Greetings, and welcome to the Alkermes Fourth Quarter and Year End 2019 Financial Results Conference Call. My name is Rob, and I'll be your operator for today's call. Please note this conference is being recorded. I'll now turn the call over to Sandy Coombs, Vice President of Investor Relations. Sandy, you may begin.
Thank you. Good morning. Welcome to the Alkermes Plc conference call to discuss our financial results and business update for the quarter year ended December 31, 2019. With me today are Richard Potts, our CEO Jim Frates, our CFO and Ian Brown, our SVP of Finance. Before we begin, I encourage everyone to go to the Investors section of alkermes.com to find our press release and related financial tables, including a reconciliation of the GAAP to non GAAP financial measures that we'll discuss today.
We believe the non GAAP financial results, in conjunction with the GAAP results, are useful in understanding the ongoing economics of our business. Our discussions during this call will include forward looking statements. Actual results could differ materially from these forward looking statements. Please see Slide 2 of the accompanying presentation, our press release issued this morning and our most recent annual and quarterly reports filed with the SEC for important risk factors that could cause our actual results to differ materially from those expressed or implied in the forward looking statements. Our prepared remarks today will include preliminary data from the ARTISTRY clinical programs.
These data may change as patient enrollment continues and as more patient data becomes available. It may not be indicative of final data from such trials or results of future clinical trials. We undertake no obligation to update or revise the information provided on this call or in the accompanying presentation as a result of new information or future results or developments. After our prepared remarks, we'll open the call for Q and A. Now I'll turn the call over to Jim.
Thank you, Sandy. In 2019, we achieved $1,000,000,000 in revenue for the 2nd consecutive year. The back half of the year was particularly active for us. We saw the addition of a new revenue stream with the approval of VUMERITY and set the stage for the potential addition of another revenue stream with the submission of our NDA for ALKS 3,831 for the treatment of schizophrenia and bipolar 1 disorder. We implemented a restructuring in the Q4 that recalibrated our cost structure and focused our R and D investments in programs with the highest potential value.
And we acquired Rodan Therapeutics, which further diversified our pipeline. I'll start with an overview of our key financial and commercial highlights. For the full year 2019, total revenues grew 7% year over year to $1,170,000,000 and we recorded non GAAP net income of $112,200,000 that was ahead of our expectations. For the Q4, we recorded total revenue of $412,700,000 and non GAAP net income of $131,400,000 These results were driven by growth of our proprietary product sales, continued strength of our base royalty and manufacturing business and the receipt of the 100 $50,000,000 milestone payment from Biogen related to the approval of VUMERITY. VIVITROL net sales in the 4th quarter increased 11% year over year to $92,800,000 driven primarily by 14% unit growth.
VIVITROL experienced solid growth in key states such as Arizona, California and Texas and broad based growth in states with lower VIVITROL share with 19 states growing more than 25% year over year. This growth was partially offset by an increase in gross to net adjustments of 47.7% as compared to 46.3% in the Q4 of 2018. Sequentially, VIVITROL net sales grew 9% compared to the Q3 of 2019, driven by 7% unit growth and slightly lower gross to net adjustments driven largely by payer mix. For the full year 2019, VIVITROL net sales increased 11% year over year to $335,400,000 driven by unit growth of 12%. Gross to net adjustments for VIVITROL were 48.3% for the year, relatively flat compared to full year 2018.
Turning to the ARISTADA product family. For the Q4, net sales increased 16% year over year to $56,800,000 driven primarily by unit growth of 24% and partially offset by higher gross to net adjustments of 50.7% compared to 43.5% in the Q4 of 2018 due to payer mix and the addition of ARISTADA to the formulary at the VA. Sequentially ARISTADA net sales grew 6% compared to the Q3 of 2019, driven by 11% unit growth and again partially offset by higher gross to net adjustments. Underlying total prescription data for ARISTADA in terms of months of therapy was 32% in the long acting aripiprazole market and 9% in the overall market for long acting atypical antipsychotics. For the full year 2019 ARISTADA net sales increased 28% year over year to $189,100,000 driven by volume growth.
Gross to net adjustments were 49% for the year compared to 44.3% in the full year 2018. Moving on to our manufacturing and royalty business. In the Q4, our manufacturing royalty revenues were $107,300,000 compared to $167,400,000 in the same period in 2018. For the full year, we recorded royalty revenues of $447,900,000 compared to $526,700,000 in the prior year. This decrease reflects a decline in revenues from the AMPYRA FAMPYRA franchise following generic competition to AMPYRA entering the market in the United States in 2018, as well as a one time payment of $26,700,000 from Zealand Pharma that was recognized in the Q4 of 2018.
2019 revenues from Risperdal Comsta, INVEGA SUSTENNA and INVEGA TRINZA increased 3% compared to 2018 to $323,300,000 as increased end market sales of INVEGA SUSTENNA and INVEGA TRINZA were largely offset by fewer manufacturing batches and lower end market sales for Risperdal Consta and by the loss of the INVEGA SUSTENNA 1.5% patent royalty in the United States as of May 2019. In 2019, we recorded R and D revenues of $11,100,000 for the Q4 $52,800,000 for the full year, primarily driven by the reimbursement of development expenses for VUMERITY related to our collaboration with Biogen. Following FDA approval of VUMERITY in the Q4, we received a $150,000,000 milestone payment, of which $144,800,000 was recorded as license revenue and $5,200,000 as R and D revenue. We receive a 15% royalty on net sales of VUMERITY and this royalty has the potential to be an important financial contributor for us. In terms of expenses, our total operating expenses for 2019 were in line with our expectations.
Our R and D expenses for 2019 were $512,800,000 compared to $425,400,000 for the prior year. The year over year increase was primarily due to our acquisition of Rodent in the 4th quarter, which included an upfront cash payment of $98,100,000 This transaction was accounted for as an asset acquisition and $86,600,000 of this upfront payment was determined to be in process R and D and consequently recorded as R and D expense in Q4. If you exclude this R and D expense related to the acquisition of Rodin, R and D expenses of $111,600,000 in Q4 were relatively flat compared to Q4 of last year. SG and A expenses for 2019 were $599,400,000 compared to $526,400,000 for the prior year, reflecting investments in our commercial organization in support of both ARISTADA and VIVITROL. Turning to our balance sheet, we ended 2019 with approximately $614,000,000 in cash and total investments compared to approximately $620,000,000 at end of 2018.
The company's total debt outstanding was approximately $277,000,000 at the end of 2019. Let me now shift to our financial expectations for 2020, which reflect activities we have undertaken to position Alkermes for long term growth and profitability. Our full financial expectations are outlined in the press release we issued earlier this morning. For the top line, we expect total revenues to be in the range of 1.03 to $1,080,000,000 which includes expectations for continued growth of VIVITROL and ARISTADA. For VIVITROL, we expect net sales to be in the range of $340,000,000 to $355,000,000 and gross to net adjustments of approximately 50% due to the consolidation of certain Medicaid plans into broader buying consortiums that we expect will increase the supplemental discounts in certain states going forward.
For ARISTADA, we expect net sales in the range of $220,000,000 to $235,000,000 reflecting approximately 20% year over year growth to the midpoint despite expected gross to net adjustments increasing to approximately 52% due to similar consolidation of certain Medicaid plans and anticipated increased volume through the VA. In line with historical seasonal patterns, due to the impact of year end inventory build and the reset of commercial plan deductibles, we expect our Q1 2020 net sales will be down sequentially for both VIVITROL and ARISTADA with growth expected to resume in the Q2. It's important to note that our 2019 top line results included approximately $200,000,000 of license and R and D revenues from Biogen related to the development and approval of VUMERITY. For comparative purposes, our 2020 revenue expectations reflect top line growth of just over 8% year over year when excluding those Biogen contributions to our 2019 results. In terms of our operating expenses, as we evaluated our cost structure last year, we implemented a restructuring design to deliver savings of approximately 100 and $50,000,000 in 2020 with about 1 third related to R and D and 2 thirds driven by SG and A, while preserving our ability to invest appropriately in what we believe to be our highest value opportunities.
The $150,000,000 in planned savings was measured against our pre restructuring 2020 internal budget, which aligned with the September 2019 sell side consensus for our 2020 expenses. We subsequently adjusted this number by $20,000,000 following the acquisition of Rodent to account for anticipated incremental R and D spend. The financial expectations that we're providing today reflect our expected achievement of these savings. R and D expenses are expected to be in the range of $405,000,000 to $430,000,000 reflecting the predicted impact of the restructuring and incremental investments in the HDAC inhibitor platform that we acquired from Rodin. Included in this overall R and D expense are expected investments in advancing the ALKS 4,230 clinical development program and lifecycle management initiatives for our commercial products and ALKS 3,831 and investments in our preclinical portfolio, including the HDAC inhibitor platform.
Our R and D expenses also include investment in our medical affairs and manufacturing operations, both in support of our commercial products and pipeline candidates. SG and A expenses are expected to decrease to be in the range of $535,000,000 to $560,000,000 in 2020, also reflecting the impact of our restructuring. Expected investment in SG and A is primarily related to the complex infrastructure needed to commercialize our proprietary products in addiction and schizophrenia as well as investments in pre launch activities for ALKS 3,831. With an assigned PDUFA target action date in November 2020 and assuming a 90 day DEA scheduling period, the majority of investments in the expansion of our sales organization in support of ALKS 3,831 would not occur until early 2021. We expect 2020 GAAP net loss to be in the range of $130,000,000 to $160,000,000 and non GAAP net income to be in the range of $40,000,000 to $70,000,000 Excluding the $150,000,000 milestone payment that we received from Biogen in 2019, our expectations for non GAAP net income in 2020 reflect a year over year increase of approximately $90,000,000 to the midpoint of our 2020 guidance range.
We enter 2020 in a position of financial strength and look forward to advancing our development pipeline candidates in both neuroscience and oncology, growing our commercial portfolio and further leveraging our P and L to drive sustained non GAAP profitability. With that, I'll turn the call over to Richard.
That's great. Thank you, Jim, and good morning, everyone. So we've built a $1,000,000,000 top line business through developing important medicines. 2019 was highlighted by important operational achievements across the portfolio with the approval of VUMERITY for multiple sclerosis, the submission of the ALKS 3,831 NDA, the presentation of initial efficacy and safety data from our ALKS 4,230 clinical program and important positive Phase 3 data from the ARISTADA ALPINE study and the HUMERITY EVOLVE MS2 study. In 2019, we also focused on actively shaping the future of the business through a rigorous assessment of our products, our pipeline and our structure and took important steps to position the company for long term growth.
We implemented a strategic restructuring order to reduce our cost structure and in so doing accelerate and drive sustained non GAAP profitability. We acquired Rodan Therapeutics, building on our experience in CNS diseases and expanding our development efforts into a wide range of neurodegenerative disorders. We strengthened our Board through 2 new independent directors, 1 a former public company CFO focused on value creation and the other an oncology thought leader and expert. So as we enter 2020, our key priorities are clear: drive the growth of VIVITROL and ARISTADA through commercial execution prepare for the launch of ALKS 3,831 in schizophrenia and bipolar 1 disorder advance the development of ALKS 4,230 in oncology and build out our HDAC inhibitor platform. So I'll take these briefly in turn.
Our work in addiction and in schizophrenia with ARISTADA exemplifies many of the core values of this company. We're out there every day through our science, our medicines and our advocacy working to advance patient centered care for people with these serious conditions. We are making a real world impact and we're very proud of it. Alkermes is a positive force for change and these medicines are incredibly important elements of our business. VIVITROL is helping to address the public health crisis represented by opioid dependence.
It's unlike any other pharmaceutical product from the infrastructure required to foster adoption to its geographically driven growth, which is reliant in large part on state policy and funding. We've invested many years into understanding this landscape and the treatment paradigm in order to increase access and drive awareness for VIVITROL. Its growth trajectory is dynamic and challenging to predict. In 2020, we'll continue to focus on driving growth and profitability and extending the impact of this medicine. ARISTADA demonstrated solid year over year growth in 2019.
2020 is about execution With a differentiated product family, a strong payer access profile and a compelling value proposition, we have a clear opportunity to drive the growth of ARISTADA in 2020. These two products are growing and comprise an increasing percentage of our revenue, And this revenue engine continues to evolve. In 2020, we expect a new stream of royalty revenues from VUMERITY, a novel next generation oral fumarate for treatment of relapsing forms of MS, which was discovered and developed by Alkermes and which received FDA approval last quarter. Biogen is launching VUMERITY into a large and dynamic U. S.
Market for MS. And last week, TECFIDERA's IPR decision was a positive development for this market. We received a 15% royalty on net sales of VUMERITY. This product has been profitable for us from the 1st unit sold. So we're off and running and we're looking forward to tracking the progress of Biogen's launch.
The acceptance of the ALKS 3,831 NDA for schizophrenia and bipolar 1 disorder last month was an important milestone in this program. We're planning for potential approval of 3,831 at the end of the year, which would contribute to and grow our psychiatry franchise. The investments we've made in our ARISTADA commercial organization provide a strong platform for the launch of 3,831, and we are well positioned to leverage our established presence with physicians, thought leaders, payers and policymakers in the psychiatry space. Across schizophrenia and bipolar 1 disorder, efficacy is key to successful outcomes. With the efficacy of Olanzapine and a differentiated tolerability profile, 3,831 has the potential to be an important new treatment option.
Look forward to working with the agency through its review of the NDA and updating you on the preparations for launch. Our pre launch work is focused in 2 areas: disease state education and engagement with a range of payers. So I'll turn to the development pipeline. 4,230 is our investigational engineered IL-two fusion protein designed to selectively expand tumor killing immune cells while avoiding the IL-two induced activation of immunosuppressive cells. Harnessing the antitumor activity of the IL-two pathway continues to be one of the most exciting opportunities in immuno oncology.
The 4,230 clinical development program has 2 core elements: ARTISTRY 1, our intravenous dosing study and ARTISTRY 2, our subcutaneous dosing study. In 2019, we made important progress in both and presented initial efficacy and safety data from ARTISTRY-one at SITC last November. The ARTISTRY-one data have continued to emerge since that presentation. As of a December 23 data cut, we'd observed new partial responses in both pembro approved and unapproved tumor types and a safety profile consistent with what we presented at SITC. As of February 11, both patients with partial response that we reported on at SITC had been on therapy for more than a year.
And we'll discuss these results and others in more detail at future medical meetings. Notably, 4,230 is the only IL-two variant program in active clinical development with potential for subcutaneous dosing. We're particularly encouraged by the initial data emerging from ARTISTRY-two. And today, I'll give you a brief overview of some of the initial findings from that study. In the initial escalation cohorts of ARTASTR-two, examining weekly and once every 3 week dosing, the subcutaneous administration of 4,230 showed a pharmacokinetic profile that was consistent with our predictions.
The initial escalation dose also demonstrated biological activity as measured by expansion of effector cells. The emerging data observed thus far in ARTISTRY-two suggest that both the weekly and once every 3 weeks subcutaneous regimens may have potential for improved tolerability profile as compared to the IV dosing regimen. As of the December 19 data cut, there were no reports of serious adverse events related to study drug or discontinuations due to adverse events in the subcu study. In the ongoing dose escalation phase of ARDASRI 2, 11 of 19 patients that were dosed with the 4,230 regimen continue on treatment as of February 11, with 5 of those subjects having received 6 months of treatment or more. In terms of efficacy, ARTISTRY 2 is designed to provide a number of interesting data sets.
Patients enrolled have rapidly progressing disease, and the 6 week monotherapy lead in period has the potential to help demonstrate single agent activity of 4,230. As of the December data cut, 9 of 11 patients with the first scan had stable disease and a majority of these 9 patients continue to have stable disease upon their second scan. As we expand the clinical development program, we're significantly expanding our clinical trial network outside of the U. S. And we're in the process of opening new sites to accelerate enrollment.
We expect the first of these sites to open for enrollment later this quarter. From a strategic perspective, with increased visibility into the potential of subcutaneous dosing regimen and ALKS 4,230's emerging efficacy profile, we're positioned now to evaluate opportunities for strategic collaboration in 2020. With the potential to be complementary with a variety of cancer treatment approaches, collaboration will be key to exploring and maximizing the potential of 4,230 as a treatment option. Next, I'm going to turn to our HDAC inhibitor platform. The Rodent transaction builds on our broad experience in psychiatry and allows us to explore a wide array of neuropsychiatric diseases that are characterized by synaptic loss and dysfunction, such as schizophrenia and depression as well as neurodegenerative diseases like Alzheimer's and Huntington's and other developmental disorders.
HDAC inhibitors are powerful epigenetic regulators that have the potential to drive formation of new synapses in the brain. And by doing so, address some of the most disruptive clinical symptoms that accompany neurodegenerative diseases. HDAC inhibitors have been approved as oncology agents. However, these agents are limited by hematologic toxicities, and it was never clear whether these toxicities could be separated from their prosynaptic effects. HDACs function in association with specific multi protein complexes.
Our chemistry targets these specific subsets, one of which is called co rest, which is directly involved in repression of prosynaptic genes in neurons. This program is advancing with preclinical research and IND enabling activities with a primary focus on HDAC co REST inhibitors for synaptopathies. Anticipating our move into the clinic, we're developing biomarkers and translational tools to give us early insight in clinical development. We are very excited about the biology and chemistry around this platform. This investment is reflective of our long standing commitment to bring new and innovative therapeutic options to patients living with chronic CNS diseases where the unmet medical need is high.
So I'll end there. Our strategy and path to driving value creation for shareholders is clear. We have a $1,000,000,000 top line with growing proprietary commercial products, a commitment to sustain non GAAP profitability and an exciting pipeline in neuroscience and oncology. 2020 will be an important year across the portfolio and we look forward to updating you on our progress. So with that, I'll turn it back to Sandy to run the Q and A.
Great. Thank you, Richard. Rob, we'll now open the call for Q and A.
Thank you, Sandy. And our first question is from the line of Jason Gerberry with Bank of America. Please proceed with your question.
Hey, good morning. Thanks for taking my question. Rich, just first question for me. I wanted to follow-up on your comment about exploring collaboration for 4,230 in 2020. So is it fair to say that everything's on the table in terms of the types of deals you're looking at?
Or are you looking at collaborations where perhaps you can partner with companies to help co fund R and D to explore more combinations with 4,230 in different tumor settings? And then my second question, just the guide on VIVITROL, looks like it implies about a low single digit drag on net pricing. Just sort of curious if you'd characterize that as the trend we should be modeling for VIVITROL on a go forward basis that effectively net pricing is kind of down low single digits? Thanks.
Good morning, Jason. I'll take the first and I'll have Jim and Ian take the second one. So yes, I think it's fair to say conceptually everything is on the table as we look at a 40 to 30 collaboration. The caveat being the objective is to maximize the expected net present value of the whole program. And that's going to be done by increasing the number of tumor types and lines of therapy that we can explore.
What's interesting is that already as the program is progressing, we're being approached to look at all kinds of different because you can see why this IL-two pathway being activated selectively as we're doing it would just conceptually be a reasonable complement to a number of different applications. So the value of the program will be maximized by the scope of the clinical program that we have to support. By ourselves, we couldn't come close to funding all the different opportunities. And we've been waiting to do that until we had enough information to say, okay, we truly have an agent here that is meeting the profile that we designed it to have. And I'm not ready to say we're completely there yet, but all the indications are going that direction.
I think during this year that data set should mature to the point. So I don't know whether we would consummate a collaboration in 2020. We don't need to, it's not really limiting at this point. We have the funding and the capacity to do it. But I think over the course of this year, the data set is going to be sufficiently complete to get a good sense of what this molecule can become.
And Jason, on the pricing, I mean, I think you picked up on 2 competing trends that are happening with VIVITROL. As we typically do, we take our volume growth and extrapolate that forward because it's so hard to predict the changes that happen on a state by state level. And this year, we are predicting a change by a few percentage points in gross to Last year, we're around 48%. We're predicting next year to be 50%. Again, that's largely driven on where the state business comes from because every state has a different Medicaid program.
And so I would say that's really a course of adjustment that we see today. We're not yet ready to see that continuing out in the future. And again, a lot will depend on where we see the growth coming in the future from various states. The last thing I'd say is we're working really hard into 2020 to focus on the alcohol indication for VIVITROL, which is a part of the payer mix that has more commercial payment as opposed to opiates. And so we're working hard there to see if we can counteract that pressure on pricing that we're going to see in 2020.
Great. And if I could just follow-up, is there any impact to the warning letter on VIVITROL baked in the guidance?
No, I think our guidance was developed just in a normal course.
Okay. Thank you.
Thanks, Jason.
Our next question is from the line of Chris Shibutani with Cowen and Company. Please proceed with your questions.
This is Pam Barrett on for Chris. I have a couple of questions. The first one is, looking forward to the next 1 to 3 years and the expenses, R and D and SG and A, what percentage of those do you think would be dedicated to oncology now that you've said you may partner, but that's not for certain?
Well, I think a lot will depend Pam on the exact partnership. I mean, as Rich outlined, there's both commercial as well as scientific logic to partnering 4,230. And I think if we the broadest sense, the way I think about it, if we have a partner, we can probably attack a lot more potential indications and spend a lot of money together with a partner. If Alkermes is pursuing it individually, we'll certainly target that. And the broader guidance I can give you so far for beyond 2020 is that we're committed to our profitability.
And so our investment in R and D across our portfolio will be made with that discipline in mind.
Got it. Thanks. And our next question is specifically about the regulatory path for 3,831. First for schizophrenia and secondly for bipolar disorder. Can you let us know how likely or not you think it would be that an AdCom would be held and why?
Yes. So recall that we filed the NDA for both indications. So we expect if the drug is approved, it will be approved for both indications. And we've taken through the logic of how we arrived at that agreement with FDA. When we received the notice of acceptance of the NDA last month, FDA indicated they had not made a decision yet on an ADCOM.
We are preparing for an ADCOM because 3,831 contains samidorphin, which is a new molecular entity. And by statute, typically FDA would think about taking that to an ADCOM. So we'll prepare for an ADCOM and see what how their guidance evolves as they get further into the review.
Got it. And you would anticipate providing investors updates on whether the AdCom will be happening?
Of course. Thank you.
All right. Thanks, Pam.
The next question is from the line of Umer Raffat with Evercore. I
had 2, if I may. First, perhaps if I could clarify on VUMERITY. My understanding is there's a minimum Biogen will be giving you. I'm not super sure what that minimum is on dollar or percent royalty, if you could clarify for us. It would be really helpful in modeling.
Secondly, on R and D side, I noticed obviously there's a bit of an R and D increase year over year. And we also saw Lilly ARMOUR failed their randomized Cypress trials of lung cancer with the PEGylated IL-ten. So I guess my question is, how are you thinking about your R and D allocation to the IL-two and IL-ten programs? And should or should we not read into the randomized Cypress trials that Lilly Armou conducted? Thank you very much.
Hey, Rupert. It's Rich. Those are both good questions. The VUMERITY minimums or contractual minimums that we expect to be our modeling in Biogen's forecast for us would be exceeded by the 15% royalty. So they're probably not economically operational in 2020 or beyond.
The Lilly failure absolutely affects our planning for IL-ten. It was one thing in pancreatic, but in small cell in combination with nivo and pembro to strike out on both. So we are absolutely reassessing our decision to move forward into the clinic with our IL-ten construct. IL-two unaffected, right? That's 4,230 that's rolling.
And so we're getting more and more positive momentum behind the 4,230 program for the reasons I outlined in my earlier remarks.
Thank you very much.
Our next
question is from the line of Cory Kasimov with JPMorgan. Please proceed with your question.
Hey, guys. This is Matthew on for Cory. Thanks for taking my questions. First one on ALKS 4,230. And based on the updated data you presented today, just curious how you're thinking about the weekly dose relative to the once every 3 week regimen in terms of both PK and biological effect?
It's a super question and we don't know the answer to it yet because we're still escalating in both. Both appear to have differentiated tolerability profile. Both are driving biological responses, but it's too early to tell whether one is better than the other or whether they both might coexist. You can even people have speculated that the idea of induction with weekly and then maintenance on every 3 weeks, but we just don't know yet. But we're quite excited to see these early returns.
Got it. Thank you. And then on VUMERITY, is there a plan to submit regulatory filings outside the U. S? And if so, can you comment on potential timelines associated with this?
I think that question is best directed to Biogen.
Got it. Thanks for taking my question.
You're welcome.
Thanks, Matt.
Our next question is from the line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your questions.
Hi, thanks for taking my questions. Firstly, could you just elaborate on your assumptions regarding the competitive environment for VIVITROL in opioid use disorder in 2020 as well as some of the sources of growth in that business, especially as we're seeing SUBLOCADE gain some traction? And then secondly, I know you touched on it, but could you just provide some additional insight into the alcohol use indication and whether you're seeing growth there and sources of growth as well? Thank you.
I'll take it Brandon. It's interesting. In opioid use disorder, there are really only 3 medicines that are used for the treatment of opioid use disorder. Those being Methadone and buprenorphine and VIVITROL. The first two, whether buprenorphine is used in the injectable form or in the sublingual or tablet form, it's these are both replacement medicines and they're indicated for the maintenance treatment of opioid dependence.
Whereas VIVITROL is indicated for prevention of relapse to opioid dependence following opioid detoxification. So they're really different medicines for different purposes. So I don't see any change necessarily conceptually in the positioning of VIVITROL in 2020 versus 2019 or 2018 or 2017. The principal impediment to growth of VIVITROL in opioid use disorder is the fact that the treatment system has never really been oriented to the use of antagonist medicine. It was born and raised in the opioid replacement philosophy and we've been fighting that and building around it for the last several years and we'll keep doing that.
Alcohol is interesting because you may recall that the first approval for VIVITROL was for alcohol use. And it launched into an environment where medicines really weren't used at all, 12 step programs being the dominant form of treatment. As VIVITROL has grown in opioid use disorder, now something on the order of 10,000 people will go on VIVITROL this week, you've had a much bigger halo circle of physicians and treatment centers that are getting comfortable using VIVITROL. And there's been a virtuous cycle back to its use in alcohol as well. In alcohol, we really don't compete against buprenorphine or anything else.
We compete against the lack of pharmacologic therapy at all. As Jim mentioned in his remarks, it's a different payer mix often in alcohol as well. It's a more commercial oriented payer. So because we've had some growing traction in alcohol in various states, we're going to shift some of our marketing resources more toward alcohol in 2020 and we think beyond. And we'll let you know how that goes, but we're excited about that opportunity.
Jimmy, you want to add to that?
No, I think that's right. And again, so much of it depends on the state by state ecosystem. In some states, you see alcohol being the place where we're starting to make inroads in growth. And I think as Rich said, that offers a really nice growth opportunity for us in 2020 along with state and federal funding that's continuing to come from the opioid crisis. And we think VIVITROL should get its fair share of that as well.
So that's where we're looking to growth in 2020. But since it's hard to predict how we're going, each state performs, we're going to maintain the tradition that we've had of guiding to the current growth rates essentially into the next year.
Great. Thank you. Very helpful.
Thank you. Our next question is from the line of Biren Amin with Jefferies. Please proceed with your question.
Yes. Hi, guys. Thanks for taking my questions. Richard, on ARISTADA, I think you mentioned that you've captured 32% of NRXs in the LAI market. How is that split across institution channels versus community channels?
And then on, the 4,230 in Artistry 1, I think you mentioned that you've the 2 PRs are continuing out to beyond a year. Can you talk about the 3 stable disease patients and if they're continuing, if they progressed or if they've converted to responders? And then on ARTISTRY II, I guess, at SITC, the company was evaluating 0.6 milligram weekly dose and the 1 milligram Q3 weekly dose. So can you just talk about, I guess, the NK and CD8 expansion and how that compared to the QD dosing regimen?
Yes. I won't be able to answer all of those and I'll look to Jim on the first one. In terms of the split on the NRxs and channel, do you know the answer to that Jim?
No. We haven't gone down to that level of detail. And I'd say it's pretty consistent across the institutional and community mental health centers. I think the one place where we've talked about where our national share is below where we'd like to see it is in the VA. With the formulary acceptance early last year and then moving into the individual visions through the year, we think in 2020, we can start to get the VA penetration up to more national numbers.
And just to be clear, the 32% was in terms of months of therapy in the aripiprazole LAI market. We're at about 9% share in the overall atypical LAI market.
And on the forty two-thirty stuff, what I don't want to do is give anything more than we gave in the prepared remarks simply because we made a decision about some incremental data we've put in on the call, but we still want to preserve the ability to present data at upcoming meetings. With respect to the RS3 II though, I will say, as we escalate Q weekly and in Q3 weekly, we do think we'll be mimicking what one can achieve with high dose IL-two with so far looking like a tolerability profile that's different than what we've seen IV. And there's some reasons for that that we'll explain at some later time, but we're quite excited about that. So those escalations continue in both of those dosing duration arms.
Great. Thank
you. You're welcome.
Our next question comes from the line of Douglas Tsao with H. C. Wainwright. Please proceed with your question.
Hi, good morning. Thanks for taking the questions. Just Jim, maybe to start on in terms of the guidance on the SG and A side, I think you indicated that most of the sales force build out for 3,831 will occur in the early part of 2021, just given scheduling. Just curious, are there going to be other pre launch activities that we should account for when we think about the cadence of SG and A through the course of 2020? And then just also curious on 3,831, how much of a significant sales force addition we should expect?
And how much overlap between the script writing base do you see between 3,831 and ARISTADA? Or are they just really 2 different segments in terms of people who are writing LAIs versus patients who are writing something like 3,831?
Thank you.
Yes, you're welcome, Doug. Thanks. Good questions. First on the cadence of SG and A spend, I think it's going to be pretty flat through the course of the year. Obviously, there'll be some variance, but the market development work that we're doing with 3,831, some of which we spent in 2019, We'll continue to do that appropriate education of the disease state area in 2020, but really through a flat cadence as it were.
When it comes to the sales force, I think we're still working on the exact sizing. There certainly is overlap between the targets that we are calling on now with our roughly 200 people with the ARISTADA field force. I think we're talking in the range of 100 to 200 people, not 400 to 500 people as you're looking at launching an oral product. So those Venn diagrams overlap certainly roughly fifty-fifty in terms of the targets with the high value prescribers and certainly institutions that are using LAIs also use, would use oral agents and be logical targets for that. But we'll give some more specificity on that as we do more field work and research, and come to exact decisions about how large our sales force would be.
But hopefully that gives you some parameters in terms of size.
Okay, great.
Thank you very much.
You're welcome.
Next question is from the line of Paul Matteis with Stifel. Please proceed with your question.
Hi, thanks guys. This is Nate on for Paul. Two questions maybe on opposite ends of the business. First off, on aerostatic gross to nets, it seems like I've heard you talk in the past about being able to hold kind of steady around the 50% range. Is that a reasonable assumption still or can we expect it to continue to slide up maybe 1% or 2% a year?
And then secondly, maybe if you can just I know it's very early, but provide us with an update on the HDAC platform and where you are with candidates and when you think you might be able to hit humans or how IND enabling studies are going? Thanks.
Sure. I'll take the first one and then Rich can answer the one about Rodana and the HDACs. In terms of gross nets with ARISTADA, we did see a change this year. I think 2 things really drove that. There was a consolidation, which I would say is probably a one time consolidation in the of the large insurers in the United States, Aetna, CVS, etcetera.
That really drives managed Medicaid business in the various states. And so with larger buying power, that affected our gross to nets a little bit. So the other part is the increasing opportunity we see in the VA. So I think it's hard to predict how those things will change in 2021 and beyond, but I think so I would say modeling it 52% is appropriate for 2020. I wouldn't necessarily take it up beyond that in future years because that consolidation is more of a one time thing And the growth might be related to our growth in the VA, but hopefully we can offset that with growth in broader parts of the lower gross to net part of the business separate from the VA, if that makes sense.
I'll take the question on the HDACs because I know you guys have a lot of background with where Rodan was in their development. It's really interesting to see when you take it out of context of the small venture backed company and put it into our capabilities, which much broader chemistry as well as formulation and biology capabilities. We're running hard now on 3 parallel tracks. Rodan was focused primarily on the large synoptopathies that we talked about, primarily Alzheimer's disease. We are as well, But we've expanded that now to include accelerating the FTD program, the pro granuline program as well as looking at opportunities in oncology.
So, we're doing IND enabling work in that first category, and perhaps in the second category, we hope to nominate Canada by year end.
Great. Very helpful. Thanks guys.
You're welcome.
Our next question is from the line of Akash Tewari with Wolfe Research. Please proceed with your questions.
Hey guys, thanks so much for taking my questions. So I wanted to maybe reconcile some of the comments you were making on R and D spend with what we kind of had in 2019. And I know the K isn't out yet, so I'm going to extrapolate a bit. But for 3,831, let's just say that for your external R and D, there's 31,000,000, VUMERITY, 30,000,000 5.61, 20,000,000 dollars $42,030,000 $34,000,000 and then the other external R and D programs about $70,000,000 If we're going to take down the IL-ten spending, it looks like for 3,831 VUMERITY and 5,461, that should at least decrease over time. Is it fair to say that if consensus is kind of modeling flattish R and D spend over the next few years, you do have some optionality here where it could be a bit lower than what we're kind of modeling at the moment?
And then on VUMERI expectations, and I guess maybe this is a better question for Biogen. But given the TECFIDERA IP win, how should we kind of think about how their switch strategy evolves? And I noticed there's not that much baked in for VUMERI estimates, I guess, in the 2020 guidance. How should we think about that evolving over time? Thanks a lot.
You're welcome. Good questions. I think what I would say about the spend shift between 2019 2020 in R and D is that, you're right, certain things obviously like 5,461 and VUMERITY will be coming down. I think the place where we're focused going forward to the large degree is 4,230 and the expansion there. It's just it is hard to predict just how fast the patients will accrue and exactly what course in each of the therapies that they'll take, how long will they stay on therapy.
And obviously, if it's a study in combination with pembro, that's quite expensive because right now we're purchasing pembro on our own, I think appropriately so as we gather more data there. So the real toggle in 2020 beyond will be 4,230 and that will depend again on the breadth of the program that we have and whether we're spending on it alone or potentially with a partner. I would say, importantly to note though, there is an ongoing study, an early in illness study for 3,831, which as that grows, that will take so that spending for 3,831 is not going to be decreasing as much as you might think if you just said, well, the NDA is filed and so R and D will tail down on 3,831. So we look every year as we make investments in R and D and we'll continue to drive our focus on profitability, but also investing in the pipeline, which can really drive the top line, which is going to get us to where we want to be in the long term.
And this is Rich on the view, Mary, you anticipated my response because I really do think Biogen are the right ones to ask. But I'll give you my 2¢ on it, which is I don't think the IPR victory changed the switch strategy. I think early entry of generics might have. But I think the basic strategy has been to focus on new starts and let the differentiating features of the product reveal themselves over time. So we were pleased with that decision because it just gives a little bit more time for the organized launch and introduction of VUMERIA as a next generation product.
And I think that with Patent Life into the 30s, there's a lot of reasons to evolve this market toward remeridine.
Thank you so much.
Thank you. Our next question is from the line of Marc Goodman with SVB Leerink. Please proceed with your question.
Good morning. A couple of questions. First of all, Rich, can you give us a flavor on what's going on behind the scenes in the oncology business excluding 4,230? What you guys are doing, whether it's molecule specific or just broad changes that are going on behind the scenes? And just to piggyback on the last question, maybe you could just give us a sense of how much you'll be spending on $42,030,000 this year in the R and D budget?
I mean, are we talking $100,000,000 Are we talking more than that? And then second of all, VIVITROL, can you give us a sense of how much of the business today is alcohol versus opioids? Thanks.
Good morning, Mark. I'll take the first and I'll let Jim and Ian on the second 2. There's a couple of different areas we've talked about publicly on the oncology side that we're excited about. 1 is embodied in the IL-two program, which is this idea of engineered cytokines and our way we the ability that we have to engineer proteins as well as antibody constructs in oncology, exploiting known features of cytokines is hopefully that will continue to bear fruit for us. With the caveat that Umer raised on IL-two, on IL-ten, but we have some other things cooking in the labs as well.
The other one is HDACs and oncology, particularly the most immediate adjacency, what we're doing with the Co REST complex targeted HDACs is for neuronal specific brain penetrant HDACs in things like neuroblastoma, medulloblastoma, glioblastoma. So those programs are active right now and we'll see where they go, but that pharmacology obviously for as HTACs is oncolytic agents is established. And then we have some other small molecule stuff going on, Alain, as we haven't disclosed, but hopefully it will get to the point where it's worth talking about in the future.
And I think for R and D spend for $4,230,000 in 2020, we're anticipating an increase as compared to where we were in 2019. I think overall, about 20% of the total R and D budget would be focused on external expenses related to 42.30. And then in addition to that, we have obviously an internal team of people working on the program as well. So that will give you a sense as to how much we're spending in the year.
And then Mark, in terms of the alcohol, opiate split, it's a good question. And as you know, the only way we can really get a look at that is through the prescriptions that come through our hub. That's about 30% of our business. And if you looked at that, the actual percentage of alcohol is moving up a little bit and we predict now that it's about sixty-forty, opiate alcohol being around 40%. Again, that's in the business through the hub.
So it's a little hard to extrapolate on the whole business, but that's the sense that we have and that's why we're focused on trying to drive additional growth in alcohol in 2020.
The next question is from the line of Vamil Divan with Mizuho.
So one on 3,831, just as we're sort of getting closer to potential approval here. Can you share any updated thoughts around the interactions you have with payers? I think there's a lot of questions there in terms of the steps patients might have to go through in terms of getting on therapy. And I guess specifically the question is around, will there be a need for patients to take a generic version of Zyprexa before they'd be able to take 3,831. So any updated thoughts you can share would be helpful.
And then the other one is just on ARISTADA. Just curious, INITIO has been on the market for a little while now. Just maybe just some updated thoughts in terms of the impact that's had on patients starting and has it been had the impact that you expected when you launched that version? Thanks.
Good morning, Vam. I'll take those. The first round of interactions with payers in 2019 was more general about how would you position, how would you treat a new branded, I'll call it, antipsychotic agent. And so actually, it's surprisingly non there aren't a lot of questions. We know exactly what will happen because we've been in this market with Aristotle, which is that patients don't get access to branded medicines until they fail on generic medications often more than once.
The specific answer about a step through on olanzapine, I don't think we'll have a definitive answer on that until we're able to present the clinical data and the label from our as we complete the interactions with FDA. We expect that there's a strong medical rationale not to have forced patients to gain weight or have metabolic perturbances as they cycle through olanzapine. But being the way the world is in schizophrenia, I would imagine at the end of the day, we'll have a range of different access restrictions by various plans ranging from very open access to very restrictive access. But we'll like we did with ARISTADA, we'll sequentially seek to knock those down over time. But we know going in and anybody launching into the schizophrenia market should know that you're going to be you're going to be stepped through generic medications before patients get access to branded medications.
And the countervailing force of course is that just almost everybody does cycle through multiple generic medications and there's a tremendous amount of unmet need out there. In our case, we really feel like that the principal unmet need is efficacy And that's what we're bringing.
Yes, great. Bala, hi, it's Jim. In terms of the INITIO and its impact on launch, I would say that INITIO is very much related to our 2 month dosage form. That's the focus that we are educating the market around and I think that we're having a nice response from the market. And the 2 month is growing very nicely.
It's now over 30% of our total scripts and that's directly related to INITIO. So that's a major differentiation between the other LAIs as you know, to be able to come in and start in a matter of days and leave your place of therapy with 2 months of medication on board with ARISTADA is a very, very important opportunity for patients and physicians. So I'd say INITIO tied to 2 months, that growth is really going quite nicely and we expect that to continue to grow.
In fact, I'll put a finer point on that even for Guilamo. The marketing message for ARISTADA as it evolved from its original approval through the approval of the multiple elements of the product family. In 2020, it's very much focused down on what Jim just said, INITIO plus 2 month. It's a really differentiated offering in the marketplace. It's 6 injections, 6 interventions across the year, and you can provide therapeutic concentrations of a very well tolerated, highly efficacious medicine.
And that regimen was supported by a large Phase 3 study called ALPINE, which we unblinded in the middle of last year. So all roads are pointing toward right now the clarity of message around the INITIO in 2 months.
Okay, thanks.
Thank you. The next question is from the line of Terence Flynn with Goldman Sachs. Please proceed with your questions.
Hi, this is Holly Barra on for Terence. Thanks so much for taking the question. 1 on 42,030, what would you like to see from the ongoing combination trial to advance the drug forward and continue to invest resources there? Thanks so much.
Well, I think you could probably answer that question yourself. I think what we want to see is the efficacy of this medication. We already have biological activity and tolerability profile of it. Now we're investigating its efficacy as an oncology agent in a number of different settings, both as monotherapy and then in combination with, at the moment, IO agent like pembrolizumab, both in settings where pembro was approved and in settings where pembro by itself has not been approved. So what we're hoping is that 4,230 can unlock additional biological potential of the PD-1s and also open up new areas of cancer treatment that are currently unavailable to patients if they're looking for a treatment with PD-one.
Then beyond that, we think that the 4,230 can be an effective combination agent with a number of other non IO agents as well across a number of different treatment settings and lines of therapy. So we have a lot to learn about 4,230. So encouraging to us is that the basic the hurdles that we set for ourselves in advance to get over to convince ourselves that we have an active agent here, We are sequentially crossing each of those hurdles successfully. So I think our optimism is growing.
Okay. We have time for one more question please, Rob.
Hi. The question will be coming from the line of Danielle Brill with Piper Jaffray.
Hi, guys. Good morning. Thanks for the question. Just a quick follow-up on the HVAC platform. Curious how you're thinking specifically about the opportunity considering gene therapy approaches targeting progranulin are already entering the clinic.
And I may have missed this, but how soon do you think you could get your granuline program into the clinic? Thanks.
Yes. Good morning, Danielle. Good questions, because the FTD program is one that I'm not ready to say that we've got a horse in this race yet. I know that we have a really strong hypothesis and the chemistry is promising. And I could I think our scientists would make the argument, it's not clear that gene therapy approach would be necessarily superior to a small molecule, a well tolerated oral small molecule, given the regional distribution in the brain of where you might want pro granuline expression.
So if we can if we have highly penetrant drugs that are both driving pro granuline as well as increasing synaptogenesis, that could be very interesting. But I think there's still plenty of risk here. I'm not ready to be ready to say that we
were better or worse than
anybody else. I understand. Thank you.
You're welcome.
Thank you. We've reached the end of the time allotted for today's question and answer session.
I will now turn the call over
to Sandy Coombs for closing remarks.
Great. Thank you, everyone, for joining us on the call today. If you have any follow-up questions, please feel free to reach out to us at the company.
This concludes today's conference. You may now disconnect your lines at this time. We thank you for your participation.