Alkermes plc (ALKS) Earnings Call Transcript & Summary

Great. Thanks. And thanks, everyone, for continuing on and joining this discussion. I'm happy to be here with Richard Pops, Chairman and CEO of Alkermes, who I've done a number of panels with over the years. And just coming out of your Investor Day, it sounds like we've got a lot to talk about. So Richard, I don't know if you want to just quickly set the stage and talk about some of your recent pipeline updates, the ALKS 3831 NDA and the status there, and then we can get into specifics. How does that sound?

That's good. Well, first of all, it's good to see you, Paul. I'm glad you're well. This is a really important time for Alkermes, and I think that last week was an important moment. And we had taken -- there've been a number of years before we -- a number of years since we've had an Investor Day, and we were waiting for the maturation of certain things in the pipeline, and we're really gratified to see where we are right now. I think the story of the company right now is this really healthy combination of the here and now, the foreseeable growth that's going to come over the next period, i.e., the bridge to the future. And then what you saw on Thursday of last week was really what the future looks like, a number of exciting things in the pipeline, but importantly, not just an amalgamation of various science projects, but a series of things that derive from a certain capability that we've had and have been building for many years, which is really focused on molecular design, both on protein side as well as the small molecule side. And I think what a lot of -- the unifying concept among these programs, which I hope came through, Paul, was even if you start with aripiprazole lauroxil or diroximel fumarate or VUMERITY or samidorphan, what we've been good at over many years is creating new molecules that embodies certain characteristics that make them very good drugs that map on to patient's real-life experience. So we're doing the same thing. In the areas that we talked about in the Investor Day, in the new areas, these are places where the biology is increasingly validated. But the challenge is the molecular design, how do you make a molecule that can do what you want it to do to unlock the potential of that biology. And so when I think about the company now, we're essentially saying to people, well, you need to pause and take another look at Alkermes at this time, because I think people get into conventional thinking about a company or a stock and they say, well, I understand it. But we're actually saying, no, it's not clear that you do. So if you think of individual pillars of the company, the here and now is the commercial business, VIVITROL, ARISTADA. We showed last year that it's a COVID-sensitive business, so you could see why people paused a bit. But we're coming out of that now, and both of those drugs are really important drugs for the public health and have a lot of growth ahead of them. The commitment then we've also made to profitability was an important stake to put in the ground because, well, in our long-range plan, we'd always seen increasing profitability over time. We heard from shareholders, they said, well, we're not sure you're ever going to really be profitable. You'll keep on growing the top line, but you'll keep on spending. So we've made a very explicit commitment to say, no, we are going to drive increasing profitability. But what was important for people to see, that doesn't come at the expense of not investing in the R&D. I mean we're a big-enough company now. We have enough top line where we can aggressively but selectively invest in R&D, grow and maintain profitability. So if the here and now, our commercial products, $1 billion top line profitability, that's a pretty good story. Now add to that, well, where is it going? Well, we see continued growth in the base products. We have a new drug coming into the mix, hopefully, with the approval of LYBALVI. And we also have this growth of VUMERITY, which last year at this time, we couldn't tell what was going to happen to VUMERITY in Biogen's hands. But now that's the case. So if we're turning on new spigots of cash flows with both VUMERITY and LYBALVI, which leverage a commercial infrastructure on the LYBALVI side, that's very positive. And then the next clear -- clearly identifying piece of the pipeline that's emerging is nemvaleukin. And last year, at this time, Paul, we probably had a conversation about it. It is appropriate to be skeptical about it; we were, too. But boy, it's meaning all of its stage gates. It's revealing itself to be now an important late-stage oncology asset. And that's why we decided to talk about our other engineered cytokines. We never talked about them before because until people understood what nemvaleukin was and how we got there, it didn't make any sense to really talk about the other engineered cytokines that we have. So with nemvaleukin then, VUMERITY, LYBALVI, all contributing to what we can see invisible growth coming ahead, then you cross the bridge into the earlier-stage pipeline. And I call it earlier-stage pipelines as not everything is going to work, but not everything is going to fail either. And so I -- we have some -- you could tell from that presentation, we've been focusing on drugs that have the potential to be the first in their class or they're best in the class or able to compete aggressively in that class. And that reminds me, I should make a forward-looking statement comment here. The purpose of this conversation is to talk about the future, and I just really do encourage you to look at our risk factors and the way we describe the business in our filings because we have -- we're the case study of all the various risks that can affect your business over time.

Yes. Yes. All right. That was great. Great overview.

So I'm going to do a question or 2 on 3831, but I want to make sure we try to cover the highlights of everything you just alluded to, Rich. And that -- so maybe on 3831, just to give some context, I think when we did a panel around this time last year, you had really talked about kind of the bold sales force buildout ahead of that launch. A couple of hundred new reps, really target the high prescribers, but also even educate kind of the broader psychiatry community, too, on this medicine as well. And then, of course, you have these initiatives now surrounding profitability, more disciplined spend and talk more now about the operating leverage of 3831 in your current business, whereas it felt like, historically, there is some contextualization that this drug is a different call point than, say, the LAI. So how do you think about doing right by this drug in a promotionally sensitive market while also meeting those kind of spend and profitability targets that you conveyed later last year?

I think the secret to meeting the spend and profitability targets are investing in the right things and not investing in things that aren't -- this is the right thing. This is the first commercial launch of ours that leverages the infrastructure. The big change, Paul, in the last year, is COVID and what it's done to psychiatry and sales force configuration in psychiatry. And it's amazing. I mean you're right, maybe 1.5 years ago, we would have said we're going to add 200-plus people. We're just not going to do that anymore. And it's not because of cost containment, it's because access. It's about the way we're interacting with clinicians.

Yes. And is that really like the bottom line around this?

For sure. Well, I think everybody across the industry is saying, well, we all knew for a long, long time that just deploying hundreds of people, spending a lot of time in cars, waiting in waiting rooms, it's a super inefficient way, but it works, right? But I would never say it's the most efficient way of doing it. Psychiatry has been one of the fastest to adopt telemedicine. And I think it's going to persist, not at the same level it did during COVID, but what we're finding is that it's a very efficient interaction often, and you just need less in-person personal promotion. Now I will say in-person personal promotion is still the most effective sales call. So don't believe anybody says that we can do this all through Zoom. Particularly if you have existing relationships with somebody, we can have a conversation like this because we know each other. It's easy to -- but if I had to meet you the first time this way, it's a lot harder to do. That's what's so interesting about LYBALVI is that we're currently calling on 60% of the target audience that we would launch LYBALVI into. So that's a great platform for the introduction of LYBALVI. So from a commercial configuration point of view, we're out there aggressively with ARISTADA. ARISTADA is the fastest-growing LAI right now. It's a more concentrated group of doctors who are writing the injectables, but it's a fantastic foundation for the launch of LYBALVI. So think of that as the core or the bull's eye with a concentric shell around that, that is a broader universe of people who are writing orals. And what's so interesting is that the 2 medicines, ARISTADA and LYBALVI, they're quite simpatico in terms of the message to the doctor, very high efficacy, very good tolerability. That's what they're looking for. The LAIs obviously are underutilized, the highly efficacious drugs. The whole story on LYBALVI, and I'm sure you'll get to in your questioning in the position, is efficacy.

Yes. Yes. Okay. Very good. Makes sense. One more question on that, and that's really on the payer side. And look, I know you've gotten this question a million times. So I want to ask it in a different way. And that is really, when I talk to investors, I'm sure you do the same thing, too, there's kind of this obsession about where this drug is going to be used in the real world and would people have to step through Zyprexa, not because stepping through drugs is abnormal in this space, but because if you step through Zyprexa, it actually can kind of diminish the clinical utility of this. Can you talk to the payer work you've done, how you're thinking about pricing, how are you thinking about where this fits in and whether or not this sort of obsession surrounding specific context in the real world is as relevant to the commercial prospects of this drug as many make it out to be?

Yes, I think it's much simpler. And as I've said to others, it's sadly anti-intellectual the way the whole thing is configured. The payers are going to put everybody through multiple rounds of generic drugs, more than they should from a medical or a humanitarian point of view. That's just the way it is. So table stakes going into this market, you know everybody is going to fail on multiple generics, and no one's going to see a branded agent until they've proven that they failed on multiple generics and there are some type of prior authorization process. Okay, that -- there are 70,000 switches a month that go on. I mean it's a big, big market, and there's a ton of churn. And the problem in the market is that there's a lot of unmet need. So from what we understand from the payer perspective, we have extensive experience with this now, they basically see the demarcation not between various branded drugs, the principal demarcation is between generic to branded. The brandeds are all priced pretty much the same. And if you price in that cluster and rebate, consistent with the way that the system functions, there's really not a whole lot of question. The category isn't managed that much within that. So then the question is, if a patient can cross the threshold to getting a branded medication, why? What's the justification for? And that's why we think that LYBALVI has such an interesting positioning opportunity because its positioning is based on efficacy. And our market research says, when patients have failed multiple generics and they're looking for new medication, what are they looking for? They're not looking for another well-tolerated agent. They're looking for efficacy. And the amount -- what's striking, I don't know if you saw in the presentation, Paul, but olanzapine is the fastest-growing, new-to-brand medication in the space over the last year. It's not promoted. It's not indicated first-line for the treatment of schizophrenia. Why is it? It is our research says it's because during COVID, physicians do not want to see their patients in the hospital. So they're tending towards more and more efficacious medications to keep them out. Every one of those patients who goes on olanzapine is going to the top of our funnel. And not all of them come at the bottom. But our view is that even if we -- if the drug were focused on patients who went on olanzapine and couldn't tolerate it, but saw the efficacy, that's a great product.

Yes. Yes, that's really interesting. That's really interesting. Okay. Last question, and that's just it doesn't seem like there's a major reason to be concerned here, but I would be remiss not asking just because I feel like every investor I talk to lately says -- has been burned once, twice or 5 times by the FDA in the past year. Like any concerns surrounding any surprises as you kind of gear up for this new PDUFA?

I think the whole industry is concerned because FDA is not able to conduct pre-approval inspections. So we've been lucky enough so far that they've been doing it under what's called a remote records request, which is in lieu of PAI. So we're responding to any questions they ask us as fast as we can, and we're still working towards that June 1 PDUFA date. But I'm not going to be relaxed until it's over.

Yes, right. Okay. All right. Fair enough. Do you want to talk a little bit about the IL-2 next? Shall we?

Cool. Sure.

Okay. Great. So I guess -- so you just recently presented some more data on the subcu, the IV, you're seeing efficacy in different contexts. And it looks like the subcu is kind of recapitulating the behavior of the IV. I guess kind of broadly speaking, where do you go from here, right? I'm assuming you've been talking to different strategics over the years pretty regularly. I would think they've probably given you feedback on the TPP that they kind of want to see and what data they view as sort of derisking. What's sort of the next major inflection point? Do you think this is kind of the year now where this asset is ready for prime time and we see a major monetization? Or do you still look to future data catalysts as gating to that?

From the outset, we've set these series of stage gates on this program. And for our own belief as well as understanding what, in the outside world, what would be viewed as a differentiated type of platform molecule, coming into last year, it was very clear that the 2 check boxes that needed to be checked were monotherapy efficacy and subcu efficacy. Now monotherapy efficacy sounds -- it sounds logical, but other people with these IL-2 variants have not really been able to see robust monotherapy efficacy. It's entirely consistent with the design hypothesis. We believe, internally, if we didn't see monotherapy efficacy, we weren't going to spend a lot of time waving our hands saying why it's okay. We just said, look, we designed this molecule to do this. If we see dose-dependent expansion of the desired cell types in the periphery, CD8-positive NK cells at high dose IL-2 levels, why wouldn't we see monotherapy efficacy? Have we abrogated it in some way? So when we started seeing the responses in mucosal melanoma, cutaneous melanoma and RCC, which are the canonical IL-2 responsive tumor types, that was really important to us on the IV side. That data began to mature last fall. We saw that at ESMO and SITC. At the end of last year, we got to our recommended Phase II dose for the subcu. And as prosaic as that may sound, there's a lot of clinical work that goes into that to get to that dose. We enroll a lot of patients. You go through a lot of escalations. Now we're enrolling patients at a recommended Phase II dose in the subcu that's giving us expansions that look like high-dose IL-2 or better. And interestingly, our first patient enrolled in the expansion cohort, we have a partial response awaiting confirmation in a seriously pretreated patient with platinum-resistant ovarian cancer. So my -- to answer your question is I think we need to accumulate a bit more of the subcu efficacy information, which should happen as a matter of course now because everybody we're enrolling in this study are getting therapeutic doses. We're in the patient -- we're in the tumor types that we think we should be. So I think as those data aggregate over the year, we -- I feel very strongly about this program in the sense that -- use a term monetization, that it implies like we turn it into money. This is a really important drug. This is -- we think the original promise of IL-2 as being a very permissive counterpart with multiple combinations is absolutely still intact. And you saw some preclinical data on work with TKIs. We're doing work with other agents as well preclinically. The purpose of a collaboration for us is to expand the clinical utility. And what I've said to folks is that we don't want to spend a minute of energy with a potential partner trying to explain them that nemvaleukin is an active agent. We can do that ourselves. That's what we're proving right now. Then the conversation is being, what should we do with it? What's the business and clinical configuration that makes the most sense? And I think as we move into the second half of this year, we're going to be well positioned to do that.

Yes. Does the presence of other cytokine programs internally change your sense of urgency to actually do a deal? Like could you start to just have a subsidiary among Alkermes that is purely oncology-focused, right? If it's a single-asset one-off, then thematically, the fit is less clear. But if you have a pipeline there, does that change your thinking at all?

I think it's absolutely compatible. I think we want a collaboration for the reasons I've said. Number one, I think for the skeptics out there, it's validating. Number two, it helps to fees R&D expense. And number three, it's not inconsistent with the idea of building this pipeline of engineered cytokines. And so it was interesting, in talking to investors, people said, well, somebody told us you guys don't -- it was just like a one-off product in the company, and you had one person working in oncology. It was like the idiocy of the comments is astonishing to me. We have a highly sophisticated group of people here, and we've been in the clinic with this for some time. And we're running clinical trials around the world, and we're collaborating with major thought leaders, and we have more cytokines. So stay tuned. There's a capability here that -- and -- but again, to be fair, nemvaleukin could have failed. Look at all these IL-2 programs that were around even a couple of years ago, how many of them are really bearing out? More people are coming to the party now because the biology is so interesting. But at the end of the day, you got to engineer a molecule that is safe, well-tolerated, has desired cell expansions, shows monotherapy activity, plays well with others. We've got the only one that's in a subcu format right now. There's a lot of things to do to be able to compete.

Yes. Right, right, right. Okay. Very good. Well, I want to make sure, in the interest of time, that we talk about a couple of the other things that you highlighted at your R&D Day. And at that point, maybe we can do one kind of question or thought exercise on the Rodin portfolio and then one on the work you're doing in orexin. But on the Rodin HDAC inhibitors, you and I talked about this, okay, I've always thought the science there was super interesting. That said, from kind of a risk unvalidated target perspective, this is something that's -- it's less historically in Alkermes' wheelhouse, right? You guys have historically taken proven biology and trying to make it better. So what about this was compelling enough for you to kind of step in some of these certainly higher-value but much higher-risk neurodegenerative indications?

I think some of the risk gets attenuated by the clinical approach you take as well in terms of the translational medicine that you can do. And that's why you heard us talk about a basket approach to a number of different neurodegenerative or neurodevelopmental conditions. The answer to the question, though, Paul, is that I really feel -- I think our scientists feel like the biology suggesting that synaptic formation and strengthening is under epigenetic control and that HDAC inhibitors can drive synaptogenesis in the mammalian brain. That's well validated. There's a lot of information about that. So it became very Alkermes-like. That's why we did the deal because it became about molecular design. Can you make selective HDAC inhibitors that don't have the peripheral hematologic toxicities? And that's why we were fascinated by the idea of targeting the HDAC-CoREST complex because the actual -- the structural work you're doing on the molecule then is with the enzyme in a different configuration when it's with a multi-protein complex. So these HDAC-CoREST inhibitors are different than garden-variety HDAC. When we acquired Rodin, they had a test compound, as you know, that they were excited to take into the clinic. We thought that was a molecule that could get into the clinic, but it was never getting it out of the clinic. So we took a year and decided on 1140 because it has the pharmaceutical properties that we think are -- make it amenable to going into the clinic and testing it across a number of these different indications. But we will still rely very much on some of the translational tools like SVT, PET, EEG. And we want to see -- we believe that these are going to turn on synaptic formation and be prosynaptic in the brain. The question is, can you harness it? What do you do with that information?

Got it. Cool. So what about timing there? Really quickly before we move on to orexin.

We'll start first study this year.

Okay. Okay. Very good. All right. Orexin, quickly, it's a target that's been around for a while, not to kind of group in all orexin. But this pathway has been around for a while, super interesting, multiple kind of flavors of different approaches. How is yours unique? And how would you kind of contextualize what you're doing there?

So you're right, the idea of orexin or hypocretin being intimately fundamentally involved in narcolepsy, that biology is increasingly validated. And the natural ligand, of course, is a peptide. And so this orexin 2 receptor, it's a GPCR, so it's a 7-transmembrane spanning receptor. So making a small molecule agonist of it, from a chemistry point of view, is challenging. So this is something that Alkermes is very good at because it's not just making a small molecule selective peptide agonist or small molecule agonist, it's also one that has the right PK/PD relationship, gets across the blood-brain barrier and has the right regional specificity in the brain. So it's this interesting contour of affinity, selectivity, blood-brain barrier penetrability, PK/PD. That's -- we're really good at that. That's what we do. So we feel like the peptides that have been put in the clinic that helped validate the biology are really reassuring. Now the question is, who can make a good, small-molecule agonist? And we think we have a really good shot at it. It's not without risk, but it's one we're quite excited. It was interesting coincidence because nobody had really been talking about it. And right before our meeting, of course, there's a bunch of news around it. And I know that other players in the field really see this as a giant opportunity. And we're excited. So we've been in this space for quite a while quietly, but now it's just a little bit more prominent than what we've been doing.

Yes. Great. And you want to just round it out with timing there and initial indication or indications that you're prioritizing?

We'll start in narcolepsy, and we're right on -- hopefully, we'll nominate the candidate this year.

Yes. Yes. Okay. Very good. Well, thank you, Richard. Any closing remarks before we end this discussion? I always appreciate and enjoy it.

No, I think it's really important to take a look at the oncology stuff, not as a singularity, Paul, it's foundational with the company. And a number of people evaluating the company right now really have no value in there for nemvaleukin. I think that's one of the pivot points in terms of people's consideration of the company coming into this year that it's important to factor in.

Yes. Yes. All right.

All right. Good seeing you.

Thank you always. It's great seeing you, too.

You're welcome.

We realize that. All right. Have a good one.