Alkermes plc (ALKS) Earnings Call Transcript & Summary

Great. Good morning, everyone. My name is Jess Fye. I'm a senior biotech analyst at JPMorgan, and we're continuing the 42nd Annual Healthcare Conference today with Alkermes. Richard Pops, the company's CEO, is going to give a presentation on the business, and then we're going to go into Q&A after that. [Operator Instructions] But with that, let me pass it over to Richard.

Great. Thank you, Jess. And I'm joined here with -- by Blair Jackson and Iain Brown as well. So, good morning, everybody. So I've been looking forward to giving this presentation for a couple of years. This is a new company. Alkermes in 2024 is a profitable, pure-play company in the aspect of the biopharmaceutical industry that is taking on, I think, a renewed level of strategic importance and that's neuroscience. So we'll talk about that today. I will make forward-looking statements and one thing you learn in this business is that we do encounter many risks. And we try to articulate them as carefully as we can in our disclosures like this slide and also in our SEC filings. So we always ask you to take a look at those and consider them carefully. So with that said, here's Alkermes in 2024 in a snapshot with 3 important takeaways. First, this is a substantial commercial enterprise. We have a top line in excess of $1 billion, driven by 4 core commercial products. All developed by Alkermes and all having the potential to continue to grow. This strong and diversified revenue base drives profitability, and it gives us the resources to continue to grow. So second, we have the elements in place to enable that growth. We have proven development capabilities in neuroscience that have developed many products in both neurology and psychiatry through FDA approval into the market. We're leveraging those capabilities to develop and advance new neuroscience candidates that we believe can drive significant value. And third, because of the extensive work we've done over the past several years to drive operational efficiency, we're positioned for sustained profitability and significant cash generation. So that's a rare set of attributes. And so we enter 2024 in a strong position. The simplicity and the power of this position was enabled by an eventful 2023, which repositioned the company and established this strong foundation for growth. We had an ambitious agenda last year and we successfully achieved all the major goals we had set for ourselves. So taking it from the top, we entered 2023 in arbitration with J&J and prevailed in that case decisively which reinstated significant cash flows due to us and strengthened our balance sheet and enabled us to raise our financial expectations during the year. We had another pending legal proceeding related to VIVITROL in its patent state which we also resolved favorably with a settlement that clarified VIVITROL's patent exclusivity for several years. We entered the year with an ambitious goal of generating critical decision-making data for our orexin 2 receptor agonist, ALKS 2680 in a multifaceted Phase Ia, Phase Ib program. We were successful in doing that, generating narcolepsy type 1 data that support advancing into Phase II this year. We completed the separation of our oncology business, a major milestone for the company, freeing resources and focusing our R&D efforts in neuroscience. We delivered a significant element of our multiyear program to drive operational efficiencies by announcing the divestiture of our Athlone, Ireland GMP manufacturing facility at the end of the year. And we met our goal of continuing to drive our top line revenue from proprietary products, including the continued strong launch of LYBALVI. The accomplishments of 2023 simplified the business and set up the 4 focused strategic priorities for 2024. First is to continue to drive strong commercial growth and profitability. With growth from our core commercial products, coupled with efficiencies from our streamlined operating structure, we believe the business is positioned to drive strong profitability in 2024. Second is to advance the 2680 orexin program as aggressively as possible. Based on the data we've already generated in narcolepsy type 1, we're moving rapidly to initiate Phase II. And as we generate Phase Ib data in narcolepsy type 2, we expect to move forward in that indication as well. Third is to continue to expand the neuroscience pipeline. We expect to advance candidates emerging from our own labs as well as evaluate external pipeline opportunities leveraging our scientific development and commercial expertise in neuroscience. And fourth is to plan for significant cash generation. The expectation of profitability and cash generation drives an increased focus on capital allocation and potential opportunities to both build the business and return capital to shareholders. This is the revenue picture over the past 4 years. You can see that it's characterized by growth and diversification. So today, VIVITROL, ARISTADA, LYBALVI and VUMERITY all contribute to $1 billion top line. Our newest and fastest-growing product -- did I click? Yes -- our newest and our fastest-growing product is LYBALVI for the treatment of schizophrenia and bipolar I disorder. LYBALVI is a once-daily, oral atypical antipsychotic composed of olanzapine, which is an established antipsychotic agent and samidorphan, a new chemical entity that we invented. It's placed in the market is based on efficacy. Efficacy established by the long clinical track record of olanzapine and our LYBALVI clinical program. In a market that's characterized by millions of patients and frequent treatment switches, LYBALVI represents an important new treatment option for healthcare providers. The success of LYBALVI's launch is best represented by the data. On the left is a chart of total weekly prescription since launch by week and then smooth with a 4-week rolling average. And on the right, our quarterly reported net sales. So you see strong consistent growth, and we expect that growth to continue. LYBALVI entered the market with data from Phase III clinical trials, FDA approval and a label. That's just the beginning. In a market as competitive as the atypical antipsychotic market, new medicines need to establish their place in the treatment paradigm through real world use and experience. We have continued to build the clinical evidence base for LYBALVI. Last week, we announced data from a long-term Phase III open-label extension study that showed that patients with schizophrenia or bipolar 1 disorder who continued taking LYBALVI demonstrated stability in their symptoms; minimal changes in their body weight, lipid and glycemic parameters for up to 4 years and a safety profile consistent with what we have seen in previous studies. LYBALVI's potential as a foundational treatment that patients can start on and stay on is exemplified by these data, the potential for long-term symptom control and stable weight, lipid and glycemic profile. That was our focus from the outset to make a medicine that could be used over the long term by patients suffering from a serious chronic illness of schizophrenia or bipolar I disorder. This is also true of ARISTADA, our long-acting injectable for schizophrenia. Like LYBALVI, ARISTADA is based on a novel molecular entity and designed to address the real-world needs of patients and providers. In this case, the need is for a flexible, long duration dosing regimen of a proven antipsychotic. ARISTADA's annual net sales are shown on the right. It has delivered consistent growth, and we believe it will be -- continue to be an important contributor to our revenue mix for many years to come. The third proprietary product we commercialized is VIVITROL. VIVITROL is a long-acting injectable for the treatment of alcohol dependence and opioid dependence. It's extended release version of an opioid antagonist, providing therapeutic levels of naltrexone for a 1-month period. Alkermes pioneered the use of injectable antagonists in these indications. And we're the leader in these complex treatment paradigms and market environment. VIVITROL's growth over the last several years has been driven primarily by the alcohol dependence indication, and we believe we're well positioned to further drive further uptake of VIVITROL in that developing market. And then finally, VUMERITY, which is a medicine discovered and developed by Alkermes that we licensed to Biogen for commercialization. VUMERITY is a novel, oral fumarate for the treatment of relapsing forms of multiple sclerosis. We receive a 15% net royalty on worldwide net sales, and you can see the revenues in the graph on the right. VUMERITY is an important treatment option in the MS market, and it offers significant long-term revenue growth opportunity and cash flows for Alkermes. So these 4 products, LYBALVI, ARISTADA, VIVITROL and VUMERITY comprise the critical elements of our commercial revenue. So let's move to what's coming next, driving from our proven drug development capabilities and our most advanced pipeline asset. First, just to level set, Alkermes has deep experience in developing FDA-approved neuroscience medicines. VIVITROL is based on biocompatible polymers. ARISTADA is a new molecular entity that enables long-acting activity. LYBALVI is a new molecular entity that confers new pharmaceutical properties. VUMERITY, another new molecular entity, all developed by our scientists. These medicines result from capabilities built over many years in the labs, in molecular design and medicinal chemistry and then in the clinic and in front of regulators. There's no substitute for experience in drug development. This experience is being brought to bear now in our orexin program for narcolepsy. Orexin dysfunction is a well-defined opportunity for new drug development. In narcolepsy, low orexin levels result in excessive sleepiness and poor regulation of REM sleep. Narcolepsy is an orphan disease, but a substantial one affecting approximately 200,000 people in the U.S. and 3 million people around the world. 70% of people with narcolepsy have narcolepsy type 1, we call NT1, which is distinguished by cataplexy which is sudden muscle weakness triggered by strong emotions and low or no orexin levels in the brain. People with narcolepsy type 2 or NT2 experience daytime sleepiness, but not cataplexy and generally have normal levels of orexin. Genetic and pharmacologic evidence suggests that orexin receptor agonist, particularly orexin receptor 2 agonist could be useful for mechanistic treatment of narcolepsy. So if the biology is clear, the chemistry is not. Making orexin 2 receptor agonist is a complex molecular design challenge requiring optimization along several axes, some of which are shown here. This radar plot visualizes the compounds attributes along these axes, higher scores radiating outward meaning better performance. The goal is to make a balanced molecule that scores well across all of these parameters, yielding one that is highly potent, highly selective for the orexin 2 receptor, orally bioavailable, it can cross the blood brain barrier into the brain and engage the receptor over a time course consistent with the sleep/wake cycle. Different molecules have different properties, and it's challenging to optimize along all these axes. For example, a compound could have excellent potency and selectivity, but not access the CNS in concentration sufficient to drive efficacy at acceptable doses. Alternatively, a molecule that has good properties, but a short half-life would have to be dosed multiple times per day. And less potent molecules or selective compounds could have undesirable off-target effects. This is precisely why the various molecules that we've seen enter the clinic have had divergent results. They're all quite different. And this is where our experience comes to play. From the outset, we stipulated that potency and selectivity are essential but insufficient. We have deep experience in small molecule drug design and our origins are in optimizing PK/PD relationships. So we've been evolving the chemistry deliberately to optimize multiple parameters. This is what we set out to achieve with ALKS 2680. It's designed with a specific therapeutic goal in mind, improved wakefulness duration and quality, a PK/PD profile that mirrors the natural sleep/wake cycle, cataplexy control, a low therapeutic dose with once daily oral dosing and acceptable safety profile with a wide therapeutic window. ALKS 2680 is our first candidate to emerge from that chemistry effort and it's advancing quickly in development. It is, by necessity, a highly potent selective orexin 2 receptor agonist, greater than tenfold more potent than orexin A and greater than 5,000 fold more selective for the orexin 2 receptor compared to the orexin 1 receptor. But it's more than that. The initial Phase I data showed the pharmaceutical properties that we desired, it's orally bioavailable with a PK profile that supports once daily dosing, mimicking the natural sleep/wake cycle with a half-life of 8 to 10 hours. We covered a lot of ground in our clinical program last year. We generated single and multiple ascending dose data in healthy volunteers and recently completed our Phase Ib cohort of the NT1 patients, yielding a go for Phase II in that indication. NT2 and idiopathic hypersomnia patients are being enrolled in the Phase Ib now with data from those cohorts expected in the next few months. A major goal for 2023 was to complete the first evaluable cohort of the first 4 NT1 patients in time for presentation at the biannual World Sleep Meeting which was held last year in Brazil. Our data were presented there, which gave our team a chance to interact with many of the major global thought leaders in narcolepsy as well as patient advocacy organizations to gather feedback on the data and gain input on the design of the Phase II program. We've now completed the full NT1 cohort, totaling 10 patients and have a data set supporting our rapid advancement into Phase II. From an efficacy standpoint, we saw a statistically significant and clinically meaningful improvement of maintenance of wakefulness scores at each dose level 1, 3 and 8 milligrams with a dose-dependent magnitude and durability of effect. This enabled us to select our dose range for Phase II in NT1, which we believe can accommodate expected and observed patient heterogeneity. So we plan to evaluate 4 milligrams, 6 milligrams and 8 milligrams administered once daily in the morning in the Phase II NT1 study. Safety and tolerability are just as important as efficacy. And here we saw encouraging data as well. 2680 was generally well tolerated at all doses tested. Treatment-emergent adverse events were transient and self-resolving and mild in severity, with the exception of one moderate case of nausea which resolved with food intake. No serious AEs or AEs leading to discontinuation. The AEs were generally consistent with the initial 4 NT1 subjects. The new drug-related treatment emergent AEs seen in the full cohort included nausea, decreased appetite and elevated heart rate with no occurrences of visual disturbances and no occurrences of treatment-emergent liver enzyme elevation. With the completion of this cohort, we have the confidence and information we need to launch Phase II. We are still enrolling NT2 and IH patients in the Ib. As those data are generated, our goal was to select doses and proceed to Phase II there as well. So this is what the design currently of the planned Phase II program in narcolepsy type 1 looks like. This is a parallel design 4-arm study, randomizing NT1 patients to either 4, 6 or 8 milligrams of ALKS 2680 or placebo administered once daily for 6 weeks, followed by an open-label extension and a safety follow-up. The primary efficacy analysis will be conducted at the conclusion of the 6-week double-blind phase. We expect the Phase II design for NT2 will look very similar but with different doses. We currently plan to enroll both NT2 and IH patients given the similarity of patient populations, which would enable us to expand the safety database to support registration. The phase -- the NTI Phase II study is designed to capture standard endpoints, familiar to regulators and clinicians as well as exploratory measures designed to provide additional information regarding patient experience with this new approach to treating narcolepsy. The planned primary and secondary measures will include quantitative maintenance of wakefulness test, the Epworth Sleepiness Scale and cataplexy rates. In addition, we plan to be exploring certain patient-reported outcome measurements in assessing sleep architecture. The study will be conducted in multiple sites around the world, and we're moving quickly to initiate it as fast as we can. We're excited about this program while cognizant of the risks and failures of other programs and the difficulties of establishing new mechanisms in CNS disorders. As a focused neuroscience company with the capabilities we've just described, we expect the pipeline to grow. We gravitate toward development programs within the framework described on the left where there's strong biological rationale, challenging molecular design, a clear clinical pathway with early proof-of-concept potential, alignment with our expertise and importantly, in this intense payer environment, the potential to significantly advance the standard of care for patients. We expect the orexin pathway to open additional pipeline opportunities for us and we're currently pursuing those in our labs. Our historic strengths in psychiatry and neurology, and we plan to build in those areas by advancing internally developed neuroscience programs and exploring externally sourced pipeline opportunities. The goal is to build a balanced pipeline of candidates with promising medical and market opportunities but with independent and uncorrelated risks. We'll finish by showing how all of this positions Alkermes for sustained profitability and significant cash generation. The combination of our commercial performance and our efficient cost structure is expected to drive meaningful profitability. We'll provide our full financial expectations in 2024 -- for 2024 in February on our earnings call. But at a high level, we expect revenues from our proprietary products, VIVITROL, ARISTADA and LYBALVI to generate -- to continue to grow and deliver more than $1 billion of sales in 2024. These proprietary products will be supplemented by our royalty and manufacturing revenues. For modeling purposes, I'll note that the royalty stream related to the U.S. sales of INVEGA SUSTENNA will expire in August of this year 2024. On operating expenses, we've worked hard to calibrate our operating structure to support the needs of the business going forward. The most significant change compared to 2023 will be in R&D. Following the separation of the oncology business in November of last year, expenses have been significantly reduced with approximately $150 million of oncology spend removed from the R&D line in 2024. So together, we expect our top line performance and sharp focus on operating efficiencies to drive approximately 30% EBITDA margin in 2024. We ended the year well positioned financially with a strong balance sheet and a clear outlook for the various elements of our business, and we're quite excited about the future for the company. So I'll end with another quick look at the 2024 strategic priorities, which are straightforward and derived from the increased simplicity and focus of the business: deliver strong growth commercially and profitably, advance 2680 into Phase II, expand the pipeline and prepare to move into a phase of significant cash generation. So with that, I'll finish and we'll open it up for the questions. Thank you.

Great. Thanks for the presentation. I guess I want to start on the bottom of the slide where you mentioned the plan for significant cash generation and an increased focus on capital allocation. I think you talked about expanding Alkermes' own capabilities but also potentially returning cash to shareholders. What form could that take? And I guess, over what time horizon are we contemplating here.

It's something we're actively focused on now at the Board level because as we look at the long-range plan now with a more streamlined business and the top line continue to grow, we will generate significant amounts of cash. So we have a number of different places we want to allocate capital. Obviously, top of the list is to identify sources of return for shareholders. LYBALVI launch, ALKS 2680 program and making sure those get all the resources they need. We want to expand the pipeline in a way that's measured, consistent with our profitability goals. But at the same time, we feel like we should be able to do that and given where we think the valuation is relative to our intrinsic value, operate in a way where we can actually return capital to shareholders. The preferred way would be probably through share repurchases. And I think that you'll hear more about that as we go through the year as we deliberate this at the Board level.

Great. And expanding the pipeline in a measured way, what's the kind of -- I don't know if there's an ideal mix between kind of internal and external expansion. And if we think about business development, maybe you can just touch on what Alkermes is interested in from a business standpoint?

So I think -- when we look at the new company in 2024, we've checked so many boxes that we wanted to check in terms of the profile of the company with -- its substantial top line is profitability of an exciting pipeline asset. The one box that we need to check more aggressively is the breadth of the pipeline. The best way to expand your pipeline is through your own internal candidates. You know all of their strengths and weaknesses, you know the IP, you know everything about them. The second best way is through acquiring assets that you have a deep understanding of the biology or the chemistry of both or the clinical or the regulatory set up. We think that there is a chance to do both. Our pipeline internally derives largely from what we've been doing in the sleep/wake cycle with the orexin program and that's yielding additional candidates that we're evaluating preclinically this year. But we're also now with this very clear R&D focus, there are things within our lane on the outside that we're evaluating. And there's been fairly high cost of capital for small cap companies for the last couple of years. There are opportunities out there to look to expand the pipeline. But we don't plan on doing anything heroically gigantic that's going to change our R&D spend. So we don't hit the profitability measures that we're dedicated to meeting from a management perspective.

Got it. When you talk about interrogating the sleep/wake cycle and yielding additional candidates, is that additional orexin? Or is that sort of outside of orexin?

Both. That circuitry in the brain, it's called the orexin hypocretin pathway. It is the central controller of alertness and wakeness for humans. So narcolepsy is almost the most purified embodiment of that because you're missing that neuropeptide, so you're sleepy all the time. But you can think about other clinical indications for fatigue is a part of the presentation of the disease. So if you could address that symptom alone rather than disease modification for the overall diagnosis, but for that particular symptom, it could be very constructive in treating of those patients. So we're looking at a number of things preclinically whereas the chemistry space is quite restrictive. It's very hard to make these potent orexin agonists that cross the blood-brain barrier. But we have a suite of those. Now we're interrogating the biology, where else can we use it where we think clinically is a clear path to registration in indications outside of narcolepsy.

Got it. The updated narcolepsy type 1 data you just provided. When should we expect to see kind of more detail either kind of conference presentation or publication or we could see more like efficacy details?

The efficacy details are actually sort of dog bites man. The profile of this drug is this dose-dependent increase in wakefulness in the MWT test in patients with NT1. It's really quite exciting because with increased doses between 1 mg, 3 mg and 8 mg, you see increased wakefulness and increased duration of wakefulness. We'll present those data in a whole, either at the summer sleep conference or the fall sleep conference, one's in Europe and one's in the U.S. It just depends on how we aggregate the data for the abstract submission dates. But the principal takeaways are the ones we've talked about here, we know the dosing for Phase II and what we want to now demonstrate in Phase II is what the profile looks like with continuous repeated dosing over a 6-week period rather than just in a 1 dose 4-way crossover study. So that's the next hurdle for us.

Got it. And then maybe switching to NT2 and IH. I think you talked about potentially a similar next step trial design for NT2 as you're looking at NT1. And I thought you said something about enrolling more IH patients for safety. Is that in the same study? Is that a separate study? How does that work...?

The diagnosis NT2 and IH, almost interchangeable diagnosis often. And so the patients present fairly similarly. They have orexin levels in their brain, but they respond to orexin agonist where we've seen in previous studies. So the hypothesis is that you need a higher dose. So what we're testing in a blind fashion now, but we've increased the dose from the NT1 dose by 2x to 3x. We'll enroll those patients, and we'll see how they respond. In the Phase II, we'll enroll both NT2 and IH patients and just continue to build the exposure and safety database. For Phase III, we're probably focused on the narcolepsy indication alone of NT1 plus NT2.

So in an ideal scenario, if you're starting Phase II in NT1 this year, when should we think about seeing the results of that trial?

Let's get it started first. It's -- I think for just dead reckoning you'd say that it'd probably take about a year to enroll a study like this. The design I showed you with group sizes of 15 -- 4 times 15, 60 patients, it's going to -- it's a global study. There will be multiple sites around the world. So site activation will actually be the most rate-limiting component of our determining the time. So we'll give more guidance as we get -- the protocols are being finished now. We're going to CROs and IRBs and doing all that leg work now, we'll probably have a better sense of that as we move into later in the quarter.

Basically fast forward to think kind of commercially. Can you just talk a little bit about where you see orexins fitting into the treatment paradigm in narcolepsy?

I want to give Blair a chance to speak because it's been tired of me and go ahead...

No. I think this is a space that, as you know, has evolved a lot over the last 5 to 7 years. And obviously, with the oxybates that were introduced into the marketplace, it provided finally for these patients an option for treatment. But when we talk to these patients, what we find is they're still deeply dissatisfied with what's available to them. They don't tend to feel very good in the day. There's disruption in their sleep in the evening. So something like the orexin mechanism can fundamentally change this marketplace and make these patients more functional over the course of the day. So we see this being very much a first-line treatment. I think it remains to be seen longer term how other treatments adjunctively would interact with that, whether that be the oxybates or some of the other drugs, the histamine modulators that are out there. But we very much see this as a first-line treatment within the marketplace, both in NT1 and NT2.