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Alkermes Plc (NASDAQ:ALKS)

F3Q2014 Earnings Conference Call

February 27, 2014 08:00 PM ET

Executives

Rebecca Peterson - SVP, Corporate Communications

Jim Frates - SVP and CFO

Richard Pops - President and CEO

Analysts

Michael Schmidt - Leerink Swann

Cory Kasimov - JP Morgan

Jonathan Eckard - Citi

Anant Padmanabhan - Cowen & Company

Terence Flynn - Goldman Sachs

Mario Corso - Mizuho USA

David Risinger - Morgan Stanley

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Alkermes PLC Conference Call to discuss the Company’s Quarter and Nine Month Period ended December 31, 2013 Financial Results. 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 recorded at Alkermes’ request.

At this time, I would like to introduce your host for today’s call, Ms. Rebecca Peterson, Senior Vice President of Corporate Communications at Alkermes. Please go ahead.

Rebecca Peterson

Thanks Brendon. Welcome to the Alkermes PLC conference call to discuss our financial results for the three month and nine month period ended December 31, 2013. With me today are Richard Pops, our CEO; Shane Cooke, our President; and Jim Frates, our CFO.

Before we begin today, let me remind you and encourage you to go to the Investor Relations section of alkermes.com to find the press release and related financial tables, including a reconciliation of the GAAP to non-GAAP financial measures that we’ll discuss today. We believe that the non-GAAP financial results better represent the ongoing economics of our business. We will also be making forward looking statements based on our current expectations relating to among other things, our expectations concerning the commercialization of RISPERDAL CONSTA, INVEGA SUSTENNA, AMPYRA/FAMPYRA, BYDUREON and VIVITROL, our future financial expectations and business performance, and our expectations concerning the our product’s therapeutic scope and value and clinical development.

These forward looking statements, which may be identified by such words as, well, believe and similar phrases are neither promises or guarantees and are subject to high degree of uncertainty and risk. Please see our press release issued today and our SEC filings for important risk factors that could cause our actual performance and results to differ materially from those projected or suggested in the forward-looking statements. We undertake no obligations to update or revise the information provided on this call as a result of new information or future results or developments. Today, Jim Frates will discuss our financial results and calendar 2014 guidance and then Richard Pops will provide a brief update on the Company. After our remarks, we’ll open up the call for Q&A.

Now I’d like to turn over the call to Jim.

Jim Frates

Thanks Rebecca. Good morning, everyone. We’re excited to be joining you from our headquarters in Dublin today with our results for the quarter and nine month periods ended 31, 2013, marking our transition to a December 31st fiscal year-end. We ended the period in a strong position and ahead of expectations. Today we’ll also provide our guidance for 2014.

Many of you are already modeling the Company on a calendar year basis in an anticipation of our change in fiscal year-end. So in addition to quarterly results, I’ll provide an overview of results for the full calendar year. For calendar year 2013, Alkermes generated record revenues of nearly $600 million, non-GAAP net income of $170 million and free cash flow of $143 million. These results were driven by the robust performance of our commercial portfolio, which is the financial engine that enables us to advance our late stage pipeline and to invest in preparations for the expected commercial launch of aripiprazole lauroxil. These initiatives represent important opportunities for value creation and growth for the Company.

Turning to the quarter ended December 31st, within our commercial portfolio, our long acting and typical franchise RISPERDAL CONSTA and INVEGA SUSTENNA continue to grow at double digit rates. Worldwide, end market sales for RISPERDAL CONSTA and INVEGA SUSTENNA during the quarter were approximately $671 million, compared to $586 million for the same period last year.

For the quarter, Alkermes recorded manufacturing and royalty revenues of $71.2 million for this product franchise, compared to$52.5 million for the same period last year. The steady growth of this franchise is impressive and as you know this will take on a new level of significance for us as we prepare to launch aripiprazole lauroxil.

For AMPYRA and FAMPYRA, our manufacturing and royalty revenues were $18.6 million for the quarter, based on worldwide end market net sales of approximately $102 million as reported by our partners Acorda and Biogen. VIVITROL had another strong quarter with record net sales of $20.6 million, compared to $15.9 million for the same period last year, an increase of approximately 30%.

For BYDUREON, Alkermes recorded royalty revenues of $7.7 million based on worldwide end market net sales of approximately $93 million, as reported by Bristol-Myers Squibb. Following the completion of the Bristol-Myers’ diabetes franchise sale to AstraZeneca earlier this month, AstraZeneca has taken full control of BYDUREON and we look forward to new momentum for this franchise.

Switching now to expenses, on the R&D front, we made enormous progress in 2013 in advancing our promising late stage pipeline with the completion of enrollment in the phase 3 aripiprazole lauroxil study, the completion of the ALKS 5461 phase 2 study last spring, the initiation of the ALKS 3831 phase 2 program and our work to ready a number of earlier stage candidates to enter the clinic.

Our SG&A expenses for the year reflected additional promotional activities for, VIVITROL consistent with its recent growth and the early preparations for the anticipated launch of aripiprazole lauroxil. In addition our bottom line GAAP results reflected a net tax benefit of $15.2 million recorded during the December quarter, related to the release of the valuation allowance against the majority of our deferred tax assets in the United States.

We entered 2014 in a very strong position, with more than $700 million in cash, a strong cash generating business, fueled by a diverse portfolio of long lived commercial products and an efficient corporate structure. We are well positioned to advance our promising pipeline and to take advantage of strategic opportunities.

The basic themes for 2014 are expectations for continued growth from our commercial products, increased investment in R&D and SG&A as we outlined last quarter, commensurate with the increased activity across the company and that we will continue to generate substantial cash flow.

Let me now provide some of the highlights of our financial expectations for calendar 2014. We expect total revenues to range from $580 to $610 million, with VIVITROL revenues expected to be in the range of $90 to $100 million, reflecting growth of approximately 25% to 40% for the brand compared to calendar 2013. We expect R&D expenses to be in the range of $45 million. This reflects the heightened level of activity with multiple clinical studies underway for our late stage development candidates, Aripiprazole lauroxil, ALKS 5461 and ALKS 3831. Additionally, a number of earlier stage candidates will enter the clinic in 2014.

We expect SG&A expenses to be in the range of a $190 million to $200 million. This increase is driven by increased promotional activity in support of VIVITROL, continued preparations of the anticipated launch aripiprazole lauroxil and an increase in our government policy initiatives.

Reflecting these investments, we expect non-GAAP net income for the year ending December 31, 2014 to be in the range of $65 million to $85 million, and non-GAAP diluted EPS to be in the range of $0.41 to $0.54. Finally we expect to generate free cash flow for the year, in the range of $30 million to $50 million.

In summary we’re pleased with our financial performance. With a wealth of promising clinical candidates and development 2014 is poised to be a year of unprecedented activity at Alkermes and we believe we can make these pipeline investments that will drive our future growth even as we generate substantial cash flow.

With that I’ll turn the call over to Richard.

Richard Pops

That’s great, Jim. Thank you. Good morning everyone. 2013 was an intense productive year and 2014 should be the same. As Jim just outlined, our diverse and growing commercial portfolio serves as a financial flywheel that generates the fund to advance the R&D pipeline. We’ve been advancing this pipeline for the last several years and it’s now borne fruit in the form of an advanced and promising set of pipeline candidates that reflect a sensitivity to the current environment and our strategy to develop important medicines in major markets.

We have a strong conviction that each of these medicines can make a tremendous difference to patients and will also be important to the healthcare system overall. This portfolio is comprised of medicines, primary focused on major CNS indication and each in its own right is a potential blockbuster. Entering 2014 we control what we believe to be one of the most exciting pipelines in the bio pharmaceutical industry.

I’ll start with aripiprazole lauroxil. This is a major opportunity, built on our experience with long acting injectable anti psychotics or LAIs. To put it into perspective, the atypical anti-psychotic market is a $20 billion market worldwide, and it’s the largest therapeutic class in the US. We see this market shifting away from the orals and toward LAIs, which we believe is going to have two important applications. One is that more LAIs are going to be used, based on the quality of the data supporting their use. The second is that they’re going to be used earlier in treatment.

Schizophrenia is a progressive disease, characterized by frequent relapses and a continuing decline in function. We believe the opportunity exists to use LAIs earlier in the disease progression to potentially preserve higher brain function in patients for a longer period of time. Aripiprazole lauroxil is designed for differentiation in this space. It will come in a pre-filled syringe for both deltoid and glutial administration. We’re testing multiple doses with a Phase 3 study nearing completion and data expected in the next few months.

In parallel, we’ve been preparing the new drug application, which we plan to submit in 2014 and we expect commercial launch in 2015. One month Aripiprazole lauroxil represents our first proprietary commercial entry into the LAI category. Our plan is to develop the most comprehensive suite of product offerings in the category for the benefit of patients, providers and payers. Just last month we announced the development of Aripiprazole lauroxil Two month, which we expect to be the first line extension of this product family.

The commercial opportunity for aripiprazole lauroxil is an important value driver for the company. We see our product as competitively positioned within a clinical landscape shifting in favor of LAIs. We are already actively preparing to execute a successful product launch in the U.S. Our plan is to launch Aripiprazole lauroxil with an Alkermes sales force, which will build and expand the commercial capabilities that we established for VIVITROL. We’re eagerly anticipating the Phase 3 data and we’re getting ready to enter this exciting market.

Turning to 5461 for major depressive disorder, this is a market characterized by multiple blockbusters that are household names Lexapro, Zoloft, Prozac, Paxil, all blockbusters with common mechanisms of action. The issue is that millions of patients do not receive adequate response from these therapies, even after second or third line treatment. So there is a real need for well tolerated oral medications with a new mechanism of action. Our development program is focused on these patients not getting adequate clinical response. There is a compelling clinical need as well as the compelling logic from a regulatory and a payer perspective. The ALKS 5461 phase II data that we presented last year demonstrated its efficacy through the classic depression endpoints, reduction in depression scores.

More recently we presented data on remission, specifically a 50% of patients treated with ALKS 5461 in stage II of the study had sufficiently low depression scores that they no longer qualify as depressed. This is a striking result and an example of the human aspect of the benefit that ALKS 5461 has the potential to offer. This quarter we will commence the Phase III program for ALKS 5461 which is composed of multiple studies, including three core efficacy studies utilizing design elements from the Phase II program that will enroll a total of 1500 patients. With fast track status from FDA in hand, we are moving very quickly on this clinical program and we couldn’t be more excited about the prospects for ALKS 5461.

Switching gears ALKS 3831 is our oral development candidate for schizophrenia. It starts with the pharmacology of olanzapine which is one of the most efficacious drugs for the treatment of schizophrenia. And ALKS 3831 builds on to it additional pharmacology to address two sub-populations of schizophrenia, patients who have significant weight gain on olanzapine and those with schizophrenia that is exacerbated by alcohol use. Our hypothesis is that what links these two patient population is a fundamental aberration in the reward system that is part of their disease pathology. While we refer to them as sub-populations and they are, these groups represent millions of patients with schizophrenia, who have real unmet medical needs.

So let’s start with our first group. A well-established olanzapine causes significant weight gain for many patients. In fact the olanzapine label states that two-thirds of patients gain at least 7% of their body weight within a year and that one-third of patients on olanzapine gained that twice that, resulting in major negative effect on the long-term health of these patients. We have already demonstrated that ALKS 3831 can attenuate the weight gain associated with olanzapine in animals and in human volunteers. Now we are running a large study to demonstrate with some patients with schizophrenia and we expect to complete the enrollment in the study this year.

What’s newer and I believe at the leading edge of the neuroscience is the linkage between mental illness and substance abuse. This concept is starting to become a bigger part of the dialogue. A very recent JAMA article outlined the odds of substance abuse was dramatically higher in patients with severe psychotic illnesses. ALKS 3831 is designed to address this notion that alcohol use is actually part of the disease for some patients with schizophrenia and when we treat schizophrenia without addressing the substance abuse, we're not adequately treating these patients. So we'll start a large well powered phase II study later this year that will give us a clear answer in this population of patients.

So, that’s the late stage pipeline. We also have a number of exciting candidates earlier in the development and 2014 is going to be a critical year for two of those ALKS 8700 and ALKS 7106. ALKS 8700 is a monumental fumarate prodrug for the treatment of multiple sclerosis, moving into the clinic this year. We are developing it as a product with differentiated tolerability and dosing as compared to TECFIDERA, the highly successful MMF prodrug marketed by Biogen. Successful as it is TECFIDERA is a first generation product in our estimation as it has significant tolerability issues. We believe that these tolerability issues result from the peak drug concentrations related to TECFIDERA's PK profile and its twice daily dosing regimen.

For ALKS 8700, we're thinking about twice daily dosing with attenuated peaks and once a day dosing, building on our expertise in developing prodrugs and our expertise in controlled release delivery. We will be filing the ALKS 8700 IND and beginning clinical trials with multiple formulations in mid-2014. Also importantly, last month we were granted our first notice of allowance for ALKS 8700 for a composition of matter patent was extended to 2033 validating the novelty of our approach. ALKS 7106 is also moving into the clinic this year. With ALKS 7106, we are addressing the major and increasingly self-evident public health need for opioid analgesics that are less susceptible to abuse.

The pain market is the world’s second largest therapeutic category. In the U.S. there were 230 million prescriptions for opioids written in 2013. In our view, this is a large and mature market but it’s unusual in that it’s ready for complete change. Our deep scientific knowhow of opioid modulators gives us the opportunity to develop novel pain products that have intrinsically different potential for abuse and liability. ALKS 7106 is a molecule that exemplifies this new paradigm. It's an opioid as potent as morphine in our inflammatory pain models, though with the ceiling effect on neurotransmitter release that limits its abuse potentially.

We’re planning to initiate the clinical program for ALKS 7106 this year testing its analgesic properties and exploring a range of doses to elaborate its safety profile. If ALKS 7106 meets our criteria, we will have a very important new medicine on our hands. 2014 is shaping up to be a pivotal year for the pipeline. We have an unprecedented number of programs underway. This year we’ll complete the Phase 3 study for aripiprazole lauroxil with data in the first half and the MDA filing shortly thereafter.

We will begin the comprehensive Phase 3 program for ALKS 5461, a major depressive disorder this quarter. We’ll begin the second Phase 2 study for ALKS 3831 in schizophrenia with alcohol use midyear and we’ll complete enrollment in the ALKS 3831 Phase 2 study in olanzapine weight gain by year end.

ALKS 8700 and ALKS 7106 would begin human testing in highly informative studies. It’s going to be incredibly active and an important year for the Company and we’re hard at work already. Speaking on behalf of the employees of the Company, I can say that we entered 2014 at full speed, absolutely committed to advancing what we believe is one of the most important CNS pipelines in the entire pharmaceutical industry.

With that I’ll turn the call back to Rebecca.

Rebecca Peterson

Thanks Richard. We’ll now open up the call for Q&A and take the first question.

Question-And-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And from Leerink Partners we have Michael Schmidt on the line. Please go ahead.

Michael Schmidt - Leerink Swann

I had two. Number one how do you think about the opportunity for aripiprazole lauroxil ex-U.S.? And what are your regulatory and commercial plans to capture that opportunity? And then the second question is regarding your strategy on business development. How willing are you to go after accretive deals, should you encounter opportunities in that regard? Thank you.

Richard Pops

Hey Michael it’s Rich. I’ll take both of those. Ex-U.S. we have seen opportunity for aripiprazole lauroxil absolutely. We’re right on the threshold of data from our Phase 3 program and with that data in hand we’ll be approaching the European regulators. On the business development side, we built this company through acquisition overtime. So we’re absolutely interested in building this business into the company. We think it’s going to be to continuing to do accretive and also scientifically advancing types of acquisitions. So I’ll leave it at that.

Michael Schmidt - Leerink Swann

And I guess commercially, how do you think about capturing the ex-U.S. opportunity? Are you looking to launch the product in certain countries you serve? Are you thinking about a global partner or regional partner? What is the strategy commercially?

Richard Pops

We’re evaluating a couple of different options in that regard. And from what you just said and some others as well, the commercial opportunity is a global one and what we think is going to happen is with approval in U.S. and a clear pathway for approvals outside the U.S. there will be multiple configurations of ways we can approach the market. The other piece of it is that we have another asset in schizophrenia, ALKS 3831 that we’re developing really meaningful data this year. And so the valuation changes as we consider whether we’re going to bring two parts to market in countries outside the U.S. as well. So it’s a dynamic situation for us now.

Rebecca Peterson

Thanks Michael, we’ll take the next question.

Operator

From JP Morgan we have Cory Kasimov online. Please go ahead.

Cory Kasimov - JP Morgan

First question for you is also on aripiprazole lauroxil. Are there specific lessons that you are learning or cues your taking from the launches of the initial long acting injectable products that are out there as you begin your commercial prep? And then I have a follow up.

Richard Pops

Cory it’s a great question. It’s really interesting to watch of course other LAIs launch as we speak. What’s interesting is that the launch of ABILIFY MAINTENA for example, is the number of new patients starting on ABILIFY MAINTENA who don’t come from oral aripiprazole starts. In other words they are coming from other oral compounds or other long acting injectables. That’s interesting and in fact it affects our planning for the launch because it opens up a larger population of patients to target at launch.

But I think in general it’s worth saying when I said in the earlier remarks; we think the LAI market itself is favorably impacted by more entrants coming in and with the diminishing of the promotion of the oral compounds. And we’re already seeing it because you saw in the quarter that RISPERDAL CONSTA grew. So in many ways as the tide comes in, all ships get lifted and more and more promotional attention in this space by multiple purveyors of good medicines here I think is going to have a very beneficial effect on the overall class.

Cory Kasimov - JP Morgan

And then my second question Rich is a little bit of a bigger picture question and I guess it piggybacks on the BD 1 as before. But what are your intentions now that you have $700 million of cash in the bank? Obviously BD can be a component of it. There is a lot of things you could do you with that money.

Richard Pops

Well first of all it’s amazing about Alkermes at this point that we’re advancing this pipeline in these five medicines. We’re hammering on it hard. We’re still generating significant amounts of cash and we have the strategic amount of cash as well that allows us to continue to build the business. So business development -- we do business development in two ways. On the out licensing side it’s all about over time realizing the full international global commercial potential of these medicines as they prove themselves to be valuable medicines and we’ll cross those bridges as we come to them on a product by product basis. On the inbound basis there is just an abundance of opportunity for us as we look at different technologies at different stages of development in the therapeutic areas of interest to us. So we’re active -- but we don’t have any urgency. We’re just looking for things that are correct.

Rebecca Peterson

We’ll take the next question.

Operator

From Citi, we have Jonathan Eckard online. Please go ahead.

Jonathan Eckard - Citi

So first on the long acting injectable market as a whole, specifically in the U.S. You’ve made the comments about the ties being lifted because of new people or more people are marketing it and less people marketing orals. Now how far can that go and what kind of I guess what legal or legislative aspects could actually carry it further? And maybe if you could detail some of the key ones that maybe up in discussion or even on the floor today that could have the biggest impact on these class of drugs? And then I have another question about the aripiprazole program.

Richard Pops

Certainly John, it’s Rich. So what’s the natural limit, is there is natural limit to the level of anti-long acting line of psychotics that could be used in schizophrenia. Well, we have the proof points in Australia and Spain and countries like that. We're approaching a third of the patients are on the long acting injectables. We can track that within the U.S. where it's in the low single digits because they’re potentially fold increases in the size of the market by increased utilizations.

Again we’re not promising and you’re seeing what could happen as the promotional power behind the oral brand dissipates and it’s replaced by the promotional power of the data that's supporting the use of long acting injectables, both from a patient perspective as well as the pharmakoeconomic benefits of using long acting injectables.

The point about the legal or the policy overlays is a really important one because I think that as the Affordable Care Act becomes law, is law, and becomes implemented, there is much more focus on how we’re going to bend the long term cost curve. And the way we bend the long term cost curve in the United States is by focusing on chronic disease. They cost a lot of money and schizophrenia is one of those. And data show that more strict adherence to antipsychotic regimens leads to better outcomes, economic and personal. So I think that we are -- as you know we’re organizing ourselves both independently and in coalition to drive more utilization of these types of medicines for patients you need.

Jonathan Eckard - Citi

Very good, and then ….

Rebecca Peterson

I think you had a follow up. Go ahead.

Jonathan Eckard - Citi

I guess, so the follow up is regarding the Phase 3 for aripiprazole lauroxil. Based on your interactions with the agency to date and you said you could probably start preparing some of the NDA or the DLA for this. What do we have to -- what do you really have to fold in. Is it really just a phase 3 -- once you get the Phase 3 data you package that in and then it's pretty much done. I’m just trying to understand how based on the interactions you’ve had to-date, all the other bioequivalents data and stuff like that, that’s pretty much all ready to go and you were just really waiting for the phase 3. Is that the last step?

Richard Pops

That’s right. If you think about and NDA it’s compose of certain number of modules and one of the modules, for example the CMC module and we can substantially complete the CMC module now because it has to do with manufacturing the product and we have a lot of experience in that type of submission. The clinical trial result, Phase 3 result is element in multiple modules. So once you get that study complete and we’ll report the top line results to you all but then we’ll prepare the final clinical study report itself, the formal completion of the overall study report which then gets inserted in the NDA and ripples through the narrative sections of the NDA in multiple places. So we’ll also interpose a meeting with FDA in there as well. We’ll have a pre-NDA meeting to make sure that all buckets are checked in terms of the NDA being acceptable and being able to meet its PDUFA date which will be a year from the time we submit.

Remember now this is an NDA because it’s a small molecule drug and we've run an efficacy program but we’re filing -- utilizing 505(b)(2) which allows us to reference a lot of existing safety and efficacy information about aripiprazole, and that’s why we are able to submit based on a single study which is the agreement we have with FDA at the outset.

Rebecca Peterson

All right. Thanks John. We’ll take the next question.

Operator

From Cowen & Company we have Anant Padmanabhan online. Please go ahead.

Anant Padmanabhan - Cowen & Company

I had a couple of question, first Rich on MMF for 8700, when is the earliest we can see the PK data? And could you just kind of help us think through the theoretical therapeutic differences versus TECFIDERA?

Richard Pops

We’ll get 87 to 100 in the clinic midyear. We will be running an open label study looking at multiple configurations of dose and formulation. We haven’t yet figured it exactly how we’re going to communicate that information to the street yet. We’ll be getting the data fairly real time. I’m hoping by the end of year, we’ll have a sense of how the drug is performing, but we’ll update you probably on the next call when we think we’ll have data in a form that we can top line to you all. And the potential therapeutic advantages are really driven by two things. One is the inherent properties of the prodrug compared to Tecfidera. We referred to Tecfidera as a prodrug of MMF and then kind of in a formal sense it really is because it metabolizes pre-systematically into MMF. And there is a certain inherent level of GI irritability associated with that molecule.

Number two is it’s twice a day dosing. So the extent have any intrinsic -- whatever intrinsic irritability are associated with molecule, we are subjecting GI mucosa to it a twice a day rather than once a day. So we’re working on, we’re working on above. We have a different molecular entity that metabolizes in MMF. And we also have formulation approaches that in addition to enteric [ph] coating also prolongs relief and extend absorptive area along the largest swaths of the GI tract. So there is a number of opportunities for improved benefit and that should be manifest in terms of its GI tolerability.

Anant Padmanabhan - Cowen & Company

And then could just give us on the base business, maybe Jim could you just give us a sense of your expectations for RISPERDAL CONSTA and INVEGA SUSTENNA, that franchise as well as the BYDUREON franchise and how that factors into the guidance?

Jim Frates

Sure. While we haven’t given specific guidance for each of those products, mainly because they’re marketed by our partners, both Johnson & Johnson and AstraZeneca, I think what we have said and are quite pleased to see that is our top five products are going to continue to grow at a double digit rate. They grew nicely last year. Those are going to be the key engines for us. And they’re approaching almost 80%. They’re getting in the high 70% of all of our revenues. So we see that growth continuing and that’s really the solid products. They’re all in patent for a long time and that’s going to provide that cash flow, that's allowing us to invest in our pipeline.

Operator

And from Goldman Sachs, we have Terence Flynn online. Please go ahead.

Terence Flynn - Goldman Sachs

First maybe just a follow-up for Jim. Surprised by the ramp in spend I guess on the SG&A side and I was wondering if you could help quantify for us how much of that is due to the 90-70 prep? And then is this level of both R&D and SG&A the new base for the Company going forward? And then one follow-up.

Jim Frates

I think the trend that you saw in 2013 is really related to two things. First, VIVITROL, and we talked about it last quarter. With the removal of the black box and actually investing in the momentum of its growth, that’s a profitable product for us now and we think actually it’s very smart to be continuing to invest into VIVITROL as we move forward because that’s going to help fuel and hopefully increase that growth. And that is as you know and as you mentioned we’re investing in the preparations for the launch of aripiprazole lauroxil.

I would say both of those things, along with -- you have to recognize too the rise in the stock price has caused us to be taking a much larger charge for noncash compensation in future year in 2014 going forward off a base assumption of the stock price around $53 a share that it was last year where the price was less than half. So those three things are contributing that increase in SG&A. But again I'd go back to as we continue to generate cash here, we think that’s the right kind of investment we want to make, both in VIVITROL and in preparation for aripiprazole lauroxil.

Rebecca Peterson

And you said you have a follow up?

Terence Flynn - Goldman Sachs

Sure. Just wondering on 90-70, so beyond just statistical significance on the primary endpoint, can you may be help characterize what you guys would see as a win and then, can you be more specific on the timing and data given we’re almost through the first quarter here?

Richard Pops

Terence, this is Rich. I would say that recognizing the active metabolite of this molecule with aripiprazole continues to be significant -- sufficient for us filing the NDA is all we need. We have other attributes that are kind of hardwired into the product in terms of its prefilled syringe, its ease of use, things like that. So we’re really just looking to get the ticket punched so we can get into this game, which looks like a market that really has favorable dynamics for us. And no I won’t give you more. We’ve said first half and we’ll stick with that and we’ll - as you know this is a big international study with a lot of data points and when the database is clean then we'll unwind and we’ll let you guys know right away.

Rebecca Peterson

Thanks very much. We’ll take the next question.

Operator

And from the Mizuho USA, we have Mario Corso online. Please go ahead.

Mario Corso - Mizuho USA

On the SG&A side of things, again kind of drilling down there a little bit. So we're talking $75 million $80 million increase in 2014. So, is there any granularity? Is half of that aripiprazole lauroxil? Is there any way to think about the breakdown between those components you referenced? And kind of the same for R&D. Is this 5461 presumably the bulk of the increase there and then finally just quickly on CONSTA, it looked like the shipments were a bit ahead of midway reported sales looked like and I know there is -- that will bounce around quarter-to-quarter but I’m wondering if you expect that to kind of reverse in the next quarter or not?

Jim Frates

Thanks, Larry, maybe I’ll go backwards because I think the simplest one is the time RISPERDAL CONSTA. That has been variable because we make a significant amount of money on the manufacturing but think again if you look over more than one quarter, it’s really quite in line with how the sales are doing.

I think it’s important to emphasize something Rich said too, which is RISPERDAL CONSTA sales are actually growing in the United States and we had our highest quarter in almost two years and I think that’s much attributed to more focus being placed on the long acting injectable market and I think that’s very important going forward and as you know INVEGA SUSTENNA there’s very nice growth across that whole franchise for us.

On the R&D side you’re absolutely right, the largest increase is in the 5461 area with the Phase 3 thankfully being accelerated because we had such positive data that came in, in April of this year. So we’re very pleased to be spending in that program and we think that’s going to be one that’s going to create a lot of value for us over time. And then on the SG&A side, I think actually we’re very close on. If you multiply our last quarter times four you get to about a $176 million. So I think you overemphasized the growth that’s coming in SG&A a little bit, and as I think as I tried to say with Terrence, there are three main issues and you can make your own conclusions but those three things being continued investment in VIVITROL, continued investment in preparation for aripiprazole lauroxil and the non-cash component that’s going to be increased about non cash compensations has given our stock price rise. So those are really the three components that are contributing to that rise in SG&A.

Rebecca Peterson

I think we have time for one more question.

Operator

From Morgan Stanley we have David Risinger online. Please go ahead.

Rebecca Peterson

David.

David Risinger - Morgan Stanley

First I was just hoping if you could provide a little bit more color on 9070 and your confidence, it would seem that it’s a no brainer that Phase 3 should succeed, given that the study is versus placebo, but anyway if you could provide a little bit more color on the clinical trial design and your level of confidence that would be helpful.

And then I was also hoping that you could provide some perspective on the investment spending trajectory into 2015 and obviously you haven’t provided any guidance beyond ’14 but just wondering how we should think about growth in investment spending beyond 2014.

Richard Pops

It’s Rich. Related to the 9070 confidence, these are always brainers okay. There are no no-brainers. That said, you’re exactly right, the pretest hypothesis is that aripiprazole is effective in treatment of schizophrenia and we’re delivering aripiprazole in therapeutic quantities in a continuous one month format versus placebo in acute patients in the hospital.

So added to that is the interim sample size readjustment or look that we did re-estimation last summer which told us that we had adequate powered to both doses by stopping enrollment at 540 versus the fully planned 690. So and then the third element is on a blinded basis when we review the data. The study seems to be performing as we would have anticipated or better in terms of retention rate, drop outs, changes in PAN scores, standard deviation, things like that.

So all systems go, and as I always say, that plus a positive result will be good. But we’re very pleased with the design, and pleased with the execution and it actually helped to develop a theme that you'll see repeating with 5461, which is, we will trade time for quality, because we believe these drugs really work. The secret in the CNS studies is to enroll the right patients at the right sites and be careful about doing it. So hopefully that will become manifest when we have the data.

David Risinger - Morgan Stanley

Right.

Rebecca Peterson

And then [indiscernible] questions?

Jim Frates

Sure, you know Dave. I think 2015 is going to be an extremely important year for us, especially as we go through 2014. We’ll have the expected launch of aripiprazole lauroxil in the latter half of the year, if all goes well. We’ll have the Phase 3 program for 5461 ongoing through the duration of the year and we’ll be working on the Phase 2 program for ALKS 3831 and you know through ’14 I think it’s really important with our five late stage drugs here, for all but 5461, we’re going to get important data here over the next 12 months in each of the four other programs. So with all those dynamics in play, it’s our objective to be cash flow positive. You know our underlying commercial business is doing very well and we’ll give you more specific guidance on 2015when we know more about how actually the different programs are playing out.

Rebecca Peterson

Excellent. Well thanks everyone for dialing in today. If you have any additional questions please don’t hesitate to give us a call here at the Company. Management is available. And have a great day.

Operator

Ladies and gentlemen, this concludes today’s conference. Thank you for joining. You may now disconnect.

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