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 September 30, 2014
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 |
|
98-1007018 |
(State or other jurisdiction of incorporation or organization) |
|
(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 x |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
(Do not check if a smaller reporting company) |
|
|
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 the registrants ordinary shares, $0.01 par value, outstanding as of October 24, 2014 was 146,231,502 shares.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
|
Page No. | ||
| |||
| |||
|
Condensed Consolidated Balance Sheets September 30, 2014 and December 31, 2013 |
5 | |
|
6 | ||
|
7 | ||
|
8 | ||
Managements Discussion and Analysis of Financial Condition and Results of Operations |
18 | ||
28 | |||
28 | |||
|
| ||
| |||
29 | |||
29 | |||
29 | |||
29 | |||
29 | |||
30 | |||
31 | |||
Ex-31.1 Section 302 Certification of Chief Executive Officer |
| ||
Ex-31.2 Section 302 Certification of Chief Financial Officer |
| ||
Ex-32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer |
| ||
Ex-101 Instance Document |
| ||
Ex-101 Schema Document |
| ||
Ex-101 Calculation Linkbase Document |
| ||
Ex-101 Labels Linkbase Document |
| ||
Ex-101 Definition Linkbase Document |
| ||
Ex-101 Presentation Linkbase Document |
| ||
Cautionary Note Concerning 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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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, believe, plan, estimate, intend or other similar words. These statements discuss future expectations, and 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 Quarterly Report on Form 10-Q (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 our products, including the development, regulatory review (including expectations about regulatory approval and regulatory timelines) and therapeutic and commercial scope and 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, including our development programs;
· our expectations regarding the financial impact of currency exchange rate fluctuations and valuations;
· our expectations regarding future amortization of intangible assets;
· our expectations regarding our collaborations and other significant agreements relating to our products, including our development programs;
· our expectations regarding the impact of adoption of new accounting pronouncements;
· 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;
· our ability to comply with restrictive covenants of our indebtedness and our ability to fund our debt service obligations; and
· our expectations regarding future capital requirements and capital expenditures and our ability to finance our operations and capital requirements.
Actual results might differ materially from those expressed or implied by the forward-looking statements contained in this Form 10-Q because these forward-looking statements are subject to risks, assumptions and uncertainties. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-Q. Except as required by applicable law or regulation, we do not undertake any obligation to update publicly or revise any forward-looking statements in this Form 10-Q, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-Q might not occur. For more information regarding the risks and uncertainties of our business, see Item 1ARisk Factors of our Transition Report on Form 10-K for the nine-month period ended December 31, 2013 (the Transition Report) and any subsequent reports filed with the U.S. Securities and Exchange Commission (SEC).
Unless otherwise indicated, information contained in this Form 10-Q concerning the disorders targeted by our products and the markets in which we operate is based on information from various third-party sources (including, without limitation, industry publications, medical and clinical journals and studies, surveys and forecasts) as well as our internal research. Our internal research involves assumptions that we have made, which we believe are reasonable, based on data from those and other similar sources and on our knowledge of the markets for our marketed and development products. Our internal research has not been verified by any independent source, and we have not independently verified any third-party information. These projections, assumptions and estimates are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in Item 1ARisk Factors of our Transition Report. These and other factors could cause results to differ materially from those expressed in the estimates included in this Form 10-Q.
Note Regarding Company
Alkermes plc (as used in this report, together with our subsidiaries, Alkermes, the Company, us, we and our) is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to research, develop and commercialize, both with partners and on our own, pharmaceutical products that are designed to address unmet medical needs of patients in major therapeutic areas. 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.
Note Regarding Trademarks
We are the owner of various U.S. federal trademark registrations (®) and registration applications (TM), including LinkeRx® and VIVITROL®. The following are trademarks of the respective companies listed: ABILIFY® Otsuka Pharmaceutical Co., Ltd.; AMPYRA® and FAMPYRA®Acorda Therapeutics, Inc.; BYDUREON® and BYETTA®Amylin Pharmaceuticals, LLC; FOCALIN XR®Novartis AG; INVEGA® SUSTENNA®, XEPLION®, and RISPERDAL® CONSTA®Johnson & Johnson Corp. (or its affiliate); MEGACE®E.R. Squibb & Sons, LLC; TECFIDERA®Biogen Idec MA Inc.; TRICOR®Fournier Industrie et Sante Corporation; ZOHYDRO® ERZogenix, Inc.; and ZYPREXA®Eli Lilly and Company. Other trademarks, trade names and service marks appearing in this Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Form 10-Q are referred to without the ® and symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
Item 1. Condensed Consolidated Financial Statements:
ALKERMES PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
September 30, |
|
December 31, |
| ||
|
|
2014 |
|
2013 |
| ||
|
|
(In thousands, except share and per |
| ||||
ASSETS |
|
|
|
|
| ||
CURRENT ASSETS: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
136,182 |
|
$ |
167,562 |
|
Investments short-term |
|
436,387 |
|
194,669 |
| ||
Receivables |
|
143,692 |
|
134,154 |
| ||
Inventory |
|
50,471 |
|
46,218 |
| ||
Prepaid expenses and other current assets |
|
46,174 |
|
27,535 |
| ||
Total current assets |
|
812,906 |
|
570,138 |
| ||
PROPERTY, PLANT AND EQUIPMENT, NET |
|
262,128 |
|
274,490 |
| ||
INTANGIBLE ASSETS NET |
|
494,656 |
|
537,565 |
| ||
GOODWILL |
|
92,740 |
|
92,740 |
| ||
INVESTMENTS LONG-TERM |
|
143,747 |
|
87,764 |
| ||
OTHER ASSETS |
|
31,678 |
|
14,891 |
| ||
TOTAL ASSETS |
|
$ |
1,837,855 |
|
$ |
1,577,588 |
|
|
|
|
|
|
| ||
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
| ||
CURRENT LIABILITIES: |
|
|
|
|
| ||
Accounts payable and accrued expenses |
|
$ |
100,329 |
|
$ |
91,173 |
|
Long-term debt current |
|
6,750 |
|
6,750 |
| ||
Deferred revenue current |
|
3,061 |
|
2,974 |
| ||
Total current liabilities |
|
110,140 |
|
100,897 |
| ||
LONG-TERM DEBT |
|
352,801 |
|
357,543 |
| ||
DEFERRED TAX LIABILITIES, NET LONG-TERM |
|
21,258 |
|
29,169 |
| ||
DEFERRED REVENUE LONG-TERM |
|
11,519 |
|
12,213 |
| ||
OTHER LONG-TERM LIABILITIES |
|
8,545 |
|
12,580 |
| ||
Total liabilities |
|
504,263 |
|
512,402 |
| ||
|
|
|
|
|
| ||
COMMITMENTS AND CONTINGENCIES (Note 16) |
|
|
|
|
| ||
|
|
|
|
|
| ||
SHAREHOLDERS EQUITY: |
|
|
|
|
| ||
Preferred shares, par value, $0.01 per share; 50,000,000 shares authorized; zero issued and outstanding at September 30, 2014 and December 31, 2013, respectively |
|
|
|
|
| ||
Ordinary shares, par value, $0.01 per share; 450,000,000 shares authorized; 147,071,192 and 138,482,571 shares issued; 146,088,467 and 137,792,626 shares outstanding at September 30, 2014 and December 31, 2013, respectively |
|
1,468 |
|
1,382 |
| ||
Treasury shares, at cost (982,725 and 689,945 shares at September 30, 2014 and December 31, 2013, respectively) |
|
(30,881 |
) |
(17,833 |
) | ||
Additional paid-in capital |
|
1,908,721 |
|
1,553,337 |
| ||
Accumulated other comprehensive (loss) income |
|
(2,866 |
) |
10,574 |
| ||
Accumulated deficit |
|
(542,850 |
) |
(482,274 |
) | ||
Total shareholders equity |
|
1,333,592 |
|
1,065,186 |
| ||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
1,837,855 |
|
$ |
1,577,588 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALKERMES PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
(In thousands, except per share amounts) |
| ||||||||||
REVENUES: |
|
|
|
|
|
|
|
|
| ||||
Manufacturing and royalty revenues |
|
$ |
132,028 |
|
$ |
118,571 |
|
$ |
373,674 |
|
$ |
385,278 |
|
Product sales, net |
|
25,802 |
|
19,227 |
|
64,476 |
|
51,232 |
| ||||
Research and development revenue |
|
2,162 |
|
2,004 |
|
5,478 |
|
5,345 |
| ||||
Total revenues |
|
159,992 |
|
139,802 |
|
443,628 |
|
441,855 |
| ||||
EXPENSES: |
|
|
|
|
|
|
|
|
| ||||
Cost of goods manufactured and sold (exclusive of amortization of acquired intangible assets shown below) |
|
47,335 |
|
45,423 |
|
129,464 |
|
139,407 |
| ||||
Research and development |
|
78,263 |
|
45,947 |
|
197,610 |
|
115,209 |
| ||||
Selling, general and administrative |
|
51,888 |
|
39,454 |
|
145,101 |
|
107,066 |
| ||||
Amortization of acquired intangible assets |
|
15,244 |
|
12,856 |
|
42,909 |
|
35,894 |
| ||||
Restructuring |
|
|
|
|
|
|
|
12,300 |
| ||||
Impairment of long-lived assets |
|
|
|
|
|
|
|
3,346 |
| ||||
Total expenses |
|
192,730 |
|
143,680 |
|
515,084 |
|
413,222 |
| ||||
OPERATING (LOSS) INCOME |
|
(32,738 |
) |
(3,878 |
) |
(71,456 |
) |
28,633 |
| ||||
OTHER (EXPENSE) INCOME, NET: |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
546 |
|
295 |
|
1,380 |
|
627 |
| ||||
Interest expense |
|
(3,356 |
) |
(3,477 |
) |
(10,097 |
) |
(18,418 |
) | ||||
Gain on sale of investment in Acceleron Pharma Inc. |
|
|
|
|
|
15,296 |
|
|
| ||||
Gain on sale of property, plant and equipment |
|
36 |
|
|
|
12,321 |
|
|
| ||||
Other (expense) income, net |
|
(921 |
) |
(469 |
) |
(2,253 |
) |
(455 |
) | ||||
Total other (expense) income, net |
|
(3,695 |
) |
(3,651 |
) |
16,647 |
|
(18,246 |
) | ||||
(LOSS) INCOME BEFORE INCOME TAXES |
|
(36,433 |
) |
(7,529 |
) |
(54,809 |
) |
10,387 |
| ||||
INCOME TAX PROVISION |
|
3,523 |
|
233 |
|
5,766 |
|
7,818 |
| ||||
NET (LOSS) INCOME |
|
$ |
(39,956 |
) |
$ |
(7,762 |
) |
$ |
(60,575 |
) |
$ |
2,569 |
|
|
|
|
|
|
|
|
|
|
| ||||
(LOSS) EARNINGS PER ORDINARY SHARE: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
(0.27 |
) |
$ |
(0.06 |
) |
$ |
(0.42 |
) |
$ |
0.02 |
|
Diluted |
|
$ |
(0.27 |
) |
$ |
(0.06 |
) |
$ |
(0.42 |
) |
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
| ||||
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
145,896 |
|
136,106 |
|
144,732 |
|
134,670 |
| ||||
Diluted |
|
145,896 |
|
136,106 |
|
144,732 |
|
143,022 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
COMPREHENSIVE (LOSS) INCOME: |
|
|
|
|
|
|
|
|
| ||||
Net (loss) income |
|
$ |
(39,956 |
) |
$ |
(7,762 |
) |
$ |
(60,575 |
) |
$ |
2,569 |
|
Holding (losses) gains, net of tax of $89, none, $7,715 and none, respectively |
|
(154 |
) |
8,506 |
|
1,855 |
|
8,241 |
| ||||
Reclassification of unrealized gains to realized gains |
|
|
|
|
|
(15,296 |
) |
|
| ||||
COMPREHENSIVE (LOSS) INCOME |
|
$ |
(40,110 |
) |
$ |
744 |
|
$ |
(74,016 |
) |
$ |
10,810 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALKERMES PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Nine Months Ended |
| ||||
|
|
September 30, |
| ||||
|
|
2014 |
|
2013 |
| ||
|
|
(In thousands) |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
| ||
Net (loss) income |
|
$ |
(60,575 |
) |
$ |
2,569 |
|
Adjustments to reconcile net (loss) income to cash flows from operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
72,719 |
|
65,722 |
| ||
Share-based compensation expense |
|
46,240 |
|
30,899 |
| ||
Excess tax benefit from share-based compensation |
|
(22,444 |
) |
(12,969 |
) | ||
Impairment of long-lived assets |
|
|
|
3,346 |
| ||
(Gain) loss on sale of property, plant and equipment |
|
(11,942 |
) |
391 |
| ||
Gain on sale of investment of Acceleron Pharma Inc. |
|
(15,296 |
) |
|
| ||
Deferred income taxes |
|
(18,731 |
) |
(2,049 |
) | ||
Loss on debt refinancing transaction |
|
|
|
7,541 |
| ||
Prepayment penalty in connection with debt refinancing |
|
|
|
(3,733 |
) | ||
Other non-cash charges |
|
9,921 |
|
2,177 |
| ||
Changes in assets and liabilities: |
|
|
|
|
| ||
Receivables |
|
(9,538 |
) |
(613 |
) | ||
Inventory, prepaid expenses and other assets |
|
(17,774 |
) |
(2,530 |
) | ||
Accounts payable and accrued expenses |
|
25,103 |
|
18,869 |
| ||
Deferred revenue |
|
(607 |
) |
(208 |
) | ||
Other long-term liabilities |
|
420 |
|
7 |
| ||
Cash flows (used in) provided by operating activities |
|
(2,504 |
) |
109,419 |
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| ||
Additions of property, plant and equipment |
|
(20,326 |
) |
(17,457 |
) | ||
Proceeds from the sale of property, plant and equipment |
|
14,361 |
|
125 |
| ||
Investment in Civitas |
|
|
|
(1,191 |
) | ||
Purchases of investments |
|
(550,102 |
) |
(196,525 |
) | ||
Sales and maturities of investments |
|
246,540 |
|
95,149 |
| ||
Cash flows used in investing activities |
|
(309,527 |
) |
(119,899 |
) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| ||
Proceeds from the issuance of ordinary shares, net |
|
248,406 |
|
|
| ||
Proceeds from the issuance of ordinary shares under share-based compensation arrangements |
|
27,431 |
|
50,790 |
| ||
Excess tax benefit from share-based compensation |
|
22,444 |
|
12,969 |
| ||
Employee taxes paid related to net share settlement of equity awards |
|
(12,566 |
) |
(8,529 |
) | ||
Principal payments of long-term debt |
|
(5,064 |
) |
(7,137 |
) | ||
Cash flows provided by financing activities |
|
280,651 |
|
48,093 |
| ||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
(31,380 |
) |
37,613 |
| ||
CASH AND CASH EQUIVALENTS Beginning of period |
|
167,562 |
|
135,892 |
| ||
CASH AND CASH EQUIVALENTS End of period |
|
$ |
136,182 |
|
$ |
173,505 |
|
SUPPLEMENTAL CASH FLOW DISCLOSURE: |
|
|
|
|
| ||
Non-cash investing and financing activities: |
|
|
|
|
| ||
Purchased capital expenditures included in accounts payable and accrued expenses |
|
$ |
691 |
|
$ |
1,184 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Unaudited)
1. THE COMPANY
Alkermes plc is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to research, develop and commercialize, both with partners and on its own, pharmaceutical products that are designed to address unmet medical needs of patients in major therapeutic areas. Alkermes has a diversified portfolio of more than 20 commercial drug products and a clinical pipeline of product candidates that address CNS disorders such as addiction, schizophrenia and depression. Headquartered in Dublin, Ireland, Alkermes 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.
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 September 30, 2014 and 2013 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the nine-month transition period ended December 31, 2013 (the Transition Period). The year-end Condensed Consolidated Balance Sheet data, which is presented for comparative purposes, 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 audited consolidated financial statements and notes thereto of Alkermes, which are contained in the Companys Transition Report on Form 10-KT, which has been filed with the 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, including the Transition 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 as disclosed in Note 2: Summary of Significant Accounting Policies within Part II, Item 8 of our Transition Report. During the nine months ended September 30, 2014, the following wholly owned subsidiaries were added:Alkermes Science Three Limited; Alkermes Science Four Limited; Alkermes Science Five Limited; and Alkermes Science Six 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 ongoing 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.
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.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
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 July 2013, the FASB adopted clarifying guidance on the presentation of unrecognized tax benefits when various qualifying tax credits exist. The amendment requires that unrecognized tax benefits be presented on the consolidated balance sheet as a reduction to deferred tax assets created by net operating losses (NOLs) or other tax credits from prior periods that occur in the same taxing jurisdiction. To the extent that the unrecognized tax benefit exceeds these NOLs or other tax credits, it shall be presented as a liability. This update, required to be adopted for all annual periods and interim reporting periods beginning after December 15, 2013, was adopted by the Company on January 1, 2014. The adoption of this standard did not have a material impact on the presentation of the Companys financial position.
In April 2014, the FASB adopted guidance that amends the requirements for reporting discontinued operations. Under the amendment, only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results will be reported as discontinued operations in the financial statements. Currently, many disposals, some of which may be routine in nature and not a change in an entity's strategy, are reported in discontinued operations. The guidance also requires expanded disclosures for discontinued operations. This guidance becomes effective for the Company in its year ending December 31, 2015 and early adoption is permitted, but only for disposals that have not been reported in financial statements previously issued or available for issuance. The adoption of this standard is not expected to have a material impact on the Company's results of operations, cash flows or financial condition.
In June 2014, the FASB issued guidance that clarifies the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. Existing GAAP does not contain explicit guidance on how to account for these share-based payments. The new guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Entities have the option of prospectively applying the guidance to awards granted or modified after the effective date or retrospectively applying the guidance to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements. The guidance becomes effective for the Company in its year ending December 31, 2016, and early adoption is permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
In May 2014, the FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The guidance becomes effective for the Company in its year ending December 31, 2017, and early adoption is not permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
3. INVESTMENTS
Investments consisted of the following:
|
|
|
|
Gross Unrealized |
|
|
| |||||||||
|
|
|
|
|
|
Losses |
|
|
| |||||||
|
|
Amortized |
|
|
|
Less than |
|
Greater than |
|
Estimated |
| |||||
|
|
Cost |
|
Gains |
|
One Year |
|
One Year |
|
Fair Value |
| |||||
|
|
(In thousands) |
| |||||||||||||
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
| |||||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
U.S. government and agency debt securities |
|
$ |
220,312 |
|
$ |
170 |
|
$ |
|
|
$ |
|
|
$ |
220,482 |
|
Corporate debt securities |
|
178,312 |
|
97 |
|
(46 |
) |
|
|
178,363 |
| |||||
International government agency debt securities |
|
36,321 |
|
20 |
|
|
|
|
|
36,341 |
| |||||
|
|
434,945 |
|
287 |
|
(46 |
) |
|
|
435,186 |
| |||||
Money market funds |
|
1,201 |
|
|
|
|
|
|
|
1,201 |
| |||||
Total short-term investments |
|
436,146 |
|
287 |
|
(46 |
) |
|
|
436,387 |
| |||||
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
U.S. government and agency debt securities |
|
101,464 |
|
|
|
(163 |
) |
(22 |
) |
101,279 |
| |||||
Corporate debt securities |
|
31,390 |
|
|
|
(37 |
) |
(4 |
) |
31,349 |
| |||||
International government agency debt securities |
|
9,577 |
|
|
|
(4 |
) |
(1 |
) |
9,572 |
| |||||
|
|
142,431 |
|
|
|
(204 |
) |
(27 |
) |
142,200 |
| |||||
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Certificates of deposit |
|
1,547 |
|
|
|
|
|
|
|
1,547 |
| |||||
Total long-term investments |
|
143,978 |
|
|
|
(204 |
) |
(27 |
) |
143,747 |
| |||||
Total investments |
|
$ |
580,124 |
|
$ |
287 |
|
$ |
(250 |
) |
$ |
(27 |
) |
$ |
580,134 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
| |||||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
U.S. government and agency debt securities |
|
$ |
130,669 |
|
$ |
80 |
|
$ |
(1 |
) |
$ |
|
|
$ |
130,748 |
|
Corporate debt securities |
|
38,614 |
|
64 |
|
(30 |
) |
|
|
38,648 |
| |||||
International government agency debt securities |
|
24,097 |
|
8 |
|
(33 |
) |
|
|
24,072 |
| |||||
|
|
193,380 |
|
152 |
|
(64 |
) |
|
|
193,468 |
| |||||
Money market funds |
|
1,201 |
|
|
|
|
|
|
|
1,201 |
| |||||
Total short-term investments |
|
194,581 |
|
152 |
|
(64 |
) |
|
|
194,669 |
| |||||
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Equity securities |
|
8,732 |
|
21,253 |
|
|
|
|
|
29,985 |
| |||||
U.S. government and agency debt securities |
|
28,503 |
|
|
|
(61 |
) |
(3 |
) |
28,439 |
| |||||
Corporate debt securities |
|
20,266 |
|
|
|
(30 |
) |
(75 |
) |
20,161 |
| |||||
International government agency debt securities |
|
7,691 |
|
|
|
(5 |
) |
|
|
7,686 |
| |||||
|
|
65,192 |
|
21,253 |
|
(96 |
) |
(78 |
) |
86,271 |
| |||||
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Certificates of deposit |
|
1,493 |
|
|
|
|
|
|
|
1,493 |
| |||||
Total long-term investments |
|
66,685 |
|
21,253 |
|
(96 |
) |
(78 |
) |
87,764 |
| |||||
Total investments |
|
$ |
261,266 |
|
$ |
21,405 |
|
$ |
(160 |
) |
$ |
(78 |
) |
$ |
282,433 |
|
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
The proceeds from the sales and maturities of marketable securities, which were primarily reinvested and resulted in realized gains and losses, were as follows:
|
|
Nine Months Ended |
| ||||
|
|
September 30, |
| ||||
(In thousands) |
|
2014 |
|
2013 |
| ||
Proceeds from the sales and maturities of marketable securities |
|
$ |
246,540 |
|
$ |
95,149 |
|
Realized gains |
|
$ |
15,352 |
|
$ |
54 |
|
Realized losses |
|
$ |
(10 |
) |
$ |
(5 |
) |
During the three months ended June 30, 2014, the Company sold its investment in Acceleron Pharma Inc. (Acceleron), which consisted of common stock and warrants to purchase the common stock of Acceleron. The Company received net proceeds of $24.0 million and realized a gain of $15.3 million from the sale of this investment. The Company reclassified the gain from accumulated other comprehensive (loss) income to gain on sale of investment in Acceleron in its Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.
The Companys available-for-sale and held-to-maturity securities at September 30, 2014 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 |
|
$ |
298,878 |
|
$ |
298,972 |
|
$ |
1,547 |
|
$ |
1,547 |
|
After 1 year through 5 years |
|
278,498 |
|
278,414 |
|
|
|
|
| ||||
Total |
|
$ |
577,376 |
|
$ |
577,386 |
|
$ |
1,547 |
|
$ |
1,547 |
|
At September 30, 2014, the Company believed that the unrealized losses on its available-for-sale investments were temporary. The investments with unrealized losses consisted primarily of U.S. government and agency debt securities and 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 Civitas Therapeutics, Inc. (Civitas) was zero and $2.0 million at September 30, 2014 and December 31, 2013, respectively, which was recorded within Other Assets in the accompanying Condensed Consolidated Balance Sheets. During the nine months ended September 30, 2014, the Company invested an additional $1.0 million in Civitas and recorded a reduction in its investment in Civitas of $2.0 million, which represented the Companys proportionate share of Civitas net losses for this period. As the Companys interest in Civitas has reached zero, the Company no longer records its proportionate share of Civitas net losses until such time as the Companys share of Civitas net income exceeds its share of Civitas net losses not recognized during the period the equity method is suspended.
In October 2014, Civitas was acquired by Acorda Therapeutics, Inc. (Acorda) for approximately $525.0 million. As a result of this transaction, the Company received $30.0 million for the sale of certain commercial-scale pulmonary manufacturing equipment used by Civitas. The Company also received $27.2 million and will receive an additional $2.3 million, subject to release of all amounts held in escrow, for its approximate 6% equity interest in Civitas.
In May 2014, the Company entered into an agreement whereby it is committed to provide up to 7.4 million to a partnership, Fountain Healthcare Partners II, L.P. of Ireland (Fountain), which was created to carry on the business of investing exclusively in companies and businesses engaged in healthcare, pharmaceutical and life sciences sectors. The Companys commitment represents approximately 10% of the partnerships total funding, and the Company is accounting for its investment in Fountain under the equity method. At September 30, 2014, the Company had made payments of, and its investment is equal to, $1.2 million (0.9 million), which is included within Other assets in the accompanying Condensed Consolidated Balance Sheets.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
4. 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:
|
|
September 30, |
|
|
|
|
|
|
| ||||
(In thousands) |
|
2014 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Cash equivalents |
|
$ |
1,201 |
|
$ |
1,201 |
|
$ |
|
|
$ |
|
|
U.S. government and agency debt securities |
|
321,761 |
|
169,120 |
|
152,641 |
|
|
| ||||
Corporate debt securities |
|
209,712 |
|
|
|
209,712 |
|
|
| ||||
International government agency debt securities |
|
45,913 |
|
|
|
45,913 |
|
|
| ||||
Total |
|
$ |
578,587 |
|
$ |
170,321 |
|
$ |
408,266 |
|
$ |
|
|
|
|
December 31, |
|
|
|
|
|
|
| ||||
|
|
2013 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Cash equivalents |
|
$ |
1,201 |
|
$ |
1,201 |
|
$ |
|
|
$ |
|
|
U.S. government and agency debt securities |
|
159,187 |
|
63,213 |
|
95,974 |
|
|
| ||||
Corporate debt securities |
|
58,809 |
|
|
|
58,809 |
|
|
| ||||
International government agency debt securities |
|
31,758 |
|
|
|
31,758 |
|
|
| ||||
Equity securities |
|
29,985 |
|
28,459 |
|
|
|
1,526 |
| ||||
Total |
|
$ |
280,940 |
|
$ |
92,873 |
|
$ |
186,541 |
|
$ |
1,526 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Interest rate swap contract |
|
$ |
(275 |
) |
$ |
|
|
$ |
(275 |
) |
$ |
|
|
Total |
|
$ |
(275 |
) |
$ |
|
|
$ |
(275 |
) |
$ |
|
|
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.
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 September 30, 2014. The following table is a rollforward of the fair value of the Companys investments whose fair value was determined using Level 3 inputs at September 30, 2014:
(In thousands) |
|
Fair Value |
| |
Balance, January 1, 2014 |
|
$ |
1,526 |
|
Total unrealized losses included in other comprehensive (loss) income |
|
(383 |
) | |
Sale of equity securities |
|
(1,143 |
) | |
Balance, September 30, 2014 |
|
$ |
|
|
As disclosed in Note 3, Investments, during the three months ended June 30, 2014, the Company sold its Level 3 investment, which consisted of warrants to purchase the common stock of Acceleron.
The Companys investments in U.S. government and agency debt securities, international government agency debt securities and corporate debt securities classified as Level 2 within the fair value hierarchy 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 included reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validated 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.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
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 consisted of the $300.0 million, seven-year term loan bearing interest at LIBOR plus 2.75% with a LIBOR floor of 0.75% (Term Loan B-1) and the $75.0 million, four-year term loan bearing interest at LIBOR plus 2.75%, with no LIBOR floor (Term Loan B-2 and together with Term Loan B-1, the 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, was as follows at September 30, 2014:
|
|
Carrying |
|
Estimated |
| ||
(In thousands) |
|
Value |
|
Fair Value |
| ||
Term Loan B-1 |
|
$ |
292,130 |
|
$ |
289,346 |
|
Term Loan B-2 |
|
$ |
67,421 |
|
$ |
66,825 |
|
5. 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:
|
|
September 30, |
|
December 31, |
| ||
(In thousands) |
|
2014 |
|
2013 |
| ||
Raw materials |
|
$ |
18,594 |
|
$ |
18,410 |
|
Work in process |
|
24,106 |
|
15,581 |
| ||
Finished goods |
|
7,771 |
|
12,227 |
| ||
Total inventory |
|
$ |
50,471 |
|
$ |
46,218 |
|
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
September 30, |
|
December 31, |
| ||
(In thousands) |
|
2014 |
|
2013 |
| ||
Land |
|
$ |
8,163 |
|
$ |
8,440 |
|
Building and improvements |
|
148,856 |
|
148,044 |
| ||
Furniture, fixture and equipment |
|
231,426 |
|
220,984 |
| ||
Leasehold improvements |
|
24,251 |
|
23,980 |
| ||
Construction in progress |
|
32,462 |
|
26,688 |
| ||
Subtotal |
|
445,158 |
|
428,136 |
| ||
Less: accumulated depreciation |
|
(183,030 |
) |
(153,646 |
) | ||
Total property, plant and equipment, net |
|
$ |
262,128 |
|
$ |
274,490 |
|
In April 2014, the Company sold certain of its land, buildings and equipment at its Athlone, Ireland facility that had a carrying value of $2.2 million, in exchange for $17.5 million. $3.0 million of the sale proceeds will remain in escrow pending the completion of certain additional services the Company is obligated to perform, and will be recognized as Gain on sale of property, plant and equipment as the services are provided.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
7. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consisted of the following:
|
|
|
|
September 30, 2014 |
| |||||||
|
|
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 |
|
$ |
(115,102 |
) |
$ |
384,598 |
|
NanoCrystal technology |
|
13 |
|
74,600 |
|
(12,001 |
) |
62,599 |
| |||
OCR technology |
|
12 |
|
66,300 |
|
(18,841 |
) |
47,459 |
| |||
Total |
|
|
|
$ |
640,600 |
|
$ |
(145,944 |
) |
$ |
494,656 |
|
Based on the Companys most recent analysis, amortization of intangible assets included within its Condensed Consolidated Balance Sheets at September 30, 2014 is expected to be approximately $60.0 million, $65.0 million, $70.0 million, $70.0 million and $70.0 million in the years ending December 31, 2014 through 2018, respectively. Although the Company believes such available information and assumptions are reasonable, given the inherent risks and uncertainties underlying its expectations regarding such future revenues, there is the potential for the Companys actual results to vary significantly from such expectations. If revenues are projected to change, the related amortization of the intangible assets will change in proportion to the change in revenues.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
|
|
September 30, |
|
December 31, |
| ||
(In thousands) |
|
2014 |
|
2013 |
| ||
Accounts payable |
|
$ |
27,233 |
|
$ |
19,493 |
|
Accrued compensation |
|
25,121 |
|
28,101 |
| ||
Accrued restructuring |
|
4,268 |
|
7,296 |
| ||
Accrued other |
|
43,707 |
|
36,283 |
| ||
Total accounts payable and accrued expenses |
|
$ |
100,329 |
|
$ |
91,173 |
|
9. RESTRUCTURING
On April 4, 2013, the Company approved a restructuring plan at its Athlone, Ireland manufacturing facility consistent with the evolution of the Companys product portfolio and designed to improve operational performance for the future. The restructuring plan calls for the Company to terminate manufacturing services for certain older products that are expected to no longer be economically practicable to produce due to decreasing demand from its customers resulting from generic competition. The Company expects to continue to generate revenues from the manufacturing of these products through the year ending December 31, 2015.
As a result of the termination of these services, the Company also implemented a corresponding reduction in headcount of up to 130 employees. In connection with this restructuring plan, during the twelve months ended March 31, 2013, the Company recorded a restructuring charge of $12.3 million, which consisted of severance and outplacement services. The Company has paid in cash $8.6 million and recorded an adjustment of $0.1 million due to changes in foreign currency since inception of this restructuring plan. Restructuring activity during the nine months ended September 30, 2014 was as follows:
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
|
|
Severance and |
| |
(In thousands) |
|
Outplacement Services |
| |
Balance, January 1, 2014 |
|
$ |
10,578 |
|
Payments |
|
(6,320 |
) | |
Adjustments |
|
(441 |
) | |
Balance, September 30, 2014 |
|
$ |
3,817 |
|
At September 30, 2014 and December 31, 2013, $3.8 million and $6.8 million, respectively, of this restructuring accrual was included within Accounts payable and accrued expenses, and none and $3.8 million, respectively, was included within Other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.
10. LONG-TERM DEBT
Long-term debt consisted of the following:
|
|
September 30, |
|
December 31, |
| ||
(In thousands) |
|
2014 |
|
2013 |
| ||
Term Loan B-1, due September 25, 2019 |
|
$ |
292,130 |
|
$ |
294,091 |
|
Term Loan B-2, due September 25, 2016 |
|
67,421 |
|
70,202 |
| ||
Total |
|
359,551 |
|
364,293 |
| ||
Less: current portion |
|
(6,750 |
) |
(6,750 |
) | ||
Long-term debt |
|
$ |
352,801 |
|
$ |
357,543 |
|
11. DERIVATIVE INSTRUMENTS
In September 2011, the Company entered into an interest rate swap agreement with Morgan Stanley Capital Services LLC to mitigate the impact of fluctuations in the three-month LIBOR rate at which the Companys long-term debt bears interest. The interest rate swap agreement became effective in December 2012, had a notional value of $65.0 million and expired in September 2014. The Company recorded an immaterial loss and a gain of $0.1 million within Other income (expense), net due to the change in fair value of this contract during the nine months ended September 30, 2014 and 2013, respectively. The fair value and presentation in the Condensed Consolidated Balance Sheets for the Companys interest rate swap was as follows:
|
|
|
|
Fair Value |
| ||||
(In thousands) |
|
Balance Sheet Location |
|
September 30, 2014 |
|
December 31, 2013 |
| ||
Liability derivative not designated as a cash flow hedge |
|
Other long-term liabilities |
|
$ |
|
|
$ |
(275 |
) |
12. SHARE-BASED COMPENSATION
Share-based compensation expense consisted of the following:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
(In thousands) |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
Cost of goods manufactured and sold |
|
$ |
1,557 |
|
$ |
1,149 |
|
$ |
5,636 |
|
$ |
3,223 |
|
Research and development |
|
3,403 |
|
2,825 |
|
10,886 |
|
7,129 |
| ||||
Selling, general and administrative |
|
8,521 |
|
10,235 |
|
29,718 |
|
20,547 |
| ||||
Total share-based compensation expense |
|
$ |
13,481 |
|
$ |
14,209 |
|
$ |
46,240 |
|
$ |
30,899 |
|
At September 30, 2014 and December 31, 2013, $0.7 million and $0.4 million, respectively, of share-based compensation cost was capitalized and recorded as Inventory in the accompanying Condensed Consolidated Balance Sheets.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
13. SHAREHOLDERS EQUITY
In January 2014, the Company sold 5,917,160 ordinary shares, $0.01 par value per share, pursuant to its shelf registration statement on Form S-3 at a price of $42.25 per share. The Company received total gross proceeds of $250.0 million, before deducting expenses of $1.6 million associated with the ordinary share sale.
14. (LOSS) EARNINGS PER SHARE
Basic (loss) earnings per ordinary share is calculated based upon net (loss) income available to holders of ordinary shares divided by the weighted average number of shares outstanding. For the calculation of diluted (loss) earnings 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 |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
(In thousands) |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
| ||||
Net (loss) income |
|
$ |
(39,956 |
) |
$ |
(7,762 |
) |
$ |
(60,575 |
) |
$ |
2,569 |
|
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Weighted average number of ordinary shares outstanding |
|
145,896 |
|
136,106 |
|
144,732 |
|
134,670 |
| ||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
| ||||
Stock options |
|
|
|
|
|
|
|
6,929 |
| ||||
Restricted stock units |
|
|
|
|
|
|
|
1,423 |
| ||||
Dilutive ordinary share equivalents |
|
|
|
|
|
|
|
8,352 |
| ||||
Shares used in calculating diluted earnings (loss) per share |
|
145,896 |
|
136,106 |
|
144,732 |
|
143,022 |
| ||||
The following potential ordinary equivalent shares have not been included in the net (loss) income per ordinary share calculation because the effect would have been anti-dilutive:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||
|
|
September 30, |
|
September 30, |
| ||||
(In thousands) |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Stock options |
|
9,721 |
|
9,241 |
|
9,605 |
|
1,084 |
|
Restricted stock units |
|
1,683 |
|
1,229 |
|
1,821 |
|
|
|
Total |
|
11,404 |
|
10,470 |
|
11,426 |
|
1,084 |
|
15. INCOME TAXES
The Company recorded an income tax provision of $3.5 million and $5.8 million for the three and nine months ended September 30, 2014, respectively and an income tax provision of $0.2 million and $7.8 million for the three and nine months ended September 30, 2013, respectively. The income tax provision in the three and nine months ended September 30, 2014 primarily relates to U.S. federal and state taxes on income, partially offset by deferred tax benefits in Ireland. The income tax provision in the three and nine months ended September 30, 2013 primarily relates to U.S. federal and state taxes on income, partially offset by a discrete benefit of $3.0 million from the settlement of uncertain tax benefits.
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. At September 30, 2014, the Company maintained a valuation allowance against certain of its U.S. and foreign deferred tax assets. The Company evaluates, at each reporting period, the need for a valuation allowance on its deferred tax assets on a jurisdiction by jurisdiction basis.
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)
16. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. For example, the Company is currently involved in various Paragraph IV lawsuits in the U.S. and other proceedings outside of the U.S. involving its patents in respect of FOCALIN XR, TRICOR, MEGACE ES, AMPYRA and ZOHYDRO ER. The Company is not aware of any such proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition, cash flows and 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 5 of this Form 10-Q, and Managements Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in our Transition Report, which has been filed with the SEC.
Executive Summary
Net loss for the three months ended September 30, 2014 was $40.0 million, or $0.27 per ordinary share basic and diluted, as compared to net loss of $7.8 million, or $0.06 per ordinary share basic and diluted, for the three months ended September 30, 2013. Net loss for the nine months ended September 30, 2014 was $60.6 million, or $0.42 per ordinary share basic and diluted, as compared to net income of $2.6 million, or $0.02 per ordinary share basic and diluted, for the nine months ended September 30, 2013.
During the three and nine months ended September 30, 2014, we recorded total revenues of $160.0 million and $443.6 million, respectively, as compared to $139.8 million and $441.9 million in the three and nine months ended September 30, 2013, respectively. Included in revenue for the nine months ended September 30, 2013 was $30.0 million of intellectual property (IP) license revenue unrelated to key development programs.
Our operating expenses for the three and nine months ended September 30, 2014 were $192.7 million and $515.1 million, respectively, as compared to $143.7 million and $413.2 million in the three and nine months ended September 30, 2013. This increase reflects increased investment in our rapidly advancing development pipeline, such as the initiation of the pivotal clinical development programs for ALKS 5461, and informative studies for ALKS 3831, ALKS 8700 and ALKS 7106. We have also begun prelaunch activities for aripiprazole lauroxil, as we submitted our New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) in August 2014, which was accepted by the FDA in October 2014.
Also during the nine months ended September 30, 2014, we sold approximately 5.9 million ordinary shares, through a registered direct offering, to Invesco Perpetual Income Fund (IPI Fund) and the Invesco Perpetual High Income Fund (IPHI Fund and together with the IPI Fund, the Invesco Funds), for gross proceeds of $250.0 million.
Marketed Products
We earn manufacturing and/or royalty revenues on net sales from a diversified portfolio of more than 20 products marketed by our partners, and earn revenue on net sales of VIVITROL (naltrexone for extended-release injectable suspension), which is a proprietary product that we manufacture, market and sell in the U.S. Our key marketed products, which are expected to contribute meaningfully to our revenues, are discussed below. We expect revenues from our other marketed products, taken together, to decrease in the future due to existing and expected competition from generic manufacturers.
RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION
RISPERDAL CONSTA (risperidone long-acting injection) and INVEGA SUSTENNA/XEPLION (paliperidone palmitate extended-release injectable suspension) are long-acting atypical antipsychotics that incorporate our proprietary technologies. They are products of Janssen Pharmaceutica, Inc. and Janssen Pharmaceutica International, a division of Cilag International AG (taken together, Janssen).
RISPERDAL CONSTA uses our polymer-based microsphere injectable extended-release technology to deliver and maintain therapeutic medication levels in the body through just one injection every two weeks. RISPERDAL CONSTA is exclusively manufactured by us and is marketed and sold by Janssen worldwide. It was first approved for the treatment of schizophrenia in the U.S. in 2003 and in countries in Europe in 2002. The FDA approved RISPERDAL CONSTA as both monotherapy and adjunctive therapy to lithium or valproate in the maintenance treatment of bipolar I disorder in May 2009. RISPERDAL CONSTA is also approved for the maintenance treatment of bipolar I disorder in over 25 other countries worldwide.
INVEGA SUSTENNA uses our nanoparticle injectable extended-release technology to increase the rate of dissolution and enable the formulation of an aqueous suspension for once-monthly intramuscular administration. INVEGA SUSTENNA was approved for the acute and maintenance treatment of schizophrenia in adults in the U.S. in 2009. Paliperidone palmitate extended-release injectable suspension is also approved in the European Union (EU) and other countries worldwide, and is marketed and sold in the EU under the trade name XEPLION. INVEGA SUSTENNA/XEPLION is manufactured and commercialized worldwide by Janssen.
In July 2014, Janssen Pharmaceuticals, Inc. announced the submission of a supplemental New Drug Application (sNDA) to the FDA seeking a label change that, if approved, is expected to include new data showing delayed time to relapse in patients
prescribed the once-monthly atypical long-acting antipsychotic INVEGA SUSTENNA (paliperidone palmitate) compared to selected oral antipsychotic therapies in the treatment of schizophrenia. Janssen Pharmaceuticals, Inc. also announced in May 2014 the submission of sNDAs to the FDA for once-monthly INVEGA SUSTENNA for approval to treat schizoaffective disorder as either monotherapy or adjunctive therapy.
AMPYRA/FAMPYRA
Dalfampridine extended-release tablets are marketed and sold in the U.S. under the trade name AMPYRA by Acorda. In January 2010, the FDA approved AMPYRA as a treatment to improve walking in patients with multiple sclerosis (MS) as demonstrated by an increase in walking speed. To our knowledge, it is the first and, currently, only product to be approved for this indication. Prolonged-release fampridine tablets are marketed and sold outside the U.S. under the trade name FAMPYRA by Biogen Idec International GmbH. In July 2011, the European Medicines Agency (EMA) conditionally approved FAMPYRA in the EU for the improvement of walking in adults with MS. This authorization was renewed as of May 2014. The product incorporates our oral controlled-release technology. AMPYRA and FAMPYRA are manufactured by us.
BYDUREON
BYDUREON (exenatide extended-release for injectable suspension) was approved by the FDA in January 2012, and received marketing authorization in the EU in June 2011, for the treatment of type 2 diabetes. BYDUREON, a once-weekly formulation of exenatide, the active ingredient in BYETTA, uses our polymer-based microsphere injectable extended-release technology. From August 2012 until February 2014, Bristol-Myers Squibb Company (Bristol-Myers) and AstraZeneca plc (AstraZeneca) co-developed and marketed BYDUREON through their diabetes collaboration. In February 2014, AstraZeneca assumed sole responsibility for the development and commercialization of BYDUREON. In September 2014, AstraZeneca announced that the once-weekly BYDUREON Pen 2 mg, which is a pre-filled, single-use pen injector that contains the same formulation and dose as the original BYDUREON single-dose tray, was available by prescription in pharmacies in the U.S. AstraZeneca stated that it received a positive opinion from the Committee for Medicinal Products for Human Use (CHMP) on the BYDUREON dual-chamber pen and that it filed for approval of the dual-chamber pen in Japan in April 2014.
VIVITROL
VIVITROL is a once-monthly injectable medication approved by the FDA for the treatment of alcohol dependence in April 2006 and for the prevention of relapse to opioid dependence, following opioid detoxification, in October 2010. 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 GmbH International sells VIVITROL in Russia and the Commonwealth of Independent States. The Russian regulatory authorities approved VIVITROL for the treatment of alcohol dependence in 2008 and for the treatment of opioid dependence in 2011.
Key Development Programs
We also have several proprietary product candidates in various stages of development, as discussed below.
Aripiprazole Lauroxil
Aripiprazole lauroxil is an injectable atypical antipsychotic with one-month and two-month formulations in development for the treatment of schizophrenia. Once in the body, aripiprazole lauroxil converts into aripiprazole, which is commercially available under the name ABILIFY. As a long-acting investigational medication based on our proprietary LinkeRx technology, aripiprazole lauroxil is designed to have multiple dosing options and to be administered in a ready-to-use, pre-filled product format. Aripiprazole lauroxil is our first product candidate to leverage our proprietary LinkeRx technology.
In April 2014, we announced positive topline results from a randomized, double-blind, placebo-controlled phase 3 clinical trial of aripiprazole lauroxil in patients with schizophrenia and presented the comprehensive data from the phase 3 study in June 2014. In August 2014, we announced submission of an NDA to the FDA for aripiprazole lauroxil for the treatment of schizophrenia. In October 2014, we announced that the FDA had accepted for filing the NDA for aripiprazole lauroxil, with a Prescription Drug User Fee Act (PDUFA) date of August 22, 2015.
We expect to commence clinical testing of aripiprazole lauroxil two-month, a new product candidate for the treatment of schizophrenia, by the end of 2014. If approved, aripiprazole lauroxil would be the first and only long-acting atypical antipsychotic medication dosed every two months.
Samidorphan /ALKS 33
Samidorphan, formerly referred to as ALKS 33, is a proprietary oral opioid modulator characterized by limited hepatic metabolism and durable pharmacologic activity in modulating brain opioid receptors. A phase 2 study of samidorphan in alcohol dependence was completed, and samidorphan is currently being evaluated as a component of ALKS 5461 and ALKS 3831.
ALKS 5461
ALKS 5461 is a proprietary combination of samidorphan and buprenorphine that we are developing for the treatment of major depressive disorder (MDD) in patients who have an inadequate response to standard antidepressant therapies. An oral investigational medicine, ALKS 5461 acts as a balanced neuromodulator in the brain and represents a new approach with a novel mechanism of action for treating MDD. In March 2014, we announced the initiation of the pivotal clinical development program for ALKS 5461. The comprehensive pivotal program, named FORWARD (Focused On Results With A Rethinking of Depression), includes a total of 12 studies, including three core phase 3 efficacy studies and nine supportive studies. We announced initiation of two core efficacy studies in June 2014, and announced initiation of the third core efficacy study in July 2014. The core efficacy studies are designed to evaluate the safety and efficacy of ALKS 5461 as adjunctive treatment in patients with MDD and incorporate sophisticated design features. The FORWARD pivotal program will include studies to evaluate the long-term safety, dosing, pharmacokinetic profile and human abuse liability of ALKS 5461. The three core efficacy studies will utilize state-of-the-art methodologies intended to reduce the impact of clinically meaningful placebo response. Data from these three core efficacy studies are expected in 2016. In October 2013, the FDA granted Fast Track status for ALKS 5461 for the adjunctive treatment of MDD in patients with inadequate response to standard antidepressant therapies.
ALKS 3831
ALKS 3831 is a novel, proprietary investigational medicine designed as a broad-spectrum antipsychotic for the treatment of schizophrenia. ALKS 3831 is composed of samidorphan in combination with the established antipsychotic drug olanzapine, which is generally available under the name ZYPREXA. ALKS 3831 is designed to attenuate olanzapine-induced metabolic side effects, including weight gain, and to have utility in the treatment of schizophrenia in patients with alcohol use. In September 2014, we announced completion of patient enrollment in an ongoing phase 2 study designed to assess ALKS 3831s efficacy, safety and tolerability in the treatment of schizophrenia and its attenuation of weight gain, compared to olanzapine, and we expect topline results from this study in early 2015. In June 2014, we announced initiation of a second phase 2 study which is a randomized, double-blind, active-controlled study that will assess ALKS 3831s efficacy, safety and tolerability in treating schizophrenia in patients with alcohol use, compared to olanzapine. We expect topline results from this study in mid-2017.
ALKS 8700
ALKS 8700 is an oral, novel and proprietary monomethyl fumarate (MMF) molecule in development for the treatment of MS. ALKS 8700 is designed to rapidly and efficiently convert to MMF in the body and to offer differentiated features as compared to the currently marketed dimethyl fumarate, TECFIDERA. In July 2014, we announced that we had initiated a randomized, double-blind phase 1 study of ALKS 8700, designed to evaluate the safety, tolerability and pharmacokinetics of several oral formulations of ALKS 8700 compared to both placebo and active control groups. We expect topline results from this study in the first quarter of 2015.
ALKS 7106
ALKS 7106 is our novel, oral opioid analgesic drug candidate designed for the treatment of pain with intrinsically low potential for abuse and overdose death, which are two liabilities associated with opioid analgesics. In August 2014, we announced that we had initiated a randomized, double-blind, placebo-controlled phase 1 study designed to evaluate the safety, tolerability and pharmacokinetics of ALKS 7106. We expect topline results from this study in the first half of 2015.
RDB 1419
RDB 1419 is a proprietary biologic cancer immunotherapy investigational product based on interleukin-2 and its receptors. RDB 1419 was engineered using our proprietary fusion protein technology platform to modulate the natural mechanism of action of a biologic. We expect to conduct Investigational New Drug (IND) enabling activities for RDB 1419 in 2014.
OtherPartnered Product Candidates
A phase 3 clinical research program for a three-month formulation of INVEGA SUSTENNA (paliperidone palmitate 3-month formulation), an investigational treatment for symptoms of schizophrenia in adults, was initiated by Janssen Research & Development, LLC (Janssen R&D) in 2012. In March 2014, Janssen R&D announced that, following an Independent Data Monitoring Committee recommendation based on positive efficacy, it halted early a phase 3 clinical study of paliperidone palmitate 3-month formulation. Janssen R&D has stated that, following a final analysis of the study and discussions with the FDA, it plans to file an NDA with the FDA for paliperidone palmitate 3-month formulation by the end of 2014 and that the study results will be presented at a future medical congress and will also be submitted for publication in a peer-reviewed journal. This investigational product is being developed by Janssen Pharmaceutica, NV, as licensee to our proprietary technology for nanoparticles.
AstraZeneca is developing line extensions for BYDUREON for the treatment of type 2 diabetes, including weekly and monthly suspension formulations using our proprietary technology for extended-release microspheres. AstraZeneca has stated that it expects to file for approval of the BYDUREON once-weekly suspension in the U.S. and EU in 2015.
Patents and Proprietary Rights
In July 2014, we announced that the United States Patent and Trademark Office (USPTO) had issued Notices of Allowance, which are issued after the USPTO makes a determination that a patent can be granted from an application, for four of our key development program candidates for the treatment of CNS disorders. Following our announcement of the four Notices of Allowance, the USPTO issued the patents as follows:
Aripiprazole lauroxil: On August 5, 2014, the USPTO issued U.S. Patent No. 8,796,276, entitled Heterocyclic Compounds for the Treatment of Neurological and Psychological Disorders. We expect this patent to expire no earlier than June 2030.
ALKS 5461: On September 2, 2014, the USPTO issued U.S. Patent No. 8,822,488, entitled Compositions of Buprenorphine and μ Antagonists. We expect this patent to expire no earlier than December 2032.
ALKS 3831: On July 15, 2014, the USPTO issued U.S. Patent No. 8,778,960, entitled Methods for Treating Antipsychotic-Induced Weight Gain. We expect this patent to expire no earlier than February 2032.
ALKS 7106: On August 12, 2014, the USPTO issued U.S. Patent No. 8,802,655, entitled 4-Hydroxybenzomorphans. We expect this patent to expire no earlier than November 2025.
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 from continuing operations earned in the three and nine months ended September 30, 2014, as compared to the three and nine months ended September 30, 2013:
|
|
Three Months Ended |
|
Change |
|
Nine Months Ended |
|
Change |
| ||||||||||
|
|
September 30, |
|
Favorable/ |
|
September 30, |
|
Favorable/ |
| ||||||||||
(In millions) |
|
2014 |
|
2013 |
|
(Unfavorable) |
|
2014 |
|
2013 |
|
(Unfavorable) |
| ||||||
Manufacturing and royalty revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
INVEGA SUSTENNA/XEPLION |
|
$ |
36.1 |
|
$ |
29.2 |
|
$ |
6.9 |
|
$ |
90.2 |
|
$ |
65.8 |
|
$ |
24.4 |
|
RISPERDAL CONSTA |
|
32.3 |
|
33.4 |
|
(1.1 |
) |
87.9 |
|
98.6 |
|
(10.7 |
) | ||||||
AMPYRA/FAMPYRA |
|
16.5 |
|
12.6 |
|
3.9 |
|
56.7 |
|
57.1 |
|
(0.4 |
) | ||||||
BYDUREON |
|
10.3 |
|
7.0 |
|
3.3 |
|
26.7 |
|
17.1 |
|
9.6 |
| ||||||
RITALIN LA/FOCALIN XR |
|
8.7 |
|
9.2 |
|
(0.5 |
) |
29.4 |
|
31.0 |
|
(1.6 |
) | ||||||
Other |
|
28.1 |
|
27.2 |
|
0.9 |
|
82.8 |
|
115.7 |
|
(32.9 |
) | ||||||
Manufacturing and royalty revenues |
|
$ |
132.0 |
|
$ |
118.6 |
|
$ |
13.4 |
|
$ |
373.7 |
|
$ |
385.3 |
|
$ |
(11.6 |
) |
The increase in INVEGA SUSTENNA/XEPLION royalty revenues in the three and nine months ended September 30, 2014, as compared to the three and nine months ended September 30, 2013, was due to an increase in Janssens end-market sales of INVEGA SUSTENNA/XEPLION. During the three and nine months ended September 30, 2014, Janssens end-market sales of INVEGA SUSTENNA/XEPLION were $403.0 million and $1,170.0 million, respectively, as compared to $324.0 million and $898.0 million in the three and nine months ended September 30, 2013, respectively. Under our INVEGA SUSTENNA/XEPLION agreement with Janssen, we earn royalty revenues on end-market net sales of INVEGA SUSTENNA/XEPLION of: 5% up to the first $250 million in calendar-year net sales; 7% on calendar-year net sales of between $250 million and $500 million; and 9% on calendar-year net sales exceeding $500 million. The royalty rate resets to 5% at the beginning of each calendar year.
The decrease in RISPERDAL CONSTA manufacturing and royalty revenues in the three months ended September 30, 2014 as compared to the three months ended September 30, 2013, was primarily due to a 13% decrease in royalty revenues. The decrease in RISPERDAL CONSTA manufacturing and royalty revenues in the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, was primarily due to an 11% decrease in manufacturing revenues and an 11% decrease in royalty revenues. The decrease in manufacturing revenues was primarily due to a 7% decrease in our selling price of RISPERDAL CONSTA to Janssen and a 2% decrease in the number of units shipped. Janssens end-market sales of RISPERDAL CONSTA were $283.8 million and $892.0 million for the three and nine months ended September 30, 2014, respectively, and $325.4 million and $996.7 million for the three and nine months ended September 30, 2013, respectively. 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 end-market net sales of RISPERDAL CONSTA.
The increase in AMPYRA/FAMPYRA manufacturing and royalty revenues in the three months ended September 30, 2014, as compared to the three months ended September 30, 2013 was primarily due to $3.7 million in royalties earned on third-party shipments of AMPYRA to Acorda.
The increase in BYDUREON royalty revenues in the three and nine months ended September 30, 2014, as compared to the three and nine months ended September 30, 2013, was due to an increase in end-market sales of BYDUREON by AstraZeneca. During the three and nine months ended September 30, 2014, our estimate of AstraZenecas end-market sales of BYDUREON was $125.0 million and $334.3 million, respectively, as compared to $87.6 million and $215.5 million sold under the Bristol-Myers and AstraZeneca diabetes collaboration in the three and nine months ended September 30, 2013, respectively.
Included in other manufacturing and royalty revenues during the nine months ended September 30, 2013 was $30.0 million of IP license revenue unrelated to key development programs.
Product Sales, net
Our product sales, net consist of sales of VIVITROL in the U.S. to wholesalers, a specialty distributor 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 September 30, 2014 and 2013:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||||||||||
|
|
September 30, |
|
September 30, |
| ||||||||||||||||
(In millions) |
|
2014 |
|
% of Sales |
|
2013 |
|
% of Sales |
|
2014 |
|
% of Sales |
|
2013 |
|
% of Sales |
| ||||
Product sales, gross |
|
$ |
37.9 |
|
100.0 |
% |
$ |
26.3 |
|
100.0 |
% |
$ |
95.4 |
|
100.0 |
% |
$ |
70.9 |
|
100.0 |
% |
Adjustments to product sales, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Medicaid rebates |
|
(3.5 |
) |
(9.2 |
)% |
(2.0 |
) |
(7.6 |
)% |
(7.9 |
) |
(8.3 |
)% |
(5.3 |
) |
(7.5 |
)% | ||||
Product discounts |
|
(2.7 |
) |
(7.1 |
)% |
(1.6 |
) |
(6.1 |
)% |
(6.8 |
) |
(7.1 |
)% |
(4.4 |
) |
(6.2 |
)% | ||||
Chargebacks |
|
(2.9 |
) |
(7.7 |
)% |
(1.7 |
) |
(6.5 |
)% |
(6.4 |
) |
(6.7 |
)% |
(4.7 |
) |
(6.6 |
)% | ||||
Co-pay assistance |
|
(1.6 |
) |
(4.2 |
)% |
(1.2 |
) |
(4.5 |
)% |
(4.5 |
) |
(4.7 |
)% |
(3.4 |
) |
(4.8 |
)% | ||||
Product returns |
|
(0.8 |
) |
(2.1 |
)% |
(0.4 |
) |
(1.5 |
)% |
(2.2 |
) |
(2.3 |
)% |
(0.5 |
) |
(0.7 |
)% | ||||
Other |
|
(0.6 |
) |
(1.6 |
)% |
(0.2 |
) |
(0.8 |
)% |
(3.1 |
) |
(3.3 |
)% |
(1.4 |
) |
(2.0 |
)% | ||||
Total adjustments |
|
(12.1 |
) |
(31.9 |
)% |
(7.1 |
) |
(27.0 |
)% |
(30.9 |
) |
(32.4 |
)% |
(19.7 |
) |
(27.8 |
)% | ||||
Product sales, net |
|
$ |
25.8 |
|
68.1 |
% |
$ |
19.2 |
|
73.0 |
% |
$ |
64.5 |
|
67.6 |
% |
$ |
51.2 |
|
72.2 |
% |
The increase in product sales, gross for the three and nine months ended September 30, 2014, as compared to the three and nine months ended September 30, 2013, was due to a 38% and 30% increase in the number of units sold, respectively, as well as a 5% price increase, effective April 1, 2014. The increase in Medicaid rebates, chargebacks and co-pay assistance were all primarily due to the increase in VIVITROL gross product sales. The increase in other adjustments during the nine months ended September 30, 2014 was primarily due to a $1.4 million charge in the three months ended March 31, 2014 against product sales, net, related to a limited VIVITROL recall for a needle clog issue.
Costs and Expenses
Cost of Goods Manufactured and Sold
|
|
Three Months Ended |
|
Change |
|
Nine Months Ended |
|
Change |
| ||||||||||
|
|
September 30, |
|
Favorable/ |
|
September 30, |
|
Favorable/ |
| ||||||||||
(In millions) |
|
2014 |
|
2013 |
|
(Unfavorable) |
|
2014 |
|
2013 |
|
(Unfavorable) |
| ||||||
Cost of goods manufactured and sold |
|
$ |
47.3 |
|
$ |
45.4 |
|
$ |
(1.9 |
) |
$ |
129.5 |
|
$ |
139.4 |
|
$ |
9.9 |
|
The decrease in cost of goods manufactured and sold during the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 was primarily due to the decrease in the number of RISPERDAL CONSTA units shipped to Janssen and a decrease in shipments of our legacy products. The decrease in shipments of our legacy products is primarily due to decreasing demand from our customers due to generic competition. On April 4, 2013, we approved a restructuring plan at our Athlone, Ireland manufacturing facility consistent with the evolution of our product portfolio and designed to improve operational performance in the future. As a result of the termination of these services, we began a corresponding reduction in headcount of up to 130 employees and we expect that by the end of 2014, our restructuring plan at our Athlone, Ireland manufacturing facility will have been completed.
Research and Development Expense
For each of our R&D programs, we incur both external and internal expenses. External R&D expenses include costs related to clinical and non-clinical activities performed by contract research organizations (CROs), consulting fees, laboratory services, purchases of drug product materials and third-party manufacturing development costs. Internal R&D expenses include employee-related expenses, occupancy costs, depreciation and general overhead. We track external R&D expenses for each of our development programs; however, internal R&D expenses are not tracked by individual program as they benefit multiple programs or our technologies in general.
The following table sets forth our external R&D expenses relating to our individual Key Development Programs and all other development programs, and our internal R&D expenses by the nature of such expenses:
|
|
Three Months Ended |
|
Change |
|
Nine Months Ended |
|
Change |
| ||||||||||
|
|
September 30, |
|
Favorable/ |
|
September 30, |
|
Favorable/ |
| ||||||||||
(In millions) |
|
2014 |
|
2013 |
|
(Unfavorable) |
|
2014 |
|
2013 |
|
(Unfavorable) |
| ||||||
External R&D Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Key development programs: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
ALKS 5461 |
|
$ |
21.1 |
|
$ |
1.2 |
|
$ |
(19.9 |
) |
$ |
52.8 |
|
$ |
5.3 |
|
$ |
(47.5 |
) |
ALKS 3831 |
|
10.3 |
|
2.3 |
|
(8.0 |
) |
21.4 |
|
4.6 |
|
(16.8 |
) | ||||||
Aripiprazole lauroxil |
|
9.8 |
|
17.6 |
|
7.8 |
|
23.0 |
|
32.5 |
|
9.5 |
| ||||||
ALKS 8700 |
|
3.8 |
|
|
|
(3.8 |
) |
7.6 |
|
|
|
(7.6 |
) | ||||||
ALKS 7106 |
|
1.7 |
|
|
|
(1.7 |
) |
5.3 |
|
|
|
(5.3 |
) | ||||||
Other development programs |
|
5.6 |
|
4.2 |
|
(1.4 |
) |
12.3 |
|
13.9 |
|
1.6 |
| ||||||
Total external R&D expenses |
|
52.3 |
|
25.3 |
|
(27.0 |
) |
122.4 |
|
56.3 |
|
(66.1 |
) | ||||||
Internal R&D expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Employee-related |
|
19.4 |
|
14.4 |
|
(5.0 |
) |
56.2 |
|
41.5 |
|
(14.7 |
) | ||||||
Depreciation |
|
2.1 |
|
2.1 |
|
|
|
6.2 |
|
5.8 |
|
(0.4 |
) | ||||||
Occupancy |
|
1.8 |
|
2.2 |
|
0.4 |
|
5.2 |
|
4.9 |
|
(0.3 |
) | ||||||
Other |
|
2.7 |
|
1.9 |
|
(0.8 |
) |
7.6 |
|
6.7 |
|
(0.9 |
) | ||||||
Total internal R&D expenses |
|
26.0 |
|
20.6 |
|
(5.4 |
) |
75.2 |
|
58.9 |
|
(16.3 |
) | ||||||
Research and development expenses |
|
$ |
78.3 |
|
$ |
45.9 |
|
$ |
(32.4 |
) |
$ |
197.6 |
|
$ |
115.2 |
|
$ |
(82.4 |
) |
These amounts are not necessarily predictive of future R&D expenses. In an effort to allocate our spending most effectively, we continually evaluate the products under development, based on the performance of such products in pre-clinical and/or clinical trials, our expectations regarding the likelihood of their regulatory approval and our view of their commercial viability, among other factors.
The increase in expenses related to ALKS 5461 was the result of the initiation and start-up activities associated with the multiple phase 3 studies in 2014. The increase in expenses related to the ALKS 3831 program was due to an ongoing phase 2 study, initiated in July 2013, and the initiation of a second phase 2 study in June 2014 to investigate the potential utility of ALKS 3831 for patients with schizophrenia exacerbated by alcohol use disorders. ALKS 8700 and ALKS 7106 were added to our key development program portfolio in 2013 and we initiated phase 1 studies for these programs in July 2014 and August 2014, respectively. Expenses incurred under the samidorphan development program, which was formerly referred to as ALKS 33, and the RDB 1419 development program were not material in the three and nine months ended September 30, 2014 and 2013. The increase in employee-related expenses was primarily due to an increase in headcount and share-based compensation expense.
Selling, General and Administrative Expense
|
|
Three Months Ended |
|
Change |
|
Nine Months Ended |
|
Change |
| ||||||||||
|
|
September 30, |
|
Favorable/ |
|
September 30, |
|
Favorable/ |
| ||||||||||
(In millions) |
|
2014 |
|
2013 |
|
(Unfavorable) |
|
2014 |
|
2013 |
|
(Unfavorable) |
| ||||||
Selling, general and administrative expense |
|
$ |
51.9 |
|
$ |
39.5 |
|
$ |
(12.4 |
) |
$ |
145.1 |
|
$ |
107.1 |
|
$ |
(38.0 |
) |
The increase in selling, general and administrative (SG&A) expense for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013, was primarily due to an $8.8 million increase in professional service fees and marketing expenses. The increases in professional service fees and marketing expenses were primarily due to prelaunch activities for aripiprazole lauroxil, as we submitted our NDA to the FDA in August 2014.
The increase in SG&A expense for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, was primarily due to an $18.6 million increase in professional service fees and marketing expenses and a $15.7 million increase in employee-related expenses. The increases in professional service fees and marketing expenses were primarily due to prelaunch activities for aripiprazole lauroxil and increased marketing activities related to VIVITROL. The increase in employee-related expenses is primarily related to an increase in share-based compensation of $9.2 million, which is primarily due to recent equity grants being awarded with higher grant-date fair values than older grants due to the increase in our stock price, and an increase in labor and benefit expenses of $5.8 million due to an increase in headcount.
We expect SG&A expenses to continue to increase in 2015 as launch planning activities accelerate for aripiprazole lauroxil.
Amortization of Acquired Intangible Assets
|
|
Three Months Ended |
|
Change |
|
Nine Months Ended |
|
Change |
| ||||||||||
|
|
September 30, |
|
Favorable/ |
|
September 30, |
|
Favorable/ |
| ||||||||||
(In millions) |
|
2014 |
|
2013 |
|
(Unfavorable) |
|
2014 |
|
2013 |
|
(Unfavorable) |
| ||||||
Amortization of acquired intangible assets |
|
$ |
15.2 |
|
$ |
12.9 |
|
$ |
(2.3 |
) |
$ |
42.9 |
|
$ |
35.9 |
|
$ |
(7.0 |
) |
The intangible assets being amortized in the three and nine months ended September 30, 2014 and 2013 were acquired as part of the acquisition of Elan Drug Technologies (EDT) in September 2011. In connection with the acquisition of EDT, we acquired certain amortizable intangible assets with a fair value of $643.2 million, which were expected to be amortized over 12 to 13 years. We amortize our amortizable intangible assets using the economic use method, which reflects the pattern that the economic benefits of the intangible assets are consumed as revenue is generated from the underlying patent or contract. Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at September 30, 2014 is expected to be approximately $60.0 million, $65.0 million, $70.0 million, $70.0 million and $70.0 million in the years ending December 31, 2014 through 2018, respectively.
Other (Expense) Income, Net
|
|
Three Months Ended |
|
Change |
|
Nine Months Ended |
|
Change |
| ||||||||||
|
|
September 30, |
|
Favorable/ |
|
September 30, |
|
Favorable/ |
| ||||||||||
(In millions) |
|
2014 |
|
2013 |
|
(Unfavorable) |
|
2014 |
|
2013 |
|
(Unfavorable) |
| ||||||
Interest income |
|
$ |
0.5 |
|
$ |
0.3 |
|
$ |
0.2 |
|
$ |
1.4 |
|
$ |
0.6 |
|
$ |
0.8 |
|
Interest expense |
|
(3.4 |
) |
(3.5 |
) |
0.1 |
|
(10.1 |
) |
(18.4 |
) |
8.3 |
| ||||||
Gain on sale of investment in Acceleron Pharma Inc. |
|
|
|
|
|
|
|
15.3 |
|
|
|
15.3 |
| ||||||