Alkermes plc (ALKS) Earnings Call Transcript & Summary

All right. Good day, everybody. Thanks for joining us to the Bank of America Annual Healthcare Conference. My name is Jason Gerberry. I'm one of the biopharma analysts, and I'm pleased to be introducing our next company presenter, Alkermes. Joining us today is Blair Jackson, COO. And we've got Iain Brown, CFO. Blair has got a few prepared remarks, and then we'll jump into Q&A. )

Great. Well, thank you, Jason. It's nice to be here. As a reminder to everyone, we will be making some forward-looking statements today, so I encourage everybody to review our SEC filings. As we move through Q2 of this year, I think it's important just to level set where we are as an organization, and it's really about execution for us. There's a lot of really interesting elements of the company as we move forward. And maybe we'll start first with the pipeline. I guess, the most proximal event that we have in front of us right now is the potential approval of LYBALVI, which is our once daily oral formulation of olanzapine that is designed to provide that efficacy of olanzapine while mitigating some of the weight gain. And this product right now is sitting in front of the FDA as they can complete their review, and we have a potential PDUFA in June 1 of this year. And so we've been focusing our efforts on obtaining approval over the last few months as the FDA completes their manufacturing review. And our hope is that, on approval, we'll be in a position to then launch the product in the second half of this year. And so there's a lot of activity right now going on in the company as we look to be commercially ready to launch this, ensuring we have commercial launch materials, to make sure that we're aligning our commercial infrastructure to allow for an expanded presence of our sales force as we reach out to these oral schizophrenia and bipolar treatment providers. So a lot of excitement there, and hopefully, we'll have some data in the next few weeks, so we can update everyone on. The next program that I just wanted to highlight as we move through this year is nemvaleukin. Nemvaleukin is our IL-2 variant that we're studying in a wide range of solid tumors. And that's a really particular important point in the program where we're generating a lot of data across both our IV formulation and subcutaneous formulation studies. And we will be releasing additional data as we move through the clinical conferences over the course of the year. Next, of course, being ASCO in the next few weeks, where we'll highlight data from our ARTISTRY-1 program and our ARTISTRY-2 program as those programs move forward. And then just to spend a few moments on our commercial portfolio. Our 2 lead products are continuing to perform well and grow as we recover from the COVID crisis. Our first product, VIVITROL, is used for the treatment of alcohol dependence and opioid use disorder, had a bit of a disruption as we were in the COVID situation. And as we saw a number of treatment centers really slow down their treatment flow or even shut down altogether. We've seen a lot of that coming back right now. Some of that has to do with the work that our commercial team did to really enlarge and engage providers to enhance their injection services and also to provide injection services at pharmacies. But with the country starting to open up a bit, we're seeing really nice trajectory, both in the opioid and alcohol area. And then with our second product, ARISTADA, our long-acting injectable for schizophrenia, it had less of a disruption over the course of COVID, but we did see a slight decline in the growth rate. But despite that and despite the fact that the whole market of LAIs grew slightly slower than in previous years, ARISTADA remained the #1 growing long-acting injectable in the space. And I think that speaks highly to the characteristics of the product that we're providing to the patients. So with those products moving really well and pipeline pulling through, we're really focused carefully on profitability and executing on the value enhancement plan that we laid out late last year and we've talked at length about to investors over the last few months. So we feel we're in a good place right now and looking forward to continuing the rest of the year.

Well, great. Thanks so much for those comments and context. Maybe just one on value enhancement plan and something that was a topic for your most recent earnings call is the potential royalty monetization and exploring that and really the idea of getting fair value for VUMERITY in your eyes and sort of some of the fluid dynamics that maybe are going on in that marketplace, the scripts have really inflected in a meaningful way. And so I guess, maybe what do you feel is something like the keys kind of looking forward to when you can get clarity? It sounded like maybe just wanting to get a few more quarters under your belt to maybe get a sense: a, the product has done really well ever since the generic version of TECFIDERA got into the market. So it doesn't seem like the generics are variable so much as perhaps we heard a certain percentage of patients may have the GI issues. And so maybe is the concern, could VUMERITY be adopted more broadly? I'm just kind of curious how you guys are thinking about some of those variables?

Yes. So let me take that. So VUMERITY launched in the end of 2019, and our preface is Biogen launched the product and they're 100% responsible for the commercialization of it. So it launched relatively slowly, certainly in the face of COVID. But as we got towards the end of last year, we saw a nice ramp between Q3 and Q4, and then that continued into the first quarter of this year. So we seem to be on a very different trajectory now for the product as compared to where we were last year. So certainly, as we talk about potentially looking at monetizing it, we really feel the value of VUMERITY is coming into the fold. And to your point, maybe getting a few more quarters of experience under our belt will certainly be helpful from that perspective. I think as we think about the VUMERITY royalty stream, I think it's -- obviously, it's a key product for Biogen at this point in time. They seem to be very much focusing their commercial efforts behind the product to this. And VUMERITY is really designed as the next-generation TECFIDERA with the efficacy, but an improved tolerability profile. So as markets open up and you're able to get new patients started on medication, putting them on VUMERITY may well be the right way to go for the patient. So back to your original question around monetizing, I think a few more quarters of experience will be helpful. And then as we think about creating value, we're in the fortunate position where we don't actually need to raise cash at this point in time. So we can certainly wait for that value to come to the forefront, but it's also not a binary event. We don't need to sell all or none of the royalty. You could end up potentially selling a portion of the royalty, if you get some kind of interesting arbitrage out there. So if we were able to get some value that would exceed what external sources may think is the revenue trajectory and creating value through some kind of arbitrages like that might be an interesting opportunity for us as well.

And is there an interest to monetize more broadly the royalties, including INVEGA? And then as I look at the current structure of the P&L, by our estimates directionally, maybe half your gross profits may be derived from royalties. So imagine everything has a price at this stage and you may alter sort of the dollars that have been historically used to subsidize R&D. So maybe can you think about maybe the considerations to a broader monetization type of event?

Yes. So I'd say we have a broad portfolio of royalties. Some products are later, more mature in their cycle. When you think about RISPERDAL CONSTA and INVEGA SUSTENNA. Some are earlier like the VUMERITY [indiscernible]. So I think we're in an interesting position, whereby the royalties are an important part of our business today. They're about $0.5 billion of the top line. And to your point, probably just slightly below 50% of the gross profit. But obviously, that's a key component of the P&L as both this year and as we look forward. That said, to my earlier point, if we can create some value either through just the size of a potential deal and then some -- think about some things we could do with the funding that we would generate from that or we can create this arbitrage then that's when we would pull the trigger on a potential transaction. We're not in any rush to -- it's all about that value creation, to your point.

Yes. And just last question on, I guess, the broader value enhancement plan and thinking about 4230, given the expense and the risk associated with oncology and in drug development, is it a good outcome for you here, if you can find a partner that maybe you can just split the P&L burden with? Or is the idea here, once you kind of validate subcu and the profile a little bit more that the idea here is to maybe have a more of a dedicated CNS company and trying to get maximum value and not sort of have the 2 kind of thematics of oncology and CNS under the same route?

Well, I think as you think of the company, I think there's -- we have a lot of dynamics going on. We held an Investor Day, as you know, a month or so ago where we highlighted some of the ongoing development in the organization. And you can see there's a lot of depth here both within CNS as well as oncology as we look at our engineered cytokine platform in addition to small molecule platforms that we're growing. So when we think the partnerships on 4230, to Iain's earlier point, it's all about evaluation and driving value for our shareholders. We want to maximize the value of this asset. And that could involve a transaction where one party is solely responsible for it, but it could involve us being involved with that party or with multiple partners as we look at different formulations or different combination partners. For example, we're looking at right now combinations of nemvaleukin with PD-1 inhibitors, such as KEYTRUDA. We also have some interesting data we've published for folks on the combination of nemvaleukin and TKI. And we may approach that with different people, and we may group it with one transaction that discussions will dictate where that goes.

Yes. Okay. Maybe let's switch gears to LYBALVI. As you mentioned, kind of the next big update in the company's story and your PDUFA coming up. Maybe how are you thinking about LYBALVI positioning in the schizophrenia and bipolar or mania markets in terms of, would it be any 2 generic atypicals. You've got a trial and [indiscernible] step through and then kind of being that potent third-line big gun. I know that some on The Street fixated on this. You have to fail generic olanzapine, which never made sense to me, and that you could certainly fail generic ABILIFY and another agent and go to this. So just maybe how we think about how you guys are thinking about positioning?

So with like -- we know we're launching into a generic market. Over 90% of the market is generic at this point in time, and generics are always going to be used in first-line use. I think it's a market where patients are cycling through 3 to 5 generic medications before they get put onto a branded product. But despite that the -- despite the sort of churn in the market, the branded oral atypical market's still $3.2 billion annually, when you think about schizophrenia and bipolar disorder. So I mean, when we talk about the churn, every month there's an estimated 70,000 oral switches and 15,000 of those are on to branded agents. So every switch in the market is an opportunity for somebody to get on to LYBALVI. And when we think about why LYBALVI, the value proposition is really around the efficacy of olanzapine. So olanzapine was the leading oral atypical antipsychotic treatment, but the issues are always the side effects, the weight gain, the metabolic side effects. So despite that, olanzapine still has 20% of prescriptions in schizophrenia purely because of its efficacy. So the value proposition of LYBALVI, as Blair talked to, is getting that efficacy without the weight gain and the side effects. So we do expect that patients going to fail the number of treatments before they put on to LYBALVI. One of the treatments may have been olanzapine. So almost by default, they've stepped through olanzapine before they've got onto LYBALVI. But yes, I think the payer dynamics are going to be interesting. That's something we're going to be focused on for the first year. We talked about a relatively slow launch, certainly from a net sales perspective in 2021. We guided up to $10 million worth of net sales, but we're going to be actively engaging with the payers and we have various programs to try and get the patients the ability to try the product, such as co-pay programs and free goods. So yes, we're looking forward to sort of the PDUFA date and getting the product into the market.

You made some comments, I think, recently about how this product will be resourced, maybe not as expansively as maybe some past launches in terms of field force. Can you give us a little context for how you decided around resource allocation? Where you think you stack up against some of the other branded approaches that are out there?

Yes. This is something that's really evolved over the last 1.5 years, I would say. I mean if you look at our SG&A guidance for the year as compared to where we ended last year, we're about $45 million higher sort of midpoint of guidance. And that $45 million is really focused on the launch of LYBALVI. So the commercial organization has done a lot of work to make sure that they're structurally as efficiently as possible. We mentioned there was a reorganization at the start of the year that took about 80 positions previously focused on VIVITROL and ARISTADA and we purposed those to support the launch of LYBALVI. We talked about adding incremental 40 to 50 sales reps to the LYBALVI launch. The ARISTADA reps will all be selling LYBALVI as well. And they currently call on about 60% of the provider universe. Right now, they're obviously calling on long-acting injectable doctors and the oral universe is slightly larger. So we will be augmenting the field sales force, some closer to the PDUFA date and then some more on a staged basis as we gain access. So when we had this conversation 1.5 years, 2 years ago, we were talking about adding 200 incremental reps. But I think with the lessons that we've learned from the pandemic and the use of sort of telehealth, the importance of that in the field of schizophrenia, especially in bipolar disorder and a lot of the work that we've been doing through the value enhancement plan and the commercial organization has been able to do from an operational efficiency perspective, we believe we're able to support the launch with a lower level of investment than we would have typically told you in the past.

Okay. One question about LYBALVI's potential label. How important is it to get the weight attenuation curves in that package insert to really tell that story that value proposition that you've articulated?

Yes. I think as we think of the label, the FDA has improved dramatically over the last few years in allowing companies to communicate information consistent with the label. And I think one of the things that we made sure that we did as we developed this program is develop within the clinical trial within the ENLIGHTEN-2 program that we designed an element of that study that showed prolonged mitigation of the weight gain. So if you remember, our -- the ENLIGHTEN-2 study consists of about 561 patients, who were randomized either in olanzapine or ALKS 3831 over that 24-week period. After that period was done and that the people who were put on to olanzapine had an opportunity to switch over on to 3831, so we carried forward that whole group for a 52-week period and showed that there was a pretty much flat curve with regards to weight gain over that period of time. So we have a great amount of data with regards to the benefit of the drug over a prolonged period of time. The curve itself, whether that's in as a curve, whether it's in descriptive statistics, I think we're able to communicate to physicians really well either way. And I think what's really important to -- as we talk to these physicians, is really understanding that the risk of gaining clinically meaningful weight when you're on olanzapine versus when you're on ALKS 3831 is twofold different. So you have 2x greater chance of gaining that weight if you're on olanzapine. And that's a pretty profound outcome, and it's something that I think our data suggests you maintain as long as you're continuing to maintain treatment.

Okay. Can you just quickly touch upon this whole REMS thing that took a little bit of a life of its own after the AdCom and just provide investors with context for how that came up in the panel? How much discussion it actually garnered in the panel of analysts quite a while ago? So I don't know -- I forget the details of that, but hopefully, you can provide a little more color or context.

No. I'd be happy to. I think what evolved in [indiscernible] description and a discussion about a subset of patients who are perhaps schizophrenic or have bipolar I disorder, who are dependent on opioids. And if you look at ALKS 3831, we're a combination of olanzapine plus samidorphan. And samidorphan is an opioid antagonist. And so in the small group of patients who happen to have opioid dependence, ALKS 3831 would not be an appropriate medication and that samidorphan blocks that opioid receptor and could precipitate withdrawal in that subset of patients. So the discussion went into the realm of should REMS be put in place to mitigate the risk associated with this group of patients. And I think as we look at this, as you know, Alkermes is quite familiar with commercializing opioid antagonist with VIVITROL being itself an opioid antagonist with naltrexone. And this really comes down to how do you share information with regards to risk of AEs with patients. And the FDA has a pretty comprehensive program to do that. First, there's the label, which clearly lays out the risk and the benefit ratio in that label. There's also opportunities to communicate broadly with patients and physicians through medication guides. Many, many of the antipsychotics that are out there right now have medication guides to assist with communicating the risks. As you move into REMS, which is more of a formal description of -- or mitigation strategy, medication guide's actually the beginning of that strategy. It's on the spectrum of a small REMS. And REMS can be as small as medication guides and education to as complex as adding elements of safe use, which are a little more -- when you get into physician registration and things like that for more serious things. We believe that with ALKS 3831, we can mitigate any potential risks for patient, physician education, and we're well positioned to do that.

Okay. Just shifting gears, addiction and the addiction space, how committed are you guys long term beyond the life of VIVITROL to being in the addiction space? I know there hasn't been a ton of new innovation outside of like SUBOXONE and VIVITROL. There was a recent New York Times article about psychedelic therapy being explored in the FDA realm, which seems a little bit in your wheelhouse, right? You guys are -- you guys have relationships with addiction clinics. You guys understand that space pretty well. Just kind of curious your thoughts about -- is that an area of interest for you? Do you -- would you look to allocate business development dollars or internal R&D dollars to kind of being a longer-term player in the addiction space?

Yes. So we've spent a lot of time looking at assets within all of the areas that we have businesses in. Our goal is to really support the patients that were involved with as comprehensively as possible. The addiction space has been a particularly challenging one. We've looked -- we're familiar with every asset practically that is in development. And one of the challenges that we've seen is really sort of robustness of some of the responses as well as an ability for potential approval. But obviously, if there's a medication or other wrap-around service or other that would benefit our patients, it's something we definitely consider as we consider our business development options and growth strategies in the future.

Okay. And then, I guess, since we're on the topic of VIVITROL, just the broader pandemic, how you guys are navigating it? How patients who were accessing their typical care provider where they would get their VIVITROL injections? How are you guys getting along? It seems like from the most recent 1Q update that you guys are getting along a little bit better on that front than perhaps maybe was initially thought to start the year when you put your guidance out.

Yes. I mean, VIVITROL was the product that last year was really impacted by the pandemic when it hit. Everything shut down, and VIVITROL tends to be a bit of a high-touch product. And so far as initially, you need the interaction between the patient, their caregiver -- their health care provider to discuss treatment options and determine that VIVITROL is the right way to go. And then if you're using it on the opioid use disorder [indiscernible] then there's a detoxification that you need to have, which is often high-touch and then it's long-acting injectables. So you obviously need to have 2 people in order to make that happen. So when everything is shut down, that really impacted the business, certainly the ability to get new patients on to VIVITROL. The focus for the commercial organization was really on continuity of care for existing patients. So we did a lot of work around expanding injection sites, health care provider locators expanding that. And then also the commercial organization was unable to move more towards a telehealth model as that started to establish itself. So commercial organization, I think, did a good job in pivoting. And as to your point, as we've progressed through the pandemic and people have got more used to the situation, we've seen an easing. So I think there's still tailwinds in the first half of the year. As we put together guidance this year, we felt that the second half of the year is when we would see more of a return to normal pre-pandemic levels. And that seems to be what's playing out. But I think interestingly for us, when it comes to VIVITROL, we've really seen the growth in VIVITROL over the last couple of years being on the alcohol side as compared to the opioid side. And if you think about VIVITROL with the use in the alcohol indication, you don't need detox. And obviously, with the pandemic, you hear a lot of stories about increased levels of drinking, et cetera. So as we come out of the pandemic, there may be a little bit of a tailwind. It's easier for people to get onto medication in the alcohol space, and that's something we're really focused on through the remainder of the year.

Okay. Maybe just to nemvaleukin or 4230, if you can talk a little bit about maybe what you think investors will be able to learn incrementally about the subcutaneous format at ASCO this year from the ARTISTRY-2 trial? Just curious should investors really focus on the PK/PD dynamics as it pertains to that formulation versus IV at least in the near term?

Yes. So as we mentioned earlier, we had a comprehensive review of nemvaleukin at our Investor Day that we held a few weeks ago. And during that discussion, we went through in great detail, both the ARTISTRY-1 and ARTISTRY-2 programs. Our focus in that meeting was predominantly on some of the areas where we saw really interesting response, mucosal melanoma in monotherapy and platinum-resistant ovarian cancer in combination with KEYTRUDA. So as we move into ASCO, what we're going to be doing is elaborating on that data that investors saw. So there's only been a small amount of time that's gone on between when we last disclosed in the ASCO meeting. But what we plan to do on the ARTISTRY-2 program is to elaborate further on some of the PK/PD dynamics, giving a little more detail into what those curves look like and how those progress over time, also the safety data associated with ARTISTRY-1 and an update on any of the clinical data that we've been looking at through that program since our last disclosure. We'll also have some information on our ARTISTRY-1 program there, which is, again, an extension of some of the data that we saw before, whether it's a deepening of response or any responses in other tumor types that we maybe didn't have time to talk about during our Investor Day.

Yes. Okay. And then for the intravenous form, just kind of more broadly thinking here about the efficacy threshold that you'd be looking to see at least from a monotherapy perspective and some of the tumors where IL-2 has historically had some interesting activity in melanoma, renal. We've seen ORR rates in the mid-teens, CR rates in the mid-single digits with classical high dose IL-2. Is that the benchmark that you guys think about is? Or I guess -- I don't know how you would think about framing that discussion.

Yes. When we think of the hurdle rates, obviously, we're focusing our development on some really severe and hard-to-treat tumor lines and patients. And so the reception or the response you see with traditional therapies is quite low. So we don't think that we have to hit a really high bar to show benefit in this patient group, and that's something that we'll work with the FDA to establish.

Got it. All right. Well, we're out of time, gentlemen, but appreciate joining us at the conference and the discussion, as always. So thanks for that. And hopefully, you have a productive rest of your day.

Thanks a lot, Jason.

Thanks, Jason.

All right. Thanks.