Alkermes plc (ALKS) Earnings Call Transcript & Summary

It's been around for a while, and I've admired for a long time. However, I only recently had an opportunity to pick up coverage of Alkermes, and I'm excited to do so. Frankly, I think that this is long been a neuro innovator that has been overlooked and it is becoming increasingly a more -- a company more focused on neuro innovation and developing a pipeline drugs -- pipeline of drugs meant to treat a range of neurological and psychiatric disorders. And in addition, it has a strong commercial base. So with me today is Blair Jackson, the company's Chief Operating Officer. Blair, welcome. Good to see you.

Nice to see you as well.

Thanks for joining. I think Blair we'll start probably with an overview and -- I like your socks, I'm a cyclist as well. And then we'll go into the pipeline. If anyone has a question, please yell at me because I may not catch it, but we'll certainly welcome them. Okay. Blair. Tell us a little bit about yourself and the business of Alkermes.

Before I start, I'll just remind everyone, we will be making forward-looking statements and encourage you to review our SEC filings for our risk disclosures. Myself, I'm Blair Jackson, I'm the Chief Operating Officer. I've been with the company since 1999. So it's -- I've seen it through a lot of ups and downs over the years. And we've -- we're at a point now where we're becoming somewhat of a unique company in the neuro space in that we're a profitable and that profitability is being driven by really 3 key proprietary programs that are relatively long lived. And these programs we've developed for patients who are often stigmatized, often have problems in a number of different areas. And it consists of VIVITROL, a treatment for alcohol dependence and the prevention of relapse to opioid dependence. ARISTADA for the treatment of schizophrenia. And then our newest drug LYBALVI for the treatment of schizophrenia bipolar disorder. And we've been lucky enough to get these products into the market. We've had a number of hurdles in front of us over the years, but we've been able to really help thousands and thousands of patients with these drugs. And this year, we're going to reach a point where they'll contribute about $900 million of revenue to the company. And so we're pretty excited about how that portfolio is going. And behind that, we have a really interesting asset called -- which is an orexin 2 modulator. It's our ALKS 2680 program, which we're moving rapidly through the clinic now and hope to announce some data at World Sleep in this coming October.

I bet we'll talk about that later on in this conversation. Looking forward to seeing that data. But why don't we first key in on a few of the kind of questions I had relative to the commercial aspect. Because as you did mention, this is a very different profile. I mean, one, you have a commercial infrastructure, you're driving adoption of an innovative drug and it's spinning off cash. And so because of that, you're able to focus on innovation and fund that and not all companies can do that in a tough capital market. So let me ask you, first of all, does that open up opportunities for you. Let's assume that you continue to become more of a neuro -- focus on neuro and you will spin-off neuro oncology. That's kind of a question.

We will.

By year end?

Yes.

Okay. And then again, back to the balance sheet and deployment of capital and prospects for opportunities to bring in other assets?

Yes. I think you're exactly right. I mean in a market like this, there's just a tremendous need right now for financing from a number of different companies. In particular, some of the neuroscience companies because there's -- the last few years, there's been a resurgence of early research. And a lot of them went public in a rough time and so for a company like us that, as you said, has a strong balance sheet, is generating a lot of cash. There are opportunities to bolster our pipeline. And obviously, with the separation of neuro oncology, a key piece of our pipeline is going to be separate from us. And so we will look for ways to augment our R&D efforts.

Okay. So we'll focus our attention away from neuro oncology. Let me send you a list of neuro innovators that are undercapitalized.

Please do so. I'll welcome that.

I'll do that. But let's talk briefly about the LYBALVI. That's the one in terms of the current commercial products that I wanted to ask the majority of questions. I bet some of the questions from investors come this way as well. So it's a novel combination of olanzapine and samidorphan. You've been asked this question, but can you help us understand the mechanism of that combination?

Sure. I mean I think we -- as we were developing this drug, we took a careful look at samidorphan. And we found that it was -- there was a number of different things that were associated with olanzapine therapy that is intended to operate on. One, first and foremost, samidorphan is an opioid antagonist, as such, it operates in the reward circuitry of the brain. And so one of the key liabilities of olanzapine therapy alone is that you have significant weight gain from patients as they continue their therapy. And a lot of that was driven by high fat diets. There's high caloric intake. And what we saw, I mean samidorphan was able to really mitigate that. We also did a lot of preclinical work trying to understand where other things going on metabolically and we saw differences in lipid shuttling in a number of different areas. So it's not fully elucidated exactly what samidorphan is doing, but it seems to work on multiple pathways, which allowed us to then move forward into the clinic and demonstrate that we could -- we could mitigate that weight gain with the 2 drugs together.

That's interesting. So beyond weight gain, maybe it modulates reward pathways and that could help with some of the other aspects of both schizophrenia and bipolar 1. So cool stuff, really novel. No other drugs that I know has that type of combination. But I guess when you think about the value proposition, is it a good antipsychotic along with a lack of weight gain or are there other things that you kind of highlight as many key value drivers to adoption?

Well, I think what people often forget about olanzapine is that it is arguably one of the most efficacious of the atypical antipsychotics that was used for years before a number of the follow-ons that came forward. And so most physicians recognize that as a main standard in their treatment. And in fact, most patients in schizophrenia are stabilized on to olanzapine originally and then move off because of tolerability issues with weight gain, et cetera. So when you look at the drug that we developed, by being able to mitigate that weight gain, we're actually able to provide efficacy back to those patients. So a lot of the drugs over the last 10 years or so have really migrated towards tolerability. And that tolerability is great, but oftentimes comes with trade-offs in decreased efficacy. And so by providing a drug to patients and physicians that brings that efficacy back but mitigates that weight gain issue, which is the number one reason that people would stop using their medication with olanzapine, physicians are resonating with that and so are patients and we're seeing a really nice outcome.

So it's both acute mania acute treatment, but it's also maintenance. It sounds like that's perhaps the bigger part of why a doc may be interested in using the drug over time.

For sure, we would expect that acutely physicians and hospitals will continue to use generic olanzapine to stabilize their patients. What we're really doing, as you said, is opening up that maintenance treatment for a line of therapy that doctors wish they could use more.

So let me ask you about bipolar 2. Is there a reason the drug isn't approved there yet? I mean, this may reflect simply my recent coverage. But tell me about bipolar 2.

Yes. So I think when you look at our drug, LYBALVI, it's been approved for schizophrenia and bipolar 1 disorder, which encompasses manic episodes as well as mixed episodes. Bipolar 2 is more focused on the depressive episodes. And so...

It's still mix.

In mix, there is a lot of overlap between these 2 indications and how they're treated by physicians. So when you look at our drug, we developed this as part of a 505(b)(2) approach. So what it allowed us to do was be approved with a number of clinical trials but without having to do the full development path. We're to leverage the original Zyprexa label and bring that in. And so we were able to bring in the bipolar 1 indication as well as the schizophrenia indication.

It makes sense. And what about prospects who're moving into a younger patient population?

So we do have active work going on in the pediatric population with regards to this. It's a real important question because as patients progress along their disease path and they have breakdowns or they have events. It tends to lead to over [indiscernible]. So being able to provide early treatment that of this caliber is something that physicians are looking for, and it's something we committed to do with the FDA.

Yes. And first break episodes often can occur when people are adolescents.

That's correct.

Yes. Not a good thing. Let's talk about driving top line. This is a little bit more sell-sidy, right? So I apologize, but breadth or depth. What -- where are you seeing the growth coming?

Well, we're only in the second year post-launch for this drug. So right now, we're all about breadth. And it's about getting the drug at hands of physicians getting patients to try it. We have an extensive program on the marketing side with LYBALVI. We kicked off a DTC campaign where we let off a digital component at the beginning of the year and then linear TV started in May. So we have a commercial introducing LYBALVI for bipolar 1 disorder. And that program is going to continue for the foreseeable future. And that will drive significant utilization, we hope, with more and more physicians. So right now, post-launch, I think we've been tried by over 11,000 positions, which is great. But it doesn't mean we're not getting depth. So we actually, if you look at persistence on the drug, we're seeing persistence equivalent right now to other branded atypicals. So we feel we're getting patients having multiple therapies and doctors are looking for more and more opportunities to use the drug in their clinics. We'll see depths start to come in the future years.

Interesting. So you kind of skipped ahead to the question on persistence, but you're broadening the prescriber base and then within a prescriber's practice, you're seeing more deeper use. But then in addition, perhaps because the waking, you're seeing patients stay on the drug longer than you might expect?

Yes. I think if you look at persistence on generic olanzapine, it often is a lot shorter because it's driven by a lot of that acute use. So because we're opening up that maintenance phase, we're able to keep these patients on for a prolonged period of time. We're still really early on, though. And so this will continue to evolve over long to see how far we can push that persistence level.

When you think about the competitive environment, I think that for a long time, folks on Wall Street thought antipsychotics were kind of a genericized non-innovative market. But I think there's been recent progress that have resulted in pretty interesting drugs such as your own, maybe a couple of others. What do you hear in terms of the competitive environment? And where are you taking share from?

Yes. I think what's indicative of this area is just the lack of satisfaction of patients and doctors. And so yes, there's a large number of drugs out there. And yes, this market is 90% generic. But these patients are not being fully treated. And the doctors aren't happy with what they have. So right now, if you look at any given month, there's 60,000 patients switching off of their current drug onto another drug, which is just a tremendous amount of churn in the marketplace. And so when we think of our opportunity with LYBALVI, we're focused on that switch market. These are patients who either they have a lack of efficacy or they're unable to tolerate their current drug. And that provides an opportunity for us to introduce them to LYBALVI and see if it's a better choice for them than their family.

So it's all about switches?

That's right.

Any drugs in particular here you're switching from?

Actually, we're seeing a wide range. So we were really excited to find that right now, about 55% of our switches are coming from other oral atypicals. And we're only getting about 45% of our switches coming from olanzapine. So we're not trying to switch the olanzapine market. We really are playing in the drug agnostic switch space.

Very good. That's what I was hoping to hear. So over the summer, people take vacations. And scripts, total scripts were kind of volatile for the class generally. But in particular, LYBALVI or including LYBALVI. So I guess do you have a perspective on that, and here's the question you won't answer. How is it going in Q3?

Well, I guess -- so you're exactly right. I think we, across all our products, we typically see seasonality each year. It's due to, like you said, it's vacations of the caregivers and patients don't go to the doctors as much. For LYBALVI in particular, as you know, we're early still in the growth phase, and we're still getting a lot of growth in the brand. But to put it in perspective, I think if you looked at the first 10 weeks of Q2 and compare it to the first 10 weeks of Q3, we probably saw about a 9% TRx growth over that period of time. And we expect that to increase as we move into Q4. And we're really going to underpin that with the ongoing DTC investment that we talked about before. So we feel really good about how things are going and seeing the typical seasonality that you refer to.

Can you provide some color on the mix of, say, Medicaid, Medicare and commercial payers?

Sure. So with LYBALVI, we're still early on in our contracting with regards to payers. We have about 22% of our business right now is on the commercial side with the remainder kind of split evenly between Medicare and Medicaid. What we've decided to do, as we talk to some of the payers, we were getting pushed for some pretty substantive discounts that didn't make sense for our business. And we decided that for the time being, we would forgo that contracting. And in many cases, we were surprised by the amount of volume that we're still able to move into the patient group. So I think there's a recognition by physicians that this is a drug they want to try. I think they're willing to work through some of the hurdles that are in front of us right now associated with delivery. But our expectation is, as we continue to commercialize the product we would enter into more commercial contracts. But for the time being, we've kept the gross net quite high. I think it's -- we've about a 26% drop on gross to net and which compares favorably to the 40% that you typically see in the space. But in time, our expectation is that gross to net will normalize to a more normal level.

That reminds me of the strategy that Neurocrine used a few years ago to just kind of ignore the contracting. And despite that being the case, INGREZZA, another drug that sites wanted to use and fairly uniquely. So it's $1.5 billion, $1.4 billion revenue generator. So this could work out well for you.

Yes. And I think you highlighted it, though, it's predicated on having a drug that's maybe unique and that physicians want to use.

Yes. Yes. Yes. Shall we talk about the pipeline?

Sure.

Okay. This is the stuff that I get into being a biotech analyst, not so much a spec pharma analyst. Though I do like the commercial stories because it seems to me that money is a tool. And you can use that to drive innovation. And I like that. And I'm really intrigued with 2680. For all the reasons that most people are. It's a very novel target. Only a couple of other companies in the field right now, future lies ahead. How do you compare your o -- I'll call it, an O2R or [ O2Raig ], okay? Orexin 2 receptor agonist. How do you compare it to -- who else is out there, Takeda, JAS?

Yes. I think you highlighted the key point in that this is actually quite a difficult area of research because it's -- what we're trying to do here is agonize GPCR. And because of that, it's -- the amount of flexibility you have to develop a drug is limited. So it's been hard. People have been looking for an orexin agonist, orexin 2 for a long time. And it isn't until recently that we've kind of broken through with a number of different assets. And it's still early in the overall development cycle of being able to benchmark these on a side-by-side basis. But what we've tried to do is kind of bring the bear a lot of the experience that we have as a company on PK/PD relationships and molecular design because it's about designing for us a molecule that's highly potent, it's selective to that receptor, but also is able to cross the blood-brain barrier, do so for a very specific period of time and then be removed and cleared so the patient can go back to sleep. And so these are things that we have a lot of experience with, and we're actively interrogating now in the clinic. So I mentioned that the -- at the front of the discussion a little bit about our disclosure at World Sleep, where some of our -- we're going to be revealing some of the data from the early stages of our program, the SAD, the MAD outcomes, as well as a number of patients who are NT1 patients as part of our Phase Ib STAT program. And that gives an opportunity for investors to see some of the characteristics of our market which we are able to achieve that profile that I talked about earlier. And so we're pretty excited about this. And we're also interested to see some of the results from our competitors as they come out with theirs as well because we think it's going to be a pretty difficult space to develop in.

Well, you noted that it's tough to benchmark what efficacy you were referring to efficacy looks like. And yes, agonists are tough. And so there's always a question of safety -- so you know what you need to not do, right? At least with regard to this class. How do you feel about, call it, medicinal chemistry behind your program versus others?

We feel really good, I think we've had an opportunity to really optimize our molecule before we moved it into the clinic. Some of the other programs had run into some safety issues ahead of ours, which we believe we were able to design around. We also were very, very dogmatic about creating a potent selective agonist, which I referred to earlier. We think that provides a lot of opportunities to avoid some of the safety issues that our competitors have seen. But also potentially to widen the therapeutic window of treatment between the NT1 and NT2 patients.

Yes. I'm interested in that because a few people talk about NT2. but clearly, NT1 is where the first proof of concept has to come -- are you confident that you can deliver a once-a-day therapy that lasts 12 hours or so, and allows people to then consolidate good sleep?

Our early indications preclinically, suggested that our molecular design was going to meet our criteria, which, as you said, it's about turning the patient on early on in the morning, allowing them to be awake and alert during the day, feel good, move about their lives. But then sleep later on in the evening. And the results from our Ib study that we'll discuss in October will really reveal whether or not we're able to achieve that. I think part of the goal is to look at various dose levels. So our study. Our Phase Ib study actually will be testing single doses, but escalating doses in each patient. So each patient is their own control, who will be able to see a dose response and that will allow you to get a sense of not only the escalating efficacy, it is -- which is what we're hoping to see, but also whether or not there's a change in the time frame which they're alert. And so there's a wealth of information that will come from that data set. So a lot more power, if you will, than what you might imagine because each patient is basically their own control. That's right. It's very different than some of the other areas where we work in, where Ib is sort of stepping stone to II. We're getting a lot of information with this program and subsequently, a lot of interest and questions from investors, obviously, around.

Yes, sure. So I'm a Wall Street analyst. I'll try to be patient, but I really can't wait for October to start, which is in a few days -- and then World sleep shortly thereafter. What are you particularly excited to look at when that data is revealed. But what -- as an investor of your time, what would you like to most see on that?

Yes. I think our goal here is to accelerate the program as much as possible. And the hope is that we've nailed the therapeutic window and the range of doses in the right window. And so seeing efficacy escalation at each dose level, I think, would be very rewarding. Being able to recapitulate some of the early data that you've seen with orexin modulators is something that I think would be quite attractive. And then obviously, on the safety side, being able to demonstrate that lower doses differentiate from higher doses, et cetera. Because if we nail that dose range right, that allows us to very, very quickly get into our Phase II program. And that's really important for us as we try to -- we're a bit of a race with some of the others and as we move forward as possible.

Well, you're in a race, but it's still an opportunity. It's a totally novel class. So even being second to market might be okay if you have a better drug, right? Always good if you have a better drug to be second to market. Do you think it will work in NT2? How much of a dose jump will you need?

So it's interesting. So some of the early data in this space suggests that there's probably a 3- to tenfold dose difference between a NT1 patients and NT2 patients, where the NT2 patients would need more. And it's interesting because when you look at the biology behind it, NT1 patients are, in many ways, orexin deficient. So they have lower orexin tone whereas NT2 patients often have normal orexin tone in their body. So what it suggests is that NT1 patients are actually more sensitive to exogenous orexin, any change is amplified. And so what we feel good about is based on the data that was done with previous orexin modulators, we did see a robust response in NT2 patients but at those higher dose levels. So we hope to recapitulate.

And you think you can get there with your profile?

We think so. So part of what this gets back to is having a very potent molecule. So if we're able to, at a very low dose level, treat the NT1 patients, and it's a tenfold difference. We have headroom to be able to do that, we hope, with our drug.

And we'll see all of that at World Sleep, you think we'll be able to conclude that as well based on the data? Will you be presenting EEG data at World Sleep?

We won't be presenting the EEG data. We'll be more on safety, more in the efficacy with the NT1 patients. But I think to your first question on will we be able to see it, we'll be able to interpret the data, our belief is this mechanism is pretty clear because you're addressing the biological need of the disease. That with a single dose, you can see differences in wakefulness in these patients using the maintenance of wakefulness test. And so I don't think it's one where you do a bunch of patients and you're squinting for a P-value. I think it works or it doesn't. And we hope when we see the data, that's what it looks like.

Okay. So I'm going to assume it works. My assumption, not fishing here, and that you fast forward into a Phase II program. If we're sitting here in a year, talking, can you imagine that, that has been operationalized or you will be maybe even enrolling patients?

I would say pretty much with certainty if the data in the Phase Ib hits the way we hope it will. That would allow us to move into Phase II very, very quickly. So by this time next year, we would be operationalizing our Phase II program. And how that looks is still going to be determined by how the data comes in, but we think we'd be executing on it.

I prefer data-driven drug development. So any last words, what else will we talk about in a year? What will you be most proud of having Alkermes actually accomplished?

Yes. I think we touched on it at the very beginning, but I think the separation of the oncology business in this fourth quarter is going to be a fundamental change for the company moving forward. From a financial perspective, it really cleans up our OpEx. It puts us as a pure play neuroscience company and our infrastructure is so much more simpler because of it, both on the R&D side, the operations side. So I see this -- really this fourth quarter as an inflection point for the company. As I said, I've been here for 20-some-odd years and this is the most exciting I've been being at the company.

Yes, I'm excited to see the progress as well. And absolutely, appreciate you spending time with us, Blair, talking about Alkermes. Appreciate the interest of the audience. Any last questions for Blair before we call it? We're over time? So we're going to call it, but thank you for your time and interest.

Great. Thanks.

Thanks.