Alkermes plc (ALKS) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to day 2 of our conference and to Alkermes fireside chat. I'm Navann Ty, I cover Spec Pharma at Citi, and I have the pleasure having Blair Jackson, EVP and COO of Alkermes; and Iain Brown, SVP and CFO. Maybe Blair and Iain, if you could start with a short introduction to Alkermes, it will be very helpful and then I could go to Q&A.

Sure. We'd be happy to. Thanks for the introduction. And maybe before I start, I'll just highlight that we will be making forward-looking statements, and so I encourage everyone to review our regulatory filings for a more full risk disclosure. But we really appreciate you having us at the conference. It's a little shocking that it's already September. It's been a crazy year for us. We've got a lot going on at the company. And it's really been a year focused on execution and execution across multiple lanes of the business. On the commercial side, driving the performance of our products, VIVITROL and ARISTADA. On the R&D side, we had a lot going on with advancing some of our early-stage assets as we move them towards the clinic, really generating data across a number of different tumor lanes and other areas within oncology with nemvaleukin, our late-stage asset. And then importantly, looking to secure approval of LYBALVI, our program for schizophrenia and bipolar disorder. And then finally, it's been about focus on financial operating performance and driving profitability in the organization. And sitting here in September, I'm really thrilled to highlight that we've made significant progress across each of these domains. If we start first with commercial on our product VIVITROL, this is a long-acting injectable for the treatment of alcohol dependence and opioid dependence. And this is a product that is an important tool in the armamentarium for physicians treating substance abuse. And it faced a few headwinds as we moved into the COVID crisis but has been actually recovering quite nicely. We have these 2 indications and in many ways, they're very different. On the opioid dependence side, there's -- it's a product that requires a lot more patient touch. There's detoxification at the beginning and injection in the physicians' offices. But we're really happy to see that we're really returning to almost pre-COVID-like levels within opioid dependence. On the alcohol-dependence side, we don't have that detox requirement. So it's a little easier on physicians. And we're seeing a significant level of growth within that area of the business. And we're putting more of our commercial effort towards that. And I think what we've seen through the COVID crisis has been a utilization of alcohol across the country that's at levels that we haven't seen before. And it's been unfortunate, but it's driven a lot of patients in to seek treatment as these communities have opened up. But also importantly, we're noticing that physicians are using medical-assisted treatment more. And VIVITROL is a really important tool for them in really helping these patients on their road to recovery. So VIVITROL is performing well. We're excited to see where that's going. Our second product, ARISTADA, for the treatment of schizophrenia is also a long-acting injectable. This is a market that also faced some COVID headwinds again because of the injection requirements. And our commercial and medical affairs team really worked hard through last year to enable alternative injection capabilities outside of some of these clinics and pharmacies and other areas that remained open. And as such, we found that ARISTADA was reasonably resilient and in fact, was the fastest growing of the long-acting injectables throughout the COVID crisis. And I think that's a testament to some of the flexibility that we've built into the product, both in the number of doses that we have, but also the ability to dose at different durations. We have seen a particular interest in our ARISTADA INITIO and 2-month combination, allowing patients to initiate right on the 2 months of therapy without a prolonged induction phase. And so both of these products are performing well. We had our Q2 earnings few weeks ago where, again, we saw really good performance from the commercial business and feel good moving into the fall. One of the areas that we're really excited about is LYBALVI. So this is the next product for the commercial organization. It really leverages our commercial infrastructure. We were happy to announce earlier this year that LYBALVI was approved, and we're looking to get this in the hands of patients and physicians in the fourth quarter of this year. So it's an important medication for patients and physicians and that it's designed to provide the efficacy of olanzapine while mitigating some of that weight gain associated with olanzapine therapy. And for us, it's an important product because it really does leverage our existing commercial infrastructure and will help us drive some of the margin expansion that we're expected to see and really will be the next leg of growth for our mental health franchise. If I turn for a second to the R&D organization, we had our Investor Day in March of this year, which was a really well-attended event where we went comprehensively through some of our research capabilities in neuroscience and oncology and highlighted a number of different opportunities that we were exploring. If anyone on this call hasn't seen that presentation, I encourage you to visit our website. It's a good holistic view of what we're working on, both in neurology and oncology, but also in small and large molecules. We have 2 really later-stage assets that we're moving through that early preclinical pathway. The first is an orexin modulator, which we're on track to nominate a lead soon for the treatment of narcolepsy and related disorders that can be -- this class of compounds can be a very important medication in the space and we're excited about that. The other one that we're looking to move forward very quickly into the clinic by the end of this year is called ALKS 1140. This is our CoREST selective HDAC modulator that's designed to enhance synaptogenesis. And we're looking to develop that potentially in neurodegenerative and neurodevelopmental disorders. And so we're seeing a lot of movement within the early-stage pipeline. But of course, a lot of focus in the organization is on our late-stage pipeline and in particular, data around nemvaleukin, our late-stage oncology asset, which is an IL-2 variant. We've been seeing a lot of data within a number of different tumor types and some of which has really -- has caused us to move into registration programs. So we saw monotherapy efficacy in both mucosal melanoma as well as renal cell carcinoma. And we've decided to move forward with mucosal melanoma registration program that we've kicked off this year. Similarly, in combination with checkpoint inhibitors, we've seen some really interesting data within ovarian cancer. And as such, have moved forward with planning on a registration program in platinum-resistant ovarian cancer in partnership with Merck, and we're in the process of talking to the FDA right now about that protocol so we can kick that off as soon as possible. Beyond that, we have a lot of data coming out in a number of other areas in nemvaleukin and other tumor types. We're also looking at different improved delivery modalities and easier dosing. So this is a pretty dynamic program with a lot of data to come. And then finally, I'll just end on the financial metrics that I talked about earlier. We have a pretty comprehensive growth plan within the revenue side, both our proprietary products as well as contribution from our royalty products such as VUMERITY, which is growing rapidly this year, really is driving that top line piece. And we have a pretty comprehensive program across the organization on ensuring that we have strong oversight on the cost side. And I think the Q2 earnings that we released highlighted how the company is performing and how we're looking to do that moving forward. So it's going to be a pretty busy year even in the last quarter, but we're excited on where things are going right now. So maybe I'll turn it over to you, and we can take some questions that you received.

Thank you, Blair. Very exciting. Maybe if you go back to the current commercial products, so you gave us an overview of the performance as it relates to the pandemic impact, which -- are you seeing more impact now due to the variants and I have some follow-up after that?

Yes, maybe I'll take that one. And I'm trying to repeat what Blair said. I mean I think for us, it was a tale of 2 products. VIVITROL heavy touch product was impacted more than how its data was. I think if you look back on 2020, we got off to a good start with VIVITROL. We were happy with the first quarter, the pandemic hit and everything shut down; treatment centers, detox centers, everything that you need to be able to initiate on to VIVITROL. So we immediately saw shipments down 25% as compared to what we were expecting. But I think what was important for VIVITROL is new starts are a big part of the business. I mean generally, people stay on VIVITROL on average about 4 months. So it's the new people coming on, which maintain the growth in the sales. So as people were not able to initiate on the product, that was really what hurt. But as the treatment system figured things out, in Q3 and Q4 we did see signs of recovery, and it was relatively consistent. We had about $80 million in net sales in each of Q3 and Q4. So all said and done, we ended the year about $30 million to $40 million below where we originally thought we were going to be pre-pandemic. And the sales force did a great job switching to sort of telehealth. And what we've been seeing since then is an increasing ability to get back in front of doctors, physicians, et cetera. So the in-person calls, which we believe are actually more efficient at initiating people on to product are back at around 70% level at this point in time. So as Blair said, we're pleased with the recovery that we've seen on the VIVITROL front. And I think it bodes well for the second half of the year. With respect to the variants, we're not actually seeing too much of an impact at this point in time. And anecdotally, the stories that you hear with regard to the use of alcohol during pandemic, opioid addiction isn't going away. If anything, there may be a slight tailwind coming out of the pandemic, whenever that may be. On the ARISTADA front, we're actually very pleased with the way ARISTADA fared during the course of the pandemic. We actually ended the year with $240 million in net sales, which was higher than what we had originally anticipated in our pre-COVID guidance. So overall, the market growth did slow down. But as Blair alluded to, ARISTADA continues to be the fastest growing LAIs in the marketplace. The key differentiator being these 3 different durations and the 4 doses, the INITIO in the 2 months has been very popular as you're trying to limit the interactions with physicians. So the first half of the year has been strong. We are actually seeing a little bit of a slowdown in the market at this point in time. Market growth has slowed down, which I think is going to impact ARISTADA a little bit as compared to what we'd originally anticipated, but we're watching that. And we still feel good with the guidance we've got out there for the full year.

Thank you. And you gave a good color on alcohol versus opioid. Has your sales targeting changed to focus on the alcohol indication? And what do you think of the competition in the space going forward? Like I'm thinking about Adial ADO4, Zofran in the later stages of development?

Yes. So as we really dug into the data, the growth in VIVITROL over the last couple of years has really come on the alcohol side. That's the key focus for us in 2021. I mean VIVITROL is still only 1 of 3 FDA-approved medications on the opioid side of things. So it's not like we're leaving that market. We're still focused on providing that medication in what is still a raging opioid epidemic. But the marketing focus is really switching now to the alcohol indication. We have new campaigns out there. We have a new website, myrelationshipwithalcohol.com. We were doing some work with CC Sabathia on the alcohol side as well. And what we're seeing is the split between alcohol and opioid really switched over around about mid-2019, and alcohol has been growing faster than the opioid side of things. And we expect -- we're at about 60-40 now alcohol opioid, and we would expect that to continue to trend more on the alcohol side of things. So -- and as I mentioned, COVID could be a little bit of a tailwind with regard to patient seeking treatment both on the alcohol side and on the opioid side of things. With regard to competition, I think it's still a very underserved population, both on series -- both on -- sorry, the addiction side of things, whether it's opioid or alcohol. I think having more competitors come in is just going to raise awareness that there are medications out there. I think some of the products that you talked about are a few years out at this point in time. So we're going to still focus on growing awareness of VIVITROL and promoting that certainly on the alcohol side of things.

That's helpful. And on opioids, if we see a global opioid settlement being finalized, would you expect states to use some of the funds to set up clinics that will be using VIVITROL, which could have the uptake?

Yes. Maybe I can address that. I think when you look at these global settlements as they go to states, they have a wide degree of latitude in how they use the funding associated with this. These funds are earmarked for enhancing treatment for substance abuse across the country, and it can be used in a variety of different forms. I don't think you'll see it so much in setting up new clinics. I think it's about enhancing capabilities in existing clinics providing reimbursement for certain activities such as detox, which is very important, and a number of other educational campaigns. So I think, look, any funding in this space is incredibly welcome. And we spent a lot of time working with the states to, a, identify funding and also to highlight areas where the funding could be best utilized.

Just a final one on alcohol dependence. Would you explore -- would Alkermes explore adjuvant therapy like lorazepam and gabapentin to help withdrawal, but also abstinence beyond 6 months?

Yes. So with regards to -- I'll take the latter part first. So with regards to VIVITROL and our label, we actually don't have any restrictions on the duration of time patients can be on treatment. We studied the program in our pivotal trial for 6 months. And so that's the data that we have. So I don't see us pursuing longer-term abstinence studies as I don't think they're required. With regards to adjunctive treatment, the lorazepam and things like that, these are often referred to in the industry as comfort meds, which are used both on the opioid side as well as on the alcohol side. We have done some studies in the past to show how utilizing some of these comfort meds can reduce withdrawal, particularly on the opioid side. And I think this is something, as you look at the treatment paradigm within substance abuse, a lot of physicians have kind of preferred mixtures or combinations that they use to deal with some of the withdrawal symptoms. So I don't think it's an area that we'll necessarily focus our research dollars on. But we're highly supportive of whatever the physician wants to do in conjunction with VIVITROL in their treatment paradigm, one of the more important things being psychosocial therapy that they layer on with regards to VIVITROL and help maintain that patient as they look to reduce their drinking and preserve abstinence.

Great. Switching from opioid and alcohol to schizophrenia and LYBALVI as you touched base on. How do you expect payers to manage LYBALVI? When do you expect access to be established? And do you still expect any core split between Medicaid, Medicare and commercial?

Yes. I'll take a crack at that one. So we're engaging with the payers at the moment to kind of educate them on the medical and the economic benefits of LYBALVI. So we're launching into a generic market. So as with all branded products, we're going to expect certain barriers to entry. I mean I think we believe patients are going to have to step through 1 to 3 potentially generic products before they get onto LYBALVI. We do get some questions around, do they have to step through olanzapine specifically before LYBALVI. And we're figuring that out at the moment. We don't think -- I mean interestingly, a lot of patients get stabilized on olanzapine initially, and then they move off when they start gaining lots of weight. So that could be considered a step through olanzapine. But putting a patient on to olanzapine only for them to then gain weight and then to put them on to LYBALVI may not necessarily be the most ethical thing because LYBALVI doesn't take the weight away once you put it on. So I think what's important for LYBALVI is that this is a heavy switch market. There's a lot of switches every month. Market research would say about 70,000 switches between these medications. About 15,000 of those are on to branded products. And that's the opportunity for LYBALVI. Every one of those switches to a branded product could be a switch to LYBALVI. I think the health care professionals know olanzapine well, they love the efficacy of olanzapine, but people generally drop off because of the metabolic liabilities. And the ability to have that efficacy of olanzapine without the associated metabolic liabilities is the key sort of selling feature for LYBALVI. So with regard to access, we believe that we'll have full access within the 12- to 18-month time frame. Different programs take different lengths of time. I think Medicare Part D is probably on the latter end of that. We'll have an NDC block on the commercial business for 6 to 9 months. And to your point, yes, we do believe it's going to be in the grand scheme of things about 1/3 Medicaid, 1/3 Medicare Part D and 1/3 commercial. There is different splits between schizophrenia or bipolar disorder. Schizophrenia is a bit heavy on Medicaid, bipolar is a bit heavier commercial. But once this all settles out, we believe that average of 1/3, 1/3, 1/3 is going to be where it ends up.

And do you see any incremental benefit to adoption from the recent approvals of obesity drugs?

Sorry?

Do you see incremental...

I can -- yes, I'm happy to take that. So I think when we look at these, these are, in many ways, very different. A lot of the recent approvals with the drugs are off the glips as you know, for the treatment of obesity. I think when we look at schizophrenia and bipolar disorder, I think that there's a recognition by payers that these are complicated diseases and that there is a position for new products and new brands in the marketplace. And as Iain said earlier, there is a step through on generics as these patients look to get treated. So as patients become more severe and they have breakthrough, there is a turn to brand. There's a lot of switches every month. I think it's about 70,000 every month that switch between medications and about 15,000 of those go into branded. So we don't see that there's any headwinds, either positive or negative from the obesity market on its own. And we do think we're going to have ready access after we get through the launch here.

And just maybe going back before I go back to LYBALVI, but on ARISTADA and RISPERDAL CONSTA, how do you see the market evolving as we're seeing generics entrant like Teva potentially entering the space?

Yes. So with regards to generic entry, I think one of the things that's interesting with long-acting injectables is that it's very different than oral medications. Oral medications, oftentimes you'll see 10-plus generics entering at the same time. And oftentimes, we'll refer to that as a race to the bottom on the price. They're either competing for share and it completely erodes the market. In situations like long-acting injectables, you end up with very few and very certain generic entrants. In this case, if you look at something like a RISPERDAL CONSTA and Teva or something like that, here you almost can view it as a branded competitor. There's no incentive for them to completely eradicate the market. It becomes a very different coexistence between the branded originator and the generics. And I think you've seen this -- you can see this play out in the biosimilar space in some respects, and you can see it play out in some of the more complicated dosage forms that have preceded us, but it's just a different scenario.

And also what is your thinking about J&J 6-month LAI launch, which is probably a late 2022 event, but what do you think of INVEGA, interferon impacting ARISTADA?

So I'm happy to take that. So with regards to the J&J entrants, this is an extension of their paliperidone franchise, as you know. And what they've sort of done is ladder approach. So you need to walk through the doses prior. So you need to move through the monthly or you need to move through the 3 months before you can move on to the 6 months. So I think it's a nice addition to the market and that any sort of news within the space can highlight the utilization of LAIs with these patients. As you know, LAIs still are only a smaller portion of the overall schizophrenia market and more utilization of LAIs is beneficial. So we don't see it necessarily directly impacting our ARISTADA franchise in that, we think we play in a very different spot. And I think that it's a limited group of patients that are going to migrate through those various dosage forms before they get on to the new product for 6 months.

That's helpful. And in terms of -- I know Alkermes has historically marketed long-acting medications. So your first oral medication, how should that impact your LAI business and did that take away some business from ARISTADA?

No, we don't believe that's going to be the case. I think market research would tell us that, as Blair said, the oral and the LAI markets are viewed very differently. I mean the oral market being significantly bigger than the LAIs. I think in schizophrenia, the LAI market still only 11% of total prescriptions and bipolar is even smaller playing closer to 2%. I think the importance for Alkermes is that we're actually going to have a sales force selling 2 products versus just the 1 that he has been doing. So we're going to have enormous leverage coming through the P&L from exactly that, 2 products versus the 1. We're happy, we will be augmenting the sales force with regard to the launch of ARISTADA -- with launch of LYBALVI, but on a much smaller scale than we'd originally anticipated, given, I think, some of the efficiency work we've been doing within the company. And then also, we're making the most of the telehealth approach as well which can be more efficient from a cost perspective. So we don't believe the ARISTADA business is going to suffer at all. We think that's going to continue to grow. And we're looking forward to that leverage coming through the P&L as we're able to launch LYBALVI with a much smaller footprint than we'd originally anticipated.

And maybe a follow-up in terms of pricing, how the sales force will be positioned in the branded for antipsychotic market against the back off of many generics as we touch base?

Yes, absolutely. I mean I think LYBALVI is going to be positioning competitively to the other branded products. They're all priced in a similar kind of band between $1,300, $1,400 a month. We don't expect to be outside of that and that's consistent with all the payer advisory boards that we've been holding in recent months. We're going to be targeting the top 80% of the oral prescribing HCPs, and we believe the sales force is going to have a competitive share of voice with that mix of in-person calls, but also utilizing the telehealth approach, which has really come to the fore during the course of the pandemic. Sorry, you're on mute.

On nemvaleukin, could you explain your registrational strategy, maybe at a high level and what indications? And any updates on the study designs for ARTISTRY-6 and 7?

Sure. So with regards to nemvaleukin, as I mentioned in my introductory remarks, we have a pretty comprehensive program looking at how nemvaleukin performs within a number of different tumor types. And we had 2 programs that are running on that. One is ARTISTRY-1, which looks at the utilization of IV and monotherapy, as well as ARTISTRY-2, which is looking at combinations with PD-1s in subcu form. And so what we've been seeing is actually a response across a number of different tumor lanes. And so we're continuing to elaborate our efficacy data to continue to look for new targets as we move forward. As I mentioned earlier, we've seen interesting data both in melanoma and in ovarian cancer that was strong enough to move forward into registration programs. So with regards to monotherapy and mucosal melanoma, this is an incredibly hard-to-treat patient population who really don't have a lot of options available to them. And so we think that moving very quickly into monotherapy with the IV dosage form will allow us to get therapy in front of those patients as rapidly as possible. And so we have our registrational program kicked off with regards to that, which is our ARTISTRY-6 program. And as I said, we kicked that off this year. It's actually a study where we have 2 different things we're looking at in the study. We're looking at both mucosal melanoma in about 70 patients over the course of that study. And then we're also looking at cutaneous melanoma using the subcu dosage form. And so it gives us an opportunity to gain experience in the wider melanoma patient population with a different dosage form but also to move towards registration on mucosal. So we view both -- we view this as very much move to the market as fast as we can with a very compelling value proposition for patients and then broaden into the broader market as we gain more experience with the drug as we continue the development. We're taking a very similar approach within ovarian cancer. As I said earlier, we're kicking off a program in platinum-resistant ovarian cancer where we've seen some really interesting data. We have patients who've been on drug for a prolonged period of time. This is in combination with PD-1s, which is an important lane for us and that we're studying clinically a number of different areas where PD-1s don't tend to work or they stop working. And so if we're able to adjunctively treat with nemvaleukin in these spaces, it really opens up that checkpoint inhibitor market and provides options for these patients who maybe wouldn't have them otherwise. And so this drew the attention, obviously, of a number of parties. We decided to partner with Merck for this program, utilized KEYTRUDA for the registration program. And we're in the process of putting that protocol together to kick that off so that we can move as quickly as possible with a registration program in platinum-resistant ovarian cancer. And then what we can do is in parallel with that, look for other opportunities to move further earlier in the treatment paradigm within ovarian. And then again, as I said earlier, we have a number of other areas we're exploring and we'll talk about those as the data comes in.

So you mentioned the partnership with Merck. So what does an ideal partnership look like? Is there a big upfront payment component? And also I'm interested if you see any interest from players in the women health space.

Yes. So with regards to -- I'll start first with the types of companies that we talk to that are interested in working in this space. This is typically the major oncology companies who are very interested in IL-2 variants. One of the things that if you kind of look across oncology and its treatment, there are only a few mechanisms that are highly validated. There's a lot of things people looking at stuff, but it narrows very quickly into classes of medications that are really working. Something like an IL-2 that operates to your immune system and can be used conjunctively with other medications could really change the footprint and the dynamic of the space. So pretty much all the large companies that are in oncology are interested in talking about these sort of assets. Obviously, these are also some of the same companies who have women's health businesses. But when you look, for example, at ovarian cancer treatment, it's an oncology focus within oncologists that are treating that. So that we tend to focus with the oncology companies. To your previous question though on the beginning on the ideal partner, we're really looking for someone to help us maximize the value of this asset. One of the positive and negative things of nemvaleukin is that we're seeing response across such a large area of treatment. And that's great, but it's hard for a company of our size to fund the full development of the program to maximize the value of the asset. It really requires partnerships. And it could be a single partner, it could be multiple partners. We could -- there's -- as we were looking at multiple different combinations and we're looking across multiple different tumor areas. So we're very open to how we approach this. And we don't have any specified predetermined must-haves. It's about getting the right deal for the partner who has an asset that works well in their portfolio and they're going to prioritize it. But it's also about making sure we have the right partner for us who is going to maximize this value, the value of this asset and allow us to continue to build the product moving forward. So it's a dynamic discussion. And as more and more data comes in, it clarifies who the best partners are.

And you're starting both subcu and IV administration. So could you discuss your intention behind growth and flexibility of dosing?

Yes. Flexibility of dosing is key for us. When we look at the delivery of the compound, we've started the program in IV just in moving the program as fast as we could into the clinic. We're also -- we're looking at ways that we could dose at different intervals within that IV dosage paradigm and make it easier for patients as they combine with their other therapies. And we're also looking at different dosage forms like subcutaneous dosage form, which again provides more flexibility for those patients. And a lot of this is just about -- especially when you're looking at combination therapies, making sure that it's a treatment paradigm that it's consistent with the lifestyle of the patients that are under treatment. So obviously, you can use different dosage forms as you get into more severe cases versus more cases that are more -- that are less severe and maybe more where patients are more mobile and active. So we're very open to that, and we're looking to provide flexibility and data across that range.

And on the pipeline for the preclinical orexin candidate, how do you expect to differentiate from Takeda? And are you on track with candidate nomination before the end of the year?

So I'll start with the latter question first. So we're on track with our program with nominating lead candidate, and we're really excited about getting this -- moving this towards the clinic. To your second question, I think what's interesting about these orexin modulators is they're very difficult to drug. And so we've -- that's why you're only seeing a couple parties playing within this space. We think there's a lot of opportunity here, and we do think that we can create a molecule that could differentiate whether it's on the efficacy side, the safety side or otherwise. And so I think as the program moves into the clinic, I think it will be clear how the program differentiates. But we do think that we're in a really good position, and we're moving as quickly as we can to start generating some data with this in patients.

And for your ALKS 1140, given the growth potential applicability across new disorders, have you refined how you're thinking about the indication strategy?

Yes. Obviously, we work on our indication selection process very, very carefully. There's a few things that we're doing as part of this program that is a little unique. One, given the fact that synaptogenesis has potential across a range of disorders. One of the things we're looking for is identifying areas where we'll have a clear proof of concept where we'll be able to move forward with a well-defined regulatory path. And then also that where we can have some commercial leverage overall. So I think some of it, you can plan for ahead of time, and we have a large number of areas that we're looking at. Some of it will also come out from the data that we get in our human clinical trials as we look at response and response in different areas of the brain regions as we look at synaptogenesis improving with treatment.

And so we have a few minutes left. So how should we be thinking about financial performance through the second half? I think you touched base on it but following the guidance raise, any comments?

Yes, I'll take that one. So we were very pleased with the first half performance. We were happy to be able to sort of update guidance halfway through the year. We've raised bottom line by about $20 million to the midpoint. So I think the key features really for the second half, we've achieved about 2/3 of the guided non-GAAP net income for the year. So you say, well, what's happening in the second half that reduces profitability. So a couple of key factors. One is on the operating expense side, we have a $25 million milestone that we're going to be paying in the third quarter as the HDAC program that Blair was just talking to move into the clinic. That's a milestone that we owe to the old road and shareholders. And then in the fourth quarter, we'll be launching LYBALVI. So there's some incremental spend, whether that's the incremental reps that we're bringing into the business in support of that launch, some marketing programs, et cetera. So a little bit heavier on the spend side within R&D and sales and marketing in the second half, but we still got continued revenue growth from VIVITROL, ARISTADA, Blair said VUMERITY is growing very nicely. And then SUSTENNA is obviously a meaningful revenue stream for us as well. So that's really a story in the second half. We know we're continuing to focus on expense management, and we feel good with the guidance that we put out there in July.

Just on VUMERITY, how are you thinking about monetizing the royalties, given the launch acceleration this year? And if you do monetize that revenue stream, what could you do with the proceeds?

Yes, it's a great question. And we're obviously very pleased with the launch trajectory that we're seeing with VUMERITY in recent quarters. It was great to hear Biogen on their Q2 call say that they expect VUMERITY to be over $1 billion in net sales. The first time they kind of put that stake in the ground. So I think there's full might of Biogen behind the product at this point in time. And I think as a company, we're in a really fortunate position. We have this valuable appreciating asset. We don't need to sell it because the balance sheet is very strong at this point in time. But if we were to get an offer that we couldn't refuse, then it will be an interesting decision for us. And it's not a binary decision. It's not an all or nothing concept. We could sell various flavors of royalty monetizations. You could sell all of it, you could sell part of it. So I think for us, it really comes down to value. And then to your point, use of proceeds. I don't think we'd want to monetize something and have the money sitting on the balance sheet doing nothing. So I think a lot depends, it is a very strategic asset for us and depending on what else is going on in the business at the time and what the value is that we could potentially get from it, that's what we would eventually pull the trigger on.

And can you maybe quickly touch base on the balance sheet as you mentioned in terms of balance sheet versus your profitability targets and strategy?

Yes. So I mean, the balance sheet is strong. We have cash north of $650 million. We have about $300 million of debt that matures in March of 2026. So we do have some incremental investment, as I mentioned, in the launch of LYBALVI. But we believe that we're going to be continuing to generate cash as we go forward. So we're not anticipating with the business as currently constructed needing to go to the equity markets or anything like that, all things said. And then the profitability targets that you mentioned, for those who may not have heard about those back in December, we put our profitability targets for 2023 and 2024. They're focused on EBITDA as an EBITDA measure and a non-GAAP net income measure. It's 20% EBITDA margin in '23 and 25% non-GAAP net income margin in '23. And then those increased by 5% into '24. So we're very much focused on the achievement of those profitability targets, and that's going to come from the revenue growth that we see in the business. And then this expense management that we've been really focused on during the course of 2021. And obviously, there's some big levers within the P&L that we're able to toggle, depending on how the revenue line goes, but we're committed to achieving the profitability targets. And we're going through our long-range planning process at the moment, and we're setting expense targets that achieve them. So we feel like we're in good shape.

And maybe the longest strategy or general question to finish. How should we be thinking about oncology? Is it an area that you could develop a full vertical of capabilities like in CNS?

Yes, maybe I can take that. So with regards to oncology, I think as you saw at the R&D Day, from a development capability, I think we have a lot to add within the space. We have some really interesting areas, both in small molecules and new cytokines, et cetera. And so we definitely see participating within oncology there. And I think within nemvaleukin, you see us performing in the clinic there. We've not yet made a decision commercially in what we're going to do. I think as we move forward with the registration program, we can evaluate that when we get closer to the marketplace and whether we leverage partners or whether we build out ourselves. And it could be a hybrid. It doesn't necessarily need to be an all or none. What we want to do is what's best to maximize the returns to the company. And so if we think building out in some areas, we'll do that, then we will. We have the capabilities and the wherewithal to do that. But if it doesn't make sense, we're not going to do it, we'll partner and go from there.

Great. I think we are running out of time, and that's all I had in terms of my question and investors' questions. So thank you both very much for attending, and good luck with your meetings, busy schedule today.

Thank you. Enjoy the rest of your conference as well.

Bye.