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Alkermes Inc., (NASDAQ:ALKS)

Q1 2011 Earnings Call

August 5, 2010 04:30 pm ET

Executives

Richard F. Pops - Chairman, President and Chief Executive Officer

James M. Frates - Chief Financial Officer

Rebecca Peterson - Vice President of Corporate Communications

Analysts

Mario Corso – Caris & Co.

Steve Byrne - Banc of America/Meryl Lynch

Tom Russo - Baird

Dave Windley - Jeffries

Steve Yoo - Leerink Swann

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Alkermes Conference Call to discuss the company’s first quarter fiscal 2011 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'd 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 first quarter of fiscal 2011 which ended on June 30th, 2010. With me this afternoon are Richard Pops, Chairman, President and CEO of Alkermes and Jim Frates, our CFO.

Before we begin today, let me remind you that we will make forward-looking statements relating to among other things our expectations concerning the commercialization of Risperdal Consta, Vivitrol and Bydureon; our future financial expectations and business performance, our expectations concerning the future of business development transactions and our expectations concerning the therapeutic value and 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 affect our actual results to different 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 on our annual report on Form 10-K, and our quarterly report on Form 10-Q, as well as in 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 in this call. This afternoon, Jim Frates will discuss our first quarter financial results, and Richard Pops will provide an update on the Company. After our remarks we’ll open up the calls for Q&A.

And now, I’d like to turn over the call to Jim.

James Frates

Thanks Rebecca, good afternoon everyone. As we begin fiscal year 2011, am happy to report another quarter right inline with our expectations. Risperdal Consta continues to achieve solid quarterly sales and is a blockbuster product that will remain a profitable source of revenue for Alkermes for years to come.

During the quarter, we recognized $35.2 million of manufacturing and royalty revenues from Consta. Vivitrol, in the alcohol dependence indication, achieved $6.2 million of net sales, our highest quarter to date in the fourth consecutive quarter growth.

To give you more details on this quarter’s financial, total revenues were $42.3 million, driven by manufacturing and royalty revenues from Risperdal Consta. Royalty revenues were based on $365 million in end-market sales. As Johnson and Johnson stated on its recent quarterly earnings call, Risperdal Consta achieved second quarter sales growth of 3.4% on an operational basis, this is driven by very strong growth in Asia.

Risperdal Consta continues be a blockbuster product, and is the only long acting atypical anti-psychotic, approved from both schizophrenia and bipolar 1 disorder in the United States. Risperdal Consta is the gold standard long-acting choice around the world choice around the world, and has span protection through 2020 in the United States and 2021 in the EU.

One quarter into the fiscal year, we continue to see strength in Risperdal Consta and we are reiterating our expectations for total revenues for Consta in the range of 135 to $147 million this year.

For our second quarter, we expect manufacturing revenues to be in the in the range of 25 to $30 million.

Turning to Bydureon, as you know, the FDA has assigned us PUDFA date of October 22, 2010; we expect Bydureon to provide a substantial revenue stream by Alkermes upon the launch of this product. Bydureon will be profitable to Alkermes from the first dollar of sales, and we have a significant stake in the profits.

Our agreement with Amylin includes an 8% of royalty on the first 40 million units sold in a year, and a 5.5% royalty on units beyond 40 million. The next year we start over again at 8%. In addition Alkermes will receive a $7 million [indiscernible] payment upon the first commercial sale in the United States, and an additional $7 million upon the first commercial sale in the EU.

Turning to expenses, total operating expenses for the first quarter was $55.4 million, which included $4.5 million of charges for non-cash compensation. This is inline with our expectations and reduced from $57.5 million for the same period last year. Excluding non-cash compensation expense, we reported a pro forma net loss of approximately $9 million this quarter. On a GAAP basis, we reported a net loss of 13.4 million or a basic in diluted loss per share of $0.14.

A full reconciliation of our pro forma net loss to GAAP, as well as details of our quarterly revenues and expenses is available in the press release issued this afternoon on our website.

The company ended the quarter with cash and investments of nearly $329 million. This cash position coupled with strong recurring cash flows from Risperdal Consta will allow us to invest in our pipeline as we work towards our near term data milestones. That being said, we will continue to adhere to our disciplined expense management strategy as we lay the groundwork for our next stage of growth.

Subsequent to the end of the quarter, we repurchased the last of our Risperdal Consta notes, making Alkermes a debt-free company. This early redemption will result in a charge of $2.2 million in our second fiscal quarter, resulting from the write-off of the remaining deferred financing cost, and a slight premium that we paid on the redemption. This charge will be offset during the remainder of the fiscal year, as we will have no further interest or accretion expense on the notes. Net of this transaction, Alkermes has more than $282 million in cash and investments.

In conclusion, we are pleased with our financial performance this quarter; we are well positioned for the future with data expected on our pipeline and the potential for two product approvals in the coming months. That should provide significant operating leverage for the company going forward.

For more on those specifics, I’ll turn the call over to Rich.

Richard Pops

Great, thank you Jim. Good afternoon everybody, so given that it is August and we are fast approaching some really significant milestone, I’ll get right to the key updates since our last call.

You’ve heard me say before that fiscal 2011 will be a pivotal year for the company, with news flow unprecedented in our history. From where we are right now, we have a pretty clear path of what we think will be major developments in the fall. At the top of the list, of course, are our PUDFA dates in October, October 12 for Vivitrol opioid and October 22 for Bydureon.

Let’s start first about Bydureon, so we believe that Bydureon represents a new paradigm for the treatment of Type 2 diabetes, and is a major step forward for the GLP-1 class. It’s the first once-weekly product ever for the treatment of diabetes, and it exhibits benefits in terms of glucose control, weight loss, hypoglycemia and tolerability.

The advantages of Bydureon over earlier GLP-1 products, are made possible by our technology; our proprietary long-acting Medisorb technology. By applying Medisorb, Byetta becomes Bydureon and its clinical advantages become more pronounced. This is not theory, it is supported now by a wide range of data collected from the duration studies showing Bydureon’s safety and efficacy.

Bydureon and the GLP-1 class in general were the subject of a tremendous amount of interest and excitement in June at the American Diabetes Association’s annual meeting in Orlando. As you know, the ADA is the premier forum for thought leaders in the diabetes space, and this year’s meeting was very positive for Bydureon for two reasons. First, more new data was presented, adding to the significant data set already in existence and reinforcing the safety and efficacy profile of Bydureon, on its own and in comparison to other important diabetes medications.

Second, the competitive landscape continues to shift in favor of Bydureon, as earlier stage compounds progressed through more extensive clinical trials and failed to live up to either expectations or to the high standards set to date by Bydureon. When Bydureon is approved, Alkermes will profit from the first dollar of sales. We have a very favorable royalty structure on net sales of Bydureon around the world, as well as additional milestones for the first commercial sales in the US and in the EU.

The economic structure of this collaboration with Amylin puts us in the unique position of adding to our top line revenue upon the first dollar of sales, with no offsetting costs. That’s all I was going to say about Bydureon.

Turning now to the second PDUFA date in October, this is Vivitrol for opioid dependence. This application was given priority review status by FDA and has action date of October 12. Back in November, we announced the positive top line data and the results were conclusive; in May we presented the phase 3 data at the American Psychiatric Association’s annual meeting in New Orleans, and details were highlighted at the APA’s media briefing.

Subsequent to the APA, we learnt that the FDA has planned an advisory committee meeting to review the Vivitrol misindication, which is scheduled for September 16. We are looking forward to showcasing our phase 3 data in this high profile setting. We feel that the data package is strong and that Vivitrol offers patients a new, non-narcotic approach for opioid dependence treatment in a once monthly formulation.

The other interesting thing about opioid dependence is of course is that it’s an established medical market, the leading product in that market, Suboxone, has now crossed the billion dollar threshold with more than $275 million in worldwide sales in the second quarter of the calendar year.

I’m going to shift now to review some of the upcoming milestones to our other pipeline candidates. So I’ll remind you that we have more candidates now in our pipeline than ever before, and with this is the emerging story at Alkermes, we expect more progress across the entire portfolio over the coming year.

We are testing ALKS-33 in multiple indications including alcohol dependence, binge eating disorder and potentially other psychiatric conditions. Exploratory data on ALKS-33 in various indications will be presented as part of a symposium at the upcoming Neuroscience Conference in November. There will also be an interim analysis of the multi-centered phase 2 alcohol study by the end of the calendar year. We also expect data from the Phase 2 study in binge eating disorder in the first half of the calendar 2011.

For ALKS-37, in opioid induced constipation, we expect to report top line results from our multi-center Phase 2 study in the first quarter of calendar 2011. ALKS-9070 is the first candidate we are developing with our linker-X technology platform, 9070 is designed to be a once-monthly injectible extended release version of Aripiprazole, known commercially as Abilify.

We just filed the IND for ALKS-9070, and we plan to initiate a phase 1 clinical study by the end of the year, with top line data expected in the first half of calendar 2011. Each of these candidates stems from our proprietary platforms, they fit our models -- the products we are choosing to develop, and they’ll provide us with first answers in clinical trials in large markets. This is a very important part of our corporate strategy.

So putting our own perspective, Alkermes is in a unique position with the potential for two new drug approvals before the end of this year. We continue to report robust revenues for Risperdal Consta and increase in sales of Vivitrol in alcohol dependence.

We have a growing and advancing pipeline of candidates in big markets, with significant inflection points into the next 12 months as we continue to leverage these noble technology platforms.

So I’ll wrap it up and with that, I’ll turn the call back to Rebecca and we’ll do some questions.

Rebecca Peterson

Thanks Rich, operator we’ll now open it up for the Q&A.

Question-and-Answer session

Operator

Thank you, we will now begin the question-and-answer session. (Operator instructions).

Our first question is from Mario Corso from Caris & Company; please go ahead.

Mario Corso – Caris & Co.

Good afternoon, thanks for taking my question. I just wanted to ask a couple of questions on Vivitrol in the opioid indication, number one concerning the panel, obviously there’s a lot of reasons why the FDA can call a panel and certainly they can do it for rather benign reasons like just the fact that it’s a publicly important indication or a significant indication, but then there’s also issues or questions they may be looking for the panel to answer and I’m wondering what your thoughts are at this point on what the main thrust of the panel is.

And number two, maybe talk a little about competitive positioning; I would imagine this is certainly in the planning stages right now and you mentioned Suboxone and I guess they’re used a little bit differently, do you envision detoxification and tapering with Suboxone and that’s where Vivitrol then enters the picture, maybe just a little bit of thoughts on that. Thank you.

Richard Pops

Sure, Mario, it’s Rich. I’ll answer that for you. First on the panel as you know there’s a general trend towards more advisory committee meeting in general and -- so we actually welcome that, this is a comprehensive data set and we are looking forward to presenting it. We have not received, from the FDA, the questions yet which is also not unusual. They tend to occur fairly late. So we won't speculate as to what the questions will be that we will present the panel but we are preparing to present the efficacy and safety data and really argue strongly for the use of Vivitrol in this indication because I think the data is so clear.

On the second point, the competitive positioning is almost -- you don’t even -- almost think about it as a competitive positioning because, and we don’t really see ourselves positioning the product against Suboxone, Suboxone has done a wonderful thing in this patient population in that it has provided a real treatment alternative for patients and has begun a significant process of medicalizing and the use of medicines more broadly in the treatment of opioid dependence. What Vivitrol is, it is a complete different proposition because it allows patients to become opioid free, so a necessary prerequisite to using Vivitrol will be detoxification and transitioning from opioid physical dependence to being able to tolerate Vivitrol injections; first one and then every month thereafter. So I almost think of it as a new market that’s growing, more patients are being attracted to treatment.

In the old days, it was just methadone, Suboxone brought a lot more patients in the treatment and then ironically the methadone treatment numbers have gone up since Suboxone has been in the market, likewise with the presence now of a long-acting antagonist, which provides physicians with another treatment alternative for patients who have different treatment goals, so it’s far from a zero sum situation at this early stage.

Rebecca Peterson

Operator, we’ll take the next question.

Operator

Our next question comes from Steve Byrne from Banc of America/Meryl Lynch; please go ahead.

Steve Byrne - Banc of America/Meryl Lynch

Hi, regarding the Vivitrol adcom panel coming up, do you know whether the views of NIDA or the office of National Drug Control Policy are either going to be presented or solicited from FDA?

Rebecca Peterson

Steve, that’s a good question. So my understanding is that the FDA will probably consult NIDA, they won’t be an active part of the adcom itself. But clearly, NIDA provided early funding support for the development of Vivitrol and additional tools in the tool kit are certainly welcome and needed.

Richard Pops

As you know Steve, that would be a good thing because we think NIDA is a real strong supporter of this particular dosage form.

Steve Byrne - Banc of America/Meryl Lynch

Okay, and with respect to your sales of Vivitrol, are your –reps able to pick up at all whether or not any of the scripts that are being made out there are for off label use for opioids or do you think that it’s still predominantly for alcohol dependency?

Richard Pops

I talked to our commercial team about that today to get the answer to that question because I expected it and the answer was no, they don’t think so. Maybe it’s because our commercial team is so concentrated and focused on the alcohol docs that are writing Vivitrol, but we’re really not at this point.

Steve Byrne - Banc of America/Meryl Lynch

And then I just have one last one for you on the ALKS-9070, do you have any data, pharmacokinetic data on this to either animal models or humans to demonstrate the longevity of this product in the body?

Richard Pops

Absolutely, if you have any schizophrenic animal that you want treated, we have superb data and we’ve been working on this for quite some time. So this transition to humans is always a major step but we do so with a significant amount of preclinical data.

Steve Byrne - Banc of America/Meryl Lynch

And what can you tell me about it though?

Richard Pops

Basically, we are looking at a monthly regiment but as you know, this is one of our LinkeRx pro-drugs essentially. It’s a new chemical entity designed specifically for intra-muscular injection to serve as a depot without requiring polymers or microspheres. So essentially, it just releases slowly from the muscular compartment and metabolizes into Aripiprazole.

So the study will be super informative, because we look at kinetic levels both for the pro-drug and of the active moiety, and if the active moiety is within therapeutic concentration over a time period, it’s very easy to model steady state kinetics in the next steps of the clinical program because we know that Aripiprazole is a very effective atypical anti-psychotic.

Steve Byrne - Banc of America/Meryl Lynch

Okay, thank you.

Richard Pops

You’re welcome.

Rebecca Peterson

Thanks Steve, we’ll take the next question.

Operator

Our next question comes from Tom Russo from Baird; please go ahead

Tom Russo - Baird

Thanks for taking the question. Just wanted to check in the latest thinking and plans around adding reps for the Vivitrol opportunity, obviously the panel is important variable but I guess I just asked the question what is the latest thinking on the number and the timing to add to the sales force?

Richard Pops

It’s entirely consistent with where we’ve been all along which is we just added 10 and per our plan in the summertime and those folks will now represent the full cadre that will be onboard for the launch, which put the total commercial team around 60.

Tom Russo - Baird

Okay, and then, I wanted to ask maybe a more of philosophical or strategic question, totally understand the strategy for fiscal 2011 and probably little beyond that investing in the pipeline. And as we look further out for the last 5 years excluding 2009, the investment in R&D as a percent of sales has been roughly 50%, and am just wondering is there a point in time at which you would manage that to a lower percentage of sales and obviously it would depend on the success of the pipeline but, is there a point in time that you would manage that to a lower percentage of sales and if so how it would be?

Richard Pops

This is Rich, I’ll answer a bit of it of ask Jim for his comments, but the important thing to realize as we move into the next phase of growth for Alkermes is really driven by one’s expectations for the launch of Bydureon, because our sales line in (inaudible) is going to be growing significantly. I do not expect our R&D line to keep pace at 50% of our sales line and we think it’s going to ramp pretty significantly; so we actually have said all along, we feel that this pipeline and we’ll prove it in the next several months, and we’re all going to be skeptical until we see the data from this clinical trial. But we just believe that these platforms are very productive right now and will allow us to put not just product candidates into the clinic, but product candidates have a really interesting risk profile because they tend to be based on known pharmacology but with real value added through our chemistry, and through our technology. So we’ll put them in demand particularly those early clinical trials that don’t cost comparatively a whole lot of money, and then we’ll have assets that we will partner some we believe and we’ll continue to develop some.

But we have not historically been solving for R&D as a percentage of any number, it’s been pursuing the opportunity as aggressively as we can, Jim.

James Frates

Yeah, and I think Tom we’ve talked about this before as Rich mentioned, the two ways to change that are to spend less on R&D or to grow the top line and we as the management team, I think, when you said 4 of the last 5 years, I thought you were actually going to talk about our profits which we’ve been actually cash flow positive for 4 out of the last 5 years. So I think we’ve been pretty disciplined in how we spend and what we need to see is growth in Vivitrol and growth in Bydureon to be able to deliver that bottom line growth that we are striving for.

Tom Russo - Baird

Okay, thanks.

Rebecca Peterson

Thanks. Operator do we have any additional questions?

Operator

(Operator instructions). Our next question comes from Dave Windley from Jeffries; please go ahead.

Dave Windley - Jeffries

Hi, good afternoon, thanks for taking the questions. A couple small ones I guess, on Vivitrol but for the Russia opportunity, we haven’t really heard you call anything out on that, I wondered if there is anything to say? Any updates.

Rebecca Peterson

Dave, as you know that Vivitrol has partnered with J&J in Russia and approved for alcohol dependence, as the launch to date has been modest in the alcohol dependence arena although it’s our understanding that J&J plans to proceed the opioid dependence indication as well.

Dave Windley - Jeffries

Okay, and then the tail of the opportunity -- not to dog here but on Bydureon on this polymer supply, it looks like there is no margin on that in this quarter? Would you expect to have a positive margin on that?

James Frates

Yeah Dave, we will ultimately and I think that relates really to just manufacturing at low levels as we start here and as the product starts to sell, we’ll start to see some margin delivered there.

Dave Windley - Jeffries

Okay, Jim in our conference earlier in the summer you mentioned BD focus kind of having flipped from in-licensing to out-licensing, I wondered if you or Rich could provide some color on how you see that getting out, how are you thinking about out-licensing activities and when we should expect those to potentially be headlines.

Richard Pops

Hey Dave, it’s Rich, I think that we are in such a great position right now for a couple of reasons; number one, environmentally, we’ve never seen such strong demands from big form of…to fill pipeline. That’s well commented on and everybody knows that.

We don’t need pharmaceutical companies typically Biotech companies need pharmaceutical companies to partner in order to have the capital to advance the projects or to provide IP or manufacturing support or something, we don’t need any of that.

We’ve got the financial resources to drive these products in the clinic to the real value adding clinical data, and that’s kind of the point I was making earlier in my remarks, so we don’t really see partnering in anything until we get that data in hand, because we think the value changes dramatically, and we'll kind of rank order the opportunities based on the quality of the data coming and these really clinical trials and am speaking particularly about 33, 37, 9070, in particular which are the ones that are [indiscernible]

Dave Windley - Jeffries

Okay great, thanks and then last one; any update -- I believe you previously talked about 6931?

Rebecca Peterson

Yeah Dave, that’s in pre-clinical studies right now so stay tuned for further development on that.

Dave Windley - Jeffries

Okay, thank you

Rebecca Peterson

Thanks so much.

Operator

Our next question comes from Steve Yoo from Leerink Swann; please go ahead

Steve Yoo - Leerink Swann

Thanks for taking my question. I just had a quick question about OUS opportunities for opioid dependence, I thought I heard you mention that J&J will be pursuing the opioid dependence in Russia, so does that mean they are handling the European filing or what’s the situation there?

Richard Pops

The license for J&J for Vivitrol extends only to Russia and the CIF, so it’s very narrow because they have a strong commercial presence in those markets. OUS, exclusive of Russia, we’re having discussions now with potential partners on that.

Steve Yoo - Leerink Swann

And have you been in discussions with the EME to know whether your current trial is enough, or have they given you guidance for additional trials?

Richard Pops

Our judgment right now is very specific questions for each individual partnering with whom we might collaborate, so we are right now not independently pursuing an approval strategy separate from knowing what our commercial strategy would be.

Steve Yoo - Leerink Swann

So basically you are going to find a European partner before you file for opioid dependence, right?

Richard Pops

Yeah, nothing is casting stone on that but that’s how we’re operating right now.

Steve Yoo - Leerink Swann

Okay, thank you very much.

Richard Pops

You’re very welcome

Rebecca Peterson

Thanks Steve.

Operator

We have no further questions at this time.

Rebecca Peterson

Great, well thanks everyone for dialing in, it’s August so we’ll wrap this up quickly. If you have any additional questions, please don’t hesitate to call either Jim Frates or myself.

Have a good evening.

Operator

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating, you may now disconnect.

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