All right. Hi, good afternoon. Thanks for joining us. So this is the Alkermes PLC Fireside Chat. I'm James Talbot. I'm a member of Morgan Stanley's investment banking team, and I am very happy to be joined by Richard Pops, Chairman and CEO of Alkermes, and Blair Jackson, who's EVP and COO. Before I start, I'm told I need to read a disclaimer. So for important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales rep. So with that, Rich, Blair, great to see you. Thanks for being with us again this year. So, you know, I was reflecting on what's happened since we were here a year ago, and it's a pretty long list, right? So we've had great initial data for ALK-2680 .
You've separated out your oncology business, you've sold your Athlone manufacturing facility, you started a share repurchase program, so there's a lot been going on. Maybe with all of that, just to start us off, you could give us an overview of how you see Alkermes today, what the portfolio looks like, and then really where you're focused as a business.
First of all, good to see you, James, and thanks for having us again. One good bureaucratic admonishment deserves another, so I'll say we will make forward-looking statements today, and we always refer you to our SEC disclosures, where we try to describe the risk factors that face the company. They're important, and there are many. It's been a busy year. I was reflecting on that, and it doesn't seem like a full year ago that we were together at the Sheraton, talking about what was to come ahead in the year. Everything that we hoped that could come through effectively did, and we were really in the early stages of the clinical development program for ALK-2680 and narcolepsy.
We were in the throes of the spin in the oncology business. Separating the Athlone facility was a glimmer in our eye. It wasn't clear that we were going to be able to pull that off. And becoming what we emerged in February of this year, so clearly a pure-play neuroscience company with a billion-dollar top line, strong profitability, and a pipeline. That was the goal, and that's what we've been able to achieve in a complicated environment. It's interesting now, as we talk to investors today and over the course of the summer, the investment thesis in the company is really crystallized in a pretty simple way. We have a very strong base business that's quite profitable, but the error bars around its outcomes are fairly narrow now.
You can model it, and you can see where it's going to go and what's and people will have different impressions of what the base business valuation is, but they're within a fairly constrained bandwidth. The gapping valuation potential is with the pipeline, namely with what we're doing in the rexin space, and the progress along that line over the last year has been exceptional. So we find ourselves now in the midst of a phase II program that we think will is designed to answer the key remaining questions about this drug and this therapeutic category. I think a year from now, when we sit down, I think it'll be a completely different environment entirely 'cause we should be on the brink or with those data close at hand.
So we're feeling really good about executing against the plan that we set and where we stand along that path, that pathway.
Great. So, look, let's start with Orexin. And maybe just to take a step back. You know, what led you to focus on the sleep market? And really from a couple of different perspectives. Like, you know, what was it about the patient need that you saw in that market? And then also from an Alkermes perspective, what gave you the, you know, what gives Alkermes really the right to win in this space?
It's a perfect example, and when they write the Harvard Business School case about this, about a number of things that characterize biotechnology, which is at the core of it, the scientific meander that happens when you have smart people doing important research. We were interested in circadian rhythm, and we're a CNS company. We've been interested in many circuits in the brain, but circadian rhythm was one we were quite interested in. And that led then to a recognition of disrupted circadian rhythm, disrupted sleep, and the clinical implications thereof. We watched another company, one other company in particular, advancing in this space, and we said, "You know what? This is a classic Alkermes opportunity." In that the biology was quite highly validated.
Academic labs and industrial labs have been confirming the fact that this circuitry in the brain drives wakefulness in a natural, human, diurnal way. The trick was a chemistry trick, actually. So the biology was a bit fairly credentialed. The idea was, could you design a molecule to mimic what a natural neuropeptide does inside your brain? And that requires making a small molecule that mimics what a peptide does, taking it in your mouth once a day, getting it into your bloodstream, into your brain, into that receptor system at concentrations that are consistent over the course of a twenty-four-hour day with the natural sleep-wake cycle. So it's a complicated project, and we like those.
Great. So, look, I mean, there are a number of programs being developed in the field. How do you-- Look, and recognizing it's early, how do you see twenty-six eighty fitting into that field, and where do you see the points of differentiation?
What's fascinating is that as each molecule goes into the clinic, they're separating naturally based on their natural attributes. There are a sufficient number of optimization domains in making these molecules, and some of which I just ticked off, that the probability of them all looking the same is actually quite low, and indeed, that's what's happening. So the first generation of molecules went into the clinic, and one failed, notably because of liver toxicity, which was idiosyncratic to that drug. Another drug went in, which was a more potent drug, looks like a more viable drug, but it has to be given twice a day in a single indication. The drug so far has been useful in both NT1 , NT2 , and idiopathic hypersomnia at a range of doses that are quite potent and line up linearly in a really attractive way.
That the NT one doses fit adjacent to the NT two doses in a continuous form. From a commercial perspective, if we get that far, rather than having a single dose and a single indication, what we'll have is a range of doses across a range of indications. In a clinical presentation, that is often. It's difficult to determine what a patient, whether they have NT one, NT two, or IH. So being able to address the clinical needs of the patient, the symptomatic needs of the patient, without having to make that specific differential diagnosis, we think is going to be really important.
Great. So you put out detailed data on NT1 fairly recently. You've got data coming out in NT2 at the sleep conference later this month. Could you just maybe frame what we should expect in terms of what we'll see in that data set?
What you'll see is consistent with what the top-line press release we put out in April. We felt it was important for investors to basically put out the critical bits of the data early on, so people could see-
Mm.
If there were any safety issues in particular that we were concerned about. What you'll see in Spain is an oral presentation on the NT two and a poster presentation on the IH. What you'll see is this very consistent dose response, good tolerability, but also without any curation of the type of patients we admitted into the study. Unlike NT one, where many of the patients will have very short sleep latencies. If you put them into a clinic to measure their wakefulness time, they'll fall asleep very quickly. Certain NT two patients will stay up, in a 40-minute test, could stay up 20 or 30 minutes, whereas an NT one patient might stay up 5 minutes.
And there's a way, if you design a study in a certain way, you might exclude people who have long sleep times because you can't change them as much. We didn't exclude anybody. We said all comers. And you'll see in the data-
Mm.
We have a range of baseline wakefulness in the NT two and the IH patients. It ranged from a single-digit number of minutes to, you know, approaching thirty minutes. But even against that backdrop, a very consistent dose response at the doses that we showed. So tolerability, dose response, dosing flexibility, magnitude of clinical benefit, I think that's all on display.
Great. So you started a phase two program for NT1 and NT2, the Vibrant studies. You've now announced you've officially kicked off enrollment for both of those, or kicked off the program for both of those two studies. Can you first remind us just the trial design, what you're looking at in those two studies? And then second, give us an update in terms of how the enrollment or at least the initiation is progressing.
One of the refreshing things about this clinical setting, in contrast to work we've done, for example, in the past, in depression or schizophrenia, where you've got endpoints that are based on asking people how they feel over large patient populations with high placebo response. These designs in narcolepsy are very tight. They're parallel designs. In both cases, we've selected three doses, so patients will be randomized to either one of three doses or placebo. There's a six-week double-blind period. The endpoint is measuring their wakefulness in that MWT test, and with the NT1 patients, also looking at their cataplexy rates. And then, patients go into a seven-week period of open-label extension for safety and also for them to choose the dose. And in that phase, we'll learn. It'll be interesting to see which dose they choose.
They'll all centralize on the middle dose, and then they'll equilibrate to where they want to go. So both of them are effectively the same design. So at the end of the phase two program, we'll have randomized controlled safety, tolerability, and efficacy data across multiple doses, six different doses, two different diagnoses, going in then to, I think, a really, really high fidelity for phase three.
Fantastic. Last one in this area. Look, as we look beyond ALK-2680, what more should we be expecting from Alkermes in terms of additional developments in the sleep area?
Stay tuned. We're gonna. It'll be beyond sleep, but I think if you recognize what this orexin pathway does in the brain-
Mm
... its projections from the hypothalamus to different parts of the brain, it affects things other than just wakefulness during the day. It affect a number of different things, and we've been interrogating a lot of that preclinically in the company. So later in October, we're gonna have a bit of a. We'll just do a webinar on the other clinical indications that we're going. We have nominated additional orexin candidates to go into the clinic. Some of them will go after some of these, these-
Mm
... orphan type indications, high-priced indications. But then there's some other indications that I think are really exciting, that could be much broader patient populations, where driving significant wakefulness during the day and/or other cognitive benefits or behavioral benefits, could be really exciting. We'll tell you more about that.
Great. Let's switch to the commercial portfolio, and I guess before we get into specific products, I want to touch a little bit on the guidance for the year, so at the second quarter, you reaffirmed your guidance for the full year. Could you give us a sense on how to think about the shape of the financials, both on the revenue side and the cost side, as we look forward through the last couple of quarters of the year?
I'll give you a couple comments, and then I'll turn it over to Blair, who's been, you know, really deeply involved on the cost side and on the revenue side of what we've been doing. So there is a certain seasonality to our business, and so far, it's playing out exactly as we thought. You know, with a relatively flat Q1 to Q4 growth resuming in Q2, and then expenses and recognizing that as we model each year, budget each year, allocating expenses across that year to hit our targets. So Blair, why don't
... Yeah, I think we'll start with the proprietary products, and I think for this year, as we go from Q2 to Q3, the typical seasonality we see is relatively flat. Usually, we see that every year, and then we see growth into Q4. That's fully what we expect with our proprietary products for the remaining part of the year. Where we do see some differences between the beginning half of the year and the back half of the year is on the expense side, but specifically on the SG&A line.
Mm-hmm.
We've actually did a lot of front loading of the marketing mix for our products in the front half of the year.
Mm-hmm.
So you should see a decline quarter over quarter from Q2 to Q3 to Q4 with regards to our SG&A spend. Where we have a lot of variability over the next little while, actually is more in our manufacturing and royalty element of the business. Specifically, I think we have three key things. One is Invega Sustenna. This is the year that the Invega Sustenna U.S. royalties come off. They came off in the middle of August, and so that has an impact on the business as we move into the back half of the year. The next piece is actually the sale of our Athlone facility, so that's created a number of transition dynamics with regards to our business.
One, around Vumerity, we're transitioning from a position where this facility would manufacture Vumerity on behalf of Biogen to where they'll be manufacturing on behalf of themselves. So what that means is, we'll be transitioning from a manufacturing cost plus basis of revenue line to an increase in royalty of 1% for all product that's made outside the facility. So our margins will remain the same, but you'll see a drop in revenue through the back half of the year associated with that. We also have a couple of other items that were manufactured in that facility, where the reimbursement for that activity will be in the back half of the year. So you'll see a little bit of a gap between Q3 and a rise in Q4 associated with those products.
So if you bring that all together, the overall EBITDA margin for the business, you'd probably see a small decline from Q2 to Q3 and a sharp increase in Q4 as all the savings and revenues pull through in that quarter.
Got it. That's extremely helpful. Let's talk specifically about Lybalvi. So you had another strong quarter in the second quarter. I think growth was more than 50% year over year. During your earnings call, you noted that you'd signed two new contracts that gave you access to another 50 million lives. So that's great news. How should we think about these contracts in terms of the impact on Lybalvi's growth trajectory going forward?
Yeah, I mean, it really can only help the trajectory as we move forward. I think one of the things that's been really beneficial with regards to Lybalvi is that physicians have really wanted access to the medication over the last few years. So despite the fact that we didn't have contracting-
Mm-hmm
...they were willing to put the work in to work through some of the hurdles that were in front of us and get that medication in patients' hands. By signing these contracts, what we've been able to do is remove some of the hurdles in front of getting those prescriptions filled. So at net net, what it really does is it makes it easier for these physicians to put the drugs in patients' hands and allows them to consider more commercial payment, the patients as part of the business portfolio. And we've seen really, as we look at those individual accounts, we've seen pretty much an immediate impact on an increased use within those channels. So we think it'll be very beneficial for the business going forward.
That's great. I guess, you know, from a total covered lives standpoint, where are you at this point? And as we look forward, you know, what, what's the opportunity for more of these contracts to come online? Is, you know, is there a steady pipeline or is this gonna be quite lumpy?
Yeah, I mean, we haven't gone through the total covered lives. It's not something we generally talk through, but what we can say is this year, the key contracts that we did were with two of the three largest PBMs, and that's what generated that extra 50 million additional lives access. So I think the third will likely, you know, continue to talk to and hopefully have an opportunity to contract with moving forward. And then you could expect some marginal contracting around some of the government pay side here and there.
Mm-hmm.
But largely, we're almost on par with all the other brands that are out there, and that puts us in a really good spot for Lybalvi as we participate kind of in that switch market-
Yep
... with the other brands.
Got it. You talked a little bit about the trajectory for the cost base. I guess, specifically on Lybalvi, right? It's a place where you've seen good results from putting effort behind the brand. How are you thinking about the commercial effort behind the product at this point, both on the sales force side and on the DTC side?
Yeah, it's a really timely question because as we rolled through this year, this is really our second year we've had full marketing behind the program, and we're really seeing a strong response. So both responses in unaided awareness, pull through at the physician level, and I think we've been really able to get our message out there to physicians about Lybalvi and the benefits of this novel drug. I think it gets complicated as we move into next year as the competitive dynamic ramps up a lot. A couple of the things that we're gonna be looking at is Intra-Cellular and the expansion of their indications, potentially in some other areas, but also the launch of the BMS drug that they purchased from Karuna.
And with that, we expect a lot of activity in the space, but mainly around direct-to-physician activity, as well as sales force. And so we wanna make sure that we have a strong share of voice in this space, and one of the things we're looking to do is look at the relative investment in our marketing mix as we move into twenty twenty-five. That could involve moving some of the money from other areas of market, of marketing into perhaps small sales force expansion. What we're doing is working through those things right now, and we'll guide to that as we move into the new year.
So you mentioned the Karuna product. So KarXT, the PDUFA date is coming up at the end of this month. How do you see that? Look, I mean, obviously, we need to, that needs to get approved, but, you know, assuming that gets approved, how do you see that impacting the market and impacting Lybalvi?
Look, I think a new drug in the space is incredibly beneficial overall. Mainly, this is an area that's been crying out for new mechanisms. And I think what you see with this is sort of the first embodiment of the muscarinic. They could bring a new level of treatment to these physicians, but they come with a very, just a very different profile than you see with the traditional medications, so I think it's gonna be remain to be seen how this first embodiment of a twice-a-day medication will work within the physician base. I think what will be interesting is, as you have more of them come out, Cerevel and perhaps Neurocrine, and you know, I think it could be a very important class.
I think importantly, though, as you think of this physician or patient group, they're desperately in need of new medications, and we'd envision them really integrating into the switch market that we participate in. And really, these patients are gonna try their medication. They'll likely ultimately land on our medication at some point-
Yeah
... just by the nature of the flow of the patients here.
Yep.
The other thing I think is important is as you think of Lybalvi, it comes with a really strong pedigree of the use of olanzapine for, you know, decades. And I think with that, the recognition of the strong efficacy and the benefits that it comes with it. So I think we occupy a little bit of a unique area within the space.
Mm-hmm.
I don't see a significant shift in where Lybalvi will go based on KarXT, other than the competitive dynamics with the noise in the space.
Sure. Okay. Let's talk about Aristada for a moment. So we've seen some softness in the long-acting injectables market. We've also frankly seen one of your competitors, Indivior, discontinue their own long-acting product, Perseris. Could you just talk a little bit about what you're seeing in that market specifically, and then how do you see it evolving, right? What are the risks? What are the opportunities?
Yeah, I, I'll start first with just the Perseris. I think it's a perfect example of... This is an area that is where the benefits of the drug and the convenience and the attributes of the product that you put out there are very, very important. You see, we really worked hard to get that into Aristada and really provide a lot of options to these patients and physicians. What we have seen over the last year is a little bit of a softening of the LAI market, just in the utilization of LAIs-
Mm-hmm
... year on year. And we're seeing it across the class overall. So I think that, as we move into twenty twenty-five, one of the things that we're looking to do is continue to bolster our education to physicians on the use of LAIs. If we do enhance the sales force, that will also inure to our benefit. I think the one thing that, as you look at the new entrants coming in over the next little while, they tend to play in different therapeutic areas, so across different molecular modalities. So typically, you'll see an olanzapine will play within the olanzapine market. So our key competitor are Aristada-based products.
Yep.
So it's really Abilify Maintena and Aristada that tend to operate side by side. So, you know, the hope is as you have someone like Teva and others come into the marketplace, talking about the benefits of LAIs, that'll help bring forward more injections, which would benefit the whole class.
Great. Just to finish the proprietary portfolio, maybe on Vivitrol, you could just give us an update in terms of what you're seeing with that product?
Yeah. So Vivitrol continues to be a surprising product, so we still see growth on the product, it really double-digit growth within alcohol dependence. And we see a small decline in the opioid dependence category. So right now, our business is about 80% on the alcohol dependence side, which is really interesting because it's just a different marketplace than the opioid dependence area. And we see broad utilization across the country and in many states, with California probably being our largest, the largest growing state. But what's interesting is, as we continue to talk to physicians, they're finding more and more patients that are amenable to this product. We're really scratching the surface on the alcohol dependence side, so we see a nice, steady growth for the foreseeable future.
Yep. That's great. I mean, given the size of the issue on the opioid front, what's the constraint that's holding the product back on that side of the business at this point?
I think it's really the key attribute with the opioid dependence space is the market has really shifted towards a harm reduction stance, which is the utilization of things like buprenorphine and others into this space. And so as physicians embrace that, one of the things that we need to do with Vivitrol is it requires a detoxification in that setting, and there's less and less physicians who are doing the detoxification. And so it's become an important business within the area, the core area that we work in, and we service our physicians and patients religiously. But where we see the future growth is really on the alcohol side, where you don't require-
Yep
... that detoxification, and it's a more holistic treatment environment.
Okay, that's helpful. Switching to the royalty portfolio. So I think you covered some of this earlier, but you've lost the Invega Sustenna US royalty as of mid-August. Can you just talk a little bit about the rest of that franchise? Do you think there's more durability with the rest of those other products?
Right. So the rest of the franchise really consists of the three-month formulation of the Invega and the six months, the Hafyera, as well as some of the ex-US elements of the product. And so we see those key royalties-
Mm-hmm
... going away in the middle of 2030. And so, you know, right now, the Invega component comprises about 70% of our total royalties, so it's a significant change to that profile. But it's something we've been working to as a company to transition over the last few years, and we've driven that through the growth of our proprietary products, really shifted the business in that direction.
Mm-hmm. Okay. I think last question from me was really on the BD front. So look, from a BD standpoint, I think you're in a very strong position, right? You've got a strong balance sheet, highly profitable, you know, commercial organization, development organization that can be leveraged. So look, I guess with that as context, right, how are you thinking about the BD opportunity? And I guess from a few different perspectives, areas of focus, size of focus, and then, you know, in terms of stage of development, where are you spending time?
Yeah, look, I think, BD is an important component of the business as we move into the next phase. So we've really spent the last couple of years focusing on the cost model of the company, driving our proprietary revenues.
Mm-hmm.
We're now at a spot where we're generating significant cash for the business, and we have a really exciting program with the Orexin franchise. But there's room in the business for us to do additional things. We have an infrastructure that's both on the commercial side and on the development side that could handle additional things. I think we have a pretty strong track record of identifying and developing drugs within the CNS space. I think as we look at assets for kind of BD, M&A opportunities, we want things that are really fit within our paradigm of how we think of treatment. So we typically, we tend to work in credible biology.
We tend to work on things that have, you know, maybe they need a molecular change, or maybe they need some PK/PD formulation or work that we need to address. Those are the type of assets that can be really attractive for us, and so mid stage, early stage tuck-ins, clinical stage assets, those are very attractive. Our plan as we move forward is to address or to run the business in a profitable way for the foreseeable future, and so we wanna make sure that whatever assets we bring in fit within that paradigm, and then that's whether or not we do commercial assets or whether or not we do clinical stage development assets.
Great.
Let me just amplify that for a second, because operating the business within the parameters of strong profitability is actually a really good thing to do. It differentiates you from many investors. Many investors can't invest in non-profitable companies, or to state it alternatively, many investors who otherwise wouldn't look at biotech companies can when you have a profitable business. But also it forces competitive capital allocation in the R&D portfolio, which is also really healthy as well. So as Blair said, we have room in the P&L to run the business profitably while expanding the portfolio judiciously and within the constraints of what an R&D budget, we think would be appropriate.
Great. Any questions from the floor? I think with that, any closing comments, Rich?
We really haven't talked about the overall macro environment, and I think that it's gonna be a tricky election season for everybody. But I think that Alkermes is quite well positioned in the sense that we've been... You've heard me say for years, we live in a post-apocalyptic world and have for a long time. Our price points are lower. We deal with the government as the payer in many situations. Our gross-to-nets are high, so we figure out how to thrive in that environment. So we're less worried about structural changes in the pharmaceutical world going forward than perhaps certain other companies might be.
With that said, I think that this Orexin program is both by design and by luck looks like just about the right place you wanna be in a going forward basis. I.e., a small molecule, single orphan indication, large market opportunity, established regulatory pathway-
Yep.
High price points, real value to patients, and a limited competitive space. So you'll hear us talking, whether we want to or not, with investors, a lot about Orexin, because that's obviously captivated the attention of many people. But as I said earlier, if we can modulate this circuitry in the brain in a safe, well-tolerated way, it begins with narcolepsy, but it extends into many other therapeutic opportunities. And we're really excited about that, and you'll hear more about that later this year.
Great. Maybe with that, we'll close. So thanks, thank you both for joining us.
Great. Thank you, James.
Thank you.