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Alkermes, Inc. (NASDAQ:ALKS)

Q3 2009 Earnings Call Transcript

February 05, 2009 at 4:30 pm ET

Executives

James Frates - Chief Financial Officer, Senior Vice President and Treasurer

David Broecker - President and Chief Executive Officer

Richard Pops - Chairman

Rebecca Peterson - Vice President, Corporate Communications

Analysts

Cory Kasimov - JPMorgan

Dave Windley - Jeffries & Company

Gene Mack - Lazard Capital

Ian Sanderson - Cowen & Company

Robert Hazlett - BMO Capital Markets

Patti Banks - Pacific Growth

Operator

Ladies and gentlemen thank you for standing by. Welcome to the Alkermes conference call to discuss the Company's third quarter financial results for fiscal 2009. At this time, all participants are in a listen-only mode. There will be a question-and-answer session to follow. Please be advised that this call is being taped at Alkermes' request.

Now I would like to introduce your host for today's call, Ms. Rebecca Peterson, Vice President of Corporate Communications at Alkermes. Please go ahead.

Rebecca Peterson

Good afternoon, and welcome to the Alkermes conference call to discuss our financial results for the third quarter of fiscal 2009, which ended on December 31st, 2008. With me this afternoon are our CEO, David Broecker; our CFO, Jim Frates; and our Chairman Richard Pops.

Before we begin, let me remind you that during the call today, we will make forward-looking statements relating to among other things our expectations concerning the commercialization of RISPERDAL CONSTA and VIVITROL, our future financial and business performance, including our financial expectations for fiscal 2009 and our expectations concerning the therapeutic value and the continued development of our product candidates. Listeners are cautioned that these statements are neither promises nor guarantees, but are subject to risks and uncertainties that could cause our actual results to differ materially from the results contemplated by these forward-looking statements. You can find a list and a detailed description of these risks and other risks in our Annual Report on Form 10-K, filed on May 30th, 2008 and other periodic reports filed with the SEC under the Securities and Exchange Act of 1934 as amended. We undertake no obligation to update or revise the information provided on this call.

This afternoon, Jim Frates will discuss our third quarter financial results and our revised financial expectations for fiscal 2009, David Broecker will then provide an update on our business. After our remarks, we will open it up for Q&A. Now, I will turn over the call to Jim to review the financial results.

James Frates

Thanks, Rebecca. Good afternoon everyone. We reported a profitable quarter on a GAAP basis and entered calendar 2009 in a very strong financial position. Before discussing the details behind our financial results I want to take a moment to highlight RISPERDAL CONSTA, a key element of our strong financial foundation. This product is on track for another year of growth with worldwide sales in excess of $1 billion for fiscal 2009.

End market sales of RISPERDAL CONSTA by Johnson & Johnson for our third quarter were approximately $319 million. While this quarter was negatively impacted by foreign currency exchange rates RISPERDAL CONSTA continue to grow on a unit basis. As J&J stated on their recent earnings call “RISPERDAL CONSTA achieves its fourth quarter sales growth of 16.3% on an operational basis. The US sales growth was 8.3% while sales outside the United States were up 20.9% operationally with continued positive momentum and share.” RISPERDAL CONSTA has grown to become one of Johnson & Johnson’s key billion dollar brand and we believe that its profile will continue to drive growth and market share for the foreseeable future.

Beyond RISPERDAL CONSTA we are marketing VIVITROL in the United States with our own sales team and a disciplined commercial plan that we believe can grow sales. We also have a blockbuster opportunity with Exenatide Once Weekly and we are continuing to advance our pipeline of proprietary product candidates.

I will now turn to the most important element of our financial results for the third quarter of fiscal 2009. On a GAAP basis we achieved net income of $112.3 million or basic earnings per share of $1.18 and diluted earnings per share of $1.17. The GAAP net income includes a one-time recognition of $120.7 million in milestone and deferred revenue related to the Company’s previous agreements with Cephalon for VIVITROL.

On a pro forma basis we reported a net loss of $5 million or $0.05 for basic and diluted share. As you know, we view cash flow from operation as a key metric for our business performance. We generated $4 million in cash flow from operations during the third quarter and $43.2 million for the first 9 months of fiscal 2009. As we have stated all year, we expect to be cash flow positive on an operating basis each quarter this fiscal year.

For a full reconciliation of our pro forma net income to GAAP, as well as additional details on our third quarter results please see our press release issued earlier today.

Total revenues for the third quarter of fiscal 2009 were $155.7 million, compared to $50.8 million for the same period last year. The increase in revenues was driven mainly by higher net collaborative profit, as well as higher manufacturing and royalty revenues for RISPERDAL CONSTA. Manufacturing revenues for RISPERDAL CONSTA during the third quarter were $21.3 million, compared to $12.9 million last year. Manufacturing revenues for RISPERDAL CONSTA for the third quarter were within the $20 million to $24 million range that we provided on our last earnings call.

Royalty revenues for RISPERDAL CONSTA were $8 million for the third quarter of fiscal 2009 compared to $7.4 million for the same period last year. Royalty revenues last quarter were $8.4 million. Again on a unit basis RISPERDAL CONSTA grew quarter-to-quarter, but dollar sales were negatively impacted by currency exchange rates.

We were planning for a modestly negative impact of currency exchange rates going forward. Our exposure is buffered by our collaboration with Johnson & Johnson as we received an annual average currency exchange rate rather than the rate of any one particular quarter.

Turning to VIVITROL, Alkermes regained commercial rights in the product on December 1st, 2008. However, we did not record net product sales or associated cost of goods in the month of December. As we transitioned to selling VIVITROL independently and introduced a return policy, we are moving to sales-out revenue recognition policy as opposed to a sale-in policy. This means that instead of recognizing sales when we shipped product into the distribution channel we are going to recognize sales when products ships out of the distribution channel.

On the P&L in December we deferred revenue of $1.4 million in associated cost of $628,000. We planned to recognize net product sales with VIVITROL effective January 1st, 2009. Assuming a level of VIVITROL inventory in the distribution channel remains consistent, we do not expect this policy transition to have any further material impact on our P&L.

For your reference, gross sales for the entire third quarter would have been $4.7 million under the previous sales-in policy, compared to $5 million for the same period last year and $4.7 million for the second quarter of fiscal 2009.

Product losses related to VIVITROL for the quarter was $6.2 million which compares to $7 million for the same period last year. Of these net losses the collaboration incurred $3.9 million during the months of October and November and Alkermes incurred $2.3 million in the month of December.

Also in the month of December we recognized $1.2 million of the $11 million of deferred revenues that we received from Cephalon when the collaboration ended. We recognized the remainder of this deferred revenue overtime within the net collaborative profit line in an amount of 50% of the product losses each month.

In terms of our expenses for the third quarter of fiscal 2009, total operating expenses of $42.8 million compares to $53.1 million last year and we are in line with our expectations. We ended the quarter with over $423 million in cash and investments even as we continued our share repurchase program. During the quarter we repurchased 487,000 shares for $4.9 million.

I will now conclude with some comments on our financial expectations for fiscal 2009. With only a few months remaining we are refining these expectations. I will highlight for you now the line items that we are updating. You can look to our press release for a complete review of our expectations for the year.

We expect royalty revenues from RISPERDAL CONSTA to range from $33 million to $35 million revised from an earlier expectation of $34 million to $36 million to reflect the impact of currency fluctuations. We expect R&D revenues to range from $41 million to $45 million revised from an expectation of $45 million to $50 million primarily to reflect the early completion of work performed for the Exenatide Once Weekly program.

We expect net sales from VIVITROL to range from $4 million to $6 million revised from an expectation of $5 million to $8 million due to the deferral of revenue in December that I discussed earlier.

Going forward, we will be shifting from reporting gross sales to reporting net sales. However, for fiscal 2009 based on the previous collaboration revenue recognition policy we expect the gross sales of VIVITROL to remain in the range of $19 million to $24 million.

As a result of these adjustments we expect total revenues to range from $314 million to $338 million revised from an expectation of $320 million to $346 million. Note that we expect manufacturing revenues to remain in the range of $111 million to $122 million. For the fourth quarter, we expect manufacturing revenues for RISPERDAL CONSTA to range from $21 million to $30 million.

We are adjusting other income expense to a net expense of $3 million to $5 million revised from an expectation of zero based on certain noncash charges at lower interest income that we were anticipating.

With these adjustments we now expect GAAP net income to range $125 million to $132 million or basic earnings per share of $1.32 to $1.39 revised from an expectation of $134 million to $145 million or basic earnings per share of $1.41 to $1.53

To conclude, our business model is working and continues to generate cash from operation. We are well positioned to invest in our pipeline while focusing on long term profitability and growth. We have a number of important milestones to achieve in the coming months and I look forward to updating you on the progress throughout the year.

With that, I will turn the call over to David to provide an update on our products and programs.

David Broecker

Good afternoon everyone and thank you Jim for the financial update. Let me take a moment to provide my perspective on the year ahead for Alkermes. We expect calendar year 2009 to be a big and newsworthy year for the Company with progress across all stages of our portfolio. Alkermes is unique in that we have two commercial products and a blockbuster opportunity with the late stage product candidate. We believe this base business can drive earnings per share of $2 to $3 in 2013 and we are planning for growth in the years beyond by advancing our pipeline of proprietary product candidates. Importantly, we have the financial strength and discipline to execute on this business plan.

Now, I would like to begin my update with the foundation of our base business RISPERDAL CONSTA. This product is one of the biggest growth drivers within J&J’s pharmaceutical business and J&J continues to invest in the brand. In calendar year 2009, we anticipate an FDA response to J&J’s sNDA submissions for RISPERDAL CONSTA, one for use in frequently relapsing bipolar disorder and a second for the maintenance of bipolar one disorder.

Bipolar disorders have doubled in problems over the past decade with an estimated 27 million people worldwide suffering from some form of this disease. If approved, RISPERDAL CONSTA would be the first and only long acting treatment indicated for bipolar disorder.

Another noteworthy milestone will be the results from the Phase I clinical study of our four-week formulation of RISPERDAL CONSTA that J&J initiated in January. The study will assess the PK safety and tolerability of this four week formulation. We expect the study results to be available in the second half of calendar year 2009. We take a step back RISPERDAL CONSTA continues to be the only FDA approved long acting atypical antipsychotic. We believe this is because it is exceedingly difficult to formulate, develop, and manufacture long acting injectable medication and we are pleased to have achieved this successfully with multiple commercial products.

The scientific challenges we navigated in post development hurdles to potential entrance in this market. We believe that from a safety and efficacy standpoint, RISPERDAL CONSTA remains unrivalled. Recent data presented at the ACNP Meeting last December underscore our belief. For several years of patient, physician, and payer experience, as well as patent protection into 2020 and potential expansion in the new indications, we feel very confident about the future of this product.

Moving to VIVITROL, we are pleased to have regained full commercialization rights to this product in the US. Calendar year 2009 is the pivotal year for VIVITROL. We consider growing product sales to be the key metric for our success this year. We have a focused commercial plan to drive sales growth for the product and as Jim mentioned we are taking a disciplined financial approach to the program.

A fundamental aspect to this plan is to change the distribution network by contracting directly with specialty pharmacies in addition to national wholesalers to improve access for patient and physicians. Beyond working the gross sales in the US, we have another commercial opportunity for VIVITROL in Russia. We have been guiding toward a product launch by J&J in the first quarter of calendar year 2009. We have just heard that due to the decline in the Russian economy the launch will be delayed by a few months. J&J now plans to launch VIVITROL in Russia mid-year of calendar 2009.

In addition, the registration study for VIVITROL in opioid dependence continues to progress. These trial results will help to assess the clinical potential of VIVITROL in this new indication. Opioid dependence represents the significant growth opportunity because the market for medicine is already established. In calendar year 2008, US medication sales for opioid dependence exceeded $700 million. We look forward to reporting top line results from the registration study in the second half of calendar year 2009.

Turning to Exenatide Once Weekly, a very important year lies ahead for this program. I am pleased to announce that at the end of January, we completed the technology transfer to Amylin. This is the major milestone for the program and marks a transition in our role. We are proud to have applied our expertise in developing long acting medications, the development of Exenatide Once Weekly and it is exciting to see this product move closer towards NDA submission.

On their recent earnings call, Amylin reaffirmed that feedback from the FDA indicates that data from the expansion of the duration one study is appropriate as the basis for demonstrating comparability. Amylin expects results from this expansion by the end of the first quarter of calendar year 2009 and is on track to file the NDA by the end of the first half of calendar year 2009.

This year will also be significant for Exenatide Once Weekly in terms of further defining the product profile. As you know, marketing studies are underway designed to show superiority compared to other approved products. In the second quarter of calendar year 2009, Amylin expects to report data from duration two, a study comparing Exenatide Once Weekly to Actos and Januvia in more than 400 patients.

In the third quarter of this calendar year, Amylin expects study results from duration three, a study comparing Exenatide Once Weekly to Lantis in more than 400 patients. These data will help provide the required foundation to market, a blockbuster product competitively.

Beyond our base business, we are advancing the pipeline of proprietary product candidates. We put a great deal of thought in both of our R&D approach and the candidates we elect to bring forward. Our R&D teams have been working steadily to bring forward high value opportunities, while minimizing risks based on our experience with successful product development. We view our development portfolio as an important growth driver and plan to make advancements this calendar year.

We have stated that we would provide more visibility into our pipeline and it is time to do that. We are pleased to announce that we will host an R&D meeting for analysts and investors on Tuesday, April 7th this year, during which we will outline the scientific rationale behind our portfolio. We are looking forward to sharing additional details about our development opportunities during that meeting.

To conclude, 2009 is certain to be an important year for Alkermes with potential catalysts for each of our programs. Let me provide a brief review of the program milestones to be expected in the next few months.

Updates on the sNDA filings for RISPERDAL CONSTA, initiation of a Phase IIA study for ALKS 27 for the treatment of chronic obstructive pulmonary disease, data from the duration program for Exenatide Once Weekly, top line results from the Phase I study of ALKS 33, an oral opioid modulator with application in addiction and other CNS disorders, and finally, top line results from the PK study of ALKS 29, a potential treatment for alcohol dependence.

With that I will now turn the call back to Rebecca.

Rebecca Peterson

Thanks David. We will now open the line for your questions, operator?

Question-and-Answer Session

Operator

(Operators Instruction) Your first question comes from the line of Cory Kasimov of JPMorgan.

Cory Kasimov - JPMorgan

First on CONSTA, the once monthly program that has now been started, you said the data from that will be available in the second half of the year, do you know at this point if you are going to be permitted to publicly release this or J&J is going to keep a lid on it?

Rebecca Peterson

So, we are hopeful to be able to work with J&J and to be able to give you guys some top line data.

Cory Kasimov - JPMorgan

Okay. And then sticking with CONSTA for one question here, are there any patterns or trends in J&J’s product ordering that you could comment on or maybe even comment on the status of the third manufacturing suite that you have for CONSTA?

James Frates

Sure Cory. Hey, it is Jim. One of the things that we do see typically is that the third quarter, the December quarter is always a little lower than other quarters mostly because of the holidays. Since we are shipping a lot of CONSTA overseas because of customs they tend not to ship product in the last few weeks of December. So, we have always seen that in our fourth quarter. It has tended to be up which we guided a little bit too today.

In terms of the next manufacturing line, we will give more guidance on that when we update you for the year. We have done a very good job of becoming more efficient in the line and you can see that in their gross margins over the last few years. So, we used to say that we could make about $750 million to $800 million worth of CONSTA on each line and so next year will be interesting as we move forward to the next 12 months, but we will give you an update on that when we project CONSTA for the next 12 months in May.

Cory Kasimov - JPMorgan

Okay. That is helpful. And then one last question regarding LAR, just sort of a housekeeping question here, obviously, there is some controversy right now with Amylin and Carl Icahn making some noise over there. In the event that there is ever actually a change in control some time down the road, is there any impact on the contract that you have with Amylin and Lilly for supplying the Medisorb Technology for LAR?

David Broecker

The simple answer is no.

Rebecca Peterson

Operator, we will take the next question.

Operator

Your next question comes from the line of Dave Windley of Jeffries & Company.

Dave Windley - Jeffries & Company

Jim, I want to walk through this VIVITROL revenue recognition just to make sure I understand it. You said $4.7 million would have been basically gross revenue?

James Frates

Yes.

Dave Windley - Jeffries & Company

And $3.1 million were the October, November amount, so did that then get recognized or not?

James Frates

Yes. That got recognized, Dave through the VIVITROL business unit, as if nothing had changed with the partnership so half of that exposure came through net collaborative profit.

Dave Windley - Jeffries & Company

Okay. And then the 0.8 that you essentially unwound because you have got some amount in deferred, correct?

David Broecker

Yes. But that is separate from what was in deferred. That 0.8 that we unwound is essentially from manufacturing revenue that we already shipped for Cephalon so we obviously have recognized revenue on that but now with Cephalon we took over the inventory from Cephalon, we cannot recognize revenue on something twice. So, we have reversed it and now it sits in inventory on Alkermes and we will recognize that when it gets sold.

Dave Windley - Jeffries & Company

Okay. So, it is an inventory. It is not shipped to the channel again, yet?

James Frates

Correct. It is an inventory.

Dave Windley - Jeffries & Company

Okay. And then the amount that is in deferred, is it the 1.6?

James Frates

Yes.

Dave Windley - Jeffries & Company

And where is that?

James Frates

That sits at the wholesalers essentially, it is in the chain.

Dave Windley - Jeffries & Company

Sorry. Let me rephrase the question. Where is that on the balance sheet?

James Frates

It is in deferred revenue.

Dave Windley - Jeffries & Company

Okay. And that is treated as long term?

James Frates

No. It is short term. The long term deferred revenue we have is actually from milestone payments that we got from J&J in Russia that we are going to recognize over the life of that deal. So, that inventory essentially is sitting at deferred revenue. It is sitting in short term deferred revenue.

Dave Windley - Jeffries & Company

Okay. And just not to beat this up but on your abbreviated balance sheet in the press release is that in grouped in other?

James Frates

Let me just check. Yes, yes. Under current liabilities.

Dave Windley - Jeffries & Company

Okay thanks. One more question on R&D expense, so that is trending down somewhat, is R&D expense at this point pretty directly identifiable to the major projects that you are talking about or is there still an amount of, what I will call for lack of a better phrase, “exploratory projects” that you are not talking about publicly that some R&D expense is directed toward?

James Frates

I would say there is both. I mean I would say the majority of it is actually identified with the programs we are talking about. We still have a few other programs that have not progressed far enough that we are going to talk about them and then of course the different facilities that we have and operations that we have in R&D go in R&D as well.

Dave Windley - Jeffries & Company

Okay. So, a rough percentage of how much is going are stuff you have not talked about?

James Frates

I would say less than 15%.

Operator

Your next question comes from the line of Gene Mack of Lazard Capital.

Gene Mack - Lazard Capital

Just wondering if there is any update to your current thinking on leveraging the balance sheet for any end licensing opportunities to bring some later stage assets into the pipeline? Thanks.

David Broecker

Gene, good question. As we have outlined, we are focused on the EPS starting to $2 million to $3 million in 2013 and we feel at that base business at CONSTA and Exenatide Once Weekly as well as growing contributions from VIVITROL will get us there and right now our focus is really on advancing our internal pipeline of proprietary products. So, at the current moment we do not have any plans in terms of trying to leverage the balance sheet except through some of the share repurchase and retirement of our debt.

Operator

Your next question comes from the line of Ian Sanderson of Cowen & Company.

Ian Sanderson - Cowen & Company

The SG&A number there, it does appear to be given your guidance but now that you have the VIVITROL sales force internally, is the number that we saw in Q3 kind of a representative quarterly number?

James Frates

Good question Ian. I think that what is reflected is actually only one month of SG&A on Alkermes’ P&L and I would not say that is entirely representative because there are a lot of things happen in the third month of a quarter that do not happen straight through. So, if you look at our P&L going forward and our guidance for the full year and what we have done in the three quarters and you back it out Q4 if you do the math you would estimate it to be between $15 million and $20 million going forward. That is probably a good number for you to look at going forward. Net incrementally, the addition of the Cephalon force would add about $20 million of SG&A through the Alkermes SG&A line. It is not an annualized basis, right. The annual basis.

Ian Sanderson - Cowen & Company

And then for VIVITROL, for the opioid addiction indication, do you need two trials or just one trial for that?

David Broecker

Right now the conversations we have had with the FDA is one, so that is our operating assumption right now.

Ian Sanderson - Cowen & Company

And I have noticed you indicated that you are going to be recognizing some sort of computation from Cephalon to offset the losses. What is the breakeven plan or do you have a revised breakeven timing plan for the VIVITROL program?

James Frates

Yes. It is a good question. In our deal with Cephalon, they essentially have obligation for the next 12 months in marketing and so we received $11 million from them as their 50% share of the losses and as I mentioned we will be recognizing that as 50% of losses that we incur going forward, each quarter. We continue to spend roughly $10 million at the current run rate; of course we can adjust that as we go forward. We are going to be disciplined in that as we go forward and we are really working hard to get the sale on the top line to grow, obviously appropriately with some of the new programs that David mentioned to put into place.

Ian Sanderson - Cowen & Company

Okay. And then just one last balance sheet question, I noticed there is a shift of RISPERDAL CONSTA, a portion of the notes to the current portion. Are those notes retiring or is that a portion that is able to put to you?

James Frates

No. Good question. Thank you for bringing that up. They are now starting a payback schedule essentially I do not think it is correct to say that we are amortizing but essentially each quarter we have to pay down $8 million in principal for the next three years. So, that is why you see it moving to the current portion.

Operator

(Operators Instruction) Your next question comes from the line of Robert Hazlett of BMO Capital Markets.

Robert Hazlett - BMO Capital Markets

I was waiting for Ian to break out his flute. I am sorry. Just a drive at the $2 million to $3 million in the 2013, just a quick question, does that exclude compensation expense and then maybe more importantly, what are your assumptions regarding Exenatide LAR to get that $2 to $3? Thanks.

David Broecker

Sure Bert. No. It includes compensation expense actually. That is a noncash item. It even includes taxes if we are going to get down to the jot and fiddle of it. So, we think that the earnings are going to be driven by RISPERDAL CONSTA and continue growth in that franchise by the launch of LAR and also by a positive contribution of VIVITROL. It is also fully burned as we model out R&D on some of the development programs that we are moving forward. So, we are trying to look at this as a fulsome business fully taxed and from their respective assumptions on LAR that I think you can look at the street models, I think what is important to note, two things. One, the analysts who cover Lilly and Amylin have much higher expectations for LAR than the analysts that cover Alkermes just on average; and also the second thing is it is very important to note that really something that is going to drop completely at the bottom line as we get our roughly 7% royalty. We have no expenses associated with that going forward but those are the things that underlie the model.

Operator

(Operators Instruction) You have a follow up question from Dave Windley of Jeffries & Company.

Dave Windley - Jeffries & Company

I just wondered about your thoughts on pursuing the opioid and the alcohol dependence products in the pipeline. Does it depend on how VIVITROL progresses under your control in the commercial market?

David Broecker

Good question Dave. Whatever we do with VIVITROL is going to tell us what the market potential and opportunities are in this particular space but we also know that there is a profile for VIVITROL and there is a profile for the other drugs that we are working on and we see them as being complimentary in nature to one another.

So, this is a huge untapped market, high unmet medical need. We have talked a little bit about the alcohol market and some of the challenges that we face to penetrate that market, but the opioid market is a market driven by methadone and buprenorphine use and we believe that VIVITROL and some of these other products that we are working on have the potential to really complement what we are doing in this space.

James Frates

I would also add that we are going to have a lot more information as we go through the year. We are going to have our data from the opioid study. We are going to have data from the field as we implement the new programs that David mentioned on VIVITROL and alcohol dependence and we are going to have the launch of VIVITROL in Russia, as well as having Cephalon paying half the bill. So, I think we have setup this product quite well going into 2009.

Rebecca Peterson

Operator, are there any further questions?

Operator

Your next question comes from the line of Patti Banks - Pacific Growth.

Patti Banks - Pacific Growth

Just on the VIVITROL topic again, can you talk about now that you have full control, if there is a change in the marketing message there or is it more just going after the doctors that are there already, get them to write more and then also Jim, this is a question for you. On the R&D revenue on your collaborative arrangements, could you remind me what goes into that at this point? I think it is just under $4 million in the quarter. Is that a good run rate to use?

David Broecker

Patti, I will take the first question just about the overall sort of breadth of the commercial campaign. It starts with fixing the distribution channel. The way we look at it is like a kink in the hose and previously, product was distributed really only through national wholesalers and when you look at especially injectable like VIVITROL what is really required is contracting directly with specialty pharmacies, specialty distributors entering into contracts which provide deeper services types of programs that these people are experts in getting a product like VIVITROL to the doctors and so we are in the midst of trying to sign all those contracts. It is going to take us about a quarter to do that.

In addition to that, we are tweaking the message around VIVITROL slightly but there is no major overhaul of that and then we are trying to do some of the other programs in just beat to blocking and tackling types of things to get this product growing. It is not going to take much. We outlined that we are going to sell somewhere between $19 million to $24 million. Now, we are spending $10 million a quarter as Jim outlined so we believe that with the plan we have got and what we have learned working with Cephalon over the last two years that we know what we need to be able to get it going.

Patti Banks - Pacific Growth

Is the sales force the right size for this plan from what you have learnt?

David Broecker

Well we have actually in December when we brought and converted the sales force to be Alkermes sales force, we focused on the most productive territories so we actually took out about 5% of the reps so we got about 45 or 50 people in the field now so we have already done some optimization there but these people are really focused on the most productive account and growing sales within that group of physicians that are currently delivering the business.

James Frates

Yes, Patty in terms of the R&D revenue that is driven by four-week CONSTA, by LAR, although LAR is ramping down, four-week CONSTA is ramping up and some more work also on VIVITROL Russia. So that will ramp down slowly a little bit depending on what happens with the four-week program with CONSTA and potentially other partnerships that we may sign. As you know, we are looking for partnerships for ALKS 27. So, at this stage, we will update you for next year as we typically do in that.

Operator

I am not showing any further questions. Would you like to continue with any closing remarks?

Rebecca Peterson

Alright, just thank you to everyone for dialing in and Jim and I will be available after the call should you have any additional questions. Thanks so much. Have a good evening.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day.

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