Alkermes plc (ALKS) Earnings Call Transcript & Summary

Good day, everybody. My name is Jason Gerberry. I cover specialty pharma and biotech at Bank of America. I am pleased to be introducing our next company presenter, Alkermes, and CEO, Richard Pops. Alkermes is -- we all know Alkermes as a neuroscience-focused company although the company has some interesting developments in its pipeline in the oncology space. The company recently provided its first quarter update and some of the implications around the COVID-19 pandemic. So maybe Richard, I don't know -- to start, I don't know if you have any prepared remarks or if you want to provide any color just on sort of the 1Q update and how COVID-19 is impacting your business, and then we can jump into more specific questions from there.

Yes. I'll make a couple of remarks, Jason. First, I'll say good morning, and I hope you and the folks in your firm are well. It is a remarkable time. And we were just saying before we got on the call together that it's interesting and fantastic to see how companies have adapted to this new work environment, particularly companies like ours that are so intensely collaborative, working across so many disciplines in so many different geographic locations. If we were together at this conference, I'd put up a slide and I'd say I'm going to make forward-looking statements. And as always, I ask you guys to take a look at the risk factors that we describe in our quarterly filings. And I want to just give a little bit more update from where we were on our earnings call, where we suspended our financial guidance simply because we were in the beginning of watching the COVID-19 impact the business. We have a really unusual business in the sense that the patient populations that we deal with are often marginalized or stigmatized patient populations. Our medicines are administered by injection, largely intramuscularly, infrequently -- in treatment settings that are nontraditional treatment settings often. So in suspending our guidance, it was simply just to reflect the fact that we just didn't have a sense yet of what the impact of the COVID-19 would be. We entered 2020 expecting to earn a non-GAAP net income of something between $40 million and $70 million while investing in 4230 aggressively and preparing for the launch of 3831. While the impact of COVID-19 on 2020 business remains uncertain, we're getting a better sense of it now and also how we can mitigate on the spend side. So we're modeling a number of different scenarios now related to the top line based on the magnitude of the duration of the pandemic. We're assuming that this disruption is going to last 1 to 2 quarters, like I think most people are modeling. And while these circumstances are unusual, we're now more clear. We believe we're in a position to manage the business to non-GAAP breakeven in 2020 even with those disruptions. So I just want to provide a little bit more clarity on that because some investors coming out of our earnings call said, "Well, you have no guidance. You could end up losing hundreds of millions of dollars a year." And absolutely, that's not our intention at all. We are very actively managing the cost side of the business to match the revenue side of the business. But what's interesting about our medicines is that there is no diminution in the need for our medicines in this type of setting. Patients with serious mental illness and addiction, these conditions are only being exacerbated in the environment that's driven by social isolation, financial hardship and fear. So we actually have adapted our business to make sure that we can interact with caregivers and treatment systems that are themselves under stress in order to make sure that our medicines can still get to patients. So in the 3 major domains of our business, our commercial business, which is VIVITROL and ARISTADA, we're adapting on the fly and I think doing a very good job of that. On our late-stage pipeline which is 3831, which is the NDA which is being processed in review with FDA, we have a PDUFA date at the end of the year; and then 4230 program, which is still advancing even in the midst of the COVID-19 slowdowns. So -- and then on the early-stage pipeline, what I tend to focus is on our work in our HDAC inhibitors for synaptogenesis. That program is advancing as well. Our labs are remaining functional. And so we are really firing on all cylinders, and I'm really impressed with the resiliency and the capabilities of the company. So maybe I'll stop there and let you, well, direct the conversation the way you want to go, Jason.

Yes. No. I think one of the questions that we're asking a lot of our company is just how -- you just mentioned how -- the learnings that we've gotten so far on how to deal with these social lockdown situations. If there was a second wave that is feared or concerned in the fourth quarter, how do you think you're better prepared as a business to handle that versus how the impact has been felt in the first and second quarters of this year?

It's an important question because my own expectation is that there is such a second lockdown. There is a second wave. So we should be preparing for that in the fall. Whether it occurs or not, we'll see, but we should be prepared for that. And so there's 2 principal domains that you need to focus on. Your internal operations, how we all work from home, now we're learning how to do that and we're learning a way to do it that we -- in ways that we think are going to become permanent, i.e., the IT platforms and the methodologies for conducting group meetings and sharing documents and all the logistical things that you need to figure out how to do the work in such -- in a collaborative environment on a remote basis. Those will persist. And if there's a second wave, we'll be well prepared for that. The other area then is just what do you do with your -- in your commercial operations, your forward-facing, your customer-facing operations. It could be restricted once again at some point in the fall or some other time. And I think it's a really interesting long-term question in the field of psychiatry in particular because one of the things that I'm hoping and believing that we'll be driving for is the increased use of telepsychiatry across the country. Psychiatry is one of the leading edges of the implementation of telemedicine. And it stands to reason, it makes a lot of sense for telepsychiatry to occur particularly for rural America and for patients with restricted access to sites of care. We believe that long-acting injectable medicines in combination with telepsychiatry are an important foundation for the future. Now if we have restricted access to caregivers, we're building ourselves right now the capabilities, and have been since we started in mid-March, of these remote interactions, virtual interactions with caregivers or nurses, doctors, prescribers. There's a lot of receptivity to that. It's amazing how much time is spent in America of sales representatives driving in cars between remote geographic sites to spend 15 minutes with people that are busy. So the idea of virtualizing and creating interactions that are much more efficient for both the sales representative and the doctor, I think, make a lot of sense, and we're going to continue to try to drive that whether there's a second shutdown or not.

In terms of dealmaking and partnering, it's an important part of the industry. Access to data rooms is like typically a key prerequisite to getting deals done. I'm curious. We've seen 3 decent-sized deals in biotech since the pandemic started to take hold. And much like the property market, I kind of wonder whether these transactions that were in the works before the pandemic hit and people had a chance to have these physical interactions perhaps -- and we don't know. But from your perspective, within the world of biotech, the ability to partner, do deals at least on single-product-type basis, what is your outlook for that with this backdrop and limited physical or face-to-face interaction?

There's puts and takes on it. It's interesting because what we're finding in our dealings with other companies, a bit large, is that because you know that everybody is home looking at a screen, you can often get meetings pulled together faster than if you were in the old days trying to find a date whenever they could fly and be together in some physical location. Data rooms are unaffected. Typically, the data rooms have been digital anyway. I mean the days of having file cabinets and people flying to come and look at it are largely over. I think that most collaborations that you'll see come together now were based on relationships that have been established prior to COVID. Those face-to-face and personal interactions are foundational, I think, often to be -- in biotech. But I think that it's a little bit more difficult to get everybody together and negotiate in one room, but I think deals can continue to happen.

Got it. Okay. Maybe shifting gears to some of your specific businesses and what's going on. VIVITROL, maybe as a starting point with respect to the pandemic, I presume that addiction doesn't stop in the wake of this type of situation, but maybe your -- can you comment at all on your key indications, alcohol use disorder, opioid use disorder, how the businesses are evolving in the wake of the pandemic?

Well, if you read Politico or Axios or The New York Times or whatever, you're seeing these stories beginning to be written about the mental health and addiction implications of COVID, and they're real. VIVITROL has always been an unusual product because it's administered typically in settings of care that are not your normal doctors' offices. These are treatment centers. And the treatment centers are very idiosyncratic. Some of them are accustomed to using injectable medicines. Some are not. Some are counseling only. It's a disparate and fragmented treatment system around the country. And as we said on the earnings call, there's no doubt in the beginning when social distancing was first implemented, a number of these treatment centers just were not seeing patients. We were unable to make sure that our patients were getting access to the medicines that they need. And I think that was true more so in addiction than any other indications. Against that backdrop, the need for the medicine and the need for the care is only increasing. I mean we're hearing horrific anecdotes from the field about overdose deaths, people receiving their $1,200 stimulus checks and buying heroin and overdosing and dying, first responders being worried to administer Narcan because the patient could have COVID. These are all the kind of litany of terrible things that you can only imagine. So I think that people are re-equilibrating now and they're realizing that care has to be given in the field. We have to accommodate the new reality. But also from a pure business point of view, remember these treatment centers need to get back to treating patients in order to stay in business. So we're monitoring this obviously on a week-by-week basis. At the time of the earnings call, we said we had seen a pretty steep, immediate decline in VIVITROL access in the first couple of weeks of April. We hope that that's settled out now, and we hope that as we come into the second half of the year and people get back to work and get back to business that we should be okay. The states that were hit earliest and hardest by the pandemic closely align with our top states, so Pennsylvania, Ohio, Massachusetts, New York, California. These are places where there's a lot of VIVITROL, and they also have a lot of COVID at the same time. So the basic hydraulics of people needing access to these medicines are, if anything, getting stronger. Alcohol is increasingly important as more people around the country are using VIVITROL in their practices. They're seeing -- we're seeing more use for alcohol because as you may know, alcohol dependence is actually a bigger socioeconomic phenomenon in the country than opioid dependence. It's just a huge amount of the ice that's under the water of this giant iceberg of addiction in the country. So our responsibility is to figure out a way to keep getting these medicines to patients who need them. Are you there, Jason?

Sorry, I was on mute. Richard, yes…

I thought I bored you to death.

How comfortable are you with how the consensus estimates settled out coming out of 1Q? We don't have great visibility into VIVITROL scripts, but are there any script updates since you reported 1Q at the end of April?

I must say I haven't really looked at -- I don't know where the consensus is right now. And because we don't have active guidance right now, I don't want to give any. But hopefully, we will give a little bit more precision as we go into the Q2 report.

Okay. And where do you feel that there are spend levers or ability to flex the P&L to manage -- you talked about breakeven in 2020. So just wondering sort of what are some of the expenses that you can scale back on.

Oh, I mean there's always things that you can do. I mean the 2 big buckets of spend are in commercial and in R&D. So you can deprioritize certain R&D initiatives. We have certain life cycle management studies for VIVITROL and ARISTADA that we can slow down or stop or delay. 4230 is a very expensive program right now that we're spending all on our own in anticipation of collaborating when the data set matures so we can focus really on the core programs of 4230 that are going to drive the data set that could lead to collaboration. Certain selling and marketing investments, I mean as you know, commercial spend in marketing is an ongoing thing throughout the year. You can tune that and certain G&A initiatives as well, professional services. We have grants that we make to organizations. We could streamline those things. And the other big one is hiring. We are still -- have areas of the company that we want to grow, but what we want to do now is that we're going to -- we're being incredibly disciplined and prioritizing only those roles that are essential to achieve the business objectives in 2020 until we see how this all shakes out. And then there's just some organic spend that's not being incurred due to COVID. I mean there's no travel. There's no entertainment. There's no -- the speaker programs that we typically do face-to-face, they're just not happening. So there are some other things that will just happen as a matter of course as the interaction -- the nature of the interactions with the outside world change.

Yes. Okay. And then just as it pertains to VIVITROL, just coming back to your comments, so obviously, there's a geographical component to all this. It would seem like perhaps in states like Ohio, maybe a quicker reopening; California, Massachusetts, probably still a slower process. Any color at a state level in terms of what you're seeing? Is there anything to be encouraged about? Or is it still very fluid and TBD?

I think the only -- the encouraging thing is that we haven't seen it get worse. We're probably at the -- when we went on the earnings call, that was -- we couldn't tell where the slope was continuing to decline and where the nadir was going to be, but we're closely monitoring the impact in these states. And we think as they open up, we'll see a lessening of that impact on VIVITROL sales. But the trends have not worsened. And you can tell there's a growing instinct. There's a growing pressure in this country to open back up. Whether it's the right thing to do from a public health point of view, it's clearly -- I mean there's clearly a tendency for states to want to get back to work. Too many people have too much economic hardship, and there's too much pressure to get the country rolling again. And as you know, it's very geographic -- geography-specific. There are parts of the country that haven't been hit particularly hard by COVID, and they have excess capacity in their hospitals and caregivers are ready to get back to work. Other places are still very much under the gun.

With physician-administered drugs, I guess telemedicine, like sales rep interaction with doctors, is one thing. But how are patients actually getting their medication if they're long-standing patients? And can you talk about maybe more specifically how mitigation strategies help to overcome those issues?

Well, I think it's different between VIVITROL and ARISTADA. We're not seeing as much disruption in patients getting access to their injections on the schizophrenia side through the community mental health centers or VA or other places that people are getting their injection. With that said, I think coming out of this, we see a really important dialogue in the community about the value of something like ARISTADA administered once every 2 months, 6 injections a year. A persistent environment where less frequent interactions with nurses for injection is probably a good thing. That's a really compelling offering. So we think that the combination and tolerability of ARISTADA plus its once every 2-month dosing, which is unique, is a really nice positioning. For addiction...

Does that create a mix shift issue for you guys -- Rich?

Say again, Jason.

Going every 2 months -- I think there's a little -- what's that?

I -- keep going. I didn't hear the first part of the question.

I was going to say, does that create a mix shift issue at all if you go to 2-month ARISTADA? I think there's a lower price point on the 2-monthly. I'm just curious what the proportion of the mix would be every 2 months versus every monthly on ARISTADA.

Yes. I don't think the mix shift hurts us at all. In fact, I think it advantages us as the market begins to understand the value of less frequent injections. I mean 6 decisions a year and a patient has therapeutic concentrations of their antipsychotic medication. INVEGA SUSTENNA, there's a TRINZA formulation that's once every 3 months but you need to have been on INVEGA SUSTENNA for a number of months to achieve steady state, whereas you can initiate on INITIO in 2 months with ARISTADA. So we think it's a really, really compelling offering in the marketplace given that the other -- most everything else is administered every 2 weeks or once a month. And the use of long-acting injectables in general in a setting where less frequent interaction with caregivers is probably going to become more likely. That's what's so interesting, Jason, because if you can take care of the pharmacology side of it through infrequent injections, then you can rely on telemedicine more so, the screen-based interaction for the behavioral counseling, without having to worry about adherence undermining the ability to have those type of psychosocial interactions as well. On the VIVITROL side, you heard us say on the conference call, we've partnered with Albertsons. And we're going to continue to drive some of these additional partnerships to make injection services available in nontraditional settings. Many state pharmacists are able to give injections and find these other networks so that hopefully, as people begin to access care via telemedicine or other less traditional means, they can also access their periodic injections without having to go into a psychiatrist's office or into necessarily an addiction clinic per se.

And Rich, do you envision looking to reach out to the Duane Reades, the CVSs, some of the places that could offer those injection services more broadly across the country?

Yes. Yes. So we target them on an account basis but also on a regional basis as well. We think that's something we should continue to do particularly as VIVITROL begins to be used in alcohol more and more in treatment setting.

Okay. ALKS 3831, you've got the regulatory filing -- sorry, the filing -- but the action date coming up. Is it like The Street, for whatever reason, has been perhaps a little bit more skeptical on the opportunity because of generic olanzapine, misperceptions around having to step through generic olanzapine? You get questions about this all the time. I wouldn't -- I think there's a lot of different generics that -- there's -- that you could have to step through -- I don't know why you'd have to step through olanzapine. But what -- is that mainly the main disconnect that you have when you talk to investors about the value proposition of 3831 and possibly unlocking the utilization of arguably the most potent antipsychotic that's on the market?

Yes. I think you're right. I think that there's skepticism about it because I don't think people have seen a schizophrenia launch that's been particularly impressive and they worry about that 3831 is just olanzapine. But I think a lot of it is rooted in the lack of understanding of the market. And I think that we're pretty excited about 3831 for a couple of reasons. One is that we're in that market already with ARISTADA. And we think that the offering that we're going to have for our commercial team is a best-in-class level, long-acting injectable and a best-in-class level oral. And when we test that with physicians, this idea of can you position an LAI and an oral together, absolutely. Different patients require different things. And that efficacy of olanzapine is something that there's a lot of muscle memory out in the field. As you know, olanzapine is still used widely, frequently, 20% of the time in patients with schizophrenia. It's used in bipolar and it's used reluctantly because of the weight risk. So our feeling is that when we go out and talk to physicians and we explain what 3831 and why samidorphan is involved in mitigating the weight effect, there's a lot of interest in trying it. And I believe that people will see with their own experience, if the weight differential is true, which we believe it absolutely is, I think that's going to speak for itself because the weight phenomenon with olanzapine is not subtle. It's far more explicit, it seems, when you talk to doctors than what you would see in the randomized control data that is influenced by dropouts and assessment variables. People report large amounts of weight gain rapidly with olanzapine. And 3831 just has a different profile and we've shown it in a number of different studies. So because we're in that market, we can leverage a commercial infrastructure that's in place. We have a good sense of what the dynamics are, and we've got indication in schizophrenia and bipolar one as well. We think that it fits really nicely on top of the commercial footprint that we've been building.

It's interesting, your comments about there hasn't been a successful schizophrenia launch. I think arguably, Allergan's VRAYLAR got out of the box pretty well. I think it was pushing close to $500 million in revenue from its lead indication. And obviously, it was expanding its label and was pushing a list of consensus to the $1 billion territory. I would think that, that would be a wild success relative to how The Street is currently viewing the value of 3831. I don't know. You may, I guess, argue that the value proposition of 3831 may be different from VRAYLAR. But just sort of curious what you see in the comps in terms of recent launches. And does that give you reason for optimism? Or does that make you think that there's a lot of challenges to launching a drug in this space right now?

Yes, VRAYLAR's a great example because it's a drug that was growing in schizophrenia, but the inflection, the nonlinear part of the curve -- or the change in the slope of the curve came with the additional indication. I think a number of investors are unfamiliar or haven't paid attention to the way drugs launch. Schizophrenia is largely government business. It's new eligibles under Medicaid -- under Medicare and Medicaid. So there's often NDC blocks. It's -- you have to step through generics. The slope of the ramp is going to be different in a schizophrenia drug than for a drug -- or a new drug for cancer or something like that. So with that said, the other side of the equation is there are just lots and lots of patients. There are 3 million or so patients in the country, most of whom cycle through drugs on an ongoing basis. So you do get access to a lot of patients over time. So there's a certain gradual -- there's a certain ramp aspect to it, but I think that the biggest successes in this area have come from drugs that have indications in addition to the primary schizophrenia indication. And that's what we hope we'll continue to build with 3831.

That's a fair point. I think LATUDA had success having an indication that was outside the scope of…

Absolutely.

There's a typical…

It's -- correct. LATUDA's commercial success is entirely driven by the bipolar side, I would argue.

Your initial indications of schizophrenia and bipolar mania would both be subjected to the kind of, as you mentioned, larger government business exposure, the NDC blocks. So the label that you'd have at launch faces those initial hurdles.

We expect it to be indicated for the treatment of schizophrenia and bipolar I disorder. And that's right, but I think that the impediments -- now the commercial mix -- the payer mix for bipolar is different than it is for schizophrenia. There's a larger element of commercial business on the bipolar side.

So kind of a mixed bag, I guess, in terms of the -- with your label and your business mix right out of the gate with bipolar being a little bit more favorable.

Well, mixed in the sense that one is -- the core business is schizophrenia, where we think we have a big advantage because the hard thing in schizophrenia, if you're launching a new oral drug in schizophrenia from a standing start, you have to put in all the commercial infrastructure to deal with Medicare tools as well as Medicaid in 50 states. There's just a lot of fixed cost that goes into that. So we've got that all in place already. And that's -- I think it's just a big advantage to be in that system already to be able to launch an oral on top of what we do with the LAI. The bipolar piece of it is just -- we expected to get bipolar indication of -- ultimately with 3831. We were pleased to be able to work it into the first submission. So we expect it at that launch. So that's upside for us.

What is the current mix of olanzapine schizophrenia versus bipolar?

I wish I knew the answer to that because -- and I don't want to say it wrong. I have it somewhere. We'll get back to you.

It's fine. We can follow up. We can follow up afterwards. But yes, I was just curious. You mentioned core business being schizophrenia, so was just curious how we think about the importance in waiting those 2 indications out of the box.

Because there are other agents for bipolar, I think the efficacy of olanzapine in bipolar is established. But the bipolar patients' tolerance for weight gain is lower. So -- whereas in schizophrenia, olanzapine is still a go-to drug for patients in acute exacerbations of schizophrenia. Coming to the hospital, coming to treatment, they'll be put on olanzapine because it's so efficacious and works so quickly. So that's -- we know that, as I said, about 20% of patients are going on olanzapine right now in schizophrenia despite the fact that it's not indicated first-line or promoted.

Got it. Well, I know we're up against our time. So I want to thank you, Richard and Sandra, for joining us at the conference. And thanks for the updates and look forward to talking in the future.

Well, you're very welcome. And stay well, everybody.

All right. Thanks so much. And with that, operator, we can conclude the call.