Alkermes plc

Greetings, and welcome to the Alkermes First Quarter 2021 Earnings Call. My name is Rob, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. I'll now turn the call over to Sandra Coombs, Senior Vice President of Corporate Affairs and Investor Relations. Sandy, you may begin.

Thank you. Good morning. Welcome to the Alkermes PLC conference call to discuss our financial results and business update for the quarter ended March 31, 2021. With me today are Richard Pops, our CEO, Ian Brown, our CFO, and Todd Nichols, our Chief Commercial Officer. Before we begin, I encourage everyone to go to the investor section of Alkermes.com to find our press release and related financial tables, including a reconciliation of the gap to non-gap financial measures that we'll discuss today. 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 two 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. Now I'll turn the call over to Richard.

That's great. Thank you, Sandy. Good morning, everybody. The first quarter's solid results were driven by our focus on commercial execution and discipline management of our cost structure. Ian and Todd will take you through the Q1 performance in detail, but at the highest level, we're on track to deliver on our financial objectives for the year and over the longer term, consistent with our value enhancement plan. The way we create value in biopharmaceutical companies is by making important medicines, medicines that address unmet needs of patients. Alkermes is an exciting point in our evolution. We've achieved a billion-dollar top line, driven by a portfolio of marketed drugs, We've developed specialized commercial capabilities, and we've identified new revenue growth opportunities with the expected launch of Lebalvi, which will be a second antipsychotic in our portfolio, and the anticipated growth of Vumerity, a drug for the treatment of MS that we developed but is being sold by Biogen. Coming next, we're focused on new neuroscience and oncology development candidates. Our objective is to develop truly innovative medicines with a clear value proposition and relative to current and anticipated future standards of care. We do this through developing new molecular entities based on strong biologic rationale and leveraging our established strengths in molecular design, both small and large molecule. At our recent investor day, we announced new development programs that reflect this approach. In neuroscience, our co-rest selective HDAC inhibitors have the potential for broad utility in neurodegenerative and neurodevelopmental diseases, and are advancing toward first in human studies later this year. Our orexin-2 receptor agonist program leverages our core competencies in small molecule medicinal chemistry and pharmacokinetic and formulation expertise, with candidate nomination planned for later this year. In oncology, we have developed a cytokine engineering capability that is yielding innovative new approaches to some of the most challenging and high potential immune modulation pathways. In addition to Nemvalucan, our most advanced oncology clinical candidate, we also highlighted our preclinical work engineering a tumor-targeted split IL-12 fusion protein and unveiled our IL-18 program. These presentations are archived on our website. Each of these programs is designed to address a specific unmet need in neuroscience and oncology and are designed to have clear competitive advantages. We test those assumptions throughout the development process. If a candidate doesn't meet these pre-specified criteria, we stop investment. If we create value through new medicines, the way we can enhance that value and make it rewarding to shareholders is through an equivalent focus on structure, efficiencies, and profitability. The value enhancement plan we introduced in December of last year furthers our focus on business excellence and makes explicit our intention to increase efficiency and profitability. It also provides a framework for allocating capital and prioritizing investments in our major cost areas of commercial and R&D, and drives a clear focus on programs with the highest expected return on investment. The combination of scientific excellence and business excellence is a powerful concept that we've incorporated into all the aspects of the way that Alkermes operates, and it's what will drive our ability to grow value in the future. So now, with that as introduction, I'll turn the call over to Ian to review the first quarter results.

Thank you, Rich, and hello, everyone. This morning, we announced solid financial results for the first quarter that derived from our two principal areas of focus, driving top-line growth and disciplined expense management. Based on these results and our expectations with respect to the ongoing recovery from the COVID-19 pandemic, Today, we are reiterating our financial expectations for full year 2021, which were fully outlined in our press release in 8K, filed back on February the 11th. For the first quarter of 2021, we generated total revenues of $251.4 million, driven by the solid performance of our proprietary commercial products and our diverse portfolio of manufacturing and royalty revenues. including notably the continued acceleration in the uptake of Vumerity. With operating expenses lower than the first quarter of 2020 across all line items, we achieved a gap net loss of $22.4 million and a non-gap net income of $17.8 million. Vivitrol net sales in the first quarter was $74.5 million. These results reflect a 6% decrease in units year over year due to continued pandemic-related disruptions in the treatment system. Despite this, Q1 net sales were ahead of our expectations for the quarter, driven by higher unit volume and some favorable gross-to-net adjustments related to Medicaid and lower product returns. Gross-to-nets were 51.5% in the first quarter, as compared to an average of 49.9% in 2020. And in Q1, inventory levels decreased by approximately $2.3 million to a more normalized level, as is consistent with typical seasonal patterns. Turning to the Aristada product family, net sales in the first quarter increased 9% year over year to $55.4 million, primarily driven by underlying unit growth. As we anticipated on our year-end earnings call in February, Aristada net sales declined sequentially due to a decrease in inventory levels in the first quarter. This inventory fluctuation represented approximately $8 million, and we ended Q1 at more normalized inventory levels. Growth to net adjustments of 53.3% in the first quarter were consistent with 2020. Now, while Aristada demand has been resilient throughout the pandemic, we have seen an impact on overall market growth. particularly related to new patient starts, and Todd will provide more detail on that shortly. Moving on to our manufacturing and royalty business, in the first quarter, our manufacturing and royalty revenues were $119.8 million, compared to 116.3 in the prior year. This increase was driven primarily by accelerated uptake of Boomerity, which contributed $13.4 million in the quarter, and growth of royalty revenues from Invega, Sustena, and Trinza, partially offset by lower year-over-year Risperdal-Konster revenues, driven primarily by lower manufacturing volumes. Total operating expenses were $267.9 million for the first quarter, down from $283.6 million in the same period in the prior year, reflecting our continued focus on disciplined expense management and our ongoing investment in programs we believe will drive long-term shareholder value. R&D expenses for the first quarter were $92.3 million, compared to $93.3 million for the prior year, reflecting investment in Nember Lucan and the earlier stage HDAC and EREXIN platforms. SG&A expenses for the first quarter were $125.2 million, compared to $133.4 million for the prior year, primarily reflecting savings across the commercial organization. Turning to our balance sheet, we ended the first quarter well capitalized with approximately $627 million in cash and total investments, and total debt outstanding was $298 million. We continue to focus our capital allocation on the highest return on investment opportunities that are consistent with our long-term growth strategy. Our priorities are clear. Support our commercial portfolio to drive top-line growth. Invest in the potential launch of Lybaldi. Advance the Nembalucan development program and seek partnership opportunities. Develop the newest pipeline programs emerging from our neuroscience and oncology platforms as we unveiled at our recent Investor Day. And explore other strategic opportunities around non-core assets, including early-stage R&D programs and royalty streams. We believe that we enter the second quarter with a solid foundation for long-term value creation and are well-positioned financially to execute on our strategy, and I look forward to updating you on our progress. And with that, I'll hand the call over to Todd to review our commercial results.

Thanks, Ian, and good morning, everyone. I'm pleased with our commercial team's execution in the first quarter, with both Aristod and Vivitrol Q1 net sales slightly ahead of expectations. Our first quarter results reflect solid underlying unit demand and typical seasonal inventory fluctuations. Based on our Q1 results and current trends in the treatment landscape, we believe we are well-positioned to achieve sales within our full-year guidance ranges for both Aristata and Vivitrol. Now, taking a step back, COVID-related disruptions continue to impact patient access to treatment in both addiction and serious mental illness in Q1 as we anticipated. We continue to believe that patient access to care will improve as we approach the second half of 2021 as vaccinations continue to roll out across the country and capacity restrictions ease in settings of care. We've also seen encouraging trends in leading indicators, such as new-to-brand prescriptions for both Vivitrol and Aristata in the first quarter compared to Q4. We continue to execute on our hybrid promotional model that incorporates both in-person and virtual engagements. This model was implemented in response to the COVID-19 pandemic last year, and it has allowed us to quickly adapt in this highly dynamic market environment. While virtual engagements have been critical to maintaining continuity, we look forward to increasing in-person engagements. We have seen these engagements pick up through the first quarter, with our sales force expanding the percentage of their in-person calls to approximately 50% in March, up from 40% in early January. Now, starting with Vivitrol. Net sales in the first quarter were $74.5 million, consistent with seasonal patterns. Vivitrol net sales declined sequentially due primarily to the drawdown of Q4 inventory build, as well as slightly higher gross to net adjustments, as Ian outlined. COVID-19 disruptions to the addiction treatment systems continue to negatively impact Vivitrol in Q1, and we are still working back up towards pre-pandemic unit demand levels. Pandemic-related restrictions broadly impacted patients' ability to access the healthcare system for treatment and impacted utilization of Vivitrol in particular due to the requirement for injections, the need to be opioid-free before receiving treatment, which often requires detoxification in a medical setting, and the nature of substance abuse treatment settings of care generally. Now, we have seen stabilization within the opioid dependence since the pandemic lows, but continue to see restrictions and settings of care that have yet to fully increase their patient capacity, most notably residential treatment centers, correctional facilities, and other government treatment locations. However, in our recent market research, about 50% of healthcare providers that we surveyed reported a slight to substantial increase in AUD and OUD patient volume in March compared to the prior month. In alcohol dependence, we have seen a resumption of growth in the market, During Q1, SAMHSA issued a new treatment advisory for prescribing pharmacotherapies for patients with alcohol use disorder, encouraging providers to consider FDA-approved medications when treating patients. Now, part of our focus in 2021 is on driving awareness of Vivitrol as a treatment option for alcohol dependence among providers, caregivers, and patients. As the country begins to emerge from the isolation of the pandemic, public health organizations and experts have expressed increasing concern about the rise in heavy drinking and adverse alcohol-related health conditions. April is Alcohol Awareness Month, and we have been focused on launching campaigns designed to drive education around the disease of alcohol dependence and increase awareness of treatment options, including Vivitrol. Now, the prevalence of alcohol dependence in the indication mix for Vivitrol continues its upward trend, driven by growth of the category and new patient starts. Based on our results in the first quarter, today we are reiterating our expectation of Vivitrol net sales in the range of $315 to $345 million for 2021. Turning now to the Aristotle product family, net sales in the first quarter increased approximately 9% year-over-year to $55.4 million, driven by strong TRX months of therapy growth of 11% year-over-year that outpaced the broader long-acting atypical antipsychotic market which grew at 3%. As anticipated, net sales were down sequentially from the fourth quarter driven by seasonal inventory fluctuations. As Ian outlined, inventory had returned to normal levels at the end of the first quarter. As a result of the pandemic, we have seen some impact prescribing patterns in the long-acting antipsychotic space, particularly to new prescriptions as psychiatry healthcare providers made fewer treatment changes in the COVID environment, particularly within the context of telehealth visits. As a result, new-to-brand prescription growth flattened in the second half of 2020. We are encouraged that in the first quarter of 2021, Aristata MBRX growth was 11% on a sequential basis, the highest in the LAI antipsychotic market. Further, our market research shows that healthcare providers experienced steady or increasing patient volumes in the quarter. Our recent market research also indicated that the value proposition of the Aristata two-month dose plus Aristata initio continues to resonate with healthcare providers, as evidenced by 21% year-over-year TRX growth for the two-month dose on a month of therapy basis. Based on our Q1 results and these leading indicators, we are reiterating our expectation for Aristata net sales within the range of $260 to $290 million in 2021. Moving to Labavi, our oral, investigational, antipsychotic candidate designed to offer the efficacy of a Lantapine while mitigating its associated weight gain is under review with the FDA with a PDUFA date of June 1st. As we prepare for a potential commercial launch in the second half of 2021, our team is focused on finalizing our payer strategy, driving disease state awareness, and engaging in scientific exchange. We believe Labavi, if approved, will represent an important new medicine for the treatment community. Olanzapine is widely recognized as being highly efficacious, but physicians and patients often avoid prolonged utilization due to concerns about its propensity for weight gain. Interestingly, Olanzapine was the fastest growing oral atypical in 2020, with a 15% increase in embryo access in December 2020 as compared to December 2019. suggesting that providers are increasingly seeking Lanzapine's antipsychotic efficacy for patients. The oral atypical antipsychotic market is highly dynamic, with over 70,000 treatment switches occurring each month, as patients look for the right medication to fit their needs. We believe this reflects persistent unmet need in the market and a potential opportunity for a new entrant with a profile like LaValvie. If approved, LaVolvi has the potential to serve two markets, the treatment of adults with schizophrenia and the treatment of adults with bipolar I disorder, while leveraging our existing psychiatry infrastructure. LaVolvi, if approved, will join Aristata in our psychiatry franchise, adding a product with a differentiated value proposition and suited for a different patient profile. Our Aristata field force already calls on about 60% of LaVolvi's targeted provider universe. and we plan to add approximately 50 additional sales representatives in a staged fashion throughout the first year of launch based on payer access. Looking ahead, we are focused on execution as we prepare for the potential launch of IWALVI, work to achieve our expectations for Vivitrol and Aristata, and continue to drive awareness of the value proposition of these important medicines. Now I'll turn the call back over to Rich.

Good, thank you, Todd. So commercial and financial execution remain top priorities for the company. But the value of the pipeline and our R&D investment is beginning to emerge. So I'm going to spend a few minutes on that. The most prominent later stage elements are, of course, Lebalvi at the NDA stage and our immuno-oncology agent, Nemvalucan. I'm going to start with Nemvalucan as that program is advancing rapidly now. Nemvalucan is emerging as a differentiated late stage IL-2 variant. In a field that's garnering more and more attention because of the promise of the biology, Nemvalucan has moved well beyond the conceptual phase and is accumulating clinical results to support its potential therapeutic benefit and value proposition. It's differentiated in terms of its design, potential dosing flexibility, anti-tumor activity, both as monotherapy and in combination, and our clinical development strategy focused on patients for whom current therapies are inadequate or have failed. We presented select data recently at our investor day, and we have another data presentation upcoming at ASCO. So today I'm going to focus on important operational developments recently. First, we've achieved an important milestone in the program with the completion of enrollment in Parts B and C of Artistry 1. Artistry 1 is the primary signal-seeking study for intravenous nebulugans. where we began to reveal for the first time the dosing, tolerability, and preliminary efficacy of this new molecule. It was designed as a Phase I-II study with three parts. Part A was dose escalation, designed to establish the pharmacokinetic and pharmacodynamic profile of IV Nemvulucan, evaluate safety and tolerability, and identify the recommended Phase II dose. Part B started after we identified the recommended Phase II dose, and was intended to confirm monotherapy activity in melanoma and renal cell carcinoma. Tumor types for recombinant human IL-2 has proven single-agent efficacy. From our perspective, monotherapy antitumor activity is essential to validating the therapeutic potential of nembalucan. We checked that box late last year. We've observed partial responses in both melanoma and RCC, and data from that stage of the study continued to mature. Part C was designed to seek signals of anti-tumor activity in combination with the anti-PD-1 Pembrolizumab in both PD-1 approved and PD-1 unapproved tumor types. This has also been successful. Data from Part C has revealed activity across a wide range of tumor types, supporting the broad potential utility of Nemphilucan in combination with Pembro. While the Part C data set is still maturing, We've observed a clear signal of durable and deepening responses in platinum-resistant ovarian cancer, and I'll talk more about our plans in that area in just a moment. Artistry 1 will continue to provide a stream of data throughout the remainder of the year. The next data update will occur at ASCO, where the Artistry 1 data set was accepted for a poster presentation. Also accepted at ASCO was a poster on Artistry 2, which is our Phase 1-2 study evaluating subcutaneous dosing of nebulucans. Sub-Q dosing could open up a broad range of clinical opportunities. And to our knowledge, Nemvalucan is the only IL-2 variant with a sub-Q administration option currently in clinical development. As for Artistry 2, it's also progressing well. At the end of last year, we identified the recommended Phase 2 dose of 3 mg once weekly and initiated the dose expansion phase. At ASCO, We'll present safety, tolerability, PK, and PD data from those dose escalation cohorts. We presented the first partial response from that study in a patient with platinum-resistant ovarian cancer at our recent investor day, and we'll look forward to sharing additional data from the study as it matures. Showing subcutaneous antitumor activity is an important milestone in the program, and we're focused on further developing that data set as we advance toward broader opportunities for strategic collaborations. The positive signals that we've seen of antitumor activity in Artistry 1 and 2 triggered our advancing the development program to the next stage. We're focusing our next efficacy studies on monotherapy in mucosal melanoma and combination therapy with PEMBRO in platinum-resistant ovarian cancer. So let's take those in turn. Mucosal melanoma is a rare and particularly aggressive form of melanoma with limited treatment options. In Artistry 1, we've seen an initial signal of antitumor activity for nebulucan as monotherapy in patients with this severe disease. Last month, nebulucan was granted orphan drug designation in this indication, and we also recently met with FDA to align on a clinical study design and initiated what we call Artistry 6. This single-arm Phase 2 study will evaluate IV nebulucan monotherapy in checkpoint inhibitor-experienced patients with mucosal melanoma. The study is designed to support potential registration, obviously depending on its results, including the magnitude and durability of responses and the observed safety profile. To leverage the trial infrastructure being put in place for Artistry 6, the study will also enroll a cohort of patients with advanced cutaneous melanoma who will receive sub-Q-administered Nemvalugin. This cohort is intended to establish proof of concept of antitumor activity with sub-Q-nemvalucan as monotherapy. We anticipate dosing the first patient in Artistry 6 in the coming weeks. The second focus area is platinum-resistant ovarian cancer, known by the acronym PROC. We observed a clear signal of antitumor activity in Artistry 1 last year with a combination of nemvalucan and PEMBRO in PROC patients, and we plan to initiate a Phase III study in the second half of this year. This is an indication where PEMBRO is not approved, and has shown only very limited activity. To support that study, we recently entered into a clinical supply and trial collaboration with Merck. We're still finalizing study design with Merck and FDA, but we've agreed that the primary analysis will be Nemvalucan in combination with Pembro compared to investigator choice of chemotherapy. We're pleased to be partnering with Merck on this study, and we believe that their participation is an important validation of the signal that we've observed. Importantly, The collaboration does not impede our ability or intention to pursue broader strategic collaboration for the Nemboloquin program, which remains an important strategic priority for the company. There are a number of IL-2 variant programs in development. This is because of the compelling logic of the proven IL-2 pathway as a complement to a range of tumor-killing approaches. The various hypotheses underlying these programs will need to be confirmed through the process of developing human clinical data relating to response and duration in various tumor types. This is the path we followed with Nemvalucan, and the accumulating human clinical data relating to response and duration in various tumor types in the Artistry program is the reason why the program is accelerating. The acknowledgment of investigators and thought leaders and the clinical trial momentum are important validations of the program, and we look forward to sharing incremental updates throughout the year. I'll finish with a brief update on LaValvie. Currently, we're working with FDA toward our June 1st PDUFA date. In parallel to our review, the prelaunch activities are advancing, and we're laying the foundation for commercial launch in the second half. Across the business, the priorities are clear, and we're intensely focused on execution. We've taken great care to re-envision Alkermes' approach to new drug development. and establish a strong complementary focus on efficiency and driving value. While some of these efforts will bear out over time, we believe we have significant opportunity to drive real value in 2021. So with that, I'll turn the call back to Sandy to run the Q&A.

Thank you, Richard. We'll now open the call for Q&A, please.

Thank you. I will be conducting a question and answer session. In the interest of time, until I have as many as possible to ask questions, please limit yourself to one primary question and one follow-up question. If you'd like to ask a question at this time, please press star 1 from your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question today comes from the line of Brandon Folks with Cantor Fitzgerald. Please receive your questions.

Hi, thanks for taking my question and congratulations on all the updates year to date. So I just want to actually focus on Aristotle and Vivitrol. You talked about the COVID restrictions and sort of the headwind that, you know, these have been going on for a long time. So as we kind of open up, how much do you think there's been a bit of a permanent change in treatment paradigms in the addiction space, as well as the atypical long acting injectable market? How should we think about sort of this ramp back to pre-COVID levels? Is this something that's going to take a lot of work from the commercial side? Just any color there would be great in terms of sort of the ramp we should expect back to pre-COVID levels. Thank you very much.

Yeah, absolutely. And thank you. We are very pleased with the commercial performance for both products in Q1. We do assume a normalization of patient volumes in the second half of the year, which also includes moderate market growth, which really is going to be driven by improved patient access to treatment providers. All of our qualitative research supports that. One of the key metrics that we continue to watch is telemedicine utilization. And I think the interesting fact from our surveyed physicians showed that you know, right when the pandemic happened, you saw a huge percentage of HCPs in both therapeutic areas switched to telemedicine. And we're starting to see a gradual shift back to in-person engagements and access to treatment providers opening up. So we are expecting that to normalize in the second half of the year. When that normalizes, we believe that we'll start to see an increase in the switching market that really drives both of these products, that drives LAIs, but also drives the ejection treatment landscape for Vivitrol as well, too. So that's how we're thinking about it. It's more of a normalization in the second half of the year.

Great. Thank you very much.

The next question comes from the line of Emile Devon with Mizuho Securities. Pleased to see you with your questions.

Great. Thanks so much for taking the questions. So two, if I could, so one on my body, it sounds like you're. Things sound to be on track towards the student first date. Um, I guess my question that we've been getting to for investors before your prior, but you've been in November, it sounded like you already finished all the labeling discussions and then the manufacturing questions sort of came up at the end. So I'm just curious if that's the right way to interpret things. And is there anything around restrictions to which patients should potentially get the product or any sort of risk mitigation strategies? Any of those kind of things, would those already be sort of well-known to you at this point, or is that still sort of being discussed with the FDA? And then the second question I have is on demerity. And just given the sort of pretty dramatic change, we've seen a prescription trend there. I think you've talked about royalty streams potentially being one of the things you look at as part of your value enhancement plan. I'm just curious how you think about a product like that. That's still pretty early in its life cycle, maybe a little tough to kind of figure out exactly what the long-term value is. Is that something you could sort of monetize in the near term, or do you need to wait for a little while before you can really see what the value is for that product? Because you've given some of the outstanding questions on the Tecfidera patent as well. So any comments there would be helpful. Thank you.

Good morning, Valmo. It's Rich. I'll start, and then if Ian has some color, he can chime in. Yeah, LaValle, we seem to be on track for the 6-1 contract. for the 6-1 date. You're right. In our previous iteration, we had had some label discussions, and the manufacturing stuff came up at the last minute. We've continued to have label discussions with FDA now in this cycle, which is why we think we're on track. But label negotiations are never over until they're over. But so far, there's not been anything that has been unexpected in those discussions. so we're optimistic that we can get this finished off. But these days with FDA, I think caution is always warranted, but we have no indication of it so far. I think you answered the question yourself on bumerity. Bumerity is really beginning a certain nonlinear part of its growth phase, so it's very difficult to project what the actual shape of the curve will be that would be the basis of a of a monetization at this moment. With that said, it's something that we're interested in and we'll pay attention to. Ian, any other further comment on that?

Not much to add there. Obviously, I think we're just very encouraged with the revenue trends that we've seen in the fourth quarter and then into the first quarter. I think, as Rich says, it looks like it's on a new trajectory. We do manufacture the products, so we get a little bit more of an insight into what's happening into the future. And those manufacturing trends and the order pattern are very encouraging as well. But as Rich says, it's early, and in order for us to establish value, I think we need to see a few more consecutive strong quarters from Fumerity.

Okay, thank you.

Our next question is from the line of Paul Matisse with Stifel. Please proceed with your question.

Hi, this is Thor on for Paul. Thanks so much for taking the question. One question on Vivitrol and then one on Nembolucan. In Vivitrol, how much growth in alcohol dependence is assumed in your guidance? And then on Nemvalucan, what does a path look like for Artistry 6 that leads to registration? Thanks so much.

Yeah, I'll start off with the question on alcohol. We continue to make really good progress in our strategy to maximize the opportunity for alcohol. It's a significant unmet need in the marketplace. Last year we saw about a 4% growth year over year. We're expecting that to continue, so somewhat to be linear, and we expect to continue to gain market share within the category. So we're expecting overall on a month of therapy basis, overall we think that that growth is somewhere going to be within that probably close to 2% to 4% is the range that we're looking at.

And this is Rich, I'll answer the question about artistry 6. Mucosal melanoma is a disease with serious unmet needs, and the patients that we're looking at are people who've progressed beyond checkpoint inhibitors, so they have very limited treatment options. I think the clinical profile that is so exciting about an IL-2 variant like nembalucan is a combination of three things. One is overall response rate, number two is durability of those responses, and number three is tolerability. So that will be the profile we'll be looking at as Artistry 6 evolves.

Thanks so much.

Our next question is coming from the line of Corey Kazimoff with J.P. Morgan. Pleased to see you with your questions.

Hey, good morning, guys. Thanks for taking the questions. Two for me, both on Nemvalucan. First one's following up on Artistry 6. Can you talk about the rationale for evaluating both EIV and SubQ formulations there? I mean, I know you've talked about SubQ ultimately being more of a contingent factor for future partnerships. So if you can talk a little bit more about that strategy. And then for the upcoming posters at ASCO, How much should we be expecting in terms of follow-up for Artistry 2? And for the abstracts themselves, are those going to be essentially placeholders relative to what you've disclosed already, or should we be expecting meaningful updates there? Thank you.

Good morning, Corey. Good to hear your voice. I'll take the first part, and Sandy's more expert on the second part. Throughout the program for Nambalucan, We think of the IV as the leading edge of the wedge, followed then by the sub-Q, with the hope and expectation that sub-Q could recapitulate essentially the activity and the efficacy that we see with IV. And that's exactly what we're doing in Artistry 6. We have great investigator, thought leader interest in a treatment for patients with mucosal melanoma at that stage. There's really very little for them. So moving ahead with the IV could be life-sparing, life-saving, life-changing therapy for these patients. But introducing the sub-Q into that clinical setting as well would give us an option if we see that type of efficacy as well of advancing the sub-Q dose within the context of the same protocol. So when we're putting in this clinical network to do mucosal melanoma around various countries and various sites, it's a great asset to leverage to feather in the sub-Q piece as well. And we'll see how those sub-Q data evolve.

And, Corey, your question on the ASCO posters. Recall that we did just give an update on the Nambalucan program at our investor day, so we'll refresh that data, but there will be probably a month's worth of additional follow-up data in that poster. But as that data set evolves, we'll try to keep investors as updated as possible.

Okay, perfect. Thank you, guys.

Thank you. Our next question is from the line of G. Mukherjee with Jefferies. Please proceed with your questions.

Hey, good morning, guys. Thanks for taking my question. Two from me. Back to Artistry 6, perhaps. Just wanted to get a sense of perhaps how many cutaneous melanoma patients you plan to enroll, and what do you believe are perhaps the respective bars for efficacy to meet in mucosal and cutaneous melanoma? And the second question was, as your investor day, you had highlighted perhaps several steps to facilitate that expense management. Could you perhaps elaborate on what steps will continue to be implemented throughout the year and hopefully be reflected on the bottom line? Thanks.

Sure, Ajit, this is Sandy. I'll take the question on the patient enrollment number. So overall in Artistry 6, we expect to enroll approximately 110 patients. Of that, approximately 40 will be in the cutaneous melanoma arm using the sub-Q, and 70 will be in the mucosal. Rich, do you want to comment on the response?

Yeah, I think that our biostatistical approach to this is that we want to see response rates in the 20-plus percent level, but it's also with the additional feature that I mentioned before of durability. is really important. It's striking. The first response we had, the partial response we talked about previously, that patient has been on therapy for, I believe, over a year now. And that's a really encouraging aspect of Nemphilucan in this setting. Ian, you want to comment on the expense side?

And then on the expense management side, yeah. I mean, we're really looking across the business at everything, both internally, and we also brought in an external consulting organization at the beginning of the year. So a number of initiatives came out of that, some of which we factored into our 2021 guidance. But as we go forward, that focus is going to continue. And we're actively managing on the headcount side of things as people leave the organization. We're just making sure that we have the right resources focused on the right programs on a program basis, both within commercial and within R&D. We're ensuring that we're really focusing that investment on the opportunities that are going to maximize return on investment. And we're looking at other opportunities as well, like, for example, our real estate footprints as well. So it's a pretty thorough process, and we're very focused on it in order to be able to achieve the longer-term profitability targets that we've laid out in the value enhancement plan. Great.

Thank you so much.

Thank you. Our next question is coming from the line of Mark Goodman with SVB Learing. Please proceed with your question.

Yeah, just a continuation there. On the value enhancement plan, you've talked about monetizing non-core assets. I'm just kind of curious what your thoughts are back there. And additionally, in the oncology area, you were talking about partnering, but just curious. We're just still thinking about... maturing this data throughout the year before you start those types of discussions or certainly signing anything. I'm just kind of curious how your thought process is there. And maybe you could just lay out, secondly, just a completely separate topic just on spending, obviously very light in the quarter. Just give us a sense of how the spending goes throughout the year, just in the SG&A line. Thanks.

If I kick off on that, I think with the monetization of the non-core assets You know, we've identified a number of areas that we're not continuing to focus on necessarily internally. We've talked about some of the non-core R&D programs, earlier stage R&D programs. And with regard to the royalty monetization, we sort of covered that a little bit earlier with regard to it's really a value proposition. We want to make sure that we get sufficient value. I think Boomerity for us is our most valuable royalty stream at this point in time. And we just want to see that maturity of this new trajectory in order for us to be able to establish value there. From a spending perspective, I think we were very pleased with where Q1 came in. Expenses across the board were lower than both Q1 of last year and Q4 of last year. And I think as we look out through the remainder of the year, from a cost of goods perspective, we anticipate that would increase with increasing volumes, specifically of our proprietary products. On the R&D side, I think expenses will tick up a little bit as the Nambalucan program continues and we sort of launch into Artistry 6 and then the PROC program. And we also have the $25 million milestone in the second half of the year as well related to the kickoff of the HDAC 1140 program. And then specifically with regard to SG&A, As Todd mentioned, I think we'll augment the sales force, and there will be some incremental spend. That'll be on a staged basis, though, which will be closer to the PDUFA timeline around June, and then maybe a little bit of incremental investment as we gain access for Lybolvi as well. So I think that's really the profile that we're looking at, but all in all, we're very comfortable with the guidance we went out with in the February timeframe, and hence we reiterated that guidance today.

And Marcus Rich, I want to take on your question about the partnering, because I think what's so interesting in this IL-2 space right now is how the various programs are segregating into their own lanes. They are clearly not interchangeable, and I think that Nembalucan in particular is emerging as a really important entrant in this field. The existence of monotherapy efficacy and the availability of the sub-Q dose are two highly differentiating features of it. We really do want to elaborate that sub-Q efficacy. It's just beginning to emerge now. With the recommended phase 2 dose and Artistry 2 being achieved at the end of last year, we just opened up the expansion cohort. We were fortunate that right on the threshold of the investor day, we saw with our first patient, our first response in PROC, But we expect that that sub-Q profile will continue to elaborate. And you'll see at ASCO some of the actual pharmacodynamic features of the sub-Q presentation that are slightly different than the IV that we're encouraged by. So I've said before, we really don't want to spend any time in a partnering discussion trying to adjudicate whether or not the sub-Q dose works, whether or not the drug is efficacious. We can do that all on our own. When we move into the partnering discussions, it's about how effective what indications should we go after? How do we expand this program? How do we create the most medical and economic value for Nembologan? So I think that data set will continue to mature this year, but I think it's, you know, we can hear the drum beat in the distance now.

Thanks. Next question is from the line of Akash Tiwari with Wolf Research. Please proceed with your question.

Hi, this is Amy on Surakash. Thanks so much for taking our questions. Just had a couple on your orexin program. So as you think about the design of your lead candidate and the competitive space, what specific properties are you optimizing for? Is it half-life, blood-brain barrier penetration, or selectivity? Just looking at your early data in DTEA mice, it looks like you're leading to more potent drops in cataplexy and benefit on wakefulness at lower doses compared to Takeda's, although we'll acknowledge it's early data. But just wanted to kind of think about how you're looking at the design of your molecule. And then another one, in terms of the blood pressure increases in polycuria and Takeda's erection trials, do you think this is an on-target OX2R-related effect or an off-target OX1R-related effect? and any color you can add here would be super helpful. Thanks.

Well, this sounds like you're ready for a conversation with some of the folks on the research team, but I'll give you our perspective on this. You know, things like PK profile, peak to trough, partition coefficient, half-life, you know, these technical aspects are all part of the design, but the Translate actually into something, the way we view it is from the patient perspective, which is what we're looking for is a once daily, well-tolerated, low side effect profile agent to address the clinical condition. And we see white space compared to what other companies are doing. And it also leverages something that we've spent a lot of time focused on over many years, which is the the relationship between pharmacokinetics, pharmacodynamics, blood-brain penetration, CNS exposure versus peripheral exposure, and mitigating or accentuating pharmacodynamic effects of various molecules based on the waveform or presentation to the periphery or the brain. I won't bore everybody with all the specifics of the questions that you asked, and I will recommend that we have a follow-up conversation with you because there's a lot of science here, there's a lot of data, and we're happy to talk about it.

Thank you so much.

Our next question is coming from the line of Douglas South with HC Wainwright. Please proceed with your questions.

You might be muted, Doug.

Mr. So, your line is open for questions. Mr. So, please proceed.

Why don't we move on and we can circle back if Doug can reestablish his line.

Sure. Our next question will be coming from Jason Gerbery of Bank of America.

Hi, everyone. This is Chiang for Jason. Thanks for taking our questions. Two from us. First one on Vimerity. A partner Biogen declined to comment on the impact of Tefidera pattern rulings, possibly removing generics of that drug from the market. But I'm curious if you can comment how big of a positive for Vimerity if generic Tefidera came off the market. I guess a follow-up on Number Lucan. Are you able to confirm the couple of unconfirmed responses that you showed at Investor Day, or is this something, an update that we can look forward to at ASCO? Thank you.

I'll take the first one. Maybe Sandy can take the second one. The experts on the interaction between Vumerity and tech are Biogen, and you should really focus. From our perspective, I can tell you, Vumerity was designed as a next-generation infumerate with benefits for patients, namely in the form of preserving the proven efficacy of monomethylfumerate in a dosage form in a molecule that's more GI-tolerant. And that's what we're seeing in the real world. So our view is that Vumeri represents a generational advance for the benefit of patients, and that's what should drive its increased utilization in the clinic. On the nebulucan side, Sandy, you want to answer that one?

On the nebulucan side, sorry, repeat your question, Chi?

Oh, what can we confirm? Yeah, the couple of unconfirmed responses, are you able to confirm them?

Yeah, we won't comment on that on this call. You can look forward to ACCA for an update on any additional confirmations.

Awesome. Thanks so much.

Thank you. Our next question is from the line of Terrence Flynn with Goldman Sachs. Please proceed with your questions.

Great. Good morning. Thanks for taking the questions. I was just wondering if you can – Provide us with your latest expectations for how the weight data for Lebalvi might be incorporated into the label, what the potential outcomes are there. And then I know you mentioned adding an additional 50 sales reps here. How much additional coverage would that give you of your targeted provider universe? I know you said 60%, so would that go to 70%, 80%? Maybe just help us think about how much extra expansion you'd get from those additions. Thanks.

Yeah, absolutely. I'll take both of those. You're referring first to the weight efficacy trial, which is Enlightened 2. That was a pivotal phase 3 trial, which showed the benefit of Lebalvi versus Olanzapine. So we still, to Rich's earlier point, we're still in communications with the FDA. So we're not going to really comment on what the label is until we have approval. But we are very encouraged, and discussions have been consistent with our expectations. In terms of the footprint coverage, that's something we're really excited about, and that's actually a key leverage point for us as we launch into this new category with an oral product. Currently, our sales force covers about 60% of the targeted audience. That's going to significantly ramp up once we add, in a staged fashion, the additional sales professionals. Our expectation is when we get to launch that we're going to cover approximately 80% of the branded oral marketplace, which, as you can imagine, is a substantial amount of coverage, which is going to allow us to have a very strong share of voice in the marketplace.

Our next question is from the line of Umar Rofat with Evercore. Please receive your questions.

Hi, thanks so much for taking my questions. I had a few, if I may. Maybe just one follow-up to a prior comment. Can you just level set, Richard, how we should expect the setup going into ASCO? I realize there's a lot of companies reporting a lot of things, and I know you guys emphasize safety and tolerability, so maybe if you could level set us on if we should or should not expect any further meaningful updates on efficacy. That's one. On SubQ, I guess my question is, We know there hasn't been monotherapy responses so far and so we'll see how that shakes out. But meanwhile, we also know the PK profile is quite different from IV and I almost wonder why not perhaps try out a sub-Q regimen where it's given five days in a row and then no further for the rest of the cycle. Could that create an opportunity for sub-Q assuming there hasn't already been some sort of monotherapy activity? And the last one, there's a lot of buzz from the new administration on new funding for Suboxone, and I wonder if there's anything unusual in the works which could truly move the needle on Vivitrol. Thank you so much.

Morning, Umar. I wonder where you were in the queue this morning.

I was on the Israeli call. Okay, okay.

And I was incredibly impressed by all the questions you guys are asking about the orexin-2 as well. So Sandy is really the expert on what we're going to be showing at ASCO, but as it relates to artistry-2, there's actually quite a bit of interesting data with respect to the PK-PD relationship and the tolerability on the sub-Q side. I think that we've not presented all of that, so we had some for ASCO, but I think it's really important, the biology of the different presentation as well. With respect to monotherapy sub-Q, we actually think the regimen Q weekly at three MIGs is going to drive monotherapy efficacy. We're not worried about that, but your question is a good one because it opens up a broader question, which is, for example, are there other more clinically tolerable IV regimens rather than daily IV times five, we actually believe there are. Are there combinations of IV induction plus sub-Q maintenance? We believe there are. There are just infinite permutations, and where we are now in the program of focusing the spend down and coring it down on its first approval pathways is what's focused of the program. On the sub-Q side, though, if we felt like there were other regimens that would improve our probability of seeing that signal. We would change, but we're quite pleased with the Q weekly. And recall that we also have a Q3 weekly regimen that we think also has appropriate pharmacodynamic response, but we think that the Q weekly is actually the first place to start. On the Suboxone, it's interesting. There's a couple things going on with Suboxone. Liberalization of Suboxone prescribing is anticipated. Suboxone, as you know, is 95% of the market, so things that happen in the Suboxone market really don't affect the Vivitrol market that much, because Vivitrol is a different patient. The Vivitrol patient is the patient who wants to undergo detoxification and receive monthly antagonist therapy. So the other big tectonic plate moving in the Suboxone world, of course, is the opioid settlements, where Teva and others are suggesting that part of the consideration in settlement is provision of free Suboxone to states, which we don't think is going to change the dynamic vis-a-vis Vivitrol at all. But Todd, you feel free to comment.

Yeah, I totally agree, Rich. The way that we think about this in terms of Suboxone is they're completely different. The indication for these products is different. The clinical use is different, and the patient journey is different. We are very well aware of the changes in administration with the elimination of the waivers. We watch that very closely. But we really believe, and we talk very, you know, we follow the patient journey, we talk to our customers, and we know that these products are used differently. I think the way to think about the opportunity for Vivitrol really is based upon the evidence-based standards that are available, the label, the broad clinical use, and the opportunity within alcohol, as we've talked about for you know, the last couple of months, it's an enormous opportunity. 14 of 14 million Americans suffer from AUD, only 400,000 are on therapy, and we're seeing nice growth with TRXs. Actually, TRXs are growing on about a 3% basis year over year, and we think the Vivitrol has an opportunity to offer a nice value proposition for those patients. So that's something that we are extremely focused on right now.

And I'll just close the loop on ASCO. We're going to use the opportunity to provide a comprehensive update on the numvalucan program. Recall that at our recent investor day, we did just provide a data update related more narrowly to mucosal melanoma and platinum-resistant ovarian cancer for the IB program. We'll plan to refresh that data and also provide a broader update across other tumor types in that study. Then on the Artistry 2 sub-Q side, the focus of the presentation will really be a broader analysis of the PK, PD, and safety from that study, and we'll provide an update on any signals that we're seeing in the early enrollment of the efficacy expansion stage.

Thank you so much.

Thank you. Rob, we have time for one more question, please.

Yes, that question will be coming from the line of Douglas. How was HE way known?

Hi, good morning. Sorry about that earlier. Just as a follow-up to the question in terms of the LaBalzi Salesforce expansion, I know you sort of gave a characterization in terms of how much more of the universe you'll be able to coverage. Just curious if you could characterize the types of physicians that you'll now be targeting that aren't currently targeted by the Aristada Salesforce. Thank you.

Yeah, absolutely, Doug. I'll take that. This is Todd as well. So we're going to cover north of approximately 20,000 physicians overall. which will include about 80% of all branded prescribers, which encompasses approximately 9% of the total marketplace. Currently within the Aristotle marketplace, LAIs as well, our focus there really is on LAI prescribers. So you're looking at a universe there of approximately about 10,000. So the universe is much larger. Obviously, when you go into the oral, as Ian said, we made some adjustments to our commercial organization late last year and this year to increase our share of voice. We're very pleased with that share of voice, and we're looking forward to expanding coverage. It's going to be psychiatrists. It'll be nurse practitioners. It'll be in the health system market with IDNs and institutions as well. We're going to have a very broad footprint across the U.S. that'll be very HCP-focused. And we're very confident that we're going to have a strong share of voice to compete in the branded space.

Okay, great. Thank you so much.

Thanks, Doug. Okay. Thanks, everyone, for joining us on the call this morning. We appreciate the questions. If there are any follow-ups, please don't hesitate to reach out to us at the company. Have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.