Alkermes plc
Q4 2016 Earnings Call Transcript

Published: 15 Feb 2017

[Operator:]

Good morning, and welcome to the Alkermes' Fourth Quarter and Year End 2016 Financial Results. My name is Brandon, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note, this conference is being recorded. And I will now turn it over to Sandra Coombs, Director of Investor Relations. Sandra, you may begin.

[Sandra Coombs:]

Thank you. Good morning, everyone. Welcome to the Alkermes Plc conference call to discuss our financial results for the quarter and year ended December 31, 2016. With me today, are Richard Pops, our CEO; and Jim Frates, is our CFO. Before we begin, I encourage, everyone, to go to the Investors section of alkermes.com to find our press release and related financial tables, issued this morning for full details of our commercial – for financial guidance for 2017 and a reconciliation of the GAAP to non-GAAP financial measures that we'll discuss today. In conjunction with our GAAP results, we believe the non-GAAP financial results better reflect or represent the ongoing economics of our business. Our discussions during this conference call will include forward-looking statements, which are based on our current expectations and beliefs. Actual results could differ materially from these forward-looking statements. Please see our press release issued today and our most recent Annual Report on Form 10-K, filed with the SEC for important risk factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation 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 Richard Pops will provide an update on the company. After our remarks, we'll open the call for Q&A. Now, I'll turn the call over to Jim.

[James M. Frates:]

Thanks, Sandy. Good morning, everyone. 2016, was an important year for our business. As it further revealed the opportunity we have in VIVITROL and ARISTADA, and as we executed on our objectives across the company. Our financial results for the fourth quarter and year ended December 2016 reflect the strength and breadth of the Alkermes business model and were characterized by continued robust revenue and prescription growth from our proprietary commercial products, as well as focused investments in our commercial infrastcture and our advancing late-stage pipeline of CNS medicines. I'll start with our key financial highlights

[Richard F. Pops:]

That's great. Thank you, Jim. Good morning, everybody. So we built Alkermes to thrive in a dynamic healthcare ecosystem that's increasingly focused on delivering value, and we're entering 2017 in a strong position for future growth. Our current base business is significant and growing into a $2 billion plus top-line into the 2020s, primarily driven by VIVITROL and ARISTADA, FDA-approved medicines already growing in the market with long patent protection ahead of them. We've also identified the drivers of our next stage of growth, with our late-stage pipeline of development candidates

[Sandra Coombs:]

Thanks, Richard. Brandon, we'll now open the call for questions, please.

[Operator:]

Thank you. We will now begin the question-and-answer session. From JPMorgan, we have Cory Kasimov. Please go ahead.

[Whitney G. Ijem:]

Hi, guys, good morning. This is actually Whitney on for Cory. The first question is on VIVITROL, and you talked about increasing the manufacturing capacity. Can you just remind us where you are now? I think it is somewhere around $700 million or $800 million. And then just talk about much you intend to add.

[James M. Frates:]

Yeah, absolutely, good morning Whitney, it's Jim. Yeah, I would say right now, we are in the $600 million range for VIVITROL capacity, we're well planned out to see growth through 2019. But as we look out beyond 2019 and start planning for VIVITROL potentially being a $1 billion plus product, we're actually talking about building capacity for $1 billion to $1.5 billion of sales at these prices and profitability levels. So you know we see that growth continuing in the future, as we said, and we're putting our money where our mouth is, as we plan for that growth of VIVITROL to continue.

[Whitney G. Ijem:]

Got it. And then, I guess, in light of the ALKS 6428 data that you've sort of touched on, and I understand the analysis is ongoing, but any more color you can give there on how you are thinking about the potential of that, as you think about outer year revenue potential, because I think you had previously talked about that product increasing the prescriber base, or potential prescriber base for VIVITROL. So, I guess, if that doesn't play out, would that change how you think about the outer year revenue potential?

[Richard F. Pops:]

I'll take that one, Whitney. It's interesting because on the face of it, you say that the study didn't meet its primary endpoint, that must be negative, but the whole purpose of ALKS 6428 is subservient to getting more doctors comfortable with initiating on VIVITROL. And what this particular study showed is that any of these protocols allowed patients to transition over to VIVITROL pretty easily. And that's a really good finding, so we'll publish these data, there's also been recent NIDA publication on this as well, showing transition from prescription opioids and heroin over to VIVITROL. So, like I said, I think that there's very much a place for ALKS 6428 as a dosing kit to provide those fractional doses of naltrexone. And we'll have to – we'll look at it more, but I think the encouraging thing is that – there, it's not so mysterious how to transition somebody from a physical dependence on opioid over to initiation with a long antagonist in an outpatient setting.

[Whitney G. Ijem:]

Great. Thanks for taking the questions.

[Richard F. Pops:]

You're welcome.

[Sandra Coombs:]

Thanks, Whitney.

[Operator:]

From Credit Suisse, we have Vamil Divan online, please go ahead. Vamil K. Divan - Credit Suisse Securities (USA) Yeah. Thanks for taking my question. Thanks for all the color on the pipeline. Just can you give a little bit more detail – you mentioned on ALKS 5461, you had this productive meeting and your plan is, obviously, to file later this year. Just maybe a little bit more detail on exactly how the discussions went, and how comfortable the FDA is with the overall profile, given the positive FORWARD-4, FORWARD-5, but then the negative results on some of the other studies? So, just more color there would be helpful. Thanks.

[Richard F. Pops:]

Sure. Good morning. Good morning, Vamil. Remember the purpose of this Type C meeting was focused on providing the analysis of FORWARD-5 and to pool the analysis of FORWARD-4 and FORWARD-5. So the purpose of the meeting wasn't to kind of go over the entire program, and we'll do that in the context of the review at the NDA. So the meeting as I said, was productive, we're quite clear that we're going to go ahead and file the NDA, and so we're on track. So, I think that that's the best summary of it I can give you. Vamil K. Divan - Credit Suisse Securities (USA) Okay. Thank you.

[Richard F. Pops:]

You're welcome.

[Operator:]

From Evercore ISI, we have Umer Raffat. Please go ahead.

[Umer Raffat:]

Hi, thank you for taking my questions. Richard, how do you think FDA looked at the pooled data you provided? And are they looking to see – did they request to see pooled data from all three phase 3s, or just the two SPCD trials? And then, separately, can you give us a bit more color, now that you're presumably finalizing the protocols for ALKS 8700, what the primary endpoint would be, when we should expect completion? And 400 patients – what does that represent in terms of powering on that primary endpoint?

[Richard F. Pops:]

Good morning, Umer. Yeah, I don't know if you heard the answer of the previous question, but I'll just make it clear. The Type C meeting that we just had with FDA was really focused on presenting the data for the most recently completed FORWARD study. So it wasn't a comprehensive analysis of the entire program, that'll happen in the context of the review of the NDA. So when we submit the NDA, we'll submit all of the studies, the 20 studies and that's the power of the dataset actually, is all the different studies and the way you can look at the – across the various studies, various designs, various stages, various doses that's the power of the submission. So this was a much more narrowly-focused conversation this week with FDA. On ALKS 8700, I know this is the study that's been near and dear to your heart. So yeah, I'll give you a little bit more on that. So this is really focused on teasing out the differences, specifically significant way on GI tolerability. We are using two different scales as the tool for doing so, one is called the individual gastrointestinal symptom and impact scale and focuses on five key symptoms of GI discomfort and they are nausea, vomiting, upper abdominal pain, lower abdominal pain and diarrhea. And there is a second scale, which is a global gastrointestinal symptom and impact scale. So we will launch into that study, I don't think we have a sense of completion, I don't know, Sandy, if we have given any guidance on when we intend to complete. But we will update as we start to enroll into that, but we're encouraged by the fact that the enrollment that we've seen in the safety study has been ahead of schedule and at the last censored data cut that I looked at, I think we had 435 patients in there and our GI rates were still really favorable. So we're excited to run this study and I'm glad it's underway or soon to be underway.

[Umer Raffat:]

Got it. Rich, just a quick follow-up. When I heard you on another broker conference in January, my recollection is you mentioned that the Type C meeting will be the more detailed meeting. And you want to do that because the pre-NDA meeting would be much more tight and there's a very specific 45 minutes of time, or very limited amount of time. But I feel like the way you described it today, it sounds like the Type C meeting was more narrow and then the next meeting will be a more detailed one. I just wanted to reconcile that.

[Richard F. Pops:]

Yeah. Let's clear that up, because I think you might be confusing two different things. So the Type C meeting that we had, we said it along, we had a Type C meeting in September 2016, where we reviewed FORWARD-3 and FORWARD-4, the data that's been presented at ASCP. With the completion of FORWARD-5, we schedule another Type C meeting focused on FORWARD-5 and the pooled analysis of FORWARD-5 and FORWARD-4, that was the scope of the meeting, that's why the Type C meeting. The pre-NDA meeting, you are right. The pre-NDA meeting is not a meeting to adjudicate all the data, it's really to focus on what's going to be into the NDA itself. So that meeting, we will go ahead and request now in the next couple of weeks and we expect to have that meeting in Q2. Then, we'll submit the NDA that has the data presented across the entire program in the format that FDA and we have decided the best presentation of the data. Because as you may remember, there's a lot of different studies, there's a lot of different ways of presenting the data statistically and we want to be – make sure that we're doing in such a way that's most easily interpreted by FDA. Does that make sense?

[Umer Raffat:]

Got it. Thank you very much.

[Richard F. Pops:]

You're welcome.

[Operator:]

From Citi, we have Liav Abraham. Please go ahead.

[Liav Abraham:]

Good morning. Rich, thanks for all the color on ALKS 5461. And apologies in advance for another question on this topic. But just following your Type C meeting with FDA, to what extent are you more or less comfortable than you were prior to the meeting that you don't need an additional study for the drug in order to – for a successful filing with the FDA at this point in time? And then, secondly, on ARISTADA you mentioned in your prepared remarks that you are entering the next phase of the commercial launch. I would appreciate a few more details on those and how you think this will inform the launch or revenue trajectory of the drug beyond 2017 as we think about our modeling in 2018 and 2019. Thank you.

[Richard F. Pops:]

Good. So I think the FDA meeting went as we would have predicted in the sense that, we presented the data that we wanted to present. We know that we're going to go ahead and file the NDA and the strength of the submission is in the totality of the data. And I think – so I don't think I feel anymore any less. I think we were in the same position than we were, when we finished the FORWARD program, where we've been really testing an agent really rigorously in multiple clinical trials in patients who are refractory to treatment with SSRIs and we're seeing consistent evidence of efficacy, as well as dose response and the impact of study design on outcome. So, to us, it all feels quite internally consistent. So we're looking forward to proceeding with the review. ARISTADA, it's just such an interesting market, because as we said in the beginning that, that first stage of the launch, which takes the better part of the first year, not more is gaining access onto the various formularies, the various plans, and completing whatever contracting necessary to establish access. As Jim said, I think most of contracting is done with a couple more to take effect in March, so we kind of roll into 2017 able to compete on the virtues of the product and having tested after the last year in the market, we know that those, those product virtues are evident to the market. As we get the approval of the two-month dose to the space between our product and other another products begin to widening, because it'll be the only two-month offering in the market, SUSTENNA has a three-month, but we actually like the two-month interval. And I think that the overall growth of the LAI market is so robust, that we expect to just continue to catch that wave and grow the product. So I think Jim said, we expect to be entering in the phase, where the sales start doubling. And we'll give you guidance along the way as we begin to extrapolate with more precision. But we're very optimistic about ARISTADA.

[Liav Abraham:]

Great, thank you.

[Richard F. Pops:]

You're welcome.

[Operator:]

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

[David R. Risinger:]

Yes. Thanks very much. Richard, I was hoping that you could talk about ALKS 3831 and provide an update on the time lines for key readouts over the next couple of years. Thank you.

[Richard F. Pops:]

Yeah. The two pivotal studies that are underway, the first one the efficacy study will readout at the end of the year, toward the end of the year, I'd say, Q4, is a good place to plan for that, at the efficacy comparison in acute schizophrenic patients, the weight gain study is enrolling strongly now and we expect to complete enrollment of that sometime this year with data in the first half of 2018, remember that's a six-month endpoint. So it takes some time to get the endpoint after we complete the enrollment. And those two studies comprise the filing package for ALKS 3831. Separately, we're fascinated by the – what we're learning pre-clinically in terms of the mechanism of action of, why are we getting less weight gain, and how it ties back to fundamental metabolic changes that are induced by olanzapine and attenuated by samidorphan. So that study in human volunteers is underway, it's an intense kind of translational study that we'll learn from, and we'll share those data with you mid-year or so.

[David R. Risinger:]

That's great. And just a quick follow-up on that, so could you just talk a little bit more about the weight gain assessment and how the endpoint is designed and that will be conducted?

[Richard F. Pops:]

Right. Recall that we ran a very large phase 2 program investigating weight gain head-to-head versus olanzapine, which is where we saw the very strikingly positive data that provides the foundation for our moving into phase 3. In that first study, in the phase 2 study, we looked at time points at both three months and six months, and we've kind of simplified the structure in this phase 3 study, so it's a six-month assessment, where we'll be looking both at the average or median weight change, as well as a categorical cut of patients who gained more than 10% of their body weight, both of which endpoints we looked at in phase 2, and both of which were quite significant. So, we're hoping that it'll just do again what it did the first time, because the sample size was large, and I think the effect that we saw was very clear, because we know the patients on olanzapine who continue to take olanzapine over six-month period, will gain weight quite reliably. The study features that the matter is really retention, you need to keep people in the study so they are able to keep gaining weight. Similarly, patients on ALKS 3831, we see that attenuation of that weight gain very fast and that the space between those curves, assuming retention continues to widen with time, and so we're hopeful that that's exactly what we'll see again.

[David R. Risinger:]

Great. Thanks again.

[Richard F. Pops:]

You're welcome.

[Operator:]

From Cowen, we have Chris Shibutani. Please go ahead.

[Santhosh Palani:]

Yeah, hi. This is Santhosh on for Chris. Just a couple of questions, so one on VIVITROL. Richard, you've always guided getting it faster from the payer mix as well as the growth in it, and also the co-providers. Is it possible for you to give us some color on any of those metrics? As well as all of (33

[Richard F. Pops:]

Good, I'll take the second one. Jim, you go ahead on the VIV.

[James M. Frates:]

Yeah. Hi Santhosh, how are you? So you know we think, we're in the same spot as we have been recently on VIVITROL which is, we're going to continue to see that, that sort of 60% plus percent unit growth that we've seen year-to-year. If you go back and look broadly 2016 over 2015, we saw a 66% growth in units and a 45% increase in net sales, you know again, as that mix shifts between Medicaid and commercial pay. And I think – and we're predicting for that same – basically that straight line to continue and, from a gross to net perspective, you know annually, our gross to net has turned out a little under 45% for the year. And we think that it'll continue to move up closer to 50% over time. We haven't picked the specific number of core providers, we have internal targets for that, we want to update you on that today, but you know, assuming that it's easy enough to look at growth in net sales. And so that $280 million to $300 million range, we feel comfortable with, and really straight line's the growth that we're seeing right now. But I'll remind you too that those numbers are still – we're still very concentrated right, at 2% or 3% market share for VIVITROL, we see a lot of upside, and we're also seeing continued growth in our larger states, well into the double-digit, some in the triple-digit growth in some of our key states. So we think that growth in VIVITROL is going to continue. I'll flip it to Rich for the...

[Richard F. Pops:]

So, on the IL products, the first clinical data of interest will be looking to see whether we have the differential expansion cell types compared to where you would have seen historically with IL-2, specifically we're looking for an increase in K cells and CD8+ cells without the corresponding increase in Tregs, so the immunological responses what we are looking for in this first cohort of patients starting from a very low dose, first biologic agent in man escalating gently until we see the immunological response. If we see that, that kind of proves the pharmacology in vivo and then we'll start thinking about okay, how do we start best thinking of utilizing this drug in combination with other agents because you're right, it will absolutely be used in combination with other agents. And we can envision a number of different potential collaborations to explore that.

[Santhosh Palani:]

Thank you. Thank you, guys.

[Richard F. Pops:]

You're welcome.

[Sandra Coombs:]

Great. We have time for one more question.

[Operator:]

And from Cantor Fitzgerald, we have Bill Tanner. Please go ahead.

[William Tanner:]

Thanks for taking the question. Rich, I had a couple of questions on ALKS 8700, you mentioned the bridging study to support the 505(b)(2) filing. Apologies if I missed it. What is the status of that just in terms of the data from it? And then I guess, more importantly, as you are looking at the commercial viability of the compound versus Tef (37

[Richard F. Pops:]

Hello, Bill. The requirement for the submission is the completion of the PK bridging studies and the two-year safety studies. And so the PK bridging study is necessary for registration we completed at the end of last year. So we kind of check that box and it's basically looking at similar MMF exposures to what people would see with TECFIDERA in various states. So that quite straight forward. The GI tolerability question is really interesting one, because it starts on the continuing with the question, if we had no differentiation is it possible to compete in that market with a similar product as one of only two competitors. We think the answer to that is yes. Our ambitions are greater than that, as you may know. We've seen in small head-to-head studies, superior GI profile to tech and in the large open-label study that we're running now we're seeing very low GI AE rates. So that's why we're running this head-to-head study that starts next month. And it's hard to say, we really want to see something that's clinically meaningfully different, right, statistically different, but practically not different, doesn't really help anybody. So we're really looking to see on those specific domains that patients tend to complain about, which are particularly the nausea, vomiting upper GI pain things like that, but that's where we like to see a really meaningful difference, but we'll wait till we see the dataset.

[William Tanner:]

But I mean I guess it's safe to say, obviously you do need to do the safety study, but the PK data, in your mind, would support the approval on a 505(b)(2), and then ultimately, if there is not a significant differentiation on the tolerability, it's not off the table that Alkermes might go ahead with a – I don't want to say a me too, but it could be something that is similar to TECFIDERA and could compete on various dimensions such as price or something like that.

[Richard F. Pops:]

Precisely, it's not as valuable product, if it doesn't separate on GI, but its value is significantly greater than zero.

[William Tanner:]

Right. Okay. Thanks very much.

[Richard F. Pops:]

$1 billion to $3 billion monopoly in the U.S. right now, so there is room to compete.

[William Tanner:]

Okay. Thanks very much.

[Richard F. Pops:]

You're welcome.

[Operator:]

Thank you. We'll now turn it back to Sandy Coombs for closing remarks.

[Sandra Coombs:]

Great. Thank you, everyone, for joining us on the call today. If you have any follow-up questions, please don't hesitate to reach out to us here at the company. Thank you.

[Operator:]

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for joining. You may now disconnect.