For support.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20192020
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-35299
ALKERMES PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
|
|
|
Ireland |
| 98-1007018 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
Connaught House
1 Burlington Road
Dublin 4, Ireland, D04 C5Y6
(Address of principal executive offices)
+ 353-1-772-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Ordinary shares, $0.01 par value | ALKS | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
|
| ||
Large accelerated filer ☒ |
| Accelerated filer ☐ | ||
Non-accelerated filer ☐ |
| Smaller reporting company ☐ | ||
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
The number of the registrant’s ordinary shares, $0.01 par value, outstanding as of April 22, 201924, 2020 was 156,904,489158,739,019 shares.
ALKERMES PLC AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
2020
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| Page No. | |
| ||
Item 1. |
| |
| Condensed Consolidated Balance Sheets — March 31, | 5 |
| 6 | |
| 7 | |
| 8 | |
| 9 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. | 35 | |
Item 4. | 35 | |
|
| |
| ||
Item 1. | 36 | |
Item 1A. | 36 | |
Item 2. |
| |
Item 5. |
| |
Item 6. |
| |
|
Cautionary Note Concerning Forward-Looking Statements
This document contains and incorporates by reference “forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, these statements can be identified by the use of forward‑looking terminology such as “may,” “will,” “could,” “should,” “would,” “expect,” “anticipate,” “continue,” “believe,” “plan,” “estimate,” “intend,” or other similar words. These statements discuss future expectations and contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward‑looking information. Forward-looking statements in this Quarterly Report on Form 10-Q (“Form(this “Form 10-Q”) include, without limitation, statements regarding:
| • | our expectations regarding our financial performance, including revenues, expenses, |
| • | our expectations regarding our products, including those expectations related to product development, regulatory filings, regulatory approvals and regulatory timelines, therapeutic and commercial scope and potential, and the costs and expenses related to such activities; |
| • | our expectations regarding the initiation, timing and results of clinical trials of our products; |
| • | our expectations regarding the competitive landscape, and changes therein, related to our products, including competition from generic forms of our products or competitive products and competitive development programs; |
| • | our expectations regarding the financial impact of currency exchange rate fluctuations and valuations; |
| • | our expectations regarding future amortization of intangible assets; |
| • | our expectations regarding our collaborations, licensing arrangements and other significant agreements with third parties relating to our products, including our development programs; |
| • | our expectations regarding the impact of new legislation, |
| • | our expectations regarding near‑term changes in the nature of our market risk exposures or in management’s objectives and strategies with respect to managing such exposures; |
| • | our expectations regarding our ability to comply with restrictive covenants of our indebtedness and our ability to fund our debt service obligations; |
| • | our expectations regarding future capital requirements and capital expenditures and our ability to finance our operations and capital requirements; |
| • | our expectations regarding the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to our |
• | our expectations regarding the impact of the novel coronavirus (“COVID-19”) global pandemic on our business and |
| • | other factors discussed elsewhere in this Form 10-Q. |
Actual results might differ materially from those expressed or implied by these forward-looking statements because thesestatements. These forward-looking statements are subject to risks, assumptions and uncertainties. In light of these risks, assumptions and uncertainties, the forward-looking events discussed in this Form 10-Q might not occur. You are cautioned not to place undue reliance on the forward-looking statements in this Form 10-Q, which speak only as of the date of this Form 10-Q. All subsequent written and oral forward-looking statements concerning the matters addressed in this Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except as required by applicable law or regulation, we do not undertake any obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, assumptions and uncertainties, the forward-looking events discussed in this Form 10-Q might not occur. For
more information regarding the risks, assumptions and uncertainties of our business, see “Part I, Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20182019 (the “Annual Report”). and “Part II, Item 1A—Risk Factors” in this Form 10-Q.
This Form 10-Q includesmay include data that we obtained from industry publications and third-party research, surveys and studies. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. This Form 10-Q also includesmay include data based on our own internal estimates and research. Our internal estimates and research have not been verified by any independent source and, while we believe the industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data. Such third-party data and our internal estimates and research are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Part I, Item 1A—Risk Factors” in our Annual Report and “Part II, Item 1A—Risk Factors” in subsequent reports filed with the SEC.this Form 10-Q. These and other factors could cause our results to differ materially from those expressed in this Form 10-Q.
Note Regarding Company and Product References
Alkermes plc (as used in this report, together with our subsidiaries, “Alkermes,” the “Company,” “us,” “we” and “our”) is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to research, develop and commercialize, both with partners and on its own, pharmaceutical products that are designed to address unmet medical needs of patients in major therapeutic areas. We have a diversified portfolio of commercial drugmarketed products and a clinical pipeline of product candidates focused on central nervous system (“CNS”) disorders such as schizophrenia, depression, addiction and multiple sclerosis (“MS”),schizophrenia and a pipeline of product candidates in the fields of neuroscience and oncology. Except as otherwise suggested by the context, (a) references to “products” or “our products” in this Form 10-Q include our marketed products, marketed products using our proprietary technologies, our product candidates and product candidates using our proprietary technologies, development products and development products using our proprietary technologies, (b) references to the “biopharmaceutical industry” in this Form 10-Q are intended to include reference to the “biotechnology industry” and/or the “pharmaceutical industry” and (c) references to “licensees” in this Form 10-Q to “licensees” are used interchangeably with references to “partners.”
Note Regarding Trademarks
We are the owner of various United States (“U.S.”) federal trademark registrations (“®”) and other trademarks (“TM”), including ALKERMES®, ARISTADA®, ARISTADA INITIO®, LinkeRx®, NanoCrystal®, and VIVITROL® and VUMERITYTM.
The following are trademarks of the respective companies listed: AMPYRA® and FAMPYRA®—Acorda Therapeutics, Inc. (“Acorda”); ANJESOTM—Baudax Bio, Inc.; INVEGA SUSTENNA®, INVEGA TRINZA®, TREVICTA®, XEPLION®, and RISPERDAL CONSTA®—Johnson & Johnson (or its affiliates); TECFIDERA®and TECFIDERAVUMERITY®—Biogen MA Inc. (together with its affiliates, “Biogen”); and ZYPREXA®—Eli Lilly and Company. Other trademarks, trade names and service marks appearing in this Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Form 10-Q are referred to without the ® and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
ALKERMES PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
|
| March 31, 2019 |
| December 31, 2018 |
| March 31, 2020 |
| December 31, 2019 |
|
| (In thousands, except share and per share amounts) |
| (In thousands, except share and per share amounts) | ||||
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $225,234 |
| $266,762 |
| $176,067 |
| $203,771 |
Investments—short-term |
| 356,894 |
| 272,533 |
| 319,927 |
| 331,208 |
Receivables, net |
| 222,811 |
| 292,223 |
| 246,716 |
| 257,086 |
Contract assets |
| 8,447 |
| 8,230 |
| 14,199 |
| 8,386 |
Inventory |
| 92,861 |
| 90,196 |
| 109,314 |
| 101,803 |
Prepaid expenses and other current assets |
| 56,492 |
| 53,308 |
| 46,361 |
| 59,716 |
Total current assets |
| 962,739 |
| 983,252 |
| 912,584 |
| 961,970 |
PROPERTY, PLANT AND EQUIPMENT, NET |
| 320,004 |
| 309,987 |
| 362,539 |
| 362,168 |
INTANGIBLE ASSETS, NET |
| 181,049 |
| 191,001 |
| 140,915 |
| 150,643 |
RIGHT-OF-USE ASSETS |
| 114,548 |
| 12,379 | ||||
GOODWILL |
| 92,873 |
| 92,873 | ||||
DEFERRED TAX ASSETS |
| 92,781 |
| 96,558 | ||||
INVESTMENTS—LONG-TERM |
| 43,005 |
| 80,744 |
| 53,744 |
| 79,391 |
GOODWILL |
| 92,873 |
| 92,873 | ||||
CONTINGENT CONSIDERATION |
| 37,600 |
| 65,200 |
| 39,200 |
| 32,400 |
RIGHT-OF-USE ASSETS |
| 18,010 |
| — | ||||
DEFERRED TAX ASSETS |
| 87,605 |
| 85,807 | ||||
OTHER ASSETS |
| 13,651 |
| 16,143 |
| 16,762 |
| 17,021 |
TOTAL ASSETS |
| $1,756,536 |
| $1,825,007 |
| $1,825,946 |
| $1,805,403 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $313,969 |
| $333,762 |
| $313,592 |
| $373,037 |
Operating lease liabilities—short-term |
| 16,595 |
| 8,466 | ||||
Contract liabilities—short-term |
| 2,078 |
| 3,169 |
| 6,819 |
| 6,766 |
Operating lease liabilities—short-term |
| 8,795 |
| — | ||||
Long-term debt—short-term |
| 2,843 |
| 2,843 |
| 2,843 |
| 2,843 |
Total current liabilities |
| 327,685 |
| 339,774 |
| 339,849 |
| 391,112 |
LONG-TERM DEBT |
| 275,923 |
| 276,465 |
| 273,751 |
| 274,295 |
OTHER LONG-TERM LIABILITIES |
| 28,425 |
| 27,958 | ||||
OPERATING LEASE LIABILITIES—LONG-TERM |
| 11,020 |
| — |
| 101,006 |
| 5,342 |
CONTRACT LIABILITIES—LONG-TERM |
| 11,342 |
| 9,525 |
| 21,156 |
| 22,068 |
OTHER LONG-TERM LIABILITIES |
| 27,166 |
| 27,144 | ||||
Total liabilities |
| 654,395 |
| 653,722 |
| 762,928 |
| 719,961 |
COMMITMENTS AND CONTINGENT LIABILITIES (Note 14) |
|
|
|
| ||||
COMMITMENTS AND CONTINGENT LIABILITIES (Note 15) |
|
|
|
| ||||
SHAREHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
Preferred shares, par value, $0.01 per share; 50,000,000 shares authorized; zero issued and outstanding at March 31, 2019 and December 31, 2018, respectively |
| — |
| — | ||||
Ordinary shares, par value, $0.01 per share; 450,000,000 shares authorized; 159,577,874 and 158,180,833 shares issued; 156,885,028 and 155,757,344 shares outstanding at March 31, 2019 and December 31, 2018, respectively |
| 1,593 |
| 1,579 | ||||
Treasury shares, at cost (2,692,846 and 2,423,489 shares at March 31, 2019 and December 31, 2018, respectively) |
| (117,949) |
| (108,969) | ||||
Preferred shares, par value, $0.01 per share; 50,000,000 shares authorized; 0 issued and outstanding at March 31, 2020 and December 31, 2019, respectively |
| — |
| — | ||||
Ordinary shares, par value, $0.01 per share; 450,000,000 shares authorized; 161,768,535 and 160,489,888 shares issued; 158,684,803 and 157,779,002 shares outstanding at March 31, 2020 and December 31, 2019, respectively |
| 1,615 |
| 1,602 | ||||
Treasury shares, at cost (3,083,732 and 2,710,886 shares at March 31, 2020 and December 31, 2019, respectively) |
| (125,669) |
| (118,386) | ||||
Additional paid-in capital |
| 2,502,773 |
| 2,467,323 |
| 2,609,213 |
| 2,586,030 |
Accumulated other comprehensive loss |
| (2,510) |
| (3,280) |
| (1,499) |
| (1,816) |
Accumulated deficit |
| (1,281,766) |
| (1,185,368) |
| (1,420,642) |
| (1,381,988) |
Total shareholders’ equity |
| 1,102,141 |
| 1,171,285 |
| 1,063,018 |
| 1,085,442 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $1,756,536 |
| $1,825,007 |
| $1,825,946 |
| $1,805,403 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALKERMES PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
|
| Three Months Ended |
|
| Three Months Ended |
| |||||||||||
|
| March 31, |
|
| March 31, |
| |||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| |||||
|
| (In thousands, except per share amounts) |
|
| (In thousands, except per share amounts) |
| |||||||||||
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product sales, net |
| $ | 129,726 |
|
| $ | 99,481 |
| |||||||||
Manufacturing and royalty revenues |
| $ | 108,915 |
|
| $ | 114,601 |
|
|
| 116,251 |
|
|
| 108,915 |
| |
Product sales, net |
|
| 99,481 |
|
|
| 91,842 |
| |||||||||
Research and development revenue |
|
| 14,706 |
|
|
| 18,707 |
|
|
| 243 |
|
|
| 14,706 |
| |
Total revenues |
|
| 223,102 |
|
|
| 225,150 |
|
|
| 246,220 |
|
|
| 223,102 |
| |
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of goods manufactured and sold (exclusive of amortization of acquired intangible assets shown below) |
|
| 45,361 |
|
|
| 44,476 |
|
|
| 47,211 |
|
|
| 45,361 |
| |
Research and development |
|
| 102,570 |
|
|
| 108,346 |
|
|
| 93,279 |
|
|
| 102,570 |
| |
Selling, general and administrative |
|
| 141,220 |
|
|
| 118,147 |
|
|
| 133,372 |
|
|
| 141,220 |
| |
Amortization of acquired intangible assets |
|
| 9,952 |
|
|
| 16,069 |
|
|
| 9,728 |
|
|
| 9,952 |
| |
Total expenses |
|
| 299,103 |
|
|
| 287,038 |
|
|
| 283,590 |
|
|
| 299,103 |
| |
OPERATING LOSS |
|
| (76,001 | ) |
|
| (61,888 | ) |
|
| (37,370 | ) |
|
| (76,001 | ) | |
OTHER EXPENSE, NET: |
|
|
|
|
|
|
|
| |||||||||
OTHER INCOME (EXPENSE), NET: |
|
|
|
|
|
|
|
| |||||||||
Interest income |
|
| 3,570 |
|
|
| 1,485 |
|
|
| 2,760 |
|
|
| 3,570 |
| |
Interest expense |
|
| (3,500 | ) |
|
| (5,487 | ) |
|
| (2,857 | ) |
|
| (3,500 | ) | |
Change in the fair value of contingent consideration |
|
| (22,600 | ) |
|
| (1,900 | ) |
|
| 6,800 |
|
|
| (22,600 | ) | |
Other (expense) income, net |
|
| (1,721 | ) |
|
| 792 |
| |||||||||
Total other expense, net |
|
| (24,251 | ) |
|
| (5,110 | ) | |||||||||
Other expense, net |
|
| (658 | ) |
|
| (1,721 | ) | |||||||||
Total other income (expense), net |
|
| 6,045 |
|
|
| (24,251 | ) | |||||||||
LOSS BEFORE INCOME TAXES |
|
| (100,252 | ) |
|
| (66,998 | ) |
|
| (31,325 | ) |
|
| (100,252 | ) | |
INCOME TAX BENEFIT |
|
| (3,854 | ) |
|
| (4,493 | ) | |||||||||
INCOME TAX PROVISION (BENEFIT) |
|
| 7,329 |
|
|
| (3,854 | ) | |||||||||
NET LOSS |
| $ | (96,398 | ) |
| $ | (62,505 | ) |
| $ | (38,654 | ) |
| $ | (96,398 | ) | |
LOSS PER ORDINARY SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic and diluted |
| $ | (0.62 | ) |
| $ | (0.40 | ) |
| $ | (0.24 | ) |
| $ | (0.62 | ) | |
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic and diluted |
|
| 156,336 |
|
|
| 154,424 |
|
|
| 158,095 |
|
|
| 156,336 |
| |
COMPREHENSIVE LOSS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss |
| $ | (96,398 | ) |
| $ | (62,505 | ) |
| $ | (38,654 | ) |
| $ | (96,398 | ) | |
Holding gain (loss), net of a tax provision (benefit) of $229 and $(100), respectively |
|
| 770 |
|
|
| (336 | ) | |||||||||
Unrealized gain, net of a tax provision of $87 and $229, respectively |
|
| 317 |
|
|
| 770 |
| |||||||||
COMPREHENSIVE LOSS |
| $ | (95,628 | ) |
| $ | (62,841 | ) |
| $ | (38,337 | ) |
| $ | (95,628 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALKERMES PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (In thousands) |
|
| (In thousands) |
| ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (96,398 | ) |
| $ | (62,505 | ) |
| $ | (38,654 | ) |
| $ | (96,398 | ) |
Adjustments to reconcile net loss to cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 19,642 |
|
|
| 25,722 |
|
|
| 20,608 |
|
|
| 19,642 |
|
Share-based compensation expense |
|
| 24,616 |
|
|
| 20,042 |
|
|
| 19,813 |
|
|
| 24,616 |
|
Deferred income taxes |
|
| (3,225 | ) |
|
| (4,101 | ) |
|
| 3,665 |
|
|
| (3,225 | ) |
Change in the fair value of contingent consideration |
|
| 22,600 |
|
|
| 1,900 |
|
|
| (6,800 | ) |
|
| 22,600 |
|
Loss on debt refinancing |
|
| — |
|
|
| 2,298 |
| ||||||||
Payment made for debt refinancing |
|
| — |
|
|
| (1,840 | ) | ||||||||
Other non-cash charges |
|
| 1,116 |
|
|
| (75 | ) |
|
| 283 |
|
|
| 1,116 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| 69,411 |
|
|
| 19,430 |
|
|
| 10,370 |
|
|
| 69,411 |
|
Contract assets |
|
| (217 | ) |
|
| (16,959 | ) |
|
| (5,813 | ) |
|
| (217 | ) |
Inventory |
|
| (1,700 | ) |
|
| (431 | ) |
|
| (6,842 | ) |
|
| (1,700 | ) |
Prepaid expenses and other assets |
|
| (69 | ) |
|
| 890 |
|
|
| 13,615 |
|
|
| (69 | ) |
Right-of-use assets |
|
| 2,131 |
|
|
| — |
|
|
| 3,926 |
|
|
| 2,131 |
|
Accounts payable and accrued expenses |
|
| (15,888 | ) |
|
| (14,123 | ) |
|
| (51,254 | ) |
|
| (15,888 | ) |
Contract liabilities |
|
| 725 |
|
|
| 245 |
|
|
| (859 | ) |
|
| 725 |
|
Operating lease liabilities |
|
| (2,297 | ) |
|
| — |
|
|
| (2,378 | ) |
|
| (2,297 | ) |
Other long-term liabilities |
|
| 1,765 |
|
|
| 2,669 |
|
|
| 48 |
|
|
| 1,765 |
|
Cash flows provided by (used in) operating activities |
|
| 22,212 |
|
|
| (26,838 | ) | ||||||||
Cash flows (used in) provided by operating activities |
|
| (40,272 | ) |
|
| 22,212 |
| ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions of property, plant and equipment |
|
| (23,639 | ) |
|
| (18,485 | ) |
|
| (19,799 | ) |
|
| (23,639 | ) |
Proceeds from the sale of equipment |
|
| 85 |
|
|
| 324 |
|
|
| 3 |
|
|
| 85 |
|
Proceeds from contingent consideration |
|
| 5,000 |
|
|
| — |
|
|
| — |
|
|
| 5,000 |
|
Purchases of investments |
|
| (102,127 | ) |
|
| (35,995 | ) |
|
| (27,212 | ) |
|
| (102,127 | ) |
Sales and maturities of investments |
|
| 55,978 |
|
|
| 79,500 |
|
|
| 64,500 |
|
|
| 55,978 |
|
Cash flows (used in) provided by investing activities |
|
| (64,703 | ) |
|
| 25,344 |
| ||||||||
Cash flows provided by (used in) investing activities |
|
| 17,492 |
|
|
| (64,703 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of ordinary shares under share-based compensation arrangements |
|
| 10,554 |
|
|
| 13,164 |
|
|
| 3,070 |
|
|
| 10,554 |
|
Employee taxes paid related to net share settlement of equity awards |
|
| (8,880 | ) |
|
| (15,724 | ) |
|
| (7,283 | ) |
|
| (8,880 | ) |
Principal payments of long-term debt |
|
| (711 | ) |
|
| — |
|
|
| (711 | ) |
|
| (711 | ) |
Payment made for debt refinancing |
|
| — |
|
|
| (737 | ) | ||||||||
Cash flows provided by (used in) financing activities |
|
| 963 |
|
|
| (3,297 | ) | ||||||||
Cash flows (used in) provided by financing activities |
|
| (4,924 | ) |
|
| 963 |
| ||||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
| (41,528 | ) |
|
| (4,791 | ) |
|
| (27,704 | ) |
|
| (41,528 | ) |
CASH AND CASH EQUIVALENTS—Beginning of period |
|
| 266,762 |
|
|
| 191,296 |
|
|
| 203,771 |
|
|
| 266,762 |
|
CASH AND CASH EQUIVALENTS—End of period |
| $ | 225,234 |
|
| $ | 186,505 |
|
| $ | 176,067 |
|
| $ | 225,234 |
|
SUPPLEMENTAL CASH FLOW DISCLOSURE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased capital expenditures included in accounts payable and accrued expenses |
| $ | 7,850 |
|
| $ | 7,516 |
|
| $ | 5,242 |
|
| $ | 7,850 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALKERMES PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Ordinary Shares |
| Paid-In |
|
| Comprehensive |
|
| Accumulated |
|
| Treasury Stock |
|
|
|
|
|
| Ordinary Shares |
|
| Paid-In |
|
| Comprehensive |
|
| Accumulated |
|
| Treasury Stock |
|
|
|
|
| |||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
| Capital |
|
| Loss |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Total |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Total |
| |||||||||||||||||
|
| (In thousands, except share data) |
|
| (In thousands, except share data) |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE — December 31, 2018 |
|
| 158,180,833 |
|
| $ | 1,579 |
| $ | 2,467,323 |
|
| $ | (3,280 | ) |
| $ | (1,185,368 | ) |
|
| (2,423,489 | ) |
| $ | (108,969 | ) |
| $ | 1,171,285 |
| |||||||||||||||||||||||||||||||||
BALANCE — December 31, 2019 |
|
| 160,489,888 |
|
|
| 1,602 |
|
|
| 2,586,030 |
|
|
| (1,816 | ) |
|
| (1,381,988 | ) |
|
| (2,710,886 | ) |
|
| (118,386 | ) |
|
| 1,085,442 |
| ||||||||||||||||||||||||||||||||
Issuance of ordinary shares under employee stock plans |
|
| 656,352 |
|
|
| 7 |
| 10,547 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,554 |
|
|
| 258,137 |
|
|
| 3 |
|
|
| 3,068 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,071 |
| ||
Receipt of Alkermes' shares for the exercise of stock options or to satisfy minimum tax withholding obligations related to share-based awards |
|
| 740,689 |
|
|
| 7 |
| 93 |
|
|
| — |
|
|
| — |
|
|
| (269,357 | ) |
|
| (8,980 | ) |
|
| (8,880 | ) |
|
| 1,020,510 |
|
|
| 10 |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| (372,846 | ) |
|
| (7,283 | ) |
|
| (7,283 | ) | ||
Share-based compensation expense |
|
| — |
|
|
| — |
| 24,810 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24,810 |
|
|
| — |
|
|
| — |
|
|
| 20,125 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20,125 |
| ||
Unrealized gain on marketable securities, net of tax provision of $229 |
|
| — |
|
|
| — |
| — |
|
|
| 770 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 770 |
| ||||||||||||||||||||||||||||||||||
Unrealized gain on marketable securities, net of tax provision of $87 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 317 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 317 |
| ||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
|
| (96,398 | ) |
|
| — |
|
|
| — |
|
|
| (96,398 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (38,654 | ) |
|
| — |
|
|
| — |
|
|
| (38,654 | ) | |
BALANCE — March 31, 2019 |
|
| 159,577,874 |
|
| $ | 1,593 |
| $ | 2,502,773 |
|
| $ | (2,510 | ) |
| $ | (1,281,766 | ) |
|
| (2,692,846 | ) |
| $ | (117,949 | ) |
| $ | 1,102,141 |
| |||||||||||||||||||||||||||||||||
BALANCE — March 31, 2020 |
|
| 161,768,535 |
|
| $ | 1,615 |
|
| $ | 2,609,213 |
|
| $ | (1,499 | ) |
| $ | (1,420,642 | ) |
|
| (3,083,732 | ) |
| $ | (125,669 | ) |
| $ | 1,063,018 |
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Ordinary Shares |
| Paid-In |
|
| Comprehensive |
|
| Accumulated |
|
| Treasury Stock |
|
|
|
|
|
| Ordinary Shares |
|
| Paid-In |
|
| Comprehensive |
|
| Accumulated |
|
| Treasury Stock |
|
|
|
|
| ||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
| Capital |
|
| Loss |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Total |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||||||||||
|
| (In thousands, except share data) |
|
| (In thousands, except share data) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE — December 31, 2017 |
|
| 156,057,632 |
|
| $ | 1,557 |
| $ | 2,338,755 |
|
| $ | (3,792 | ) |
| $ | (1,044,365 | ) |
|
| (2,048,176 | ) |
| $ | (89,347 | ) |
| $ | 1,202,808 |
| ||||||||||||||||||||||||||||||||
BALANCE — December 31, 2018 |
|
| 158,180,833 |
|
| $ | 1,579 |
|
| $ | 2,467,323 |
|
| $ | (3,280 | ) |
| $ | (1,185,368 | ) |
|
| (2,423,489 | ) |
| $ | (108,969 | ) |
| $ | 1,171,285 |
| |||||||||||||||||||||||||||||||
Issuance of ordinary shares under employee stock plans |
|
| 539,563 |
|
| 6 |
| 13,159 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,165 |
|
|
| 656,352 |
|
| 7 |
|
|
| 10,547 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,554 |
| |||
Receipt of Alkermes' shares for the exercise of stock options or to satisfy minimum tax withholding obligations related to share-based awards |
|
| 716,123 |
|
| 7 |
| (7 | ) |
|
| — |
|
|
| — |
|
|
| (261,159 | ) |
|
| (15,724 | ) |
|
| (15,724 | ) |
|
| 740,689 |
|
| 7 |
|
|
| 93 |
|
|
| — |
|
|
| — |
|
|
| (269,357 | ) |
|
| (8,980 | ) |
|
| (8,880 | ) | |||
Share-based compensation expense |
|
| — |
|
|
| — |
| 20,176 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20,176 |
|
|
| — |
|
|
| — |
|
|
| 24,810 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24,810 |
| |
Unrealized loss on marketable securities, net of tax benefit of $(100) |
|
| — |
|
|
| — |
| — |
|
|
| (337 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (337 | ) | |||||||||||||||||||||||||||||||||
Cumulative effect adjustment related to the adoption of new accounting standards |
|
| — |
|
|
| — |
| — |
|
|
| — |
|
|
| (1,692 | ) |
|
| — |
|
|
| — |
|
|
| (1,692 | ) | |||||||||||||||||||||||||||||||||
Unrealized gain on marketable securities, net of tax provision of $229 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 770 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 770 |
| |||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
|
| (62,505 | ) |
|
| — |
|
|
| — |
|
|
| (62,505 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (96,398 | ) |
|
| — |
|
|
| — |
|
|
| (96,398 | ) |
BALANCE — March 31, 2018 |
|
| 157,313,318 |
|
| $ | 1,570 |
| $ | 2,372,083 |
|
| $ | (4,129 | ) |
| $ | (1,108,562 | ) |
|
| (2,309,335 | ) |
| $ | (105,071 | ) |
| $ | 1,155,891 |
| ||||||||||||||||||||||||||||||||
BALANCE — March 31, 2019 |
|
| 159,577,874 |
|
| $ | 1,593 |
|
| $ | 2,502,773 |
|
| $ | (2,510 | ) |
| $ | (1,281,766 | ) |
|
| (2,692,846 | ) |
| $ | (117,949 | ) |
| $ | 1,102,141 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited)
1. THE COMPANY
Alkermes plc (the “Company”) is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to research, develop and commercialize, both with partners and on its own, pharmaceutical products that are designed to address unmet medical needs of patients in major therapeutic areas. The CompanyAlkermes has a diversified portfolio of commercial drugmarketed products and a clinical pipeline of product candidates focused on central nervous system (“CNS”) disorders such as schizophrenia, depression, addiction and multiple sclerosis (“MS”),schizophrenia and a pipeline of product candidates in the fields of neuroscience and oncology. Headquartered in Dublin, Ireland, the Company has a research and development (“R&D”) center in Waltham, Massachusetts; an R&D and manufacturing facility in Athlone, Ireland; and a manufacturing facility in Wilmington, Ohio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company for the three months ended March 31, 20192020 and 20182019 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the year ended December 31, 2018.2019. The year-end condensed consolidated balance sheet data, which is presented for comparative purposes, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States (“U.S.”) (commonly referred to as “GAAP”). In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, that are necessary to state fairly the results of operations for the reported periods.
These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company, which are contained in the Company’s Annual Report that has been filed with the SEC.Report. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for aany full fiscal year.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Alkermes plc and its wholly-owned subsidiaries as disclosed in Note 2, Summary of Significant Accounting Policies, in the “Notes to Consolidated Financial Statements” accompanying the Annual Report. Intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, judgments and methodologies, including those related to revenue recognitionfrom contracts with its customers and related allowances, its collaborative relationships, clinical trial expenses, the valuation of inventory, impairment and amortization of intangibles and long-lived assets, share-based compensation, income taxes including the valuation allowance for deferred tax assets, valuation of investments, contingent consideration and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Segment Information
The Company operates as one1 business segment, which is the business of developing, manufacturing and commercializing medicines. The Company’s chief decision maker, the Chief Executive Officer and Chairman of the Board and Chief Executive Officer,Company’s board of directors, reviews the Company’s operating results on an aggregate basis and manages the Company’s operations as a single operating unit.
9
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
Income TaxesRisks and Uncertainties
In March 2020, COVID-19 was declared a global pandemic by the World Health Organization. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. The Company is closely monitoring and rapidly responding to the impact of COVID-19 on its employees, communities and business operations. Due to numerous uncertainties surrounding the COVID-19 pandemic, the Company is unable to predict the extent of the impact that the COVID-19 pandemic may have on the Company’s income tax benefitfuture financial condition and operating results. These uncertainties include, among other things, the ultimate severity and duration of the pandemic; governmental, business or other actions that have been, or will be, taken in response to the pandemic, including restrictions on travel and mobility, business closures and imposition of social distancing measures; impacts of the pandemic on the vendors or distribution channels in the Company’s supply chain and on the Company’s ability to continue to manufacture its products; impacts of the pandemic on the conduct of the Company’s clinical trials, including with respect to enrollment rates, availability of investigators and clinical trial sites or monitoring of data; impacts of the pandemic on healthcare systems that serve people living with opioid dependence, alcohol dependence and schizophrenia; impacts of the pandemic on the regulatory agencies with which the Company interacts in the development, review, approval and commercialization of its medicines; impacts of the pandemic on reimbursement for the Company’s products, including the Company’s Medicaid rebate liability, and for services related to the use of its products; and impacts of the pandemic on the U.S., Irish and global economies more broadly.
Despite disruptions to the Company’s business operations and the business operations of third parties on which it relies, the COVID-19 pandemic did not significantly impact the Company’s operating results and financial condition for the three months ended March 31, 20192020.
We rely upon third parties for many aspects of our business, including the provision of goods and 2018 primarilyservices related to U.S. federalthe manufacture of our clinical products and state taxes.our, and our partners’, marketed products, the conduct of our clinical trials, and the sale of marketed products from which we receive manufacturing and royalty revenue.
The marketed products from which the Company derives revenue, including manufacturing and royalty revenue, are primarily injectable medications administered by healthcare professionals, and given developments that have transpired to date, and may continue to transpire, in response to the pandemic, including the implementation of “shelter-in-place” policies, social distancing and other measures, the Company expects commercial sales of these marketed products to be adversely impacted.
As it relates to its proprietary marketed products, VIVITROL and ARISTADA, the Company has begun to see commercial impacts of the COVID-19 pandemic in the second quarter. As of the date of this Form 10-Q, April VIVITROL shipments are down from pre-COVID-19 expectations, and the Company has seen a flattening in prescription data and factory shipments of ARISTADA. The Company records a deferred tax asset or liability based onis actively working to respond to these developments, including by working to increase the difference between the financial statementnumber of providers able to administer these products and tax basis ofotherwise support uninterrupted access to these products.
The Company continues to operate its assetsmanufacturing facilities and liabilities, as measured by enacted jurisdictional tax rates assumed to be in effect when these differences reverse. At March 31, 2019,supply its medicines, and it does not currently anticipate any supply interruptions. While the Company maintained a valuation allowance againstcontinues to conduct R&D activities, including its ongoing clinical trials, the COVID-19 pandemic has impacted, and may continue to impact, the timelines of certain of its U.S.early-stage discovery efforts and foreign deferred tax assets.clinical trials. The Company evaluates, at each reporting period,is working with its internal teams, its clinical investigators, R&D vendors and critical supply chain vendors, to continually assess, and mitigate, the need for a valuation allowancepotential impact of COVID-19 on its deferred tax assets on a jurisdiction-by-jurisdiction basis.manufacturing operations and R&D activities.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued guidancestandards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
Effective January 1, 2019, the Company adopted the requirements under Accounting Standards Update (“ASU”) 2016-02, Leases (“Topic 842”) using the optional modified retrospective transition method and recognized a cumulative-effect adjustment to the condensed consolidated balance sheet on the date of adoption. Comparative periods have not been restated. Topic 842 was issued in order to increase transparency and comparability among organizations by recognizing right-of-use lease assets and operating lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous GAAP (“Topic 840”) and Topic 842 is the recognition of right-of-use lease assets and lease liabilities by lessees for those leases classified as operating leases under Topic 840. At January 1, 2019, the Company recorded a right-of-use asset of $20.1 million and an operating lease liability of $22.1 million. For additional information regarding how the Company is accounting for leases under Topic 842, refer to Note 9, Leases, in the “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q.
In June 2016, the FASB issued ASUAccounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments, to provide financial statement users with more decision-useful information about the expected
10
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU becomes effectivestandard primarily impacts how firms account for credit losses and requires an impairment model, known as the current expected credit loss model, that is based on expected losses rather than incurred losses. Companies are required to carry an allowance for expected credit losses for most debt instruments (except those carried at fair value), trade receivables, lease receivables, reinsurance receivables, financial guarantee contracts and loan commitments. For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. The standard limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which the carrying value exceeds fair value and requires the reversal of previous recognized credit losses if fair value increases. The Company’s investment portfolio primarily consists of available-for-sale securities carried at fair value. Further, the Company’s trade receivables do not have abnormally long terms and the Company in the year ending December 31, 2020, with early adoption permitted for the Company in the year ending December 31, 2019.has historically rarely written off trade receivables. The Company is currently assessing the impact thatadopted this ASU will havestandard on its consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which addresses the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation – Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. This ASU became effective for and was adopted by the Company in the year ending December 31, 2019January 1, 2020 and the adoption of the ASUthis standard did not have ana material impact on itsthe Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14,2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which aims to improve the effectiveness of fair value measurement disclosures. The amendments in this ASU modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. This ASU becomes effective for theThe Company in the year ending December 31,adopted this standard on January 1, 2020 and earlythe adoption is permitted. The Company is currently assessingof this standard did not have any impact on the impact that this ASU will have on its consolidatedCompany’s financial statements.statement disclosures.
10
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. This ASU becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessingadopted this standard on January 1, 2020 using the impact that this ASU will have on its consolidated financial statements.prospective transition method, whereby it applied the requirements to any eligible costs incurred after adoption. The Company did not incur any material eligible costs during the three months ended March 31, 2020.
In November 2018,December 2019, the FASB issued ASU 2018-18,2019-12, ClarifyingSimplifying the Interaction Between Topic 808 and Topic 606Accounting for Income Taxes, which clarifies whensimplifies the accounting for income taxes by removing certain exceptions to the general principles of Accounting Standards Codification (“ASC”) 740, Income Taxes (“Topic 740”). The amendments also improve consistent application of, and simplify, GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted this standard on January 1, 2020 and the adoption of this standard had no material impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This amendment applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions between participants in a collaborative arrangement are within the scopethat reference LIBOR or another reference rate expected to be discontinued because of the FASB’s revenue standard, Topic 606.reference rate reform. This ASU becomesis effective for the Company in the year endingimmediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2020 and early adoption is permitted.2022. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Under FASB ASC 606, Revenue from Contracts with Customers (“Topic 606,606”), the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under Topic 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance
11
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
obligation(s) in the contract(s); and (v) recognize revenues when (or as) the Company satisfies the performance obligation(s).
Manufacturing and Royalty Revenue
During the three months ended March 31, 2019 and 2018, the Company recorded manufacturing and royalty revenues as follows:
|
| Three Months Ended March 31, 2019 |
| |||||||||
(In thousands) |
| Manufacturing Revenue |
|
| Royalty Revenue |
|
| Total |
| |||
INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA |
| $ | — |
|
| $ | 53,298 |
|
| $ | 53,298 |
|
RISPERDAL CONSTA |
|
| 17,921 |
|
|
| 4,385 |
|
|
| 22,306 |
|
AMPYRA/FAMPYRA |
|
| 5,680 |
|
|
| 6,506 |
|
|
| 12,186 |
|
Other |
|
| 7,346 |
|
|
| 13,779 |
|
|
| 21,125 |
|
|
| $ | 30,947 |
|
| $ | 77,968 |
|
| $ | 108,915 |
|
|
| Three Months Ended March 31, 2018 |
| |||||||||
(In thousands) |
| Manufacturing Revenue |
|
| Royalty Revenue |
|
| Total |
| |||
INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA |
| $ | — |
|
| $ | 46,086 |
|
| $ | 46,086 |
|
AMPYRA/FAMPYRA |
|
| 13,563 |
|
|
| 14,696 |
|
|
| 28,259 |
|
RISPERDAL CONSTA |
|
| 17,792 | �� |
|
| 4,912 |
|
|
| 22,704 |
|
Other |
|
| 6,236 |
|
|
| 11,316 |
|
|
| 17,552 |
|
|
| $ | 37,591 |
|
| $ | 77,010 |
|
| $ | 114,601 |
|
11
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
Product Sales, Net
The Company’s product sales, net consist of sales of VIVITROL and ARISTADA (together with ARISTADA INITIO) in the U.S., primarily to wholesalers, specialty distributors and specialty pharmacies. Product sales, net are recognized when the customer obtains control of the product, which is when the product has been received by the customer.
During the three months ended March 31, 20192020 and 2018,2019, the Company recorded product sales, net, as follows:
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
(In thousands) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
VIVITROL |
| $ | 69,183 |
|
| $ | 62,682 |
|
| $ | 78,769 |
|
| $ | 69,183 |
|
ARISTADA |
|
| 30,298 |
|
|
| 29,160 |
| ||||||||
ARISTADA/ARISTADA INITIO |
|
| 50,957 |
|
|
| 30,298 |
| ||||||||
Total product sales, net |
| $ | 99,481 |
|
| $ | 91,842 |
|
| $ | 129,726 |
|
| $ | 99,481 |
|
Manufacturing and Royalty Revenues
During the three months ended March 31, 2020 and 2019, the Company recorded manufacturing and royalty revenues as follows:
|
| Three Months Ended March 31, 2020 |
| |||||||||
(In thousands) |
| Manufacturing Revenue |
|
| Royalty Revenue |
|
| Total |
| |||
INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA |
| $ | — |
|
| $ | 54,927 |
|
| $ | 54,927 |
|
RISPERDAL CONSTA |
|
| 23,583 |
|
|
| 3,733 |
|
|
| 27,316 |
|
Other |
|
| 16,628 |
|
|
| 17,380 |
|
|
| 34,008 |
|
|
| $ | 40,211 |
|
| $ | 76,040 |
|
| $ | 116,251 |
|
|
| Three Months Ended March 31, 2019 |
| |||||||||
(In thousands) |
| Manufacturing Revenue |
|
| Royalty Revenue |
|
| Total |
| |||
INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA |
| $ | — |
|
| $ | 53,298 |
|
| $ | 53,298 |
|
RISPERDAL CONSTA |
|
| 17,921 |
|
|
| 4,385 |
|
|
| 22,306 |
|
Other |
|
| 13,026 |
|
|
| 20,285 |
|
|
| 33,311 |
|
|
| $ | 30,947 |
|
| $ | 77,968 |
|
| $ | 108,915 |
|
Research and Development Revenue
The Company recorded research and development (“R&D”)&D revenue of $13.9$0.2 million and $17.5$14.7 million during the three months ended March 31, 2020 and 2019, respectively, of which $0.1 million and 2018,$13.9 million, respectively, related to its license and collaboration agreement with Biogen for Diroximel fumarate (“BIIB098”).VUMERITY. The Company expects to earn an additional $77.6$0.4 million in R&D revenue under this agreement with Biogen through 2021.the end of 2020.
Contract Assets——Contract assets include unbilled amounts resulting from sales under certain of the Company’s manufacturing contracts where revenue is recognized over time. The products includedTotal contract assets as of March 31, 2020 include $14.2 million of assets that are classified as “Current assets” in the contract assets table below complete theaccompanying condensed consolidated balance sheet, as they related to manufacturing processprocesses that are completed in ten days to eight weeks. Contract assets areweeks, and $5.0 million that is classified as current.
Contract assets consisted“Other assets” in the accompanying condensed consolidated balance sheet, as it consists of consideration from the following:
(In thousands) |
| Contract Assets |
| |
Contract assets at January 1, 2019 |
| $ | 8,230 |
|
Additions |
|
| 7,346 |
|
Transferred to receivables, net |
|
| (7,129 | ) |
Contract assets at March 31, 2019 |
| $ | 8,447 |
|
Contract Liabilities—Contract liabilities consist of contractual obligationsCompany’s collaboration with Biogen related to deferred revenue.
Contract liabilities consisted ofVUMERITY, which the following:
(In thousands) |
| Contract Liabilities |
| |
Contract liabilities at January 1, 2019 |
| $ | 12,694 |
|
Additions |
|
| 1,516 |
|
Amounts recognized into revenue |
|
| (790 | ) |
Contract liabilities at March 31, 2019 |
| $ | 13,420 |
|
Company expects to receive in approximately three years.
12
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
4. INVESTMENTSTotal contract assets at March 31, 2020 were as follows:
Investments consisted of the following (in thousands):
|
|
|
|
|
| Gross Unrealized |
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
| Losses |
|
|
|
|
| |||||
|
| Amortized |
|
|
|
|
|
| Less than |
|
| Greater than |
|
| Estimated |
| ||||
March 31, 2019 |
| Cost |
|
| Gains |
|
| One Year |
|
| One Year |
|
| Fair Value |
| |||||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
| $ | 156,443 |
|
| $ | 349 |
|
| $ | (11 | ) |
| $ | (149 | ) |
| $ | 156,632 |
|
U.S. government and agency debt securities |
|
| 108,113 |
|
|
| 257 |
|
|
| (4 | ) |
|
| (45 | ) |
|
| 108,321 |
|
International government agency debt securities |
|
| 91,818 |
|
|
| 193 |
|
|
| — |
|
|
| (70 | ) |
|
| 91,941 |
|
Total short-term investments |
|
| 356,374 |
|
|
| 799 |
|
|
| (15 | ) |
|
| (264 | ) |
|
| 356,894 |
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
| 28,570 |
|
|
| — |
|
|
| (84 | ) |
|
| (45 | ) |
|
| 28,441 |
|
U.S. government and agency debt securities |
|
| 10,984 |
|
|
| — |
|
|
| (4 | ) |
|
| (5 | ) |
|
| 10,975 |
|
|
|
| 39,554 |
|
|
| — |
|
|
| (88 | ) |
|
| (50 | ) |
| $ | 39,416 |
|
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
| 1,820 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,820 |
|
Fixed term deposit account |
|
| 1,667 |
|
|
| 102 |
|
|
| — |
|
|
| — |
|
|
| 1,769 |
|
|
|
| 3,487 |
|
|
| 102 |
|
|
| — |
|
|
| — |
|
|
| 3,589 |
|
Total long-term investments |
|
| 43,041 |
|
|
| 102 |
|
|
| (88 | ) |
|
| (50 | ) |
|
| 43,005 |
|
Total investments |
|
| 399,415 |
|
|
| 901 |
|
|
| (103 | ) |
|
| (314 | ) |
|
| 399,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
| $ | 120,197 |
|
| $ | 57 |
|
| $ | (62 | ) |
| $ | (274 | ) |
| $ | 119,918 |
|
U.S. government and agency debt securities |
|
| 80,055 |
|
|
| 115 |
|
|
| (11 | ) |
|
| (87 | ) |
|
| 80,072 |
|
International government agency debt securities |
|
| 72,091 |
|
|
| 85 |
|
|
| (8 | ) |
|
| (117 | ) |
|
| 72,051 |
|
|
|
| 272,343 |
|
|
| 257 |
|
|
| (81 | ) |
|
| (478 | ) |
|
| 272,041 |
|
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
| 492 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 492 |
|
Total short-term investments |
|
| 272,835 |
|
|
| 257 |
|
|
| (81 | ) |
|
| (478 | ) |
|
| 272,533 |
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
| 53,505 |
|
|
| — |
|
|
| (185 | ) |
|
| (93 | ) |
| $ | 53,227 |
|
U.S. government and agency debt securities |
|
| 18,474 |
|
|
| — |
|
|
| (21 | ) |
|
| (12 | ) |
|
| 18,441 |
|
International government agency debt securities |
|
| 5,457 |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| 5,453 |
|
|
|
| 77,436 |
|
|
| — |
|
|
| (210 | ) |
|
| (105 | ) |
|
| 77,121 |
|
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
| 1,820 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,820 |
|
Fixed term deposit account |
|
| 1,667 |
|
|
| 136 |
|
|
| — |
|
|
| — |
|
|
| 1,803 |
|
|
|
| 3,487 |
|
|
| 136 |
|
|
| — |
|
|
| — |
|
|
| 3,623 |
|
Total long-term investments |
|
| 80,923 |
|
|
| 136 |
|
|
| (210 | ) |
|
| (105 | ) |
|
| 80,744 |
|
Total investments |
| $ | 353,758 |
|
| $ | 393 |
|
| $ | (291 | ) |
| $ | (583 | ) |
| $ | 353,277 |
|
(In thousands) |
| Contract Assets |
| |
Contract assets at December 31, 2019 |
| $ | 13,386 |
|
Additions |
|
| 14,146 |
|
Transferred to receivables, net |
|
| (8,333 | ) |
Contract assets at March 31, 2020 |
| $ | 19,199 |
|
The proceeds from the sales and maturitiesContract Liabilities—Contract liabilities consist of marketable securities, which were identified using the specific identification method and were primarily reinvested,contractual obligations related to deferred revenue.
Total contract liabilities at March 31, 2020 were as follows:
|
| Three Months Ended March 31, |
| |||||
(In thousands) |
| 2019 |
|
| 2018 |
| ||
Proceeds from the sales and maturities of marketable securities |
| $ | 55,978 |
|
| $ | 79,500 |
|
Realized gains |
| $ | — |
|
| $ | 1 |
|
Realized losses |
| $ | 492 |
|
| $ | 4 |
|
(In thousands) |
| Contract Liabilities |
| |
Contract liabilities at December 31, 2019 |
| $ | 28,834 |
|
Additions |
|
| — |
|
Amounts recognized into revenue |
|
| (859 | ) |
Contract liabilities at March 31, 2020 |
| $ | 27,975 |
|
13
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
The Company’s available-for-sale and held-to-maturity securities at March 31, 2019 had contractual maturities in4. INVESTMENTS
Investments consisted of the following periods:(in thousands):
|
| Available-for-sale |
|
| Held-to-maturity |
| ||||||||||
|
| Amortized |
|
| Estimated |
|
| Amortized |
|
| Estimated |
| ||||
(In thousands) |
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
Within 1 year |
| $ | 213,318 |
|
| $ | 213,172 |
|
| $ | 1,820 |
|
| $ | 1,820 |
|
After 1 year through 5 years |
|
| 182,610 |
|
|
| 183,138 |
|
|
| 1,667 |
|
|
| 1,769 |
|
Total |
| $ | 395,928 |
|
| $ | 396,310 |
|
| $ | 3,487 |
|
| $ | 3,589 |
|
|
|
|
|
|
| Gross Unrealized |
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
| Losses |
|
|
|
|
| |||||
|
| Amortized |
|
|
|
|
|
| Less than |
|
| Greater than |
|
| Estimated |
| ||||
March 31, 2020 |
| Cost |
|
| Gains |
|
| One Year |
|
| One Year |
|
| Fair Value |
| |||||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
| $ | 136,494 |
|
| $ | 450 |
|
| $ | (270 | ) |
| $ | — |
|
| $ | 136,674 |
|
U.S. government and agency debt securities |
|
| 103,418 |
|
|
| 1,232 |
|
|
| — |
|
|
| (1 | ) |
|
| 104,649 |
|
International government agency debt securities |
|
| 77,627 |
|
|
| 977 |
|
|
| — |
|
|
| — |
|
|
| 78,604 |
|
Total short-term investments |
|
| 317,539 |
|
|
| 2,659 |
|
|
| (270 | ) |
|
| (1 | ) |
|
| 319,927 |
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
| 45,899 |
|
|
| — |
|
|
| (701 | ) |
|
| (1 | ) |
|
| 45,197 |
|
International government agency debt securities |
|
| 5,011 |
|
|
| — |
|
|
| (9 | ) |
|
| — |
|
|
| 5,002 |
|
|
|
| 50,910 |
|
|
| — |
|
|
| (710 | ) |
|
| (1 | ) |
|
| 50,199 |
|
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
| 1,820 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,820 |
|
Fixed term deposit account |
|
| 1,667 |
|
|
| 58 |
|
|
| — |
|
|
| — |
|
|
| 1,725 |
|
|
|
| 3,487 |
|
|
| 58 |
|
|
| — |
|
|
| — |
|
|
| 3,545 |
|
Total long-term investments |
|
| 54,397 |
|
|
| 58 |
|
|
| (710 | ) |
|
| (1 | ) |
|
| 53,744 |
|
Total investments |
| $ | 371,936 |
|
| $ | 2,717 |
|
| $ | (980 | ) |
| $ | (2 | ) |
| $ | 373,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
| $ | 144,161 |
|
| $ | 676 |
|
| $ | — |
|
| $ | — |
|
| $ | 144,837 |
|
U.S. government and agency debt securities |
|
| 112,948 |
|
|
| 434 |
|
|
| (1 | ) |
|
| (1 | ) |
|
| 113,380 |
|
International government agency debt securities |
|
| 72,753 |
|
|
| 248 |
|
|
| (10 | ) |
|
| — |
|
|
| 72,991 |
|
Total short-term investments |
|
| 329,862 |
|
|
| 1,358 |
|
|
| (11 | ) |
|
| (1 | ) |
|
| 331,208 |
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
| 51,070 |
|
|
| — |
|
|
| (45 | ) |
|
| (7 | ) |
|
| 51,018 |
|
International government agency debt securities |
|
| 20,806 |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| 20,788 |
|
U.S. government and agency debt securities |
|
| 4,000 |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| 3,996 |
|
|
|
| 75,876 |
|
|
| — |
|
|
| (67 | ) |
|
| (7 | ) |
|
| 75,802 |
|
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
| 1,820 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,820 |
|
Fixed term deposit account |
|
| 1,667 |
|
|
| 102 |
|
|
| — |
|
|
| — |
|
|
| 1,769 |
|
|
|
| 3,487 |
|
|
| 102 |
|
|
| — |
|
|
| — |
|
|
| 3,589 |
|
Total long-term investments |
|
| 79,363 |
|
|
| 102 |
|
|
| (67 | ) |
|
| (7 | ) |
|
| 79,391 |
|
Total investments |
| $ | 409,225 |
|
| $ | 1,460 |
|
| $ | (78 | ) |
| $ | (8 | ) |
| $ | 410,599 |
|
At March 31, 2019,2020, the Company believed that the unrealized losses on its available-for-sale investments were temporary.temporary and were not due to credit losses. The investments with unrealized losses consisted primarily of corporate debt securities. In making the determination that the decline in fair value of these securities was temporary, the Company considered various factors, including, but not limited to: the length of time each security was in an unrealized loss position; the extent to which fair value was less than cost; financial condition and near-term prospects of the issuers;issuers of the securities; the Company’s intent not to sell these securities; and the assessment that it is more likely than not that the Company would not be required to sell these securities before the recovery of their amortized cost basis.
In May 2014,14
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
The proceeds from the Company entered into an agreement whereby it is committed to provide up to €7.4 million to a partnership, Fountain Healthcare Partners II, L.P.sales and maturities of Ireland (“Fountain”),marketable securities, which was created to carry onwere identified using the business of investing exclusively in companiesspecific identification method and businesses engaged in the healthcare, pharmaceutical and life sciences sectors. As of March 31, 2019, the Company’s total contribution in Fountain was equal to €5.5 million. were primarily reinvested, were as follows:
|
| Three Months Ended March 31, |
| |||||
(In thousands) |
| 2020 |
|
| 2019 |
| ||
Proceeds from the sales and maturities of marketable securities |
| $ | 64,500 |
|
| $ | 55,978 |
|
Realized gains |
| $ | 9 |
|
| $ | — |
|
Realized losses |
| $ | — |
|
| $ | 492 |
|
The Company’s commitment represents approximately 7% of the partnership’s total funding. The Company is accounting for its investment in Fountain under the equity method. During the three months ended March 31, 2019available-for-sale and 2018, the Company recorded a decrease in its investment in Fountain of less than $0.1 million. The changes recorded represent the Company’s proportional share of Fountain’s net losses for these periods. The Company’s $5.6 million and $5.5 million net investment in Fountainheld-to-maturity securities at March 31, 2019 and December 31, 2018, respectively, was included within “Other assets”2020 had contractual maturities in the accompanying condensed consolidated balance sheets.following periods:
|
| Available-for-sale |
|
| Held-to-maturity |
| ||||||||||
|
| Amortized |
|
| Estimated |
|
| Amortized |
|
| Estimated |
| ||||
(In thousands) |
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
Within 1 year |
| $ | 223,691 |
|
| $ | 224,692 |
|
| $ | 3,487 |
|
| $ | 3,545 |
|
After 1 year through 5 years |
|
| 144,758 |
|
|
| 145,434 |
|
|
| — |
|
|
| — |
|
Total |
| $ | 368,449 |
|
| $ | 370,126 |
|
| $ | 3,487 |
|
| $ | 3,545 |
|
5. FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
|
| March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
(In thousands) |
| 2019 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| 2020 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
| $ | 62,556 |
|
| $ | 62,556 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,950 |
|
| $ | 5,950 |
|
| $ | — |
|
| $ | — |
|
U.S. government and agency debt securities |
|
| 119,296 |
|
|
| 68,704 |
|
|
| 50,592 |
|
|
| — |
|
|
| 104,649 |
|
|
| 60,565 |
|
|
| 44,084 |
|
|
| — |
|
Corporate debt securities |
|
| 185,073 |
|
|
| — |
|
|
| 185,073 |
|
|
| — |
|
|
| 181,871 |
|
|
| — |
|
|
| 179,918 |
|
|
| 1,953 |
|
International government agency debt securities |
|
| 91,941 |
|
|
| — |
|
|
| 91,941 |
|
|
| — |
|
|
| 83,606 |
|
|
| — |
|
|
| 83,606 |
|
|
| — |
|
Contingent consideration |
|
| 37,600 |
|
|
| — |
|
|
| — |
|
|
| 37,600 |
|
|
| 39,200 |
|
|
| — |
|
|
| — |
|
|
| 39,200 |
|
Common stock warrants |
|
| 772 |
|
|
| — |
|
|
| — |
|
|
| 772 |
| ||||||||||||||||
Total |
| $ | 497,238 |
|
| $ | 131,260 |
|
| $ | 327,606 |
|
| $ | 38,372 |
|
| $ | 415,276 |
|
| $ | 66,515 |
|
| $ | 307,608 |
|
| $ | 41,153 |
|
|
| December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| 2018 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| 2019 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
| $ | 54,590 |
|
| $ | 54,590 |
|
| $ | — |
|
| $ | — |
|
| $ | 8,064 |
|
| $ | 8,064 |
|
| $ | — |
|
| $ | — |
|
U.S. government and agency debt securities |
|
| 98,513 |
|
|
| 60,107 |
|
|
| 38,406 |
|
|
| — |
|
|
| 117,376 |
|
|
| 73,795 |
|
|
| 43,581 |
|
|
| — |
|
Corporate debt securities |
|
| 173,637 |
|
|
| — |
|
|
| 173,145 |
|
|
| 492 |
|
|
| 195,855 |
|
|
| — |
|
|
| 193,902 |
|
|
| 1,953 |
|
International government agency debt securities |
|
| 77,504 |
|
|
| — |
|
|
| 77,504 |
|
|
| — |
|
|
| 93,779 |
|
|
| — |
|
|
| 93,779 |
|
|
| — |
|
Contingent consideration |
|
| 65,200 |
|
|
| — |
|
|
| — |
|
|
| 65,200 |
|
|
| 32,400 |
|
|
| — |
|
|
| — |
|
|
| 32,400 |
|
Common stock warrants |
|
| 1,205 |
|
|
| — |
|
|
| — |
|
|
| 1,205 |
| ||||||||||||||||
Total |
| $ | 470,649 |
|
| $ | 114,697 |
|
| $ | 289,055 |
|
| $ | 66,897 |
|
| $ | 447,474 |
|
| $ | 81,859 |
|
| $ | 331,262 |
|
| $ | 34,353 |
|
14
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
The Company transfers its financial assets and liabilities, measured at fair value on a recurring basis, between the fair value hierarchies at the end of each reporting period.
There were no0 transfers of any securities between the fair value hierarchies during the three months ended March 31, 2019.2020. The following table is a rollforward of the fair value of the Company’s assets whose fair values were determined using Level 3 inputs at March 31, 2019:2020:
(In thousands) |
| Fair Value |
| |
Balance, January 1, 2019 |
| $ | 66,897 |
|
Change in the fair value of contingent consideration |
|
| (22,600 | ) |
Payment received for contingent consideration |
|
| (5,000 | ) |
Impairment of corporate debt security |
|
| (492 | ) |
Decrease in the fair value of warrants |
|
| (433 | ) |
Balance, March 31, 2019 |
| $ | 38,372 |
|
(In thousands) |
| Fair Value |
| |
Balance, January 1, 2020 |
| $ | 34,353 |
|
Change in the fair value of contingent consideration |
|
| 6,800 |
|
Balance, March 31, 2020 |
| $ | 41,153 |
|
15
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
The Company’s investments in U.S. government and agency debt securities, international government agency debt securities and corporate debt securities classified as Level 2 within the fair value hierarchy were initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing market-observable data. The market-observable data included reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validated the prices developed using the market-observable data by obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active.
The Company’s contingent consideration relates to the divestitureCompany’s sale in April 2015 of its Gainesville, GA manufacturing facility, in March 2015 (the “Gainesville Transaction”). On December 20, 2018, the Company entered into a Second Amendmentrelated manufacturing and royalty revenue associated with certain products manufactured at the facility, and the rights to the Purchase and Sale Agreement (“Purchase and Sale Agreement Amendment”) with Recro Pharma, Inc. (“Recro”), pursuant to which the Company received one $5.0 million payment in the first quarter of 2019 and will receive another $5.0 million payment in the second quarter of 2019; the Company is eligible to receive low double-digit royalties on net sales of IV/IM and parenteral forms of Meloxicam (collectively, the “Gainesville Transaction”) to Recro Pharma, Inc. (“Recro”) and any other Meloxicam Product(s); and is eligibleRecro Pharma LLC. As part of the Gainesville Transaction, the Company obtained rights to receive up to $130.0 million in milestonecontingent payments upon the achievement by Meloxicam products of certain regulatory and sales milestones relatedand royalties on future net sales of Meloxicam products. Additional details regarding the Gainesville Transaction can be found in Note 5, Fair Value, in the Notes to Consolidated Financial Statements in the Meloxicam Products.Annual Report.
In accordance with the accounting standard for fair value measurements, the Company’s contingent consideration has been classified asNovember 2019, Recro completed a Level 3 asset asspin out of its fair value is based on significant inputs not observable in the market. The fair valueacute care segment into a new entity named Baudax Bio, Inc. (“Baudax”), a publicly traded pharmaceutical company. As part of this transaction, Recro’s obligations to pay certain of the contingent consideration at March 31, 2019from the Gainesville Transaction were assigned and/or transferred to Baudax.
On February 20, 2020, ANJESO (formerly referred to as Meloxicam IV/IM), was determined as follows:
|
|
|
|
|
|
15
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
|
Significant judgment was employed in determining the appropriateness of these assumptions at the acquisition date and for each subsequent period. Accordingly, changes in assumptions described above could have a material impact on the increase or decrease in the fair value of contingent consideration recorded in any given period.
In March 2019, Recro received a second complete response letter (“CRL”) from the U.S. Food and Drug Administration (“FDA”(the “FDA”) regarding its NDA for IV Meloxicam. As a result of Recro’s receipt of this second CRL, the Company delayed its anticipated date for the FDA’s approval of the IV Meloxicam NDA and reduced the probability of success and amount of forecasted sales due to this delay in our valuation model.. At March 31, 20192020 and December 31, 2018,2019, the Company determined that the value of the contingent consideration related to the Gainesville Transaction was $37.6$39.2 million and $65.2$32.4 million, respectively. The Company recorded an increase of $6.8 million and a decrease of $22.6 million and $1.9 million during the three months ended March 31, 20192020 and 2018,2019, respectively, within “Change in the fair value of contingent consideration” in the accompanying condensed consolidated statements of operations and comprehensive loss. The fair value of the contingent consideration was developed using the same valuation approaches as described in Note 5, Fair Value, in the Notes to Consolidated Financial Statements in the Annual Report, using a discount rate of 19% in all three valuation approaches at March 31, 2020 as compared to a discount rate of 16% in all three valuation approaches at December 31, 2019.
The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, contract assets, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term nature.
The estimated fair value of the Company’s long-term debt under the amended and restated credit agreement (such debt, the “2023 Term Loans”), which was based on quoted market price indications (Level 2 in the fair value hierarchy) and which may not be representative of actual values that could have been, or will be, realized in the future, was $243.0 million and $277.9 million at March 31, 2020 and December 31, 2019, respectively. Please refer to Note 11, Long-Term Debt within these “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q for additional information.
6. INVENTORY
Inventory is stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. Inventory consisted of the following:
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
(In thousands) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Raw materials |
| $ | 33,526 |
|
| $ | 31,824 |
|
| $ | 35,578 |
|
| $ | 34,577 |
|
Work in process |
|
| 41,548 |
|
|
| 38,019 |
|
|
| 51,337 |
|
|
| 54,061 |
|
Finished goods(1) |
|
| 17,787 |
|
|
| 20,353 |
|
|
| 22,399 |
|
|
| 13,165 |
|
Total inventory |
| $ | 92,861 |
|
| $ | 90,196 |
|
| $ | 109,314 |
|
| $ | 101,803 |
|
(1) | At March 31, |
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
(In thousands) |
| 2019 |
|
| 2018 |
| ||
Land |
| $ | 6,560 |
|
| $ | 6,486 |
|
Building and improvements |
|
| 170,289 |
|
|
| 157,053 |
|
Furniture, fixtures and equipment |
|
| 320,882 |
|
|
| 314,831 |
|
Leasehold improvements |
|
| 20,105 |
|
|
| 20,105 |
|
Construction in progress |
|
| 89,245 |
|
|
| 88,983 |
|
Subtotal |
|
| 607,081 |
|
|
| 587,458 |
|
Less: accumulated depreciation |
|
| (287,077 | ) |
|
| (277,471 | ) |
Total property, plant and equipment, net |
| $ | 320,004 |
|
| $ | 309,987 |
|
16
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
(In thousands) |
| 2020 |
|
| 2019 |
| ||
Land |
| $ | 6,560 |
|
| $ | 6,560 |
|
Building and improvements |
|
| 178,130 |
|
|
| 177,087 |
|
Furniture, fixtures and equipment |
|
| 346,166 |
|
|
| 340,146 |
|
Leasehold improvements |
|
| 52,272 |
|
|
| 20,737 |
|
Construction in progress |
|
| 107,277 |
|
|
| 134,683 |
|
Subtotal |
|
| 690,405 |
|
|
| 679,213 |
|
Less: accumulated depreciation |
|
| (327,866 | ) |
|
| (317,045 | ) |
Total property, plant and equipment, net |
| $ | 362,539 |
|
| $ | 362,168 |
|
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consisted of the following:
|
|
|
| March 31, 2019 |
|
|
|
| March 31, 2020 |
| ||||||||||||||||||
(In thousands) |
| Weighted Amortizable Life (Years) |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Weighted Amortizable Life (Years) |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| ||||||
Goodwill |
|
|
| $ | 92,873 |
|
| $ | — |
|
| $ | 92,873 |
|
|
|
| $ | 92,873 |
|
| $ | — |
|
| $ | 92,873 |
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration agreements |
| 12 |
| $ | 465,590 |
|
| $ | (326,532 | ) |
| $ | 139,058 |
|
| 12 |
| $ | 465,590 |
|
| $ | (355,779 | ) |
| $ | 109,811 |
|
NanoCrystal technology |
| 13 |
|
| 74,600 |
|
|
| (40,873 | ) |
|
| 33,727 |
|
| 13 |
|
| 74,600 |
|
|
| (48,651 | ) |
|
| 25,949 |
|
OCR technologies |
| 12 |
|
| 42,560 |
|
|
| (34,296 | ) |
|
| 8,264 |
| ||||||||||||||
OCR(1) technologies |
| 12 |
|
| 42,560 |
|
|
| (37,405 | ) |
|
| 5,155 |
| ||||||||||||||
Total |
|
|
| $ | 582,750 |
|
| $ | (401,701 | ) |
| $ | 181,049 |
|
|
|
| $ | 582,750 |
|
| $ | (441,835 | ) |
| $ | 140,915 |
|
(1) | OCR refers to the Company’s oral controlled release technologies. |
Based on the Company’s most recent analysis, amortization of intangible assets included within its condensed consolidated balance sheet at March 31, 20192020 is expected to be approximately $40.0 million, $40.0 million, $40.0$35.0 million, $35.0 million and $35.0$1.0 million in the years ending December 31, 20192020 through 2023,2024, respectively. Although the Company believes such available information and assumptions are reasonable, given the inherent risks and uncertainties underlying its expectations regarding such future revenues, there is the potential for the Company’s actual results to vary significantly from such expectations. If revenues are projected to change, the related amortization of the intangible assets will change in proportion to the change in revenues.
9. LEASES
The Company adopted Topic 842 on January 1, 2019. Topic 842 allowsIn March 2018, the Company to electentered into a package of practical expedients, which include: (i) an entity need not reassess whether any expired or existing contracts are or contain leases; (ii) an entity need not reassess the lease classificationagreement for any expired or existing leases; and (iii) an entity need not reassess any initial direct costs for any existing leases. Another practical expedient allows the Company to use hindsight in determining the lease term when considering lessee options to extend or terminate the lease and to purchase the underlying asset. The Company has elected to utilize this package of practical expedients and has not elected the hindsight methodology in its implementation of Topic 842.
The Company elected to adopt this standard using the optional modified retrospective transition method and recognized a cumulative-effect adjustment to the condensed consolidated balance sheet on the date of adoption. Comparative periods have not been restated. With the adoption of Topic 842, the Company’s condensed consolidated balance sheet now contains the following line items: Right-of-use assets, Operating lease liabilities—short-term and Operating lease liabilities—long-term.
The Company determined that it held the following significant operating leasesapproximately 220,000 square feet of office and laboratory space asat 900 Winter Street, Waltham, Massachusetts (“900 Winter Street”). The initial term of the operating lease for 900 Winter Street commenced on January 1, 2019:
|
|
|
|
|
|
|
|
20, 2020 and expires in 2035, with an option to extend for an additional 10 years. The Company also has two additional operating leases that are includeddid not assume this option would be exercised in the calculation of its right-of-use asset and lease accounting but are not considered significant.liability amounts.
The Company has electeddetermined that the identified operating lease did not contain non-lease components and required no further allocation of the total lease cost. Additionally, the agreement in place did not contain information to not recognize right-of-use assetsdetermine the rate implicit in the lease.
At March 31, 2020, the weighted average incremental borrowing rate and the weighted average remaining lease term for all operating leases held by the Company were 5.55% and 14.2 years, respectively. During the three months ended March 31, 2020 and 2019, cash paid for amounts included for the measurement of lease liabilities arising from short-term leases, which are leases that, atwas $2.4 million and $2.3 million, respectively, and the commencement date, have aCompany recorded operating lease termexpense of 12 months or less$3.9 million and do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.$2.1 million, respectively.
17
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
As all the existing leases subject to the new lease standard were previously classified as operating leases by the Company, they were similarly classified as operating leases under the new standard. The Company has determined that the identified operating leases did not contain non-lease components and require no further allocation of the total lease cost. Additionally, the agreements in place did not contain information to determine the rate implicit in the leases. As such, the Company calculated the incremental borrowing rate based on the assumed remaining lease term for each lease in order to calculate the present value of the remaining lease payments. At March 31, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 4.46% and 4.1 years, respectively.
As of March 31, 2019, right-of-use assets and liabilities arising from operating leases were $18.0 million and $19.8 million, respectively. During the three months ended March 31, 2019, cash paid for amounts included for the measurement of lease liabilities was $2.3 million and the Company recorded operating lease expense of $2.1 million.
Future lease payments under non-cancelable leases as of March 31, 20192020 and December 31, 2018:2019 consisted of the following:
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
(In thousands) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 (1) |
| ||||
2019 |
| $ | 6,806 |
|
| $ | 9,394 |
| ||||||||
2020 |
|
| 8,652 |
|
|
| 10,717 |
|
| $ | 13,690 |
|
| $ | 9,053 |
|
2021 |
|
| 2,520 |
|
|
| 4,706 |
|
|
| 12,743 |
|
|
| 2,727 |
|
2022 |
|
| 500 |
|
|
| 2,455 |
|
|
| 10,645 |
|
|
| 500 |
|
2023 |
|
| 509 |
|
|
| 2,389 |
|
|
| 10,770 |
|
|
| 509 |
|
2024 |
|
| 10,897 |
|
|
| 520 |
| ||||||||
Thereafter |
|
| 3,100 |
|
|
| 23,940 |
|
|
| 116,520 |
|
|
| 2,579 |
|
Total lease payments |
| $ | 22,087 |
|
| $ | 53,601 |
|
|
| 175,265 |
|
|
| 15,888 |
|
Less: imputed interest |
|
| (2,272 | ) |
|
| — |
|
|
| (57,664 | ) |
|
| (2,080 | ) |
Total operating lease liabilities |
| $ | 19,815 |
|
| $ | 53,601 |
|
| $ | 117,601 |
|
| $ | 13,808 |
|
(1) | As of December 31, 2019, the term of the 900 Winter Street lease had not commenced and the Company (a) did not have the right to obtain or control the leased premises during the construction period; (b) did not have the right of payment for the partially constructed assets and, thus, the partially constructed assets could have potentially been leased to another tenant; and (c) did not legally own or control the land on which the property improvements were being constructed. As such, the lease assets were not included as right-of-use assets at December 31, 2019. The future lease payments outlined above do not include the 900 Winter Street payments as of December 31, 2019 under ASU 2016-02, Leases (“Topic 842”). |
In March 2018, the Company entered into a lease agreement for approximately 220,000 square feet of office and laboratory space located in a building that is being built at 900 Winter Street, Waltham, Massachusetts (“900 Winter Street”). The Company plans to occupy the premises in early 2020. The initial term of the lease shall commence on the earlier of: (i) the Delivery Date (defined as (a) the later of January 20, 2020, or (b) the date on which the landlord substantially completes its work in accordance with the terms of the lease), or (ii) the date the Company enters into possession of all or any substantial portion of 900 Winter Street for the conduct of its business (the “Commencement Date”). The initial lease term expires on the last day of the calendar month in which the fifteenth (15th) anniversary of the Commencement Date occurs, with an option to extend for an additional ten (10) years.
As the Company (a) does not have the right to obtain or control the leased premises during the construction period; (b) does not have the right of payment for the partially constructed assets and, thus, could be potentially leased to another tenant; and (c) does not legally own or control the land on which the property improvements are being constructed, it was not included as a right-of-use asset at March 31, 2019. Additionally, the future lease payments, outlined above, included the 900 Winter Street payments as of December 31, 2018; these payments are not included in the table under Topic 842.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
|
| March 31, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
(In thousands) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Accounts payable |
| $ | 48,956 |
|
| $ | 39,767 |
|
| $ | 43,177 |
|
| $ | 54,261 |
|
Accrued compensation |
|
| 48,653 |
|
|
| 67,613 |
|
|
| 51,536 |
|
|
| 72,072 |
|
Accrued sales discounts, allowances and reserves |
|
| 140,736 |
|
|
| 152,911 |
|
|
| 154,284 |
|
|
| 153,902 |
|
Accrued other |
|
| 75,624 |
|
|
| 73,471 |
|
|
| 64,595 |
|
|
| 92,802 |
|
Total accounts payable and accrued expenses |
| $ | 313,969 |
|
| $ | 333,762 |
|
| $ | 313,592 |
|
| $ | 373,037 |
|
11. LONG-TERM DEBT
Long-term debt consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
(In thousands) |
| 2020 |
|
| 2019 |
| ||
2023 Term Loans, due March 26, 2023 |
| $ | 276,594 |
|
| $ | 277,138 |
|
Less: current portion |
|
| (2,843 | ) |
|
| (2,843 | ) |
Long-term debt |
| $ | 273,751 |
|
| $ | 274,295 |
|
The 2023 Term Loans have a due date of March 26, 2023 and interest payable of LIBOR plus 2.25% with a LIBOR floor of 0%. As of March 31, 2020, the Company was in compliance with its debt covenants.
18
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
11. LONG-TERM DEBT
Long-term debt consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
(In thousands) |
| 2019 |
|
| 2018 |
| ||
2023 Term Loans, due March 26, 2023 |
| $ | 278,766 |
|
| $ | 279,308 |
|
Less: current portion |
|
| (2,843 | ) |
|
| (2,843 | ) |
Long-term debt |
| $ | 275,923 |
|
| $ | 276,465 |
|
In March 2018, the Company amended and refinanced its existing term loan, referred to as Term Loan B-1 (as so amended and refinanced, the “2023 Term Loans”), in order to, among other things, extend the due date of the loan from September 25, 2021 to March 26, 2023, reduce the interest payable from LIBOR plus 2.75% with a LIBOR floor of 0.75% to LIBOR plus 2.25% with a 0% LIBOR floor and increase covenant flexibility (the “Refinancing”).12. SHARE-BASED COMPENSATION
The Refinancing involved multiple lenders who were considered members of a loan syndicate. In determining whether the Refinancing was to be accounted for as a debt extinguishment or a debt modification, the Company considered whether creditors remained the same or changed and whether the changes in debt terms were substantial. A changefollowing table presents share-based compensation expense included in the debt terms was considered to be substantial if the present value of the remaining cash flows under the new terms of the 2023 Term Loans was at least 10% different from the present value of the remaining cash flows under the former Term Loan B-1 (commonly referred to as the “10% Test”). The Company performed a separate 10% Test for each individual creditor participating in the loan syndication. With the exception of one lender, who owned 1% of the total outstanding principal amount of Term Loan B-1 at the date of the Refinancing and was accounted for as a debt extinguishment, the Refinancing was accounted for as a debt modification.
The Refinancing resulted in a $2.3 million charge in the three months ended March 31, 2018, which was included in “Interest expense” in the accompanyingCompany’s condensed consolidated statementstatements of operations and comprehensive loss.
The estimated fair value of the 2023 Term Loans, which was based on quoted market price indications (Level 2 in the fair value hierarchy, as described in Note 5, Fair Value Measurements, above) and which may not be representative of actual values that could have been, or will be, realized in the future, was $277.5 million and $274.7 million at March 31, 2019 and December 31, 2018, respectively.
12. SHARE-BASED COMPENSATION
Share-based compensation expense consisted of the following:loss:
|
| Three Months Ended |
| |||||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
(In thousands) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Cost of goods manufactured and sold |
| $ | 1,978 |
|
| $ | 1,418 |
|
| $ | 1,965 |
|
| $ | 1,978 |
|
Research and development |
|
| 7,746 |
|
|
| 6,714 |
|
|
| 6,160 |
|
|
| 7,746 |
|
Selling, general and administrative |
|
| 14,892 |
|
|
| 11,910 |
|
|
| 11,688 |
|
|
| 14,892 |
|
Total share-based compensation expense |
| $ | 24,616 |
|
| $ | 20,042 |
|
| $ | 19,813 |
|
| $ | 24,616 |
|
At March 31, 20192020 and December 31, 2018, $2.92019, $1.8 million and $2.7$1.5 million, respectively, of share-based compensation costexpense was capitalized and recorded as “Inventory” in the accompanying condensed consolidated balance sheets.
In February 2017, the compensation committee of the Company’s board of directors approved awards of restricted stock units (“RSUs”) to all employees employed by the Company during 2017, in each case subject to vesting on the achievement of the followingthree specified performance criteria: (i) FDA approval of the NDA for ALKS 5461, (ii) the achievement of the pre-specified primary efficacy endpoints in each of two phase 3 studies of ALKS 3831, and (iii) revenues equal to or greater than a pre-specified amount for the year ending December 31, 2019. These performance criteria are being assessed over a performance period of three years from the date of the grant.
In December 2018, the Company achieved the pre-specified primary efficacy endpoints on its secondone of the two phase 3 studies of ALKS 3831,three performance criteria, resulting in the vesting of a portion of the performance-based RSUs and the recognition
19
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
of $17.1 million in share-based compensation expense related to these awards. TheOf this expense, the Company recognized $2.1 million, $6.7 million and $8.3 million of this expense in cost of goods manufactured and sold;sold, R&D expense;expense and selling, general and administrative (“SG&A&A”) expense, respectively.
AtDuring the three months ended March 31, 2019, there was $33.2 million2020, the compensation committee of unrecognized compensation cost relatedthe Company’s board of directors acknowledged that the two remaining performance criteria had not been achieved prior to the remaining unvested portionexpiration of the performance-based RSUs, which would be recognized in accordance withthree-year performance period and the terms of the award if and when the Company deems it probable that the performance criteria will be met. The unvested portion of the awards will expire if the performance conditions have not been met on or before the three-year anniversary of the grant date.expired.
13. LOSS PER SHARE
Basic loss per ordinary share is calculated based upon net loss available to holders of ordinary shares divided by the weighted average number of shares outstanding. For the three months ended March 31, 20192020 and 2018,2019, as the Company was in a net loss position, the diluted loss per share calculation did not assume conversion or exercise of stock options and awards as they would have had an anti-dilutive effect on loss per share.
The following potential ordinary equivalent shares haveshare equivalents were not been included in the net loss per ordinary share calculation because the effect would have been anti-dilutive:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
(In thousands) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Stock options |
|
| 12,522 |
|
|
| 10,217 |
|
|
| 14,829 |
|
|
| 12,522 |
|
Restricted stock units |
|
| 2,232 |
|
|
| 2,808 |
|
|
| 4,416 |
|
|
| 2,232 |
|
Total |
|
| 14,754 |
|
|
| 13,025 |
|
|
| 19,245 |
|
|
| 14,754 |
|
19
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
14. RESTRUCTURING
In October 2019, the Company approved a restructuring plan following a review of its operations, cost structure and growth opportunities (the “Restructuring”). The Restructuring included a reduction in headcount of approximately 160 employees across the Company. The Company recorded a charge of $13.4 million in the fourth quarter of 2019 as a result of the Restructuring, which consisted of one-time termination benefits for employee severance, benefits and related costs, all of which are expected to result in cash expenditures and substantially all of which will be paid out over the next 12 months. Restructuring activity during the three months ended March 31, 2020 was as follows:
(In thousands) |
|
|
|
|
Balance, December 31, 2019 |
| $ | 9,201 |
|
Amounts paid during the period: |
|
|
|
|
Severance |
|
| (3,759 | ) |
Outplacement services |
|
| (62 | ) |
Benefits |
|
| (767 | ) |
Balance, March 31, 2020 |
| $ | 4,613 |
|
At March 31, 2020 and December 31, 2019, $4.6 million and $9.0 million of the restructuring accrual was included within “Accounts payable and accrued expenses”, respectively, and NaN and $0.2 million of the restructuring accrual was included within “Other long-term liabilities”, respectively, in the accompanying condensed consolidated balance sheets.
15. COMMITMENTS AND CONTINGENT LIABILITIES
Litigation
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. On a quarterly basis, the Company reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated, the Company would accrue a liability for the estimated loss. Because of uncertainties related to claims and litigation, accruals are based on the Company’s best estimates, utilizing all available information. On a periodic basis, as additional information becomes available, or based on specific events such as the outcome of litigation or settlement of claims, the Company may reassess the potential liability related to these matters and may revise these estimates, which could result in material adverse adjustments to the Company’s operating results. At March 31, 2019,2020, there were no0 potential material losses from claims, asserted or unasserted, or legal proceedings that the Company determined were probable of occurring.
INVEGA SUSTENNA ANDA Litigation
In January 2018 and in August 2019, Janssen Pharmaceuticals NV and Janssen Pharmaceuticals, Inc. initiated a patent infringement lawsuitlawsuits in the United StatesU.S. District Court for the District of New Jersey against Teva entities (Teva Pharmaceuticals USA, Inc. (“Teva”) and Teva Pharmaceuticals Industries, Ltd. (“Teva PI”)) and Mylan entities (Mylan Laboratories Limited (“Mylan Labs”), who filedMylan Pharmaceuticals Inc. (“Mylan”), and Mylan Institutional LLC), respectively, following filings by each of Teva and Mylan Labs of an abbreviated new drug application (“ANDA”) seeking approval to market a generic version of INVEGA SUSTENNA before the expiration of U.S. Patent No. 9,439,906. Requested judicial remedies in each of the lawsuits included recovery of litigation costs and injunctive relief. The Company is not a party to either of these proceedings.
For information about risks relating to the INVEGA SUSTENNA Paragraph IV litigation, see “Part I, Item 1A—Risk Factors” ofin the Company’s Annual Report, including the section entitled “—We or our licensees may face claims against intellectual propertyIP rights covering our products and competition from generic drug manufacturers.”
AMPYRA ANDA Litigation
Eleven separate Paragraph IV Certification Notices have been received by the Company and/or its partner Acorda from: Accord Healthcare, Inc. (“Accord”); Actavis Laboratories FL, Inc. (“Actavis”); Alkem Laboratories Ltd.
20
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
(“Alkem”); Apotex Corporation and Apotex, Inc. (collectively, “Apotex”); Aurobindo Pharma Ltd. (“Aurobindo”); MicroLabs Limited (“MicroLabs”); Mylan Pharmaceuticals, Inc. (“Mylan”); Par Pharmaceutical, Inc. (“Par”); Roxane Laboratories, Inc. (“Roxane”); Sun Pharmaceutical Industries Limited and Sun Pharmaceuticals Industries Inc. (collectively, “Sun”); and Teva (collectively with Accord, Actavis, Alkem, Apotex, Aurobindo, MicroLabs, Mylan, Par, Roxane and Sun, the “ANDA Filers”) advising that each of the ANDA Filers had submitted an ANDA to the FDA seeking marketing approval for generic versions of AMPYRA (dalfampridine) Extended-Release Tablets, 10 mg. The ANDA Filers challenged the validity of one or more of the Orange Book-listed patents for AMPYRA, and they also asserted that their generic versions do not infringe certain claims of these patents. In response, the Company and/or Acorda filed lawsuits against the ANDA Filers asserting infringement of one or more of the Orange Book-listed patents for AMPYRA. Requested judicial remedies included recovery of litigation costs and injunctive relief.
All lawsuits were filed within 45 days from the date of receipt of each of the Paragraph IV Certification Notices from the ANDA Filers. As a result, a 30-month statutory stay of approval period applied to each of the ANDA Filers’ ANDAs under the U.S. Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”). The first 30-month stay restricted the FDA from approving the ANDA Filers’ ANDAs until July 2017 at the earliest, unless a Federal district court issued a decision adverse to all of the asserted Orange Book-listed patents prior to that date. Lawsuits with eight of the ANDA Filers were consolidated into a single case.
The Company and/or Acorda entered into a settlement agreement with each of Accord, Actavis, Alkem, Apotex, Aurobindo, MicroLabs, Par and Sun to resolve the patent litigation that the Company and/or Acorda brought against these settling ANDA Filers. The settlements with these settling ANDA Filers did not impact the patent litigation that the Company and Acorda brought against the remaining ANDA Filers, including as described below.
In March 2017, after a bench trial, the U.S. District Court for the District of Delaware (the “Delaware Court”) issued an opinion (the “Delaware Court Decision”), which, among other things, invalidated U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685. The Delaware Court also upheld the validity of the U.S. Patent No. 5,540,938 which pertained to the formulation of AMPYRA, but that patent expired on July 30, 2018. In May 2017, Acorda filed an appeal with the Federal Circuit of the Delaware Court Decision with respect to the findings on U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685. On July 27, 2018, Acorda and the Company entered into a settlement agreement with Mylan, pursuant to which, among other things, Mylan was permitted to market an authorized generic version of AMPYRA in the U.S. in the event of an affirmance by the Federal Circuit of the Delaware Court Decision. On September 10, 2018, the Federal Circuit affirmed the Delaware Court Decision, which invalidated U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685. On October 24, 2018, Acorda filed a petition for rehearing and rehearing en banc of the Federal Circuit’s decision. On January 4, 2019, the Federal Circuit denied Acorda’s petition. On April 4, 2019, Acorda filed a petition for writ of certiorari to the Supreme Court of the United States.
For information about risks relating to the AMPYRA Paragraph IV litigations and other proceedings see “Part I, Item 1A—Risk Factors” of the Company’s Annual Report, including the section entitled “—We or our licensees may face claims against intellectual property rights covering our products and competition from generic drug manufacturers.”
VIVITROL IPR Proceeding
On April 20, 2018, Amneal Pharmaceuticals LLC filed a petition with the Patent Trial and Appeal Board (the “PTAB”) of the U.S. Patent and Trademark Office seeking an inter partes review (“IPR”) of U.S. Patent Number 7,919,499 (the “ ‘499 Patent”), which is an Orange Book-listed patent for VIVITROL, seeking cancellation of claims 1-13 of the ’499 Patent. On November 7, 2018, the PTAB issued an order instituting an IPR of all challenged claims. On February 7, 2019, the Company filed its patent owner’s response. Amneal’s reply is due on May 7, 2019. A decision on the matter is expected by November 7, 2019. The Company will vigorously defend the ’499 Patent in the IPR proceedings. For information about risks relating to the ’499 Patent IPR proceedings see “Part I, Item 1A—Risk Factors” in the Company’s Annual Report, including the sections entitled “— Patent protection for our products is important and uncertain” and “— Uncertainty over intellectual property in the biopharmaceutical industry has been the source of litigation, which is inherently costly and unpredictable, could significantly delay or prevent approval or commercialization of our products, and could adversely affect our business.”
RISPERDAL CONSTA European Opposition Proceedings
21
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
In December 2016, Nanjing Luye Pharmaceutical Co Ltd,Co., Ltd., Pharmathen SA, Teva Pharmaceutical Industries LtdPI and Dehns Ltd (a law firm representing an unidentified opponent) filed notices of opposition with the European Patent Office (the “EPO”) in
20
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
respect of EP 2 269 577 B (the “EP ’577” Patent), which is a patent directed to certain risperidone microsphere compositions, including RISPERDAL CONSTA. Following a hearing on the matter onin January 23, 2019, on April 8, 2019, the EPO issued a written decision revoking the EP’577 Patent.Patent in April 2019. The Company has approximately two months from the datefiled a notice of the decision to appeal of the decision to the EPO’s Technical Boards of Appeal.Appeal in June 2019. Pharmathen SA submitted a reply on November 5, 2019 and Nanjing Luye Pharmaceutical Co Ltd. and Teva Pharmaceutical Industries Ltd. submitted replies on December 20, 2019. The Company will continue to vigorously defend the EP ’577 Patent. For information about risks relating to the EP ’577 Patent opposition proceedings see “Part I, Item 1A—Risk Factors” ofin the Company’s Annual Report, including the sections entitled “—Patent protection for our products is important and uncertain” and “—Uncertainty over intellectual propertyIP in the biopharmaceutical industry has been the source of litigation, which is inherently costly and unpredictable, could significantly delay or prevent approval or commercialization of our products, and could adversely affect our business.”
Government Matters
On June 22, 2017 and January 17, 2019, theThe Company has received a subpoena and a civil investigative demand, respectively, eachdemands from an Office of thestate and U.S. Attorneygovernmental authorities for documents related to VIVITROL. The Company is cooperating with the government.investigations.
Securities Litigation
On November 22, 2017, aIn December 2018 and January 2019, purported stockholderstockholders of the Company filed a putative class actionactions against the Company and certain of its officers (collectively, “Defendants”) in the United StatesU.S. District Court for the SouthernEastern District of New York (the “EDNY District Court”) captioned GagnonKarimian v. Alkermes plc, et al., No. 1:17-cv-09178. This18-cv-07410 and McDermott v. Alkermes plc, et al., No. 1:19-cv-00624, respectively. In March 2019, the EDNY District Court consolidated the two cases and appointed a lead plaintiff. The plaintiff filed an amended complaint was amended twice since its initial filing.on July 9, 2019 naming one additional officer of the Company and one former officer of the Company as defendants. The second amended complaint was filed on behalf of a putative class of purchasers of Alkermes securities during the period of February 24, 2015July 31, 2014 through November 14, 20171, 2018 and allegedalleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements and omissions regarding the Company’s marketing practices related to VIVITROL.clinical methodologies and regulatory submission for ALKS 5461 and the FDA’s review and consideration of that submission. The lawsuit sought,seeks, among other things, unspecified money damages, for alleged inflation inprejudgment and postjudgment interest, reasonable attorneys’ fees, expert fees and other costs. In August 2019, the pricedefendants filed a pre-motion letter (in respect of securities,a requested motion to dismiss filing) with the EDNY District Court and reasonable costs and expenses, including attorneys’ fees.plaintiff filed a response. On June 29, 2018, Defendants filedNovember 27, 2019, the defendants served the plaintiff with a motion to dismiss, the second amended complaint. On March 28,and on December 27, 2019, the United Statesplaintiff served the defendants with its opposition to such motion. On January 17, 2020, the defendants filed the fully-briefed motion, including a reply to the plaintiff’s opposition, with the EDNY District Court for the Southern District of New York issued an order granting Defendants’ motion to dismiss and dismissing the case in its entirety and with prejudice. On April 11, 2019, the lead plaintiff filed a motion for reconsideration. Briefing on the motion for reconsideration will be completed on May 2, 2019.Court. For information about risks relating to this action, see “Part I, Item 1A—Risk Factors” ofin the Company’s Annual Report, including the section entitled “—Litigation, arbitration or arbitrationregulatory action (such as citizens petitions) filed against regulatory agencies related to our product or Alkermes, including securities litigation, or citizen petitions filed with the FDA, may result in financial losses, harm our reputation, divert management resources, negatively impact the approval of our products, or otherwise negatively impact our business.”
On December 27, 2018, a purported stockholderProduct Liability Litigation
The Company has recently been named in 2 product liability lawsuits incidental to its normal business activities involving allegations that the FDA-approved VIVITROL labelling was inadequate and caused the users of the product to suffer from an opioid overdose and death. The Company filed a putative class action againstbelieves the Companyapproved labelling was appropriate and certain of its officers inintends to vigorously defend the United States District Court for the Eastern District of New York captioned Karimian v. Alkermes plc, et al., No. 1:18-cv-07410. On January 31, 2019, a purported stockholder of the Company filed a similar putative class action against the Company and the same officers in the United States District Court for the Eastern District of New York captioned McDermott v. Alkermes plc, et al., No. 1:19-cv-00624. These complaints were filed on behalf of putative classes of purchasers of Alkermes securities during the period of February 17, 2017 through November 1, 2018 and allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements and omissions regarding the Company’s regulatory submission for ALKS 5461 and the FDA’s review and consideration of that submission. The lawsuits seek, among other things, unspecified money damages, prejudgment and postjudgment interest, reasonable attorneys’ fees, expert fees and other costs. On March 12, 2019, the United States District Court for the Eastern District of New York consolidated the two cases and appointed a lead plaintiff. For information about risks relating to these actions, see “Part I, Item 1A—Risk Factors” of the Company’s Annual Report, including the section entitled “—Litigation or arbitration against Alkermes, including securities litigation, or citizen petitions filed with the FDA, may result in financial losses, harm our reputation, divert management resources, negatively impact the approval of our products, or otherwise negatively impact our business.”cases.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes beginning on page 5 ofin this Form 10-Q, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited financial statements and notes thereto included in our Annual Report, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 15, 2019.13, 2020.
Executive Summary
Net loss for the three months ended March 31, 20192020 was $96.4$38.7 million, or $0.62$0.24 per ordinary share—basic and diluted, as compared to a net loss of $62.5$96.4 million, or $0.40$0.62 per ordinary share—basic and diluted, for the three months ended March 31, 2018.2019.
The increasedecrease in the net loss in the three months ended March 31, 2019,2020, as compared to the three months ended March 31, 2018,2019, was primarily due to a $22.6$23.1 million reductionincrease in our revenue, primarily in product sales, net, partially offset by a decrease in R&D revenues, and a decrease in our operating expenses of $15.5 million, primarily in R&D expense and SG&A expense. In addition, we recorded an increase of $6.8 million in the fair value of our contingent consideration related to the CRL that Recro received regarding its NDA for IV Meloxicam in March 2019 and an increase in selling, general and administrative (“SG&A”) expenses of 20% in the three months ended March 31, 2019,2020, as compared to a reduction of $22.6 million in the three months ended March 31, 2018.2019. These items are discussed in greater detail later in the ““Results of Operations” section in this “Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations” in this Form 10-Q.” section
COVID-19 Update
In March 2020, COVID-19 was declared a global pandemic by the World Health Organization. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. We are closely monitoring and rapidly responding to the impact of this Item 2COVID-19 on our employees, our communities and our business operations.
We have adopted a series of precautionary measures in an effort to protect our employees and mitigate the potential spread of COVID-19 in a community setting. At the same time, we have worked to continue our critical business functions and support uninterrupted access to our medicines. For example, we have instituted a global remote work policy for those of our employees who can work remotely, including our field-based employees, and have temporarily replaced all in-person meetings and interactions with virtual interactions. For those of our employees who work in our manufacturing facilities and laboratories, we have instituted additional safety precautions, including increased sanitization of our facilities, use of personal protective equipment and physical distancing practices to help protect their health and safety as they continue to advance important research for the benefit of patients and manufacture and deliver important medicines for patients. We have also taken actions to support people living with schizophrenia, opioid dependence and alcohol dependence to help assure that they have access to the information, resources and medicines that may assist in their treatment.
Despite disruptions to our business operations and the business operations of third parties on which we rely, the COVID-19 pandemic did not significantly impact our operating results and financial condition for the three months ended March 31, 2020. However, the marketed products from which we derive revenue, including manufacturing and royalty revenue, are primarily injectable medications administered by healthcare professionals, and given developments that have transpired to date, and may continue to transpire, in response to the pandemic, including the implementation of “shelter-in-place” policies, social distancing and other measures, we expect commercial sales of these marketed medicines to be adversely impacted.
As it relates to our proprietary marketed products, VIVITROL and ARISTADA, we have begun to see commercial impacts of the COVID-19 pandemic in the second quarter. As of the date of this Form 10-Q, April VIVITROL shipments are down from our pre-COVID-19 expectations, and we have seen a flattening in prescription data and factory shipments of ARISTADA. We are actively working to respond to these developments, including by working to increase the number of providers able to administer these products and otherwise support uninterrupted access to these products.
We continue to operate our manufacturing facilities and supply our medicines, and we do not currently anticipate any supply interruptions. While we continue to conduct R&D activities, including our ongoing clinical trials, the COVID-19 pandemic has impacted, and may continue to impact, the timelines of certain of our early-stage discovery
efforts and clinical trials. We are working with our internal teams, our clinical investigators, R&D vendors and critical supply chain vendors, to continually assess, and mitigate, the potential impact of COVID-19 on our manufacturing operations and R&D activities.
Due to numerous uncertainties surrounding the COVID-19 pandemic, we are unable to predict the extent of the impact that it may have on our future financial condition and operating results. These uncertainties include, among other things, the ultimate severity and duration of the pandemic; governmental, business or other actions that have been, or will be, taken in response to the pandemic, including restrictions on travel and mobility, business closures and imposition of social distancing measures; impacts of the pandemic on the vendors or distribution channels in our supply chain and on our ability to continue to manufacture our products; impacts of the pandemic on the conduct of our clinical trials, including with respect to enrollment rates, availability of investigators and clinical trial sites or monitoring of data; impacts of the pandemic on healthcare systems that serve people living with opioid dependence, alcohol dependence and schizophrenia; impacts of the pandemic on the regulatory agencies with which we interact in the development, review, approval and commercialization of our medicines; impacts of the pandemic on reimbursement for our products, including our Medicaid rebate liability, and for services related to the use of our products; and impacts of the pandemic on the U.S., Irish and global economies more broadly. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, our financial condition or our results of operations, see “Part II, Item 1A—Risk Factors” below in this Form 10-Q.
Products
Marketed Products
Our portfolio of marketed products is designed to address unmet medical needs of patients in major therapeutic areas. See the descriptiondescriptions of the marketed products below, and refer tosee “Part I, Item 1A—Risk Factors” ofin our Annual Report and “Part II, Item 1A—Risk Factors” in this Form 10-Q for important factors that could adversely affect our marketed products. For information with respect to the IP protection for these marketed products, see the descriptions of the marketed products below and tosee the “Patents and Proprietary Rights” section in “Part I, Item 1—Business” ofin our Annual Report for information with respect to the IP protection for these marketed products.Report.
SummaryThe following provides summary information regarding our proprietary products includes:that we commercialize:
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Alcohol dependence and Opioid dependence |
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The following provides summary information regarding our key licensed products, and third-party products using our proprietary technologies under license, that are commercialized by our licensees:
Third-Party Products Using Our Proprietary Technologies
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Summary information regarding products that use our proprietary technologies includes:
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RISPERDAL CONSTA |
| Schizophrenia and Bipolar I disorder |
| Janssen Pharmaceutica Inc. (“Janssen, Inc.”) and Janssen Pharmaceutica International, a division of Cilag International AG (“Janssen International”)
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INVEGA SUSTENNA / XEPLION | INVEGA SUSTENNA: Schizophrenia and Schizoaffective disorder XEPLION: Schizophrenia |
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INVEGA TRINZA / TREVICTA |
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Our Licensed Products
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VUMERITY | Multiple sclerosis | Biogen | Worldwide |
Proprietary Products
We develop and commercialize products designed to address the unmet needs of patients suffering from addictionopioid dependence, alcohol dependence and schizophrenia. For additional information about the proprietary technologies underlying our proprietary products, see the “Proprietary Product Platforms” section in “Part I, Item 1—Business” in our Annual Report.
ARISTADA
ARISTADA (aripiprazole lauroxil) is an extended-release intramuscular injectable suspension approved in the U.S. for the treatment of schizophrenia. ARISTADA is the first of our products to utilize our proprietary LinkeRx technology. ARISTADA is a prodrug; once in the body, ARISTADA is likely converted by enzyme-mediated hydrolysis to N-hydroxymethylN-
hydroxymethyl aripiprazole, which is then hydrolyzed to aripiprazole. ARISTADA is available in four dose strengths with once-monthly dosing options (441 mg, 662 mg and 882 mg), a six-week dosing option (882 mg) and a two-month dosing option (1064 mg). ARISTADA is packaged in a ready-to-use, pre-filled product format. We developed ARISTADA and exclusively manufacture and commercialize it in the U.S.
In April 2019, we announced positive topline results from ALPINE (“Aripiprazole Lauroxil and Paliperidone palmitate: INitiation Effectiveness”), a six-month study evaluating the efficacy, safety and tolerability of ARISTADA
and INVEGA SUSTENNA when used to initiate patients experiencing an acute exacerbation of schizophrenia in the hospital and maintain treatment in an outpatient setting. Data were presented at the 2019 Congress of the Schizophrenia International Research Society (“SIRS”).
In March 2019, U.S. Patent Nos. 10,226,458 and 10,238,651 relating to ARISTADA were granted. These patents have claims to methods of treating schizophrenia and expire in 2032 and 2035, respectively.
ARISTADA INITIO
ARISTADA INITIO (aripiprazole lauroxil), leverages our proprietary NanoCrystal technology and provides an extended-release formulation of aripiprazole lauroxil in combinationa smaller particle size compared to ARISTADA, thereby enabling faster dissolution and more rapid achievement of relevant levels of aripiprazole in the body. ARISTADA INITIO, combined with a single 30 mg dose of oral aripiprazole, is indicated for the initiation of ARISTADA when used for the treatment of schizophrenia in adults. ARISTADA INITIO leverages our proprietary NanoCrystal technology and provides an extended-release formulation of aripiprazole lauroxil in a smaller particle size compared to ARISTADA. This smaller particle size enables faster dissolution and leads to more rapid achievement of relevant levels of aripiprazole. The ARISTADA INITIO regimen, consisting of a single injection of 675 mg ARISTADA INITIO in combination with a single 30 mg dose of oral aripiprazole, when used to initiate onto any dose of ARISTADA, provides patients with relevant levels of aripiprazole within four days of treatment initiation. The first ARISTADA dose may be administered on the same day as the ARISTADA INITIO regimen or up to 10 days thereafter. We developed ARISTADA INITIO and exclusively manufacture and commercialize it in the U.S.
VIVITROL (U.S.)
VIVITROL (naltrexone for extended-release injectable suspension) is a once-monthly, non-narcotic, injectable medication approved in the U.S., Russia and certain countries of the CIS for the treatment of alcohol dependence and for the prevention of relapse to opioid dependence, following opioid detoxification. VIVITROL uses our polymer-based microsphere injectable extended-release technology to deliver and maintain therapeutic medication levels in the body through one intramuscular injection every four weeks. We developed and exclusively manufacture VIVITROL. WeVIVITROL and we commercialize VIVITROL in the U.S., and Cilag commercializes VIVITROL in Russia and certain countries of the CIS.
For a discussion of legal proceedings related to the patents covering VIVITROL, see Note 14,15, Commitments and Contingent Liabilitiesin the “Notes to Condensed Consolidated Financial Statements” section in this Form 10-Q, and for information about risks relating to such legal proceedings, see “Part I, Item 1A—Risk Factors” in our Annual Report, including the sections entitled “—Patent protection for our products is important and uncertain,” “—Uncertainty over intellectual propertyIP in the biopharmaceutical industry has been the source of litigation, which is inherently costly and unpredictable, could significantly delay or prevent approval or commercialization of our products, and could adversely affect our business” and “—Litigation, arbitration or regulatory action (such as citizens petitions) filed against regulatory agencies related to our product or Alkermes, including securities litigation, may result in financial losses, harm our reputation, divert management resources, negatively impact the approval of our products, or otherwise negatively impact our business.”
Licensed Products and Products Using Our Proprietary Technologies
We have granted licenses underlicensed products to third parties for commercialization and have licensed our proprietary technologies to enable third parties to enable them to develop, commercialize and, in some cases,and/or manufacture products for which weproducts. We receive royalties and/or manufacturing revenues.and other revenues from the commercialization of these products. Such arrangements include the following:
INVEGA SUSTENNA/XEPLION, INVEGA TRINZA/TREVICTA and RISPERDAL CONSTA
INVEGA SUSTENNA/XEPLION (paliperidone palmitate), INVEGA TRINZA/TREVICTA (paliperidone palmitate 3-month injection) and RISPERDAL CONSTA (risperidone long-acting injection) are long-acting atypical antipsychotics owned and commercialized worldwide by Janssen that incorporate our proprietary technologies. For additional information about our proprietary technologies, see the “Proprietary Product Platforms” section in “Part I, Item 1—Business” in our Annual Report.
INVEGA SUSTENNA is approved in the U.S. for the treatment of schizophrenia and for the treatment of schizoaffective disorder as either a monotherapy or adjunctive therapy. Paliperidone palmitate extended-release injectable suspension is approved in the European Union (“EU”) and other countries outside of the U.S. for the treatment of schizophrenia and is marketed and sold under the trade name XEPLION. INVEGA SUSTENNA/XEPLION uses our nanoparticle injectable extended-release technology to increase the rate of dissolution and enable the formulation of an
aqueous suspension for once-monthly intramuscular administration. INVEGA SUSTENNA/XEPLION is manufactured by Janssen. For a discussion of legal proceedings related to the patents covering INVEGA SUSTENNA, see Note 14, 15,
Commitments and Contingent Liabilities in the “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q and for information about risks relating to such legal proceedings, see “Part I, Item 1A—Risk Factors” in our Annual Report, including the section entitled “—We or our licensees may face claims against intellectual propertyIP rights covering our products and competition from generic drug manufacturers.”
INVEGA TRINZA is approved in the U.S. for the treatment of schizophrenia used in peoplepatients who have been adequately treated with INVEGA SUSTENNA for at least four months. TREVICTA is approved in the EU for the maintenance treatment of schizophrenia in adult patients who are clinically stable on XEPLION. INVEGA TRINZA/TREVICTA is the first schizophrenia treatment to be takendosed once every three months. INVEGA TRINZA/TREVICTA uses our proprietary technology and is manufactured by Janssen.
RISPERDAL CONSTA is approved in the U.S. for the treatment of schizophrenia and as both monotherapy and adjunctive therapy to lithium or valproate in the maintenance treatment of bipolar I disorder. RISPERDAL CONSTA is approved in numerous countries outside of the U.S. for the treatment of schizophrenia and the maintenance treatment of bipolar I disorder. RISPERDAL CONSTA uses our polymer-based microsphere injectable extended-release technology to deliver and maintain therapeutic medication levels in the body through just one intramuscular injection every two weeks. RISPERDAL CONSTA microspheres are exclusively manufactured by us. For a discussion of legal proceedings related to onecertain of the patents covering RISPERDAL CONSTA, see Note 14,15, Commitments and Contingent Liabilities in the “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q and for information about risks relating to such legal proceedings, see “Part I, Item 1A—Risk Factors” in our Annual Report, including the section entitled “—We or our licensees may face claims against intellectual propertyIP rights covering our products and competition from generic drug manufacturers.”
VIVITROL (Russia and CIS)
For a description of VIVITROL, including its approved indications and dosing, please refer to the heading “Proprietary Products” above in this Form 10-Q. We developed and exclusively manufacture VIVITROL for Cilag. Cilag exclusively commercializes VIVITROL in Russia and certain countries of the CIS.
VUMERITY (Diroximel Fumarate)
VUMERITY (diroximel fumarate), formerly referred to as BIIB098, is a novel, oral fumarate with a distinct chemical structure that was approved in the U.S. in October 2019 for the treatment of relapsing forms of multiple sclerosis in adults, including clinically isolated syndrome, relapsing-remitting disease and active secondary progressive disease.
Under our license and collaboration agreement with Biogen, Biogen holds the exclusive, worldwide license to develop and commercialize VUMERITY. For more information about the license and collaboration agreement with Biogen, see the “Collaborative Arrangements—Biogen” section in “Part I, Item 1—Business” in our Annual Report.
Key Development Programs
Our R&D is focused on leveraging our formulation expertise and proprietary product platforms to developthe development of novel, competitively advantaged medications designed to enhance patient outcomes in major CNS disorders, such as schizophrenia, addiction, depression and MS, and in oncology.outcomes. As part of our ongoing R&D efforts, we have devoted, and will continue to devote, significant resources to conducting pre-clinical work and clinical studies to advance the development of new pharmaceutical products. The discussion below highlights our current key R&D programs. Drug development involves a high degree of risk and investment, and the status, timing and scope of our development programs are subject to change. Important factors that could adversely affect our drug development efforts are discussed in “Part I, Item 1A—Risk Factors” ofin our Annual Report. Refer toSee the “Patents and Proprietary Rights” section in “Part I, Item 1—Business” ofin our Annual Report for information with respect to the IP protection for our key development candidates.
Diroximel fumarate (BIIB098)
Diroximel fumarate (“BIIB098”), formerly referred to as ALKS 8700, is a novel, oral fumarate in development for the treatment of relapsing forms of MS. Diroximel fumarate is designed to rapidly convert to monomethyl fumarate in the body and may have the potential to offer differentiated gastrointestinal tolerability due to its chemical structure as compared to the currently marketed dimethyl fumarate, TECFIDERA.
The pivotal clinical program for diroximel fumarate consists of pharmacokinetic bridging studies comparing diroximel fumarate and TECFIDERA and a two-year, multicenter, open-label study designed to assess the safety of diroximel fumarate, which we initiated in December 2015. We submitted a 505(b)(2) NDA for diroximel fumarate in December 2018, which was accepted for review by the FDA in February 2019. The NDA was assigned a Prescription Drug User Fee Act (“PDUFA”) target action date in the fourth quarter of 2019. For more information about 505(b)(2) NDAs, see “Part 1, Item 1—Business, Regulatory, Hatch-Waxman Act” of our Annual Report. In addition, EVOLVE-MS-2, an elective, randomized, head-to-head phase 3 study of the gastrointestinal tolerability of diroximel fumarate versus TECFIDERA is ongoing, with topline results expected in mid-2019.
In November 2017, we entered into an exclusive license and collaboration agreement with Biogen relating to diroximel fumarate. For more information about the license and collaboration agreement with Biogen, see “Part 1, Item
1—Business, Collaborative Arrangements” of our Annual Report. If approved, Biogen intends to market diroximel fumarate under the brand name VUMERITY, which has been conditionally accepted by the FDA and will be confirmed upon approval.
ALKS 3831
ALKS 3831 is an investigational, novel, once-daily, oral atypical antipsychotic drug candidate for the treatment of
schizophrenia. adults with schizophrenia and for the treatment of adults with bipolar I disorder. ALKS 3831 is composed of samidorphan, a novel, new molecular entity, co-formulated with the established antipsychotic agent, olanzapine, in a single bilayer tablet.
ALKS 3831 is designed to provide the robust antipsychotic efficacy of olanzapine while mitigating olanzapine-associated weight gain.
The ENLIGHTEN clinical development program for ALKS 3831 includes two key phase 3 studies:studies in patients with schizophrenia: ENLIGHTEN-1, a four-week study evaluatingwhich evaluated the antipsychotic efficacy of ALKS 3831 compared to placebo, and ENLIGHTEN-2, a six-month study assessingwhich assessed weight gain with ALKS 3831 compared to olanzapine in patients with schizophrenia.ZYPREXA (olanzapine). The program also includes supportive studies to evaluate the pharmacokinetic (“PK”) and metabolic profile and long-term safety of ALKS 3831.3831, and PK bridging studies comparing ALKS 3831 and ZYPREXA.
In November 2018, we announced positive topline results from ENLIGHTEN-2. ALKS 3831 met the prespecified co-primary endpoints, demonstrating both a lower mean percent weight gain from baseline at six months compared to the olanzapine group, and a lower proportion of patients who gained 10% or more of their baseline body weight at six months compared to the olanzapine group. The most common adverse events reported in the ALKS 3831 treatment group were weight gain, somnolence and dry mouth. In AprilMay 2019, we presented additional data from the ENLIGHTEN-2 study and interim results from an ongoing ENLIGHTEN-2 52-week open-label, safety extension study at SIRS.
We plan to conductconducted a pre-NDA meeting with the FDA in the second quarter of 2019 to discuss the FDA’s key requirements for the new drug application (“NDA”) for ALKS 3831, including thethose related to efficacy, safety, weight and metabolic profile, and the expansion of ALKS 3831, and plan to submit anthe planned NDA for ALKS 3831 to encompass the treatment of bipolar I disorder in mid-2019.addition to the treatment of schizophrenia. In November 2019, we submitted our NDA to the FDA, seeking approval for ALKS 3831 for the treatment of schizophrenia and for the treatment of manic and mixed episodes associated with bipolar I disorder as a monotherapy or adjunct to lithium or valproate and for maintenance treatment of bipolar I disorder. In January 2020, the FDA accepted the ALKS 3831 NDA and assigned a Prescription Drug User Fee Act (“PDUFA”) target action date of November 15, 2020. The FDA plans to hold an advisory committee meeting for the ALKS 3831 NDA. The ALKS 3831 NDA includes data from the ENLIGHTEN clinical development program in patients with schizophrenia, as well as PK bridging data comparing ALKS 3831 and ZYPREXA. We are seeking approval of fixed dosage strengths of ALKS 3831 composed of 10 mg of samidorphan co-formulated with 5 mg, 10 mg, 15 mg or 20 mg of olanzapine. For more information about 505(b)(2) NDAs, see the “Regulatory, Hatch-Waxman Act” section of “Part I, Item 1—Business” in our Annual Report.
ALKS 4230
ALKS 4230 is aan investigational, novel, engineered fusion protein comprised of modified interleukin-2 (“IL-2”) and the high affinity IL-2 alpha receptor chain, designed to selectively activateexpand tumor-killing immune cells while avoiding the expansionIL-2-induced activation of immunosuppressive cells by preferentially binding to the intermediate affinity interleukin-2 (“IL-2”)intermediate-affinity IL-2 receptor complex. The selectivity of ALKS 4230 is designed to leverage the proven anti-tumor effects of existing IL-2 therapy while mitigating certain limitations. Our phase 1 study for
ARTISTRY is our clinical development program that evaluates ALKS 4230 is designed to evaluatein patients with advanced solid tumors. ARTISTRY-1, an ongoing phase 1/2 study of ALKS 4230 administered via intravenous infusion as a monotherapy agent and in combination with the anti-PD-1 therapy, pembrolizumab.
ARTISTRY-1, a phase 1 study for ALKS 4230 in which ALKS 4230 is administered as an intravenous infusion,pembrolizumab, is designed to evaluate the safety profile and anti-tumor activity of ALKS 4230 as a monotherapy agent and in combination with the anti-PD-1 therapy, pembrolizumab. A dose-escalation stage designed to determine the maximum tolerated dose of ALKS 4230 in a monotherapy setting and to identify the optimal dose range of ALKS 4230 based on measures of immunological-pharmacodynamic effects is ongoing. Upon completion of the dose-escalation stage, we expect to initiate a monotherapy dose-expansion stage of ARTISTRY-1 in patients with renal cell carcinoma or melanoma. Initial data from theselect advanced solid tumors. ARTISTRY-1 has three distinct stages: an ongoing monotherapy dose-escalation stage of ARTISTRY-1, demonstrating dose-dependent pharmacodynamic effects on circulating CD8+ T cellsstage; an ongoing monotherapy expansion stage; and natural killer cells with minimal and non-dose dependent effect on immunosuppressive regulatory T cells, were presented at the 2018 Society for Immunotherapy of Cancer meeting. Thean ongoing combination therapy stage of ARTISTRY-1 is also ongoing, assessing ALKS 4230 in combination with the PD-1 inhibitor pembrolizumab in patients with select advanced solid tumors.
In February 2019, we announced the initiation of ARTISTRY-2, a newan ongoing phase 1/2 study of ALKS 4230 administered subcutaneously as monotherapy and in combination with pembrolizumab in patients with advanced solid tumors.tumors, is designed to explore the safety, tolerability and efficacy of ALKS 4230 and assess once-weekly and once-every-three-week subcutaneous dosing schedules. ARTISTRY-2, will bewhich we initiated in February 2019, is being conducted in two stages: an ongoing dose-escalation stage, to be followed by dose-expansion. The dose-escalation stage is designed to evaluate the safety and tolerability of ascending doses of ALKS 4230 administered subcutaneously once-weekly and once-every-three-weeks as both lead-in monotherapy and in combination with pembrolizumab. Following identification of the optimal dose and recommended dosing schedule, thea dose-expansion stage of the study will evaluate ALKS 4230 administered subcutaneously in combination with pembrolizumab in patients with advanced solid tumors.stage.
The dose-expansion stage will evaluate overall response rate, duration of response, non-progression rate at specific time points and overall survival.
ALKS 5461 Update
ALKS 5461 is a proprietary, once-daily, oral investigational medicine with a novel mechanism of action for the adjunctive treatment of major depressive disorder (“MDD”) in patients with an inadequate response to standard antidepressant therapies. ALKS 5461 is a fixed-dose combination of buprenorphine, a partial mu-opioid receptor agonist and kappa-opioid receptor antagonist, and samidorphan, a mu-opioid receptor antagonist.
The clinical development program for ALKS 5461 included three core phase 3 efficacy studies (FORWARD-3, FORWARD-4 and FORWARD-5), one core phase 2 efficacy study (Study 202), and additional supportive studies to evaluate the long-term safety, dosing, pharmacokinetic profile and human abuse potential of ALKS 5461. Our NDA for ALKS 5461, submitted to the FDA in January 2018, and accepted for review by the FDA in April 2018 after the issuance, and then rescission, of a refusal to file letter, was based on a comprehensive clinical efficacy and safety package with data from more than 30 clinical trials and more than 1,500 patients with MDD.
In February 2019, we announced receipt of a CRL from the FDA for the ALKS 5461 NDA. The CRL states that the FDA is unable to approve the ALKS 5461 NDA in its present form and requests additional clinical data to provide substantial evidence of effectiveness of ALKS 5461 for the adjunctive treatment of MDD. We are evaluating next steps for ALKS 5461.
Results of Operations
Manufacturing and Royalty Revenues
The following table compares manufacturing and royalty revenues earned in the three months ended March 31, 2019 and 2018:
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|
| Change |
| ||||||
| March 31, |
|
| Favorable/ |
| ||||||
(In millions) | 2019 |
|
| 2018 |
|
| (Unfavorable) |
| |||
Manufacturing and royalty revenues: |
|
|
|
|
|
|
|
|
|
|
|
INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA | $ | 53.3 |
|
| $ | 46.1 |
|
|
| 7.2 |
|
RISPERDAL CONSTA |
| 22.3 |
|
|
| 22.7 |
|
| $ | (0.4 | ) |
AMPYRA/FAMPYRA |
| 12.2 |
|
|
| 28.3 |
|
| $ | (16.1 | ) |
Other |
| 21.1 |
|
|
| 17.5 |
|
|
| 3.6 |
|
Manufacturing and royalty revenues | $ | 108.9 |
|
| $ | 114.6 |
|
| $ | (5.7 | ) |
The increase in INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA royalty revenues was due to an increase in Janssen’s end-market sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA. During the three months ended March 31, 2019, Janssen’s end-market sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA were $790.0 million, as compared to $696.0 million during the three months ended March 31, 2018. Under our agreement with Janssen, we earn royalty revenues on end-market net sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA of: 5% on calendar year net sales up to $250 million; 7% on calendar year net sales of between $250 million and $500 million; and 9% on calendar year net sales exceeding $500 million. The royalty rate resets to 5% at the beginning of each calendar year.
The decrease in revenues from RISPERDAL CONSTA was primarily due to an 11% decrease in RISPERDAL CONSTA royalty revenue. End-market sales of RISPERDAL CONSTA were $179.0 million in the three months ended March 31, 2019 as compared to $196.0 million in the three months ended March 31, 2018. We recognize manufacturing revenue, equal to 7.5% of Janssen’s unit net sales price of RISPERDAL CONSTA, at the point in time when RISPERDAL CONSTA has been fully manufactured, which is when the product is approved for shipment. We record royalty revenue, equal to 2.5% of end-market net sales, when the end-market sale of RISPERDAL CONSTA occurs.
The decrease in the amount of manufacturing and royalty revenue recognized for AMPYRA and FAMPYRA was primarily due to the entry of generic forms of AMPYRA to the U.S. market in September 2018. AMPYRA revenues
decreased by 80% in the three months ended March 31, 2019, as compared to the three months ended March 31, 2018. We do not anticipate manufacturing any AMPYRA for Acorda during the remainder of 2019. This decrease related to AMPYRA was partially offset by a 30% increase in FAMPYRA revenues. The increase in FAMPYRA revenues was due to a 43% increase in manufacturing revenue due to an increase in the amount of FAMPYRA we manufactured and a 10% increase in royalty revenue due to higher estimated net sales of FAMPYRA. We recognize manufacturing revenues for AMPYRA and FAMPYRA and royalty revenue from AMPYRA over time as the products move through the manufacturing process, using an input method based on costs as a measure of progress. Royalty revenue from FAMPYRA is recognized in the period FAMPYRA is sold by Biogen.
Product Sales, netNet
Our product sales, net, consist of sales of VIVITROL, ARISTADA and ARISTADA INITIO in the U.S., primarily to wholesalers, specialty distributors and specialty pharmacies. The following table presents the adjustments deducted from product sales, gross to arrive at product sales, net, for the sales of VIVITROL, ARISTADA and ARISTADA INITIO in the U.S. during the three months ended March 31, 20192020 and 2018:2019:
| March 31, |
|
| Three Months Ended |
|
| ||||||||||||||||||||||||||||
(In millions) | 2019 |
|
| % of Sales |
|
|
| 2018 |
|
| % of Sales |
|
| |||||||||||||||||||||
| March 31, |
|
| |||||||||||||||||||||||||||||||
(In millions, except for % of Sales) | 2020 |
|
| % of Sales |
|
|
| 2019 |
|
| % of Sales |
|
| |||||||||||||||||||||
Product sales, gross | $ | 196.1 |
|
|
| 100.0 |
| % |
| $ | 177.6 |
|
|
| 100.0 |
| % | $ | 260.2 |
|
|
| 100.0 |
| % |
| $ | 196.1 |
|
|
| 100.0 |
| % |
Adjustments to product sales, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicaid rebates |
| (47.2 | ) |
|
| (24.1 | ) | % |
|
| (41.6 | ) |
|
| (23.4 | ) | % |
| (61.9 | ) |
|
| (23.8 | ) | % |
|
| (47.2 | ) |
|
| (24.1 | ) | % |
Chargebacks |
| (16.8 | ) |
|
| (8.6 | ) | % |
|
| (14.7 | ) |
|
| (8.3 | ) | % |
| (22.6 | ) |
|
| (8.7 | ) | % |
|
| (16.8 | ) |
|
| (8.6 | ) | % |
Product discounts |
| (15.1 | ) |
|
| (7.7 | ) | % |
|
| (14.1 | ) |
|
| (7.9 | ) | % |
| (20.2 | ) |
|
| (7.8 | ) | % |
|
| (15.1 | ) |
|
| (7.7 | ) | % |
Medicare Part D |
| (7.5 | ) |
|
| (3.8 | ) | % |
|
| (5.4 | ) |
|
| (3.0 | ) | % |
| (12.3 | ) |
|
| (4.7 | ) | % |
|
| (7.5 | ) |
|
| (3.8 | ) | % |
Other |
| (10.0 | ) |
|
| (5.1 | ) | % |
|
| (10.0 | ) |
|
| (5.7 | ) | % |
| (13.5 | ) |
|
| (5.2 | ) | % |
|
| (10.0 | ) |
|
| (5.1 | ) | % |
Total adjustments |
| (96.6 | ) |
|
| (49.3 | ) | % |
|
| (85.8 | ) |
|
| (48.3 | ) | % |
| (130.5 | ) |
|
| (50.2 | ) | % |
|
| (96.6 | ) |
|
| (49.3 | ) | % |
Product sales, net | $ | 99.5 |
|
|
| 50.7 |
| % |
| $ | 91.8 |
|
|
| 51.7 |
| % | $ | 129.7 |
|
|
| 49.8 |
| % |
| $ | 99.5 |
|
|
| 50.7 |
| % |
Our product sales, net, for VIVITROL in the three months ended March 31, 2020 were $78.8 million, as compared to $69.2 million in the three months ended March 31, 2019. Product sales, net for ARISTADA and ARISTADA/ARISTADA INITIO in the three months ended March 31, 20192020 were $69.2$50.9 million, and $30.3 million, respectively, as compared to $62.7 million and $29.1$30.3 million in the three months ended March 31, 2018, respectively.2019.
The increase in product sales, gross was primarily due to increased unit sales of both VIVITROL, ARISTADA and ARISTADA.ARISTADA INITIO. VIVITROL product sales, gross, increased by 8%,13% in the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, which was due to ana 13% increase in the number of VIVITROL units sold. We did not have a price increase for VIVITROL in 2018 orARISTADA and ARISTADA INITIO product sales, gross, increased by 78% in the three months ended March 31, 2019. ARISTADA and ARISTADA INITIO collective product sales, gross, increased by 15%,2020, as compared to the three months ended March 31, 2019, which was primarily due to a 4%70% increase in the number of ARISTADA and ARISTADA INITIO collective units sold and a 4% andsold. In addition, a 6% price increase thatfor ARISTADA and ARISTADA INITIO went into effect in July 2018February 2019.
Manufacturing and FebruaryRoyalty Revenues
The following table compares manufacturing and royalty revenues earned in the three months ended March 31, 2020 and 2019:
| Three Months Ended |
|
|
|
|
| |||||
| March 31, |
|
|
|
|
| |||||
(In millions) | 2020 |
|
| 2019 |
|
| Change |
| |||
Manufacturing and royalty revenues: |
|
|
|
|
|
|
|
|
|
|
|
INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA | $ | 54.9 |
|
| $ | 53.3 |
|
| $ | 1.6 |
|
RISPERDAL CONSTA |
| 27.3 |
|
|
| 22.3 |
|
|
| 5.0 |
|
Other |
| 34.1 |
|
|
| 33.3 |
|
|
| 0.8 |
|
Manufacturing and royalty revenues | $ | 116.3 |
|
| $ | 108.9 |
|
|
| 7.4 |
|
The increase in INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA royalty revenues during the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, respectively. This was primarily due to an increase in Janssen’s end-market sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA. During the three months ended March 31, 2020, Janssen’s end-market sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA were $883.0 million as compared to $790.0 million during the three months ended March 31, 2019. Under our agreements with Janssen related to INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA we earn tiered royalty payments, which consist of a patent royalty and a know-how royalty, both of which are determined on a country-by-country basis. The patent royalty, which equals 1.5% of net sales, is payable in each country until the expiration of the last of the royalty-bearing patents with valid claims applicable to the product in
such country. The know-how royalty is a tiered royalty of 3.5% on calendar year net sales up to $250 million; 5.5% on calendar year net sales of between $250 million and $500 million; and 7.5% on calendar year net sales exceeding $500 million. The know-how royalty rate resets to 3.5% at the beginning of each calendar year and is payable until 15 years from the first commercial sale of a product in each individual country, subject to the expiry of the license agreement.
The increase in revenues from RISPERDAL CONSTA in the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was due to a $5.7 million increase in manufacturing revenue, partially offset by a 41%$0.7 million decrease in royalty revenue. The increase in Medicaid rebates andmanufacturing revenue was primarily due to a 34%57% increase in Medicare Part D claims relatedthe amount of RISPERDAL CONSTA shipped to ARISTADA and ARISTADA INITIO.Janssen, partially offset by a 16% decrease in the average selling price per unit. The decrease in royalty revenue was due to a decrease in end-market sales of RISPERDAL CONSTA, which were $170.0 million in the three months ended March 31, 2020, as compared to $179.0 million in the three months ended March 31, 2019.
Research and Development Revenue
| Three Months Ended |
|
| Change |
| Three Months Ended |
|
|
|
|
| |||||||||||
| March 31, |
|
| Favorable/ |
| March 31, |
|
|
|
|
| |||||||||||
(In millions) | 2019 |
|
| 2018 |
|
| (Unfavorable) |
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Research and development revenue | $ | 14.7 |
|
| $ | 18.7 |
|
| $ | (4.0 | ) | $ | 0.2 |
|
| $ | 14.7 |
|
| $ | (14.5 | ) |
The decrease in R&D revenue was primarily due to the revenue earned under the license and collaboration agreement with Biogen for BIIB098. Our R&D revenues earned under our license and collaboration agreement with Biogen for BIIB098VUMERITY were $0.1 million during the three months ended March 31, 2020 as compared to $13.9 million and $17.5 million induring the three months ended March 31, 2019, and 2018, respectively, and the decrease isin revenue was due to a decrease in services performed by us under the timing of activity withinagreement as the program. As previously discussed, we submitted a 505(b)(2) NDA for BIIB098 in December 2018, whichVUMERITY was acceptedapproved by the FDA for review in FebruaryOctober 2019.
Costs and Expenses
Cost of Goods Manufactured and Sold
| Three Months Ended |
|
| Change |
| Three Months Ended |
|
|
|
|
| |||||||||||
| March 31, |
|
| Favorable/ |
| March 31, |
|
|
|
|
| |||||||||||
(In millions) | 2019 |
|
| 2018 |
|
| (Unfavorable) |
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Cost of goods manufactured and sold | $ | 45.4 |
|
| $ | 44.5 |
|
| $ | (0.9 | ) | $ | 47.2 |
|
| $ | 45.4 |
|
| $ | (1.8 | ) |
The increase in cost of goods manufactured and sold was primarily due to a 19%$1.1 million increase in cost of goods sold related to VIVITROLmanufactured for RISPERDAL CONSTA, which was primarily due to an increase in salesthe number of VIVITROL. This increase was partially offset by a restructuring charge of $3.2 million within cost of goodsunits manufactured and sold recorded during the three months ended March 31, 2018 due to management’s approval of a restructuring plan at our Athlone, Ireland manufacturing facility designed to streamline future operational performance. The restructuring plan consisted of severance and outplacement services for a reduction in headcount of 24 employees.period as discussed above.
Research and Development Expense
For each of our R&D programs, we incur both external and internal expenses. External R&D expenses include fees for clinical and non‑clinicalnon-clinical activities performed by contract research organizations, consulting fees, and costs related to laboratory services, purchasesthe purchase of drug product materials and third‑partythird-party manufacturing development costs.activities. Internal R&D expenses include employee‑relatedemployee-related expenses, occupancy costs, depreciation and general overhead. We track external R&D expenses for each of our development programs; however, internal R&D expenses are not tracked by individual program as they can benefit multiple programs or our technologies in general.
The following table sets forth our external R&D expenses for the three months ended March 31, 20192020 and 20182019 relating to each of our then current key development programs and all other development programs, and our internal R&D expenses, listed by the nature of such expenses:
|
| Three Months Ended |
|
| Change |
|
| Three Months Ended |
|
|
|
|
| |||||||||||
|
| March 31, |
|
| Favorable/ |
|
| March 31, |
|
|
|
|
| |||||||||||
(In millions) |
| 2019 |
|
| 2018 |
|
| (Unfavorable) |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
External R&D Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development programs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BIIB098 |
| $ | 9.3 |
|
| $ | 11.5 |
|
| $ | 2.2 |
| ||||||||||||
ALKS 4230 |
| $ | 12.3 |
|
| $ | 5.2 |
|
| $ | (7.1 | ) | ||||||||||||
ALKS 3831 |
|
| 7.7 |
|
|
| 15.1 |
|
|
| 7.4 |
|
|
| 8.1 |
|
|
| 7.7 |
|
|
| (0.4 | ) |
ALKS 5461 |
|
| 6.4 |
|
|
| 8.3 |
|
|
| 1.9 |
|
|
| 3.3 |
|
|
| 6.4 |
|
|
| 3.1 |
|
ALKS 4230 |
|
| 5.2 |
|
|
| 7.1 |
|
|
| 1.9 |
| ||||||||||||
ARISTADA and ARISTADA line extensions |
|
| 3.0 |
|
|
| 4.6 |
|
|
| 1.6 |
| ||||||||||||
VUMERITY |
|
| — |
|
|
| 9.3 |
|
|
| 9.3 |
| ||||||||||||
Other external R&D expenses |
|
| 12.5 |
|
|
| 11.2 |
|
|
| (1.3 | ) |
|
| 14.9 |
|
|
| 15.5 |
|
|
| 0.6 |
|
Total external R&D expenses |
|
| 44.1 |
|
|
| 57.8 |
|
|
| 13.7 |
|
|
| 38.6 |
|
|
| 44.1 |
|
|
| 5.5 |
|
Internal R&D expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee-related |
|
| 46.3 |
|
|
| 39.6 |
|
|
| (6.7 | ) |
|
| 40.7 |
|
|
| 46.3 |
|
|
| 5.6 |
|
Occupancy |
|
| 4.8 |
|
|
| 3.0 |
|
|
| (1.8 | ) | ||||||||||||
Depreciation |
|
| 3.3 |
|
|
| 2.7 |
|
|
| (0.6 | ) |
|
| 3.7 |
|
|
| 3.3 |
|
|
| (0.4 | ) |
Occupancy |
|
| 3.0 |
|
|
| 2.9 |
|
|
| (0.1 | ) | ||||||||||||
Other |
|
| 5.9 |
|
|
| 5.3 |
|
|
| (0.6 | ) |
|
| 5.5 |
|
|
| 5.9 |
|
|
| 0.4 |
|
Total internal R&D expenses |
|
| 58.5 |
|
|
| 50.5 |
|
|
| (8.0 | ) |
|
| 54.7 |
|
|
| 58.5 |
|
|
| 3.8 |
|
Research and development expenses |
| $ | 102.6 |
|
| $ | 108.3 |
|
| $ | 5.7 |
|
| $ | 93.3 |
|
| $ | 102.6 |
|
| $ | 9.3 |
|
These amounts are not necessarily predictive of future R&D expenses. In an effort to allocate our spending most effectively, we continually evaluate our products under development, based on the performance of such products in pre‑clinicalpre-clinical and/or clinical trials, our expectations regarding the likelihood of their regulatory approval and our view of their commercial viability, among other factors.
The decreaseincrease in expenses related to BIIB098ALKS 4230 was primarily due to the timingadvancement of activity within the two-year, multicenter, open-label phase 3 study designed to assess the safety of BIIB098, which was initiated in December 2015. We also initiated an elective, randomized, head-to-head phase 3 study designed to compare the gastrointestinal tolerability of BIIB098 and TECFIDERA in patients with relapsing-remitting MS in March 2017.ARTISTRY development program for ALKS 4230. The decrease in expenses related to ALKS 3831VUMERITY was primarily due to the decrease in activity within the ENLIGHTEN-1 and
ENLIGHTEN-2 pivotal trials, which were initiated in December 2015 and February 2016, respectively, partially offset by an increase in activity within acompletion of our elective, randomized, head-to-head phase 3 studystudy. The FDA approved the NDA for VUMERITY in the fourth quarter of ALKS 3831 in young adults, which was initiated in June 2017.2019. The decrease in expenses related to ALKS 5461 was primarily due to a decrease in activity within the program as we completed submissionprogram. For additional details on the status of our NDA tokey development programs, see the FDA seeking marketing approval“Key Development Programs” section of ALKS 5461 for the adjunctive treatmentthis “Part I, Item 2— Management’s Discussion and Analysis of MDDFinancial Condition and Results of Operations” in January 2018. this Form 10-Q.
The decrease in employee-related expenses related to ARISTADA and ARISTADA line extensions was primarily due to a decrease in R&D headcount of 14% from March 31, 2019 to March 31, 2020, due primarily to the timing of the ALPINE study, as described under the heading “Key Development Programs” above. Restructuring.
Selling, General and Administrative Expense
|
| Three Months Ended |
|
|
|
|
| |||||
|
| March 31, |
|
|
|
|
| |||||
(In millions) |
| 2020 |
|
| 2019 |
|
| Change |
| |||
Sales and marketing expense |
| $ | 87.8 |
|
| $ | 90.7 |
|
| $ | 2.9 |
|
General and administrative expense |
|
| 45.6 |
|
|
| 50.5 |
|
|
| 4.9 |
|
Selling, general and administrative expense |
| $ | 133.4 |
|
| $ | 141.2 |
|
| $ | 7.8 |
|
The decrease in expenses related to ALKS 4230sales and marketing expense was primarily relateddue to a decrease in marketing expense of $4.6 million, partially offset by an increase in employee-related expenses of $2.6 million. The decrease in marketing expense was primarily due to a reduction in the timingnumber of the ARTISTRY development program for ALKS 4230, as described under the heading “Key Development Programs” above.
speaker programs and speaker trainings. The increase in employee-related expenses was primarily due to an increase in R&Dwages as our marketing-related headcount of 14%was unchanged from March 31, 20182019 to March 31, 2019.
Selling, General and Administrative Expense2020.
|
| Three Months Ended |
|
| Change |
| ||||||
|
| March 31, |
|
| Favorable/ |
| ||||||
(In millions) |
| 2019 |
|
| 2018 |
|
| (Unfavorable) |
| |||
Selling, general and administrative expense |
| $ | 141.2 |
|
| $ | 118.1 |
|
| $ | (23.1 | ) |
The increasedecrease in SG&Ageneral and administrative expense was primarily due to an increasea decrease in employee-related expenses of $17.0$3.7 million, and marketing and professional services fees of $5.5 million. The increase in employee-related expenseswhich was primarily due to an increasea decrease in our SG&A-related headcount of 22% from March 31, 2018 to March 31, 2019. The increase in marketing and professional services fees was primarily due to additional brand investments in VIVITROL, ARISTADA and ARISTADA INITIO, as well as an increase in patient access support services, such as reimbursement and transition assistance, for all of these products.share-based compensation expense.
Amortization of Acquired Intangible Assets
|
| Three Months Ended |
|
| Change |
|
| Three Months Ended |
|
|
|
|
| |||||||||||
|
| March 31, |
|
| Favorable/ |
|
| March 31, |
|
|
|
|
| |||||||||||
(In millions) |
| 2019 |
|
| 2018 |
|
| (Unfavorable) |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Amortization of acquired intangible assets |
| $ | 10.0 |
|
| $ | 16.1 |
|
| $ | 6.1 |
|
| $ | 9.7 |
|
| $ | 10.0 |
|
| $ | 0.3 |
|
We amortize our amortizable intangible assets using the economic-use method, which reflects the pattern that the economic benefits of the intangible assets are consumed as revenue is generated from the underlying patent or contract. Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at March 31, 20192020 is expected to be approximately $40.0 million, $40.0 million, $40.0$35.0 million, $35.0 million and $35.0$1.0 million in the years ending December 31, 20192020 through 2023,2024, respectively.
Other Expense, netIncome (Expense), Net
|
| Three Months Ended |
|
| Change |
|
| Three Months Ended |
|
|
|
|
| |||||||||||
|
| March 31, |
|
| Favorable/ |
|
| March 31, |
|
|
|
|
| |||||||||||
(In millions) |
| 2019 |
|
| 2018 |
|
| (Unfavorable) |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Interest income |
| $ | 3.6 |
|
| $ | 1.5 |
|
| $ | 2.1 |
|
| $ | 2.8 |
|
| $ | 3.6 |
|
| $ | (0.8 | ) |
Interest expense |
|
| (3.5 | ) |
|
| (5.5 | ) |
|
| 2.0 |
|
|
| (2.9 | ) |
|
| (3.5 | ) |
|
| 0.6 |
|
Change in the fair value of contingent consideration |
|
| (22.6 | ) |
|
| (1.9 | ) |
|
| (20.7 | ) |
|
| 6.8 |
|
|
| (22.6 | ) |
|
| 29.4 |
|
Other (expense) income, net |
|
| (1.7 | ) |
|
| 0.8 |
|
|
| (2.5 | ) | ||||||||||||
Total other expense, net |
| $ | (24.2 | ) |
| $ | (5.1 | ) |
| $ | (19.1 | ) | ||||||||||||
Other expense, net |
|
| (0.7 | ) |
|
| (1.7 | ) |
|
| 1.0 |
| ||||||||||||
Total other income (expense), net |
| $ | 6.0 |
|
| $ | (24.2 | ) |
| $ | 30.2 |
|
The increase in the fair value of contingent consideration in the three months ended March 31, 2020 was primarily due to the approval of the NDA for ANJESO by the FDA in February 2020. As a result of the product’s approval, we increased the probability of success in our fair value analysis to 100%. The $22.6 million decrease in the fair value of contingent consideration recorded in the three months ended March 31, 2019 was primarily due to Recro’s receipt of a second CRLcomplete response letter in March 2018 from the FDA in March 2019 regarding its NDA for IV Meloxicam.ANJESO. As a result of this second CRL,the receipt of that complete response letter, we delayed ourthe expectation of the anticipated date forof the FDA’s approval of the IV Meloxicam NDA and reducedproduct, resulting in a corresponding reduction in the probability of success and amount of forecasted sales due to this delayused in ourthe valuation model. The valuation approach used to determine the fair value of the contingent consideration is discussed in greater detail in Note 5, Fair Value Measurements, in the “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q.our Annual Report.
Income Tax BenefitProvision (Benefit)
|
| Three Months Ended |
|
| Change |
|
| Three Months Ended |
|
|
|
|
| |||||||||||
|
| March 31, |
|
| Favorable/ |
|
| March 31, |
|
|
|
|
| |||||||||||
(In millions) |
| 2019 |
|
| 2018 |
|
| (Unfavorable) |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Income tax benefit |
| $ | (3.9 | ) |
| $ | (4.5 | ) |
| $ | (0.6 | ) | ||||||||||||
Income tax provision (benefit) |
| $ | 7.3 |
|
| $ | (3.9 | ) |
| $ | (11.2 | ) |
The income tax provision in the three months ended March 31, 2020 primarily related to a $2.6 million tax expense on income earned in the U.S. and a $4.7 million discrete tax expense related to employee equity activity during the period. The income tax benefit in the three months ended March 31, 2019 was primarily relatesrelated to a $7.9 million discrete tax benefit to take account of proposed foreign derived intangible income regulations issued by the Department of the Treasury and the U.S. Internal Revenue Service in March 2019. The benefit is2019, partially offset by a $4.9 million discrete tax expense for employee equity activity during the quarter. The income tax benefit in the three months ended March 31, 2018 primarily relates to U.S. federal and state taxes on employee equity activity during the period.
On March 27, 2020 the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed by Congress and signed into law by the President of the U.S. The CARES Act, among other things, includes certain income tax provisions for individuals and corporations; however, these benefits do not impact our income tax provision. We will continue to evaluate the impact of tax legislation and will update our disclosures as additional information and interpretive guidance becomes available.
Liquidity and Financial Condition
Our financial condition is summarized as follows:
|
| March 31, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||||||||||||
(In millions) |
| U.S. |
|
| Ireland |
|
| Total |
|
| U.S. |
|
| Ireland |
|
| Total |
|
| U.S. |
|
| Ireland |
|
| Total |
|
| U.S. |
|
| Ireland |
|
| Total |
| ||||||||||||
Cash and cash equivalents |
| $ | 140.4 |
|
| $ | 84.8 |
|
| $ | 225.2 |
|
| $ | 139.3 |
|
| $ | 127.5 |
|
| $ | 266.8 |
|
| $ | 109.5 |
|
| $ | 66.6 |
|
| $ | 176.1 |
|
| $ | 63.3 |
|
| $ | 140.5 |
|
| $ | 203.8 |
|
Investments—short-term |
|
| 285.3 |
|
|
| 71.6 |
|
|
| 356.9 |
|
|
| 203.3 |
|
|
| 69.2 |
|
|
| 272.5 |
|
|
| 252.8 |
|
|
| 67.1 |
|
|
| 319.9 |
|
|
| 285.3 |
|
|
| 45.9 |
|
|
| 331.2 |
|
Investments—long-term |
|
| 17.8 |
|
|
| 25.2 |
|
|
| 43.0 |
|
|
| 51.5 |
|
|
| 29.2 |
|
|
| 80.7 |
|
|
| 36.6 |
|
|
| 17.1 |
|
|
| 53.7 |
|
|
| 40.3 |
|
|
| 39.1 |
|
|
| 79.4 |
|
Total cash and investments |
| $ | 443.5 |
|
| $ | 181.6 |
|
| $ | 625.1 |
|
| $ | 394.1 |
|
| $ | 225.9 |
|
| $ | 620.0 |
|
| $ | 398.9 |
|
| $ | 150.8 |
|
| $ | 549.7 |
|
| $ | 388.9 |
|
| $ | 225.5 |
|
| $ | 614.4 |
|
Outstanding borrowings—short and long-term |
| $ | 278.8 |
|
| $ | — |
|
| $ | 278.8 |
|
| $ | 279.3 |
|
| $ | — |
|
| $ | 279.3 |
|
| $ | 276.6 |
|
| $ | — |
|
| $ | 276.6 |
|
| $ | 277.1 |
|
| $ | — |
|
| $ | 277.1 |
|
At March 31, 2019,2020 our investments consisted of the following:
|
|
|
|
|
| Gross |
|
|
|
|
|
|
|
|
|
| Gross |
|
|
|
|
| ||||||||||
|
| Amortized |
|
| Unrealized |
|
| Estimated |
|
| Amortized |
|
| Unrealized |
|
| Estimated |
| ||||||||||||||
(In millions) |
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
|
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
| ||||||||
Investments—short-term available-for-sale |
| $ | 356.4 |
|
| $ | 0.8 |
|
| $ | (0.3 | ) |
| $ | 356.9 |
|
| $ | 317.5 |
|
| $ | 2.7 |
|
| $ | (0.3 | ) |
| $ | 319.9 |
|
Investments—long-term available-for-sale |
|
| 39.5 |
|
|
| — |
|
|
| (0.1 | ) |
|
| 39.4 |
|
|
| 50.9 |
|
|
| — |
|
|
| (0.7 | ) |
|
| 50.2 |
|
Investments—long-term held-to-maturity |
|
| 3.5 |
|
|
| 0.1 |
|
|
| — |
|
|
| 3.6 |
|
|
| 3.5 |
|
|
| 0.1 |
|
|
| — |
|
|
| 3.6 |
|
Total |
| $ | 399.4 |
|
| $ | 0.9 |
|
| $ | (0.4 | ) |
| $ | 399.9 |
|
| $ | 371.9 |
|
| $ | 2.8 |
|
| $ | (1.0 | ) |
| $ | 373.7 |
|
Our investment objectives are to preserve capital, provide sufficient liquidity to satisfy operating requirements and generate investment income. We mitigate credit risk in our cash reserves by maintaining a well-diversified portfolio that limits the amount of investment exposure as to institution, maturity and investment type. However, the value of these securities may be adversely affected by the instability of the global financial markets, which could, in turn, adversely impact our financial position and our overall liquidity. Our available-for-sale investments consist primarily of short- and long-term U.S. government and agency debt securities, corporate debt securities and debt securities issued by foreign agencies and backed by foreign governments. Our held-to-maturity investments consist of investments that are restricted and held as collateral under certain letters of credit related to certain of our lease agreements.
We classify available-for-sale investments in an unrealized loss position whichthat do not mature within 12 months as long-term investments. Available-for-sale investments in an unrealized gain position are classified as short-term investments, regardless of maturity date. We have the intent and ability to hold these investments until recovery, which may be at maturity, and it is more likely than not that we would not be required to sell these securities before recovery of their amortized cost. At March 31, 2019,2020, we performed an analysis of our investments with unrealized losses for impairment and determined that they were temporarily impaired.
Sources and Uses of Cash
We expect that our existing cash and investments balance will be sufficient to finance our anticipated working capital and other cash requirements, such as capital expenditures and principal and interest payments, for at least twelve12 months following the date on which this Form 10-Q is filed. Subject to market conditions, interest rates and other factors, we may pursue opportunities to obtain additional financing in the future, including debt and equity offerings, corporate collaborations, bank borrowings, debt refinancings, arrangements relating to assets or other financing methods or structures. We are closely monitoring ongoing developments in connection with the COVID-19 pandemic, which may have an adverse impact on our commercial prospects and projected cash position.
Information about our cash flows, by category, is presented in “Part I, Item 1–1—Condensed Consolidated Financial Statements of Cash Flows” ofin this Form 10-Q. The following table summarizes our cash flows for the three months ended March 31, 20192020 and 2018:2019:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
(In millions) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Cash and cash equivalents, beginning of period |
| $ | 266.8 |
|
| $ | 191.3 |
|
| $ | 203.8 |
|
| $ | 266.8 |
|
Cash flows provided by (used in) operating activities |
|
| 22.2 |
|
|
| (26.8 | ) | ||||||||
Cash flows (used in) provided by investing activities |
|
| (64.7 | ) |
|
| 25.3 |
| ||||||||
Cash flows provided by (used in) financing activities |
|
| 0.9 |
|
|
| (3.3 | ) | ||||||||
Cash flows (used in) provided by operating activities |
|
| (40.3 | ) |
|
| 22.2 |
| ||||||||
Cash flows provided by (used in) investing activities |
|
| 17.5 |
|
|
| (64.7 | ) | ||||||||
Cash flows (used in) provided by financing activities |
|
| (4.9 | ) |
|
| 0.9 |
| ||||||||
Cash and cash equivalents, end of period |
| $ | 225.2 |
|
| $ | 186.5 |
|
| $ | 176.1 |
|
| $ | 225.2 |
|
The change in cash flows from operating activities in the three months ended March 31, 2019,2020, as compared to the three months ended March 31, 2018,2019, was primarily due to a 33% increase15% decrease in the amount of cash received from our customers which was driven in large part by the license and collaboration agreement with Biogen for BIIB098, as described above. This was partially offset by a 24%13% increase in cash paid to our employees, which was primarily due to a 12% increase in our headcount from March 31, 2018 to March 31, 2019.suppliers.
The increase in cash flows fromprovided by investing activities in the three months ended March 31, 2019,2020, as compared to the three months ended March 31, 2018,2019, was primarily due to an $89.7a $83.4 million increase in the net purchasessales of investments and a $3.8 million decrease in cash paid for property, plant and equipment, partially offset by athe $5.0 million payment that we received from Recro in connection with the contingent consideration from the Gainesville Transaction.Transaction in the three months ended March 31, 2019.
The change in cash flows from financing activities in the three months ended March 31, 2019,2020, as compared to the three months ended March 31, 2018,2019, was primarily due to a $4.2$5.9 million increasedecrease in the amount of cash we received from our employees upon the exercise of stock options, net of employee taxes.
Borrowings
At March 31, 2019,2020, the principal balance of our borrowings consisted of $281.4$278.6 million outstanding under our 2023 Term Loans. See Note 11, Long-Term Debt, in the “Notes to condensedCondensed Consolidated Financial Statements” in this Form 10-Q for a further discussion of our 2023 Term Loans.
Contractual Obligations
Refer toSee the “Contractual Obligations” section withinin “Part II, Item 7 – 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” ofin our Annual Report for a discussion of our contractual obligations. In addition, in January 2020, our lease at 900 Winter Street commenced and our operating lease liabilities increased as a result. Our contractual obligations have not materially changed fromfuture operating lease liabilities are disclosed in Note 9, Leases, in the date of our Annual Report.“Notes to Condensed Consolidated Financial Statements” in this Form 10-Q.
Off-Balance Sheet Arrangements
At March 31, 2019,2020, we were not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources material to investors.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. Refer toSee the “Critical Accounting Estimates” withinsection in “Part II, Item 7 – 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” ofin our Annual Report for a discussion of our critical accounting estimates.
New Accounting Standards
Refer toSee the “New Accounting Pronouncements” includedsection in Note 2, Summary of Significant Accounting Policies in the “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q for a discussion of certain new accounting standards applicable to us. In addition, refer to Note 9, Leases, in this Form 10-Q for a discussion of how we changed the way we account for leases under Topic 842.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risks related to our investment portfolio, and the ways we manage such risks, are summarized in “Part II, Item 7A – 7A—Quantitative and Qualitative Disclosures About Market Risk” ofin our Annual Report. We regularly review our marketable securities holdings and shift our investment holdings to those that best meet our investment objectives, which are to preserve capital, provide sufficient liquidity to satisfy operating requirements and generate investment income. Apart from such adjustments to our investment portfolio, there have been no material changes to our market risks since December 31, 2018,2019, and we do not anticipate any near-term changes in the nature of our market risk exposures or in our management's objectives and strategies with respect to managing such exposures.
We are exposed to foreign currency exchange risk related to manufacturing and royalty revenues we receive on certain of our products, partially offset by certain operating costs arising from expenses and payables in connection with our Irish operations that are settled predominantly in Euro. These foreign currency exchange rate risks are summarized in “Part II, Item 7A – 7A–Quantitative and Qualitative Disclosures About Market Risk” ofin our Annual Report. There has been no material change in our assessment of our sensitivity to foreign currency exchange rate risk since December 31, 2018.2019.
Item 4. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))Act), as of March 31, 2019.2020. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that our disclosure controls and procedures were effective as of March 31, 20192020 to provide reasonable assurance that the information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
b) Change in Internal Control Over Financial Reporting
During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings, refer tosee the discussion of legal proceedings in Note 14,15, Commitments and Contingent Liabilities in the “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q, which discussion is incorporated into this Part II, Item 1 by reference.
Item 1A. Risk Factors
Our business, financial condition and results of operations may be adversely affected by the COVID-19 global pandemic or other similar outbreaks of contagious diseases.
We rely upon third parties for many aspects of our business, including the provision of goods and services related to the manufacture of our clinical products and our, and our partners’, marketed products, the conduct of our clinical trials, and the sale of marketed products from which we receive manufacturing and royalty revenue.
Outbreaks of contagious diseases and other adverse public health developments, affecting us and/or the third parties on which we rely, could have a material and adverse effect on our business, financial condition and results of operations.
As of the date of this Form 10-Q, COVID-19 has been declared by the World Health Organization to be a global pandemic. It has impacted, and is continuing to impact, all aspects of society, including the operation of the healthcare system and other business and economic activity worldwide. The COVID-19 pandemic has, to varying degrees, disrupted our business operations and the business operations of the third parties on which we rely, including our suppliers, packagers, distributors, contract research organizations, customers, clinical site investigators, community advocacy partners, and others.
This pandemic, and other similar outbreaks of contagious diseases, may adversely impact our business, financial condition and results of operations. For example, commercial sales of the medicines from which we derive revenue–consisting primarily of injectable medications administered by healthcare professionals—have been, and we expect will continue to be, adversely impacted as a result of developments that have transpired, and may continue to transpire, in response to this pandemic, including the implementation of “shelter-in-place” policies, social distancing and other measures. In addition, we, and the third-party clinical trial sites or investigators involved in our clinical trials, may experience significant interruptions or delays as a result of this pandemic, and these could impact the conduct of our clinical trials and our ability to complete them in a timely manner or at all, which in turn could delay and/or negatively impact the regulatory review and approval of our product candidates. The COVID-19 pandemic may also impact the third parties on which we rely for goods and services in the manufacture of our products, which may negatively impact our ability to continue to manufacture and supply our medicines and investigational products, or the ability of third-parties in our distribution channels to deliver our medicines and investigational products in a timely manner or at all. Further, this pandemic and measures to mitigate the spread of COVID-19 have had, and may continue to have, an adverse effect on global economic conditions, which could have an adverse effect on our business and financial condition, including the demand for, and ability of patients to access, our medicines, or our ability to obtain financing if needed on favorable terms or at all.
The extent to which the COVID-19 pandemic may impact our business, financial condition and results of operations will depend on the manner in which this pandemic continues to evolve and future developments in response thereto, which are highly uncertain and cannot be predicted with confidence as of the date of this Form 10-Q and which may include, among other things, the ultimate severity and duration of this pandemic; governmental, business or other actions that have been, or will be, taken in response to this pandemic, including restrictions on travel and mobility, business closures and imposition of social distancing measures; impacts of the pandemic on the vendors or distribution channels in our supply chain and on our ability to continue to manufacture our products; impacts of the pandemic on the conduct of our clinical trials, including with respect to enrollment rates, availability of investigators and clinical trial sites or monitoring of data; impacts of the pandemic on healthcare systems that serve people living with opioid dependence, alcohol dependence and schizophrenia; impacts of the pandemic on the regulatory agencies with which we interact in the development, review, approval and commercialization of our medicines; impacts of the pandemic on reimbursement for our products, including our Medicaid rebate liability, and for services related to the use of our products; and impacts of the pandemic on the U.S., Irish and/or global economies more broadly. For example, if the U.S. Consumer Price
Index—Urban (CPI-U) become negative, this would increase our Medicaid rebate liability. For a discussion of our risk factors, refer tothe Medicaid rebate liability, please see the “Pricing and Reimbursement” section in “Part I, Item 1A—Risk Factors”1—Business” in our Annual Report.
Annual Report. There have been no other material changes from the risk factors disclosed in our Annual Report. Further discussion of our risk factors appears in “Part I, Item 1A—Risk Factors” in our Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On September 16, 2011, our board of directors authorized the continuation of the Alkermes, Inc. program to repurchase up to $215.0 million of our ordinary shares at the discretion of management from time to time in the open market or through privately negotiated transactions. We did not purchase any shares under this program during the three months ended March 31, 2019.2020. As of March 31, 2019,2020, we had purchased a total of 8,866,342 shares under this program at a cost of $114.0 million.
During the three months ended March 31, 20192020, we acquired 266,319372,846 of our ordinary shares, at an average price of $33.35$19.54 per share, related to the vesting of employee equity awards to satisfy withholding tax obligations. During the three months ended March 31, 2019, we acquired 3,038 of our ordinary shares, at an average price of $32.92 per share, tendered by employees as payment of the exercise price of stock options granted under our equity compensation plans.
Item 5. Other Information
The Company'sCompany’s policy governing transactions in its securities by its directors, officers and employees permits its officers, directors and employees to enter into trading plans in accordance with Rule 10b5-1 under the Exchange Act. During the quarter ended March 31, 2019, Messrs. James2020, Mr. Iain M. Frates, David J. Gaffin, Craig C. Hopkinson, Michael J. Landine and Richard F. Pops, eachBrown, an executive officer of the Company, entered into a trading plan in accordance with Rule 10b5-1 and the Company’s policy governing transactions in its securities by its directors, officers and employees. The Company undertakes no obligation to update or revise the information provided herein, including for any revision or termination of an established trading plan.
Item 6. Exhibits
The following exhibits are filed or furnished as part of this Form 10-Q:
EXHIBIT INDEX
Exhibit No. |
| Description of Exhibit | |
10.1 |
| ||
10.2 #† | |||
31.1 # |
| ||
31.2 # |
| ||
32.1 ‡ |
| ||
|
| ||
101.SCH # |
| Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL # |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB # | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||
101.PRE # | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||
101.DEF # |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
|
| Cover Page Interactive Data File (formatted as Inline XBRL | |
|
|
# | Filed herewith. |
‡ | Furnished herewith. |
† | Indicates a management contract or any compensatory plan, contract or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
| ALKERMES plc |
| |
|
|
|
|
| (Registrant) |
| |
|
|
|
|
|
|
|
|
| By: | /s/ Richard F. Pops |
|
|
| Chairman and Chief Executive Officer |
|
|
| (Principal Executive Officer) |
|
| |||
|
|
| |
| By: | /s/ James M. Frates |
|
|
| Senior Vice President and Chief Financial Officer |
|
|
| (Principal Financial Officer) |
|
Date: April 25, 201929, 2020
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