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.

Thanks, Ian. And good morning, everyone. In the second quarter, total product revenue from our proprietary commercial portfolio grew approximately 19% year-over-year to $190.8 million. This portfolio is the engine behind our company's top-line performance. Vivitrol and Aristata performed well, and Libalvi's strong launch uptake continued to validate the value proposition of this important medicine and to underscore the significant unmet need in the schizophrenia and bipolar I markets. I'll start with Libalvi's performance during the quarter. Net sales were $20.1 million, reflecting robust unit growth. Total prescriptions in the second quarter were approximately 17,000, representing growth of approximately 64% quarter-over-quarter, driven by Le Balvie's differentiated product profile and our commercial execution. This strong demand was due, in large part, to increased prescriber breadth. As of the end of the second quarter, approximately 4,260 prescribers had written a prescription for Le Balvie since its launch, which represents a 62% increase since the end of Q1. Based on our market research and anecdotal feedback from prescribers, interest in and experience with Lebalvi has grown within the treatment community. In a recent survey of 80 targeted healthcare providers, respondents cited both Lebalvi's overall efficacy and its weight gain profile compared to Lanzapine and schizophrenia, the key driver of prescribing the product. And majority of the providers reported they intended to prescribe Lebalvi in the next 12 months. Libavi's utilization and source of business in Q2 were consistent with the first quarter. Prescriptions were split evenly between Schizophrenia and Bipolar I patients, and patients switched to Libavi from Olanzapine and other branded and generic agents. This data underscores that prescribers considered Libavi as an appropriate option for a broad range of patients. Libavi's market access position continues to evolve as we engage in payer discussions, and plans moved through their formulary decision timelines. While this is underway, eligible patients have a pathway to access Levolvi, supported by our patient and copay assistance programs. Broadly, as we expected, payer coverage decisions have been in line with other branded oral agents. We expect additional coverage decisions throughout the remainder of 2022 and into 2023. Taking a step back, With a year halfway complete and strong launch momentum, we are pleased to be raising our LIBALVI revenue expectations for 2022 based on strong underlying demand and prescriber adoption. We remain focused on executing our launch strategy and driving awareness of this important treatment option. Turning to Aristata. For the Aristata product family, net sales in the second quarter increased to $74.6 million. driven primarily by TRX growth of 11% year-over-year on a month of therapy basis, outpacing the LAA market, which grew 7% year-over-year. We continue to focus on driving growth of this product family based on its differentiated profile and value proposition. We recently launched new digital marketing initiatives to drive awareness of Aristot and believe this will play an important role in expanding utilization going forward. Vivitrol net sales in the second quarter increased approximately 9% year-over-year to $96.1 million, driven primarily by the alcohol dependence indication. This indication accounted for approximately 60% of the Vivitrol business and has been the primary growth driver for the brand during the pandemic. We expect this growth to continue as utilization for medication-assistant treatment increases in the alcohol dependence market. We also plan to continue to deploy resources to support awareness of Vivitrol as an important treatment option for opioid dependence. Our commercial results through the first half of the year are a reflection of the leverage in our commercial infrastructure, our sophisticated set of capabilities, and our unwavering commitment to execution. Levolvi represents a significant opportunity for the company to drop shareholder value and have a meaningful impact on patients. Lebalvi, Aristata, and Vivitrol are distinctive products in their markets, and we are extremely proud to provide treatment options for people affected by serious mental illness and addiction. I look forward to updating you on our progress to the back half of the year. Now I'll turn the call over to Rich.

That's great. Thank you, Todd. We are managing the company based on three clear priorities. The first is our commercial business, growing revenues from our proprietary products, with a focus on execution of the launch of Levolvi. The second is executing our development plans for our oncology and neuroscience pipeline candidates to get to key decision points. And the third is operating the business efficiently with a goal of driving long-term profitability. Midway through the year is a good time for us to assess our progress against these priorities. First, on the commercial business. As you've just heard from Todd, we continue to execute our commercial strategy across our psychiatry and addiction portfolio. Vivitrol and Aristata continue to grow and are important treatment options in their respective markets. With these two products, we operate in some of the most challenging disease areas and treatment systems in the pharmaceutical landscape. Through our successes and challenges with these products, we've sharpened our commercial capabilities and established Alkermes as a trusted partner in serious mental illness and addiction. This is a strong foundation for Levolvi. We've begun to establish a compelling launch trajectory and expect Levolvi to be an important commercial asset for the long term. Our confidence is reinforced by the feedback we've received from physicians and patients using Levolvi in the real-world setting. To see our design intention for Levolvi realized in patients with schizophrenia and bipolar 1 is gratifying for everyone associated with this development and its launch. Our launch strategy and the investments we're making are reflective of and commensurate with the long-term opportunity, and we believe we're well-positioned to deliver on the potential value of this important new medicine. Next, our R&D pipeline, starting with Nembolucan Alpha. Nembolucan is now the most advanced IL-2 immunotherapy in the clinic. It is distinguished by its unique molecular design and the resulting pharmacology, the clinical responses we've seen, both as monotherapy and in combination, and the focused development strategy that we're pursuing. During the quarter, we presented data to ASCO from the Artistry 1 study. As part of the presentation, we hosted oncology thought leaders who provided valuable clinical perspectives on the data, on nemalucan's differentiated attributes and its potential clinical utility, and on the importance of the IL-2 pathway in oncology. A replay of that discussion remains available on the investor section of our website. The data from Artistry 1 established nemalucan's profile and our belief in its clinical potential. both as monotherapy and in combination with pembrolizumab in heavily pretreated patients across multiple tumor types. The findings from Artistry 1 informed our clinical development strategy, including the initiation of potential registration-enabling studies in two difficult-to-treat tumor types. Artistry 6, evaluating nembalucan monotherapy in mucosal melanoma, and Artistry 7, evaluating nebulucan in combination with pembrolizumab in platinum-resistant ovarian cancer. As we enter the second half of the year, we're focused on enrollment of these two studies. We'll also continue to enroll Artistry 2 and Artistry 3 to evaluate various dosing regimens, including once-weekly sub-Q dosing and less-frequent IV dosing in a range of tumor types. Next is our orexin-2 receptor agonist program, ALX2680. In the first half of 2022, our priority was conducting IND-enabling activities as we prepared to enter a first-in-human study later this year. That work has progressed well, and we're on track to commence a single ascending dose study in the fourth quarter. In the clinic, our goal is to answer critical questions early to enable data-driven decisions, and we plan to move quickly to conduct a proof-of-concept study in patients with narcolepsy next year. Turning to OPS 1140, our selective HDAC inhibitor candidate. Consistent with our rigorous data-driven decision making, we decided to terminate 1140 clinical development program. As we disclosed earlier this year, initial data from the phase one dose escalation study demonstrated higher than predicted levels of the major metabolite. Over the last several months, our team worked rapidly to generate additional data to establish the necessary exposure safety margins pre-clinically and characterized the profile of the metabolite to determine whether we should proceed to higher doses. The results of these efforts were clear and not supportive of a viable clinical candidate. We're currently evaluating the pharmaceutical properties of a number of backup molecules from the HDAC platform. However, the threshold for advancing a new compound in the clinic will remain high. I'll end with our focus on managing the business efficiently with an emphasis on long-term profitability. The work we do as a developer of novel medicines is ambitious and can be extremely rewarding, but it's also inherently difficult and complex. Our focus on profitability and financial discipline provides a framework for making challenging and timely decisions. It requires that we continuously prioritize programs so that we invest in those that we believe offer the highest likelihood of success and return on investment. This rigorous allocation of capital is essential to running a biopharmaceutical company. Our portfolio of proprietary products drives our growth and profitability. As we execute the launch of Levolvi, the operating leverage we've engineered into the business is becoming evident. With the first half of the year now behind us, we're improving our financial expectations for both the top and bottom line for 2022. This is a result of our growth trajectory coupled with our cost management initiatives. So, to finish up, we're managing a dynamic business in a rapidly evolving macroeconomic landscape, and we're pleased with our execution year to date. We'll remain nimble as we execute on our strategic priorities in order to drive long-term profitability and deliver on our commitment to create value for our shareholders. So with that, I'll turn the call to Sandy to manage the Q&A.

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

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A 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. Our first question comes from the line of Brandon Foulkes with Canada Fitzgerald. Please proceed with your question.

Hi. Thanks for taking my questions, and congratulations on a strong quarter. Two questions from me, both on why BOLVI Pretty broad prescriber base to date. Can you just talk about what is perhaps needed to go deeper in this prescribing base of physicians? Is it really just time and experience with the product? Is it sort of rolling out coverage or just waiting for other patients to start cycling switches from other medications, just any color there would be helpful. And then I'll ask my second question because it may go together. Are you seeing Lybuli move up in the treatment paradigm as yet? Just either ahead of other brands or earlier on when maybe a patient may have failed one or two generics? Granted, they always will have to fail generics. Thank you.

Yeah, I'll take both those questions. The first one around the the breadth of prescribing, which we're really pleased with, month over month, quarter over quarter as well. What we've learned from our research and anecdotal feedback, we talked to a lot of our targeted physicians, non-targeted physicians, and what we've learned is that clinical experience with Levolvi leads to a growing efficacy perceptions. And so prescribers consistently report to us that the majority of their Levolvi patients are doing well and that they're expected to continue. So our belief right now is that the more experience that our targeted prescribers get with Levolvi, they're seeing the value proposition play out, the efficacy of olanzapine, the weight mitigating benefits, very similar that was in our Enlightened 2 study. So our belief is that more clinical experience will drive growth. And we just think that's based just on timing. So our expectation Q3 and beyond is that prescriber breadth will continue to grow. In terms of positioning within lines of therapy, as you know, there are multiple, multiple lines of therapy. At this point, it's just too soon to tell. Our data is somewhat limited based on claims data regarding if LaVolvi has moved up. Our expectation, again, is that LaVolvi will be treated like a branded agent, which most branded agents are really utilized within the switch market. So that's the place that LaVolvi will live.

Great, thank you very much.

Thank you. Our next question comes from the line of Chris Shibutani with Goldman Sachs. Please proceed with your question.

Thank you very much and congratulations on the LaVolvi trends and the raised guidance there. You commented that the utilization seems to be so far balanced between the schizophrenia and bipolar indications. Can you comment about whether you expect this to continue to be the case and how that's threaded into the balance of the year guidance? And also, maybe talk about acute versus maintenance settings for each of those and what we might expect from a trend standpoint. Thank you.

Absolutely. Yeah, about half of Levalvi patients thus far at this point in launch are schizophrenia patients and approximately half are bipolar patients. We're also seeing that a fair amount are switches from olanzapine, which we did expect. You know, olanzapine is a meaningful product in the category. There are more olanzapine prescriptions written on an annual basis than the entire branded category. So we know that's a very large switch opportunity. We know that physicians consistently report to us that two-thirds of olanzapine patients will gain weight And that wait will happen within the first eight weeks. So we think there's a transition period that's very appropriate, an opportunity for Labavi. Our expectation is that Labavi will be treated like an other branded agent. We're seeing, again, a meaningful split between schizophrenia and bipolar. I think it's important to remember that Atlantabine currently holds approximately a 20% share in schizophrenia and about a 13% share in bipolar. So they're both very large markets with meaningful opportunities. So our expectation is that that split will continue. It could evolve a little bit over time, but we don't expect that will be in a meaningful way. At this point right now, when we look at the utilization, especially between acute and maintenance, we don't have data that actually speaks to, because it's relatively early, between acute and maintenance settings. I think it's important to remember that Lubavi is a very broad indication, schizophrenia, mixed episodes, maintenance episodes, monotherapy and bipolar, and also adjunctive therapy. So we really believe in the data starting to play out and anecdotal feedback that it's going to be used in a broad utility of settings and a broad utility of patients.

Thank you. Our next question comes from the line of Omar Rafa with Evercore ISI. Please proceed with your question.

Hi, guys. Thanks for taking my question. Hi, guys. Sorry about that. Thanks for taking my question. Just a couple, if I may. One, if the gross net on Lybalvy is sort of stable quarter over quarter, as per your disclosures, and the prescription data you report is around 17,000, which is about a 65% volume increase, that sort of implies, at least off of the 1Q run rate, a reported sales closer to 22 to 23 versus the 20 reported. So I was just curious if there was any inventory or any other one-offs on the reporting number you could speak to. And I guess the other one is, and again, there's lack of clarity on it, but I did notice you lowered the gross to net expectations from 40% to 30% for the full year, which does imply that the second half should track at sort of low to mid 30s on gross to net. But Rich, I remember you made some comments at a recent broker conference suggesting you don't necessarily want to give up on gross to net early in the launch. So I was just trying to square those two. Thank you very much.

Yes, so Uma, I think in the prepared remarks earlier on when we talked about the gross to net for LaVolvi and sort of underlying demand is really what's driving the product at this point in time. The inventory level did increase during the quarter by around $1.8 million, which is what we were expecting. As demand increases, you'd expect that inventory in the channel would continue to increase as well. So I wouldn't say there was anything unusual there. I think inventory is just tracking with the increase in demand. And then, more from a full year perspective, as we take the gross to net from 40 down to 30, I think pre-launch we made a number of assumptions around various dynamics, things like channel mix, access, commercial contracting, and how much of the commercial business would be subject to NDC blocks. And in reality, what we've seen is favorability on a number of fronts there, including lower rebating across all the channels and less full NDC blocks. with the latter in particular driving a lower cost associated with our co-pay assistance program. So you're right that the growth to net average for the first half is around 26.5%. To get to the 30, you'd see a tick up in the second half, and I think that would be more driven by sort of co-pay assistance utilization than anything else, but certainly not expecting that big step up in the second half of the year to get to anywhere near to 40%. which we'd originally talked to.

Thank you. Thanks, Amar.

Thank you. Our next question comes from the line of Akash Tiwari with Jefferies. Please proceed with your question.

Hi, this is Amy on for Akash. Just two quick questions. The first one is, for the OCCS2, what type of healthy volunteer studies are you running? And could these studies be longer than what Decatur ran in order to properly tease out the liver tox signal? And then on the Vivitrol IP, what's the impact of Teva's generic on the market? And would a potential entry force Alex to revisit its 2025 guidance? Thanks so much.

Amy, it's Rich. I'll take those. The first study that we're going to run for the erection program will be a single ascending dose in healthy volunteers. We'll probably run that outside the U.S. And that study will be a traditional design of stepwise progression through ascending doses to get to what we expect to be either an MTD or a target engaging dose. From there, the only additional cover we're going to get today is that we're going to move as quickly as we can into a proof of concept study in patients with narcolepsy as we clear those doses and move into the multiple dose study. The TEVA does not have a generic on the market yet. We're in a potential litigation with TEVA now. The latest update on that is that we expect a court date sometime in the fourth quarter. And obviously following that, we'll see how the business discussions or the legal process proceeds, but they're not on the market now. So we've guided it for 2022. We'll guide for 2023 and 2023, but we've always been optimistic about our IP position on Vivitrol, and even superseding all that is it's a very, very complicated market, as you've heard over many years. It doesn't lend itself to a simple generic switching strategy.

Thank you. Our next question comes from the line of Corey Kazimoff with JP Morgan. Please proceed with your question.

Hi, this is Tiffany on for Corey. I'll add my congrats to the quarter. On the ball, any changes in thinking about steady state gross to net given the better than expected payer coverage to date and then the lowered full year expectation and then any commentary on how you're thinking at this juncture about potential label expansion and their respective market opportunities for Levolvi. Thanks.

So let me address the first one on Levolvi steady state growth to net. And I think we're obviously we're pleased to be able to reduce the 2022 average rate from the 40 down to the 30. I think as we go forward, it's going to continue to be dynamic. You know, that initial 12 to 18 months post launch as we are achieving access across all the channels And I think steady state is going to be dependent largely upon what happens on the commercial contracting side of things. So, you know, we're not going to comment specifically around our contracting strategy there, but that's going to be a key determinant as to what the growth to net looks like longer term. There will be more color on that as we proceed with the launch and into 2023.

Yeah, in regards to lifecycle management, our focus right now is fulfilling our post-marketing commitments with the FDA. Ian mentioned in his prepared remarks the pediatric study, which is a requirement, so we're focused on delivering against that as well. Outside of that, I think it's just important to remember that, you know, LaVolvi is in a very unique position right now. The brand actually launched with a very broad indication, schizophrenia and bipolar I disorder as well. And that's a very unique position. Most products don't launch with such a broad indication. So our focus right now is maximizing those two indications, learning from our advisors in the field. And then over time, we'll make some decisions on what does the lifecycle management look like. But that's into the future. But right now, it's really around maximizing the current indications that we have.

Thank you. Thank you. Our next question comes from the line of Paul Matisse with Stiefel. Please proceed with your question.

Great. Thanks so much, and congrats on the quarter and guidance race. On the Baldy, I wanted to just kind of understand a couple of the moving parts this quarter and the degree to which they were unexpected or not. So the $1.8 million inventory build and the better-than-expected net price, was this embedded in your $18 million to $20 million guidance of the quarter, given that both of those aspects seem to be key in driving you reaching the top end of it And then more broadly on the clinical context, I was curious, what are you seeing in terms of patients switching from olanzapine in terms of how long they've been on olanzapine previously? Are these patients who had been experiencing significant weight gain? I understand every situation is different, but I'd be interested in some of the qualitative context as it just relates to when clinically patients are switching drugs onto Lebalvi. Thanks so much.

So on the Lebalvi NET sales dynamics poll, I'd say in the quarter, The increase in inventory was expected. We'd always thought that inventory levels would increase in line with demand. So, that was included into the 18 to 20. I would say the 26 percent gross to net, we did have favorability there as compared to what we originally thought. It's still a little bit of lower small numbers insofar as gross sales were $27 million in the quarter. So, one percentage point of gross to net is effectively $270,000. But there was a little bit of upside there. on the gross to net side as compared to what we originally thought when we set the 18 to 20?

Yeah, and in regards to the olanzapine dynamics as well, you know, the context is important. There's 7,000 patients that switch olanzapine treatment every single month. So it's a very broad amount of patients that switch. The data has been pretty consistent over the years in terms of the frequency. Claims data and physicians continue to report to us that the major driver of switching therapy is typically based upon tolerability with weight. We see that there's less tolerability for weight gain, especially for bipolar patients as well, so it's something that we're watching pretty closely at this point. But the switching opportunity at large is very big. There's approximately 13,000 patients in a generic setting that switch to a branded agent. And again, there's about 7,000 olanzapine patients that switch. So over time, we're watching those dynamics very, very closely. So what we hear consistently and what we see at this early junction right now is that the major drivers of switching is really around efficacy. And if physicians and patients have current or prior experience in a positive response to olanzapine, that's a good thing for LaValvie. But if they're experiencing weight issues or there's a lack of efficacy within the broader context of other generics or other branded agents, they will consider LaValvie as well, too. So it's early days at this point, but we think that the switching dynamic, not only for Lanzapine is strong, but also for the broader category is very large as well.

Great. Thank you, Tricolor.

Thanks, Paul. Thank you. Our next question comes in line of Mark Goodman with SVB Leary. Please proceed with your question.

Yes, hi. Just on LaValle v. Gross to Nets, I understand that you don't really want to comment on kind of maintenance going forward. But, I mean, if we started out thinking 40%, should we be thinking now, you know, 30 to 35 kind of maintenance? I mean, can you at least give us some sense of, I mean, obviously the numbers have come down. So, you know, maybe you can just help us a little bit there. And I may have missed this, but did you comment on persistence at all, Valdi? I just don't remember what you said, but I'd be curious there. And on Vimerity, is there anything else that you can tell us about where we are? We understand it's a supply issue with the API, but, I mean, is this something that's a major problem that you think is going to last all year, or is this something that you're fixing pretty quickly? Just curious on that. And then on the HDAC, I know you said that you're going to – to look at backup compounds. Are those far along? I'm just trying to remember. I think this came from an acquisition that you made and it was a lead asset. I just don't remember what was behind it and whether this is something that we're going to be waiting on for several years or if you feel like you'll be back in the clinic kind of next year with the new one. Thanks.

So Mark, let me take the first one around the LaBalvie grows to net. So I think originally we talked about steady state in that 35 to 45. The key driver is really going to be what happens on the commercial contracting front as we go through the remainder of this year and into 2023. We don't want to comment too specifically around what the contracting strategy is going to be from that perspective, but I think that range of 35 to 45 is still valid. It's just where we're going to end up within that range.

And hi, Mark. It's Todd. I'll take persistency questions as well. You know, the category at large is about five months. Our view right now is it's still a little early to really see what persistency would look like for Lebalvi. So, no, we didn't comment on that. Over time, we'll be able to do that. We've got approximately 9,100 patients that have been on therapy. That number needs to grow for us to do, you know, the right type of analysis to really look at the persistency level. The best leading indicator that we have right now is what we hear from the marketplace, from physicians, through our research as well. And prescribers report that the majority of their Lebalvi patients are doing well, and they are expecting them to continue on Lebalvi. So we think that's a good leading indicator.

And markets, Rich, I'll take the last couple. On the numerity side, I'll leave it to Biogen to give most of the updates on that. I'll just say to the extent that we're involved, our technical teams are highly involved, and we see a pathway to resolution of the manufacturing issues. So hopefully that will be resolved relatively quickly. On the HDACs, you're right. The original chemistry derived from the acquisition of Rodin a couple years ago So we have backups that come from that original chemistry that are quite well along the way. And then there might be some that are more remote because they're different structures. But we're focused on the ones that derive from the original chemistry. So I would say that we will move quickly on those over the next few months and make the call. Thanks.

Thank you. Our next question comes from the line of Douglas Lowe with HC Wainwright. Please proceed with your question.

Hi, good morning. Congrats on the progress. Given the fact that it seems like profitability is coming in a little ahead of plans with the raise in guidance, how are you thinking about the balance between potentially hitting some of the long-term financial targets in terms of margins versus perhaps investing a little bit more in some of the early stage programs?

Yeah, I think we're deeply committed to hitting our long-term targets, and that's priority number one, just to show the financial discipline and reveal the growth and the leverage in the P&L. If we had additional capital to spend at this moment, I would probably emphasize it less on the early-stage compounds and more on Levolvi right now, as we see the momentum build for Levolvi. So, you know, it's best to drill for oil in the fields that are already proven, and I think Aristata, Vivitrol, and Levolvi are growing nicely, and they have a lot of potential left in them, with an emphasis there on Levolvi. Levolvi is our first real blockbuster potential drug as an oral compound in a large category, and the launch trajectory is just being established now, and that's what we want to affect as much as we can in the near term.

And, Richard, to follow up, what specific investments would you make to drive some faster growth from La Paz?

DTC. That would be the focus in 2023 and beyond. So that's the spend we'll probably titrate as we see access build over the next several months, as well as the physician breadth. You really don't want to turn on your DTC campaign if there are access restrictions or if a large number of physicians are unaware of your product. That's why you tend to wait a little bit later into the launch. So it's all tracking to plan now, which is encouraging. So those are the triggers we'll pull as we move into 2023 and 2024.

Okay, great. And I know people were asked earlier in terms of Levolvi on sort of lines of treatment, but I'm just curious, do you know how quickly from other drugs people are switching, sort of the weeks of therapy before making a switch to Levolvi? Okay.

Yes, I'll take that one. The data that we watch very closely is just the dynamic on switching. So patients in schizophrenia and bipolar switch treatments on average about five to seven times. Bipolar patients switch much more quickly. So, you know, directionally, you know, you're looking at a period of time of about 18 to 24 months. You'll see a bipolar patient switch pretty dramatically. A little bit longer for schizophrenia. Main reason for that is bipolar patients don't tolerate issues with tolerability and or efficacy as well, too. That's why we think that Levolvi has a really unique value proposition within that patient profile.

Okay, great. Thank you.

Thanks, Doug.

Thank you. Our next question comes from the line of Jason Gerberry, Bank of America. Please go ahead with your question.

Hi, good morning, everyone. This is Chi, I'm for Jason. Thanks for taking our question. I guess I just have one on IL-2 of Nemphilucan. When can we expect an update on the alternative dosing with last frequent IV and subcut? Should we expect an update by year end 2022? And will the update be go-no-go decision, or would there be clinical data accompanying that update? And I guess a follow-up to that would be now that, you know, sort of people have time to digest sort of the competitive update in the IL-2 front, specifically with the BAMPAC updates, I'm curious, how has the strategic interest in this category has changed since then? Do you think, what level of data do you think alchemists would need to generate to sort of, you know, have that strategic interest? Is it update from the alternative dosing, or do you think you need more clinical data to talk about efficacy of IL-2 in different tumor types? Thanks.

So we're making good progress on both Artistry 2 and Artistry 3, Artistry 2 being the once-weekly sub-Q, Artistry 3 being the less frequent IV. On the less frequent IV, it's actually a Bayesian design. We'll be looking at different doses and different regimens in order to – we're quite confident that we'll come up with a less frequent IV dose, and the sub-Q has been underway for some time. We're seeing responses in the sub-Q. The question we're focused on in the sub-Q is durability. And we want to make sure that we have the same durability that characterizes IV IL-2. I would expect by the end of the year we'll have more insight. I'm not ready to make a call right now whether we'll make a go-no-go or whether we'll just have additional data. Let's see how enrollment and durability persists over the year, but we're well on our way in both of those. And I do think that's an important component of assessing the commercial potential for IL-2 across multiple tumor types, understanding what the ultimate commercial dose might be. So I think for a number of potential strategic partners, that's an important question. But I think the most important part of the discussions with folks is exactly what you referenced, letting the dust settle post-BEMPEG, which forces people to look at the IL-2s on an individual basis, And also, in the case of Nembolucan, thinking of it less as one of many IL-2 variants and more as a late-stage oncology product with its own data that support its value proposition. And so I think that's what's happening post-ASCO. That's why ASCO was so important for us to present all of the Artistry 1 data so people could get a sense of this as an oncology agent, whether or not it's an IL-2 version at all. And as I mentioned in the prepared remarks, Nambalucan is now the most advanced IL-2 in development, and it's supported by a lot of not just efficacy data as monotherapy and in combination with PEMBRO, but importantly, the design intention of this is to recapitulate the efficacy of HIDOS IL-2 without the hallmark toxicities. And so the data set is also augmented by a lot of safety data from a lot of patients that help confirm the design hypothesis. We'll keep going with Artistry 6 and Artistry 7, and we'll keep receptive to collaboration, and we'll collaborate when the time is right and the deal structure is appropriate for our shareholders.

Awesome. Great. Thanks.

Thank you. Ladies and gentlemen, there are no further questions at this time. I'll turn the floor back to the company for any final comments.

Thank you. 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 or if we can be otherwise helpful. Thanks so much. Have a great day.

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