I'm James Talbot. I'm a member of the healthcare investment banking team here at Morgan Stanley. I'm very happy to welcome Richard Pops. Richard is Chairman and CEO of Alkermes. Before we get into the discussion, I just need to remind you all that for disclosures about today's discussion, you can refer to the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. Rich, I think you may have a similar forward-looking statement comment to make before we jump into the more interesting discussion.
That's great. Thank you for the prompt, and good to see you, James. Yeah, we will make forward-looking statements. That's sort of the point of the conversation, but as always, I recommend that you read our disclosures and our Qs and our Ks, where we try to delineate the risks that we face. There are many of them, but we try to do our best to explain them to you and take that as a way of approaching all the comments we make today. Thank you.
Great. So Rich, thanks again for being here. Maybe two quick things to start. First of all, can you just remind us about the mission and the focus of the company? And then second, look, it's been a very busy year for Alkermes. You've had a lot of important events over the last couple of months. Perhaps you could just sort of recap those for us and then talk a little bit about what you see the priorities being for the rest of the year.
You know, building a biotech company is an amazing meander that takes place over a certain period of time. It's informed often by where the science takes you, as well as your own strategy, and you're right, this last year has been a year where I think the next phase of Alkermes became very crystallized, very clear. Our origins at the very beginning, we're trying to understand the blood-brain barrier. That segued into a long epoch where we were developing drug delivery technologies for the brain and for other places, and that led to a very robust royalty business dealing with big pharma, manufacturing and getting royalty income from them, which we then used to segue taking those cash flows into creating our own molecules. Originally...
Or our own drugs, first based on those drug delivery technologies, and then later based on entirely new molecules that incorporated some of the sensibilities that we had learned through developing these drugs for ourselves and for partners. Most recently, that's been amalgamated in a company that has royalty income, proprietary product income, as well as neuroscience drug development, as well as oncology drug development. So about a year and a half ago, we made a decision: It's all starting to gel, let's split it up and make a clear investment thesis around the neuroscience business. And so looking ahead, that's what Alkermes is going to be.
It's going to be this commercial, profitable, growing CNS-focused company with pipeline assets and research focused on developing drugs for neurology and psychiatry, spinning off what's going to be called Mural Oncology, which would be the oncology assets. And you guys have been intimately involved in that. You know that well. It's a well-considered and very thoughtfully executed program, which, if it's completed, will be completed this quarter. So as we go into 2024, we're gonna have a very, very clean way of presenting what Alkermes is, and that's what I think it took. It took the better part of a year and a half or so to get that all crystallized.
Great. So maybe we talk about some of the specifics through the portfolio. So first, with Lybalvi. You've had tremendous success with the launch of this product. Maybe you could just talk through for us, what do you think the key drivers behind this success have been, and how do you view this market and the opportunity here going forward?
You know, how wonderful to sit here today and say we've had tremendous success, because I think we've had really nice performance. And a priori, we were always hopeful that we would have great success with Lybalvi, and that continues. But you never know until a product actually is in the marketplace, particularly when it's complicated with as many entrants as you have in the antipsychotic space. So Lybalvi, for those of you who aren't completely familiar with this, an oral antipsychotic medication that joins a very large category of atypical antipsychotics, which is characterized by large numbers of patients, huge amount of generic usage, and still plenty of room for branded medicines to become very significant brands.
Lybalvi launched with an indication in schizophrenia as well as in the treatment of bipolar I disorder, and both of these indications are critical for its long-term future. So I think that what people probably underestimated when we launched Lybalvi is how compelling the efficacy message around Lybalvi is in the real world. Most of the recent launches in the atypical antipsychotic space over the years have been about drugs that are better tolerated for patients, where tolerability is the principal attribute. There's efficacy with tolerability, this idea of balance. Lybalvi occupies a different spot in the marketplace, which is compelling efficacy, driven by the fact that one of the principal components of Lybalvi is olanzapine.
So what Lybalvi is, is it's a drug that mitigates the excessive weight gain associated with olanzapine by the inclusion of a new molecular entity that we developed, called samidorphan. So Lybalvi leverages that very powerful efficacy, which is often why patients switch on their medications because they're looking for more efficacy. So we're hopeful that the drug continues to grow. Last year, in its first year of launch, it recorded something on the order of $97 million of sales. We'll roughly double that this year, and then it begins to start taking on the shape of other major brands that have been launched in this category.
Great. So you launched a DTC campaign this year. How's that going? Can you talk a little bit about the results that you're seeing from the investment you've made?
... DTC, direct-to-consumer advertising, is an extremely proven approach to drive top-line sales over the life of a product in certain therapeutic categories. The data are actually quite robust and mature because many pharmaceutical companies have done this over many years. So the data set supporting the use of DTC is actually quite robust. So we launched one of the two components of DTC, which is the digital piece of it. We launched it early last year, so that would be targeted web-based advertising based on people's utilization of certain types of media. The more classic, what you think of DTC, the TV ads, we launched those for the first time in May. And so that, the purpose of that is to educate patients as to the existence of Lybalvi.
In fact, it's not just patients, it's caregivers, it's physicians, it's everybody, to teach the word Lybalvi to the world, to understand that it's a new medication for the treatment of Bipolar I disorder. The DTC broadcast is focused on bipolar, less so on the schizophrenia. So that those TV buys happen in pulses in the late spring, then you tend to go down during the summertime and come back again in the fall when new TV shows start coming back out. There's typically a pretty significant lag between the first time you start running the ads and where you start seeing this translate into new prescriptions. And it stands to reason, right?
If you see an ad for the first time for something you never heard about before, it's a medicine that requires you and your doctor making a switch, you're not going to, the next day, go change your prescription. You'll see that ad a few more times. Maybe the next time you see your physician, you can talk about it. Maybe the next time after that, if you're having trouble with your current medications, you might make a change. So there's a reliable time gap between when you begin the process and when you see it starting to translate into new prescriptions. And even in that case, you don't expect a stepwise function one quarter. It's just a gradual lift on the brand over its life.
Right. And I guess, you know, if there's a, if there's a lag before we see the feed-through into scripts, are there other metrics, qualitative things that you're following to give you a sense of how-
For sure.
This is impacting the drug and its profile?
For sure. You do these campaigns with many outside vendors and consultants and providers who've done this before, so there's a number of leading metrics that you look at as well. Even before you launch the campaign, I mean, you're testing your creative with focus groups, with patient groups to get a sense of what resonates. And then you start looking at early indicators like website traffic and brand awareness and engagement with the website page, and so on. There's a number of different metrics that you would call leading indicators. Those, from the time you launch, you can see those start to ramp up. So it's... It shouldn't be particularly mysterious.
Okay. And, I mean, is this something we should see as an ongoing commitment?
Yes.
Okay.
Yeah. I think in a brand like in bipolar, in the size of the market, given the fact that... Think about it this way, this is a-- schizophrenia affects about 1% of the human population. So in the US, you've got over 3 million. You've got an equivalent number of patients with bipolar. These patients, the average length of therapy on an oral medication is about six months. So here, they require medicines their whole lives, yet they're switching routinely. Every month, there's something like 70,000 switches. So you never-- your marketing objective is not to go in and displace somebody off of medicine where they're doing well as a patient. You're happy for them, but you want to pick them up as when they're switching.
Yep.
That's why that compelling message about Lybalvi providing more efficacy is a really powerful one in that switch market.
Thank you. So you've talked recently about taking a disciplined approach to commercial contracting for Lybalvi, one that balances the revenue opportunity with long-term profitability. Could you talk about the trends that you're seeing for Lybalvi as a result of that in terms of market access?
This is very situational as well, depending on what type of drug you have and what market it's competing. In schizophrenia and bipolar disease, there are multiple generics. There are more than a dozen generics that people use routinely. Payers are firmly in charge in this category. So when you launch a new drug, after going through all the process of science and the development and the FDA approval, and you're so excited to bring it to market, you come into a marketplace where you realize payers really have no incentive or interest in introducing this new product to patients. So their opening salvo is typically a gigantic amount of rebate in order to get onto the formulary.
The way we've chosen, the discipline to the contracting that we've done, is based on a sequential approach to the market. There are three channels. There's the commercial channel, there's Medicare, and there's Medicaid. In schizophrenia, Medicare and Medicaid are the critical channels. You have open access in those. So our strategy was to build the utilization of the drug in those channels, and in so doing, confirm its clinical profile in practitioners' hands. If our effect, if the benefit of Lybalvi was, were modest, then we would have got a sense it wasn't going to be a particularly important product. But if that benefit is manifested in the real world, in the wild, with the use of this drug, patients and physicians are going to start using it.
In which case, you have a different set of dynamics when you sit down with commercial contractors then, because instead of them saying: "You know what? You have to pay us to put it on the formulary," they're seeing that the drug is being used, and they're going to want contract dollars then, which they're not getting just by that organic utilization. So it's a story that plays out over two or three years in the launch, but right now, our gross to nets remain comparatively high. Our access is suppressed to some extent in certain places, but that, we overcome that by the higher gross to net, and that will give us a different negotiation position as we continue to think about contracting in the commercial space in 2024 and 2025.
... Great. Any questions from the audience on Lybalvi before we move on? No. Okay, let's move to Aristada. You've seen continued sequential growth here in new-to-brand prescriptions. How have you thought about continuing to drive this product in this market?
Aristada is a long-acting injectable antipsychotic. So like Lybalvi, it's in that category of patients, but it's a completely different medicine because it is administered by injection. Which remarkably, in the U.S., most physicians don't use injectable medicines, notwithstanding the fact that the data are so compelling for the use of long-acting injectable medicines, patients with schizophrenia in particular. So it's a more focused marketing approach for a population of physicians who are comfortable or have nurses or nurse practitioners or other caregivers who can administer intramuscular injections in their offices. So the principal attribute of Aristada. There are a couple. One is that Aristada is a prodrug of aripiprazole, Abilify, so it's an extremely well-known molecule. It's part of every clinician's repertoire, and they know its profile.
But it's also, in the form of Aristada, presented in a really attractive format because we have a series of different durations of long action, starting from immediate in the form of Initio, where you can initiate treatment with a long-acting injectable in the clinic, and it. You can dose it every month or once every two months. So particularly in COVID, where patients' interactions with caregivers were very limited, the idea of six injections a year providing continuous exposure to a drug that people know and feel comfortable with is a really compelling offer. So to answer your question, after all that background, we just need to keep espousing the benefits of long-acting injectables for the benefit of patients, who many of whom have failed on many, many orals, and to demystify the use of injectables in that space.
We're there, J&J is there, Otsuka. There's other players now, so doctors are hearing this message more than they ever have, and hopefully that will continue to be the case.
Great. I mean, to the comment you just made, there have been a couple of new entrants approved recently. Have you seen an impact in terms of market competitive dynamics from those?
Not yet, no.
Okay.
I don't know whether we will. These molecules are quite different, so. But I think the base condition is that more promotional activity for the use of long-acting injectables would be good for patients and probably good for the market as well.
Okay, good. Moving on to Vivitrol. So you recently announced a settlement with Teva, around the patent, patent litigation you've had ongoing there for a while. Could you just talk about your views on that outcome, and then how you see the trajectory for Vivitrol in light of that settlement?
Well, we settled with Teva on generic entry in 2027 for them, and we were pleased with the outcome. If you'd followed this story over the last several years, we've always been quite strong in our belief in the strength of our intellectual property around Vivitrol. And so I think if people had handicapped it a year ago at this time, before we went into trial, they would have thought that we were likely to lose that trial. I think we came out of the trial quite strong, and so I think that both Teva and we saw advantages to settling rather than continuing to litigate. And that date, 2027, gives us... We're thrilled with that.
2023, 2024, 2025, 2026, to continue to build Vivitrol and also begin to get a sense of what the market might look post 2027, because this is not a market. Alcohol dependence and opioid dependence is characterized by a lot of new drug discovery. Old drugs last a long time in this space. There's no reason a priori that you need to see generic entry eroding a significant market, because the table stakes are quite high to play in this game. Vivitrol is a long-acting, injectable, polymeric-based system that's made using aseptic emulsion technology, dry, sterile powder fills. It's high degree of difficulty stuff, and we've never expected there to be multiple ANDA players here. So now we have a few more years to watch that play out, so we're, we're thrilled with that outcome.
Okay, great. You've seen some shifts in demand over the last couple of years between opioid dependence and alcohol dependence. How do you see that balance going forward? And I guess, you know, as you think about opioid dependence, is there something... You know, is there, are there specific market dynamics that are holding you back?
It's a tragedy that Vivitrol isn't used more in opioids.
Mm.
It's a testament to the failure of our country to deal with the opioid crisis, and if that sounds hyperbolic, I intentionally say so. Because 100,000 people are going to die of opioids overdose deaths still, but it's so ingrained in the population that people aren't horrified by it anymore. Fentanyl is rampant in urban centers and in the countryside, and Vivitrol is an opioid receptor antagonist administered once monthly. Patients detoxify, they get monthly injections, and it prevents relapse to opioid dependence. That's actually its label: "Prevents relapse to opioid dependence." But the dominant way we treat opioid dependence in this country is by giving people opioids in the form of methadone or Suboxone.
Important medicines, life-saving medicines, but they are agonists or partial agonists, and it's a different philosophical approach than detoxification and antagonist therapy. Vivitrol is not right for every patient, hardly, but it also is an alternative that should be used more. Interestingly, the philosophical divide, agonist versus antagonist, that exists in opioid does not exist in alcohol. In alcohol, it was more of the inertia of rest, where we never really treated alcohol dependence with medicines in our country. We treated it typically with 12-step programs. But as more patients and more physicians and more care centers, I think we're dealing with the opioid crisis and learning to use what's called medication-assisted treatment, counseling plus medicines. It's, it's relevant to the treatment of alcohol, I think became more and more clear. So we're seeing alcohol is a huge problem in the country and in the world.
It's actually bigger than the opioid problem, but it's so endemic that people don't pay as much attention to it. But I think that the public health benefit of a drug like Vivitrol and alcohol is very strong.
Great. So let's move to the pipeline. 2680, your Orexin program for sleep disorders. Could you just start us off talking about how you see the market opportunity for this program?
First of all, I just want to note that we're 15 or 20 minutes into the conversation, and we're just now talking about orexin, which makes it a first at this conference and recent conferences. The investor interest in orexin is so high, it's fascinating to see. I think it's because the setup, the clinical and the commercial conditions and the relevance of the intervention to the inherent biology are... It's all so clear. We have a drug called 2680 that's in the clinic right now. We'll be presenting data at the World Sleep Congress in Rio de Janeiro at the end of October. I think many people are focused on that presentation. We have a very data-rich phase I program underway right now that has three components to it.
Single ascending dose to get maximal exposures to determine a maximum tolerated dose in healthy volunteers, coupled with a multiple ascending dose study, where patients receive 10 daily doses of that drug at ascending doses. All of which were a prerequisite to then testing in patients with Narcolepsy Type 1 and Narcolepsy Type 2. And for World Sleep, we should have our first cohort of patients with Narcolepsy Type 1 looking at efficacy endpoints. And more than that, I think the way we've designed the study is that each of those patients, and there'll be a small number of them, but each patient serves as their own control, and they will be exposed to multiple single doses.
We'll get a sense of dose response, as well as the shape over time of that curve to the extent that the product is efficacious in these patients.
Great.
There's a lot to learn in the next little bit on this program.
Fantastic. I think there was an abstract came out recently that gave some early, details on the safety profile. Perhaps you could just comment on that.
Yeah. The abstract deadline for World Sleep was back in June, I think it was. So we simply summarized what we saw in our multiple ascending dose and single ascending dose healthy volunteer data prior to getting the patient data. So, and then we also have separate abstracts on some of the preclinical work as well. So those... I think that we're very pleased with the safety profile that we've seen in the humans so far. We've not... In that first single ascending dose study that I referred to, we never reached a maximum tolerated dose. And in fact, we truncated to move into the multiple ascending dose study, knowing that we'll probably go back to that single ascending dose study to see whether we can establish the upper limit. But we're very pleased with the tolerability so far.
But, you know, there'll be no substitute for getting to patients and seeing how patients with the disease deal with the drugs.
Great. How should we think about the competitive landscape for this program?
I think about it in this way. I think that it deserves the attention. And so we know that Takeda has a major program, and other players are developing molecules in the space. It's one of the places where the chemistry is quite restricted. There's not a lot of chemical diversity that we're finding that can interrogate this particular biological system. You're asking to make a small molecule drug that can be taken orally, so get out of the GI system into the bloodstream, cross the blood-brain barrier, get into the brain, and then not just block a receptor, be an agonist at a G-protein-coupled receptor, which is a complex thing to do.
And if you're able to do all that, do it in a way where you come onto the receptor in the morning and come off of it by the time you go to bed at night, because you're actually fundamentally affecting the sleep-wake cycle with these agents. So in terms of a molecular design problem, it's quite a complicated landscape. You know, I think not everybody's gonna be able to play, and if you're able to come in and test, I think the drugs are gonna differentiate pretty significantly.
Great. Any questions on 2680 or any of the other products we've covered so far? Oh, great. Okay, so let's move to the separation of the oncology business. Look, maybe you could just talk a little bit about what we should expect from the remaining Alkermes business once the separation of oncology is completed. In terms of profitability, any other things that you're focused on?
I'd say that the motive force, the fundamental hydraulics that drove the spin of the oncology business or the separation of the oncology business, was the quality of the neuroscience business as it was emerging with the launch of Lybalvi. It became very clear to us then, with Lybalvi as part of the model, if we could resolve the Vivitrol uncertainty around the ANDA litigation. Aristada, Vivitrol, Lybalvi drives a very nice top line, growing profitability with pipeline asset in ALKS 2680 and science and proven capabilities behind that. The oncology spend was significant and distracting from investors who were interested in the CNS assets in a perfected way. So what we're hopeful to do is complete separation in 2023, so that when we guide in 2024, in February, it's for a clean, standalone neuroscience company.
I think people are gonna be excited to see the profitability that's inherent in that business, that we can achieve while still funding R&D. And, you know, think about building this company in a way that's a much more... I think, something that a pattern that people would recognize, rather than an amalgam of different assets that we've historically been.
Yep. So look, obviously a process that we're, as a firm, very close to, but perhaps for the audience, you could just talk about how the preparation activities are coming together for Mural to be a new public company.
It's surprisingly complicated. On the whiteboard, it seems like a very idea. You take one circle, and you break it into two circles and say, "Well, there, there you go." But there are literally tens of thousands of documents that need to be repurposed, contracts that need to be re-executed, quality systems that need to be... Physical plants that need to be separated, teams, HR issues. Notwithstanding on the outside, SEC and IRS interactions that lead to a tax-free spin of a new independent, publicly traded company. That's been going on in earnest for the last year. We're about done with all that external stuff, which puts us in a position to be able to dividend out. If we complete this, we'll dividend out shares in Mural to our shareholders before the end of the year.
Great. So next, I guess moving to capital allocation. You've got a strong balance sheet. You will be a profitable, strongly profitable company going forwards after the separation. How should we think about capital allocation, in particular, business development? How does that play into the strategy? And if that's a part of the strategy, again, how should we think about your focus areas for that?
So where we are right now, we have a strong balance sheet. We have some debt that we'll pay back, and so if you assume that the first use of capital allocation, we repay debt. And then the way I think about it conceptually is you're gonna fill a couple buckets. One bucket you're gonna fill is gonna be strategic cash on the balance sheet that you can use for tuck-in type acquisitions, licensing, product-specific deals. And then as that bucket fills, you start having other options with respect to share repurchase or other things that one can do. That will progress over time as we generate more cash going forward. Resolution, the J&J arbitration in our favor, good step in our favor. The Teva resolution, good step in our favor.
So we're beginning to model at the board level now how we might distribute capital or allocate capital across those scenarios. There is no freestanding major biotechnology company that's done everything with their own R&D. And when the markets get tumultuous, as they've been and will continue for a bit, that's when you can acquire assets. We don't have a capacity right now to expand our R&D burn in a significant way because we have profitability targets that we're committed to hitting.
Yep.
As the business grows, as the revenue line grows, your ability to accommodate more spend grows as well. So we're always mindful of looking at situations in the market, private or public, where you see just screaming values that you take advantage of. But job one right now is completing the spin and separation of the oncology, funding the 2680 program to see where we are in the Orexin program, and that will open a lot of doors for us if that, if those break the way we want them to.
Great. The profitability targets you stated for 2024 and 2025, could you just talk about how to think about... You know, how should we think about those in terms of levers, in delivering on those targets?
Well, we set those targets before we knew the resolution of J&J, before we knew what was going to happen with Teva, before we even knew how Lybalvi was launching. So what we decided as a board and a management team, we said we will manage the expense line to accommodate those targets, because we wanted to demonstrate to shareholders that we could manage this business, which had significant revenues, in a profitable way. It's sure a heck of a lot easier now with some of the things that are Lybalvi launching the way it's launched, Vivitrol in the model through all the way through 2026 into 2027, and now with Aristada and Vivitrol and Lybalvi with multiple elements.
Plus, you know, with Vumerity doing well in Biogen's hands, we have a number of elements in the P&L that make sense to us now. So as we model going forward, we have a number of different ways to manage expenses or grow expenses in order to hit those targets while still building the business.
Great. Final opportunity for questions from the audience. I guess with that, Rich, we've got a minute left. Any final closing remarks you'd like to make here?
I think it's... You go through periods of time when the company is building, but the stock may not be a great stock because you're in that interregnum where you're passing the baton from one business model to another. I'm hopeful that we're coming out of that now with us. There's still risk associated with it, for sure, right? There's always the risks you know. For example, how does 2680 look in the clinic? We don't know that. There's risks you don't know, like the Inflation Reduction Act or other things happening.
But the secret to trying to build a business for the long haul here is having a number of non-correlated assets that are all growing, but no single thing can knock you out of the ring with a couple real blockbuster potential things in the hopper. And that's, that, I sort of feel like that's where we are right now. So with all the admonishments that are appropriate with respect to the risk of this business inherently, I think people within Alkermes are feeling really optimistic right now.
Great. I think that's a great place to leave it. It's been a pleasure talking to you.
Thank you, James.
Thanks for joining us. Thank you.