Alkermes plc (ALKS) Earnings Call Transcript & Summary

Greetings, and welcome to Alkermes' First Quarter 2025 Financial Results Conference Call. My name is Maria, and I'll be the operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Sandra Coombs, Senior Vice President of Investor Relations and Corporate Affairs. Sandy, you may now begin.

Good morning. Welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter ended March 31, 2025. With me today are Richard Pops, our CEO; Todd Nichols, our Chief Commercial Officer; Blair Jackson, our Chief Operating Officer; and Dr. Craig Hopkinson, our Chief Medical Officer. A slide presentation, along with our press release, related financial tables and reconciliations of the GAAP to non-GAAP financial measures that we'll discuss today are available on the Investors section of alkermes.com. We believe the non-GAAP financial results in conjunction with the GAAP results are useful in understanding the ongoing economics of our business. Our discussions during this conference call will include forward-looking statements. Actual results could differ materially from these forward-looking statements. Please see Slide 2 of the accompanying presentation, our press release issued this morning and our most recent annual and quarterly reports filed with the SEC for important risk factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise the information provided on this call or in the accompanying presentation as a result of new information or future results or developments. After our prepared remarks, we'll open the call for Q&A. And now, I'll turn the call over to Richard for some opening remarks.

Thank you, Sandy, and good morning, everyone. I'm going to start by recognizing the passing of our colleague and friend, Iain Brown, following a courageous battle with cancer. Known to many of you, Iain represented the best of our company in many ways through his intellect and his professionalism, his kindness and his humanity and his sense of humor. I want to thank all of you who sent along your condolences and remembrances. It meant a lot to all of us here. As you know, Blair Jackson has been serving in the role of Interim Principal Financial Officer since Iain went on medical leave in early 2024. Blair has done an excellent job among his other responsibilities, and will continue to serve in that role as we look now to identify Iain's successor. So with that said, let me say that we have a few things to cover this morning. I'm going to dive right in. On today's call, Todd is going to start with an overview of the performance of our commercial products. Blair will review the financial results for the quarter and provide some insights regarding our positioning within the current macroeconomic conditions. And given the exciting progress we're making across the orexin portfolio, Craig Hopkinson, our Head of R&D and CMO, will provide an update. You'll be hearing from him more going forward as we move into a data-rich phase of the ALKS 2680 program. So here's my perspective on where we stand in May 2025. The summary is that we're well positioned and we're right on plan. Our first quarter commercial performance was solid and slightly ahead of the expectations that we provided on our last earnings call. Each of our medicines has a differentiated value proposition, and we're focused on maximizing the potential of LYBALVI, ARISTADA and VIVITROL in their respective markets. Financially, our first quarter results were on plan. And this morning, we reiterated our financial expectations for the year. Across the commercial and financial elements of the business, we continue to focus on driving growth and driving profitability. The exciting new developments are happening in R&D. This will be a pivotal year across the orexin 2 development landscape, and Alkermes is at the forefront of development in this exciting potential therapeutic category. Our ALKS 2680 Phase II program is designed to generate a substantial data set that characterizes the efficacy, safety and tolerability of a wide range of doses across narcolepsy type 1, narcolepsy type 2 and idiopathic hypersomnia. As we had hoped and anticipated, as we activated sites around the world and investigators gained experience with our study, the Phase II program began to accelerate and it's advancing now with real momentum. The NT1 study, Vibrance-1, is now fully enrolled. We now expect top line results early in the third quarter. The NT2 study, Vibrance-2, is enrolling very well. We expect to complete enrollment midyear, with data to follow in the fall. The results of Vibrance-1 and Vibrance-2 will represent 2 of the most substantial data sets to be generated in this therapeutic category to date and will provide important information as we advance the program toward planned Phase III studies. We are on the cusp now of potentially transformative data, and we're planning for an exciting second half of the year. Finally, with respect to the macro environment, Blair will give you some details, and I'll be happy to answer questions you might have. But in summary, we are paying attention to 2 main topics: Medicaid changes under reconciliation and FDA. With respect to potential tariffs and foreign reference pricing, we are in an advantageous position because we manufacture all of our proprietary products in the U.S., in the state of Ohio, and we do not commercialize them in markets outside the U.S. So with those introductory comments, I'll turn it over to Todd to take us through the commercial results for the first quarter.

Thank you, Rich, and good morning, everyone. In the first quarter, we recorded net sales from our proprietary product portfolio of $244.5 million, slightly above the expectations that we outlined in February, reflecting 5% year-over-year growth, primarily driven by LYBALVI. Starting with VIVITROL. Net sales in the first quarter were $101 million. VIVITROL performance continues to be largely driven by the alcohol dependence indication, which is the primary focus of our promotional efforts and currently accounts for approximately 75% of VIVITROL volume. Looking ahead, we continue to expect VIVITROL net sales for 2025 in the range of $440 million to $460 million. For the ARISTADA product family, in the first quarter, net sales were $73.5 million. In 2025, we continue to expect ARISTADA net sales in the range of $335 million to $355 million. Turning to LYBALVI. Net sales grew 23% year-over-year to $70 million, primarily driven by underlying TRx growth of 22%, with growth coming from both the schizophrenia and by bipolar I disorder indications. As we indicated on our last earnings call, gross to net adjustments were approximately 31% in the first quarter, and we expect will remain consistent in the low-to-mid 30% range for the remainder of 2025. For the full year, we continue to expect LYBALVI net sales in the range of $320 million to $340 million. We continue to make strategic investments designed to drive awareness and uptake of our psychiatry franchise products. In the first quarter, we completed the expansion of our psychiatry sales force, which is now fully deployed in the field with a focus on maintaining a competitive share of voice for LYBALVI and reaccelerating growth for ARISTADA. We expect to see tangible contributions from the new sales positions within a few quarters. Across our proprietary products, inventory at the wholesale level was drawn down as expected during the first quarter and is now in a normal range for all 3 products. Each of our products offers a unique value proposition in their respective category, supported by established efficacy, long-term clinical data and real-world patient experience. We are off to a solid start in 2025, and believe we are well positioned to achieve our financial expectations for the year. We look forward to sharing our progress with you. With that, I will pass the call to Blair.

Thank you, Todd. Our first quarter performance was slightly ahead of our expectations, and we remain on track to achieve our financial guidance for the year. Macroeconomic conditions are dynamic and rapidly evolving. We are well positioned with more than $900 million of cash and investments on the balance sheet, a business generating substantial cash flow, significant growth opportunities ahead and the ability to adapt quickly to the environment. We remain focused on executing against our strategic objectives for the year and are preparing for the key data readouts from the ALKS 2680 Phase II narcolepsy studies later this year. Before I detail our financial results, I'll provide a brief overview of our position with respect to the macroeconomic policy landscape. Starting with our manufacturing footprint, all of our proprietary products are manufactured at our Ohio facility and are sold exclusively in the United States. The vast majority of our manufacturing supply chain is also sourced domestically. We import a small amount of active pharmaceutical ingredients from certain suppliers abroad, but this represents less than 5% of our cost of goods sold. Additionally, we maintain significant safety stock of API, which, if necessary, could provide flexibility to adapt our supply chain sourcing without significant disruption. We will continue to carefully monitor the evolving policy environment for any potential impacts to our business, but believe we are in a strong position with our U.S.-based manufacturing and supply chain. Turning to our financial results for the quarter. We generated total revenues of $306.5 million, slightly ahead of the expectations we outlined on our fourth quarter call. These results were driven by our proprietary product portfolio, which grew 5% year-over-year. For our portfolio of proprietary products, we generated net sales of $244.5 million. As we move into the second quarter, we expect Q2 net sales from this portfolio in the range of $260 million to $280 million. Manufacturing and royalty revenues were $62 million for the first quarter, including revenues of $27.8 million from VUMERITY, $17.7 million from the long-acting INVEGA products and approximately $9 million from RISPERDAL CONSTA. Turning to expenses. Cost of goods sold were $49.2 million compared to $58.6 million for Q1 last year, primarily reflecting efficiencies following the sale of our Athlone-based manufacturing business last year. R&D expenses were $71.8 million compared to $67.6 million for Q1 last year. This consisted of focused investments in our neuroscience development programs, primarily related to our ongoing Phase II studies of ALKS 2680 in narcolepsy type 1 and narcolepsy type 2, as well as the recent initiation of our Phase II study in idiopathic hypersomnia. We expect R&D expense to increase modestly in the second quarter and remain fairly consistent for the remainder of the year. SG&A expenses were $171.7 million compared to $179.7 million for Q1 last year, reflecting the mix of promotional activities supporting our commercial products as we continue to focus on driving efficiency. For trending purposes, we expect SG&A expense in the second quarter to remain fairly consistent with Q1 levels, with a modest step down in the second half of the year. We continue to focus on driving profitability. In Q1, we generated GAAP net income of $22.5 million, EBITDA of $22.8 million and adjusted EBITDA of $45.6 million. Turning to our balance sheet. We ended the first quarter in a strong financial position with $916.2 million in cash and total investments. We continue to have $200 million of remaining share repurchase authorization. And going forward, we may opportunistically repurchase shares dependent on market conditions and the capital needs of the business. The financial performance we delivered in the first quarter was slightly ahead of our expectation and provides a strong foundation to achieve our financial guidance for the year. I'll now hand the call to Craig for an update on our research and development pipeline.

Good morning. I'm pleased to join you with an update on the development programs for our orexin 2 receptor agonist portfolio. Our ALKS 2680 program, focusing on central disorders of hypersomnolence, is advancing with strong momentum. Investigators across the Phase II program are gaining experience in the studies and with the clinical trial network now largely established, screening and enrollment accelerated significantly in the narcolepsy studies in the first quarter. We look forward to further harnessing that interest and enthusiasm in our idiopathic hypersomnia Phase II study and for potential Phase III studies. At the same time, we are moving forward aggressively to expand our research into new disease areas for orexin 2 receptor agonists. A couple of years ago, we initiated Project Saturn, with the goal of advancing new molecules for a broad range of disorders. This year, we plan to start the clinical work underpinning the strategy. The orexin 2 receptor agonist pathway has broad potential applicability, and we are a leader in evaluating the utility of this novel pharmacology. With that as an introduction, let's start with ALKS 2680. In the Phase Ib study we completed last year, ALKS 2680 demonstrated a highly potent clinical profile in the intended patient populations. In that study, we established initial safety, efficacy, tolerability and dose response profiles across narcolepsy type 1, narcolepsy type 2 and idiopathic hypersomnia. The key objective of the Phase II program is to more fully elaborate the dose response curve in larger patient populations, define the lower and upper limits in terms of both efficacy and tolerability and inform dose selection for the planned Phase III program. The Phase II program is well underway. Vibrance-1 is a 6-week double-blind, placebo-controlled, parallel design study in narcolepsy type 1 or NT1. NT1 is defined by an absence of orexin-producing neurons in the hypothalamus. People living with NT1 experienced both excessive daytime sleepiness and cataplexy, which is a sudden loss of muscle tone. The primary endpoint of Vibrance-1 is the change from baseline in the Maintenance of Wakefulness Test or MWT. MWT is a quantitative measure of how long patients can stay awake. The study will also evaluate secondary endpoints, including change from baseline in weekly cataplexy rates, as well as change from baseline on Epworth Sleepiness Scale, which is a patient-reported measure of a patient's situational likelihood of falling asleep. As clinical trial sites were initiated and gained experience with the studies, investigator interest intensified and enrollment in Vibrance-1 is now complete. We expect to report top line data from Vibrance-1 early in the third quarter. Narcolepsy type 2 or NT2 is a more heterogeneous disease compared to NT1. People living with NT2 may have more functional or normal orexin systems. However, they still experience excessive daytime sleepiness. Vibrance-2 is an 8-week double-blind, placebo-controlled, parallel designed Phase II study in NT2. In this study, we plan to evaluate changes from baseline in both MWT and Epworth as dual primary endpoints. Vibrance-2 will generate the largest data set to date for an orexin 2 receptor agonist in the NT2 population. We have strong momentum in screening and enrollment, and expect to complete enrollment midyear and have top line data in the fall. The most recent development in the ALKS 2680 program is the initiation of Vibrance-3, our Phase II study in idiopathic hypersomnia. Vibrance-3 is similar to Vibrance-2 in terms of the 3 doses being studied; 10, 14 and 18 milligrams, as well as the 8-week duration of the randomized, double-blind, placebo-controlled parallel design. The primary endpoint in this study is the change from baseline in Epworth scale. The study will also evaluate changes in idiopathic hypersomnia severity scale as a secondary endpoint, and we expect data from this study in mid-2026. We are focused on capitalizing on our momentum and preparations for Phase III studies so that we can move as quickly as possible once we have Phase II data in hand. We've established a robust clinical trial network with more than 45 sites initiated to support the Phase II program and expect to be able to leverage this network and our clinical relationships to streamline operational study start-up timelines for Phase III. Preparations for other Phase III work streams, including manufacturing of clinical supply, study design planning and key regulatory interactions are also underway. We expect to exit Phase II with strong momentum and are focused on carrying that momentum forward into Phase III. I'll finish with a quick update on our Project Saturn initiative. Orexin 2 receptor agonists have been shown preclinically to activate neurocircuitry associated with mood, attention, vigilance and cognition. Project Saturn is focused on harnessing these effects in the treatment of other diseases outside of hypersomnolence disorders. We are on track to advance 2 additional orexin 2 receptor agonists into first-in-human studies this year. ALKS 4510 will be the first, with single-ascending dose studies expected to commence in the coming weeks. ALKS 7290 is anticipated to follow later this year. These 2 compounds share certain similarities with ALKS 2680, but will have their own unique pharmacokinetic and pharmaceutical properties. Once the initial pharmaceutical profiles are established in healthy volunteers, we plan to move quickly into disease-relevant studies and to establish proof-of-concept in indications of interest. The spectrum of disorders under consideration ranges from rare neurodegenerative and neurodevelopmental diseases to broader neuropsychiatric disorders, each seeking to harness the orexin system to drive wakefulness, attention, cognition and activate downstream neurocircuitry related to mood and other domains. Our preclinical work is ongoing and continues to support the potential of the orexin pathway. Alkermes is well positioned as a leader in development in this exciting new therapeutic category in sleep disorders and beyond. And with that, I'll hand the call back to Rich.

Great. Thank you, Craig. I'll finish up. So across the business, we're executing across our strategic objectives, focusing on the initiatives that we believe represent our greatest growth opportunities. Let me close with just a couple of thoughts. First, with respect to the macro landscape. We are well prepared to operate in this kind of environment. The patient populations that our commercial medicines are indicated for have always demanded a high level of engagement with policymakers and regulators. Our presence and capabilities in these areas become even more important against the backdrop of rapid and significant change. Our focus is on advocating for policies that maintain access to care for our patient populations, interacting with regulators to support continuity of critical regulatory work streams and identifying opportunities for efficiency in a thoughtful manner. We've been doing this for a long time, and we'll continue that work. Next, irrespective of the political environment, what will continue to drive valuations in our industry is the discovery and development of important new medicines with therapeutic value for patients and long potential patent lives. This is why the orexin development program is so central to our planning, new molecules based on new biology. Our program begins with narcolepsy and ALKS 2680, and has shown potential to extend beyond that into other exciting neuroscience indications. We've been building this type of valuation potential into the business thoughtfully over the last several years, and we're excited to be on the brink of important new data sets this year. So with that, I'll turn it to Sandy to run the Q&A.

Great. Thank you very much. Maria, would you please open the call for Q&A?

[Operator Instructions] Our first question comes from Joseph Thome with TD Cowen.

Congrats on the progress. Maybe the first one, I think in the prepared remarks, it was mentioned that the NT2 study has co-primaries of mean wakefulness test in ESS. And I'm curious if that was an update from the initial ESS being secondary and kind of what led to that? And then maybe as a follow-up, I know you and the KOLs have indicated flexible dosing would be very attractive for this patient population. Can you remind us if patients are able to deescalate between active arms as the study progresses? If they do see an AE, they can kind of stay on active drug but maybe drop down. Can you comment on that?

Yes. Sure. I'll start off with the question on Epworth. Epworth has always been an important assessment and been one of our endpoints for Vibrance-2. And considering other late-stage studies in the competitive landscape and our expectations for global regulatory interactions as we plan to prepare for our potential Phase III studies, we decided to elevate it to a dual primary endpoint. So it's not a co-primary endpoint, but a dual primary endpoint in the NT2 study. With regard to the flexible dosing, during the actual double-blind portions of the study, patients are assigned to a dose. And then in the open-label extension portion of the study, all patients will initiate on the mid-dose and can titrate for a period of time to the higher or the lower dose from that mid-dose. So, we'll gain quite a bit of experience hearing patient motivations and physician motivations in terms of that titration from the Phase II data, and that will be really informative as we start planning for Phase III.

Our next question comes from Charles Duncan with Cantor Fitzgerald.

Rich and team, congrats on a great start to the year. I had a quick commercial question and a pipeline question. With regard to the commercial question in terms of LYBALVI, I think you mentioned that you're getting scripts from both schizophrenia and bipolar. I'm wondering if you could break out the relative percentage. And then with regard to the R&D or the pipeline question, you mentioned 2680 being highly potent. And I know we've talked about this before, but is potency the end-all and be-all? Or are there other aspects of 2680 that encourage your investment?

Charles, this is Todd. I'll start with the commercial question for LYBALVI. For TRxs, it's roughly about a 50-50 split for schizophrenia and bipolar. For new patient starts, we see it more of a trend towards bipolar. So it's approximately 55% for bipolar within LYBALVI.

From a potency perspective, potency is just 1 aspect of what we built into the profile of ALKS 2680. Obviously it's a true once daily agent. We believe that's important. We've got dose flexibility with a wide therapeutic index. And I think those different aspects collectively are really important. And I think this sort of helps firm as a result of our Phase Ib study where I think we're the only agent that has positive data across all 3 patient populations; NT1, NT2 and IH.

Our next question comes from Paul Matteis with Stifel.

This is James on for Paul. And just a quick one on orexin. Given these studies have now been going on for some time, is there anything you can say about safety at least on a blinded basis? And specifically, 1 point of focus in the prior data has been the couple instances of visual disturbances. So any color on sort of your expectations there for the Phase IIs would be helpful.

Obviously it's not appropriate for us to comment too much on blinded data from the study and for that purpose, we have an independent Data Safety Monitoring Board that we've assigned. The DSMB is charged with the oversight of safety across the entire study. As part of that, they obviously are looking at things like visual adverse events and other aspects of the safety as well, including lab parameters. At this point in time, they've met on a regular basis and have given us the green light with no modifications to the study.

Our next question comes from Umer Raffat with Evercore ISI.

First, just curious how you're defining efficacy in some of the readouts coming up. For example, does the MWT need to be above 30? And I'm asking because it looks like the 10 milligram dose, especially in your NT2 trial, might be able to thread the needle on safety on every possible metric, but I'm just curious how efficacy success could be defined. Secondly, on REM sleep, intrusions during wakefulness and whether that drove some of the visual hallucinations or blurred vision. I'm just curious how should we balance some of the underlying REM related intrusions and possible visual disturbances versus the observation of visual disturbances only happening at higher doses and not across doses? Is it more Cmax or not? Just curious how you think about that overall.

So maybe starting with your last question first. I think the amount of information we have on visual disturbances is really not sufficient for us to draw any meaningful conclusions at this point in time. This is obviously something that we're studying more fully in the Phase II program and to the extent that we can do exposure relationships, we'll be able to do that more accurately once we have Phase II data in hand. And the first question, Sandy, was?

Define efficacy threshold. Does it have to be above 30?

Yes. So the efficacy thresholds, I can speak in broad terms. I mean I think the way we've looked at efficacy is really through 2 lenses. There's the lens of what's currently approved and on the market and obviously those are sub-10 minute improvements in MWT and then there's the lens through which the orexin agonist has the potential of getting to more normal wakefulness during the daytime hours. And for us, it's not only the thresholds we achieve, but the pattern of those thresholds. In other words, really striving to have a normal sort of wakefulness during the daytime hours, dropping below that threshold in the evening hours to promote more normal nighttime sleep I think is a really important component. And to that end, a low orexin cone in the evening hours with a once daily agent may actually have benefit. This is something we're studying more completely in our Phase II studies.

Umer, it's Rich. I just want to jump in a little bit on the second part of your question about the REM sleep intrusion. So for those who don't follow the field as much., orexin 2 receptor agonists would suppress REM sleep and so 1 of the characteristics of NT2 for example are these sleep onset REM periods. So you could theoretically have some type of visual disturbance, i.e., a hallucination, as a marker of a lack of efficacy and I think other programs may have even seen that. What we described in our NT2 and IH study, 1 patient in each was very different. That was just transient blurred vision in 1 case and transient light sensitivity in another. So we didn't interpret that as an intrusion of REM sleep or a failure of efficacy.

Our next question comes from David Amsellem with Piper Sandler.

So just taking a step back. With the advancement of 2680 and other orexin 2 receptor agonists and potentially other indications, what are your latest thoughts on biz dev and M&A and how aggressively are you going to be pursuing other assets to bolster the neuroscience pipeline? And with that in mind, can you talk about how large of a transaction you would contemplate?

David, this is Blair. I'll answer that question. I think as we look at our pipeline moving forward, as you said, we're really excited about the 2680 program and the expansion of the orexin franchise further and we think that's going to be quite beneficial to the company over the coming years. That being said, we would like to bring in additional assets to bolster the pipeline if that makes sense, if that fits with the strategy of the business and if we can find an asset that we can add value to through our development program. So we're looking across the range of the development cycle from Phase I through midstage, et cetera. I don't think I'll comment on the size of the opportunity, that will really depend on what we're looking at and what phase it's in. But I think we plan to maintain the business in a profitable stance in the foreseeable future and so bringing in additional assets and clinical catalyst is something that we're looking for.

Our next question comes from Jessica Fye with JPMorgan.

This is Abdul, on for Jess. Just 2 quick questions. For your key commercial products, can you touch on how you think about the contribution of volume versus price to sales this year? And then we've heard some investors worry about possible cuts to Medicaid. Can you remind us what portion of VIVITROL, LYBALVI and ARISTADA are covered by Medicaid?

Yes, I'll start with the first part of that as well. So there's always going to be a contribution of pricing. We do expect the typical seasonality with gross to net deductions. So we expect that will widen a little bit in Q2 for the products and then normalize for Q3 and Q4. But the majority of our expectation is based on volume growth. So our expectation and what we see in the marketplace is healthy growth of LYBALVI, ARISTADA and VIVITROL. Second question in terms of Medicaid contribution overall. It's relatively similar for all 3 products. It's in about the 45% to about 50% range for all 3 products.

Our next question comes from Akash Tewari with Jefferies.

This is Amy, on for Akash. Just 1 question on your orexin program. If you look at TAK-861's NT1 data, we're seeing worse AEs with the 5 2 milligram dose compared to the 7 milligram daily dose even though the same amount of drug is being delivered. Just curious what is your bar on safety and how confident are you that you can show better safety than TAK-861 in an NT1 population at your go forward dose?

At this point in time, it's important to note that we're obviously in very different portions of our clinical development program. And essentially with what Takeda has been seeing with sort of BID dosing, maybe relating to the fact that they're seeing 2 Cmax peaks. The profile of ALKS 2680 is truly once daily promoting sort of wakefulness during the daytime hours dropping below efficacious concentrations and allowing for more normal nighttime sleep. And so we're looking forward to our Phase II data and we'll be able to have far more color -- provide far more color on that once we have the data in hand.

Our next question comes from Marc Goodman with Leerink Partners.

Yes. I've been reading a lot about these government cuts and some of them have been to abuse programs. I was just curious if any of this was impacting VIVITROL at all or do you expect any changes at all in those funding? And then second of all just on LYBALVI, any changes in just patterns that you've seen just with the Bristol launch of the drug that's been out there for a long time now?

Absolutely. Marc, this is Todd. I'll take that. We're not seeing any changes right now in federal funding for VIVITROL. I think it's just important to remember, over the last several years we have totally re-engineered the VIVITROL business with our focus on the AD indication so we are really less reliant on government OD funding sources. So ideally though the contribution of funding is really at the state level and at the state level, less than 5% of the VIVITROL demand is based on funding. So we're very well positioned overall. In terms of LYBALVI, we continue to see healthy growth. As I said in my prepared remarks, Q1 year-over-year we showed 22% growth in TRxs. We're not seeing any impact from any of the competitors in the marketplace right now. I think again it's important to remember that LYBALVI has a healthy mix of schizophrenia contribution plus bipolar contribution. In terms of Cobenfy, HCPs continue to tell us that they're not making trade-off decisions between LYBALVI and Cobenfy. If you look at the prescription data and you also look at market research, you'll see very clearly that the majority of Cobenfy used as adjunctive therapy. The mix of our business across the treatment paradigm is getting contributions from new patient starts, switch business, plus add-on business as well. So we feel really good about the long-term prospects of where LYBALVI is.

Our next question comes from Jason Gerberry with Bank of America.

Appreciate all the updates on the tariff stuff. So it sounds like the punchline here is everything from API to fill finish is going to be sourced in the U.S. and never go through customs. And so if there's theoretical concerns around tariffing of transfer pricing, well, it sounds like you guys use like a royalty payment back to your Irish sub and in any sort of transfer pricing tariff stuff, I don't know, for that to have any impact. It seems like it's more the realm of tax legislation. So just wanted to make sure folks understood that appropriately. And then just separately with the Vibrance-1, I'm wondering what we can learn about the visual disturbance AE at all because we haven't seen these AEs in the narcolepsy Type 1 population. I think you guys had indicated you'll do some added ophthalmic testing of some sort in these patients so I'm wondering if that'll be part of the early 3Q update as well.

Jason, this is Blair. I'll take the first one. So just to clarify with regards to the products. Yes, you're exactly right. We manufacture all of our products in the United States in Wilmington, Ohio. We do bring in some API from outside of the United States, but it is a very, very small amount of our total cost. So tariffs are really not a material impact to the business. I think as you look at transfer pricing and transfer pricing reform, we believe, as you said, that in order for them to do that, the administration, that would require some sort of tax reform and involvement of legislation and Congress. I think that takes time and it's very complicated. So what we're seeing the agency or the administration focus on right now are areas where they can do executive orders and that's the movement of goods across and through customs. And so we're monitoring everything very carefully, but we set our business up in a way that's quite flexible and we can adapt it to whatever comes downstream regardless of where they go.

And then with regard to the question on Vibrance-1 and visual exams, all patients in our Phase II programs are receiving visual exams at baseline. We'll also be doing follow-up exams. And to the extent patients have adverse events, we'll be retesting those patients as well. As I said, we've got a Data Safety Monitoring Board, which has oversight over the totality of the safety of the study. And as part of that panel, we've got an ophthalmologist built into that as well and thus far, we've been given green lights on proceeding without any modifications across all of our studies.

Our next question comes from Leonid Timashev with RBC Capital Markets.

I had 1 on the orexin program. You mentioned in the prepared remarks that you're also thinking about orexin for cognition attention. I'm curious if you can gather any data on those endpoints in the ongoing Phase IIs or in the open label extension portions, if there's any formal endpoints you can evaluate there? And then I'm curious if any of those aspects can also potentially pull through into stimulating activity of orexins and if there's any potential for likability and if you can test for that as well in the Phase II?

Yes. It's an interesting question. Obviously a number of the different aspects that we're capturing in terms of the PROs and sleep quality and what have you will have a read through into a potential utility in other indications. In parallel, we've generated a wealth of preclinical data. We've got confidence that we are sort of refining which indications we're going to be prioritizing. First order of business for us is obviously to get the SAD and MAD studies completed for the 2 orexin agonists that we will be moving forward in these indications. And then to get those initial proof-of-concept studies up and running and that will be informed by some of this work that we will have coming out of some of the PROs and what have you from the orexin program as well the narcolepsy studies.

Just to be clear, there's a whole suite of PROs that we're investigating in the Phase II study that won't be part of the first data readout, which are focused on MWP at birth and cataplexy. But we're testing a number of different PROs that touch on some of those domains that you referred to and we'll look for signal there and that will inform both our Phase III program as well as other indication.

And then in terms of the human abuse potential studies, we're doing standard human abuse potential studies starting with our preclinical assessments and that will obviously then inform any additional work that needs to be done. So that's something that's going to be built as standard into any neuroscience program.

Our next question comes from Uy Ear with Mizuho Securities.

Given the upcoming data readout, maybe just help us set expectations for the Vibrance-1. Just wondering what in terms of efficacy are you expecting and safety and if you're -- if not that, then maybe just remind us what was the effect size that was assumed for the Phase II study in the powering.

Uy, it's Rich. I'll just jump in on this thing because it's pretty simple. The Vibrance-1 6 week double blind phase is what will top line early in Q3 based on the timeline now. That'll be your primary efficacy analyses, which will be MWT, Epworth and cataplexy. And we'll give -- because I think there's so much belief in the efficacy signal in NT1, I think a lot of focus will be on the tolerability and so we'll try to summarize the tolerability profile as extensively as we can for that data set. Those data then will be followed in time by the 7-week open label extension data where, Craig had mentioned, we'll see the variability of the dosing, how patients can then choose the dose that they want to go to, as well as these other patient reported outcomes that we're testing in Phase II along with the polysomnography that we'll pick up looking at sleep quality across the range of doses during the 6-week double blind period as well. Those will be subsequent data sets. The powering of this is not power -- the sample size is not powered based on an efficacy calculation. It's powered based on interactions with FDA on the safety exposures. So we expect to be highly powered for the efficacy endpoints and we'll have a big enough sample size with a long enough duration of exposure to really characterize tolerability.

Our next question comes from Joel Beatty with Baird.

For VIVITROL, with sales from that product being particularly strong over recent quarters, could you discuss the potential to maintain revenue from that product in 2027 and beyond upon the potential entry of generic competition?

Yes, absolutely. We feel the same. VIVITROL had a really solid quarter really primarily driven by alcohol dependence. In fact alcohol dependence growth in Q1 was 10% faster than the overall alcohol dependence market. Our expectation is that will continue through this year. As we prepare for a competitive entrant in the outer years, our belief continues to be that this is not only a complex product to make, but a very complex product to commercialize. So we don't believe that it will take a typical generic erosion curve and we're going to be prepared to drive demand and growth. If not, we're always flexible. We can modulate and flex our commercial infrastructure to make sure that we're driving profitability for the brand long term.

Our next question comes from David Hoang with Deutsche Bank.

So I just wanted to ask given the cadence of Phase II data that you'll get here in NT1, NT2 and IH; how do you think about having timing of regulatory interactions with FDA around things such as end of Phase II meetings and such? And then in terms of heading into Phase III, do you have kind of an idea of how many doses would be preferable to take you to Phase III and then eventually commercialization?

So the cadence that we plan to move forward with is to bring both NT1 and NT2 forward into an end of Phase II meeting with the agency and that's obviously something that the team can already start planning once we have NT1 data in hand. In terms of how many doses. So one of the strengths of our program is really the fact that we have a broad range of doses and a wide therapeutic index. And so our intention is to bring multiple doses into the Phase III program. This is obviously going to be informed by the strength of our Phase II data and our interactions with regulators as we plan our Phase III program.

Maria, we'll take 1 more question, please.

Our last question will be from Douglas Tsao with H.C. Wainwright.

Maybe just I wanted to follow-up on Project Saturn and obviously you presented some really interesting preclinical data at your orexin analyst meeting last year. I'm just curious to get your sort of thoughts on sort of the decision points that will be made as you think about bringing molecules into development across these different indications outside of the sleep space. And is it a situation where you might ultimately bring multiple assets forward for sort of different sets of uses?

At this point in time, we've made a lot of progress on our preclinical data since the R&D Day. In parallel, our second work stream is really to get these 2 agents into the clinic and to generate SAD/MAD data. And at that point in time, we'll be well-positioned to disclose more in terms of which indications we've decided to move forward with.

It's Rich. But I'll say for sure, we see multiple drugs advancing in different therapeutic areas.

Just as a follow-up, I'm curious does the ultimate indication selection depend a little bit on the SAD/MAD data meaning just given the sort of profiles that you see in terms of exposure, maybe some other pharmacological sort of endpoints that you're looking at help to decide this molecule might be better suited for 1 indication versus the other?

Yes, absolutely. I mean I think while there are some similarities between the TRx and receptor agonists that we're moving forward, they have distinct pharmacokinetic and pharmacodynamic properties. We'll learn a whole lot more from the SAD and MAD studies. And in parallel, we're generating a lot more preclinical data and those 2 workstreams together will help inform which agents are best matched to which indications.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Sandy Coombs for closing comments.

Great. Thanks, everyone, for joining us on the call this morning. Please don't hesitate to reach out to us at the company if you have any follow-up questions. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.