Alkermes plc

Second quarter 2022 earnings call. My name is Melissa and I will be your operator for today's call. All participant lines will be placed on mute to prevent any background noise. If you should require operator assistance during the conference, please press star zero on 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 Investor Relations and Corporate Affairs. Sandy, you may begin.

Thank you. Good morning, and welcome to the Alkermes PLC conference call to discuss our financial results and business update for the quarter ended June 30, 2022. 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, related financial tables, and reconciliations of the gap to non-gap financial measures that we'll discuss today. We believe the non-gap 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, and now I'll turn the call over to Ian.

Thank you, Sandy. Hello, everyone, and thank you for joining our call today. We delivered strong results during the second quarter, driven by the performance of our proprietary commercial products and our disciplined management of our cost structure. The launch of Le Bolvi continued to perform well during the quarter, and we're pleased to raise our financial expectations for the year based on this performance and updated assumptions related to our royalties from sales of the long-acting Invega products outside the United States. These top-line improvements are expected to flow through to our bottom-line results for the year, and I'll provide additional detail on these expectations in a moment. But first, I'll start with an overview of our second quarter financial highlights. We generated total revenues of $276.2 million, driven by strength in our proprietary commercial product portfolio, which increased net sales by approximately 19% year over year. Starting with Vivitrol, net sales in the second quarter were $96.1 million, reflecting 9% growth year over year. Gross to net adjustments in the second quarter of 51.1%, reflected continued favorability with respect to previously booked Medicaid reserves. In Q2, inventory in the channel decreased by approximately $1 million, consistent with typical seasonal and shipping patterns. Today, we are narrowing our expectation for Vivitrol net sales for the full year from a range of $355 to $385 million to a range of $365 to $385 million. We now expect gross to net adjustments to be approximately 51% for the full year, revised from our previous expectation of 52%. The Aristada product family generated net sales of $74.6 million, a 3% increase year over year. Gross to net adjustments were 54.2% in the second quarter, and inventory levels decreased by approximately $2 million. Today, we're narrowing our Aristada net sales range for the full year from a range of $290 to $320 million to a range of $295 to $315 million. We continue to expect growth to net adjustments of approximately 54% for the full year. Looking ahead to the third quarter, we expect growth of these two products to moderate consistent with typical seasonal patterns with more robust growth expected to resume in the fourth quarter. LaBolvi net sales in the second quarter increased 44% sequentially to $20.1 million, driven primarily by demand growth. In Q2, inventory levels increased by approximately $1.8 million in line with demand, and growth to net adjustments in the quarter were 26%, primarily reflecting a continuation of less restrictive initial commercial payer coverage that reduced the cost associated with our patient copay assistance programs. While final payer coverage decisions will continue to be made through this year and into 2023, gross-to-nets in the first half of the year have been better than anticipated. Based on these trends and our expectations regarding payer coverage in the second half of the year, we are updating our expectations for gross-to-net adjustments for the full year to approximately 30%. Overall, we're increasing our full-year 2022 expectation for Le Balvinet sales from a range of $55 to $75 million to a range of $75 to $90 million. Moving on to our manufacturing and royalty business, in the second quarter, our manufacturing and royalty revenues were $85.3 million compared to $142.3 million in the prior year. The decrease was driven primarily by the previously disclosed J&J partial termination of the license agreement related to royalties from sales of the long-acting and vega products in the U.S. We continue to disagree with J&J's actions, and in April, we initiated arbitration proceedings related to this matter. We continue to recognize royalty revenues from sales of the long-acting and vega products outside of the U.S. through the second quarter, as J&J has not terminated the agreement in these markets. And lastly, revenues from Vumerity increased approximately 29% year-over-year to $26.2 million in the quarter. Turning now to expenses, total operating expenses were $310.7 million for the second quarter, compared to $299.3 million in the same period in the prior year. This modest increase during a launch year reflects the operating leverage in the business and our continued focus on efficient allocation of capital. For the second quarter, cost of goods sold increased approximately $5 million year over year to $58.4 million, driven primarily by higher volumes of key manufactured products. We've continued to prioritize our investments in R&D as we advance opportunities that may offer the highest potential return on investment. R&D expenses for the second quarter were $92.9 million, compared to $97.5 million for the same period in the prior year, reflecting focused investment as we advance Nembolucan and our earlier stage neuroscience and oncology development programs, and as the required pediatric study for Lebolvi gets underway. SG&A expenses were $150.4 million compared to $139.2 million for the prior year, driven primarily by investments in the launch of Lebolvi. Our top-line results, combined with our continued focus on disciplined operating expense management resulted in a gap net loss of $30.1 million and a non-gap net income of $10.5 million for the quarter. Turning to our balance sheet, we ended the second quarter in a strong financial position with approximately $760 million in cash and total investments and total debt outstanding of approximately $295 million resulting in a positive net cash position of close to $465 million. I'll shift now to our financial expectations for 2022, which reflects strong operational performance in the first half of the year, notably with respect to the LaBolvi launch and updated assumptions around royalty revenues from ex-US sales of the long-acting Invega products. Our full expectations are outlined in the press release we issued earlier this morning. For the top line, we now expect higher total revenues in the range of $1.05 to $1.12 billion, a net increase of $40 million at the midpoint due to improved expectations for the LeBolvi launch and our updated assumption that we will continue to receive royalty revenues on XUS sales of the Long Acting and Vega products through at least October 2022, reflecting the three-month notice that Janssen would need to provide in order to terminate the license agreement in respect of these markets. We continue to believe that this is the most appropriate approach for financial planning purposes as we work through the arbitration process. We expect these increases to be partially offset primarily by lower anticipated boomerity manufacturing revenues driven by fewer commercial batches as we work with Biogen and one of its suppliers to address the potential supply constraints disclosed on Biogen's recent earnings call. Even as our top line has increased, we continue to actively manage our cost structure. Based on the anticipated timing of our investments and savings related to certain early stage programs, we are reducing and narrowing our expectation for R&D expenses by approximately $10 million at the midpoint to a range of $380 to $400 million. Our expectations for cost of goods sold and SG&A expenses remain unchanged. The strength of our top line and our continued discipline expense management have driven improvements in our bottom line. Our expectation for GAAP net loss has improved by $35 million at the midpoint, and our expectation for non-GAAP net income has improved by $45 million at the midpoint to a new range of $15 to $45 million. Taking a step back, Despite the current environment of inflationary pressures, constrained capital markets, and ongoing pandemic-related disruptions, we remain well-resourced and well-positioned to drive growth and execute against our strategic priorities. Even with a growing revenue base, efficient allocation of capital and management of our cost structure continue to be priorities for us and a virtue in the current volatile macroeconomic environment as we focus on driving shareholder value and long-term profitability. And with that, I'll hand the call over to Todd to provide more detail on our commercial performance.