UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-35299
ALKERMES PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
Ireland |
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98-1007018 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
Connaught House
1 Burlington Road
Dublin 4, Ireland
(Address of principal executive offices)
+ 353-1-772-8000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x
The number of shares of the issuers ordinary shares, $0.01 par value, outstanding as of January 28, 2013, was 133,167,011 shares.
ALKERMES PLC AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2012
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Condensed Consolidated Balance Sheets December 31, 2012 and March 31, 2012 |
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3 |
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4 | |
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5 | |
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6 | |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
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19 | |
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32 | ||
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32 | ||
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33 | ||
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33 | ||
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33 | ||
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33 | ||
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33 | ||
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34 | |
Exhibit Index |
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Ex-31.1 Section 302 Certification of Chief Executive Officer |
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Ex-31.2 Section 302 Certification of Chief Financial Officer |
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Ex-32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer |
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Item 1. Condensed Consolidated Financial Statements:
ALKERMES PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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December 31, |
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March 31, |
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2012 |
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2012 |
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(In thousands, except share and per |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
135,892 |
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$ |
83,601 |
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Investments short-term |
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73,412 |
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106,846 |
| ||
Receivables |
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119,835 |
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96,381 |
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Inventory |
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45,686 |
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39,759 |
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Prepaid expenses and other current assets |
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12,697 |
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12,566 |
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Total current assets |
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387,522 |
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339,153 |
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PROPERTY, PLANT AND EQUIPMENT, NET |
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292,186 |
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302,995 |
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INTANGIBLE ASSETS, NET |
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586,315 |
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617,845 |
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GOODWILL |
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92,740 |
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92,740 |
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INVESTMENTS LONG-TERM |
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29,976 |
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55,691 |
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OTHER ASSETS |
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23,024 |
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26,793 |
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TOTAL ASSETS |
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$ |
1,411,763 |
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$ |
1,435,217 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
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$ |
67,655 |
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$ |
79,154 |
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Deferred revenue current |
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2,874 |
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6,910 |
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Long-term debt current |
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6,750 |
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3,100 |
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Total current liabilities |
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77,279 |
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89,164 |
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LONG-TERM DEBT |
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362,349 |
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441,360 |
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DEFERRED REVENUE LONG-TERM |
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9,140 |
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7,578 |
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DEFERRED TAX LIABILITIES LONG-TERM |
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32,932 |
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34,512 |
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OTHER LONG-TERM LIABILITIES |
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10,124 |
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8,751 |
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Total liabilities |
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491,824 |
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581,365 |
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COMMITMENTS AND CONTINGENCIES (Note 15) |
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SHAREHOLDERS EQUITY: |
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Preferred stock, par value, $0.01 per share; 50,000,000 shares authorized; zero issued and outstanding at December 31, 2012 and March 31, 2012, respectively |
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Ordinary shares, par value, $0.01 per share; 450,000,000 shares authorized; 132,733,001 and 130,212,530 shares issued; 132,419,749 and 130,177,452 shares outstanding at December 31, 2012 and March 31, 2012, respectively |
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1,324 |
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1,300 |
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Treasury stock, at cost (313,252 and 35,078 shares at December 31, 2012 and March 31, 2012, respectively) |
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(5,375 |
) |
(571 |
) | ||
Additional paid-in capital |
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1,429,573 |
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1,380,742 |
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Accumulated other comprehensive loss |
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(2,661 |
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(2,713 |
) | ||
Accumulated deficit |
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(502,922 |
) |
(524,906 |
) | ||
Total shareholders equity |
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919,939 |
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853,852 |
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
1,411,763 |
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$ |
1,435,217 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
ALKERMES PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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December 31, |
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December 31, |
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2012 |
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2011 |
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2012 |
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2011 |
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(In thousands, except per share amounts) |
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REVENUES: |
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Manufacturing and royalty revenues |
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$ |
118,274 |
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$ |
112,780 |
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$ |
363,981 |
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$ |
215,759 |
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Product sales, net |
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15,917 |
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10,597 |
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43,481 |
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30,170 |
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Research and development revenue |
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1,718 |
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2,266 |
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4,664 |
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13,575 |
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Total revenues |
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135,909 |
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125,643 |
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412,126 |
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259,504 |
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EXPENSES: |
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Cost of goods manufactured and sold |
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38,914 |
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42,752 |
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122,475 |
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76,501 |
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Research and development |
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31,319 |
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40,493 |
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104,213 |
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96,703 |
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Selling, general and administrative |
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29,867 |
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35,469 |
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91,079 |
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103,200 |
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Amortization of acquired intangible assets |
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10,549 |
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11,896 |
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31,530 |
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13,713 |
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Total expenses |
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110,649 |
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130,610 |
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349,297 |
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290,117 |
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OPERATING INCOME (LOSS) |
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25,260 |
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(4,967 |
) |
62,829 |
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(30,613 |
) | ||||
OTHER (EXPENSE), NET: |
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Interest income |
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155 |
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350 |
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670 |
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1,235 |
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Interest expense |
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(4,703 |
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(10,458 |
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(37,521 |
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(18,019 |
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Other (expense) income, net |
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(49 |
) |
345 |
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1,597 |
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770 |
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Total other (expense), net |
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(4,597 |
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(9,763 |
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(35,254 |
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(16,014 |
) | ||||
INCOME (LOSS) BEFORE INCOME TAXES |
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20,663 |
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(14,730 |
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27,575 |
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(46,627 |
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INCOME TAX PROVISION |
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4,405 |
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98 |
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5,591 |
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3,694 |
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NET INCOME (LOSS) |
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$ |
16,258 |
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$ |
(14,828 |
) |
$ |
21,984 |
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$ |
(50,321 |
) |
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EARNINGS (LOSS) PER ORDINARY SHARE: |
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Basic |
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$ |
0.12 |
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$ |
(0.11 |
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$ |
0.17 |
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$ |
(0.46 |
) |
Diluted |
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$ |
0.12 |
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$ |
(0.11 |
) |
$ |
0.16 |
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$ |
(0.46 |
) |
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WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING: |
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Basic |
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132,097 |
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129,670 |
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131,202 |
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109,645 |
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Diluted |
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137,497 |
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129,670 |
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136,216 |
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109,645 |
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COMPREHENSIVE INCOME (LOSS): |
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Net income (loss) |
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$ |
16,258 |
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$ |
(14,828 |
) |
$ |
21,984 |
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$ |
(50,321 |
) |
Unrealized gains (losses) on marketable securities, net of tax: |
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Holding gains (losses), net of tax |
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134 |
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27 |
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561 |
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368 |
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Less: Reclassification adjustment for gains included in net income (loss) |
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(1,030 |
) |
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Unrealized gains (losses) on marketable securities |
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134 |
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27 |
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(469 |
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368 |
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Unrealized gains (losses) on derivative contracts: |
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Unrealized losses on derivative contracts |
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(33 |
) |
(72 |
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(276 |
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Less: Reclassification adjustment for losses included in net income (loss) |
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594 |
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Unrealized losses on derivative contracts |
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(33 |
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522 |
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(276 |
) | ||||
COMPREHENSIVE INCOME (LOSS) |
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$ |
16,392 |
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$ |
(14,834 |
) |
$ |
22,037 |
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$ |
(50,229 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ALKERMES PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Nine Months Ended |
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December 31, |
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2012 |
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2011 |
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(In thousands) |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) |
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$ |
21,984 |
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$ |
(50,321 |
) |
Adjustments to reconcile net income (loss) to cash flows from operating activities: |
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Depreciation and amortization |
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55,430 |
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27,251 |
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Share-based compensation expense |
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26,835 |
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21,743 |
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Deferred income taxes |
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(1,580 |
) |
(11,239 |
) | ||
Excess tax benefit from share-based compensation |
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(4,354 |
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(3,127 |
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Loss on debt refinancing transaction |
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12,129 |
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Prepayment penalty in connection with debt refinancing |
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(2,800 |
) |
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Principal payments on long-term debt attributable to original issue discount |
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(2,657 |
) |
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Other non-cash charges |
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4,903 |
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2,664 |
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Changes in assets and liabilities, excluding the effect of acquisitions: |
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Receivables |
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(23,454 |
) |
(22,050 |
) | ||
Inventory, prepaid expenses and other assets |
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(7,753 |
) |
(8,052 |
) | ||
Accounts payable and accrued expenses |
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(7,190 |
) |
23,971 |
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Deferred revenue |
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(2,473 |
) |
1,398 |
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Other long-term liabilities |
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2,227 |
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Cash flows provided by (used in) operating activities |
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71,247 |
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(17,762 |
) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property, plant and equipment |
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(13,958 |
) |
(8,859 |
) | ||
Sales of property, plant and equipment |
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74 |
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3 |
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Promissory note issued to Civitas Therapeutics, Inc. |
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(1,116 |
) |
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Acquisition of Elan Drug Technologies, net of cash acquired |
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(494,774 |
) | ||
Investment in Acceleron Pharmaceuticals, Inc. |
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|
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(231 |
) | ||
Purchases of investments |
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(161,508 |
) |
(159,322 |
) | ||
Sales and maturities of investments |
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220,188 |
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267,604 |
| ||
Cash flows provided by (used in) investing activities |
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43,680 |
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(395,579 |
) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from the issuance of ordinary shares under share-based compensation arrangements |
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17,513 |
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16,573 |
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Excess tax benefit from share-based compensation |
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4,354 |
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3,127 |
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Proceeds from the issuance of long-term debt |
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368,557 |
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444,100 |
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Employee taxes paid related to net share settlement of equity awards |
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(4,804 |
) |
(3,522 |
) | ||
Principal payments of long-term debt |
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(448,256 |
) |
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Cash flows (used in) provided by financing activities |
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(62,636 |
) |
460,278 |
| ||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
52,291 |
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46,937 |
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CASH AND CASH EQUIVALENTS Beginning of period |
|
83,601 |
|
38,394 |
| ||
CASH AND CASH EQUIVALENTS End of period |
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$ |
135,892 |
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$ |
85,331 |
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SUPPLEMENTAL CASH FLOW DISCLOSURE: |
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Cash paid for interest |
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$ |
22,431 |
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$ |
13,482 |
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Cash paid for taxes |
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$ |
3,135 |
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$ |
10,070 |
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Non-cash investing and financing activities: |
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Purchased capital expenditures included in accounts payable and accrued expenses |
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$ |
1,674 |
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$ |
2,139 |
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|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
1. THE COMPANY
Alkermes plc (the Company) is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to develop innovative medicines that improve patient outcomes. The Company has a diversified portfolio of more than 20 commercial drug products and a substantial clinical pipeline of product candidates that address central nervous system (CNS) disorders such as addiction, schizophrenia and depression. Headquartered in Dublin, Ireland, Alkermes plc has a research and development (R&D) center in Waltham, Massachusetts; R&D and manufacturing facilities in Athlone, Ireland; and manufacturing facilities in Gainesville, Georgia and Wilmington, Ohio.
On September 16, 2011, the business of Alkermes, Inc. and the drug technologies business (EDT) of Elan Corporation, plc (Elan) were combined under the Company (this combination is referred to as the Business Combination, the acquisition of EDT or the EDT acquisition) in a transaction accounted for as a reverse acquisition with Alkermes, Inc. treated as the accounting acquirer. As a result, the historical financial statements of Alkermes, Inc. are included in the comparative periods. Use of the terms such as us, we, our, Alkermes or the Company is meant to refer to Alkermes plc and its consolidated subsidiaries, except where the context makes clear that the time period being referenced is prior to September 16, 2011, in which case such terms shall refer to Alkermes, Inc. and its consolidated subsidiaries. Prior to September 16, 2011, Alkermes, Inc. was an independent pharmaceutical company incorporated in the Commonwealth of Pennsylvania and traded on the NASDAQ Global Select Stock Market under the symbol ALKS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company for the three and nine months ended December 31, 2012 and 2011 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the year ended March 31, 2012. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S.) (commonly referred to as GAAP). In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, that are necessary to present fairly the results of operations for the reported periods.
These financial statements should be read in conjunction with the financial statements and notes thereto of Alkermes, which are contained in the Companys Annual Report on Form 10-K for the year ended March 31, 2012, which has been filed with the U.S. Securities and Exchange Commission (SEC). The results of the Companys operations for any interim period are not necessarily indicative of the results of the Companys operations for any other interim period or for a full fiscal year.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Alkermes plc and its wholly-owned subsidiaries: Alkermes Ireland Holdings Limited, Alkermes Pharma Ireland Limited, Alkermes U.S. Holdings, Inc., Alkermes, Inc., Eagle Holdings USA, Inc., Alkermes Gainesville LLC, Alkermes Controlled Therapeutics, Inc., Alkermes Europe, Ltd., Alkermes Finance Ireland Limited, Alkermes Finance S.A R.L., Alkermes Finance Ireland (No. 2) Limited and Alkermes Science One Limited. Intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of the Companys condensed consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates and judgments and methodologies, including those related to revenue recognition and related allowances, its collaborative relationships, clinical trial expenses, the valuation of inventory, impairment and amortization of intangibles and long-lived assets, share-based compensation, income taxes including the valuation allowance for deferred tax assets, valuation of investments and derivative instruments, litigation and restructuring charges. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
Revenue Recognition
In August 2012, the Company changed the way in which revenue is recognized on VIVITROL® product sales. Prior to August 1, 2012, the Company did not have sufficient history to reasonably estimate returns related to VIVITROL shipments and, therefore, the Company deferred the recognition of revenue on shipments of VIVITROL until the product left the distribution channel. In September 2012, it was determined there was sufficient history to reliably estimate returns, and revenue on the sales of VIVITROL is now recognized upon delivery to distributors and pharmacies, which is the point in time the customer assumes the risks and rewards of ownership. This change in the method of revenue recognition resulted in a one-time $1.7 million increase to Product sales, net in the accompanying condensed consolidated statements of operations and comprehensive income (loss), which was recognized during the three months ended September 30, 2012.
Based on this revised revenue recognition policy, a reserve is now estimated for future product returns on VIVITROL gross product sales. This estimate is based on historical return rates as well as specifically identified anticipated returns due to known business conditions and product expiry dates. Return amounts are recorded as a deduction to arrive at VIVITROL product sales, net. Once VIVITROL is returned, it is destroyed. At December 31, 2012, the product return reserve is estimated to be 2% of product sales and amounts to $3.0 million.
Segment Information
The Company operates as one business segment, which is the business of developing, manufacturing and commercializing medicines designed to yield better therapeutic outcomes and improve the lives of patients with serious diseases. The Companys chief decision maker, the Chairman and Chief Executive Officer, reviews the Companys operating results on an aggregate basis and manages the Companys operations as a single operating unit.
Reclassifications
An amount equal to $3.5 million that was previously classified as Proceeds from the issuance of ordinary shares under share-based compensation arrangements has been reclassified to Employee taxes paid related to net share settlement of equity awards in the accompanying condensed consolidated statements of cash flows to conform to current period presentation.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard-setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
In June 2011, the FASB issued guidance related to the presentation of comprehensive income. This accounting standard: (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this accounting standard do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor do the amendments affect how earnings per share is calculated or presented. This standard is required to be applied retrospectively and is effective for fiscal years and interim periods within those years beginning after December 15, 2011. As this accounting standard only requires enhanced disclosure, the adoption of this standard did not impact the Companys financial position or results of operations.
3. ACQUISITIONS
On September 16, 2011, the Company acquired EDT from Elan in a transaction accounted for under the acquisition method of accounting for business combinations, in exchange for $500.0 million in cash and 31.9 million ordinary shares of Alkermes Inc., valued at $525.1 million based on a stock price of $16.46 per share on the acquisition date. EDT developed and manufactured pharmaceutical products that deliver clinical benefits to patients using EDTs experience and proprietary drug technologies, including the oral controlled release platform (OCR) and the bioavailability enhancement platform, including EDTs NanoCrystal® technology.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
The purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the acquisition date based upon their respective fair values summarized below (in thousands):
Cash |
|
$ |
5,225 |
|
Receivables |
|
59,398 |
| |
Inventory |
|
29,669 |
| |
Prepaid expenses and other current assets |
|
1,806 |
| |
Property plant and equipment |
|
210,558 |
| |
Acquired identifiable intangible assets |
|
689,000 |
| |
Goodwill |
|
92,740 |
| |
Other assets |
|
4,360 |
| |
Accounts payable and accrued expenses |
|
(18,650 |
) | |
Deferred tax liabilities |
|
(48,448 |
) | |
Other long-term liabilities |
|
(584 |
) | |
Total |
|
$ |
1,025,074 |
|
The following unaudited pro forma information presents the combined results of operations for the nine months ended December 31, 2011 as if the acquisition of EDT had been completed on April 1, 2011. The unaudited pro forma results do not reflect any material adjustments, operating efficiencies or potential cost savings which may result from the consolidation of operations but do reflect certain adjustments expected to have a continuing impact on the combined results.
|
|
Nine Months Ended |
| |
(In thousands, except per share data) |
|
December 31, 2011 |
| |
|
|
|
| |
Revenues |
|
$ |
368,570 |
|
Net loss |
|
$ |
(21,705 |
) |
Basic and diluted loss per common share |
|
$ |
(0.17 |
) |
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
4. INVESTMENTS
Investments consist of the following:
|
|
|
|
Gross Unrealized |
|
|
| |||||||||
|
|
|
|
|
|
Losses |
|
|
| |||||||
|
|
Amortized |
|
|
|
Less than |
|
Greater than |
|
Estimated |
| |||||
December 31, 2012 |
|
Cost |
|
Gains |
|
One Year |
|
One Year |
|
Fair Value |
| |||||
|
|
(In thousands) |
| |||||||||||||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
U.S. government and agency debt securities |
|
$ |
50,202 |
|
$ |
20 |
|
$ |
(3 |
) |
$ |
|
|
$ |
50,219 |
|
Corporate debt securities |
|
12,939 |
|
48 |
|
|
|
|
|
12,987 |
| |||||
International government agency debt securities |
|
8,999 |
|
6 |
|
|
|
|
|
9,005 |
| |||||
|
|
72,140 |
|
74 |
|
(3 |
) |
|
|
72,211 |
| |||||
Money market funds |
|
1,201 |
|
|
|
|
|
|
|
1,201 |
| |||||
Total short-term investments |
|
73,341 |
|
74 |
|
(3 |
) |
|
|
73,412 |
| |||||
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
U.S. government and agency debt securities |
|
16,005 |
|
|
|
(44 |
) |
|
|
15,961 |
| |||||
Corporate debt securities |
|
10,022 |
|
|
|
(2 |
) |
(310 |
) |
9,710 |
| |||||
International government agency debt securities |
|
3,105 |
|
|
|
|
|
|
|
3,105 |
| |||||
|
|
29,132 |
|
|
|
(46 |
) |
(310 |
) |
28,776 |
| |||||
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Certificates of deposit |
|
1,200 |
|
|
|
|
|
|
|
1,200 |
| |||||
Total long-term investments |
|
30,332 |
|
|
|
(46 |
) |
(310 |
) |
29,976 |
| |||||
Total investments |
|
$ |
103,673 |
|
$ |
74 |
|
$ |
(49 |
) |
$ |
(310 |
) |
$ |
103,388 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
March 31, 2012 |
|
|
|
|
|
|
|
|
|
|
| |||||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
U.S. government and agency debt securities |
|
$ |
62,925 |
|
$ |
67 |
|
$ |
(17 |
) |
$ |
|
|
$ |
62,975 |
|
International government agency debt securities |
|
25,646 |
|
22 |
|
(2 |
) |
|
|
25,666 |
| |||||
Corporate debt securities |
|
12,324 |
|
27 |
|
|
|
|
|
12,351 |
| |||||
|
|
100,895 |
|
116 |
|
(19 |
) |
|
|
100,992 |
| |||||
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Certificates of deposit |
|
4,236 |
|
|
|
|
|
|
|
4,236 |
| |||||
U.S. government obligations |
|
417 |
|
|
|
|
|
|
|
417 |
| |||||
|
|
4,653 |
|
|
|
|
|
|
|
4,653 |
| |||||
Money market funds |
|
1,201 |
|
|
|
|
|
|
|
1,201 |
| |||||
Total short-term investments |
|
106,749 |
|
116 |
|
(19 |
) |
|
|
106,846 |
| |||||
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
U.S. government and agency debt securities |
|
35,493 |
|
|
|
(70 |
) |
|
|
35,423 |
| |||||
International government agency debt securities |
|
10,257 |
|
|
|
(20 |
) |
|
|
10,237 |
| |||||
Corporate debt securities |
|
8,009 |
|
|
|
|
|
(660 |
) |
7,349 |
| |||||
Strategic investments |
|
644 |
|
838 |
|
|
|
|
|
1,482 |
| |||||
|
|
54,403 |
|
838 |
|
(90 |
) |
(660 |
) |
54,491 |
| |||||
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Certificates of deposit |
|
1,200 |
|
|
|
|
|
|
|
1,200 |
| |||||
Total long-term investments |
|
55,603 |
|
838 |
|
(90 |
) |
(660 |
) |
55,691 |
| |||||
Total investments |
|
$ |
162,352 |
|
$ |
954 |
|
$ |
(109 |
) |
$ |
(660 |
) |
$ |
162,537 |
|
The Companys strategic investments at March 31, 2012 include common stock in a public company with which the Company had a collaborative arrangement. The Company sold this investment during the three months ended September 30, 2012 and recorded a gain of $1.2 million within Other income, net in the accompanying condensed consolidated statements of operations and comprehensive income (loss).
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
The proceeds from the sales and maturities of marketable securities, excluding strategic equity investments, which were primarily reinvested and resulted in realized gains and losses, were as follows:
|
|
Nine Months Ended |
| ||||
|
|
December 31, |
| ||||
(In thousands) |
|
2012 |
|
2011 |
| ||
Proceeds from the sales and maturities of marketable securities |
|
$ |
220,188 |
|
$ |
267,604 |
|
Realized gains |
|
$ |
10 |
|
$ |
37 |
|
Realized losses |
|
$ |
(1 |
) |
$ |
(11 |
) |
The Companys available-for-sale and held-to-maturity securities at December 31, 2012 had contractual maturities in the following periods:
|
|
Available-for-sale |
|
Held-to-maturity |
| ||||||||
|
|
Amortized |
|
Estimated |
|
Amortized |
|
Estimated |
| ||||
(In thousands) |
|
Cost |
|
Fair Value |
|
Cost |
|
Fair Value |
| ||||
Within 1 year |
|
$ |
30,993 |
|
$ |
30,994 |
|
$ |
1,200 |
|
$ |
1,200 |
|
After 1 year through 5 years |
|
70,279 |
|
69,993 |
|
|
|
|
| ||||
Total |
|
$ |
101,272 |
|
$ |
100,987 |
|
$ |
1,200 |
|
$ |
1,200 |
|
At December 31, 2012, the Company believed that the unrealized losses on its available-for-sale investments were temporary. The investments with unrealized losses consisted primarily of corporate debt securities. In making the determination that the decline in fair value of these securities was temporary, the Company considered various factors, including but not limited to: the length of time each security was in an unrealized loss position; the extent to which fair value was less than cost; financial condition and near-term prospects of the issuers; and the Companys intent not to sell these securities and the assessment that it is more likely than not that the Company would not be required to sell these securities before the recovery of their amortized cost basis.
The Companys investment in Acceleron Pharma, Inc. (Acceleron) was $8.7 million at December 31, 2012 and March 31, 2012, which was recorded within Other assets in the accompanying condensed consolidated balance sheets. The Company accounts for its investment in Acceleron under the cost method as Acceleron is a privately-held company over which the Company does not exercise significant influence. The Company will continue to monitor this investment to evaluate whether any decline in its value has occurred that would be other-than-temporary, based on the implied value from any recent rounds of financing completed by Acceleron, market prices of comparable public companies and general market conditions.
The Companys investment in Civitas Therapeutics, Inc. (Civitas) was $1.2 million and $2.0 million at December 31, 2012 and March 31, 2012, respectively, which was recorded within Other assets in the accompanying condensed consolidated balance sheets. The Company accounts for its investment in Civitas under the equity method as the Company has an approximately 11% ownership position in Civitas, has a seat on the board of directors and believes it may be able to exercise significant influence over the operating and financial policies of Civitas. During the nine months ended December 31, 2012 and 2011, the Company recorded a reduction in its investment in Civitas of $0.8 million and $0.6 million, respectively, which represented the Companys proportionate share of Civitas net losses for these periods.
In December 2012, the Company and four other existing investors agreed to provide Civitas with a promissory note in the amount of $9.0 million. The promissory note will pay 6% interest per year, is payable on demand at any time on or after December 18, 2013 and is convertible into either common or preferred shares of Civitas upon a majority vote of the promissory note holders on or after December 18, 2013, or in the event of a qualified financing as defined in the Note Purchase Agreement. The Companys share of the promissory note, $1.1 million, was recorded within Prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
5. FAIR VALUE MEASUREMENTS
The following table presents information about the Companys assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
|
|
December 31, |
|
|
|
|
|
|
| ||||
(In thousands) |
|
2012 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Cash equivalents |
|
$ |
1,201 |
|
$ |
1,201 |
|
$ |
|
|
$ |
|
|
U.S. government and agency debt securities |
|
66,180 |
|
66,180 |
|
|
|
|
| ||||
Corporate debt securities |
|
22,697 |
|
2,033 |
|
20,664 |
|
|
| ||||
International government agency debt securities |
|
12,110 |
|
3,105 |
|
9,005 |
|
|
| ||||
Total |
|
$ |
102,188 |
|
$ |
72,519 |
|
$ |
29,669 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Interest rate swap contract |
|
$ |
(631 |
) |
$ |
|
|
$ |
(631 |
) |
$ |
|
|
Total |
|
$ |
(631 |
) |
$ |
|
|
$ |
(631 |
) |
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
March 31, |
|
|
|
|
|
|
| ||||
|
|
2012 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Cash equivalents |
|
$ |
1,201 |
|
$ |
1,201 |
|
$ |
|
|
$ |
|
|
U.S. government and agency debt securities |
|
98,398 |
|
98,398 |
|
|
|
|
| ||||
International government agency debt securities |
|
35,903 |
|
30,902 |
|
|
|
5,001 |
| ||||
Corporate debt securities |
|
19,700 |
|
|
|
14,045 |
|
5,655 |
| ||||
Strategic equity investments |
|
1,482 |
|
1,482 |
|
|
|
|
| ||||
Interest rate cap contracts |
|
20 |
|
|
|
20 |
|
|
| ||||
Total |
|
$ |
156,704 |
|
$ |
131,983 |
|
$ |
14,065 |
|
$ |
10,656 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Interest rate swap contract |
|
$ |
(522 |
) |
$ |
|
|
$ |
(522 |
) |
$ |
|
|
Total |
|
$ |
(522 |
) |
$ |
|
|
$ |
(522 |
) |
$ |
|
|
The Company transfers its financial assets and liabilities measured at fair value on a recurring basis between the fair value hierarchies at the end of each reporting period. The following table illustrates the rollforward of the fair value of the Companys investments whose fair value was determined using Level 3 inputs:
|
|
Fair |
| |
(In thousands) |
|
Value |
| |
Balance, April 1, 2012 |
|
$ |
10,656 |
|
Investments transferred into Level 3 |
|
1,579 |
| |
Investments transferred out of Level 3 |
|
(12,247 |
) | |
Total unrealized gains included in comprehensive loss |
|
12 |
| |
Balance, December 31, 2012 |
|
$ |
|
|
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
There were no transfers of any securities from Level 1 to Level 2 or from Level 2 to Level 1 during the nine months ended December 31, 2012. During the nine months ended December 31, 2012, there were two investments in corporate debt securities that were transferred from Level 2 to Level 3 as trading in these securities ceased during the period. Later in the nine months ended December 31, 2012, these investments were transferred from Level 3 to Level 2 as trading in these securities resumed during the period.
The Companys international government agency debt securities and corporate debt securities classified as Level 2 were initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing market observable data. The market observable data includes reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validates the prices developed using the market observable data by obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active.
A third-party pricing service was used to determine the estimated fair value of securities. The third-party pricing service develops its estimate of fair value through a proprietary model using variables including reportable trades and last trade date, bids and offers, trading frequency, benchmark yields, credit spreads and other industry and economic events. The Company validates the prices provided by its third-party pricing service by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming the activity in the relevant markets. After completing its validation procedures, the Company did not adjust or override any fair value measurements provided by its pricing services at December 31, 2012.
In September and December 2011, the Company entered into interest rate cap agreements, and, in September 2011, the Company entered into an interest rate swap agreement. These agreements are described in greater detail in Note 11, Derivative Instruments. The fair value of the Companys interest rate cap and interest rate swap agreements were based on an income approach, which excludes accrued interest, and takes into consideration then-current interest rates and then-current creditworthiness of the Company or the counterparty, as applicable.
The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term nature. The fair value of the remaining financial instruments not currently recognized at fair value on the Companys condensed consolidated balance sheets consist of the $300.0 million, seven-year term loan bearing interest at three-Month LIBOR plus 3.5% (Term Loan B-1) and the $75.0 million, four-year term loan bearing interest at three-Month LIBOR plus 3.0% (Term Loan B-2 and together with Term Loan B-1, the New Term Loan Facility). The estimated fair value of these term loans, which was based on quoted market price indications (Level 2 in the fair value hierarchy), and may not be representative of actual values that could have been or will be realized in the future at December 31, 2012, was as follows:
|
|
Carrying |
|
Estimated |
| ||
(In thousands) |
|
Value |
|
Fair Value |
| ||
Term Loan B-1 |
|
$ |
295,382 |
|
$ |
302,431 |
|
Term Loan B-2 |
|
$ |
73,717 |
|
$ |
74,804 |
|
6. INVENTORY
Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. Inventory consisted of the following:
|
|
December 31, |
|
March 31, |
| ||
(In thousands) |
|
2012 |
|
2012 |
| ||
Raw materials |
|
$ |
13,813 |
|
$ |
12,841 |
|
Work in process |
|
10,555 |
|
9,569 |
| ||
Finished goods (1) |
|
21,318 |
|
16,968 |
| ||
Consigned-out inventory (2) |
|
|
|
381 |
| ||
Total inventory |
|
$ |
45,686 |
|
$ |
39,759 |
|
(1) At December 31, 2012 and March 31, 2012, the Company had $0.5 million and $1.3 million, respectively, of VIVITROL finished goods inventory located at its third-party warehouse and shipping service provider.
(2) At March 31, 2012, consigned-out inventory related to VIVITROL inventory in the distribution channel for which the Company had not recognized revenue. As previously disclosed, in August 2012, the Company changed the way in which revenue is recognized on
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
VIVITROL product sales and it no longer expects to have consigned-out inventory.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
December 31, |
|
March 31, |
| ||
(In thousands) |
|
2012 |
|
2012 |
| ||
Land |
|
$ |
8,189 |
|
$ |
8,189 |
|
Building and improvements |
|
141,276 |
|
139,820 |
| ||
Furniture, fixture and equipment |
|
193,118 |
|
177,729 |
| ||
Leasehold improvements |
|
24,049 |
|
45,798 |
| ||
Construction in progress |
|
39,916 |
|
44,766 |
| ||
Subtotal |
|
406,548 |
|
416,302 |
| ||
Less: accumulated depreciation |
|
(114,362 |
) |
(113,307 |
) | ||
Total property, plant and equipment, net |
|
$ |
292,186 |
|
$ |
302,995 |
|
The Company reclassified $11.5 million of Furniture, fixture, and equipment and $0.7 million of Land at March 31, 2012 as Buildings and improvements to revise prior period presentation.
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consisted of the following:
|
|
|
|
December 31, 2012 |
| |||||||
|
|
Weighted |
|
Gross |
|
Accumulated |
|
Net |
| |||
(In thousands) |
|
Amortizable Life |
|
Carrying Amount |
|
Amortization |
|
Carrying Amount |
| |||
Goodwill |
|
|
|
$ |
92,740 |
|
$ |
|
|
$ |
92,740 |
|
|
|
|
|
|
|
|
|
|
| |||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
| |||
Collaboration agreements |
|
12 |
|
$ |
499,700 |
|
$ |
(42,150 |
) |
$ |
457,550 |
|
NanoCrystal technology |
|
13 |
|
74,600 |
|
(4,501 |
) |
70,099 |
| |||
OCR technology |
|
12 |
|
66,300 |
|
(7,634 |
) |
58,666 |
| |||
Total |
|
|
|
$ |
640,600 |
|
$ |
(54,285 |
) |
$ |
586,315 |
|
The Company recorded $31.5 million of amortization expense related to its intangible assets during the nine months ended December 31, 2012. Based upon the Companys most recent analysis, the Company expects the amortization of intangible assets included within its condensed consolidated balance sheet as of December 31, 2012 to be in the range of approximately $42.0 million to $70.0 million annually over the next five fiscal years.
During the three months ended December 31, 2012, the Company performed its annual goodwill impairment test. The Companys goodwill, which solely relates to the EDT acquisition in the fiscal year ended March 31, 2012, has been assigned to a reporting unit which consists of the former EDT business. Goodwill is reviewed for impairment utilizing a two-step process. The first step requires the Company to compare the fair value of the reporting unit to its respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, there is an indication that an impairment may exist and the second step is required. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting units goodwill, the difference is recognized as an impairment loss.
The Company worked with a valuation firm and established fair value for the purpose of impairment testing by using an average of the income approach and the market approach. The income approach employs a discounted cash flow model that takes into account (1)
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
assumptions that market participants would use in their estimates of fair value, (2) current period actual results, and (3) budgeted results for future periods that have been vetted by senior management. The discounted cash flow model incorporates the same fundamental pricing concepts used to calculate fair value in an acquisition due diligence process and a discount rate that takes into consideration the Companys estimated cost of capital adjusted for the uncertainty inherent in an acquisition. The market approach employs market multiples for comparable publicly traded companies in the pharmaceutical and biotechnology industries obtained from industry sources, taking into consideration the nature, scope and size of the acquired reporting unit. In the market approach, estimates of fair value are established using an average of both revenue and EBITDA multiples, adjusted for the reporting units performance relative to peer companies.
The Company determined that the fair value of its reporting unit was substantially in excess of its respective carrying value and there was no impairment in the value of this asset as of December 31, 2012.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
|
|
December 31, |
|
March 31, |
| ||
(In thousands) |
|
2012 |
|
2012 |
| ||
Accounts payable |
|
$ |
14,401 |
|
$ |
18,400 |
|
Accrued compensation |
|
23,003 |
|
25,023 |
| ||
Accrued interest |
|
1,312 |
|
2,472 |
| ||
Accrued other |
|
28,939 |
|
33,259 |
| ||
Total accounts payable and accrued expenses |
|
$ |
67,655 |
|
$ |
79,154 |
|
10. LONG-TERM DEBT
Long-term debt consisted of the following:
|
|
December 31, |
|
March 31, |
| ||
(In thousands) |
|
2012 |
|
2012 |
| ||
Term Loan B-1, due September 25, 2019 |
|
$ |
295,382 |
|
$ |
|
|
Term Loan B-2, due September 25, 2016 |
|
73,717 |
|
|
| ||
First Lien Term Loan, due September 16, 2017 |
|
|
|
306,822 |
| ||
Second Lien Term Loan, due September 16, 2018 |
|
|
|
137,638 |
| ||
Total |
|
369,099 |
|
444,460 |
| ||
Less: current portion |
|
(6,750 |
) |
(3,100 |
) | ||
Long-term debt |
|
$ |
362,349 |
|
$ |
441,360 |
|
In September 2012, the Company entered into the New Term Loan Facility to refinance its $310.0 million first lien term loan facility (the First Lien Term Loan) and $140.0 million second lien term loan facility (the Second Lien Term Loan and, together with the First Lien Term Loan, the Term Loans). The First Lien Term Loan was amended and restated to, among other things, provide for new term loans under the New Term Loan Facility, including Term Loan B-1 and Term Loan B-2, the proceeds of which, together with cash on hand, were used to repay the balance of the Term Loans (the Debt Refinancing). Term Loan B-1 has a principal balance of $300.0 million, matures on September 25, 2019, bears interest at three-month LIBOR plus 3.5% and was issued with an original issue discount of $3.0 million. Term Loan B-2 has a principal balance of $75.0 million, matures on September 25, 2016, bears interest at three-month LIBOR plus 3.0% and was issued with an original issue discount of $0.4 million. Under the New Term Loan Facility, LIBOR for both tranches is subject to an interest rate floor of 1.0%. Term Loan B-1 amortizes in equal quarterly amounts of 0.25% of the original principal amount of the loan, with the balance payable at maturity. Term Loan B-2 amortizes in equal quarterly amounts of 1.25% of the original principal amount of the loan for the first three years after funding, with the balance payable at maturity. The New Term Loan Facility is guaranteed by certain subsidiaries of the Company (the Guarantors) and is secured by a first priority lien on substantially all of the assets and properties of the Company and the Guarantors (subject to certain exceptions and limitations).
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
Scheduled maturity with respect to the New Term Loan Facility is as follows (in thousands):
Fiscal Year: |
|
|
| |
2013 |
|
$ |
1,688 |
|
2014 |
|
6,750 |
| |
2015 |
|
6,750 |
| |
2016 |
|
6,750 |
| |
2017 |
|
64,875 |
| |
Thereafter |
|
286,499 |
| |
Total |
|
$ |
373,312 |
|
Required quarterly principal payments of $0.8 million on Term Loan B-1 and $0.9 million on Term Loan B-2 began on December 31, 2012. Commencing with the completion of the Companys fiscal year ended March 31, 2014, the Company is subject to mandatory prepayments of principal if certain excess cash flow thresholds, as defined in the New Term Loan Facility, are met. The Company may make prepayments of principal without premium or penalty, however, in the event that, prior to September 25, 2013, the Company prepays any of Term Loan B-1 or Term Loan B-2 pursuant to repricing transaction or an amendment of the New Term Loan Facility that results in a repricing transaction, the Company will be subject to a prepayment premium of 1% of the amount of the term loan being repaid or the aggregate amount of the applicable term loan outstanding immediately prior to such amendment.
The New Term Loan Facility has incremental facility capacity in an amount of $140.0 million, plus additional amounts as long as the Company meets certain conditions, including a specified leverage ratio. The New Term Loan Facility includes a number of restrictive covenants that, among other things and subject to certain exceptions and baskets, impose operating and financial restrictions on the Company and certain of its subsidiaries. The New Term Loan Facility also contains customary affirmative covenants and events of default. The Company was in compliance with its debt covenants at December 31, 2012.
The Debt Refinancing was a restructuring of the Term Loans and involved multiple lenders who were considered members of a loan syndicate. In determining whether the Debt Refinancing was to be accounted for as a debt extinguishment or modification, the Company considered whether creditors remained the same or changed and whether the change in debt terms was substantial. The terms of the New Term Loan Facility were considered substantially different from the original Term Loans if the present value of the cash flows under the New Term Loan Facility was at least 10% different from the present value of the remaining cash flows under the Term Loans (commonly referred to as the 10% Test). The Company performed a separate 10% Test for each individual creditor participating in the loan syndication. The loans of creditors who did not participate in the New Term Loan Facility were accounted for as a debt extinguishment.
As the New Term Loan Facility has a prepayment option exercisable at any time, the Company assumed the prepayment option was exercised immediately on the date of the refinancing for purposes of applying the 10% Test. When there was a change in principal balance for individual creditors in the Debt Refinancing, in applying the 10% Test, the Company used the cash flows related to the lowest common principal balance between the Term Loans and the New Term Loan Facility (commonly referred to as the Net Method). Under the Net Method, any principal in excess of a creditors rollover money was treated as a new, separate debt issuance, and any decrease in principal was treated as a partial extinguishment of debt.
New costs paid to creditors and third parties in connection with the Debt Refinancing were allocated to the New Term Loan Facility and then further allocated to each creditor. Once these costs were allocated to the individual creditors, an analysis of each creditor was performed and a determination made as to whether the refinancing was accounted for as a debt extinguishment or modification under the 10% Test. For debt considered to be extinguished, the unamortized deferred financing costs and unamortized original issue discount associated with the extinguished debt were expensed. For debt considered to be modified, the unamortized deferred financing costs and unamortized original issue discount associated with the modified debt continue to be amortized, new financing costs were expensed and new third-party fees were capitalized. For new creditors in the Debt Refinancing, new financing costs and original issue discount fees were capitalized and will be amortized over the estimated repayment period of the new debt.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
The Debt Refinancing resulted in a $12.1 million charge in the three months ended September 30, 2012, which was included in Interest expense in the accompanying condensed consolidated statement of operations and comprehensive income (loss) and was comprised of the following (in thousands):
Extinguished debt: |
|
|
| |
Unamortized deferred financing costs |
|
$ |
4,600 |
|
Unamortized original issue discount |
|
2,657 |
| |
Modified debt: |
|
|
| |
Debt financing costs |
|
1,967 |
| |
Original issue discount |
|
105 |
| |
Prepayment penalty |
|
2,800 |
| |
Total |
|
$ |
12,129 |
|
At December 31, 2012, the Companys balance of unamortized deferred financing costs and unamortized original issue discount costs were $4.5 million and $4.2 million, respectively. These costs are being amortized to interest expense over the estimated repayment period of the new debt using the effective interest method. During the nine months ended December 31, 2012, and 2011, the Company had amortization expense of $5.5 million and $2.1 million, respectively, related to deferred financing costs and original issue discount.
11. DERIVATIVE INSTRUMENTS
In December 2011, the Company entered into an interest rate cap agreement with Morgan Stanley Capital Services LLC (MSCS) at a cost of $0.1 million to mitigate the impact of fluctuations in the three-month LIBOR rate at which the Companys long-term debt bear interest. The interest rate cap agreement expires in December 2013, has a notional value of $160.0 million and is not designated as a hedging instrument. The Company recorded an immaterial amount of loss as Other income, net in the accompanying condensed consolidated statements of operations and comprehensive (loss) income due to the increase in value of this contract during the nine months ended December 31, 2012. At December 31, 2012, this contract has an immaterial balance included within Other assets in the accompanying condensed consolidated balance sheet.
In September 2011, the Company entered into an interest rate cap agreement with HSBC Bank USA at a cost of less than $0.1 million to mitigate the impact of fluctuations in the three-month LIBOR rate at which the Companys long-term debt bear interest. The interest rate cap agreement became effective on September 16, 2011 and expired in December 2012, had a notional value of $65.0 million and was not designated as a hedging instrument. The Company recorded an immaterial amount of loss within Other income, net in the accompanying condensed consolidated statements of operations and comprehensive (loss) income due to the decline in value of this contract during the nine months ended December 31, 2012.
In September 2011, the Company entered into an interest rate swap agreement with MSCS to mitigate the impact of fluctuations in the three-month LIBOR rate at which the Companys long-term debt bear interest. The interest rate swap agreement became effective in December 2012, expires in December 2014 and has a notional value of $65.0 million. This contract was designated as a cash flow hedge, however, in connection with the Debt Refinancing, the cash flow hedge was deemed to no longer be effective for accounting purposes and accordingly, the Company reclassified its unrealized losses of $0.6 million to Interest expense in the accompanying condensed consolidated statement of operations and comprehensive (loss) income. The following table summarizes the beginning and ending accumulated derivative loss for the interest rate swap:
Unrealized losses included in accumulated other comprehensive income at March 31, 2012 |
|
$ |
(522 |
) |
Unrealized losses incurred during the nine months ended December 31, 2012 |
|
(72 |
) | |
Reclassification of unrealized losses to realized losses during the nine months ended December 31, 2012 |
|
594 |
| |
Unrealized losses included in accumulated other comprehensive income at December 31, 2012 |
|
$ |
|
|
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
The following table summarizes the fair value and presentation in the condensed consolidated balance sheets for derivatives not designated and designated as hedging instruments:
|
|
|
|
Fair Value |
| |||
(In thousands) |
|
Balance Sheet Location |
|
December 31, 2012 |
|
March 31, 2012 |
| |
Interest rate swap |
|
|
|
|
|
|
| |
Liability derivative not designated as a cash flow hedge |
|
Other long-term liabilities |
|
$ |
(631 |
) |
|
|
Liability derivative designated as a cash flow hedge |
|
Other long-term liabilities |
|
$ |
|
|
(522 |
) |
12. SHARE-BASED COMPENSATION
Share-based compensation expense consisted of the following:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
December 31, |
|
December 31, |
| ||||||||
(In thousands) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Cost of goods manufactured and sold |
|
$ |
1,000 |
|
$ |
801 |
|
$ |
3,304 |
|
$ |
1,886 |
|
Research and development |
|
2,281 |
|
2,470 |
|
6,939 |
|
6,714 |
| ||||
Selling, general and administrative |
|
4,945 |
|
5,760 |
|
16,592 |
|
13,143 |
| ||||
Total share-based compensation expense |
|
$ |
8,226 |
|
$ |
9,031 |
|
$ |
26,835 |
|
$ |
21,743 |
|
At December 31, 2012 and March 31, 2012, $0.5 million and $0.4 million, respectively, of share-based compensation cost was capitalized and recorded as Inventory in the condensed consolidated balance sheets.
13. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per ordinary share is calculated based upon net income (loss) available to holders of ordinary shares divided by the weighted average number of shares outstanding. For the calculation of diluted earnings (loss) per ordinary share, the Company uses the weighted average number of ordinary shares outstanding, as adjusted for the effect of potential outstanding shares, including stock options and restricted stock units.
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
December 31, |
|
December 31, |
| ||||||||
(In thousands) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
|
$ |
16,258 |
|
$ |
(14,828 |
) |
$ |
21,984 |
|
$ |
(50,321 |
) |
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Weighted average number of ordinary shares outstanding |
|
132,097 |
|
129,670 |
|
131,202 |
|
109,645 |
| ||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
| ||||
Stock options |
|
4,015 |
|
|
|
3,727 |
|
|
| ||||
Restricted stock units |
|
1,385 |
|
|
|
1,287 |
|
|
| ||||
Dilutive ordinary share equivalents |
|
5,400 |
|
|
|
5,014 |
|
|
| ||||
Shares used in calculating diluted earnings (loss) per share |
|
137,497 |
|
129,670 |
|
136,216 |
|
109,645 |
| ||||
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
The following potential ordinary equivalent shares have not been included in the net income (loss) per ordinary share calculations because the effect would have been anti-dilutive.
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||
|
|
December 31, |
|
December 31, |
| ||||
(In thousands) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
Stock options |
|
4,566 |
|
9,033 |
|
5,786 |
|
8,323 |
|
Restricted stock units |
|
|
|
1,164 |
|
|
|
1,477 |
|
Total |
|
4,566 |
|
10,197 |
|
5,786 |
|
9,800 |
|
14. INCOME TAXES
The Company recorded an income tax provision of $4.4 million and $5.6 million for the three and nine months ended December 31, 2012, respectively, and an income tax provision of $0.1 million and $3.7 million for the three and nine months ended December 31, 2011, respectively. The income tax provision of $4.4 million and $5.6 million in the three and nine months ended December 31, 2012, respectively, primarily relates to U.S. Federal and state taxes on income. The income tax provision in the nine months ended December 31, 2011 primarily related to a $13.2 million current tax expense on the taxable transfer of the BYDUREON® intellectual property from the U.S. to Ireland and a deferred tax benefit of $10.2 million in connection with the Business Combination, as the Company recorded a U.S. deferred tax liability in purchase accounting allowing for the partial release of an existing valuation allowance.
The Company records a deferred tax asset or liability based on the difference between the financial statement and tax basis of its assets and liabilities, as measured by enacted jurisdictional tax rates assumed to be in effect when these differences reverse. As of December 31, 2012, the Company determined, based on the weight of all available evidence, that it is not more likely than not that its remaining U.S. and Irish deferred tax assets will be realized and hence a valuation allowance was recorded on the net deferred tax asset.
15. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company is not aware of any current proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operations.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes beginning on page 3 of this Quarterly Report on Form 10-Q (Form 10-Q), and Managements Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended March 31, 2012 (the Annual Report), which has been filed with the Securities and Exchange Commission (SEC).
On September 16, 2011, the business of Alkermes, Inc. and the drug technologies business (EDT) of Elan Corporation, plc (Elan) were combined under Alkermes plc (this combination is referred to as the Business Combination, the acquisition of EDT or the EDT acquisition). Use of the terms such as us, we, our, Alkermes or the Company in this Form 10-Q is meant to refer to Alkermes plc and its consolidated subsidiaries, except where the context makes clear that the time period being referenced is prior to September 16, 2011, in which case such terms shall refer to Alkermes, Inc. and its consolidated subsidiaries. Prior to September 16, 2011, Alkermes, Inc. was an independent pharmaceutical company incorporated in the Commonwealth of Pennsylvania and traded on the NASDAQ Global Select Stock Market (the NASDAQ) under the symbol ALKS.
Alkermes plc is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to develop innovative medicines that improve patient outcomes. We have a diversified portfolio of more than 20 commercial drug products and a clinical pipeline of product candidates that address central nervous system (CNS) disorders such as addiction, schizophrenia and depression. Headquartered in Dublin, Ireland, we have a research and development (R&D) center in Waltham, Massachusetts; R&D and manufacturing facilities in Athlone, Ireland; and manufacturing facilities in Gainesville, Georgia and Wilmington, Ohio.
We leverage our formulation expertise and proprietary product platforms to develop, both with partners and on our own, innovative and competitively advantaged medications that can enhance patient outcomes in major therapeutic areas. We enter into select collaborations with pharmaceutical and biotechnology companies to develop significant new product candidates, based on existing drugs and incorporating our proprietary product platforms. In addition, we apply our innovative formulation expertise and drug development capabilities to create our own new, proprietary pharmaceutical products.
Forward-Looking Statements
This document contains and incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In some cases, these statements can be identified by the use of forward-looking terminology such as may, will, could, should, would, expect, anticipate, continue or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward-looking information. Forward-looking statements in this Form 10-Q include, without limitation, statements regarding:
· our expectations regarding our financial performance, including revenues, expenses, gross margins, liquidity, capital expenditures and income taxes;
· our expectations regarding the commercialization of our products;
· our expectations regarding our products, including the development, regulatory review (including expectations about regulatory approval and regulatory timelines) and therapeutic and commercial potential of such products and the costs and expenses related thereto;
· our expectations regarding the initiation, timing and results of clinical trials of our products;
· our expectations regarding the competitive landscape, and changes therein, related to our products;
· our expectations regarding our collaborations and other significant agreements relating to our products;
· our expectations regarding the impact of new accounting pronouncements;
· our expectations regarding our intellectual property rights, ability to protect our intellectual property rights and not infringe upon third-party intellectual property rights;
· our expectations regarding near-term changes in the nature of our market risk exposures or in managements objectives and strategies with respect to managing such exposures; and
· our expectations regarding future capital requirements and capital expenditures and our ability to finance our operations and capital requirements.
You are cautioned that forward-looking statements are based on current expectations and are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to various risks and uncertainties, including the risks and uncertainties described or discussed in this Form 10-Q and in our Annual Report (including, without limitation, in Item 1A Risk Factors thereof).
The forward-looking statements contained and incorporated herein represent our judgment as of the date of this Form 10-Q, and we caution readers not to place undue reliance on such statements. The information contained in this Form 10-Q is provided by us as of the date of this Form 10-Q and, except as required by law, we do not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.
Executive Summary
On September 16, 2011, in connection with the Business Combination, we paid Elan $500.0 million in cash and issued Elan 31.9 million ordinary shares, which had a fair value of $525.1 million on the closing date of the Merger, for the EDT business. The Business Combination was accounted for using the acquisition method of accounting for business combinations with Alkermes, Inc. being treated as the accounting acquirer under accounting principles generally accepted in the United States (U.S.) (GAAP). As a result, the operating results of Alkermes, Inc. are included for all periods being presented, whereas the operating results of the acquiree, EDT, are included only after the date of acquisition.
Net income for the three months ended December 31, 2012, was $16.3 million or $0.12 per ordinary share basic and diluted, as compared to a net loss of $14.8 million, or $0.11 per ordinary share basic and diluted for the three months ended December 31, 2011. Net income for the nine months ended December 31, 2012, was $22.0 million or $0.17 per ordinary share basic and $0.16 per ordinary share diluted, as compared to a net loss of $50.3 million, or $0.46 per ordinary share basic and diluted for the nine months ended December 31, 2011.
Total revenues increased by 8% and 59% during the three and nine months ended December 31, 2012, respectively, as compared to the three and nine months ended December 31, 2011. The increase in the revenues for the three months ended December 31, 2012, as compared to the three months ended December 31, 2011 is primarily due to the growth in our key commercial products. Expenses in the three months ended December 31, 2012 decreased as compared to the three months ended December 31, 2011 primarily due to the timing of clinical trial expenses and the inclusion of merger-related expenses during the three months ended December 31, 2011. The increases in revenues and expenses in the nine months ended December 31, 2012, as compared to the nine months ended December 31, 2011, is primarily due to the revenues and expenses from the former EDT business.
In September 2012, we entered into a new term loan facility, which includes a $300.0 million, seven-year term loan bearing interest at three-month LIBOR plus 3.5% (Term Loan B-1) and a $75.0 million, four-year term loan bearing interest at three-month LIBOR plus 3.0% (Term Loan B-2 and together with Term Loan B-1, the New Term Loan Facility). The New Term Loan Facility refinanced our $310.0 million first lien term loan facility (the First Lien Term Loan) and the $140.0 million second lien term loan facility (the Second Lien Term Loan and, together with the First Lien Term Loan, the Term Loans) and reduced our overall outstanding debt in the process to $375.0 million (the Debt Refinancing). Under the New Term Loan Facility, LIBOR for both tranches is subject to an interest rate floor of 1.0%. We expect that the refinancing transaction will result in savings of approximately $18.0 million in cash interest annually. The Debt Refinancing resulted in a charge of $12.1 million in the three months ended September 30, 2012, which was recorded within Interest expense in the accompanying condensed consolidated statement of operations and comprehensive income (loss).
COMMERCIAL PRODUCT PORTFOLIO
Our commercial products are described in the table below, including, among other things, the territory in which the marketer has the right to sell the product and the source of revenues for us:
Product |
|
Indication |
|
Technology |
|
Territory |
|
Revenue Source |
|
Marketer |
RISPERDAL® CONSTA® |
|
Schizophrenia Bipolar I Disorder |
|
Extended-release microsphere |
|
Worldwide |
|
Manufacturing and Royalty |
|
Janssen |
INVEGA® SUSTENNA®/ XEPLION® |
|
Schizophrenia |
|
NanoCrystal |
|
Worldwide |
|
Royalty |
|
Janssen |
AMPYRA® FAMPYRA® |
|
Treatment to improve walking in patients with multiple sclerosis (MS), as demonstrated by an increase in |
|
Oral Controlled Release (OCR) |
|
U.S. Worldwide |
|
Manufacturing and Royalty |
|
Acorda Therapeutics, Inc. (Acorda) in U.S. Biogen Idec (ex-
|
|
|
walking speed |
|
(MXDAS®) |
|
|
|
|
|
U.S. under sublicense from Acorda) |
BYDUREON® |
|
Type 2 diabetes |
|
Extended-release microsphere |
|
U.S. Worldwide |
|
Royalty |
|
Bristol-Myers Squibb Company (Bristol-Myers) and AstraZeneca PLC (Astra Zeneca) |
VIVITROL® |
|
Alcohol dependence Opioid dependence |
|
Extended-release microsphere |
|
U.S. Russia and Commonwealth of Independent States (CIS) |
|
Product sales Manufacturing and Royalty |
|
Alkermes plc; Cilag GmbH International (Cilag) |
TRICOR®/ LIPANTHYL/® LIPIDIL®/ SUPRALIP® |
|
Cholesterol lowering |
|
NanoCrystal |
|
Worldwide |
|
Royalty |
|
Abbott |
ZANAFLEX® CAPSULES®/ ZANAFLEX® TABLETS |
|
Muscle spasticity |
|
OCR (SODAS®) |
|
U.S. |
|
Manufacturing and Royalty |
|
Acorda |
AVINZA® |
|
Chronic moderate to severe pain |
|
OCR (SODAS) |
|
U.S. |
|
Manufacturing and Royalty |
|
Pfizer |
EMEND® |
|
Nausea associated with chemotherapy and surgery |
|
NanoCrystal |
|
Worldwide |
|
Royalty |
|
Merck |
FOCALIN® XR/ RITALIN LA® |
|
Attention Deficit Hyperactivity Disorder |
|
OCR (SODAS) |
|
Worldwide |
|
Manufacturing and Royalty |
|
Novartis |
MEGACE® ES |
|
Cachexia associated with AIDS |
|
NanoCrystal |
|
U.S. |
|
Royalty |
|
Strativa Pharmaceuticals (a business division of Par Pharmaceutical Companies, Inc.) |
LUVOX CR® |
|
Obsessive-compulsive disorder |
|
OCR (SODAS) |
|
U.S. |
|
Manufacturing and Royalty |
|
Jazz Pharmaceuticals plc |
RAPAMUNE® |
|
Prevention of renal transplant rejection |
|
NanoCrystal |
|
Worldwide |
|
Manufacturing |
|
Pfizer |
NAPRELAN® |
|
Various mild to moderate pain indications |
|
OCR (IPDAS®) |
|
U.S. Canada |
|
Manufacturing |
|
Shionogi; Sunovion Pharmaceuticals Canada, Inc. |
VERELAN®/ VERELAN® PM/ VERAPAMIL PM/ VERAPAMIL SR/ UNIVER® VERECAPS®/ |
|
Hypertension |
|
OCR (SODAS) |
|
Licensed on country/region basis throughout the world |
|
Manufacturing |
|
UCB Kremers-Urban Watson; Cephalon; Aspen; Orient Europharma |
DILZEM SR/ DILZEM XL/ DILTELAN/ ACALIX CD/ DINISOR/ TILAZEM CR/ CARDIZEM CD |
|
Hypertension and/or Angina |
|
OCR (SODAS) |
|
Licensed on country/region basis throughout the world |
|
Manufacturing and Royalty (for CARDIZEM CD only) |
|
Cephalon; Pfizer; Roemmers; Kun Wha; Orient Europharma; Sanofi-Aventis |
AFEDitab® CR (AB Rated to Adalat CC®) (Nifedipine) |
|
Hypertension |
|
OCR (MXDAS®) |
|
U.S. |
|
Manufacturing |
|
Watson Pharmaceutical |
KEY COMMERCIAL PRODUCTS
The following five principal commercial products in our commercial product portfolio are expected to contribute meaningfully to our revenues.
RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION
RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION (paliperidone palmitate), which are two long-acting atypical antipsychotics, incorporate our injectable extended-release microsphere and NanoCrystal technology, respectively. They are products of Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a division of Cilag International AG (Janssen). RISPERDAL CONSTA is the first and only long-acting, atypical antipsychotic approved by the U.S. Food and Drug Administration (FDA) for the treatment of schizophrenia and for the treatment of bipolar I disorder. INVEGA SUSTENNA/XEPLION is a once-monthly, long-acting injectable atypical antipsychotic approved by the FDA for the acute and maintenance treatment of schizophrenia in adults.
AMPYRA/FAMPYRA
Dalfampridine extended-release tablets are marketed and sold in the U.S. under the trade name AMPYRA by Acorda. Prolonged-release fampridine tablets are marketed and sold outside the U.S. under the trade name FAMPYRA by Biogen Idec. AMPYRA was approved by the FDA as a treatment to improve walking in patients with MS as demonstrated by an increase in walking speed. Efficacy was shown in people with all four major types of MS (relapsing remitting, secondary progressive, progressive relapsing and primary progressive). It is the first and, currently, only product to be approved for this indication. The product incorporates our OCR technology. AMPYRA and FAMPYRA are manufactured by us.
BYDUREON
We collaborated with Amylin Pharmaceuticals, Inc., now a wholly-owned subsidiary of Bristol-Myers, on the development of a once-weekly formulation of exenatide, BYDUREON, which was approved by the FDA for the treatment of type 2 diabetes. BYDUREON, a once-weekly formulation of exenatide, the active ingredient in BYETTA® (exenatide), uses our polymer-based microsphere injectable extended-release technology. Through their diabetes collaboration, Bristol-Myers and AstraZeneca co-develop and market
Amylins portfolio of products, including BYDUREON.
VIVITROL
VIVITROL is the first and only once-monthly injectable medication approved by the FDA for the treatment of alcohol dependence and the prevention of relapse to opioid dependence, following opioid detoxification. The medication uses our polymer-based microsphere injectable extended-release technology to deliver and maintain therapeutic medication levels in the body through just one injection every four weeks. We developed, and currently market and sell, VIVITROL in the U.S., and Cilag sells VIVITROL in Russia and other countries in the Commonwealth of Independent States (CIS).
Other Commercial Products
We expect that revenues from our other commercial products will decrease in the future due to existing and expected competition from generic manufacturers, as discussed in greater detail herein.
KEY DEVELOPMENT PROGRAMS
We also have several proprietary and partnered product candidates in various stages of development.
We are studying aripiprazole lauroxil, which we formerly referred to as ALKS 9070, for the treatment of schizophrenia. Aripiprazole lauroxil is designed to provide once-monthly dosing of a medication that converts in vivo into aripiprazole, a molecule that is commercially available under the name ABILIFY®. Aripiprazole lauroxil is our first product candidate to leverage our proprietary LinkeRx product platform. A phase 3 trial to assess the efficacy, safety and tolerability of aripiprazole lauroxil in approximately 690 patients experiencing acute exacerbation of schizophrenia is currently on-going, and the clinical data from this study, expected in late calendar-year 2013, will form the basis of a New Drug Application (NDA) to the FDA for aripiprazole
lauroxil for the treatment of schizophrenia.
In January 2013, we announced that the U.S. Patent and Trademark Office (USPTO) issued a Notice of Allowance for U.S. Patent Application 12/823,007, titled Heterocyclic Compounds for the Treatment of Neurological and Psychological Disorders. The allowed claims will cover a class of compounds that includes aripiprazole lauroxil. We expect the patent to issue within the next month and provide a patent term that would expire no earlier than 2030.
ALKS 5461 is a combination of ALKS 33 and buprenorphine that we are developing to be a non-addictive therapy for the treatment of major depressive disorder (MDD) in patients who have an inadequate response to standard antidepressant therapies. A phase 2 study is currently on-going to evaluate the efficacy and safety of ALKS 5461 when administered once daily for four weeks in approximately 130 patients with MDD who have inadequate response to standard antidepressant therapies. Data from this study are expected in the second quarter of calendar-year 2013.
ALKS 33 is an oral opioid modulator characterized by limited hepatic metabolism and durable pharmacologic activity in modulating brain opioid receptors. ALKS 33 is being evaluated as a potential treatment for alcohol dependence and we announced positive topline results from a phase 2 study in December 2010; there are currently no ongoing clinical trials of ALKS 33 for the treatment of alcohol dependence.
ZOHYDRO ER (hydrocodone bitartrate extended-release capsules) is a novel, oral, single-entity (without acetaminophen), controlled-release formulation of hydrocodone in development by Zogenix, Inc. (Zogenix) for the U.S. market. ZOHYDRO ER utilizes our oral controlled-release technology, which potentially enables longer-lasting and more consistent pain relief with fewer daily doses than the commercially available formulations of hydrocodone. In December 2012, the FDA Anesthetic and Analgesic Drug Products Advisory Committee (AADPAC) voted 2-11 [with 1 abstention] against the approval of ZOHYDRO ER. The FDA has assigned a target action date of March 1, 2013 for the ZOHYDRO ER NDA. We have also entered into a license and distribution agreement with Paladin Labs Inc. in respect of ZOHYDRO ER in Canada. We will earn manufacturing revenues and a royalty on U.S. and Canadian sales of ZOHYDRO ER, if approved and when commercialized. We have maintained all rights to the product in territories outside the U.S. and Canada and will seek to develop and license the product through commercial partnerships in those territories.
A three-month formulation of INVEGA SUSTENNA is in development by Janssen Research & Development, LLC. Two phase 3 studies are expected to enroll approximately 1,800 patients with schizophrenia and will assess the efficacy, safety and tolerability of the three-month injectable formulation. These clinical studies are expected to be completed in the second half of calendar 2014. The investigational product is being developed by Janssen Pharmaceutica, NV, licensee to our proprietary technology for nanoparticles.
Line extensions for BYDUREON are in development by Bristol-Myers. These line extensions include a dual-chamber pen device, weekly and monthly suspension formulations using our proprietary technology for extended-release microspheres. Bristol-Myers is expected to submit data for the dual-chamber pen device for FDA review in mid calendar 2013.
In January 2013, we announced positive topline results from a phase 1 study of a new antipsychotic candidate, ALKS 3831, a combination of ALKS 33, and olanzapine, a molecule that is commercially available under the name ZYPREXA®. ALKS 3831 is in development for the treatment of schizophrenia and is designed to attenuate the antipsychotic-related metabolic side effect of weight gain. The multicenter, randomized, double-blind, placebo- and active-controlled study was designed to compare the mean change from baseline in body weight in 106 healthy volunteers following three weeks of once-daily, oral administration of ALKS 3831, compared to olanzapine alone or placebo. Data from the study showed that patients administered ALKS 3831 demonstrated significantly less weight gain compared to patients taking olanzapine. Weight gain is a common and clinically relevant side effect of atypical antipsychotic medications, and olanzapine has one of the highest incidences and greatest amounts of weight gain among the widely prescribed products in this class of drugs. Based on the positive results of the phase 1 study, we plan to meet with the FDA and initiate a phase 2 study of ALKS 3831 in mid calendar-year 2013.
Results of Operations
Manufacturing and Royalty Revenues
Manufacturing fees are earned for the manufacture of products under arrangements with our collaborators when product is shipped to them at an agreed upon price. Royalties are earned on our collaborators sales of products that incorporate our technologies. Royalties are generally recognized in the period the products are sold by our collaborators. The following table compares manufacturing and royalty revenues earned in the three months ended December 31, 2012, as compared to the three months ended December 31, 2011:
|
|
Three Months Ended |
|
Change |
| |||||
|
|
December 31, |
|
Favorable/ |
| |||||
(In millions) |
|
2012 |
|
2011 |
|
(Unfavorable) |
| |||
Manufacturing and royalty revenues: |
|
|
|
|
|
|
| |||
RISPERDAL CONSTA |
|
$ |
32.0 |
|
$ |
38.3 |
|
$ |
(6.3 |
) |
INVEGA SUSTENNA/XEPLION |
|
20.5 |
|
9.3 |
|
11.2 |
| |||
AMPYRA/FAMPYRA |
|
18.4 |
|
10.2 |
|
8.2 |
| |||
RITALIN LA/FOCALIN XR |
|
9.8 |
|
11.6 |
|
(1.8 |
) | |||
TRICOR 145 |
|
6.8 |
|
15.7 |
|
(8.9 |
) | |||
Other |
|
30.8 |
|
27.7 |
|
3.1 |
| |||
Manufacturing and royalty revenues |
|
$ |
118.3 |
|
$ |
112.8 |
|
$ |
5.5 |
|
The decrease in RISPERDAL CONSTA manufacturing and royalty revenues for the three months ended December 31, 2012, as compared to the three months ended December 31, 2011, was primarily due to a 25% decrease in the number of units shipped to Janssen and a 7% decrease in royalty revenues. The decrease in royalty revenues was due to a decrease in Janssens end-market sales of RISPERDAL CONSTA from $385.4 million in the three months ended December 31, 2011 to $358.2 million in the three months ended December 31, 2012.
The increase in INVEGA SUSTENNA/XEPLION royalty revenue in the three months ended December 31, 2012, as compared to the three months ended December 31, 2011, was due to an increase in Janssens end-market sales of INVEGA SUSTENNA/XEPLION from $135.0 million in the three months ended December 31, 2011 to $228.0 million in the three months ended December 31, 2012.
We expect revenues from our long-acting atypical antipsychotic franchise, which consists of RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION, to continue to grow, as INVEGA SUSTENNA/XEPLION is launched around the world. Under our RISPERDAL CONSTA supply and license agreements with Janssen, we earn manufacturing revenues at 7.5% of Janssens unit net sales price of RISPERDAL CONSTA and royalty revenues at 2.5% of Janssens net sales of RISPERDAL CONSTA. Under our INVEGA SUSTENNA/XEPLION agreement with Janssen, we earn royalties on end-market sales of INVEGA SUSTENNA/XEPLION of 5% up to the first $250 million in calendar-year sales; 7% on calendar-year sales of between $250 million and $500 million; and 9% on calendar-year sales exceeding $500 million. The royalty rate resets at the beginning of each calendar-year to 5%. A number of companies, including us, are working to develop products to treat schizophrenia and/or bipolar disorder that may compete with RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION. Increased competition may lead to reduced unit sales of RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION, as well as increasing pricing pressure. Given that RISPERDAL CONSTA is covered by patents that will expire in the U.S. in 2023 and in the E.U. in 2021 and INVEGA SUSTENNA/XEPLION is covered by patents that will expire in the U.S. in 2019 and in the EU in 2022, we do not anticipate any generic versions in the near-term for either of these products.
The increase in AMPYRA/FAMPYRA manufacturing and royalty revenues in the three months ended December 31, 2012, as compared to the three months ended December 31, 2011, was primarily due to an increase in AMPYRA shipments from a second-source manufacturer of AMPYRA to Acorda. We recognize both manufacturing and royalty revenues on AMPYRA upon our and the second-source manufacturers shipment of AMPYRA to Acorda at a percentage of Acordas net selling price. Our estimate of end-market sales of AMPYRA/FAMPYRA increased from $68.5 million in the three months ended December 31, 2011 to $83.2 million in the three months ended December 31, 2012.
The decrease in RITALIN LA/FOCALIN XR manufacturing revenue in the three months ended December 31, 2012, as compared to the three months ended December 31, 2011, was due to a decrease in the number of units shipped to Novartis in the three months ended December 31, 2012 as compared to the three months ended December 31, 2011.
The decrease in TRICOR 145 royalty revenue in the three months ended December 31, 2012, as compared to the three months ended December 31, 2011, was due to a decrease in end-market sales of TRICOR 145 by Abbott from $314.3 million in the three months ended December 31, 2011 to $130.0 million in the three months ended December 31, 2012 due primarily to the introduction of a generic version of this product in November 2012.
We continue to anticipate manufacturing and royalty revenue erosion in the RITALIN LA/FOCALIN XR and TRICOR 145 franchises for the foreseeable future due to the entry of a generic version of TRICOR 145 in late-calendar 2012 and the potential entry of a generic version of certain doses of FOCALIN XR, which could occur at any time.
The following table compares manufacturing and royalty revenues earned in the nine months ended December 31, 2012, as compared to the nine months ended December 31, 2011:
|
|
Nine Months Ended |
|
Change |
| |||||
|
|
December 31, |
|
Favorable/ |
| |||||
(In millions) |
|
2012 |
|
2011 |
|
(Unfavorable) |
| |||
Manufacturing and royalty revenues: |
|
|
|
|
|
|
| |||
RISPERDAL CONSTA |
|
$ |
102.9 |
|
$ |
131.1 |
|
$ |
(28.2 |
) |
INVEGA SUSTENNA/XEPLION |
|
48.6 |
|
10.0 |
|
38.6 |
| |||
AMPYRA/FAMPYRA |
|
40.5 |
|
10.8 |
|
29.7 |
| |||
TRICOR 145 |
|
31.3 |
|
17.5 |
|
13.8 |
| |||
RITALIN LA/FOCALIN XR |
|
29.7 |
|
13.1 |
|
16.6 |
| |||
Other |
|
111.0 |
|
33.3 |
|
77.7 |
| |||
Manufacturing and royalty revenues |
|
$ |
364.0 |
|
$ |
215.8 |
|
$ |
148.2 |
|
The decrease in RISPERDAL CONSTA manufacturing and royalty revenues for the nine months ended December 31, 2012, as compared to the nine months ended December 31, 2011, was primarily due to a 27% decrease in the number of units shipped to Janssen, and a 10% decrease in royalty revenues. The decrease in royalty revenues was due to a decrease in Janssens end-market sales of RISPERDAL CONSTA from $1,179.0 million during the nine months ended December 31, 2011 to $1,064.0 million during the nine months ended December 31, 2012. The increase in revenues from INVEGA SUSTENNA/XEPLION, AMPYRA/FAMPYRA, TRICOR 145, RITALIN LA/FOCALIN XR and other manufacturing and royalty revenues was primarily due to the addition of these products from the former EDT business on September 16, 2011.
Included in other manufacturing and royalty revenues for the nine months ended December 31, 2012 is $20.0 million of revenue related to the exercise of an option to license certain of our intellectual property that is not used in our key clinical development programs or commercial products.
Product Sales, net
Our product sales consist of sales of VIVITROL in the U.S. to wholesalers, specialty distributors and specialty pharmacies. The following table presents the adjustments deducted from VIVITROL product sales, gross to arrive at VIVITROL product sales, net for sales of VIVITROL in the U.S. during the three and nine months ended December 31, 2012 and 2011:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||||||||||
|
|
December 31, |
|
December 31, |
| ||||||||||||||||
(In millions) |
|
2012 |
|
% of Sales |
|
2011 |
|
% of Sales |
|
2012 |
|
% of Sales |
|
2011 |
|
% of Sales |
| ||||
Product sales, gross |
|
$ |
21.6 |
|
100.0 |
% |
$ |
15.2 |
|
100.0 |
% |
$ |
58.2 |
|
100.0 |
% |
$ |
42.6 |
|
100.0 |
% |
Adjustments to product sales, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Medicaid rebates |
|
(1.7 |
) |
(7.9 |
)% |
(1.3 |
) |
(8.6 |
)% |
(4.3 |
) |
(7.4 |
)% |
(3.6 |
) |
(8.5 |
)% | ||||
Chargebacks |
|
(1.4 |
) |
(6.5 |
)% |
(0.9 |
) |
(5.9 |
)% |
(4.1 |
) |
(7.0 |
)% |
(3.0 |
) |
(7.0 |
)% | ||||
Product returns (1) |
|
(0.1 |
) |
(0.5 |
)% |
(0.8 |
) |
(5.3 |
)% |
0.4 |
|
0.7 |
% |
(1.5 |
) |
(3.5 |
)% | ||||
Other |
|
(2.5 |
) |
(11.6 |
)% |
(1.6 |
) |
(10.6 |
)% |
(6.7 |
) |
(11.5 |
)% |
(4.3 |
) |
(10.1 |
)% | ||||
Total adjustments |
|
(5.7 |
) |
(26.4 |
)% |
(4.6 |
) |
(30.3 |
)% |
(14.7 |
) |
(25.3 |
)% |
(12.4 |
) |
(29.1 |
)% | ||||
Product sales, net |
|
$ |
15.9 |
|
73.6 |
% |
$ |
10.6 |
|
69.7 |
% |
$ |
43.5 |
|
74.7 |
% |
$ |
30.2 |
|
70.9 |
% |
(1) During the three months ended September 30, 2012, we changed the method by which we recognized revenue on VIVITROL product sales. Prior to August 1, 2012, we did not have sufficient history to reasonably estimate returns related to VIVITROL shipments, and therefore we deferred the recognition of revenue on shipments of VIVITROL until the product left the distribution channel. As we now have sufficient history to reliably estimate returns, we recognize revenue on the sales of VIVITROL upon delivery to our customers and provide a reserve for future returns. This change in the method of revenue recognition resulted in a one-time $1.7 million increase to product sales, net, which was recognized during the three months ended September 30, 2012.
The increase in product sales, gross for the three and nine months ended December 31, 2012, as compared to the three and nine months ended December 31, 2011, was due to a 42% and 37% increase in the number of units sold, respectively. We expect VIVITROL sales to continue to grow as we continue to penetrate the opioid dependence indication market in the U.S.
We anticipate that Cilag will increase sales of VIVITROL in Russia and the CIS, which are recorded as manufacturing and royalty revenues. In addition, the potential exists to launch the product in other countries around the world. A number of companies, including us, are working to develop products to treat addiction, including alcohol and opioid dependence that may compete with VIVITROL, which may negatively impact future sales of VIVITROL. Increased competition may lead to reduced unit sales of VIVITROL,
as well as increasing pricing pressure. VIVITROL is covered by patents that will expire in the U.S. in 2029 and in Europe in 2021 and, as such, we do not anticipate any generic versions of this product in the near-term.
Research and Development Revenue
|