administrating and choosing our product over competitive products. The commercial plan is for us to launch this drug ourselves in the U.S. It’s a very specialty type of launch in the U.S. OUS, we expect to partner.
So, new data, new cut of these data, this is such a interesting market worldwide, it’s a $24 billion worldwide market even with the generic entry of new generics for both ZYPREXA and risperidone. The green wedge, which a couple of years ago if you saw this presentation, would have been very small, has now become a significant piece of this. This is our wedge, RISPERDAL CONSTA, INVEGA SUSTENNA, the $2 billion franchise. The ABILIFY franchise is a $7 billion wedge of the pie, which is obviously why we are going after it without currently an injectable SUSTENNA release formulation available.
So, to orient you with how we are going to think about this commercially in the U.S., the green dot at the bottom of this figure, I hope you can see it from the back, that green circle was scaled to represent 88,000 patients currently in injectable medicine in INVEGA SUSTENNA or RISPERDAL CONSTA. 88,000 patients driving about a $900 million market in the U.S. So, the quadrants represent how we are going to approach the market. The Y axis being easiness of the conversion, how easy will it be to convert these patients to a long-acting injectable form, and the X axis almost time, what we’ll do first and what we’ll do later.
So, obviously, the low-hanging fruit is to go after the several hundred thousand patients that are currently on oral aripiprazole. They are taking oral aripiprazole. We know their dose. We know that there is a logic for long-acting injectable antipsychotic in this patient population and they are an easy target to go after. On top of that is the almost 2 million patients on any oral antipsychotic, because the data are increasingly becoming clear and as we and others come into the market, there is more and more education around this that long-acting injectables are the appropriate medication for many of these patients, if not most of these patients with schizophrenia.
And what’s interesting about ABILIFY, aripiprazole is its use in bipolar disease. There is a large number of over 500,000 patients on aripiprazole for bipolar and a lot of patients taking these drugs for bipolar generally. So, over time, we see the use of long-acting injectables, not in all bipolar patients, but for those for whom compliance is an issue, it’s a really attractive alternative.
And I’ll finish with the section by just showing you what’s driving it I think the growth in the markets in the U.S. and outside the U.S. and it’s gone beyond now the benefits to patients and it’s now about the benefits to payers. And you see data now, this is data actually presented by Otsuka based on data for managed care on our products that shows that the use of injectable antipsychotics is actually cost savings in the managed care setting. So, the conclusion says in managed care, switching patients to depot antipsychotic agents to manage schizophrenia is less costly overall than the management of newly diagnosed schizophrenia patients with oral agents. Despite the fact the oral agents now are generic and inexpensive, because the cost is measured in terms of re-hospitalization and disease progression in a chronic disease over time. So, it stands to reason if we can treat patients upfront with more efficacious medicine in this chronic disease has the potential to save a lot of money and the area under that curve can get very significant over time.
I will talk now about 5461. 5461 is our drug for treatment-resistant depression. Again, hinges on our experience in opioid biology and opioid receptor modulation, in this case, we, at this meeting last year, we showed you very exciting data from our first clinical trial in 32 patients showing a remarkable ability in treatment-resistant patients to improve their depression scores. And what we said is that we’ll spend 2012 enrolling 130 patients in the confirmatory Phase 2b study. That study has now been fully enrolled. So, we are on track for data from this study in the second quarter of this year. This we think is a really important milestone in the development of this product. This is based on a literature and a clinical experience with the use of opioids in treating depression, and the question we are asking is can we decouple the addictive properties of an opioid from the anti-depressive properties in an opioid. And so far, in the animals, in our early human work, that appears to be the case.
This is the land of the giants. This is a huge opportunity, because of the large numbers. I showed you a figure with 88,000 patients driving a $900 million market. The units for people being treated with major depressive disorder in the U.S. are measured in tens of millions. 10 million people received treatment for depression in the U.S. But what’s interesting is it 63%, 6.2 million require a second medication, and even on top of that, another 4 million require a third medication.
And as you start moving down this cascade, the treatment alternatives are very, very limited. Most of these drugs are based on serotonin and norepinephrine approaches. So, there is a real demand for alternative mechanistic approaches for treating this disease with safe well-tolerated oral medicines. This is the big opportunity for 5461. So, as we roll into this year and we begin to analyze that data, we’ll get a very strong sense of how this drug is going to be positioned if it’s going to be successful.
I will finish with one slide or two slides on VIVITROL. VIVITROL is at a very interesting moment in its life. This is a snap of the cover of the patient brochure asking are you ready to move forward? And you can almost ask that question generally for the field. This has been a field that’s been dominated by treatment with drugs like methadone and Suboxone, which are addictive drugs that maintain patient’s dependence on opioids. VIVITROL was a one-of-a-kind product, an antagonist, once-a-month injection that allows people to be drug-free.
So, what’s really happening is, last year at this time, there were about seven states that were investigating the use of VIVITROL in the criminal justice system in pilot programs. Today, there are 21 states that are doing them, and much of this is spontaneous being driven by the states themselves. And four of these programs kind of give a sense of the flavor of that both in Massachusetts and in Missouri. The drug is being used in what’s called a reentry. So, patients leaving incarceration, being able to get out of prison, if they go on VIVITROL and go into parole, why? Because if you are on VIVITROL, you can’t reestablish physical dependence on an opioid, so it’s consistent with this idea of getting people out of expensive prisons back into the community on parole and probation with a safety net on board in the form of VIVITROL.
In Missouri, it’s being driven by judges in drug courts, keeping people out of incarceration by people’s willingness to go on VIVITROL and counseling rather than go to prison. And in California, because there is a statewide problem of initiative to close state-funded prisons and push patients back into the community, these nonviolent offenders, a number of programs, in fact 12 different counties are working with programs on VIVITROL to think about how VIVITROL can be used in that setting. It’s quite remarkable.
So, I will finish with the milestones for the year. I won’t read them all. They have kind of flowed directly from the conversation we have been having, but I’ll point out a couple of them. I think on the commercial portfolio I think it’s very interesting to watch what AstraZeneca and Bristol-Myers begin to do as they rollout BYDUREON worldwide and as we bring online extensions of the product.
On the development portfolio, we have incredibly important data on 5461 in that 132-patient study that I have just mentioned, and of course at the end of the year, the Phase 3 data for aripiprazole lauroxil. Financially, we raised our guidance twice this year. We want to meet those financial goals for our 03/31 year end, then guide for an exciting year in fiscal ‘14. I am out of time. Well, thank you very much.
[No Q&A session for this event]
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