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ALKS > SEC Filings for ALKS > Form 10-Q on 1-Nov-2012All Recent SEC Filings

Show all filings for ALKERMES PLC.

Form 10-Q for ALKERMES PLC.


1-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes beginning on page 3 of this Quarterly Report on Form 10-Q ("Form 10-Q"), and Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended March 31, 2012 (the "Annual Report"), which has been filed with the Securities and Exchange Commission ("SEC").

On September 16, 2011, the business of Alkermes, Inc. and the drug technologies business ("EDT") of Elan Corporation, plc ("Elan") were combined under Alkermes plc (this combination is referred to as the "Business Combination," the "acquisition of EDT" or the "EDT acquisition"). Use of the terms such as "us," "we," "our," "Alkermes" or the "Company" in this Form 10-Q is meant to refer to Alkermes plc and its consolidated subsidiaries, except where the context makes clear that the time period being referenced is prior to September 16, 2011, in which case such terms shall refer to Alkermes, Inc. and its consolidated subsidiaries. Prior to September 16, 2011, Alkermes, Inc. was an independent pharmaceutical company incorporated in the Commonwealth of Pennsylvania and traded on the NASDAQ Global Select Stock Market (the "NASDAQ") under the symbol "ALKS."

Alkermes plc is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to develop innovative medicines that improve patient outcomes. We have a diversified portfolio of more than 20 commercial drug products and a clinical pipeline of product candidates that address central nervous system ("CNS") disorders such as addiction, schizophrenia and depression. Headquartered in Dublin, Ireland, we have a research and development ("R&D") center in Waltham, Massachusetts; R&D and manufacturing facilities in Athlone, Ireland; and manufacturing facilities in Gainesville, Georgia and Wilmington, Ohio.

We leverage our formulation expertise and proprietary product platforms to develop, both with partners and on our own, innovative and competitively advantaged medications that can enhance patient outcomes in major therapeutic areas. We enter into select collaborations with pharmaceutical and biotechnology companies to develop significant new product candidates, based on existing drugs and incorporating our proprietary product platforms. In addition, we apply our innovative formulation expertise and drug development capabilities to create our own new, proprietary pharmaceutical products.

Forward-Looking Statements

This document contains and incorporates by reference "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. In some cases, these statements can be identified by the use of forward-looking terminology such as "may," "will," "could," "should," "would," "expect," "anticipate," "continue" or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward looking information. Forward-looking statements in this Form 10-Q include, without limitation, statements regarding:

† our expectations regarding our financial performance, including revenues, expenses, gross margins, liquidity, capital expenditures and income taxes;

† our expectations regarding the commercialization of our products;

† our expectations regarding our products, including the development, regulatory review (including expectations about regulatory approval and regulatory timelines) and therapeutic and commercial potential of such products and the costs and expenses related thereto;

† our expectations regarding the initiation, timing and results of clinical trials of our products;

† our expectations regarding the competitive landscape, and changes therein, related to our products;

† our expectations regarding our collaborations and other significant agreements relating to our products;

† our expectations regarding the impact of new accounting pronouncements;

† our expectations regarding our intellectual property rights, ability to protect our intellectual property rights and not infringe upon third-party intellectual property rights;

† our expectations regarding near-term changes in the nature of our market risk exposures or in management's objectives and strategies with


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respect to managing such exposures; and

† our expectations regarding future capital requirements and capital expenditures and our ability to finance our operations and capital requirements.

You are cautioned that forward-looking statements are based on current expectations and are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to various risks and uncertainties, including the risks and uncertainties described or discussed in this Form 10-Q and in our Annual Report (including, without limitation, in Item 1A - "Risk Factors" thereof).

The forward-looking statements contained and incorporated herein represent our judgment as of the date of this Form 10-Q, and we caution readers not to place undue reliance on such statements. The information contained in this Form 10-Q is provided by us as of the date of this Form 10-Q and, except as required by law, we do not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

Executive Summary

On September 16, 2011, in connection with the Business Combination, we paid Elan $500.0 million in cash and issued Elan 31.9 million ordinary shares, which had a fair value of $525.1 million on the closing date of the Merger, for the EDT business. The Business Combination was accounted for using the acquisition method of accounting for business combinations with Alkermes, Inc. being treated as the accounting acquirer under accounting principles generally accepted in the United States ("U.S.") ("GAAP"). As a result, the operating results of Alkermes, Inc. are included for all periods being presented, whereas the operating results of the acquiree, EDT, are included only after the date of acquisition.

Net loss for the three months ended September 30, 2012, was $16.7 million or $0.13 per ordinary share- basic and diluted, as compared to a net loss of $22.3 million, or $0.22 per ordinary share- basic and diluted for the three months ended September 30, 2011. Net income for the six months ended September 30, 2012, was $5.7 million or $0.04 per ordinary share- basic and diluted, as compared to a net loss of $35.5 million, or $0.36 per ordinary share- basic and diluted for the six months ended September 30, 2011.

Total revenues increased by 72% and 106% during the three and six months ended September 30, 2012, respectively, as compared to the three and six months ended September 30, 2011, primarily due to the expansion of our product portfolio as a result of the Business Combination. Operating expenses increased by 42% and 50% during the three and six months ended September 30, 2012, respectively, as compared to the three and six months ended September 30, 2011, primarily due the inclusion of expenses associated with the former EDT business and increased clinical study costs due to the advancement of pipeline candidates into later stages of development, partially offset by the elimination of one-time merger-related costs related to the Business Combination.

In September 2012, we entered into a new term loan facility, which includes a $300.0 million, seven-year term loan bearing interest at three-month LIBOR plus 3.5% ("Term Loan B-1") and a $75.0 million, four-year term loan bearing interest at three-month LIBOR plus 3.0% ("Term Loan B-2" and together with Team Loan B-1, the "New Term Loan Facility"). The New Term Loan Facility refinanced our $310.0 million first lien term loan facility (the "First Lien Term Loan") and the $140.0 million second lien term loan facility (the "Second Lien Term Loan" and, together with the First Lien Term Loan, the "Term Loans") and reduced our overall outstanding debt in the process to $375.0 million (the "Debt Refinancing"). Under the New Term Loan Facility, LIBOR for both tranches is subject to an interest rate floor of 1.0%. We expect that the refinancing transaction will result in savings of approximately $18.0 million in cash interest annually. The Debt Refinancing resulted in a charge of $12.1 million in the three months ended September 30, 2012, which was recorded within "Interest expense" in the accompanying condensed consolidated statement of operations and comprehensive (loss) income.


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COMMERCIAL PRODUCT PORTFOLIO



Our commercial products are described in the table below, including, among other
things, the territory in which the marketer has the right to sell the product
and the source of revenues for us:



Product             Indication           Technology        Territory     Revenue Source        Marketer
RISPERDAL®     Schizophrenia          Extended-release   Worldwide       Manufacturing    Janssen
CONSTA®        Bipolar I Disorder     microsphere                        and Royalty
INVEGA®        Schizophrenia          NanoCrystal®       Worldwide       Royalty          Janssen
SUSTENNA®/
XEPLION®
AMPYRA®        Treatment to improve   Oral Controlled    U.S.            Manufacturing    Acorda
FAMPYRA®       walking in patients    Release ("OCR")    Worldwide       and Royalty      Therapeutics, Inc.
               with multiple          (MXDAS®)                                            ("Acorda") in U.S.
               sclerosis ("MS"), as                                                       Biogen Idec
               demonstrated by an                                                         (ex-U.S. under
               increase in walking                                                        sublicense from
               speed                                                                      Acorda)
BYDUREON®      Type 2 diabetes        Extended-release   U.S.            Royalty          Bristol-Myers
                                      microsphere        Worldwide                        Squibb Company
                                                                                          ("Bristol-Myers")
                                                                                          and AstraZeneca PLC
                                                                                          ("Astra Zeneca")
VIVITROL®      Alcohol dependence     Extended-release   U.S.            Product sales    Alkermes plc; Cilag
               Opioid dependence      microsphere        Russia and      Manufacturing    GmbH International
                                                         Commonwealth    and              ("Cilag")
                                                         of              Royalty
                                                         Independent
                                                         States
                                                         ("CIS")
TRICOR®/       Cholesterol lowering   NanoCrystal        Worldwide       Royalty          Abbott

LIPANTHYL®/
LIPIDIL®/
SUPRALIP®
ZANAFLEX®      Muscle spasticity      OCR (SODAS®)       U.S.            Manufacturing    Acorda
CAPSULES®/                                                               and
ZANAFLEX®                                                                Royalty
TABLETS
AVINZA®        Chronic moderate to    OCR (SODAS)        U.S.            Manufacturing    Pfizer
               severe pain                                               and
                                                                         Royalty
EMEND®         Nausea associated      NanoCrystal        Worldwide       Manufacturing    Merck
               with chemotherapy                                         and
               and surgery                                               Royalty
FOCALIN® XR/   Attention Deficit      OCR (SODAS)        Worldwide       Manufacturing    Novartis
RITALIN LA®    Hyperactivity                                             and
               Disorder                                                  Royalty
MEGACE® ES     Cachexia associated    NanoCrystal        U.S.            Royalty          Strativa
               with AIDS                                                                  Pharmaceuticals (a
                                                                                          business division
                                                                                          of Par
                                                                                          Pharmaceutical
                                                                                          Companies, Inc.)
LUVOX CR®      Obsessive-compulsive   OCR (SODAS)        U.S.            Manufacturing    Jazz
               disorder                                                  and              Pharmaceuticals plc
                                                                         Royalty
RAPAMUNE®      Prevention of renal    NanoCrystal        Worldwide       Manufacturing    Pfizer
               transplant rejection
NAPRELAN®      Various mild to        OCR (IPDAS®)       U.S.            Manufacturing    Shionogi; Sunovion
               moderate pain                             Canada                           Pharmaceuticals
               indications                                                                Canada, Inc.


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VERELAN®/       Hypertension    OCR (SODAS)    Licensed on      Manufacturing   UCB
VERELAN® PM/                                   country/region                   Kremers-Urban
VERAPAMIL PM/                                  basis                            Watson;
VERAPAMIL SR/                                  throughout the                   Cephalon;
UNIVER®                                        world                            Aspen; Orient
VERECAPS®/                                                                      Europharma
DILZEM SR/      Hypertension    OCR (SODAS)    Licensed on      Manufacturing   Cephalon;
DILZEM XL/      and/or Angina                  country/region   and             Pfizer;
DILTELAN/                                      basis            Royalty (for    Roemmers; Kun
ACALIX CD/                                     throughout the   CARDIZEM CD     Wha; Orient
DINISOR/                                       world            only)           Europharma;
TILAZEM CR/                                                                     Sanofi-Aventis
CARDIZEM CD
AFEDitab® CR    Hypertension    OCR (MXDAS®)   U.S.             Manufacturing   Watson
(AB Rated to                                                                    Pharmaceutical
Adalat CC®)
(Nifedipine)

KEY COMMERCIAL PRODUCTS

The following five principal commercial products in our commercial product portfolio are expected to contribute meaningfully to our revenues.

RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION

RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION, which are two long-acting atypical antipsychotics, incorporate our injectable extended-release microsphere and NanoCrystal technology, respectively. They are products of Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a division of Cilag International AG ("Janssen"). RISPERDAL CONSTA is the first and only long-acting, atypical antipsychotic approved by the U.S. Food and Drug Administration ("FDA") for the treatment of schizophrenia and for the treatment of bipolar I disorder. INVEGA SUSTENNA/XEPLION is a once-monthly, long-acting injectable atypical antipsychotic approved by the FDA for the acute and maintenance treatment of schizophrenia in adults.

AMPYRA/FAMPYRA

Dalfampridine extended-release tablets are marketed and sold in the U.S. under the trade name AMPYRA by Acorda. Prolonged-release fampridine tablets are marketed and sold outside the U.S. under the trade name FAMPYRA by Biogen Idec. AMPYRA was approved by the FDA in January 2010 as a treatment to improve walking in patients with MS as demonstrated by an increase in walking speed. Efficacy was shown in people with all four major types of MS (relapsing remitting, secondary progressive, progressive relapsing and primary progressive). It is the first and, currently, only product to be approved for this indication. The product incorporates our OCR technology. FAMPYRA is currently being sold by Biogen Idec in select countries outside of the U.S. AMPYRA and FAMPYRA are manufactured by us.

BYDUREON

We collaborated with Amylin on the development of a once-weekly formulation of exenatide, BYDUREON, for the treatment of type 2 diabetes. BYDUREON, a once-weekly formulation of exenatide, the active ingredient in Amylin's BYETTA® (exenatide), uses our polymer-based microsphere injectable extended-release technology.

On August 8, 2012, Bristol-Myers successfully completed its acquisition of Amylin. Following the acquisition, Amylin became a wholly-owned subsidiary of Bristol-Myers. On August 9, 2012, Bristol-Myers and AstraZeneca announced the expansion of their diabetes collaboration to include the co-development and marketing of Amylin's portfolio of products, including BYDUREON.

VIVITROL

VIVITROL is the first and only once-monthly injectable medication for the treatment of alcohol dependence and the prevention of relapse to opioid dependence, following opioid detoxification. The medication uses our polymer-based microsphere injectable extended-release technology to deliver and maintain therapeutic medication levels in the body through just one injection every four weeks. We developed, and


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currently market and sell, VIVITROL in the U.S., and Cilag sells VIVITROL in Russia and other countries in the Commonwealth of Independent States ("CIS").

Other Commercial Products

We expect revenues from our other commercial products will decrease in the future due to existing and expected competition from generic manufacturers, as discussed in greater detail herein.

KEY DEVELOPMENT PROGRAMS

We also have several proprietary and partnered product candidates in various stages of development.

We are studying ALKS 9070 for the treatment of schizophrenia. ALKS 9070 is designed to provide once-monthly dosing of a medication that converts in vivo into aripiprazole, a molecule that is commercially available under the name ABILIFY®. ALKS 9070 is our first product candidate to leverage our proprietary LinkeRx™ product platform. A phase 3 trial to assess the efficacy, safety and tolerability of ALKS 9070 in approximately 690 patients experiencing acute exacerbation of schizophrenia is currently on-going, and the clinical data from this study, expected by the end of calendar-year 2013, will form the basis of a New Drug Application ("NDA") to the FDA for ALKS 9070 for the treatment of schizophrenia.

ALKS 5461 is a combination of ALKS 33 and buprenorphine that we are developing to be a non-addictive therapy for the treatment of major depressive disorder ("MDD") in patients who have an inadequate response to standard antidepressant therapies. ALKS 5461 has also been evaluated for the treatment of cocaine dependence. A phase 2 study is currently on-going to evaluate the efficacy and safety of ALKS 5461 when administered once daily for four weeks in approximately 130 patients with MDD who have inadequate response to standard antidepressant therapies. Data from this study are expected in the first half of calendar year 2013.

ALKS 33 is an oral opioid modulator characterized by limited hepatic metabolism and durable pharmacologic activity in modulating brain opioid receptors. ALKS 33 is being evaluated as a potential treatment for alcohol dependence; there are currently no ongoing clinical trials of ALKS 33 for the treatment of alcohol dependence.

ZOHYDRO ER™ (hydrocodone bitartrate extended-release capsules) is a novel, oral, single-entity (without acetaminophen), controlled-release formulation of hydrocodone in development by Zogenix, Inc. ("Zogenix") for the U.S. market. ZOHYDRO ER utilizes our oral controlled-release technology, which potentially enables longer-lasting and more consistent pain relief with fewer daily doses than the commercially available formulations of hydrocodone. In May 2012, Zogenix announced that it submitted an NDA to the FDA for ZOHYDRO ER, and in July 2012, Zogenix announced that the FDA accepted for review the NDA for ZOHYDRO ER. The FDA has assigned a target action date of March 1, 2013 for the ZOHYDRO ER NDA. We have also entered into a license and distribution agreement with Paladin Labs Inc. in respect of ZOHYDRO ER in Canada. We will earn manufacturing revenues and a royalty on U.S. and Canadian sales of ZOHYDRO ER, if approved and when commercialized. We have maintained all rights to the product in territories outside the U.S. and Canada and will seek to develop and license the product through commercial partnerships in those territories.

Results of Operations



Manufacturing and Royalty Revenues



                                 Three Months Ended          Change          Six Months Ended          Change
                                   September 30,           Favorable/          September 30,         Favorable/
(In millions)                    2012          2011       (Unfavorable)       2012        2011      (Unfavorable)
Manufacturing and royalty
revenues:
RISPERDAL CONSTA              $      34.0    $    44.3   $         (10.3 ) $     70.8   $   92.8   $         (22.0 )
INVEGA SUSTENNA/XEPLION              16.3          0.6              15.7         28.1        0.6              27.5
TRICOR 145                           12.5          1.8              10.7         24.5        1.8              22.7
AMPYRA/FAMPYRA                        5.0          0.6               4.4         22.2        0.6              21.6
RITALIN LA/FOCALIN XR                 9.1          1.5               7.6         20.0        1.5              18.5
VERELAN                               5.8          1.5               4.3         11.8        1.5              10.3
Other                                24.6          3.7              20.9         68.3        4.2              64.1
Manufacturing and royalty
revenues                      $     107.3    $    54.0   $          53.3   $    245.7   $  103.0   $         142.7


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Manufacturing fees are earned for the manufacture of products under arrangements with our collaborators when product is shipped to them at an agreed upon price. Royalties are earned on our collaborators' sales of products that incorporate our technologies. Royalties are generally recognized in the period the products are sold by our collaborators.

Under our RISPERDAL CONSTA supply and license agreements with Janssen, we earn manufacturing revenues at 7.5% of Janssen's unit net sales price of RISPERDAL CONSTA and royalty revenues at 2.5% of Janssen's net sales of RISPERDAL CONSTA. The decrease in RISPERDAL CONSTA manufacturing and royalty revenues for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011, was primarily due to a 25% decrease in the quantity shipped to Janssen and a 10% decrease in royalty revenues. The decrease in royalty revenues was due to a decrease in Janssen's end-market sales of RISPERDAL CONSTA from $390.0 million in the three months ended September 30, 2011 to $351.0 million during the three months ended September 30, 2012. The decrease in RISPERDAL CONSTA manufacturing and royalty revenues for the six months ended September 30, 2012, as compared to the six months ended September 30, 2011, was primarily due to a 29% decrease in the quantity shipped to Janssen, and an 11% decrease in royalty revenues. The decrease in royalty revenues was due to a decrease in Janssen's end-market sales of RISPERDAL CONSTA from $793.6 million during the six months ended September 30, 2011 to $705.8 million during the six months ended September 30, 2012.

We expect revenues from RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION, our long-acting atypical antipsychotic franchise, to continue to grow, as INVEGA SUSTENNA/XEPLION is launched around the world. Under our INVEGA SUSTENNA/XEPLION agreement with Janssen, we earn royalties on end-market sales of INVEGA SUSTENNA/XEPLION of 5% up to the first $250 million in calendar-year sales; 7% on calendar-year sales of between $250 million and $500 million; and 9% on calendar-year sales exceeding $500 million. The royalty rate resets at the beginning of each calendar-year to 5%. A number of companies, including us, are working to develop products to treat schizophrenia and/or bipolar disorder that may compete with RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION. Increased competition may lead to reduced unit sales of RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION, as well as increasing pricing pressure. Given that RISPERDAL CONSTA is covered by a patent until 2021 in the EU and 2023 in the U.S. and INVEGA SUSTENNA/XEPLION is covered by a patent until 2022 in the EU and 2019 in the U.S., we do not anticipate any generic versions in the near-term for either of these products.

The increase in manufacturing and/or royalty revenues from TRICOR 145, AMPYRA/FAMPYRA, RITALIN LA/FOCALIN XR, INVEGA SUSTENNA/XEPLION, VERELAN and the other manufacturing and royalty revenues for the three and six months ended September 30, 2012, as compared to the three and six months ended September 30, 2011, were due to the addition of the portfolio of commercialized products from the former EDT business. We anticipate manufacturing and royalty revenue erosion in the TRICOR 145 and RITALIN LA/FOCALIN XR franchise for fiscal year 2013 due to the assumed entry of generic competition into the market in late-calendar 2012.

Included in other manufacturing and royalty revenues for the six months ended September 30, 2012 is $20.0 million of revenue related to the exercise of an option to license certain of our intellectual property, not used in our key clinical development programs or commercial products.

Product Sales, net

Our product sales consist of sales of VIVITROL in the U.S. to wholesalers, specialty distributors and specialty pharmacies. The following table presents the adjustments deducted from VIVITROL product sales, gross to arrive at VIVITROL product sales, net for sales of VIVITROL in the U.S. during the three and six months ended September 30, 2012 and 2011:

. . .

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