ALKERMES PLC The following discussion should be read in conjunction with the accompanying condensed consolidated financial statements and related notes beginning on page 6 in this Form 10-Q, and "Part II, Item 7-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.
Executive Summary
Net loss for the three and nine months endedSeptember 30, 2021 was$29.0 million and$49.0 million , respectively, or$0.18 and$0.31 per ordinary share-basic and diluted, respectively, as compared to a net loss of$0.1 million and$68.2 million , respectively, or$0.00 and$0.43 per ordinary share-basic and diluted, respectively, for the three and nine months endedSeptember 30, 2020 . The increase in net loss in the three months endedSeptember 30, 2021 , as compared to the three months endedSeptember 30, 2020 , was primarily due to a$38.1 million increase in operating expenses, primarily due to the$25.0 million milestone related to ALKS 1140 included within R&D expense, a$9.1 million decrease in the fair value of our contingent consideration related to increased risk of non-payment and a$9.1 million decrease in other income (expense), net, due to the receipt inSeptember 2020 of our proportional share of the proceeds from the sale of two companies within the Fountain portfolio, partially offset by a$29.1 million increase in revenue. The decrease in net loss in the nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 2020 , was primarily due to a$90.5 million increase in revenue, partially offset by a$40.5 million increase in operating expenses, a$17.3 million decrease in the fair value of our contingent consideration, related to increased risk of non-payment and an$11.4 million decrease in other income (expense), net, primarily related to the Fountain proceeds discussed above.
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 Operations" in this Form 10-Q.
COVID-19 Update
InMarch 2020 , COVID-19 was declared a global pandemic by theWorld Health Organization . To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns and/or shutdowns in affected areas.Ireland , allU.S. states, and many local jurisdictions and countries around the world have, at times during the pandemic, issued and implemented quarantines, restrictive executive orders and other similar government orders, restrictions, and recommendations for their residents to help control the spread of COVID-19, and may continue to do so while the pandemic persists. Such orders, restrictions and/or recommendations, and/or the perception that additional orders, restrictions or recommendations could occur, have, at times during the pandemic, resulted in widespread interruptions and closures of businesses, including healthcare systems that serve people living with addiction and serious mental illness, work stoppages, slowdowns and/or delays, work-from-home policies and travel restrictions, among other effects. We continue to closely monitor and respond to the ongoing impact of COVID-19 on our employees, our communities and our business operations, and have adopted, and adapted as needed, a series of precautionary measures in an effort to protect our employees and mitigate the potential spread of COVID-19 in a community setting. For example, at the start of the pandemic, we instituted a global remote work policy for those of our employeeswho were able to work remotely. At the same time, we worked to continue our critical business functions, including operation of our manufacturing facilities and our laboratories, and continued to conduct our discovery efforts and supply our medicines. For those of our employeeswho continued to work on-site in our laboratories and manufacturing facilities, we instituted additional safety precautions, including increased sanitization of our facilities, use of personal protective equipment, implementation of a daily health screening application and physical distancing practices. We provided employees with COVID-19 vaccine information and sponsored vaccine clinics inMassachusetts andOhio for our employees and their families. We also took actions to support people living with opioid dependence, alcohol dependence, schizophrenia and bipolar I disorder to help support their access to information, resources and medicines that may assist in their treatment. 24 -------------------------------------------------------------------------------- In recent months, certain of our field-based employees resumed in-person interactions, and certain of our office-based employees began to return to the office, in each case on a voluntary basis and in accordance with location-specific guidance. We are planning for a larger-scale return to the office and have developed flexible work arrangement guidelines to help balance business needs, employee health, wellbeing and safety and the evolving work environment. We will continue to monitor guidance from local health authorities as we increase in-person interactions. The marketed products from which we derive revenue, including manufacturing and royalty revenue, are primarily injectable medications administered by healthcare professionals. Given developments that have transpired to date, and may continue to transpire, in response to the pandemic, including business closures, social distancing requirements and other restrictive measures, commercial sales of these marketed products have been adversely impacted to varying degrees during the pandemic and may continue to be adversely impacted while the pandemic persists. We have continued to operate our manufacturing facilities and supply our medicines throughout the pandemic. While we have continued to conduct R&D activities, including our ongoing clinical trials, the COVID-19 pandemic has at times impacted the timelines of certain of our early-stage discovery efforts and clinical trials, and may continue to impact such timelines while the pandemic persists. We work 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 ongoing COVID-19 pandemic, the actual impact of the pandemic on our financial condition and operating results may differ from our current projections. These uncertainties include, among other things, the ultimate severity and duration of the pandemic; the emergence and prevalence of COVID-19 variants; governmental, business or other actions that have been, are being, or will be, taken in response to the pandemic, including restrictions on travel and mobility, business closures and operating restrictions and imposition of social distancing measures, vaccine mandates and/or mandatory testing policies; impacts of the pandemic on the labor market and on our employees; 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, and monitoring of data; impacts of the pandemic on healthcare systems that serve people living with addiction and severe mental illness; 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 Irish,U.S. 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 I, Item 1A-Risk Factors" in our Annual Report and specifically the section entitled "-Our business, financial condition and results of operations have been, and may continue to be, adversely affected by the COVID-19 pandemic or other similar outbreaks of contagious diseases." Products Marketed Products Our portfolio of marketed products is designed to help address unmet medical needs of patients in major therapeutic areas. See the descriptions of the marketed products below and "Part I, Item 1A-Risk Factors" in our Annual Report 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 the "Patents and Proprietary Rights" section in "Part I, Item 1-Business" in our Annual Report. 25 --------------------------------------------------------------------------------
The following table provides summary information regarding our FDA-approved proprietary products that we commercialize:
Proprietary Products
Product Indication(s) Territory
[[Image Removed]] Initiation or re-initiation of U.S.
ARISTADA for the treatment of
Schizophrenia
Schizophrenia U.S.
[[Image Removed]] Schizophrenia and U.S.
Bipolar I disorder
[[Image Removed]] Alcohol U.S.
dependence and
Opioid dependence
26
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The following table provides summary information regarding our key licensed products, and key third-party products using our proprietary technologies under license, that are commercialized by our licensees:
Key Third-Party Products Using Our Proprietary Technologies
Product Indication(s) Licensee Licensed Territory
RISPERDAL CONSTA Schizophrenia Janssen Worldwide
and Bipolar I Pharmaceutica Inc.
disorder ("Janssen, Inc.")
and
Janssen
Pharmaceutica
International, a
division of Cilag
International AG
("Janssen
International")
INVEGA SUSTENNA / XEPLION INVEGA SUSTENNA: Janssen Worldwide
Schizophrenia Pharmaceutica N.V.
and Schizoaffective (together with
disorder Janssen, Inc.,
Janssen
XEPLION: International and
Schizophrenia their affiliates
"Janssen")
INVEGA TRINZA / TREVICTA Schizophrenia Janssen Worldwide
Our Key Licensed Products
Product Indication(s) Licensee Licensed
Territory
VIVITROL Alcohol Cilag GmbH Russia and
dependence and International Commonwealth of
Opioid ("Cilag") Independent
dependence States ("CIS")
VUMERITY Multiple Biogen Worldwide
sclerosis
Proprietary Products
We have developed and now commercialize products designed to help address the
unmet needs of people living with opioid dependence, alcohol dependence,
schizophrenia and bipolar I disorder. See the "Patents and Proprietary Rights"
section in "Part I, Item 1-Business" in our Annual Report for information with
respect to the IP protection for our proprietary products.
27
--------------------------------------------------------------------------------ARISTADA ARISTADA (aripiprazole lauroxil) is an extended-release intramuscular injectable suspension approved in theU.S. for the treatment of schizophrenia. ARISTADA utilizes our proprietary LinkeRx technology. ARISTADA is a prodrug; once in the body, ARISTADA is likely converted by enzyme-mediated hydrolysis to N-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 syringe product format. We developed ARISTADA and exclusively manufacture and commercialize it in theU.S. InAugust 2021 ,U.S. Patent No. 11,097,006 relating to ARISTADA was granted. The patent has claims to pharmaceutical compositions that confer long-term stability of the ARISTADA formulation and expires in 2033.
ARISTADA INITIO
ARISTADA INITIO (aripiprazole lauroxil) leverages our proprietary LinkeRx and NanoCrystal technologies and provides an extended-release formulation of aripiprazole lauroxil in a 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. 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 theU.S.
In
LYBALVI
LYBALVI (olanzapine and samidorphan) is a once-daily, oral atypical antipsychotic drug approved in theU.S. for the treatment of adults with schizophrenia and for the treatment of adults with bipolar I disorder, as a maintenance monotherapy or for the acute treatment of manic or mixed episodes, as monotherapy or an adjunct to lithium or valproate. LYBALVI is composed of olanzapine, an established antipsychotic agent, co-formulated with samidorphan, a new chemical entity, in a single bilayer tablet. LYBALVI was launched commercially inOctober 2021 and is available in fixed dosage strengths composed of 10 mg of samidorphan and 5 mg, 10 mg, 15 mg or 20 mg of olanzapine. We developed LYBALVI and exclusively manufacture and commercialize it in theU.S. VIVITROL (U.S. ) VIVITROL (naltrexone for extended-release injectable suspension) is a once-monthly, non-narcotic, injectable medication approved in theU.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 and we commercialize VIVITROL in theU.S. For a discussion of legal proceedings related to VIVITROL, see Note 14, 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 and specifically the sections entitled "-Patent and other IP protection for our products is key to our business and our competitive position but is uncertain," "-Uncertainty over IP in the biopharmaceutical industry has been the source of litigation, which is inherently costly and unpredictable, could significantly delay or prevent approval or negatively impact commercialization of our products, and could adversely affect our business" and "-Litigation or arbitration filed against Alkermes, including securities litigation, or regulatory actions (such as citizens petitions) filed against regulatory agencies in respect of our products, may result in financial losses, harm our reputation, divert management resources, negatively impact the approval of our products, or otherwise negatively impact our business." 28 --------------------------------------------------------------------------------
Licensed Products and Products Using Our Proprietary Technologies
We have licensed products to third parties for commercialization and have licensed our proprietary technologies to third parties to enable them to develop, commercialize and/or manufacture products. See the "Proprietary Technology Platforms" and "Patents and Proprietary Rights" sections in "Part I, Item 1-Business" in our Annual Report for information with respect to our proprietary technologies and the IP protection for these products. We receive royalties and/or manufacturing and other revenues from the commercialization of these products. Such arrangements include the following:
Third-Party Products Using Our Proprietary Technologies
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.
INVEGA SUSTENNA is approved in theU.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 theEuropean Union ("EU") and other countries outside of theU.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. INVEGA TRINZA is approved in theU.S. for the treatment of schizophrenia in patientswho 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 patientswho are clinically stable on XEPLION. INVEGA TRINZA/TREVICTA is dosed once every three months. INVEGA TRINZA/TREVICTA uses our proprietary technology and is manufactured by Janssen. RISPERDAL CONSTA is approved in theU.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 theU.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 certain of the patents covering INVEGA SUSTENNA, INVEGA TRINZA and RISPERDAL CONSTA, see Note 14, 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 and specifically the section entitled "-We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers." Our Licensed Products VIVITROL (Russia and CIS) VIVITROL is described more fully under the heading "Proprietary Products" above in this Form 10-Q. We developed and exclusively manufacture VIVITROL for Cilag. Cilag exclusively commercializes VIVITROL inRussia and certain countries of the CIS. VUMERITY VUMERITY (diroximel fumarate) is a novel, oral fumarate with a distinct chemical structure that is approved in theU.S. andSwitzerland for the treatment of relapsing forms of multiple sclerosis in adults, including clinically isolated syndrome, relapsing-remitting disease and active secondary progressive disease. 29 -------------------------------------------------------------------------------- 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. For a discussion of legal proceedings related to certain of the patents covering VUMERITY, see Note 14, 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 and specifically the section entitled "-We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers."
Key Development Program
Our R&D is focused on the development of novel, competitively advantaged medications designed to enhance patient outcomes. As part of our ongoing R&D efforts, we have devoted, and will continue to devote, significant resources to conducting preclinical work and clinical studies to advance the development of new pharmaceutical products. The discussion below highlights our current key R&D program. 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" in our Annual Report. See the "Patents and Proprietary Rights" section in "Part I, Item 1-Business" in our Annual Report for information with respect to the IP protection for our key development program.
Nemvaleukin alfa (formerly referred to as ALKS 4230)
Nemvaleukin alfa ("nemvaleukin") is an investigational, novel, engineered fusion
protein comprised of modified interleukin-2 ("IL-2") and the high affinity IL-2
alpha receptor chain, designed to preferentially expand tumor-killing immune
cells while avoiding the activation of immunosuppressive cells by selectively
binding to the intermediate-affinity IL-2 receptor complex. The selectivity of
nemvaleukin is designed to leverage the proven anti-tumor effects of existing
IL-2 therapy while mitigating certain limitations.
ARTISTRY is our clinical development program evaluating nemvaleukin as a
potential immunotherapy for cancer. The ARTISTRY program is comprised of
multiple clinical trials evaluating intravenous ("IV") and subcutaneous ("SC")
dosing of nemvaleukin, both as a monotherapy and in combination with the
anti-PD-1 therapy KEYTRUDA (pembrolizumab) in patients with advanced solid
tumors. ARTISTRY-1 (evaluating IV nemvaleukin) and ARTISTRY-2 (evaluating SC
nemvaleukin) are ongoing phase 1/2 studies evaluating the safety, tolerability,
efficacy and pharmacokinetic and pharmacodynamic effects of nemvaleukin in
patients with refractory advanced solid tumors, in both monotherapy and
combination settings. ARTISTRY-3 is an ongoing phase 2 study evaluating the
clinical and immunologic effects of IV nemvaleukin monotherapy on the tumor
microenvironment in a variety of advanced, malignant solid tumors. ARTISTRY-6 is
an ongoing phase 2 study evaluating the anti-tumor activity, safety and
tolerability of IV nemvaleukin monotherapy in patients with mucosal melanoma and
SC nemvaleukin monotherapy in patients with advanced cutaneous melanoma.
ARTISTRY-7, initiated in October 2021 , is a phase 3 study evaluating the
anti-tumor activity and safety of IV nemvaleukin in combination with
pembrolizumab compared to investigator's choice chemotherapy in patients with
platinum-resistant ovarian cancer.
In August 2021 , the FDA granted Fast Track designation to nemvaleukin for the
treatment of mucosal melanoma. In October 2021 , the FDA granted Fast Track
designation to nemvaleukin in combination with pembrolizumab for the treatment
of platinum-resistant ovarian cancer.
30
--------------------------------------------------------------------------------Results of Operations Product Sales, Net Our product sales, net, consist of sales of VIVITROL, ARISTADA and ARISTADA INITIO in theU.S. , primarily to wholesalers, specialty distributors and pharmacies. The following table presents the adjustments deducted from product sales, gross to arrive at product sales, net, for sales of VIVITROL, ARISTADA and ARISTADA INITIO in theU.S. during the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended Nine Months Ended September 30, September 30, (In millions, except for % of Sales) 2021 % of Sales 2020 % of Sales 2021 % of Sales 2020 % of Sales Product sales, gross$ 338.7 100.0 %$ 304.8 100.0 %$ 954.8 100.0 %$ 824.0 100.0 % Adjustments to product sales, gross: Medicaid rebates (86.1 ) (25.4 ) % (83.3 ) (27.3 ) % (245.1 ) (25.7 ) % (210.6 ) (25.6 ) % Chargebacks (36.5 ) (10.8 ) % (28.7 ) (9.4 ) % (95.2 ) (9.9 ) % (72.0 ) (8.7 ) % Product discounts (27.1 ) (8.0 ) % (23.3 ) (7.7 ) % (76.9 ) (8.1 ) % (64.1 ) (7.8 ) % Medicare Part D (15.3 ) (4.5 ) % (14.7 ) (4.8 ) % (45.2 ) (4.7 ) % (40.4 ) (4.9 ) % Other (16.0 ) (4.7 ) % (12.1 ) (4.0 ) % (43.9 ) (4.6 ) % (34.1 ) (4.1 ) % Total adjustments (181.0 ) (53.4 ) % (162.1 ) (53.2 ) % (506.3 ) (53.0 ) % (421.2 ) (51.1 ) % Product sales, net$ 157.7 46.6 %$ 142.7 46.8 %$ 448.5 47.0 %$ 402.8 48.9 % Our product sales, net, for VIVITROL in the three and nine months endedSeptember 30, 2021 were$88.8 million and$251.8 million , respectively, as compared to$80.3 million and$230.7 million in the three and nine months endedSeptember 30, 2020 , respectively. Product sales, net, for ARISTADA and ARISTADA INITIO in the three and nine months endedSeptember 30, 2021 were$68.9 million and$196.7 million , respectively, as compared to$62.4 million and$172.1 million in the three and nine months endedSeptember 30, 2020 , respectively. VIVITROL product sales, gross, increased by 10% and 14% in the three and nine months endedSeptember 30, 2021 , respectively, as compared to the three and nine months endedSeptember 30, 2020 , primarily due to increases of 7% and 9%, respectively, in the number of VIVITROL units sold due, in part, to an improvement in the COVID-19-related disruptions that began in the second quarter of 2020. In addition, there was a 2% increase in the selling price of VIVITROL that went into effect inApril 2021 . ARISTADA and ARISTADA INITIO product sales, gross, increased by 13% and 18% in the three and nine months endedSeptember 30, 2021 , respectively, as compared to the three and nine months endedSeptember 30, 2020 , primarily due to increases of 10% and 13%, respectively, in the number of ARISTADA and ARISTADA INITIO units sold and a 3% increase in the selling price of ARISTADA and ARISTADA INITIO that went into effect inApril 2021 .
Manufacturing and Royalty Revenues
The following table compares manufacturing and royalty revenues earned in the
three and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2021 2020 Change 2021 2020 Change
Manufacturing and royalty
revenues:
INVEGA SUSTENNA/XEPLION &
INVEGA TRINZA/TREVICTA $ 79.4 $ 73.4 $ 6.0 $ 222.0 $ 197.7 $ 24.3
VUMERITY 26.7 2.7 24.0 60.5 7.0 53.5
RISPERDAL CONSTA 11.0 14.5 (3.5 ) 39.6 55.5 (15.9 )
AMPYRA/FAMPYRA 7.5 12.3 (4.8 ) 35.5 39.8 (4.3 )
Other 11.7 17.5 (5.8 ) 40.8 53.1 (12.3 )
Manufacturing and royalty
revenues $ 136.3 $ 120.4 $ 15.9 $ 398.4 $ 353.1 $ 45.3
We earn tiered royalty payments for INVEGA SUSTENNA/XEPLION and INVEGA
TRINZA/TREVICTA, 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
31
--------------------------------------------------------------------------------
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 INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA royalty
revenues in the three and nine months ended September 30, 2021 , as compared to
the three and nine months ended September 30, 2020 , was primarily due to an
increase in Janssen's end-market sales of INVEGA SUSTENNA/XEPLION and INVEGA
TRINZA/TREVICTA. During the three and nine months ended September 30, 2021 ,
Janssen's end-market sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA
were $1,004.0 million and $2,994.0 million , respectively, as compared to $926.0
million and $2,688.0 million , respectively, during the three and nine months
ended September 30, 2020 .
We recognize manufacturing revenue for RISPERDAL CONSTA at the point in time
when RISPERDAL CONSTA has been fully manufactured, which is deemed to have
occurred when the product is approved for shipment by both us and Janssen. We
record royalty revenue, equal to 2.5% of Janssen's end-market net sales, in the
period that the end-market sale of RISPERDAL CONSTA occurs. The decrease in
revenue from RISPERDAL CONSTA in the three and nine months ended September 30,
2021 , as compared to the three and nine months ended September 30, 2020 , was due
to decreases of $2.3 million and $13.4 million , respectively, in manufacturing
revenue and decreases of $1.3 million and $2.6 million , respectively, in royalty
revenue. The decreases in manufacturing revenue during the three and nine months
ended September 30, 2021 , as compared to the three and nine months ended
September 30, 2020 , were primarily due to decreases of 8% and 39%, respectively,
in the amount of RISPERDAL CONSTA manufactured for Janssen. This was partially
offset by an increase in our manufacturing fee from 7.5% to 8.6% pursuant to the
terms of our manufacturing and supply agreement with Janssen due to a decrease
in forecasted manufacturing units. The decreases in royalty revenue during the
three and nine months ended September 30, 2021 , as compared to the three and
nine months ended September 30, 2020 , were due to decreases in end-market sales
of RISPERDAL CONSTA, which were $140.0 million and $452.0 million during the
three and nine months ended September 30, 2021 , respectively, as compared to
$152.0 million and $475.0 million during the three and nine months ended
September 30, 2020 , respectively.
We expect revenues from our longacting, atypical franchise to decrease over
time. While we expect continued growth from sales of INVEGA SUSTENNA/XEPLION and
INVEGA TRINZA/TREVICTA in the near term, we are aware of potential generic
competition for RISPERDAL CONSTA that may lead to reduced unit sales and
increased pricing pressure in 2021. We are also aware of generic challenges to
INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA. For a discussion of legal
proceedings related to RISPERDAL CONSTA, INVEGA SUSTENNA and INVEGA TRINZA, see
Note 14, Commitments and Contingent Liabilities in the "Notes to Condensed
Consolidated Financial Statements" in this Form 10-Q. In addition, a number of
companies are working to develop new products to treat schizophrenia and/or
bipolar disorder that may compete with INVEGA SUSTENNA/XEPLION, INVEGA
TRINZA/TREVICTA and RISPERDAL CONSTA. Increased competition from new products or
generic versions of INVEGA SUSTENNA/XEPLION, INVEGA TRINZA/TREVICTA or RISPERDAL
CONSTA may lead to reduced unit sales of INVEGA SUSTENNA/XEPLION, INVEGA
TRINZA/TREVICTA and RISPERDAL CONSTA, and increased pricing pressure.
We receive a 15% royalty on worldwide net sales of VUMERITY. We also recognize
manufacturing revenue related to VUMERITY at cost plus 15%, upon release for
bulk batches of VUMERITY and upon shipment for packaged lots of VUMERITY. The
increases in revenue from VUMERITY in the three and nine months ended September
30, 2021 , as compared to the three and nine months ended September 30, 2020 ,
were due to increases of $16.1 million and $39.1 million , respectively, in
royalty revenue and increases of $8.0 million and $14.5 million , respectively,
in manufacturing revenue. The increases in royalty revenue were due to increases
in net sales of VUMERITY, which were $120.9 million and $285.0 million during
the three and nine months ended September 30, 2021 , respectively, as compared to
$14.3 million and $25.3 million during the three and nine months ended September
30, 2020 , respectively. The increases in manufacturing revenue during the three
and nine months ended September 30, 2021 , as compared to the three and nine
months ended September 30, 2020 , were primarily the result of increased
manufacturing activity to satisfy increased demand for the product. For a
discussion of legal proceedings related to VUMERITY, see Note 14, Commitments
and Contingent Liabilities in the "Notes to Condensed Consolidated Financial
Statements" in this Form 10-Q.
32
--------------------------------------------------------------------------------Costs and Expenses
Cost of Goods Manufactured and Sold
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2021 2020 Change 2021 2020 ChangeCost of goods manufactured and sold$ 49.6 $ 43.1 $ 6.5 $ 143.7 $ 135.4 $ 8.3 The increases in cost of goods manufactured and sold in the three and nine months endedSeptember 30, 2021 , as compared to the three and nine months endedSeptember 30, 2020 , were primarily due to increases of$6.0 million and$11.8 million , respectively, in the cost of goods manufactured for VUMERITY and increases of$4.8 million and$5.0 million , respectively, in the cost of goods sold for VIVITROL, related to an increase in the number of units manufactured for VUMERITY and the number of units sold for VIVITROL, as discussed above. These increases were partially offset by decreases in the three and nine months ended,September 30, 2021 of$1.8 million and$4.3 million , respectively, in the cost of goods manufactured for RISPERDAL CONSTA, related to decreases in the number of units manufactured for RISPERDAL CONSTA, as discussed above.
Research and Development Expense
For each of our R&D programs, we incur both external and internal expenses. External R&D expenses include fees for clinical and non-clinical activities performed by contract research organizations, consulting fees, and costs related to laboratory services, the purchase of drug product materials and third-party manufacturing development activities. Internal R&D expenses include employee-related expenses, occupancy costs, depreciation and general overhead. We track external R&D expenses for each of our development programs; however, internal R&D expenses are not tracked by individual program as they can benefit multiple programs or our technologies in general. The following table sets forth our external R&D expenses for the three and nine months endedSeptember 30, 2021 and 2020 relating to our then current key development programs and all other development programs, and our internal R&D expenses, listed by the nature of such expenses: Three Months Ended Nine Months Ended September 30, September 30, (In millions) 2021 2020 Change 2021 2020 Change External R&D expenses: Development programs: nemvaleukin$ 19.8 $ 16.9 $ 2.9 $ 61.1 $ 46.6 $ 14.5 LYBALVI 6.8 7.5 (0.7 ) 21.3 20.3 1.0 ALKS 1140 25.5 0.3 25.2 27.7 1.1 26.6 Other external R&D expenses 15.2 17.2 (2.0 ) 43.4 53.6 (10.2 ) Total external R&D expenses 67.3 41.9 25.4 153.5 121.6 31.9 Internal R&D expenses: Employee-related 37.9 39.5 (1.6 ) 114.7 120.2 (5.5 ) Occupancy 4.9 5.8 (0.9 ) 14.7 15.8 (1.1 ) Depreciation 2.9 4.1 (1.2 ) 9.2 11.5 (2.3 ) Other 5.4 3.7 1.7 16.1 13.4 2.7 Total internal R&D expenses 51.1 53.1 (2.0 ) 154.7 160.9 (6.2 ) Research and development expenses$ 118.4 $ 95.0 $ 23.4
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-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 increases in expenses related to nemvaleukin in the three and nine months endedSeptember 30, 2021 , as compared to the three and nine months endedSeptember 30, 2020 , were primarily due to the advancement of the ARTISTRY development program for the product, including increased patient enrollment in ongoing clinical studies and initiation of the ARTISTRY-6 study. For additional details on the status of the ARTISTRY development program, see the "Key Development Program" section of this "Part I, Item 2-Management's Discussion and Analysis of Financial 33
-------------------------------------------------------------------------------- Condition and Results of Operations" in this Form 10-Q. The increases in expenses related to ALKS 1140, our novel CoREST-selective HDAC inhibitor candidate for the treatment of neurodegenerative and neurodevelopmental disorders, in the three and nine months endedSeptember 30, 2021 , as compared to the three and nine months endedSeptember 30, 2020 , were primarily due to the accrual in the three months endedSeptember 30, 2021 of a$25.0 million development milestone to be paid to the former shareholders ofRodin Therapeutics, Inc. related to the submission of an investigational new drug application or equivalent for ALKS 1140 as we determined this milestone was probable of achievement. The amount is expected to be paid in the fourth quarter of 2021. The decreases in employee-related expenses in the three and nine months endedSeptember 30, 2021 as compared to the three and nine months endedSeptember 30, 2020 , were primarily due to a$2.3 million and$4.9 million decrease in labor and benefits, respectively, resulting from a 13.5% reduction in R&D headcount fromSeptember 30, 2020 toSeptember 30, 2021 .
Selling, General and Administrative Expense
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2021 2020 Change 2021 2020 Change
Selling and marketing
expense $ 88.0 $ 79.0 $ 9.0 $ 253.4 $ 249.7 $ 3.7
General and administrative
expense 48.2 48.6 (0.4 ) 147.2 143.3 3.9
Selling, general and
administrative expense $ 136.2 $ 127.6 $ 8.6 $ 400.6 $ 393.0 $ 7.6
The increase in selling and marketing expense in the three months ended
September 30, 2021 , as compared to the three months ended September 30, 2020 ,
was primarily due to a $7.1 million increase in marketing expense and a $1.5
million increase in professional service fees. The increases in marketing
expense and professional service fees were primarily related to pre-launch
commercial activities for LYBALVI.
The increase in selling and marketing expense during the nine months ended
September 30, 2021 , as compared to the nine months ended September 30, 2020 , was
primarily due to a $4.1 million increase in professional service fees and a $3.4
million increase in marketing expenses, partially offset by a $5.0 million
decrease in employee-related expenses. The increases in marketing expense and
professional service fees were primarily related to pre-launch commercial
activities for LYBALVI. The decrease in employee-related expenses was primarily
due to a decrease in salary expense resulting from a 1.5% reduction in selling
and marketing headcount from September 30, 2020 to September 30, 2021 .
The increases in general and administrative expense during the nine months ended
September 30, 2021 , as compared to the nine months ended September 30, 2020 , was
primarily due to a $5.0 million increase in professional service fees and a $2.5
million increase in employee-related expenses, partially offset by a $1.9
million decrease in the timing of spend related to new product planning. The
increase in professional service fees was primarily related to increased spend
on legal fees. The increase in employee-related expense was primarily related to
a $2.0 million increase in general and administrative-related share-based
compensation expense.
Amortization of Acquired Intangible Assets
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2021 2020 Change 2021 2020 Change
Amortization of acquired
intangible assets $ 9.6 $ 9.9 $ (0.3 ) $ 28.5 $ 29.5 $ (1.0 )
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 condensed consolidated balance sheet at September 30, 2021 is
expected to be approximately $40.0 million , $35.0 million , $35.0 million and
$1.0 million in the years ending December 31, 2021 through 2024, respectively.
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Other (Expense) Income, Net
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2021 2020 Change 2021 2020 Change
Interest income $ 0.5 $ 1.4 $ (0.9 ) $ 2.0 $ 5.9 $ (3.9 )
Interest expense (2.4 ) (1.8 ) (0.6 ) (8.8 ) (6.8 ) (2.0 )
Change in the fair value of
contingent consideration (5.2 ) 3.9 (9.1 ) (0.7 ) 16.6 (17.3 )
Other income (expense), net 0.2 9.4 (9.2 ) (0.4 ) 11.1 (11.5 )
Total other (expense)
income, net $ (6.9 ) $ 12.9 $ (19.8 ) $ (7.9 ) $ 26.8 $ (34.7 ) The decreases in interest income during the three and nine months ended
The increases in interest expense during the three and nine months endedSeptember 30, 2021 , as compared to the three and nine months endedSeptember 30, 2020 , were due to the Term Loan Refinancing completed inMarch 2021 . The Term Loan Refinancing is discussed in greater detail in Note 11, Long-Term Debt in the "Notes to Condensed Consolidated Financial Statements" in this Form 10-Q. The changes in the fair value of contingent consideration in the three and nine months endedSeptember 30, 2021 , as compared to the three and nine months endedSeptember 30, 2020 , were primarily due to an increase in the risk of non-payment. In Baudax's Quarterly Report on Form 10-Q for the period endedJune 30, 2021 , Baudax included disclosures regarding its ability to continue as a going concern. As a result of this disclosure, we updated the model used to determine the fair value of the contingent consideration. The valuation approach used to determine the fair value of the contingent consideration is discussed in greater detail in Note 5, Fair Value, in the "Notes to Condensed Consolidated Financial Statements" in this Form 10-Q. The decreases in other income (expense), net in the three and nine months endedSeptember 30, 2021 , as compared to the three and nine months endedSeptember 30, 2020 , were primarily due to the receipt of$11.1 million , of which$10.4 million was received inSeptember 2020 , representing our proportional share of the proceeds from the sale of two companies within the Fountain portfolio. The transactions were accounted for under the cumulative earnings approach whereby the return on investment of$8.3 million was recorded as a gain within "Other (expense) income, net" in the accompanying condensed consolidated statements of operations and comprehensive loss and the return of investment of$2.8 million was recorded as a reduction in the our net investment in Fountain. Our investment in Fountain is discussed in greater detail in Note 4, Investments, in the "Notes to Condensed Consolidated Financial Statements" in this Form 10-Q. Income Tax Provision Three Months Ended Nine Months Ended September 30, September 30, (In millions) 2021 2020 Change 2021 2020 Change Income tax provision 2.5 2.3$ 0.2 $ 9.5 $ 13.3 $ (3.8 ) The income tax provision in the three months endedSeptember 30, 2021 and 2020 primarily related toU.S. federal and state taxes. The unfavorable change in the income tax provision in the three months endedSeptember 30, 2021 , as compared to the three months endedSeptember 30, 2020 , was primarily due to an increase in income taxes for income earned in theU.S. The income tax provision in the nine months endedSeptember 30, 2021 primarily related to a$3.9 million tax expense on income earned in theU.S. and a$6.8 million discrete tax expense related to employee equity activity during the period. The income tax provision in the nine months endedSeptember 30, 2020 primarily related to a$5.1 million tax expense on income earned in theU.S. and an$8.0 million discrete tax expense related to employee equity activity during the period. 35
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Liquidity and Financial Condition
Our financial condition is summarized as follows:
September 30, 2021 December 31, 2020
(In millions) U.S. Ireland Total U.S. Ireland Total
Cash and cash equivalents $ 91.9 $ 218.5 $ 310.4 $ 152.8 $ 120.2 $ 273.0
Investments-short-term 200.0 49.9 249.9 293.5 68.5 362.0
Investments-long-term 132.5 55.4 187.9 23.2 1.6 24.8
Total cash and investments $ 424.4 $ 323.8 $ 748.2 $ 469.5 $ 190.3 $ 659.8
Outstanding borrowings-short
and long-term $ 296.4 $ - $ 296.4 $ 275.0 $ - $ 275.0 At
Gross
Amortized Unrealized Allowance for Estimated
(In millions) Cost Gains Losses Credit Losses Fair Value
Investments-short-term
available-for-sale $ 249.3 $ 0.6 $ - $ - $ 249.9
Investments-long-term
available-for-sale 186.2 - (0.2 ) - 186.0
Investments-long-term
held-to-maturity 1.8 - - - 1.8
Total $ 437.3 $ 0.6 $ (0.2 ) $ - $ 437.7
Our investment objectives are, first, to preserve liquidity and conserve capital
and, second, to 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 and backed by
non-U.S. governments. Our held-to-maturity investments consist of investments
that are held as collateral under certain letters of credit related to certain
of our lease agreements.
We classify availableforsale investments in an unrealized loss position that
do not mature within 12 months as longterm investments. We have the intent and
ability to hold these investments until recovery, which may be at maturity, and
it is morelikelythannot that we would not be required to sell these
securities before recovery of their amortized cost. At September 30, 2021 , we
performed an analysis of our investments with unrealized losses for impairment
and determined that the loss on one of our corporate debt securities was
other-than-temporary and, during the nine months ended September 30, 2021 ,
recorded a $0.9 million impairment charge within "Other (expense) income, net"
in the accompanying condensed consolidated statements of operations and
comprehensive loss.
36
--------------------------------------------------------------------------------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 12 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 that 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-Condensed Consolidated Financial Statements of Cash Flows" in this Form 10-Q. The following table summarizes our cash flows for the nine months endedSeptember 30, 2021 and 2020:
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