Alkermes' CEO Presents at Morgan Stanley Healthcare Conference - (Transcript)

Sep. 9.13 | About: Alkermes plc (ALKS)

Alkermes, Inc. (NASDAQ:ALKS)

Morgan Stanley Healthcare Conference

September 09, 2013 15:15 PM ET

Executives

Richard Pops - Chairman and CEO

Analysts

David Friedman - Morgan Stanley & Co.

David Friedman - Morgan Stanley & Co.

We are getting started a few minutes late here, my apologies. I just need to refer you to disclaimers at www.morganstanley.com/researchdisclosures, and it’s my pleasure to welcome Richard Pops who is the Chairman and CEO of Alkermes.

Richard has been CEO since he joined the company over 20 years ago, and he led the recent successful merger with Elan Drug Technologies which closed in 2011 and clearly the value of that lower tax rate has been accentuated recently by recent transactions in the industry. Richard thanks for joining us today, maybe I could turn it over to you for a minute or two of opening remarks and then we will go into Q&A.

Richard Pops

Great, thank you David, and hi everybody. So, we had a full day of one-on-one’s today already, and it’s interesting to see the kind of recurring themes as we come Back to School in September. Alkermes is obviously a really vibrant story right now. The pipeline of the company is kind of at an unprecedented level of sophistication and breadth. We had an analyst day over the summer time in July where we introduced three new pipeline candidates, which brings it to six NCE molecules in our proprietary pipeline. They are advancing in the clinic, are into the clinic in short order, coupled with this kind of new development that just became clear with the sale of Elan over the summer where the Irishness or the benefits of being an Irish domicile company were actually quantified for the first time, not the first time but another time. So, we found ourselves to be at this really singular asset at this point in time, it’s a bona fide Irish domicile company with strong operations, if you have been to our place in Ireland, in Athlone, we have 300 employees, we make a lot of drugs, and have a long operating history there. So, it’s a true Irish company that’s enjoying the true Irish tax rate. It’s not a post office box in Dublin, it’s a real business. Number two, it’s a really strong pipeline company, and we think we have one of the most exciting company, most exciting CNS pipeline in the business. And then number three; that sits on top of a profitable $500 million top line company that is generating significant amounts of cash flow on patent protected products that are going to extend to 20s. So, we just think it’s an incredibly powerful platform from which to continue to build the business and say that the upside is from the time we did the EDT merger in 2011 would be that the pipeline has probably been faster and more productive than we would have modeled at the outset, and we find ourselves moving into this next 12 month cycle with the number of programs advancing, it’s really important meaningful readouts coming from new and even some of our more established programs. So, me with that as an entrée, I will turn it over to you Dave. Take it the way you want to go.

Question-and-Answer Session

David Friedman - Morgan Stanley & Co.

That’s great. Well maybe, we’ll just stay on the tax positioning to start with, and I know that you are not a tax expert, but maybe you could frame for the audience the opportunities that offers to your company and what specific or how specifically the Perrigo Elan transaction was structured and how investors should think about the optionality for Alkermes?

Richard Pops

Okay, the first principals, the Irish corporate tax rate 12.5%, and it can be lower depending on the types of royalties and other structures that one engineers, but first principal is, it is a 12.5% tax rates versus a 35% tax rate. That’s in and of itself when you run it through a model of the company that becomes a multi-billion dollar company that becomes hugely, hugely important over time. In order to enjoy that tax rate, you need to be a true Irish company, which I mentioned that we are, but your IP needs to be domiciled in Ireland. So, despite the fact that we are global in the sense that we do R&D in U.S. and we have operations and programs that are happening in countries around the world, the key thing is that the intellectual property at some point is transferred from the U.S. to Ireland in arms length transaction that can withstand scrutiny, and what that means practically is that at some point in the development program, you say this asset is going to be imported over to Ireland, third party does evaluation of it, there is a value that gets established for it, and essentially the Irish subsidiary buys it from the U.S. or the Irish company buys it from the U.S., and we use NOLs to shelter that transaction. If you do that early enough in development based on all the historical data and the probability of technical success and so on, those valuations are fairly, fairly modest generally for Phase 1 or pre-phase 1 assets. Once they are set up in Ireland and you run your business as an Irish company, those assets as they become commercialized, as you will enjoy the 12.5% tax rate forever.

It’s a mistake to assume that if you are Irish Company and you buy a U.S. company and it is a profitable company with products, immediately the tax rate arbitrages from 35% to 12.5%, that is not what happens, but it does give you a platform for everything in the future that you do to do under the Irish umbrella, (inaudible) of Irish company and thereby lower your tax rate.

There are companies that are pursuing kind of role of business models and there are companies like ours which are truly innovation driven, new product driven type companies. In those cases, the ability to domicile the IP of the breakthrough medicines in Ireland during their own process, that’s where we drive the biggest bang for our buck.

Now, if somebody were to acquire an Irish-based company, then their business plan becomes the (dominant) business plan. And the critical thing for in inversion, what happened in the Perrigo Elan situation is that the Irish company needs to end up with 20% of the equity at least, and it is really probably the most important threshold structuring component that allows for purchasing company to in verge into the Irish structure. And so, as you get bigger and our goal is to get bigger and bigger, the number of companies for whom that becomes logical and the universe changes over time. But for us, as where we are in our life right now, we’re so bullish on the value we’re going to create with these medicines and the pipeline that have come along so far that we’re really reluctant, we would be very disappointed in order, if the company would be principally as an [inversion] vehicle for somebody else, which is why we’re spending so much time right now educating people as to the value of the elements in our pipeline. We say now to our shareholders the only shares in our company, you have to understand really (which) you own now. For many years, we always aim to know Alkermes, we’ve always had a little bit more than we ever revealed because that's just the way we operate it. Now it’s very important that people understand what we’ve been public about it’s a potential value, and there are more things that are coming behind that, but for now, if we can get full evaluation for the six medicines that we have in development along with the base commercial business that we have, along with the value of the Irish entity, then I think we will start enjoying a more proper valuation for the company.

David Friedman - Morgan Stanley & Co.

That’s very helpful. And you had mentioned NOLs. Could you just remind us what the NOLs are in the U.S. and in Ireland and that type of thing?

Richard Pops

I could if I knew them, but Rebecca, well do you have any answer to that? (Inaudible) 100 million NOLs in the U.S. and 400 million manufacturing NOLs in Ireland. Got it, we got that on the webcast.

David Friedman - Morgan Stanley & Co.

Okay, that’s extremely helpful. And maybe we could just change gears to that pipeline, so 5461 has given a lot of excitement for treatment-resistant depression, could you speak to where things stand with respect to your FDA dialog, and how we should think about development going forward of that product?

Richard Pops

I will, and let me just for the folks who are recently arriving at the story. The spectrum of these molecules range from Aripiprazole Lauroxil, which is currently completing Phase III clinical trials which we expect to file an NDA on next year, long acting antipsychotic drug, 5461 which we’ll speak about in the second for treatment-resistant depression. This is an oral compound on the threshold of starting its pivotal clinical trial program, drug called 3831, which is an oral compound for schizophrenia. It is really an exciting molecule that could have very favorable metabolic profile with the efficacy of olanzapine, that’s in midst of a very broad Phase II program, and the three most recently introduced new entrants are a prodrug of monomethyl fumarate which will be competitors to Tecfidera with some design attributes at the offset we think will give us the ability to compete. A drug called 7106, which builds on our opioid modulating platform, which is a pain product with a completely different abuse viability and overdose viability, kind of a next generation vicodin if you will. And then a biologic, which is an immunomodulator for cancer and these later three are moving into the clinic in 2014 and 2015, so 5461 generating the most excitement recently because of very strong Phase II clinical trial results.

One of the things that we’ve learned to do at Alkermes over the years of experience is that we tend to run very powerful and informative Phase II programs and this was very much the case with 5461. This was a drug that showed a very channelizing positive result in a small probative Phase I/II type study and then we immediately start to replicate that in a larger well powered 142 patients randomized controlled study in treatment resistant depression. Those data were very positive, we presented at the scientific meetings and it’s generated a lot of attention. And I think the principal reason for its attention is that this is the first time we’ve been able to demonstrate that you could decouple the mood effect of an opioid from its addictive potential. There was a long literature on the use of opioids for the treatment depression but the limitation clinically was the risk of addicting somebody to the opioid. So 5461 blocked the addictive potential but maintains the mood of effecting potential there is pro-found result.

So we’ll meet with FDA in the next several weeks actually pre-Phase III meeting and we expect to update you all probably in our October earnings call on that. The basic architecture of the program that we’ll propose is quite straight forward, 3 Phase III studies in order to drive at least two-four submission. We will use that classic endpoint of an address as the endpoint and we’ll use some configuration of clinical study designs we’ll propose using SPCD some of it needs a bit more advanced design as well as traditional parallel study design and we’ll work out at that with that FDA. We’ve sent them in the briefing materials and we’ll work that out but we’re quite optimistic this is a now with the information we have from our Phase II program we understand how to power these studies and how to conduct them as well. So we expect to launch that program, the first of the Phase 3 studies right after the beginning of the (year).

David Friedman - Morgan Stanley & Co.

Got it. And then with respect to 3831 so the other sort of new news product of the first half of the year. Is it right to expect the next set of data out of that in early '15 is that the timing for 3831.

Richard Pops

I think that that's the guidance we gave, we started in July, a 400 patient study, again this concept of highly powered Phase II, the 400 patient study versus olanzapine as a single patient to compare the effects on weight gain in patients with schizophrenia. We guided but we really don’t have a sense of enrollment rate yet, so we set as a press holder let's look at early '15 for that and we'll update that as we get experience bringing sites up and running. There's a lot of interest in the community even since when we were last together, more people have been introduced to this concept and surprised to say there's a just a tremendous amount of interest in the idea of an olanzapine type drug with a favorable metabolic profile.

David Friedman - Morgan Stanley & Co.

And given how compelling these drugs can be to patients and payers and physicians of course, it would seem like it would make sense to pursue development globally. Can you just update us on discussions that you're having with potential partners and you know how you want to balance the opportunity to move forward globally but also at the same time retain as much in the way of rights globally?

Richard Pops

It's a great question and the responses is (inaudible) different development programs. 5461 is the most pressing in that regard, and we're actually, the design of the Phase III program at the outset was to satisfy U.S. regulatory requirements. That said, the European guidelines for treatment resistive depression have recently been updated and changed. So we'll be seeking scientific advice in Europe in this quarter, I believe is when that meeting is set and think about whether we can feather in a global component to the US registration study but the top priority is the U.S. for us.

David Friedman - Morgan Stanley & Co.

And in terms of how those guidelines changed, are you saying that that makes it potentially more favorable for the development program to go global?

Richard Pops

Correct, correct. There were some elements of the guidelines before that required head-to-head comparisons versus Katiopine for example to gain registration in the first instance and it just would have complicated the US registration program, but we need to go back and there's a (inaudible), relaxed a bit and we're going to go back and test that with regulators. Because I think it was truly a barrier to innovation in the EU, people are not really willing to develop the medications.

David Friedman - Morgan Stanley & Co.

And do you have to work that through a CRO ex-US or do you have the team in Europe to be able to have that dialogue with regulators.

Richard Pops

Definitely ourselves, the scientific dialogue we would do ourselves, executing the clinical program we would always use CROs along with our own people as well.

David Friedman - Morgan Stanley & Co.

Let me pause for a minute to see if there are questions from the audience. Yes, one right down here.

Unidentified analyst

Actually had a question about the base business, recently the FDA updated its guidelines on bioequivalence for Risperdal Consta. I was wondering if you could talk about the changes that were made and what your opinion is on whether or if we'll ever see generics.

Richard Pops

It's a great question and it's something that we've always been quite confident that plans would evolve appropriately for the benefit patients in this regard. The bioequivalence guidelines for those of you who aren’t familiar with them are fairly simplistic and designed originally with oral doses forms in mind, so the two key pharmacokinetic parameters for establishing bioequivalence of a dosage form are the area under the curve, that exposure over time and the maximum concentration that's achieved in the bloodstream which makes sense for an oral simple dosage form.

That said, by that rubric a curve that peaks very quickly and tails off is basically the same as one that's little bit more gradual and hits the same peak and tails off. Now if you blow that up and imagine the scene once every two weeks chronic therapy, that difference in wave form is incredibly important as you stack doses one after the other because essentially what you're trying to achieve is steady state concentration. So the patient doesn't experience fluctuations in their therapeutic concentrations in a very devastating disease. So the first generation of bioequivalence guidelines that came out for Risperdal Consta were of that simplistic first order notion.

The more and more recent ones correctly began to incorporate these more nuanced PK parameters that I think they just, I don't think about it in terms of whether it's harder or easier for a generic file, which is better for patients. We've always contended it'd be extremely difficult to make a substitutable product to Risperdal Consta. It's wave form of release is very non obvious, despite the fact that it's steady state it looks like a flat line; line a pump almost. Any single dose pharmacokinetic studies will show that when you inject Risperdal Consta, nothing comes out for two weeks and it releases for two weeks and then there's a tail beyond that. So to mimic that using technologies that don’t infringe our patterns, I think it’s going to be very difficult to do.

Unidentified Analyst

Right, just sticking with currently marketed products, can you just talk about the evolution of the VIVITROL, the removal of the black box warning and just how we should think about VIVITROL going forward?

Richard Pops

It’s quite remarkable that black box is removed from VIVITROL, what you think about it? There is not that many examples of black box about the black box has been removed from a product and the reason it was removed this because the science supports that it should be removed because its, actually this is a drug that keeps people and help them improve their drinking which is probably the principal risk factor for liver in the first place.

Unidentified Analyst

Sorry to interrupt, but I’m just curious, how it played out meaning is this something that you pursued with FDA or was this just a follow-up that the FDA had committed to when they originally approved the drug or how did it come to being that the FDA removed the block box?

Richard Pops

The VIVITROL is long-acting Naltrexone. Naltrexone in an oral agent has a black box for liver hepatic toxicity, which was driven by early clinical trials and very high doses in a different patient population. Clinically, clinicians never really believe that this was a drug that had any liver liability of any significance. When VIVITROL completed its fairly significant clinical program when we submitted the NDA originally, we proposed that the black box not be there. FDA is reluctant to remove black box as you know, but you will know if you really compare naltrexone black box with the VIVITROL black box, the VIVITROL black box actually in different language in it effectively.

Naltrexone has a warning for this but never been seen VIVITROL, but still be aware of it, and I think just in terms post-market following up FDA was actually interested in updating the labels that reflect the real clinical situation on the ground, which is much more important for people who are beginning to initiate on VIVITROL as not the black box for potential liver toxicity; it’s how do you transition somebody off Suboxone who is already on agonist, how do you get them off onto antagonist, what’s the risk of overdose of that if you’ve been on antagonist and you go back it. These are the real clinical issues. I think appropriately FDA kind of decided that that based on from data that that’s bit more they should be directing physicians too.

Unidentified Analyst

Got it, very helpful and maybe we could just go back to 9070 which you had mentioned, so obviously the timeline is consistent with what you had said previously with data coming later this year, filing next year, could you just frame for everyone how you see 9070 launching what type of resources you need, and how it will be competing with an entrenched company?

Richard Pops

We just to be clear on the timeline what we said was enrollment will complete this year, we will have data in the first half (inaudible) in 2014. The Otsuka underlying pattern on Abilify comes off in April 2015, so in no circumstances we’ve been in position to launch prior to that. We’re really excited about this market.

This market to us feels like despite the fact that CONSTA and SUSTENNA have been around for a number of years. They have been the only real entrants in the market for a decade. There are $2.5 billion franchise for J&J, it’s the second largest pharmaceutical franchise growing at double digits, yet for the first time we have multiple entrants coming into the field, educating doctors and payers as to the explicit benefit of long-acting injectable medication.

Otsuka and Lundbeck have launched the long-acting Abilify. They’ve launched in March, where big proponents of this, this is the first long acting form of a modern antipsychotic, is it Risperidone or its metabolite, so the Abilify is a major installed base of patients out there and for the first time a long acting is available.

The analogy we drew in July at the Analyst Day was as follows; CONSTA was the first long-acting atypical antipsychotic to Risperidone. It was the best drug in the world until SUSTENNA. SUSTENNA represented the generational advance of RISPERDAL CONSTA not because of the intrinsic activity of the antipsychotic molecule, but because it was a preferred dosage form for patients. It went from every two weeks to once a month. It went from being refrigerated and requiring reconstitution in a ready-to-use syringe, so it took the growth.

In a similar way, we see Abilify maintain it as the best Abilify product in the world right now until (NYSE:RS) come. Now that’s with the caveat that our study is successful and it meets the criteria that we’ve built into the program, but if it does what we have is a product that now and sort of being available only in a single dose, it will be available in the range of doses and instead of requiring reconstitution will be available in a ready-to-use refill syringe.

And so we believe that the class is going to grow, the multiple engines will drive more utilization and at the same time the promotional intensity around the oral is disappearing almost all the orals have come off patents and by the time we launch there’re probably one promoted oral product. So the educational intensity is going to shift to long-acting injectables and we think (RS) is going to be very well positioned.

Unidentified Analyst

Great and then with respect to other news flow and pipeline updates to watch over the next year, can you just focus us on what you’re most focused on?

Richard Pops

So with six products advancing now, there is a lot of news all the time and that what’s exciting about it. And we think about the portfolio in many ways and I’ve always tell you all I think about the portfolio in many ways I tell you always tell you to think about the portfolio, the portfolio the essential pre-requisite of each member of the portfolio has that high value on its own and high scientific standards, a very strong foundation data, a logic to it, and so on and so forth.

But the co-variance between programs is quite limited, and so if they are all good inherently in a risky business as you increase end and the co-variances on the probability of ultimate success for outcome gets to be quite high. And in the business where single products and GAAP valuations are very meaningful ways, that's the challenge we have had with this company for the last several years, we knew we wanted to get to this place, whether it was due to the productivity of our own portfolio or through licensing acquisitions but our job is explicitly is to build a portfolio that looks like the one this one looks like.

The six medicines I mentioned to you, so starting at the top Aripiprazole Lauroxil, we'll complete enrollment, we'll announce that, we'll get top line data we'll announce that, we'll file the MDA, it's all going to happen within the next 12 months or so.

54-61, we'll meet with FDA, we'll update you on the design in that program and we'll launch the pivotal program in the beginning of '15. 38-31 we were enrolling. (Inaudible) The 38-31 the oral antipsychotic we're rolling 400 patient, we'll start to do diagnosis study in patients with comorbid substance abuse of schizophrenia following a meeting with FDA we'll start that in 2014. And another really important attribute of this product. For the two of the new ones, the MMF prodrug and 7106 for pain, '14 will be a very big year for those.

We'll put those into the clinic in '14, and we'll drive very, very informative datasets in the first clinical study in the pain programs and the MMF prodrug as well. And our biologics, we're doing all the enabling IND work now and we'll hopefully file that IND towards the end of 2014 as well.

David Friedman - Morgan Stanley & Co.

I think we're out of time. Thanks so much for sharing all your perspectives much appreciated and thanks everybody for joining.

Richard Pops

Thank you.

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