e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
March 31, 2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number: 1-14131
ALKERMES, INC.
(Exact name of registrant as
specified in its charter)
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Pennsylvania
State or other jurisdiction
of
incorporation or organization
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23-2472830
(I.R.S. Employer
Identification No.)
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852 Winter Street, Waltham Massachusetts
(Address of principal
executive offices)
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02451-1420
(Zip Code)
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(781) 609-6000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(g) of the
Act:
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Common Stock, par value $.01 per share
Series A Junior Participating Preferred Stock Purchase Rights
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The NASDAQ Stock Market LLC
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Title of each class
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Name of exchange on which registered
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Securities registered pursuant to Section 12(b) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
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 þ 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 o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller Reporting company o
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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 þ
As of September 30, 2009 (the last business day of the
second fiscal quarter) the aggregate market value of the
92,809,788 outstanding shares of voting and non-voting common
equity held by non-affiliates of the registrant was
$852,921,952. Such aggregate value was computed by reference to
the closing price of the common stock reported on the NASDAQ
Stock Market on September 30, 2009.
As of May 13, 2010, 94,875,127 shares of the
Registrants common stock were issued and outstanding and
382,632 shares of the Registrants non-voting common
stock were issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement to be filed within
120 days after March 31, 2010 for the
Registrants Annual Shareholders Meeting are
incorporated by reference into Part III of this Report on
Form 10-K.
ALKERMES
INC. AND SUBSIDIARIES
ANNUAL REPORT ON
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 2010
INDEX
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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 Annual Report include,
without limitation, statements regarding:
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our expectations regarding our financial performance, including
revenues, expenses, gross margins, liquidity, capital
expenditures and income taxes;
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our expectations regarding the commercialization of
RISPERDAL®
CONSTA®
[(risperidone) long-acting injection] and
VIVITROL®
(naltrexone for extended-release injectable suspension)
including the sales and marketing efforts of our partners
Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Janssen
Pharmaceutica International, a division of Cilag International
AG, which we refer to as Janssen, and our ability to establish
and maintain successful sales and marketing, reimbursement and
distribution arrangements for VIVITROL;
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the recognition of milestone payments from Cilag GmbH
International, or Cilag, a subsidiary of Johnson &
Johnson, related to the future sales of VIVITROL;
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our efforts and ability to evaluate and license product
candidates and build our pipeline;
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our expectations regarding our product candidates, including the
development, regulatory review and commercial potential of such
product candidates and the costs and expenses related thereto;
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our expectation and timeline for regulatory approval of the New
Drug Application, or NDA, submission for
BYDUREONtm
(exenatide for extended-release injectable suspension) and, if
approved, the commercialization of BYDUREON by Amylin
Pharmaceuticals, Inc., or Amylin, and Eli Lilly & Co.,
or Lilly;
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our expectation and timeline for regulatory approval of the NDA
submission for VIVITROL for the treatment of opioid dependence
and, if approved, our ability to commercialize VIVITROL in this
new indication;
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our expectations regarding the successful manufacture of our
products and product candidates, including RISPERDAL CONSTA and
VIVITROL, by us at a commercial scale, and our expectations
regarding the successful manufacture of BYDUREON by our partner
Amylin;
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the continuation of our collaborations and other significant
agreements and our ability to establish and maintain successful
development collaborations;
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our expectations regarding the financial impact of recently
enacted health care reform legislation and foreign currency
exchange rate fluctuations and valuations;
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the impact of new accounting pronouncements;
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our expectations concerning the status, intended use and
financial impact of our properties, including manufacturing
facilities; and
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our future capital requirements and capital expenditures and our
ability to finance our operations and capital requirements.
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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 the section entitled
Risk Factors in this Annual Report. The
forward-looking statements contained and incorporated herein
represent our judgment as of the date of this Annual
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Report, and we caution readers not to place undue reliance on
such statements. The information contained in this Annual Report
is provided by us as of the date of this Annual Report, 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.
Unless otherwise indicated, information contained in this Annual
Report concerning the disorders targeted by our products and
product candidates and the markets in which we operate is based
on information from various sources (including industry
publications, medical and clinical journals and studies, surveys
and forecasts and our internal research), on assumptions that we
have made, which we believe are reasonable, based on those data
and other similar sources and on our knowledge of the markets
for our products and development programs. 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 1A Risk Factors. These and
other factors could cause results to differ materially from
those expressed in the estimates included in this prospectus.
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PART I
The following discussion contains forward-looking statements.
Actual results may differ significantly from those projected in
the forward-looking statements. Factors that might cause future
results to differ materially from those projected in the
forward-looking statements include, but are not limited to,
those discussed in Risk Factors and elsewhere in
this Annual Report. See also Forward-Looking
Statements.
General
Alkermes, Inc. (as used in this section, together with our
subsidiaries, us, we, our or
the Company) is a fully integrated biotechnology
company committed to developing innovative medicines to improve
patients lives. We developed, manufacture and
commercialize VIVITROL for alcohol dependence and manufacture
RISPERDAL CONSTA for schizophrenia and bipolar I disorder. Our
robust pipeline includes extended-release injectable and oral
products for the treatment of prevalent, chronic diseases, such
as central nervous system, or CNS, disorders, reward disorders,
addiction, diabetes and autoimmune disorders. We have a research
facility in Massachusetts and a commercial manufacturing
facility in Ohio. In January 2010, we relocated our corporate
headquarters from Cambridge, Massachusetts, to Waltham,
Massachusetts.
Our
Strategy
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. Each of these
approaches is discussed in more detail in Products and
Development Programs.
Products
and Development Programs
RISPERDAL
CONSTA
RISPERDAL CONSTA is a long-acting formulation of risperidone, a
product of Janssen, and is the first and only long-acting,
atypical antipsychotic approved by the Food and Drug
Administration, or FDA, for the treatment of schizophrenia and
for the treatment of bipolar I disorder. The medication uses our
proprietary
MEDISORB®
injectable extended-release technology to deliver and maintain
therapeutic medication levels in the body through just one
injection every two weeks. RISPERDAL CONSTA is marketed by
Janssen and is exclusively manufactured by us. RISPERDAL CONSTA
was first approved for the treatment of schizophrenia by
regulatory authorities in the United Kingdom and Germany in
August 2002 and by the FDA in October 2003. The Pharmaceuticals
and Medical Devices Agency in Japan approved RISPERDAL CONSTA
for the treatment of schizophrenia in April 2009. RISPERDAL
CONSTA is the first long-acting atypical antipsychotic to be
available in Japan. RISPERDAL CONSTA is approved for the
treatment of schizophrenia in approximately 85 countries and
marketed in approximately 60 countries, and Janssen continues to
launch the product around the world.
Schizophrenia is a chronic, severe and disabling brain disorder.
The disease is marked by positive symptoms (hallucinations and
delusions) and negative symptoms (depression, blunted emotions
and social withdrawal), as well as by disorganized thinking. An
estimated 2.4 million Americans have schizophrenia, with
men and women affected equally. Worldwide, it is estimated that
one person in every 100 develops schizophrenia, one of the most
serious types of mental illness. Studies have demonstrated that
as many as 75% of patients with schizophrenia have difficulty
taking their oral medication on a regular basis, which can lead
to worsening of symptoms. Clinical data have shown that
treatment with RISPERDAL CONSTA may lead to improvements in
symptoms, sustained remission and decreases in hospitalization
in patients with schizophrenia.
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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 Canada, Australia and Saudi Arabia. The European
Union, or EU, regulatory authorities did not approve RISPERDAL
CONSTA for the treatment of bipolar I disorder.
Bipolar disorder is a brain disorder that causes unusual shifts
in a persons mood, energy and ability to function. It is
often characterized by debilitating mood swings, from extreme
highs (mania) to extreme lows (depression). Bipolar I disorder
is characterized based on the occurrence of at least one manic
episode, with or without the occurrence of a major depressive
episode. Bipolar disorder is believed to affect approximately
5.7 million American adults, or about 2.6% of the United
States, or U.S., population age 18 and older in a given
year. The median age of onset for bipolar disorders is
25 years. Clinical data have shown that RISPERDAL CONSTA
significantly delayed the time to relapse compared to placebo
treatment in patients with bipolar I disorder.
Revenues from Janssen relating to the manufacture and sale of
RISPERDAL CONSTA accounted for approximately 83%, 46% and 52% of
total net revenues for the years ended March 31, 2010, 2009
and 2008, respectively. See Collaborative
Arrangements below for information about our relationship
with Janssen.
VIVITROL
We developed VIVITROL, an extended-release MEDISORB formulation
of naltrexone, as the first and only once-monthly injectable
medication for the treatment of alcohol dependence. Alcohol
dependence is a serious and chronic brain disease characterized
by cravings for alcohol, loss of control over drinking,
withdrawal symptoms and an increased tolerance for alcohol.
According to the National Institute on Alcohol Abuse and
Alcoholisms 2001 2002 National Epidemiologic
Survey on Alcohol and Related Conditions, it is estimated that
more than 18 million Americans suffer from alcohol
dependence. Adherence to medication is particularly challenging
with this patient population. In clinical trials, when used in
combination with psychosocial support, VIVITROL was shown to
reduce the number of drinking days and heavy drinking days and
to prolong abstinence in patients who abstained from alcohol the
week prior to starting treatment. VIVITROL was approved by the
FDA in April 2006 and was launched in the U.S. in June 2006
with our partner, Cephalon, Inc., or Cephalon. In December 2008,
we assumed responsibility for the commercialization of VIVITROL
in the U.S. from Cephalon. In December 2007, we exclusively
licensed the right to commercialize VIVITROL for the treatment
of alcohol dependence and opioid dependence in Russia and other
countries in the Commonwealth of Independent States, or CIS, to
Cilag. In August 2008, the Russian regulatory authorities
approved VIVITROL for the treatment of alcohol dependence. Cilag
launched VIVITROL in Russia in March 2009. In March 2010, the
FDA approved a Risk Evaluation and Mitigation Strategy, or REMS,
for VIVITROL that consists of a Medication Guide and other
customary REMS assessment requirements.
We are also developing VIVITROL for the treatment of opioid
dependence, a serious and chronic brain disease characterized by
compulsive, prolonged self-administration of opioid substances
that are not used for a medical purpose. According to the 2008
U.S. National Survey on Drug Use and Health, an estimated
1.3 million people aged 18 or older were dependent on pain
relievers or heroin. In November 2009, we announced positive
preliminary results from a phase 3 clinical trial of VIVITROL
for the treatment of opioid dependence. The six-month phase 3
study met its primary efficacy endpoint and all secondary
endpoints. Data from the
intent-to-treat,
or ITT, analysis showed that patients treated once-monthly with
VIVITROL demonstrated statistically significant higher rates of
opioid-free urine screens, compared to patients treated with
placebo. In addition, patients treated with VIVITROL
demonstrated a significant reduction in opioid craving compared
to patients treated with placebo as measured by a visual analog
scale. VIVITROL was generally well tolerated in the study and no
patients on VIVITROL discontinued the study due to adverse
events. The most common adverse events experienced by patients
receiving VIVITROL during the study were nasopharyngitis and
insomnia. Based on these positive results, in April 2010, we
submitted a supplemental NDA, or sNDA, for VIVITROL to the FDA
for approval as a treatment for opioid dependence. We requested
a priority review of our sNDA submission which, if granted,
should result in a six month review timeline.
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BYDUREON
We are collaborating with Amylin on the development of a once
weekly formulation of exenatide, called BYDUREON, for the
treatment of type 2 diabetes. BYDUREON is an injectable
formulation of Amylins
BYETTA®
(exenatide) and is being developed with the goal of providing
patients with an effective and more patient-friendly treatment
option. BYETTA is an injection administered twice daily.
Diabetes is a disease in which the body does not produce or
properly use insulin. Diabetes can result in serious health
complications, including cardiovascular, kidney and nerve
disease. Diabetes is believed to affect more than
24 million people in the U.S. and an estimated
285 million adults worldwide. Approximately 90
95% of those affected have type 2 diabetes. According to the
Centers for Disease Control and Preventions National
Health and Nutrition Examination Survey, approximately 60% of
people with diabetes do not achieve their target blood sugar
levels with their current treatment regimen. In addition, 85% of
type 2 diabetes patients are overweight and 55% are considered
obese. BYETTA was approved by the FDA in April 2005 as
adjunctive therapy to improve blood sugar control in patients
with type 2 diabetes who have not achieved adequate control on
metformin
and/or a
sulfonylurea, which are commonly used oral diabetes medications.
In December 2006, the FDA approved BYETTA as an add-on therapy
for people with type 2 diabetes unable to achieve adequate
glucose control on thiazolidinediones, a class of diabetes
medications. In October 2009, the FDA approved BYETTA as a
stand-alone medication (monotherapy) along with diet and
exercise to improve glycemic control in adults with type 2
diabetes. Amylin has an agreement with Lilly for the development
and commercialization of exenatide, including BYDUREON.
In May 2009, Amylin submitted a NDA for BYDUREON to the FDA for
the treatment of type 2 diabetes. The FDA accepted the
submission in July 2009.
In July 2009, Amylin, Lilly and we announced positive results
from the DURATION-3 study, which was designed to compare
BYDUREON to
LANTUS®
(insulin glargine) in 467 patients with type 2 diabetes
taking stable doses of metformin alone or in combination with a
sulfonylurea. Patients randomized to BYDUREON experienced a
statistically superior reduction in A1C, a measure of average
blood sugar over three months, of 1.5 percentage points
from baseline, compared to a reduction of 1.3 percentage
points for LANTUS after completing 26 weeks of treatment.
At the end of the study, patients treated with BYDUREON achieved
a mean A1C of 6.8% compared with a mean A1C of 7.0% in those
treated with LANTUS. Treatment with BYDUREON also produced a
statistically significant difference in weight, with a mean
weight loss of 5.8 pounds at 26 weeks, compared with a mean
weight gain of 3.1 pounds for LANTUS, a difference of 8.9 pounds
between the treatments. In addition, patients treated with
BYDUREON reported significantly fewer episodes of confirmed
hypoglycemia than those patients treated with LANTUS.
In December 2009, Amylin, Lilly and we announced positive
results from the DURATION-5 study, which was designed to compare
BYDUREON to BYETTA in patients with type 2 diabetes who were not
achieving adequate glucose control using background therapies
that included diet and exercise, metformin, sulfonylurea,
thiazolidinediones or a combination of the agents. Patients
randomized to BYDUREON experienced a statistically superior
reduction in A1C, of 1.6 percentage points from baseline,
compared to a reduction of 0.9 percentage points for BYETTA
after completing 24 weeks of treatment. At the end of the
study, patients treated with BYDUREON achieved a mean A1C of
7.1% compared with a mean A1C of 7.7% in those treated with
BYETTA. Both treatment groups achieved statistically significant
weight loss by the end of the study, with an average loss of 5.1
pounds for patients taking BYDUREON and 3.0 pounds for patients
taking BYETTA. Additional studies designed to demonstrate the
superiority of BYDUREON compared to commonly prescribed diabetes
medications are ongoing.
In March 2010, the FDA issued a complete response letter in
reference to the NDA for BYDUREON. The complete response letter
did not include requests for new pre-clinical or clinical
trials. Requests raised in the letter primarily related to the
finalization of the product labeling with accompanying REMS and
clarification of existing manufacturing processes.
In April 2010, Amylin announced that it had submitted a response
to the FDA complete response letter and Lilly announced that the
European Medicines Agency, or EMA, had accepted the Marketing
Authorization Application filing for BYDUREON for the treatment
of type 2 diabetes.
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In addition, Amylin announced that it intended to initiate a
Phase 2 study of a monthly dose suspension formulation of
exenatide in the second calendar quarter of 2010. Such study is
expected to evaluate the safety, efficacy and tolerability of
this novel formulation that leverages our MEDISORB technology
discussed below, but does not require reconstitution.
ALKS
33
ALKS 33 is an oral opioid modulator that we are developing for
the potential treatment of addiction and other CNS disorders. In
October 2009, we announced positive topline data from two
clinical trials of ALKS 33. Data from the studies,
ALK33-003 and ALK33-004, showed that ALKS 33 was generally well
tolerated and successfully blocked the effects of an opioid with
a duration of action that supports once daily dosing. ALK33-003
was a phase 1 randomized, double-blind, placebo-controlled,
multi-dose study designed to assess the steady-state
pharmacokinetics, safety and tolerability of ALKS 33 in 30
healthy subjects. ALK33-004 was a phase 1, randomized,
single-blind, placebo-controlled, single-dose study designed to
test the ability of ALKS 33 to block the subjective and
objective effects of a potent opioid agonist, remifentanil (a
commercially available analgesic) in 24 healthy, non-dependent,
opioid-experienced subjects.
In November 2009, we initiated a phase 2 clinical study to
assess the safety and efficacy of multiple doses of ALKS 33 in
patients with alcohol dependence and to further define the
clinical profile of ALKS 33.
In April 2010, we announced plans for the development of ALKS 33
for the treatment of binge-eating disorder and as a combination
therapy with buprenorphine for the treatment of addiction and
mood disorders. Binge-eating disorder is characterized by
recurrent binge eating episodes during which a person feels a
loss of control over his or her eating. Unlike bulimia, binge
eating episodes are not followed by purging, excessive exercise
or fasting. As a result, people with binge-eating disorder often
are overweight or obese. It is estimated that approximately 1%
to 2% of Americans suffer from binge-eating disorder.
ALKS
37
We are developing ALKS 37, an orally active,
peripherally-restricted opioid antagonist for the treatment of
opioid-induced constipation. According to IMS Health, over
243 million prescriptions were written for opioids in 2009
in the U.S. Many studies indicate that a high percentage of
patients receiving opioids are likely to experience side effects
affecting gastrointestinal motility. There are currently no
available oral treatments for this condition, which has severe
quality of life implications. ALKS 37 is a component of
ALKS 36, which is discussed below.
In February 2010, we announced positive topline data from a
randomized, double-blind, placebo-controlled phase 1 clinical
study designed to assess the safety, tolerability and
pharmacokinetics of a single oral administration of five
ascending doses of ALKS 37, from 1 mg to 100 mg, in 40
healthy volunteers. Data from the study showed that ALKS 37 was
generally well tolerated and demonstrated low systemic exposure
across a wide range of doses. These data were consistent with
prior preclinical results indicating that ALKS 37 targets
the gastrointestinal tract with limited systemic exposure and
little to no CNS penetration. Based on these positive phase 1
clinical results, we initiated a phase 1 multi-dose study of
ALKS 37 in March 2010. The study, ALK37-002, is a randomized,
double-blind, placebo-controlled repeat dose study designed to
assess the safety, tolerability and pharmacokinetics of daily
oral administration of two dose levels of ALKS 37 for a seven
day period in 24 healthy volunteers.
In April 2010, we commenced a multicenter, randomized,
double-blind, placebo-controlled, multidose study designed to
evaluate the efficacy, safety and tolerability of ALKS 37 in
approximately 60 patients with OIC. We expect to report
preliminary results from the phase 2 study of ALKS 37 in the
first quarter of calendar 2011.
ALKS
36
In October 2009, we announced our intention to develop ALKS 36,
which is expected to consist of a
co-formulation
of an opioid analgesic and ALKS 37, for the treatment of pain
without the side effects of
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constipation. Research indicates that a high percentage of
patients receiving opioids are likely to experience side effects
affecting gastrointestinal motility. A pain medication that does
not inhibit gastrointestinal motility, such as ALKS 36, could
provide an advantage over current therapies. The Phase 2
clinical trial results of ALKS 37 will inform further
development of ALKS 36.
ALKS
9070
ALKS 9070 is a once-monthly, injectable, sustained-release
version of aripiprazole for the treatment of schizophrenia. ALKS
9070 is our first candidate to leverage our proprietary
LinkeRxtm
product platform discussed below. Aripiprazole is commercially
available under the name
ABILIFY®
for the treatment of a number of CNS disorders. Based on
encouraging preclinical results, ALKS 9070 is expected to enter
the clinic in the second half of calendar 2010.
ALKS
6931
ALKS 6931 is a long-acting form of a TNF receptor-FC fusion
protein for the treatment of rheumatoid arthritis and related
autoimmune diseases. ALKS 6931 is our first candidate being
developed using the
MEDIFUSIONtm
technology licensed from Acceleron Pharma, Inc., or Acceleron.
ALKS 6931 is structurally similar to etanercept, commercially
available under the name
ENBREL®.
ALKS
7921
ALKS 7921, the second candidate from the LinkeRx platform, is a
once-monthly, injectable, extended-release version of olanzapine
for the treatment of schizophrenia. Olanzapine is commercially
available under the trade name
ZYPREXA®
(olanzapine). Alkermes is engineering ALKS 7921 to prevent
early, inadvertent release of free olanzapine into systemic
circulation and, in so doing, to provide another valuable option
for patients and physicians to manage schizophrenia.
Our
Research and Development Expenditures
We devote significant resources to research and development
programs. We focus our research and development efforts on
finding novel therapeutics in areas of high unmet medical need.
Please see Item 6. Selected Financial Data below for
our research and development expenditures for our prior three
fiscal years.
Collaborative
Arrangements
Our business strategy includes forming collaborations to develop
and commercialize our products and, in so doing, access
technological, financial, marketing, manufacturing and other
resources. We have entered into several collaborative
arrangements, as described below.
Janssen
Under a product development agreement, we collaborated with
Janssen on the development of RISPERDAL CONSTA. Under the
development agreement, Janssen provided funding to us for the
development of RISPERDAL CONSTA, and Janssen is responsible for
securing all necessary regulatory approvals for the product.
Under license agreements, we granted Janssen and an affiliate of
Janssen exclusive worldwide licenses to use and sell RISPERDAL
CONSTA. Under our license agreements with Janssen, we receive
royalty payments equal to 2.5% of Janssens net sales of
RISPERDAL CONSTA in each country where the license is in effect
based on the quarter when the product is sold by Janssen. This
royalty may be reduced in any country based on lack of patent
coverage and significant competition from generic versions of
the product. Janssen can terminate the license agreements upon
30 days prior written notice to us. The licenses granted to
Janssen expire on a country by country basis upon the later of
(i) the expiration of the last patent claiming the product
in such country, or (ii) fifteen years after the date of
the first commercial sale of the product in such country,
provided that in no event will the license granted to Janssen
expire later than the twentieth anniversary of the
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first commercial sale of the product in such country, with the
exception of certain countries where the fifteen year limitation
shall pertain regardless, as set forth in greater detail in the
license agreements filed with our Annual Report on
Form 10-K
for the fiscal year ended March 31, 1996. We exclusively
manufacture RISPERDAL CONSTA for commercial sale. Under our
manufacturing and supply agreement with Janssen, we record
manufacturing revenues when product is shipped to Janssen, based
on 7.5% of Janssens net unit sales price for RISPERDAL
CONSTA for the calendar year.
The manufacturing and supply agreement terminates on expiration
of the license agreements. In addition, either party may
terminate the manufacturing and supply agreement upon a material
breach by the other party which is not resolved within
60 days after receipt of a written notice specifying the
material breach or upon written notice in the event of the other
partys insolvency or bankruptcy. Janssen may terminate the
agreement upon six months written notice to us. In the event
that Janssen terminates the manufacturing and supply agreement
without terminating the license agreements, the royalty rate
payable to us on Janssens net sales of RISPERDAL CONSTA
would increase from 2.5% to 5.0%.
Amylin
In May 2000, we entered into a development and license agreement
with Amylin for the development of BYDUREON, which is under
development for the treatment of type 2 diabetes. Pursuant to
the development and license agreement, Amylin has an exclusive,
worldwide license to the MEDISORB product platform for the
development and commercialization of injectable extended-release
formulations of exendins and other related compounds. Amylin has
entered into a collaboration agreement with Lilly for the
development and commercialization of exenatide, including
BYDUREON. We receive funding for research and development and
milestone payments consisting of cash and warrants for Amylin
common stock upon achieving certain development and
commercialization goals and will also receive royalty payments
based on future product sales, if any. In October 2005 and in
July 2006, we amended the development and license agreement.
Under the amended agreement, we are responsible for formulation
and are principally responsible for non-clinical development of
any products that may be developed pursuant to the agreement and
for manufacturing these products for use in early phase clinical
trials. Subject to its arrangement with Lilly, Amylin is
responsible for conducting clinical trials, securing regulatory
approvals and marketing any products resulting from the
collaboration on a worldwide basis.
In conjunction with the 2005 amendment of the development and
license agreement with Amylin, we reached an agreement regarding
the construction of a manufacturing facility for BYDUREON and
certain technology transfer related thereto. In December 2005,
Amylin purchased a facility for the manufacture of BYDUREON and
began construction in early calendar year 2006. Amylin is
responsible for all costs and expenses associated with the
design, construction and validation of the facility. The parties
agreed that we would transfer our technology for the manufacture
of BYDUREON to Amylin. Amylin agreed to reimburse us for the
time, at an
agreed-upon
full-time equivalent, or FTE, rate, and materials we incurred
with respect to the transfer of technology. In January 2009, the
parties agreed that the technology transfer was complete. Amylin
will be responsible for the manufacture of BYDUREON and will
operate the facility. For a period of time commencing upon the
first commercial sale of BYDUREON, we will receive royalties
equal to 8% of net sales from the first 40 million units of
BYDUREON sold in any particular year and 5.5% of net sales from
units sold beyond the first 40 million for that year. In
addition, we will receive a $7.0 million milestone payment
upon the first commercial sale of BYDUREON in the U.S. and
an additional $7.0 million milestone payment upon the first
commercial sale in a major European market country. For
additional information regarding royalty payment terms, please
see the development and license agreement, as amended, filed
with this Annual Report on
Form 10-K.
Amylin may terminate the development and license agreement for
any reason upon 180 days written notice to us. In addition,
either party may terminate the development and license agreement
upon a material default or breach by the other party that is not
cured within 60 days after receipt of written notice
specifying the default or breach.
10
Cilag
In December 2007, we entered into a license and
commercialization agreement with Cilag to commercialize VIVITROL
for the treatment of alcohol dependence and opioid dependence in
Russia and other countries in the CIS. Under the terms of the
agreement, Cilag has primary responsibility for securing all
necessary regulatory approvals for VIVITROL, and Janssen-Cilag,
an affiliate of Cilag, commercializes the product. We are
responsible for the manufacture of VIVITROL and receive
manufacturing and royalty revenues based upon product sales.
Cilag has paid us $6.0 million to date in nonrefundable
payments and our agreement provides that we could be eligible
for up to an additional $33.0 million in milestone payments
upon the receipt of regulatory approvals for the product, the
occurrence of certain
agreed-upon
events and the achievement of certain VIVITROL sales levels.
Commencing five years after the effective date of the agreement,
Cilag will have the right to terminate the agreement at any time
by providing 90 days written notice to us, subject to
certain continuing rights and obligations between the parties.
Cilag will also have the right to terminate the agreement at any
time upon 90 days written notice to us if a change in the
pricing
and/or
reimbursement of VIVITROL in Russia and other countries of the
CIS has a material adverse effect on the underlying economic
value of commercializing the product such that it is no longer
reasonably profitable to Cilag. In addition, either party may
terminate the agreement upon a material breach by the other
party which is not cured within 90 days after receipt of
written notice specifying the material breach or, in certain
circumstances, a 30 day extension of that period.
Rensselaer
Polytechnic Institute
In September 2006, we and the Rensselaer Polytechnic Institute,
or RPI, entered into a license agreement granting us exclusive
rights to a family of opioid receptor compounds discovered at
RPI. These compounds represent an opportunity for us to develop
therapeutics for a broad range of diseases and medical
conditions, including addiction, pain and other CNS disorders.
Under the terms of the agreement, RPI granted us an exclusive
worldwide license to certain patents and patent applications
relating to its compounds designed to modulate opioid receptors.
We will be responsible for the continued research and
development of any resulting product candidates. We paid RPI a
nonrefundable upfront payment of $0.5 million and are
obligated to pay annual fees of up to $0.2 million, and
tiered royalty payments of between 1% and 4% of annual net sales
in the event any products developed under the agreement are
commercialized. In addition, we are obligated to make milestone
payments in the aggregate of up to $9.1 million upon
certain
agreed-upon
development events. In July 2008, the parties amended the
agreement to expand the license to include certain additional
patent applications. We paid RPI an additional nonrefundable
payment of $0.1 million and slightly increased the annual
fees in consideration of this amendment. In May 2009, the
parties further amended the agreement to expand the license to
include a patent application covering a joint invention made by
the parties.
Acceleron
In December 2009, we entered into a collaboration and license
agreement with Acceleron. In exchange for a nonrefundable
upfront payment of $2.0 million, an equity investment in
Acceleron of $8.0 million and certain potential milestone
payments and royalties, we obtained an exclusive license to
Accelerons proprietary long-acting Fc fusion technology
platform, called the MEDIFUSION technology, which is designed to
extend the circulating half-life of proteins and peptides. The
first drug candidate being developed with this technology, ALKS
6931, is a long-acting form of a TNF receptor-Fc fusion protein
for the treatment of rheumatoid arthritis and related autoimmune
diseases. We and Acceleron have agreed to collaborate on the
development of product candidates from the MEDIFUSION
technology. Pursuant to the terms of the agreement, Acceleron
will perform research on a number of candidate compounds and
develop up to two selected drug compounds using the MEDIFUSION
technology through preclinical studies, at which point we will
assume responsibility for all clinical development and
commercialization of these two compounds and any other compounds
we
11
elect to develop resulting from the platform. Acceleron will
retain all rights to the technology for products derived from
the TGF-beta superfamily.
Our $8.0 million equity investment in Acceleron consists of
shares of
Series D-1
convertible, redeemable preferred stock. Our Chief Executive
Officer is one of nine members of Accelerons board of
directors.
In addition to the upfront payment and equity investment, we
will reimburse Acceleron for any time, at an
agreed-upon
FTE rate, and materials Acceleron incurs during development. We
are obligated to make development and sales milestone payments
in the aggregate of up to $110.0 million per product in the
event that certain development and sales goals are achieved. We
are also obligated to make tiered royalty payments in the
mid-single digits on annual net sales in the event any products
developed under the agreement are commercialized.
Proprietary
Product Platforms
Our proprietary product platforms, which include technologies
owned and exclusively licensed to us, address several important
development opportunities, including injectable extended-release
of proteins, peptides and small molecule pharmaceutical
compounds. We have used these technologies as platforms to
establish drug development, clinical development and regulatory
expertise.
MEDISORB
Injectable Extended-Release Technology
The MEDISORB technology encapsulates medication into
polymer-based microspheres that are injected into the body,
where they degrade slowly, gradually releasing the drug at a
controlled rate. This allows patients to receive the benefit of
medication for weeks or potentially months at a time with just
one extended-release injection, thereby eliminating the need for
daily dosing.
MEDIFUSION
Technology
Our proprietary long-acting Fc fusion technology platform is
designed to extend the circulating half-life of proteins and
peptides in order to create an effective, long-acting injectable
medication. The MEDIFUSION technology is able to extend the
half-life of proteins and peptides through the combined action
of Fc fusion and hyperglycosylation. The resulting extended
systemic half-life of the therapeutic compound could allow for
reduced dosing frequency.
LINKERx
Technology
The long-acting LinkeRx technology platform is designed to
enable the creation of extended-release injectable versions of
antipsychotic therapies and may also be useful in other disease
areas in which long action may provide therapeutic benefits. The
technology uses proprietary linker-tail chemistry to create New
Molecular Entities, or NMEs, derived from known agents. These
NMEs are designed to have improved clinical utility,
manufacturing and
ease-of-use
compared to other long-acting medications.
Manufacturing
and Product Supply
We own and occupy a manufacturing, office and laboratory
facility in Wilmington, Ohio. We either purchase active drug
product from third parties or receive it from our third party
collaborators to formulate product using our technologies. The
manufacture of our product for clinical trials and commercial
use is subject to current good manufacturing practices, or cGMP,
and other regulatory agency regulations. We have been producing
commercial product since 1999.
Although some materials for our drug products are currently
available from a single-source or a limited number of qualified
sources, we attempt to acquire an adequate inventory of such
materials, establish alternative sources
and/or
negotiate long-term supply arrangements. We believe we do not
have any significant issues obtaining suppliers. However, we
cannot be certain that we will continue to be able to obtain
long-term supplies of our manufacturing materials.
12
Our third party service providers involved in the manufacture of
our products are subject to inspection by the FDA or comparable
agencies in other jurisdictions. Any delay, interruption or
other issues that arise in the acquisition of active
pharmaceutical ingredients, or API, manufacture, fill-finish,
packaging, or storage of our products or product candidates,
including as a result of a failure of our facilities or the
facilities or operations of third parties to pass any regulatory
agency inspection, could significantly impair our ability to
sell our products or advance our development efforts, as the
case may be. For information about risks relating to the
manufacture of our products and product candidates, see
Item 1A Risk Factors and
specifically those sections entitled RISPERDAL CONSTA,
VIVITROL, BYDUREON and our product candidates may not generate
significant revenues, We are subject to risks
related to the manufacture of our products, We rely
on third parties to provide services in connection with the
manufacture and distribution of our products, If we
fail to meet the stringent requirements of governmental
regulation in the manufacture of our products, we could incur
substantial remedial costs and a reduction in sales, and
We rely heavily on collaborative partners.
Commercial
Products
We manufacture RISPERDAL CONSTA and VIVITROL in our Wilmington,
Ohio facility. The facility has been inspected by U.S.,
European, Japanese, Brazilian and Saudi Arabian regulatory
authorities for compliance with required cGMP standards for
continued commercial manufacturing. See Item 2.
Properties.
We source our packaging operations for VIVITROL to a third party
contractor. Janssen is responsible for packaging operations for
RISPERDAL CONSTA.
Clinical
Products
We have established and are operating clinical facilities with
the capability to produce clinical supplies of our injectable
extended-release products at our Wilmington, Ohio facility. We
have also contracted with third party manufacturers to formulate
certain products for clinical use. We require that our contract
manufacturers adhere to cGMP in the manufacture of products for
clinical use.
Marketing,
Sales and Distribution
We focus our sales and marketing efforts on specialist
physicians in private practice and in public treatment systems.
We use customary pharmaceutical company practices to market our
products and to educate physicians, such as sales
representatives calling on individual physicians,
advertisements, professional symposia, selling initiatives,
public relations and other methods. We provide customer service
and other related programs for our products, such as
product-specific websites, insurance research services and
order, delivery and fulfillment services. In December 2008, in
connection with the termination of the VIVITROL collaboration
with Cephalon, we assumed responsibility for the marketing and
sale of VIVITROL in the U.S. Our sales force to market
VIVITROL in the U.S. consists of approximately 55
individuals. VIVITROL is sold directly to pharmaceutical
wholesalers, specialty pharmacies and a specialty distributor.
Product sales of VIVITROL by us during the year ended
March 31, 2010, to McKesson Corporation, AmerisourceBergen
Drug Corporation, Cardinal Health and Caremark L.L.C.
represented approximately 25%, 22%, 21% and 12%, respectively,
of total VIVITROL sales. No other customer accounted for more
than 10% of VIVITROL product sales in fiscal 2010.
Effective April 1, 2009, we entered into an agreement with
Cardinal Health Specialty Pharmaceutical Services or Cardinal
SPS, a division of Cardinal, to provide warehouse, shipping and
administrative services for VIVITROL. Our expectation for fiscal
2011 is to continue to distribute VIVITROL through Cardinal SPS.
Under our collaboration agreements with Janssen, Cilag, and
Amylin, these companies are responsible for the
commercialization of any products developed thereunder if and
when regulatory approval is obtained.
13
Competition
The biotechnology and pharmaceutical industries are subject to
rapid and substantial technological change. We face intense
competition in the development, manufacture, marketing and
commercialization of our products and product candidates from
many and varied sources academic institutions,
government agencies, research institutions, biotechnology and
pharmaceutical companies, including our collaborators, and other
companies with similar technologies. Our success in the
marketplace depends largely on our ability to identify and
successfully commercialize products developed from our research
activities or licensed through our collaboration activities, and
to obtain financial resources necessary to fund our clinical
trials, manufacturing and commercialization activities.
Competition for our marketed products and product candidates may
be based on product efficacy, safety, convenience, reliability,
availability, price and reimbursement coverage, among other
factors. The timing of entry of new pharmaceutical products in
the market can be a significant factor in product success, and
the speed with which we receive approval for products, bring
them to market and produce commercial supplies may impact the
competitive position of our products in the marketplace.
Many of our competitors and potential competitors have
substantially more capital resources, human resources,
manufacturing and sales and marketing experience, research and
development resources and production facilities than we do. Many
of these competitors have significantly more experience than we
do in undertaking preclinical testing and clinical trials of new
pharmaceutical products, in obtaining FDA and other regulatory
approvals, and in commercializing products. There can be no
assurance that developments by our competitors will not render
our products, product candidates or our technologies obsolete or
noncompetitive, or that our collaborators will not choose to use
competing technologies or methods.
With respect to our proprietary injectable product platform, we
are aware that there are other companies developing
extended-release delivery systems for pharmaceutical products.
RISPERDAL CONSTA may compete with a number of other injectable
products including
INVEGA®
SUSTENNAtm
(paliperidone palmitate), which is marketed and sold in the
U.S. by Janssen,
ZYPREXA®
RELPREVVtm
[(Olanzapine) For Extended Release Injectable Suspension] which
is marketed and sold by Lilly in the U.S., EU and Australia/New
Zealand, and other products currently in development. RISPERDAL
CONSTA may also compete with new oral compounds being developed
for the treatment of schizophrenia.
VIVITROL competes with
CAMPRAL®
sold by Forest Laboratories, Inc. and
ANTABUSE®
sold by Odyssey Pharmaceuticals, Inc. as well as currently
marketed drugs also formulated from naltrexone, such as
REVIA®
by Duramed Pharmaceuticals, Inc.,
NALOREX®
by Bristol-Myers Squibb Pharmaceuticals Ltd. and
DEPADE®
by Mallinckrodt, Inc., a subsidiary of Tyco International Ltd.
Other pharmaceutical companies are investigating product
candidates that have shown some promise in treating alcohol
dependence and that, if approved by the FDA, would compete with
VIVITROL. If approved for the treatment of opioid dependence,
VIVITROL would compete with
SUBOXONE®
(buprenorphone HCI/naloxone HCI dehydrate) CIII sublingual
tablets and
SUBUTEX®
(buprenorphine oral) which are marketed and sold by Reckitt
Benckiser Pharmaceuticals, Inc. in the U.S., methadone and oral
naltrexone.
If approved, BYDUREON would compete with established therapies
for market share. Such competitive products include
sulfonylureas, metformin, insulins, thiazolidinediones,
glinides, dipeptidyl peptidase type IV inhibitors, insulin
sensitizers, alpha-glucosidase inhibitors and sodium-glucose
transporter-2 inhibitors. BYDUREON would also compete with other
GLP-1 agonists, including
VICTOZA®
(liraglutide (rDNA origin) injection), which is marketed and
sold by Novo Nordisk A/S, and other products currently in
development.
Other companies, including our collaborators, are developing new
chemical entities or improved formulations of existing products
which, if developed successfully, could compete against our
products and product candidates.
Patents
and Proprietary Rights
Our success will be dependent, in part, on our ability to obtain
patent protection for our product candidates and those of our
collaborators, to maintain trade secret protection and to
operate without infringing upon the proprietary rights of others.
14
We have a proprietary portfolio of patent rights and exclusive
licenses to patents and patent applications. We have filed
numerous U.S. and foreign patent applications directed to
compositions of matter as well as processes of preparation and
methods of use, including applications relating to each of our
delivery technologies. We own approximately 140 issued
U.S. patents. The earliest date upon which a
U.S. patent issued to us will expire, that is currently
material to our business, is 2014. In the future, we plan to
file additional U.S. and foreign patent applications
directed to new or improved products and processes. We intend to
file additional patent applications when appropriate and defend
our patent position aggressively.
We have exclusive rights through licensing agreements with third
parties to approximately 43 issued U.S. patents, a number
of U.S. patent applications and corresponding foreign
patents and patent applications in many countries, subject in
certain instances to the rights of the U.S. government to
use the technology covered by such patents and patent
applications. Under certain licensing agreements, we currently
pay annual license fees
and/or
minimum annual royalties. During the year ended March 31,
2010, these fees totaled approximately $0.3 million. In
addition, under these licensing agreements, we are obligated to
pay royalties on future sales of products, if any, covered by
the licensed patents.
We know of several U.S. patents issued to other parties
that may relate to our products and product candidates. The
manufacture, use, offer for sale, sale or import of some of our
product candidates might be found to infringe on the claims of
these patents. A party might file an infringement action against
us. Our cost of defending such an action is likely to be high
and we might not receive a favorable ruling.
We also know of patent applications filed by other parties in
the U.S. and various foreign countries that may relate to
some of our product candidates if issued in their present form.
The patent laws of the U.S. and foreign countries are
distinct and decisions as to patenting, validity of patents and
infringement of patents may be resolved differently in different
countries. If patents are issued to any of these applicants, we
or our collaborators may not be able to manufacture, use, offer
for sale or sell some of our product candidates without first
getting a license from the patent holder. The patent holder may
not grant us a license on reasonable terms or it may refuse to
grant us a license at all. This could delay or prevent us from
developing, manufacturing or selling those of our product
candidates that would require the license.
We try to protect our proprietary position by filing
U.S. and foreign patent applications related to our
proprietary technology, inventions and improvements that are
important to the development of our business. Because the patent
position of biotechnology and pharmaceutical companies involves
complex legal and factual questions, enforceability of patents
cannot be predicted with certainty. The ultimate degree of
patent protection that will be afforded to biotechnology
products and processes, including ours, in the U.S. and in
other important markets remains uncertain and is dependent upon
the scope of protection decided upon by the patent offices,
courts and lawmakers in these countries. Patents, if issued, may
be challenged, invalidated or circumvented. Thus, any patents
that we own or license from others may not provide any
protection against competitors. Our pending patent applications,
those we may file in the future, or those we may license from
third parties, may not result in patents being issued. If
issued, they may not provide us with proprietary protection or
competitive advantages against competitors with similar
technology. Furthermore, others may independently develop
similar technologies or duplicate any technology that we have
developed outside the scope of our patents. The laws of certain
foreign countries do not protect our intellectual property
rights to the same extent as do the laws of the U.S.
We also rely on trade secrets, know-how and technology, which
are not protected by patents, to maintain our competitive
position. We try to protect this information by entering into
confidentiality agreements with parties that have access to it,
such as our corporate partners, collaborators, employees and
consultants. Any of these parties may breach the agreements and
disclose our confidential information or our competitors might
learn of the information in some other way. If any trade secret,
know-how or other technology not protected by a patent were to
be disclosed to, or independently developed by, a competitor,
our business, results of operations and financial condition
could be materially adversely affected.
15
Government
Regulation
Overview
Our current and contemplated activities and the products and
processes that result from such activities are subject to
substantial government regulation.
United
States: FDA Process
Before new pharmaceutical products may be sold in the
U.S. and other countries, clinical trials of the products
must be conducted and the results submitted to appropriate
regulatory agencies for approval. The regulatory approval
process requires a demonstration of product safety and efficacy
and the ability to effectively manufacture such product.
Generally, such demonstration of safety and efficacy includes
preclinical testing and clinical trials of product candidates.
The testing, manufacture and marketing of pharmaceutical
products in the U.S. requires the approval of the FDA. The
FDA has established mandatory procedures and safety standards
which apply to the preclinical testing and clinical trials,
manufacturing and marketing of these products. Similar standards
are established by
non-U.S. regulatory
bodies for marketing approval of such products. Pharmaceutical
marketing and manufacturing activities are also regulated by
state, local and other authorities. The regulatory approval
process in the U.S. is described in brief below.
Pre-Clinical Testing: Before testing of any
compounds with potential therapeutic value in human subjects may
begin in the U.S., stringent government requirements for
pre-clinical data must be satisfied. Pre-clinical testing
includes both in vitro, or in an artificial
environment outside of a living organism, and in vivo, or
within a living organism, laboratory evaluation and
characterization of the safety and efficacy of a drug and its
formulation.
Investigational New Drug Application
(IND): Pre-clinical testing results obtained from
studies in several animal species, as well as from
in vitro studies, are submitted to the FDA as part
of an IND application and are reviewed by the FDA prior to the
commencement of human clinical trials. These pre-clinical data
must provide an adequate basis for evaluating both the safety
and the scientific rationale for the initial clinical studies in
human volunteers. Unless the FDA objects to an IND, the IND
becomes effective 30 days following its receipt by the FDA.
Once trials have commenced, the FDA may stop the trials by
placing them on clinical hold because of concerns
about, for example, the safety of the product being tested.
Studies supporting approval of products in the U.S. are
typically accomplished under an IND.
Clinical Trials: Clinical trials involve the
administration of the drug to healthy human volunteers or to
patients under the supervision of a qualified investigator
pursuant to an FDA-reviewed protocol. Human clinical trials are
typically conducted in three sequential phases, although the
phases may overlap with one another. Clinical trials must be
conducted under protocols that detail the objectives of the
study, the parameters to be used to monitor safety, and the
efficacy criteria, if any, to be evaluated. Each protocol must
be submitted to the FDA as part of the IND. Each clinical trial
must be conducted under the auspices of an Institutional Review
Board, or IRB, at the institution that is conducting the trial
that considers, among other things, ethical factors, the safety
of human subjects, the possible liability of the institution and
the informed consent disclosure, which must be made to
participants in the clinical trial.
Phase 1 Clinical Trials: Phase 1 clinical
trials represent the initial administration of the
investigational drug to a small group of healthy human subjects
or, more rarely, to a group of select patients with the targeted
disease or disorder. The goal of Phase 1 clinical trials is
typically to test for safety, dose tolerance, absorption,
bio-distribution, metabolism, excretion and clinical
pharmacology and, if possible, to gain early evidence regarding
efficacy.
Phase 2 Clinical Trials: Phase 2 clinical
trials involve a small sample of the actual intended patient
population and seek to assess the efficacy of the drug for
specific targeted indications, to determine dose response and
the optimal dose range and to gather additional information
relating to safety and potential adverse effects.
16
Phase 3 Clinical Trials: Once an
investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population,
Phase 3 clinical trials are initiated to establish further
clinical safety and efficacy of the investigational drug in a
broader sample of the general patient population at
geographically dispersed study sites in order to determine the
overall risk-benefit ratio of the drug and to provide an
adequate basis for product labeling. Phase 3 clinical
development programs consist of expanded, large-scale studies of
patients with the target disease or disorder to obtain
definitive statistical evidence of the efficacy and
safety of the proposed product and dosing regimen.
All of the phases of clinical studies must be conducted in
conformance with the FDAs bioresearch monitoring
regulations and Good Clinical Practices, which are ethical and
scientific quality standards for conducting, recording, and
reporting clinical trials to assure that the rights, safety, and
well-being of trial participants are protected.
New Drug Application (NDA) or Biologics License Application
(BLA): All data obtained from a comprehensive
development program including research and product development,
manufacturing, pre-clinical and clinical trials and related
information are submitted in an NDA to the FDA and in similar
regulatory filings with the corresponding agencies in other
countries for review and approval. In certain circumstances,
this information is submitted in a Biologics License
Application, or BLA. In addition to reports of the trials
conducted under the IND, the NDA includes information pertaining
to the preparation of the new drug, analytical methods, details
of the manufacture of finished products and proposed product
packaging and labeling. The submission of an application is no
guarantee that the FDA will find the application complete and
accept it for filing. The FDA may refuse to file the application
and request additional information rather than accept the
application for filing, in which case, the application must be
resubmitted with the supplemental information. Once an
application is accepted for filing, an FDA review
team medical doctors, chemists, statisticians,
microbiologists, pharmacologists, and other experts
evaluates whether the studies the sponsor submitted show that
the drug is safe and effective for its proposed use. The FDA
review process may be extended by FDA requests for additional
information or clarification. In fact, FDA performance goals
generally provide for action on an application within
10 months, but even that deadline gets extended in certain
circumstances. In some cases, the FDA may decide to expedite the
review of new drugs that are intended to treat serious or life
threatening conditions and demonstrate the potential to address
unmet medical needs.
As part of its review, the FDA may refer the application to an
advisory committee for evaluation and a recommendation as to
whether the application should be approved. The FDA is not bound
by the recommendation of an advisory committee, but it generally
follows such recommendations. Under legislation enacted in 2007,
the FDA may determine that a REMS is necessary to ensure that
the benefits of a new product outweigh its risks. If required, a
REMS may include various elements, such as publication of a
medication guide, patient package insert, a communication plan
to educate healthcare providers of the drugs risks,
limitations on who may prescribe or dispense the drug, or other
measures that the FDA deems necessary to assure the safe use of
the drug.
In reviewing a BLA or NDA, the FDA may grant marketing approval,
request additional information or deny the application if it
determines the application does not provide an adequate basis
for approval. The FDA may require larger or additional clinical
trials, leading to unanticipated delay or expense. Even if such
additional information and data are submitted, the FDA may
ultimately decide that the BLA or NDA does not satisfy the
criteria for approval. Data from clinical trials may be subject
to different interpretation, and the FDA may interpret data
differently than the applicant. The receipt of regulatory
approval often takes a number of years, involving the
expenditure of substantial resources and depends on a number of
factors, including the severity of the disease in question, the
availability of alternative treatments and the risks and
benefits demonstrated in clinical trials. The FDA may require,
as a condition of approval, restricted distribution and use,
enhanced labeling, special packaging or labeling, expedited
reporting of certain adverse events, pre-approval of promotional
materials, or restrictions on
direct-to-consumer
advertising. In addition, changes in FDA approval policies or
requirements may occur, or new regulations may be promulgated,
which may result in delay or failure to receive FDA approval.
17
Changes to an approved product, such as adding a new indication,
making certain manufacturing changes, or changing manufacturers
or suppliers of certain ingredients or components requires
review and approval of the FDA.
Phase 4 Clinical Trials: Phase 4 clinical
trials are studies that are conducted after a product has been
approved. These trials can be conducted for a number of
purposes, including to collect long-term safety information or
to collect additional data about a specific population. As part
of a product approval, the FDA may require that certain Phase 4
studies be conducted post-approval, and in these cases these
Phase 4 studies are called post-marketing commitments.
Adverse Event Reporting: Regulatory
authorities track information on side effects and adverse events
reported during clinical studies and after marketing approval.
Non-compliance with FDA safety reporting requirements may result
in FDA regulatory action that may include civil action or
criminal penalties. Side effects or adverse events that are
reported during clinical trials can delay, impede or prevent
marketing approval. Similarly, adverse events that are reported
after marketing approval can result in additional limitations
being placed on the products use and, potentially,
withdrawal or suspension of the product from the market.
Furthermore, recently enacted legislation provides the FDA with
expanded authority over drug products after approval. This
legislation enhances the FDAs authority with respect to
post-marketing safety surveillance including, among other
things, the authority to require additional post-approval
studies or clinical trials and mandate label changes as a result
of safety findings, including the development and implementation
of a REMS.
Hatch-Waxman Act: Under the Drug Price
Competition and Patent Term Restoration Act of 1984, also known
as the Hatch-Waxman Act, Congress created an abbreviated FDA
review process for generic versions of pioneer (brand name) drug
products. The law also provides incentives by awarding, in
certain circumstances, non-patent marketing exclusivities to
pioneer drug manufacturers. Newly approved drug products and
changes to the conditions of use of approved products may
benefit from periods of non-patent marketing exclusivity in
addition to any patent protection the drug product may have. The
Hatch-Waxman Act provides five years of new chemical
entity, or NCE, marketing exclusivity to the first
applicant to gain approval of an NDA for a product that contains
an active ingredient, not found in any other approved product.
The FDA is prohibited from accepting any abbreviated NDA, or
ANDA, for a generic drug for five years from the date of
approval of the NCE, or four years in the case of an ANDA
containing a patent challenge (see below). The FDA is similarly
prohibited from accepting any NDA where the applicant does not
own or have a legal right of reference to all of the data
required for approval, otherwise known as a 505(b)(2)
application. The five-year exclusivity protects the entire new
chemical entity franchise, including all products containing the
active ingredient for any use and in any strength or dosage
form. This exclusivity will not prevent the submission or
approval of a full NDA, as opposed to an ANDA or 505(b)(2)
application, for any drug, including, for example, a drug with
the same active ingredient, dosage form, route of
administration, strength and conditions of use.
The Hatch-Waxman Act also provides three years of exclusivity
for applications containing the results of new clinical
investigations (other than bioavailability studies) essential to
the FDAs approval of new uses of approved products, such
as new indications, dosage forms, strengths, or conditions of
use. However, this exclusivity only protects against the
approval of ANDAs and 505(b)(2) applications for the protected
use and will not prohibit the FDA from accepting or approving
ANDAs or 505(b)(2) applications for other products containing
the same active ingredient.
The Hatch-Waxman Act requires NDA applicants and NDA holders to
provide certain information about patents related to the drug
for listing in the Orange Book. ANDA and 505(b)(2) applicants
must then certify regarding each of the patents listed with the
FDA for the reference product. A certification that a listed
patent is invalid or will not be infringed by the marketing of
the applicants product is called a Paragraph IV
certification. If the ANDA or 505(b)(2) applicant provides
such a notification of patent invalidity or noninfringement,
then the FDA may accept the ANDA or 505(b)(2) application four
years after approval of the NDA. If a Paragraph IV
certification is filed and the ANDA or 505(b)(2) application has
been accepted as a reviewable filing by the FDA, the ANDA or
505(b)(2) applicant must then within 30 days provide notice
to
18
the NDA holder and patent owner stating that the application has
been submitted and providing the factual and legal basis for the
applicants opinion that the patent is invalid or not
infringed. The NDA holder or patent owner may file suit against
the ANDA or 505(b)(2) applicant for patent infringement. If this
is done within 45 days of receiving notice of the
Paragraph IV certification, a one-time
30-month
stay of the FDAs ability to approve the ANDA or 505(b)(2)
application is triggered. The
30-month
stay begins at the end of the NDA holders data exclusivity
period, or, if data exclusivity has expired, on the date that
the patent holder is notified. The FDA may approve the proposed
product before the expiration of the
30-month
stay if a court finds the patent invalid or not infringed, or if
the court shortens the period because the parties have failed to
cooperate in expediting the litigation.
Pediatric Exclusivity: Section 505(a) of
the Federal Food, Drug, and Cosmetics Act provides for six
months of exclusivity based on the submission of pediatric data
subsequent to a written request from the FDA. This period of
exclusivity is added to whatever statutory or regulatory periods
of exclusivity cover a drug (e.g. NCE exclusivity or patents).
This is not a patent term extension, rather, it extends the
period during which the FDA cannot approve an ANDA or 505(b)(2)
application.
European
Union EMA Process
In the EU, medicinal products must be authorized either through
the decentralized procedure by the competent authorities of the
EU Member States, or through the centralized procedure by the
European Commission following an opinion by the EMA. In many EU
countries, pricing negotiations also must take place between the
Marketing Authorization Holder and the competent national
authorities before the product is sold in their market.
Other
International Markets Drug Approval
Process
In some international markets (e.g. China, Japan), additional
clinical trials may be required prior to the filing or approval
of marketing applications within the country.
Good
Manufacturing Processes
The FDA, the EMA, the competent authorities of the EU Member
States and other regulatory agencies regulate and inspect
equipment, facilities, and processes used in the manufacturing
of pharmaceutical and biologic products prior to approving a
product. Among the conditions for a NDA or BLA approval is the
requirement that the prospective manufacturers quality
control and manufacturing procedures adhere to cGMP. Before
approval of an NDA or BLA, the FDA may perform a pre-approval
inspection of a manufacturing facility to determine its
compliance with cGMP and other rules and regulations. In
complying with cGMP, manufacturers must continue to expend time,
money and effort in the area of production and quality control
to ensure full technical compliance. Similarly, NDA or BLA
approval may be delayed or denied due to cGMP non-compliance or
other issues at contract sites or suppliers included in the NDA
or BLA, and the correction of these shortcomings may be beyond
our control. Facilities are also subjected to the requirements
of other government bodies, such as the U.S. Occupational
Safety & Health Administration and the
U.S. Environmental Protection Agency.
If, after receiving clearance from regulatory agencies, a
company makes a material change in manufacturing equipment,
location, or process, additional regulatory review and approval
may be required. We also must adhere to cGMP and
product-specific regulations enforced by the FDA following
product approval. The FDA, the EMA and other regulatory agencies
also conduct regular, periodic visits to re-inspect equipment,
facilities and processes following the initial approval of a
product. If, as a result of these inspections, it is determined
that our equipment, facilities or processes do not comply with
applicable regulations and conditions of product approval,
regulatory agencies may seek civil, criminal or administrative
sanctions
and/or
remedies against us, including the suspension of our
manufacturing operations.
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Good
Clinical Practices
The FDA, the EMA and other regulatory agencies promulgate
regulations and standards, commonly referred to as current Good
Clinical Practices, or cGCP, for designing, conducting,
monitoring, auditing and reporting the results of clinical
trials to ensure that the data and results are accurate and that
the trial participants are adequately protected. The FDA, the
EMA and other regulatory agencies enforce cGCP through periodic
inspections of trial sponsors, principal investigators and trial
sites. If our study sites fail to comply with applicable cGCP,
the clinical data generated in our clinical trials may be deemed
unreliable and relevant regulatory agencies may require us to
perform additional clinical trials before approving our
marketing applications.
Sales
and Marketing
The FDA regulates all advertising and promotion activities for
products under its jurisdiction both prior to and after
approval. A company can make only those claims relating to
safety and efficacy that are approved by the FDA. Physicians may
prescribe legally available drugs for uses that are not
described in the drugs labeling and that differ from those
tested by us and approved by the FDA. Such off-label uses are
common across medical specialties, and often reflect a
physicians belief that the off-label use is the best
treatment for his or her patients. The FDA does not regulate the
behavior of physicians in their choice of treatments, but the
FDA regulations do impose stringent restrictions on
manufacturers communications regarding off-label uses.
Failure to comply with applicable FDA requirements may subject a
company to adverse publicity, enforcement action by the FDA,
corrective advertising, and the full range of civil and criminal
penalties available to the FDA.
We are also subject to various federal and state laws pertaining
to health care fraud and abuse, including
anti-kickback laws and false claims laws. Anti-kickback laws
make it illegal for a prescription drug manufacturer to solicit,
offer, receive, or pay any remuneration in exchange for, or to
induce, the referral of business, including the purchase or
prescription of a particular drug. Due to the breadth of the
statutory provisions and the absence of guidance in the form of
regulations and very few court decisions addressing industry
practices, it is possible that our practices might be challenged
under anti-kickback or similar laws. False claims laws prohibit
anyone from knowingly and willingly presenting, or causing to be
presented for payment to third party payors (including Medicare
and Medicaid) claims for reimbursed drugs or services that are
false or fraudulent, claims for items or services not provided
as claimed, or claims for medically unnecessary items or
services. In addition, several states require that companies
implement compliance programs or comply with industry ethics
codes, adopt spending limits, and report to state governments
any gifts, compensation, and other remuneration provided to
physicians. The recently enacted health care reform legislation
will require disclosure to the federal government of payments to
physicians commencing in 2012. Our activities relating to the
sale and marketing of our products may be subject to scrutiny
under these laws. Violations of fraud and abuse laws may be
punishable by criminal
and/or civil
sanctions, including fines and civil monetary penalties, as well
as the possibility of exclusion from federal health care
programs (including Medicare and Medicaid). If the government
were to allege or convict us of violating these laws, our
business could be harmed. In addition, there is ability for
private individuals to bring similar actions. See
Item 1A Risk Factors and
specifically those sections entitled If we fail to comply
with the extensive legal and regulatory requirements affecting
the health care industry, we could face increased costs,
penalties and a loss of business and Revenues
generated by sales of our products depend on the availability of
reimbursement from third party payors and a reduction in payment
rate or reimbursement or an increase in our financial obligation
to governmental payors could result in decreased sales of our
products and revenue and We may be exposed to
product liability claims and recalls.
Our activities could be subject to challenge for the reasons
discussed above and due to the broad scope of these laws and the
increasing attention being given to them by law enforcement
authorities. Further, there are an increasing number of state
laws that require manufacturers to make reports to states on
pricing and marketing information. Many of these laws contain
ambiguities as to what is required to comply with the laws.
Given the lack of clarity in laws and their implementation, our
reporting actions could be subject to the penalty provisions of
the pertinent state authorities.
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Pricing
and Reimbursement
In the U.S. and internationally, sales of our products,
including those sold by our collaborators, and our ability to
generate revenues on such sales are dependent, in significant
part, on the availability and level of reimbursement from third
party payors such as state and federal governments, including
Medicare and Medicaid, managed care providers, and private
insurance plans. The significant governmental reimbursement and
cost programs are described below. Private insurers, such as
health maintenance organizations and managed care providers,
have also implemented cost-cutting and reimbursement initiatives
and will likely continue to do so in the future. These include
establishing formularies that govern the drugs and biologics
that will be offered and the
out-of-pocket
obligations for such products. In addition, in the U.S. in
particular, we are required to provide discounts and pay rebates
to state and federal governments and agencies in connection with
purchases of our products that are reimbursed by such entities.
Medicare pays physicians and suppliers that furnish our products
under a payment methodology using average sales price, or ASP,
information. Manufacturers, including us, are required to
provide ASP information to the Centers for Medicare and Medicaid
Services, or CMS, on a quarterly basis. This information is used
to compute Medicare payment rates, which are generally set at
ASP plus six percent and are updated quarterly. Medicare also
uses the ASP payment methodology to determine Medicare rates
paid for most drugs and biologicals furnished by hospital
outpatient departments. As of January 1, 2010, the
reimbursement rate in the hospital outpatient setting was ASP
plus four percent. There is a mechanism for comparison of such
payment rates to widely available market prices, which could
cause further decreases in Medicare payment rates, although this
mechanism has yet to be utilized. If a manufacturer is found to
have made a misrepresentation in the reporting of ASP, the
statute provides for civil monetary penalties for each
misrepresentation for each day in which the misrepresentation
was applied.
Medicare also provides for an expanded prescription drug benefit
for all Medicare beneficiaries known as Medicare Part D.
This is a voluntary benefit that is implemented through private
plans under contractual arrangements with the federal
government. Similar to pharmaceutical coverage through private
health insurance, Part D plans are expected to negotiate
discounts from drug manufacturers and pass on some of those
savings to Medicare beneficiaries.
We also participate in the Medicaid rebate program established
by the Omnibus Budget Reconciliation Act of 1990, and under
multiple subsequent amendments of that law. Under the Medicaid
rebate program, we pay a rebate for each unit of product
reimbursed by Medicaid, including pursuant to the
health care reform legislation signed into law in March
2010 a rebate for those drugs supplied to enrollees
of Medicaid managed care organizations. This recently enacted
health care reform legislation is also likely to increase the
amount of the unit rebate payable by us in two ways
by increasing the percentage of average manufacture price, or
AMP, that forms part of the unit rebate calculation and by
altering the definition of AMP in a manner that may result in a
higher AMP for our products. Effective January 1, 2010, the
unit rebate amount is now equal to the greater of 23.1% of AMP,
or the difference between AMP and the best price available from
us to any commercial or non-federal governmental customer, which
we are obligated to report on a monthly basis. Effective
October 1, 2010, AMP is believed to include only sales to
wholesalers for drugs distributed to retail community pharmacies
and direct sales to retail community pharmacies. The rebate
amount must be adjusted upward where the AMP for a
products first full quarter of sales, when adjusted for
increases in the Consumer Price Index Urban, or
CPI-U, exceeds the AMP for the current quarter with the upward
adjustment equal to the excess amount. In addition, the health
care reform legislation contains a provision relating to line
extensions of certain innovator drugs that may, depending on the
content of interpretive guidance to be issued by CMS, have an
impact on the calculation of AMP for certain drugs. The rebate
amount is required to be recomputed each quarter based on our
report of current AMP and best price for each of our products to
CMS. The terms of our participation in the rebate program
imposes a requirement for us to report revisions to AMP or best
price within a period not to exceed 12 quarters from the quarter
in which the data was originally due. Any such revisions could
have the impact of increasing or decreasing our rebate liability
for prior quarters, depending on the direction of the revision.
In addition, if we were found to have knowingly submitted false
information to the government, the statute provides for civil
monetary penalties per item of false information in addition to
other penalties available to the government.
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The availability of federal funds to pay for our products under
the Medicaid and Medicare Part B programs requires that we
extend discounts under the 340B/PHS drug pricing program. The
340B/PHS drug pricing program extends discounts to a variety of
community health clinics and other entities that receive health
services grants from the Public Health Service, or PHS, as well
as hospitals that serve a disproportionate share of poor
Medicare beneficiaries. The recently enacted health care reform
legislation enables certain childrens hospitals, cancer
hospitals, critical access and sole community hospitals, and
rural referral centers to also participate in the 340B drug
pricing program.
We also make our products available for purchase by authorized
users of the Federal Supply Schedule, or FSS, of the General
Services Administration pursuant to our FSS contract with the
Department of Veterans Affairs. Under the Veterans Health Care
Act of 1992, or the VHC Act, we are required to offer deeply
discounted FSS contract pricing to four federal
agencies the Department of Veterans Affairs, the
Department of Defense, the Coast Guard and the PHS (including
the Indian Health Service) for federal funding to be
made available for reimbursement of any of our products under
the Medicaid program and for our products to be eligible to be
purchased by those four federal agencies and certain federal
grantees. FSS pricing to those four federal agencies must be
equal to or less than the Federal Ceiling Price,
which is, at a minimum, 24% off the Non-Federal Average
Manufacturer Price, or Non-FAMP, for the prior fiscal year. In
addition, if we are found to have knowingly submitted false
information to the government, the VHC Act provides for civil
monetary penalties per false item of information in addition to
other penalties available to the government.
In addition to that set forth above, the recently enacted health
care reform legislation may have an adverse impact on our
revenues by, among other things, mandating that brand name drug
manufacturers provide a 50% discount for drugs in the Medicare
Part D coverage gap starting in 2011 and assessing a
pharmaceutical manufacturer fee. Many provisions of the recently
enacted health care reform legislation, including but not
limited to those set forth above, are subject to further
interpretation and guidance from CMS to determine their
applicability to us.
Other
Regulations
Foreign Corrupt Practices Act. We are also
subject to the U.S. Foreign Corrupt Practices Act which
prohibits corporations and individuals from paying, offering to
pay, or authorizing the payment of anything of value to any
foreign government official, government staff member, political
party, or political candidate in an attempt to obtain or retain
business or to otherwise influence a person working in an
official capacity.
Environmental Laws. We are subject to federal,
state, local and foreign environmental laws and regulations. To
date, compliance with laws and regulations relating to the
protection of the environment has not had a material effect on
capital expenditures, earnings or our competitive position. We
do not anticipate any significant expenditures in order to
comply with existing environmental laws and regulations that
would have a material impact on our earnings or competitive
position. We are not aware of any pending litigation or
significant financial obligations arising from current or past
environmental practices that are likely to have a material
adverse effect on our financial position. We cannot assure you,
however, that environmental problems relating to facilities
owned or operated by us will not develop in the future, and we
cannot predict whether any such problems, if they were to
develop, could require significant expenditures on our part. In
addition, we are unable to predict what legislation or
regulations may be adopted or enacted in the future with respect
to environmental protection and waste disposal.
Other Laws. We are subject to a variety of
financial disclosure and securities trading regulations as a
public company in the U.S., including laws relating to the
oversight activities of the Securities and Exchange Commission,
or SEC, and the regulations of the NASDAQ Global Select Market,
on which our shares are traded. We are also subject to various
laws, regulations and recommendations relating to safe working
conditions, laboratory practices, the experimental use of
animals, and the purchase, storage, movement, import and export
and use and disposal of hazardous or potentially hazardous
substances used in connection with our research work.
22
Employees
As of May 13, 2010, we had approximately 570 full-time
employees. A significant number of our management and
professional employees have prior experience with
pharmaceutical, biotechnology or medical product companies. We
believe that we have been successful in attracting skilled and
experienced scientific and senior management personnel, however,
competition for such personnel is intense. None of our employees
is covered by a collective bargaining agreement. We consider our
relations with our employees to be good.
Available
Information
We are a Pennsylvania corporation with principal executive
offices located at 852 Winter Street, Waltham, Massachusetts
02451-1420.
Our telephone number is
(781) 609-6000
and our website address is www.alkermes.com. We make available
free of charge through the Investors section of our website our
Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or
furnished to the SEC. We include our website address in this
Annual Report on
Form 10-K
only as an inactive textual reference and do not intend it to be
an active link to our website. You may read and copy materials
we file with the SEC at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. You
may get information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an internet site that contains reports, proxy
and information statements, and other information regarding
issuers that file electronically with the SEC at www.sec.gov.
Investing in our company involves a high degree of risk. You
should consider carefully the risks described below, together
with the other information in and incorporated by reference into
this Annual Report. If any of the following risks actually
occur, they could materially adversely affect our business,
financial condition or operating results. This could cause the
market price of our common stock to decline, and could cause you
to lose all or a part of your investment.
RISPERDAL
CONSTA, VIVITROL, BYDUREON and our product candidates may not
generate significant revenues.
Even if our product candidates, including BYDUREON, receive
regulatory approval for commercial sale, the revenues received
or to be received from the sale of any such product may not be
significant and will depend on numerous factors, many of which
are outside of our control, including but not limited to those
factors set forth below:
RISPERDAL
CONSTA
We are not involved in the marketing or sales efforts for
RISPERDAL CONSTA. Our revenues depend on manufacturing fees and
royalties we receive from our partner for RISPERDAL CONSTA, each
of which relates to sales of RISPERDAL CONSTA by our partner.
For reasons outside of our control, including those mentioned
below, sales of RISPERDAL CONSTA may not meet our or our
partners expectations.
VIVITROL
In December 2008, we assumed responsibility for the marketing
and sale of VIVITROL in the U.S. from Cephalon. To
facilitate this transfer of commercialization of VIVITROL,
Cephalon provided certain transition services to us until May
2009. VIVITROL is our first commercial product for which we have
had sole responsibility for marketing and sales operations. We
have very little sales and marketing experience. The revenues
received or to be received from the sale of VIVITROL may not be
significant and will depend on numerous factors, many of which
are outside of our control, including but not limited to those
specified below.
In December 2007, we entered into a license and
commercialization agreement with Cilag to commercialize VIVITROL
for the treatment of alcohol dependence and opioid dependence in
Russia and other countries
23
in the CIS. Under the terms of the agreement, Cilag will have
primary responsibility for securing all necessary regulatory
approvals for VIVITROL and Janssen-Cilag, an affiliate of Cilag,
will commercialize the product. We are responsible for the
manufacture of VIVITROL and receive manufacturing revenues and
royalty revenues based upon product sales. The revenues received
or to be received from the sale of VIVITROL under the agreement
with Cilag may not be significant and will depend on numerous
factors, many of which are outside of our control, including but
not limited to those specified below.
Based on the positive results of our phase 3 clinical trial of
VIVITROL for the treatment of opioid dependence, we submitted a
sNDA to the FDA for approval as a treatment for opioid
dependence. We requested a priority review of our sNDA
submission which, if granted, would mean a six month review
timeline. There can be no assurance that the phase 3 clinical
trial results and other clinical and preclinical data will be
sufficient to obtain regulatory approvals for VIVITROL for the
treatment of opioid dependence in the U.S. and for the
treatment of alcohol and opioid dependence elsewhere in the
world.
BYDUREON
We are not involved in, or responsible for, the clinical
development of BYDUREON, including interactions with the FDA and
other regulatory agencies. There can be no assurance that the
phase 3 clinical trial results and other clinical and
preclinical data will be sufficient to obtain regulatory
approval for BYDUREON in the U.S. or elsewhere in the
world. If BYDUREON receives approval for commercial sale, the
revenues received or to be received from the sale of the product
may not be significant. We are not involved in the manufacture,
marketing or sales efforts for BYDRUEON. Our revenues will
depend on royalties we receive from our partner for BYDUREON,
which relates directly to sales of BYDUREON by our partner. For
reasons outside of our control, including those mentioned below,
sales of BYDUREON may not meet our or our partners
expectations.
We cannot be assured that RISPERDAL CONSTA, VIVITROL and
BYDUREON, if approved for commercial sale, will be, or will
continue to be, accepted in the U.S. or in any foreign
markets or that sales of either of these products will not
decline in the future or end. A number of factors may cause
revenues from RISPERDAL CONSTA, VIVITROL, BYDUREON, if approved,
and any of our product candidates that we develop, if and when
approved, to grow at a slower than expected rate, or even to
decrease or end, including:
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perception of physicians and other members of the health care
community as to our products safety and efficacy relative
to that of competing products;
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the cost-effectiveness of our products;
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patient and physician satisfaction with our products;
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the ability to manufacture our commercial products successfully
and on a timely basis;
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the cost and availability of raw materials necessary for the
manufacture of our products;
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the size of the markets for our products;
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reimbursement policies of government and third party payors;
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unfavorable publicity concerning our products, similar classes
of drugs, or the industry generally;
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the introduction, availability and acceptance of competing
treatments, including treatments marketed and sold by our
collaborators;
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the reaction of companies that market competitive products;
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adverse event information relating to our products or to similar
classes of drugs;
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changes to the product labels of our products or of those within
the same drug class to add significant warnings or restrictions
on use;
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the continued accessibility of third parties to vial, label and
distribute our products on acceptable terms;
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the unfavorable outcome of patent litigation related to any of
our products;
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regulatory developments related to the manufacture or continued
use of our products, including the issuance of a REMS by the FDA;
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the extent and effectiveness of the sales and marketing and
distribution support our products receive;
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our collaborators decisions as to the timing of product
launches, pricing and discounting;
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foreign exchange rate valuations and fluctuations; and
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any other material adverse developments with respect to the
commercialization of our products.
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Our revenues will fluctuate from quarter to quarter based on a
number of factors, including the acceptance of our products in
the marketplace, our partners orders, the timing of
shipments, our ability to manufacture successfully, our yield
and our production schedule. The unit costs to manufacture
RISPERDAL CONSTA and VIVITROL may be higher than anticipated if
certain volume levels are not achieved. In addition, we may not
be able to supply the products in a timely manner or at all.
We are
substantially dependent on revenues from our principal
product.
Our current and future revenues depend substantially upon
continued sales of RISPERDAL CONSTA by our partner, Janssen. Any
significant negative developments relating to this product, such
as safety or efficacy issues, the introduction or greater
acceptance of competing products, including those marketed and
sold by our collaborator, or adverse regulatory or legislative
developments, would have a material adverse effect on our
results of operations. Although we have developed and continue
to develop additional products for commercial introduction, we
expect to be substantially dependent on sales from this product
for the foreseeable future. A decline in sales from this product
would adversely affect our business.
We are
subject to risks related to the manufacture of our
products.
The manufacture of pharmaceutical products is a highly complex
process in which a variety of difficulties may arise from time
to time, including but not limited to, product loss due to
material failure, equipment failure, vendor error or operator
error. Problems with manufacturing processes could result in
product defects or manufacturing failures, which could require
us to delay shipment of products or recall products previously
shipped, or could impair our ability to expand into new markets
or supply products in existing markets. We may not be able to
resolve any such problems in a timely fashion, if at all.
We rely solely on our manufacturing facility in Wilmington, Ohio
for the manufacture of RISPERDAL CONSTA, VIVITROL, polymer for
BYDUREON and some of our product candidates. We contract with
third party manufacturers to manufacture or formulate other of
our product candidates for use in clinical trials. Supply of
these products depends on the uninterrupted and efficient
operation of our facility, which could be adversely affected by
equipment failure, labor shortages (whether as a result of
pandemic flu or otherwise), natural disasters, power failures
and many other factors. If we cannot produce sufficient
commercial quantities of our products to meet demand, we would
need to rely on third party manufacturers, of which there are
currently very few, if any, capable of manufacturing our
products as contract suppliers. We cannot be certain that we
could reach agreement on reasonable terms, if at all, with those
manufacturers. Even if we were to reach agreement, the
transition of the manufacturing process to a third party to
enable commercial supplies could take a significant amount of
time and may not be successful.
Our manufacturing facilities require specialized personnel and
are expensive to operate and maintain. Any delay in the
regulatory approval or market launch of product candidates, or
suspension of the sale of our products, to be manufactured in
these facilities will require us to continue to operate these
expensive facilities and retain specialized personnel, which may
cause operating losses.
25
VIVITROL
may not be successfully marketed and sold by Alkermes and may
not generate significant revenues.
In December 2008, we assumed responsibility for the marketing
and sale of VIVITROL in the U.S. from Cephalon. To
facilitate this transfer of commercialization of VIVITROL,
Cephalon provided certain transition services to us until May
2009. VIVITROL is our first commercial product for which we have
had sole responsibility for marketing and sales operations.
We have little experience with the commercialization of
pharmaceutical products, including the marketing and sale of
prescription drugs. We must build an infrastructure to support
the sales and marketing of VIVITROL, including building a
distribution and expanded commercial infrastructure and
providing various support services for the sales force. If we
are unable to successfully market and sell VIVITROL, our
revenues could be materially diminished.
Our ability to realize significant revenues from the marketing
and sales activities associated with VIVITROL also depends on
our ability to retain qualified sales personnel. We must also be
able to attract new qualified sales personnel as needed to
support potential sales growth and competition for qualified
sales personnel is intense. Any failure to attract and retain
qualified sales personnel now and in the future, could impair
our ability to maintain sales levels
and/or
support potential future sales growth.
Revenues
generated by sales of our products depend on the availability of
reimbursement from third party payors and a reduction in payment
rate or reimbursement or an increase in our financial obligation
to governmental payors could result in decreased sales of our
products and revenue.
In both domestic and foreign markets, sales of our products are
dependent, in part, on the availability of reimbursement from
third party payors such as state and federal governments,
including Medicare and Medicaid, managed care providers, and
private insurance plans. Our future revenues and profitability
will be adversely affected if these third party payors do not
sufficiently cover and reimburse the cost of our products, or
related procedures or services, or any other future drug product
we may market. If these entities do not provide coverage and
reimbursement for our products or if they provide an
insufficient level of coverage and reimbursement, our products
may be too costly for use, and physicians may not prescribe them
or may prescribe them less frequently. In this manner, levels of
reimbursement for drug products by government authorities,
private health insurers, and other organizations, such as Health
Maintenance Organizations, or HMOs, may have a material adverse
effect on our business, financial condition, cash flows and
results of operations.
In both the U.S. and in foreign jurisdictions, legislative
and regulatory actions, including but not limited to the
following, may reduce the revenues that we derive from our
products:
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the U.S. health care reform legislation signed into law in
March 2010 may reduce revenues that we derive from sales of
our products, including those of our products marketed and sold
by our collaborators, by, among other things:
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increasing the amount of the Medicaid rebate payable to states
by increasing the formula for determination of the unit rebate
amount and by altering the definition of AMP;
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expanding the scope of our rebate obligation by mandating that
rebates also be paid on products used by Medicaid managed care
organizations;
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expanding the number of entities eligible to purchase our
products at a discounted basis under the 340B/PHS drug pricing
program;
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assessing a pharmaceutical manufacturer fee;
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mandating that brand name drug manufacturers provide a 50%
discount for drugs in the Medicare Part D coverage gap
starting in 2011; and
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redefining the impact to AMP of line extensions of certain
innovator drugs.
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some states are also considering legislation that would control
the prices of drugs, and state Medicaid programs are
increasingly requesting manufacturers to pay supplemental
rebates and requiring prior authorization by the state program
for use of any drug for which supplemental rebates are not being
paid; and
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U.S. government efforts to reduce Medicaid expenses may
lead to increased use of managed care organizations by Medicaid
programs. This may result in managed care organizations
influencing prescription decisions for a larger segment of the
population and a corresponding constraint on prices and
reimbursement for our products.
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Third party payors, including the U.S. government, are
increasingly challenging the prices charged for and the
cost-effectiveness of medical products, which is sometimes
referred to as comparative effectiveness research, and they are
increasingly limiting both coverage and the level of
reimbursement for prescription drugs. Also, the trend toward
managed health care in the U.S. and the concurrent growth
of organizations such as HMOs may result in lower prices for
pharmaceutical products, including any products that may be
offered by us in the future. These actions could materially
adversely affect our ability to sell any drug products that are
successfully developed by us and approved by regulators. We are
unable to predict what additional legislation or regulation, if
any, relating to the health care industry or third party
coverage and reimbursement may be enacted in the future or what
effect such legislation or regulation would have on our
business, financial condition, cash flows and results of
operations.
Further, when a new therapeutic product is approved, the
availability of governmental
and/or
private reimbursement for that product is uncertain, as is the
amount for which that product will be reimbursed. We cannot
predict the availability or amount of reimbursement for our
product candidates, and current reimbursement policies for our
marketed products may change at any time.
If reimbursement for our products changes adversely or if we
fail to obtain adequate reimbursement for our current or future
products, healthcare providers may limit how much, or under what
circumstances, they will prescribe or administer them, or
patients may be unwilling to pay any required co-payments, which
could reduce the use of, and revenues generated from, our
products and which could have a material adverse effect on our
business, financial condition, cash flows and results of
operations.
Our
customer base that purchase VIVITROL directly from us is highly
concentrated.
Our principal customers for VIVITROL are wholesale drug
distributors. These customers comprise a significant part of the
distribution network for pharmaceutical products in the
U.S. Three large wholesale distributors, Cardinal Health,
McKesson Corporation and AmerisourceBergen Drug Corporation,
control a significant share of this network. Fluctuations in the
buying patterns of these customers, which may result from
seasonality, wholesaler buying decisions, a decrease in demand
for VIVITROL among healthcare professionals who have, to date,
prescribed the drug frequently, or other factors outside of our
control, could significantly affect the level of our net sales
on a
period-to-period
basis. The impact on net sales could have a material impact on
our financial condition, cash flows and results of operations.
We have entered into wholesaler distribution service agreements,
or DSAs, with our three largest wholesale drug distributors.
Under the DSAs, we will obtain more precise information as to
the level of our product inventory available throughout the
product distribution channel. We cannot be certain that the DSAs
will be effective in limiting speculative purchasing activity,
that there will not be a future drawdown of inventory as a
result of declining minimum inventory requirements, or
otherwise, or that the inventory level data provided through our
DSAs are accurate. If speculative purchasing does occur, if the
wholesalers significantly decrease their inventory levels, or if
inventory level data provided through DSAs is inaccurate, our
business, financial condition, cash flows and results of
operations may be adversely affected.
27
We
rely on third parties to provide services in connection with the
manufacture and distribution of our products.
We are responsible for the entire supply chain for VIVITROL, up
to sale of final product and including the sourcing of raw
materials and active pharmaceutical agents from third parties.
We have limited experience in managing a complex, cGMP supply
chain and product distribution network and issues with our third
party providers may have a material adverse effect on our
business, financial condition, cash flows and results of
operations. The manufacture of products and product components,
including the procurement of bulk drug product, packaging,
storage and distribution of our products require successful
coordination among us and multiple third party providers. Our
inability to coordinate these efforts, the lack of capacity
available at the third party contractor or any other problems
with the operations of these third party contractors could
require us to delay shipment of saleable products; recall
products previously shipped or could impair our ability to
supply products at all. This could increase our costs, cause us
to lose revenue or market share and damage our reputation. Any
third party we use to manufacture bulk drug product, package,
store or distribute our products to be sold in the
U.S. must be licensed by the FDA. As a result, alternative
third party providers may not be readily available on a timely
basis.
None of our product platforms can be commercialized as a
stand-alone product but must be combined with a drug. To develop
any new proprietary product candidate using one of these
platforms, we must obtain the drug substance from another party.
We cannot be assured that we will be able to obtain any such
drug substance on reasonable terms, if at all.
Due to the unique nature of the production of our products,
there are several single source providers of our raw materials.
We endeavor to qualify new vendors and to develop contingency
plans so that production is not impacted by issues associated
with single source providers. Nonetheless, our business could be
materially impacted by issues associated with single source
providers.
We rely on third parties for the timely supply of specified raw
materials, equipment, contract manufacturing, formulation or
packaging services, product distribution services, customer
service activities and product returns processing. Although we
actively manage these third party relationships to ensure
continuity and quality, some events beyond our control could
result in the complete or partial failure of these goods and
services. Any such failure could materially adversely affect our
business, financial condition, cash flows and results of
operations.
If we
fail to meet the stringent requirements of governmental
regulation in the manufacture of our products, we could incur
substantial remedial costs and a reduction in
sales.
We and our third party providers are generally required to
maintain compliance with cGMP and are subject to inspections by
the FDA or comparable agencies in other jurisdictions to confirm
such compliance. Any changes of suppliers or modifications of
methods of manufacturing require amending our application to the
FDA and ultimate amendment acceptance by the FDA prior to
release of product to the marketplace. Our inability or the
inability of our third party service providers to demonstrate
ongoing cGMP compliance could require us to withdraw or recall
product and interrupt commercial supply of our products. Any
delay, interruption or other issues that arise in the
manufacture, formulation, packaging, or storage of our products
as a result of a failure of our facilities or the facilities or
operations of third parties to pass any regulatory agency
inspection could significantly impair our ability to develop and
commercialize our products. This could increase our costs, cause
us to lose revenue or market share and damage our reputation.
The FDA, European, Japanese, Brazilian and Saudi Arabian
regulatory authorities have inspected and approved our
manufacturing facility for RISPERDAL CONSTA, and the FDA has
inspected and approved the same manufacturing facility for
VIVITROL. We cannot guarantee that the FDA or any foreign
regulatory agencies will approve any other facility we or our
suppliers may operate or, once approved, that any of our
facilities will remain in compliance with cGMP regulations. If
we fail to gain or maintain FDA and foreign regulatory
compliance, our business, financial condition, cash flows and
results of operations could be materially adversely affected.
28
Our
business involves environmental risks.
Our business involves the controlled use of hazardous materials
and chemicals and is therefore subject to numerous environmental
and safety laws and regulations and to periodic inspections for
possible violations of these laws and regulations. The costs of
compliance with environmental and safety laws and regulations
are significant. Any violations, even if inadvertent or
accidental, of current or future environmental, safety laws or
regulations and the cost of compliance with any resulting order
or fine could adversely affect our operations.
We
rely heavily on collaborative partners.
Our arrangements with collaborative partners are critical to our
success in bringing our products and product candidates to the
market and promoting such marketed products profitably. We rely
on these parties in various respects, including to conduct
preclinical testing and clinical trials, to provide funding for
product candidate development programs, raw materials, product
forecasts, and sales and marketing services, to create and
manage the distribution model for our commercial products, to
commercialize our products, or to participate actively in or to
manage the regulatory approval process. Most of our
collaborative partners can terminate their agreements with us
for no reason and on limited notice. We cannot guarantee that
any of these relationships will continue. Failure to make or
maintain these arrangements or a delay in a collaborative
partners performance or factors that may affect our
partners sales may materially adversely affect our
business, financial condition, cash flows and results of
operations.
We cannot control our collaborative partners performance
or the resources they devote to our programs. Consequently,
programs may be delayed or terminated or we may have to use
funds, personnel, laboratories and other resources that we have
not budgeted. A program delay or termination or unbudgeted use
of our resources may materially adversely affect our business,
results of operations and financial condition.
Disputes may arise between us and a collaborative partner and
may involve the issue of which of us owns the technology that is
developed during a collaboration or other issues arising out of
the collaborative agreements. Such a dispute could delay the
program on which the collaborative partner
and/or we
are working. It could also result in expensive arbitration or
litigation, which may not be resolved in our favor.
A collaborative partner may choose to use its own or other
technology to develop a way to deliver its drug and withdraw its
support of our product candidate, or compete with our jointly
developed product. For example, Janssen, which markets and sells
RISPERDAL CONSTA, recently launched a competing long-acting
injectable product, INVEGA SUSTENNA.
Our collaborative partners could merge with or be acquired by
another company or experience financial or other setbacks
unrelated to our collaboration that could, nevertheless,
materially adversely affect our business, financial condition,
cash flows and results of operations.
We
have very little sales and marketing experience and limited
sales capabilities, which may make commercializing our products
difficult.
We currently have very little marketing experience and limited
sales capabilities. Therefore, in order to commercialize our
product candidates, we must either develop our own marketing and
distribution sales capabilities or collaborate with a third
party to perform these functions. We may, in some instances,
rely significantly on sales, marketing and distribution
arrangements with our collaborative partners and other third
parties. For example, we rely completely on Janssen to market,
sell and distribute RISPERDAL CONSTA, and will rely upon Lilly
and Amylin to market and distribute BYDUREON. In these
instances, our future revenues will be materially dependent upon
the success of the efforts of these third parties.
We are responsible for the marketing and sale of VIVITROL in the
U.S. We have limited experience in the commercialization of
pharmaceutical products. We may not be able to attract and
retain qualified personnel to serve in our sales and marketing
organization, to develop an effective distribution network or to
otherwise effectively support our commercialization activities.
The cost of establishing and maintaining a sales and marketing
organization may exceed its cost effectiveness. If we fail to
develop sales and marketing capabilities, if sales efforts are
not effective or if costs of developing sales and marketing
capabilities exceed
29
their cost effectiveness, our business, results of operations
and financial condition could be materially adversely affected.
Our
product platforms or product development efforts may not produce
safe, efficacious or commercially viable products.
Many of our product candidates require significant additional
research and development, as well as regulatory approval. To be
profitable, we must develop, manufacture and market our
products, either alone or by collaborating with others. It can
take several years for a product candidate to be approved and we
may not be successful in bringing additional product candidates
to the market. A product candidate may appear promising at an
early stage of development or after clinical trials and never
reach the market, or it may reach the market and not sell, for a
variety of reasons. The product candidate may:
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be shown to be ineffective or to cause harmful side effects
during preclinical testing or clinical trials;
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fail to receive regulatory approval on a timely basis or at all;
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be difficult to manufacture on a large scale;
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be uneconomical; or
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infringe on proprietary rights of another party.
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For factors that may affect the market acceptance of our
products approved for sale, see risk factor We face
competition in the biotechnology and pharmaceutical industries,
and others. If our delivery technologies or product
development efforts fail to result in the successful development
and commercialization of product candidates, if our
collaborative partners decide not to pursue our product
candidates or if new products do not perform as anticipated, our
business, financial condition, cash flows and results of
operations will be materially adversely affected.
Clinical
trials for our product candidates are expensive and their
outcome is uncertain.
Conducting clinical trials is a lengthy, time-consuming and
expensive process. Before obtaining regulatory approvals for the
commercial sale of any products, we or our partners must
demonstrate, through preclinical testing and clinical trials,
that our product candidates are safe and effective for use in
humans. We have incurred, and we will continue to incur,
substantial expense for, and devote a significant amount of time
to, preclinical testing and clinical trials.
Preclinical and clinical development efforts performed by us may
not be successfully completed. Completion of clinical trials may
take several years or more. The length of time can vary
substantially with the type, complexity, novelty and intended
use of the product candidate. The commencement and rate of
completion of clinical trials may be delayed by many factors,
including:
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the potential delay by a collaborative partner in beginning the
clinical trial;
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the inability to recruit clinical trial participants at the
expected rate;
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the failure of clinical trials to demonstrate a product
candidates safety or efficacy;
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the inability to follow patients adequately after treatment;
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unforeseen safety issues;
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the inability to manufacture sufficient quantities of materials
used for clinical trials; and
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unforeseen governmental or regulatory delays.
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The results from preclinical testing and early clinical trials
often have not predicted results of later clinical trials. A
number of new drugs have shown promising results in early
clinical trials, but subsequently failed to establish sufficient
safety and efficacy data to obtain necessary regulatory
approvals. Clinical trials
30
conducted by us, by our collaborative partners or by third
parties on our behalf may not demonstrate sufficient safety and
efficacy to obtain the requisite regulatory approvals for our
product candidates.
If a product candidate fails to demonstrate safety and efficacy
in clinical trials, this failure may delay development of other
product candidates and hinder our ability to conduct related
preclinical testing and clinical trials. As a result of these
failures, we may then be unable to find additional collaborative
partners or to obtain additional financing. Our business,
financial condition, cash flows and results of operations may be
materially adversely affected by any delays in, or termination
of, our clinical trials.
We
often depend on third parties in the conduct of our clinical
trials and any failure of those parties to fulfill their
obligations could adversely affect our development and
commercialization plans.
We depend on independent clinical investigators, contract
research organizations and other third party service providers
and our collaborators in the conduct of clinical trials for our
product candidates. We rely heavily on these parties for
successful execution of our clinical trials but do not control
many aspects of their activities. For example, the investigators
are not our employees. However, we are responsible for ensuring
that each of our clinical trials is conducted in accordance with
the general investigational plan and protocols for the trial.
Third parties may not complete activities on schedule or may not
conduct our clinical trials in accordance with regulatory
requirements or our stated protocols. The failure of these third
parties to carry out their obligations could delay or prevent
the development, approval and commercialization of our product
candidates.
We may
not become profitable on a sustained basis.
At March 31, 2010, our accumulated deficit was
$365.7 million, which is primarily the result of net losses
incurred from 1987, the year we were founded, to date, partially
offset by net income over previous fiscal years. There can be no
assurance we will achieve sustained profitability.
A major component of our revenue is dependent on our
partners and our ability to sell, and our ability to
manufacture economically, our marketed products RISPERDAL CONSTA
and VIVITROL. In addition, if VIVITROL sales are not sufficient,
we could have significant losses in the future due to ongoing
expenses to develop and commercialize VIVITROL.
Our ability to achieve sustained profitability in the future
depends, in part, on our ability to:
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obtain and maintain regulatory approval for our products and
product candidates, and for our partnered products, including
BYDUREON, both in the U.S. and in foreign countries;
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efficiently manufacture our commercial products;
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support the marketing and sale of RISPERDAL CONSTA by our
partner Janssen;
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successfully commercialize VIVITROL in the U.S.;
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support the marketing and sale of VIVITROL in Russia and the
countries of the CIS by our partner Cilag;
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enter into agreements to develop and commercialize our products
and product candidates;
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develop, have manufactured or expand our capacity to manufacture
and market our products and product candidates;
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obtain adequate reimbursement coverage for our products from
insurance companies, government programs and other third party
payors;
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obtain additional research and development funding from
collaborative partners or funding for our proprietary product
candidates; and
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achieve certain product development milestones.
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In addition, the amount we spend will impact our profitability.
Our spending will depend, in part, on:
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the progress of our research and development programs for
proprietary and collaborative product candidates, including
clinical trials;
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the time and expense that will be required to pursue FDA
and/or
foreign regulatory approvals for our product candidates and
whether such approvals are obtained;
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the time and expense required to prosecute, enforce
and/or
challenge patent and other intellectual property rights;
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the cost of building, operating and maintaining manufacturing
and research facilities;
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the cost of third party manufacture;
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the number of product candidates we pursue, particularly
proprietary product candidates;
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how competing technological and market developments affect our
product candidates;
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the cost of possible acquisitions of technologies, compounds,
product rights or companies;
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the cost of obtaining licenses to use technology owned by others
for proprietary products and otherwise;
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the costs of potential litigation; and
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the costs associated with recruiting and compensating a highly
skilled workforce in an environment where competition for such
employees may be intense.
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We may not achieve any or all of these goals and, thus, we
cannot provide assurances that we will ever be profitable on a
sustained basis or achieve significant revenues. Even if we do
achieve some or all of these goals, we may not achieve
significant or sustained commercial success.
We may
require additional funds to complete our programs and such
funding may not be available on commercially favorable terms and
may cause dilution to our existing shareholders.
We may require additional funds to complete any of our programs,
and we may seek funds through various sources, including debt
and equity offerings, corporate collaborations, bank borrowings,
arrangements relating to assets, sale of royalty streams we
receive on our products or other financing methods or
structures. The source, timing and availability of any
financings will depend on market conditions, interest rates and
other factors. If we are unable to raise additional funds on
terms that are favorable to us, we may have to cut back
significantly on one or more of our programs or give up some of
our rights to our product platforms, product candidates or
licensed products. If we issue additional equity securities or
securities convertible into equity securities to raise funds,
our shareholders will suffer dilution of their investment and it
may adversely affect the market price of our common stock.
The
FDA or foreign regulatory agencies may not approve our product
candidates or may impose limitations upon any product
approval.
We must obtain government approvals before marketing or selling
our drug candidates in the U.S. and in foreign
jurisdictions. The FDA and comparable regulatory agencies in
foreign countries impose substantial and rigorous requirements
for the development, production and commercial introduction of
drug products. These include pre-clinical, laboratory and
clinical testing procedures, sampling activities, clinical
trials and other costly and time-consuming procedures. In
addition, regulation is not static and regulatory authorities,
including the FDA, evolve in their staff, interpretations and
practices and may impose more stringent requirements than
currently in effect, which may adversely affect our planned drug
development
and/or our
sales and marketing efforts. Satisfaction of the requirements of
the FDA and of foreign regulators typically takes a significant
number of years and can vary substantially based upon the type,
complexity and novelty of the drug candidate. The approval
procedure and the time required to obtain approval also varies
among countries. Regulatory agencies may have varying
interpretations of the same data, and approval by one regulatory
authority does not
32
ensure approval by regulatory authorities in other
jurisdictions. In addition, the FDA or foreign regulatory
agencies may choose not to communicate with or update us during
clinical testing and regulatory review periods. The ultimate
decision by the FDA or foreign regulatory agencies regarding
drug approval may not be consistent with prior communications.
See risk factor RISPERDAL CONSTA, VIVITROL, BYDUREON and
our product candidates may not generate significant
revenues.
This product development process can last many years, be very
costly and still be unsuccessful. FDA or foreign regulatory
approval can be delayed, limited or not granted at all for many
reasons, including:
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a product candidate may not demonstrate safety and efficacy for
each target indication in accordance with FDA standards or
standards of foreign regulatory agencies;
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poor rate of patient enrollment, including limited availability
of patients who meet the criteria for certain clinical trials;
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data from preclinical testing and clinical trials may be
interpreted by the FDA or foreign regulatory agencies in
different ways than we or our partners interpret it;
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the FDA or foreign regulatory agencies might not approve our or
our partners manufacturing processes or facilities;
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the FDA may not approve accelerated development timelines for
our product candidates;
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the failure of third party clinical research organizations and
other third party service providers and independent clinical
investigators to manage and conduct the trials, to perform their
oversight of the trials, or to meet expected deadlines;
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the failure of our clinical investigational sites and the
records kept at such sites, including the clinical trial data,
to be in compliance with the FDAs Good Clinical Practices,
or EU legislation governing good clinical practice, including
the failure to pass FDA, EMA, or EU Member State inspections of
clinical trials;
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the FDA or foreign regulatory agencies may change their approval
policies or adopt new regulations;
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adverse medical events during the trials could lead to
requirements that trials be repeated or extended, or that a
program be terminated or placed on clinical hold, even if other
studies or trials relating to the program are
successful; and
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the FDA or foreign regulatory agencies may not agree with our or
our partners regulatory approval strategies or components
of our or our partners filings, such as clinical trial
designs.
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In addition, our product development timelines may be impacted
by third party patent litigation. Moreover, recent events,
including complications experienced by patients taking
FDA-approved drugs, have raised questions about the safety of
marketed drugs and may result in new legislation by the
U.S. Congress and increased caution by the FDA and
comparable foreign regulatory authorities in reviewing new
drugs. In summary, we cannot be sure that regulatory approval
will be granted for drug candidates that we submit for
regulatory review. Our ability to generate revenues from the
commercialization and sale of additional drug products will be
limited by any failure to obtain these approvals. In addition,
stock prices have declined significantly in certain instances
where companies have failed to obtain FDA approval of a drug
candidate or if the timing of FDA approval is delayed. If the
FDAs or any foreign regulatory authoritys response
to any application for approval is delayed or not favorable for
any of our product candidates, our stock price could decline
significantly.
Even if regulatory approval to market a drug product is granted,
the approval may impose limitations on the indicated use for
which the drug product may be marketed as well as additional
post-approval requirements. Even if our drug products are
approved for marketing and commercialization, we will need to
comply with post-approval clinical study commitments in order to
maintain the approval of such products. Our business could be
seriously harmed if we do not complete these studies and the
FDA, as a result, requires us to change related sections of the
marketing label for our products.
33
In addition, adverse medical events that occur during clinical
trials or during commercial marketing of our products could
result in legal claims against us and the temporary or permanent
withdrawal of our products from commercial marketing, which
could seriously harm our business and cause our stock price to
decline.
Changes
in laws affecting the health care industry could adversely
affect our revenues and profitability.
Our business is subject to extensive government regulation and
oversight. As a result, we may become subject to governmental
actions which could materially adversely affect our business,
results of operations and financial condition, including:
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new laws, regulations or judicial decisions, or new
interpretations of existing laws, regulations or decisions,
related to patent protection and enforcement, health care
availability, method of delivery and payment for health care
products and services or our business operations generally;
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changes in the FDA and foreign regulatory approval processes
that may delay or prevent the approval of new products and
result in lost market opportunity;
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changes in FDA and foreign regulations that may require
additional safety monitoring, labeling changes, restrictions on
product distribution or use, or other measures, which could
increase our costs of doing business, adversely affect the
future permitted uses of approved products, or otherwise
adversely affect the market for our products;
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new laws, regulations and judicial decisions affecting pricing
or marketing; and
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changes in the tax laws relating to our operations.
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For example, the recently enacted health care reform legislation
in the U.S. could have an adverse impact on our revenues
by, among other things, increasing the amount of the Medicaid
rebate and drugs for which this rebate is payable; changing the
definition of AMP; mandating that brand name drug manufacturers
provide a 50% discount for drugs in the Medicare Part D
coverage gap starting in 2011; and assessing a pharmaceutical
manufacturer fee. In addition, the Food and Drug Administration
Amendments Act of 2007 included new authorization for the FDA to
require post-market safety monitoring, along with a clinical
trials registry, and expanded authority for FDA to impose civil
monetary penalties on companies that fail to meet certain
commitments.
If we
fail to comply with the extensive legal and regulatory
requirements affecting the health care industry, we could face
increased costs, penalties and a loss of business.
Our activities, and the activities of our collaborators and
third party providers, are subject to extensive and complex
government regulation and oversight, including regulation under
the federal Food, Drug and Cosmetic Act, the federal False
Claims Act, the federal Anti-Kickback Statute, and other state
and federal laws and regulations. The FDA and comparable
agencies in other jurisdictions directly regulate many of our
most critical business activities, including the conduct of
preclinical and clinical studies, product manufacturing,
advertising and promotion, product distribution, adverse event
reporting and product risk management. States increasingly have
been placing greater restrictions on the marketing practices of
health care companies. In addition, pharmaceutical and
biotechnology companies have been the target of lawsuits and
investigations alleging violations of government regulation,
including claims asserting submission of incorrect pricing
information, impermissible off-label promotion of pharmaceutical
products, payments intended to influence the referral of federal
or state health care business, submission of false claims for
government reimbursement, antitrust violations, or violations
related to environmental matters. Violations of governmental
regulation may be punishable by criminal and civil sanctions,
including fines and civil monetary penalties and exclusion from
participation in government programs, including Medicare and
Medicaid. In addition to penalties for violation of laws and
regulations, we could be required to repay amounts we received
from government payors, or pay additional rebates and interest
if we are found to have miscalculated the pricing information we
have submitted to the government. While we continually strive to
comply with these complex requirements, interpretations of the
applicability of these laws to marketing practices are ever
evolving. If any such actions
34
are instituted against us or our collaboration partners and we
are not successful in defending ourselves or asserting our
rights, those actions could have a significant and material
impact on our business, including the imposition of significant
fines or other sanctions. Even an unsuccessful challenge could
cause adverse publicity and be costly to respond to, and thus
could have a material adverse effect on our business, results of
operations and financial condition.
Patent
protection for our products is important and
uncertain.
The following factors are important to our success:
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receiving and maintaining patent protection for our products and
product candidates, including those which are the subject of
collaborations with our collaborative partners;
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maintaining our trade secrets;
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not infringing the proprietary rights of others; and
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preventing others from infringing our proprietary rights.
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Patent protection only provides rights of exclusivity for the
term of the patent. We will be able to protect our proprietary
rights from unauthorized use by third parties only to the extent
that our proprietary rights are covered by valid and enforceable
patents or are effectively maintained as trade secrets.
We know of several U.S. patents issued to third parties
that may relate to our product candidates. We also know of
patent applications filed by other parties in the U.S. and
various foreign countries that may relate to some of our product
candidates if such patents are issued in their present form. If
patents are issued that cover our product candidates, we may not
be able to manufacture, use, offer for sale, import or sell some
of them without first getting a license from the patent holder.
The patent holder may not grant us a license on reasonable terms
or it may refuse to grant us a license at all. This could delay
or prevent us from developing, manufacturing or selling those of
our product candidates that would require the license. A patent
holder might also file an infringement action against us
claiming that the manufacture, use, offer for sale, import or
sale of our product candidates infringed one or more of its
patents. Our cost of defending such an action is likely to be
high and we might not receive a favorable ruling.
We try to protect our proprietary position by filing
U.S. and foreign patent applications related to our
proprietary product platforms, inventions and improvements that
are important to the development of our business. Our pending
patent applications, together with those we may file in the
future, or those we may license from third parties, may not
result in patents being issued. Even if issued, such patents may
not provide us with sufficient proprietary protection or
competitive advantages against competitors with similar
technology. Because the patent position of pharmaceutical and
biotechnology companies involves complex legal and factual
questions, enforceability of patents cannot be predicted with
certainty. The ultimate degree of patent protection that will be
afforded to biotechnology products and processes, including
ours, in the U.S. and in other important markets remains
uncertain and is dependent upon the scope of protection decided
upon by the patent offices, courts and lawmakers in these
countries, including, within the U.S., possible new patent
legislation or regulations. Patents, if issued, may be
challenged, invalidated or circumvented. The laws of certain
foreign countries may not protect our intellectual property
rights to the same extent as do the laws of the U.S. Thus,
any patents that we own or license from others may not provide
any protection against competitors. Furthermore, others may
independently develop similar technologies outside the scope of
our patent coverage.
We also rely on trade secrets, know-how and technology, which
are not protected by patents, to maintain our competitive
position. We try to protect this information by entering into
confidentiality agreements with parties that have access to it,
such as our collaborative partners, licensees, employees and
consultants. Any of these parties may breach the agreements and
disclose our confidential information or our competitors might
learn of the information in some other way. If any trade secret,
know-how or other technology not protected by a patent were to
be disclosed to, or independently developed by, a competitor,
our business, results of operations and financial condition
could be materially adversely affected.
35
As more products are commercialized using our proprietary
product platforms, or as any product achieves greater commercial
success, our patents become more likely to be subject to
challenge by potential competitors.
Uncertainty
over intellectual property in the biotechnology industry has
been the source of litigation, which is inherently costly and
unpredictable.
We are aware that others, including various universities and
companies working in the biotechnology field, have filed patent
applications and have been granted patents in the U.S. and
in other countries claiming subject matter potentially useful to
our business. Some of those patents and patent applications
claim only specific products or methods of making such products,
while others claim more general processes or techniques useful
or now used in the biotechnology industry. There is considerable
uncertainty within the biotechnology industry about the
validity, scope and enforceability of many issued patents in the
U.S. and elsewhere in the world, and, to date, there is no
consistent policy regarding the breadth of claims allowed in
biotechnology patents. We cannot currently determine the
ultimate scope and validity of patents which may be granted to
third parties in the future or which patents might be asserted
to be infringed by the manufacture, use and sale of our products.
There has been, and we expect that there may continue to be,
significant litigation in the industry regarding patents and
other intellectual property rights. Litigation and
administrative proceedings concerning patents and other
intellectual property rights may be protracted, expensive and
distracting to management. Competitors may sue us as a way of
delaying the introduction of our products. Any litigation,
including any interference proceedings to determine priority of
inventions, oppositions to patents in foreign countries or
litigation against our partners may be costly and time consuming
and could harm our business. We expect that litigation may be
necessary in some instances to determine the validity and scope
of certain of our proprietary rights. Litigation may be
necessary in other instances to determine the validity, scope
and/or
non-infringement of certain patent rights claimed by third
parties to be pertinent to the manufacture, use or sale of our
products. Ultimately, the outcome of such litigation could
adversely affect the validity and scope of our patent or other
proprietary rights, or, conversely, hinder our ability to
manufacture and market our products.
The
commercial use of our products may cause unintended side effects
or adverse reactions or incidence of misuse may
occur.
We cannot predict whether the commercial use of products will
produce undesirable or unintended side effects that have not
been evident in the use of, or in clinical trials conducted for,
such products to date. Additionally, incidents of product misuse
may occur. These events, among others, could result in product
recalls, product liability actions or withdrawals or additional
regulatory controls (including additional regulatory scrutiny
and requirements for additional labeling), all of which could
have a material adverse effect on our business, results of
operations and financial condition. In addition, the reporting
of adverse safety events involving our products and public
rumors about such events could cause our stock price to decline
or experience periods of volatility.
We may
be exposed to product liability claims and
recalls.
We may be exposed to product liability claims arising from the
testing, manufacture and commercial sale of RISPERDAL CONSTA,
VIVITROL and, if approved, BYDUREON, as well as from the use of
our product candidates in clinical trials or commercially, once
approved. These claims may be brought by consumers, clinical
trial participants, our collaborative partners or third parties
selling the products. We currently carry product liability
insurance coverage in such amounts as we believe are sufficient
for our business. However, we cannot provide any assurance that
this coverage will be sufficient to satisfy any liabilities that
may arise. As our development activities progress and we
continue to have commercial sales, this coverage may be
inadequate, we may be unable to obtain adequate coverage at an
acceptable cost or we may be unable to get adequate coverage at
all or our insurer may disclaim coverage as to a future claim.
This could prevent or limit our commercialization of our product
candidates or commercial sales of our products. Even if we are
able to maintain insurance that we believe is adequate, our
results of operations and financial condition may be
36
materially adversely affected by a product liability claim.
Uncertainties resulting from the initiation and continuation of
products liability litigation or other proceedings could have a
material adverse effect on our ability to compete in the
marketplace. Products liability litigation and other related
proceedings may also absorb significant management time.
Additionally, product recalls may be issued at our discretion or
at the direction of the FDA, other government agencies or other
companies having regulatory control for pharmaceutical product
sales. We cannot assure you that product recalls will not occur
in the future or that, if such recalls occur, such recalls will
not adversely affect our business, results of operations and
financial condition or reputation.
We may
not be successful in the development of products for our own
account.
In addition to our development work with collaborative partners,
we are developing proprietary product candidates for our own
account by applying our proprietary product platforms to
off-patent drugs as well as developing our own proprietary
molecules. Because we will be funding the development of such
programs, there is a risk that we may not be able to continue to
fund all such programs to completion or to provide the support
necessary to perform the clinical trials, obtain regulatory
approvals or market any approved products on a worldwide basis.
We expect the development of products for our own account to
consume substantial resources. If we are able to develop
commercial products on our own, the risks associated with these
programs may be greater than those associated with our programs
with collaborative partners.
If we
are not able to develop new products, our business may
suffer.
We compete with other biotechnology and pharmaceutical companies
with financial resources and capabilities substantially greater
than our resources and capabilities, in the development of new
products. We cannot be certain we will be able to:
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develop or successfully commercialize new products on a timely
basis or at all; or
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develop new products in a cost effective manner.
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Further, other companies, including our collaborators, may
develop products or may acquire technology for the development
of products that are the same as or similar to our proprietary
product platforms or to the product candidates we have in
development. Because there is rapid technological change in the
industry and because other companies have more resources than we
do, other companies may:
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develop their products more rapidly than we can;
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complete any applicable regulatory approval process sooner than
we can; or
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offer their newly developed products at prices lower than our
prices.
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Any of the foregoing may negatively impact our sales of newly
developed products. Technological developments or the FDAs
approval of new therapeutic indications for existing products
may make our existing products, or those product candidates we
are developing, obsolete or may make them more difficult to
market successfully, any of which could have a material adverse
effect on our business, results of operations and financial
condition.
Foreign
currency exchange rates may affect revenue.
We conduct a large portion of our business in international
markets. We derive a majority of our RISPERDAL CONSTA revenues
from sales in foreign countries and these sales are denominated
in foreign currencies. Such revenues fluctuate when translated
to U.S. dollars as a result of changes in foreign currency
exchange rates. We currently do not hedge this exposure. An
increase in the U.S. dollar relative to other currencies in
which we have revenues will cause our foreign revenues to be
lower than with a stable exchange rate. A large increase in the
value of the U.S. dollar relative to such foreign
currencies could have a material adverse affect on our revenues,
results of operations and financial condition.
37
We
face competition in the biotechnology and pharmaceutical
industries, and others.
We can provide no assurance that we will be able to compete
successfully in developing our products and product candidates.
We face intense competition in the development, manufacture,
marketing and commercialization of our products and product
candidates from many and varied sources from
academic institutions, government agencies, research
institutions and biotechnology and pharmaceutical companies,
including other companies with similar technologies. Some of
these competitors are also our collaborative partners. These
competitors are working to develop and market other systems,
products, vaccines and other methods of preventing or reducing
disease, and new small-molecule and other classes of drugs that
can be used with or without a drug delivery system.
There are other companies developing extended-release product
platforms. In many cases, there are products on the market or in
development that may be in direct competition with our products
or product candidates. In addition, we know of new chemical
entities that are being developed that, if successful, could
compete against our product candidates. These chemical entities
are being designed to work differently than our product
candidates and may turn out to be safer or to be more effective
than our product candidates. Among the many experimental
therapies being tested around the world, there may be some that
we do not now know of that may compete with our proprietary
product platforms or product candidates. Our collaborative
partners could choose a competing technology to use with their
drugs instead of one of our product platforms and could develop
products that compete with our products. In addition, major
technological changes can happen quickly in the biotechnology
and pharmaceutical industries, and the development of
technologically improved or different products or technologies
may make our product candidates or product platforms obsolete or
noncompetitive.
With respect to our proprietary injectable product platform, we
are aware that there are other companies developing
extended-release delivery systems for pharmaceutical products.
RISPERDAL CONSTA may compete with a number of other injectable
products including INVEGA SUSTENNA, which is marketed and sold
in the U.S. by Janssen, ZYPREXA RELPREVV, which is marketed
and sold by Lilly and received marketing authorization for sale
in the U.S., EU and Australia/New Zealand, and other products
currently in development. RISPERDAL CONSTA may also compete with
new oral compounds being developed for the treatment of
schizophrenia.
VIVITROL competes with CAMPRAL sold by Forest Laboratories, Inc.
and ANTABUSE sold by Odyssey Pharmaceuticals, Inc. as well as
currently marketed drugs also formulated from naltrexone, such
as REVIA by Duramed Pharmaceuticals, Inc., NALOREX by
Bristol-Myers Squibb Pharmaceuticals Ltd. and DEPADE by
Mallinckrodt, Inc., a subsidiary of Tyco International Ltd.
Other pharmaceutical companies are investigating product
candidates that have shown some promise in treating alcohol
dependence and that, if approved by the FDA, would compete with
VIVITROL. If approved for the treatment of opioid dependence,
VIVITROL would compete with SUBOXONE and SUBUTEX, which are
marketed and sold by Reckitt Benckiser Pharmaceuticals, Inc. in
the U.S., methadone and oral naltrexone.
If approved, BYDUREON would compete with established therapies
for market share. Such competitive products include
sulfonylureas, metformin, insulins, thiazolidinediones,
glinides, dipeptidyl peptidase type IV inhibitors, insulin
sensitizers, alpha-glucosidase inhibitors and sodium-glucose
transporter-2 inhibitors. BYDUREON would also compete with other
GLP-1 agonists, including VICTOZA, which is marketed and sold by
Novo Nordisk, and other products currently in development.
Physicians, patients, third party payors and the medical
community may not accept or utilize our products. If our
products do not achieve significant market acceptance, our
business, results of operations and financial condition may be
materially adversely affected. For more information on other
factors that would impact the market acceptance of our products,
see the risk factor RISPERDAL CONSTA, VIVITROL, BYDUREON
and our product candidates may not generate significant
revenues.
38
We may
not be able to retain our key personnel.
Our success depends largely upon the continued service of our
management and scientific staff and our ability to attract
retain and motivate highly skilled technical, scientific,
manufacturing, management, regulatory compliance and selling and
marketing personnel. The loss of key personnel or our inability
to hire and retain personnel who have technical, scientific,
manufacturing, regulatory compliance or commercial backgrounds
could materially adversely affect our research and development
efforts and our business.
Future
transactions may harm our business or the market price of our
stock.
We regularly review potential transactions related to
technologies, products or product rights and businesses
complementary to our business. These transactions could include:
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mergers;
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acquisitions;
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strategic alliances;
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licensing agreements; and
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co-promotion agreements.
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We may choose to enter into one or more of these transactions at
any time, which may cause substantial fluctuations in the market
price of our stock. Moreover, depending upon the nature of any
transaction, we may experience a charge to earnings, which could
also materially adversely affect our results of operations and
could harm the market price of our stock. In addition,
integrating any newly acquired businesses or technologies could
be expensive and time-consuming, resulting in the diversion of
resources from our current business. We may not be able to
integrate any acquired business successfully.
If we
issue additional common stock, shareholders will suffer dilution
of their investment and the stock price may
decline.
If we issue additional equity securities or securities
convertible into equity securities to raise funds, the ownership
share of the current holders of our common stock will be
reduced, which may adversely affect the market price of the
common stock. As of March 31, 2010, we were obligated to
issue 19,547,170 shares of common stock upon the vesting
and exercise of stock options and vesting of stock awards. In
addition, any of our shareholders could sell all or a large
number of their shares, which could adversely affect the market
price of our common stock.
The
current credit and financial market conditions may exacerbate
certain risks affecting our business.
Sales of our products are dependent, in large part, on
reimbursement from government health administration authorities,
private health insurers, distribution partners and other
organizations. As a result of the current credit and financial
market conditions, these organizations may be unable to satisfy
their reimbursement obligations or may delay payment. In
addition, federal and state health authorities may reduce
Medicare and Medicaid reimbursements, and private insurers may
increase their scrutiny of claims. A reduction in the
availability or extent of reimbursement could negatively affect
our product sales and revenue. Customers may also reduce
spending during times of economic uncertainty.
In addition, we rely on third parties for several important
aspects of our business. We depend upon collaborators for both
manufacturing and royalty revenues and the clinical development
of collaboration products, we use third party contract research
organizations for many of our clinical trials and we rely upon
several single source providers of raw materials and contract
manufacturers for the manufacture of our products and product
candidates. Due to the recent tightening of global credit and
the volatility in the financial markets, there may be a
disruption or delay in the performance of our third party
contractors, suppliers or collaborators. If such third parties
are unable to satisfy their commitments to us, our business
would be adversely affected.
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Our
common stock price is highly volatile.
The realization of any of the risks described in these risk
factors or other unforeseen risks could have a dramatic and
adverse effect on the market price of our common stock.
Additionally, market prices for securities of biotechnology and
pharmaceutical companies, including ours, have historically been
very volatile. The market for these securities has from time to
time experienced significant price and volume fluctuations for
reasons that were unrelated to the operating performance of any
one company. In particular, and in addition to circumstances
described elsewhere under these risk factors, the following risk
factors can adversely affect the market price of our common
stock:
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non-approval, set-backs or delays in the development or
manufacture of our product candidates and success of our
research and development programs;
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public concern as to the safety of drugs developed by us or
others;
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announcements of issuances of common stock or acquisitions by us;
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the announcement and timing of new product introductions by us
or others;
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material public announcements;
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events related to our products or those of our competitors,
including the withdrawal or suspension of products from the
market;
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availability and level of third party reimbursement;
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political developments or proposed legislation in the
pharmaceutical or healthcare industry;
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economic or other external factors, disaster or crisis;
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developments of our corporate partners;
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termination or delay of development program(s) by our corporate
partners;
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announcements of technological innovations or new therapeutic
products or methods by us or others;
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changes in government regulations or policies or patent
decisions;
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changes in patent legislation or adverse changes to patent law;
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changes in key members of management;
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failure to meet our financial expectations or changes in
opinions of analysts who follow our stock; or
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general market conditions.
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Anti-takeover
provisions may not benefit shareholders.
We are a Pennsylvania corporation and Pennsylvania law contains
strong anti-takeover provisions. In February 2003, our board of
directors adopted a shareholder rights plan. The shareholder
rights plan is designed to cause substantial dilution to a
person who attempts to acquire us on terms not approved by our
board of directors. The shareholder rights plan and Pennsylvania
law could make it more difficult for a person or group to, or
discourage a person or group from attempting to, acquire control
of us, even if the change in control would be beneficial to
shareholders. Our articles of incorporation and bylaws also
contain certain provisions that could have a similar effect. The
articles provide that our board of directors may issue, without
shareholder approval, preferred stock having such voting rights,
preferences and special rights as the board of directors may
determine. The issuance of such preferred stock could make it
more difficult for a third party to acquire us.
Our
business could be negatively affected as a result of the actions
of activist shareholders.
Proxy contests have been waged against many companies in the
biopharmaceutical industry over the last few years. If faced
with a proxy contest, we may not be able to respond successfully
to the contest, which
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would be disruptive to our business. Even if we are successful,
our business could be adversely affected by a proxy contest
involving us or our collaborators because:
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responding to proxy contests and other actions by activist
shareholders can be costly and time-consuming, disrupting
operations and diverting the attention of management and
employees;
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perceived uncertainties as to future direction may result in the
loss of potential acquisitions, collaborations or in-licensing
opportunities, and may make it more difficult to attract and
retain qualified personnel and business partners; and
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if individuals are elected to a board of directors with a
specific agenda, it may adversely affect our ability to
effectively and timely implement our strategic plan and create
additional value for our stockholders.
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These actions could cause our stock price to experience periods
of volatility.
Litigation
and/or arbitration may result in financial losses or harm our
reputation and may divert management resources.
We may be the subject of certain claims, including those
asserting violations of securities laws and derivative actions.
In addition, the administration of drugs in humans, whether in
clinical studies or commercially, carries the inherent risk of
product liability claims whether or not the drugs are actually
the cause of an injury.
We cannot predict with certainty the eventual outcome of any
future litigation, arbitration or third party inquiry. We may
not be successful in defending ourselves or asserting our rights
in new lawsuits, investigations or claims that may be brought
against us, and, as a result, our business could be materially
harmed. These lawsuits, arbitrations, investigations or claims
may result in large judgments or settlements against us, any of
which could have a negative effect on our financial performance
and business. Additionally, lawsuits, arbitrations and
investigations can be expensive to defend, whether or not the
lawsuit, arbitration or investigation has merit and the defense
of these actions may divert the attention of our management and
other resources that would otherwise be engaged in running our
business.
We may
incur financial risk in connection with the relocation of our
corporate headquarters from Cambridge, Massachusetts to Waltham,
Massachusetts.
In January 2010, we relocated our corporate headquarters from
Cambridge, Massachusetts to Waltham, Massachusetts. In
connection with the relocation, we signed a lease agreement and
built out a 115,000 square foot facility. We expect the
relocation to result in annual cash savings in fiscal year 2011
and beyond of approximately $8 million; however, expected
savings from relocating a facility can be highly variable and
uncertain. In addition, we subleased substantially all of our
current headquarters for the balance of that lease term. These
sublease transactions substantially offset our ongoing expenses
associated with our former headquarters; however, to the extent
the sublessees of our Cambridge facility encounter financial or
other difficulties, we remain primarily liable as the tenant
under the lease. In addition, relocation of our corporate
headquarters could adversely affect employee retention and focus.
The risk factors discussed within Item 1A and other similar
matters could divert our managements attention from other
business concerns. Such matters could also result in harm to our
reputation and significant monetary liability for us, and
require that we take other actions not presently contemplated,
any or all of which could have a material adverse effect on our
business, results of operations and financial condition.
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Item 1B.
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Unresolved
Staff Comments
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None.
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In January 2010, we relocated our corporate headquarters from
Cambridge, Massachusetts to Waltham, Massachusetts. We lease
space in Waltham, Massachusetts. The lease expires in 2020, with
an option to extend the term for up to two five-year periods.
Our corporate headquarters, administration areas and
laboratories are located in this space.
We have entered into sublease agreements with various tenants to
occupy space that we lease in Cambridge, Massachusetts under two
leases, the original terms of which are effective through
calendar year 2012. These leases contain provisions permitting
us to extend their terms for up to two ten-year periods. As we
are not currently utilizing this space, we have no plans to
extend the leases beyond their expiration date.
We own a
15-acre
manufacturing, office and laboratory site in Wilmington, Ohio.
The site produces RISPERDAL CONSTA and VIVITROL. We are
currently operating two RISPERDAL CONSTA lines and one VIVITROL
line at commercial scale. An additional line for RISPERDAL
CONSTA, which was funded by and is owned by Janssen, was
recently completed. Janssen has granted us an option,
exercisable upon 30 days advance written notice, to
purchase the additional RISPERDAL CONSTA manufacturing line at
its then-current net book value. In December 2008, we purchased
two partially completed VIVITROL manufacturing lines from
Cephalon in connection with the termination of the VIVITROL
collaboration.
We lease a commercial manufacturing facility in Chelsea,
Massachusetts designed for clinical and commercial manufacturing
of inhaled products based on our pulmonary technology that we
are not currently utilizing. The lease term is for fifteen
years, expiring in 2015, with an option to extend the term for
up to two five-year periods. We exited this facility in fiscal
2008 and have no plans to extend the lease beyond its expiration
date.
We believe that our current and planned facilities are adequate
for our current and near-term preclinical, clinical and
commercial manufacturing requirements.
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Item 3.
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Legal
Proceedings
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From time to time, we may be subject to other legal proceedings
and claims in the ordinary course of business. We are not aware
of any such proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse effect on
our business, results of operations and financial condition.
|
|
Item 4.
|
[Removed
and Reserved]
|
42
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our common stock is traded on the NASDAQ Global Select Stock
Market under the symbol ALKS. We have 382,632 shares of our
non-voting common stock issued and outstanding. There is no
established public trading market for our non-voting common
stock. Set forth below for the indicated periods are the high
and low sales prices for our common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
Fiscal 2009
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
1st Quarter
|
|
$
|
12.33
|
|
|
$
|
7.41
|
|
|
$
|
13.94
|
|
|
$
|
10.81
|
|
2nd Quarter
|
|
|
11.77
|
|
|
|
8.64
|
|
|
|
17.05
|
|
|
|
11.79
|
|
3rd Quarter
|
|
|
10.08
|
|
|
|
7.54
|
|
|
|
13.54
|
|
|
|
5.55
|
|
4th Quarter
|
|
|
14.19
|
|
|
|
9.47
|
|
|
|
13.16
|
|
|
|
8.26
|
|
The last reported sale price of our common stock as reported on
the NASDAQ Global Select Stock Market on May 13, 2010 was
$12.61.
There were 321 shareholders of record for our common stock
and one shareholder of record for our non-voting common stock on
May 13, 2010.
No dividends have been paid on the common stock or non-voting
common stock to date, and we do not expect to pay cash dividends
thereon in the foreseeable future. We anticipate that we will
retain all earnings, if any, to support our operations and our
proprietary drug development programs. Any future determination
as to the payment of dividends will be at the sole discretion of
our board of directors and will depend on our financial
condition, results of operations, capital requirements and other
factors our board of directors deems relevant.
|
|
(d)
|
Securities
authorized for issuance under equity compensation
plans
|
See Part III, Item 12 for information regarding
securities authorized for issuance under our equity compensation
plans.
|
|
(e)
|
Repurchase
of equity securities
|
On November 21, 2007, our board of directors authorized a
program to repurchase up to $175.0 million of our common
stock to be repurchased at the discretion of management from
time to time in the open market or through privately negotiated
transactions. On June 16, 2008, the board of directors
authorized the expansion of this repurchase program by an
additional $40.0 million, bringing the total authorization
under this program to $215.0 million. We purchased
328,404 shares at a cost of approximately $2.7 million
under this program during the year ended March 31, 2010 by
means of open market purchases. We did not purchase any shares
during the quarter ended March 31, 2010. As of
March 31, 2010, we have purchased a total of
8,866,342 shares under this program at a cost of
approximately $114.0 million.
In addition to the stock repurchases above, during the quarter
and year ended March 31, 2010, we acquired, by means of net
share settlements, 1,042 and 100,449 shares, respectively,
of our common stock, at an average price of $13.12 and $8.68 per
share, respectively, related to the vesting of employee stock
awards to satisfy withholding tax obligations. In addition,
during the quarter and year ended March 31, 2010, we
acquired 7,961 shares of our common stock, at an average
price of $12.56 per share, tendered by a former employee as
payment of the exercise price of stock options granted under our
equity compensation plans.
43
Performance
Graph
The information contained in the performance graph shall not be
deemed to be soliciting material or to be
filed with the SEC, and such information shall not
be incorporated by reference into any future filing under the
Securities Act or Exchange Act, except to the extent that
Alkermes specifically incorporates it by reference into such
filing.
The following graph compares the yearly percentage change in the
cumulative total shareholder return on our common stock for the
last five fiscal years, with the cumulative total return on the
Nasdaq Stock Market Index and the Nasdaq Biotechnology Index.
The comparison assumes $100 was invested on March 31, 2005
in our common stock and in each of the foregoing indices and
further assumes reinvestment of any dividends. We did not
declare or pay any dividends on our common stock during the
comparison period.
Comparison
of Cumulative Total Returns
Comparison
of Cumulative Total Returns
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
Alkermes, Inc.
|
|
|
|
100
|
|
|
|
|
212
|
|
|
|
|
149
|
|
|
|
|
114
|
|
|
|
|
117
|
|
|
|
|
125
|
|
NASDAQ Stock Market Index
|
|
|
|
100
|
|
|
|
|
118
|
|
|
|
|
122
|
|
|
|
|
114
|
|
|
|
|
62
|
|
|
|
|
97
|
|
NASDAQ Biotechnology Index
|
|
|
|
100
|
|
|
|
|
129
|
|
|
|
|
119
|
|
|
|
|
120
|
|
|
|
|
105
|
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Item 6.
|
Selected
Financial Data
|
The selected historical financial data set forth below as of
March 31, 2010 and 2009 and for the years ended
March 31, 2010, 2009 and 2008 are derived from our audited
consolidated financial statements, which are included elsewhere
in this Annual Report. The selected historical financial data
set forth below as of March 31, 2008, 2007 and 2006 and for
the years ended March 31, 2007 and 2006 are derived from
audited consolidated financial statements, which are not
included in this Annual Report.
The following selected consolidated financial data should be
read in conjunction with our consolidated financial statements,
the related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included elsewhere in this Annual Report. The historical results
are not necessarily indicative of the results to be expected for
any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing revenues
|
|
$
|
112,938
|
|
|
$
|
116,844
|
|
|
$
|
101,700
|
|
|
$
|
105,416
|
|
|
$
|
64,901
|
|
Royalty revenues
|
|
|
36,979
|
|
|
|
33,247
|
|
|
|
29,457
|
|
|
|
23,151
|
|
|
|
16,532
|
|
Product sales, net
|
|
|
20,245
|
|
|
|
4,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue under collaborative arrangements
|
|
|
3,117
|
|
|
|
42,087
|
|
|
|
89,510
|
|
|
|
74,483
|
|
|
|
45,883
|
|
Net collaborative profit(1)
|
|
|
5,002
|
|
|
|
130,194
|
|
|
|
20,050
|
|
|
|
36,915
|
|
|
|
39,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
178,281
|
|
|
|
326,839
|
|
|
|
240,717
|
|
|
|
239,965
|
|
|
|
166,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods manufactured and sold(2)
|
|
|
49,438
|
|
|
|
43,396
|
|
|
|
40,677
|
|
|
|
45,209
|
|
|
|
23,489
|
|
Research and development(2)
|
|
|
95,363
|
|
|
|
89,478
|
|
|
|
125,268
|
|
|
|
117,315
|
|
|
|
89,068
|
|
Selling, general and administrative(2)
|
|
|
76,514
|
|
|
|
59,008
|
|
|
|
59,508
|
|
|
|
66,399
|
|
|
|
40,383
|
|
Impairment of long-lived assets(3)
|
|
|
|
|
|
|
|
|
|
|
11,630
|
|
|
|
|
|
|
|
|
|
Restructuring(3)
|
|
|
|
|
|
|
|
|
|
|
6,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
221,315
|
|
|
|
191,882
|
|
|
|
243,506
|
|
|
|
228,923
|
|
|
|
152,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING (LOSS) INCOME
|
|
|
(43,034
|
)
|
|
|
134,957
|
|
|
|
(2,789
|
)
|
|
|
11,042
|
|
|
|
13,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (EXPENSE) INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4,667
|
|
|
|
11,400
|
|
|
|
17,834
|
|
|
|
17,707
|
|
|
|
11,569
|
|
Interest expense
|
|
|
(5,974
|
)
|
|
|
(13,756
|
)
|
|
|
(16,370
|
)
|
|
|
(17,725
|
)
|
|
|
(20,661
|
)
|
Other (expense) income, net
|
|
|
(360
|
)
|
|
|
(1,589
|
)
|
|
|
(476
|
)
|
|
|
(481
|
)
|
|
|
333
|
|
Gain on sale of investment in Reliant Pharmaceuticals, Inc.
|
|
|
|
|
|
|
|
|
|
|
174,631
|
|
|
|
|
|
|
|
|
|
Derivative loss related to convertible subordinated notes(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
|
(1,667
|
)
|
|
|
(3,945
|
)
|
|
|
175,619
|
|
|
|
(499
|
)
|
|
|
(9,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME BEFORE INCOME TAXES
|
|
|
(44,701
|
)
|
|
|
131,012
|
|
|
|
172,830
|
|
|
|
10,543
|
|
|
|
3,818
|
|
(BENEFIT) PROVISION FOR INCOME TAXES
|
|
|
(5,075
|
)
|
|
|
507
|
|
|
|
5,851
|
|
|
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
$
|
(39,626
|
)
|
|
$
|
130,505
|
|
|
$
|
166,979
|
|
|
$
|
9,445
|
|
|
$
|
3,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) EARNINGS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
$
|
(0.42
|
)
|
|
$
|
1.37
|
|
|
$
|
1.66
|
|
|
$
|
0.10
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
$
|
(0.42
|
)
|
|
$
|
1.36
|
|
|
$
|
1.62
|
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
94,839
|
|
|
|
95,161
|
|
|
|
100,742
|
|
|
|
99,242
|
|
|
|
91,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
|
94,839
|
|
|
|
96,252
|
|
|
|
102,923
|
|
|
|
103,351
|
|
|
|
97,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
|
|
$
|
350,193
|
|
|
$
|
404,482
|
|
|
$
|
460,361
|
|
|
$
|
357,466
|
|
|
$
|
303,112
|
|
Total assets
|
|
|
515,600
|
|
|
|
566,486
|
|
|
|
656,311
|
|
|
|
568,621
|
|
|
|
477,163
|
|
Long-term debt(5)
|
|
|
|
|
|
|
75,888
|
|
|
|
160,371
|
|
|
|
156,898
|
|
|
|
279,518
|
|
Unearned milestone revenue current and long-term
|
|
|
|
|
|
|
|
|
|
|
117,657
|
|
|
|
128,750
|
|
|
|
99,536
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
Shareholders equity
|
|
|
412,616
|
|
|
|
434,888
|
|
|
|
305,314
|
|
|
|
203,461
|
|
|
|
33,216
|
|
|
|
|
(1) |
|
Includes $120.7 million recognized as revenue upon the
termination of the VIVITROL collaboration with Cephalon during
the year ended March 31, 2009. |
|
(2) |
|
Includes share-based compensation expense in the years ended
March 31, 2010, 2009, 2008 and 2007. |
|
(3) |
|
Represents charges in connection with the termination of the AIR
Insulin development program and our March 2008 restructuring of
operations. In connection with the termination of the AIR
Insulin development program, we determined that the carrying
value of the assets at our AIR commercial manufacturing facility
exceeded their fair value and recorded an impairment charge. The
March 2008 restructuring program was substantially completed
during fiscal 2009. Certain closure costs related to the leased
facilities exited in connection with the March 2008
restructuring of operations will continue to be paid through
December 2015. |
|
(4) |
|
Represents a noncash loss in connection with derivative
liabilities associated with the two-year interest make-whole
payment provision of our 6.52% convertible senior subordinated
notes and the three-year interest make-whole (Three-Year
Interest Make-Whole) payment provision of our 2.5%
convertible subordinated notes (2.5% Subordinated
Notes). The derivative liability was recorded at fair
value in the consolidated balance sheets. |
|
(5) |
|
Includes the Non-Recourse RISPERDAL CONSTA secured 7% Notes
(the non-recourse 7% Notes), which were issued
by the RC Royalty Sub LLC, a wholly-owned subsidiary of
Alkermes, Inc. (Royalty Sub) and are non-recourse to
Alkermes. |
46
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following should be read in conjunction with our
consolidated financial statements and related notes beginning on
page F-1
of this report. The following discussion contains
forward-looking statements. Actual results may differ
significantly from those projected in the forward-looking
statements. Factors that might cause future results to differ
materially from those projected in the forward-looking
statements include, but are not limited to, those discussed in
Risk Factors and elsewhere in this Annual Report.
See also Forward-Looking Statements.
Overview
We are a fully integrated biotechnology company committed to
developing innovative medicines to improve patients lives.
We developed, manufacture and commercialize VIVITROL for alcohol
dependence and manufacture RISPERDAL CONSTA for schizophrenia
and bipolar disorder. We are collaborating with Amylin on the
development of BYDUREON for the treatment of type 2 diabetes. We
filed a sNDA for VIVITROL for the treatment of opioid dependence
in April 2010. Our pipeline includes extended-release injectable
and oral products for the treatment of prevalent, chronic
diseases, such as central nervous system, or CNS, disorders,
reward disorders, addiction, diabetes and autoimmune disorders.
In May 2009, our collaborative partner, Amylin, filed a NDA for
BYDUREON for the treatment of type 2 diabetes and received a
complete response letter from the FDA in March 2010. In the
complete response letter, there were no requests for new
pre-clinical or clinical trials and requests primarily related
to the finalization of the product labeling with accompanying
REMS and clarification of existing manufacturing processes.
Amylin submitted a response to the FDA complete response letter
in April 2010. In May 2010, the FDA classified the complete
response as a Class 2 resubmission and assigned a new
Prescription Drug User Fee Act (PDUFA) action date
of October 22, 2010. Lilly, who has primary responsibility
for developing and commercializing BYDUREON for Amylin outside
of the U.S. announced that in April 2010, the EMA had
accepted the Marketing Authorization Application filing for
BYDUREON for the treatment of type 2 diabetes.
In July 2009, Amylin, Lilly and we announced positive results
from the DURATION-3 study for BYDUREON. The DURATION-3 study
showed the superiority of BYDUREON as compared to LANTUS in
patients with type 2 diabetes taking stable doses of metformin
alone or in combination with a sulfonylurea. In December 2009,
Amylin, Lilly and we announced positive results from the
DURATION-5 study for BYDUREON. The DURATION-5 showed the
superiority of BYDUREON as compared to BYETTA in patients with
type-2 diabetes who were not achieving adequate glucose control
using background therapies that included diet and exercise,
metformin, sulfonylurea, thiazolidinediones or a combination of
the agents.
In April 2009, our collaborative partner, Janssen, received
approval from the Pharmaceuticals and Medical Devices Agency in
Japan to market RISPERDAL CONSTA for the treatment of
schizophrenia. RISPERDAL CONSTA is the first long-acting
atypical antipsychotic to be available in Japan. In May 2009,
the FDA approved RISPERDAL CONSTA as both monotherapy and
adjunctive therapy to lithium or valproate in the maintenance
treatment of bipolar I disorder. In July 2009, the FDA approved
INVEGA SUSTENNA, a competing product to RISPERDAL CONSTA for the
acute and maintenance treatment of schizophrenia in the
U.S. Janssen launched this product in August 2009. INVEGA
SUSTENNA may negatively impact sales of RISPERDAL CONSTA in the
U.S.
In October 2009, we announced positive results from two phase 1
clinical trials of ALKS 33, an oral opioid modulator for the
potential treatment of addiction and other central nervous
system disorders. Based upon the results of the phase 1 clinical
trials, we initiated a phase 2 clinical study in November 2009
to assess the safety and efficacy of multiple doses of ALKS 33
in patients with alcohol dependence and to further define the
clinical profile of ALKS 33.
In February 2010, we announced positive results from a phase 1
study of ALKS 37, an orally active, peripherally-restricted
opioid antagonist with the potential to block the effects of
opioid agonists on gastrointestinal motility. Based on the
results of this study, in March 2010, we initiated a multidose
phase 1
47
clinical study of ALKS 37 to assess the safety, tolerability and
pharmacokinetics of daily oral administration of two dose levels
of ALKS 37 for a seven day period.
In December 2009, we entered into a license and collaboration
agreement with Acceleron in which we exclusively licensed a
proprietary long-acting Fc fusion technology platform, called
the MEDIFUSION technology, which is designed to extend the
circulating half-life of proteins and peptides. The first drug
candidate being developed with this technology, ALKS 6931 is a
long-acting form of a TNF receptor-Fc fusion protein for the
treatment of rheumatoid arthritis and related autoimmune
diseases.
In January 2010, we relocated our corporate headquarters from
Cambridge, Massachusetts to Waltham, Massachusetts. We incurred
$18.9 million of expense as a result of the move during the
year ended March 31, 2010, primarily related to noncash
charges for the acceleration of depreciation on laboratory
related leasehold improvements located at our Cambridge facility
and the write-down of laboratory equipment that is no longer in
use and was disposed of.
Net loss for the year ended March 31, 2010 was
$39.6 million, or $0.42 per common share basic
and diluted, as compared to net income of $130.5 million,
or $1.37 per common share basic and $1.36 per common
share diluted for the year ended March 31, 2009
and net income of $167.0 million, or $1.66 per common
share basic and $1.62 per common share
diluted, for the year ended March 31, 2008.
Results
of Operations
Manufacturing
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
Change Favorable/(Unfavorable)
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010-2009
|
|
|
2009-2008
|
|
|
|
(In millions)
|
|
|
Manufacturing revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risperdal Consta
|
|
$
|
109.0
|
|
|
$
|
112.4
|
|
|
$
|
95.2
|
|
|
$
|
(3.4
|
)
|
|
$
|
17.2
|
|
Polymer
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
Vivitrol
|
|
|
0.5
|
|
|
|
4.4
|
|
|
|
6.5
|
|
|
|
(3.9
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing revenues
|
|
$
|
112.9
|
|
|
$
|
116.8
|
|
|
$
|
101.7
|
|
|
$
|
(3.9
|
)
|
|
$
|
15.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in RISPERDAL CONSTA manufacturing revenues for the
year ended March 31, 2010, as compared to the year ended
March 31, 2009, was due to a 2% decrease in the number of
units shipped to Janssen and a 1% decrease in the net unit sales
price. The decrease in the net unit sales price is primarily due
to an overall strengthening of the U.S. dollar in relation
to foreign currencies of the countries in which the product was
sold. The increase in RISPERDAL CONSTA manufacturing revenues
for the year ended March 31, 2009, as compared to the year
ended March 31, 2008, was primarily due to a 19% increase
in the number of units shipped to Janssen due to increased
customer demand. See Part II, Item 7A.
Quantitative and Qualitative Disclosures about Market
Risk for information on foreign currency exchange rate
risk related to RISPERDAL CONSTA revenues.
Polymer manufacturing revenues for the year ended March 31,
2010 consisted of polymer sales to Amylin for use in the
formulation of BYDUREON. We record manufacturing revenues under
our arrangement with Amylin at an agreed upon price when product
is shipped to them. We did not make any shipments of polymer to
Amylin during the years ended March 31, 2009 and 2008.
48
VIVITROL manufacturing revenues consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
VIVITROL manufacturing revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
VIVITROL sold to Cilag for resale in Russia
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
|
$
|
|
|
VIVITROL sold to Cephalon
|
|
|
|
|
|
|
3.8
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIVITROL manufacturing revenues
|
|
$
|
0.5
|
|
|
$
|
4.4
|
|
|
$
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIVITROL was approved for sale in Russia for the treatment of
alcohol dependence in August 2008 and was launched by Cilag in
March 2009. VIVITROL manufacturing revenues on product sold to
Cephalon for the years ended March 31, 2009 and 2008
included $0.3 million and $0.6 million, respectively,
of milestone revenue related to manufacturing profit we earned
on VIVITROL, which equaled a 10% markup on VIVITROL cost of
goods manufactured that drew down unearned milestone revenue.
The decrease in VIVITROL manufacturing revenues on product sold
to Cephalon for the year March 31, 2009 as compared to the
year ended March 31, 2008, was primarily due to
$2.2 million of billings for idle capacity costs in the
year ended March 31, 2008. In December 2008, in connection
with the termination of the VIVITROL collaboration with
Cephalon, we assumed full responsibility for the marketing and
sale of VIVITROL in the U.S. and now report sales of
VIVITROL in the U.S. as Product Sales.
Royalty
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Years Ended March 31,
|
|
Favorable/(Unfavorable)
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010-2009
|
|
2009-2008
|
|
|
(In millions)
|
|
Royalty revenues
|
|
$
|
37.0
|
|
|
$
|
33.2
|
|
|
$
|
29.5
|
|
|
$
|
3.8
|
|
|
$
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all of our royalty revenues for the years ended
March 31, 2010, 2009 and 2008 were related to sales of
RISPERDAL CONSTA. Under our license agreements with Janssen, we
record royalty revenues equal to 2.5% of Janssens net
sales of RISPERDAL CONSTA in the period that the product is sold
by Janssen. Royalty revenues for the years ended March 31,
2010, 2009 and 2008 were based on RISPERDAL CONSTA sales of
$1,477.6 million, $1,324.9 million and
$1,176.5 million, respectively. Units sold in foreign
countries by Janssen in the year ended March 31, 2010, 2009
and 2008 accounted for 79%, 77% and 77% of the total units sold,
respectively.
49
Product
Sales, net
In December 2008, upon termination of the VIVITROL collaboration
with Cephalon, we became responsible for the marketing and sale
of VIVITROL in the U.S. The following table presents the
adjustments deducted from VIVITROL product sales, gross, to
arrive at VIVITROL product sales, net, during the year ended
March 31, 2010 and the period from December 1, 2008
through March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2008
|
|
|
|
Year Ended March 31, 2010
|
|
|
Through March 31, 2009
|
|
|
|
Amount
|
|
|
% of Sales
|
|
|
Amount
|
|
|
% of Sales
|
|
|
|
(In millions)
|
|
|
Product sales, gross
|
|
$
|
24.7
|
|
|
|
100.0
|
%
|
|
$
|
6.3
|
|
|
|
100.0
|
%
|
Adjustments to product sales, gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargebacks
|
|
|
(1.2
|
)
|
|
|
(4.9
|
)%
|
|
|
(0.1
|
)
|
|
|
(1.6
|
)%
|
Wholesaler fees
|
|
|
(0.9
|
)
|
|
|
(3.6
|
)%
|
|
|
|
|
|
|
0.0
|
%
|
Medicaid rebates
|
|
|
(0.9
|
)
|
|
|
(3.6
|
)%
|
|
|
(0.2
|
)
|
|
|
(3.2
|
)%
|
Reserve for inventory in the channel(1)
|
|
|
(0.5
|
)
|
|
|
(2.0
|
)%
|
|
|
(1.3
|
)
|
|
|
(20.6
|
)%
|
Other
|
|
|
(1.0
|
)
|
|
|
(4.1
|
)%
|
|
|
(0.2
|
)
|
|
|
(3.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(4.5
|
)
|
|
|
(18.2
|
)%
|
|
|
(1.8
|
)
|
|
|
(28.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
$
|
20.2
|
|
|
|
81.8
|
%
|
|
$
|
4.5
|
|
|
|
71.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our reserve for inventory in the channel is an estimate that
reflects the deferral of the recognition of revenue on shipments
of VIVITROL to our customers until the product has left the
distribution channel as we do not yet have the history to
reasonably estimate returns related to these shipments. We
estimate the product shipments out of the distribution channel
through data provided by external sources, including information
on inventory levels provided by our customers as well as
prescription information. |
During the year ended March 31, 2009, gross sales of
VIVITROL were $18.9 million, which consisted of
$12.6 million of sales by Cephalon prior to the termination
of the VIVITROL collaboration and $6.3 million of sales
made by us after the termination of the collaboration. Gross
sales of VIVITROL by Cephalon during the year ended
March 31, 2008 were $18.0 million. The increase in
total VIVITROL gross sales during the year ended March 31,
2010 as compared to the year ended March 31, 2009, was
primarily due to a 23% increase in price and a 7% increase in
the number of units sold.
Research
and Development Revenue Under Collaborative
Arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
Years Ended March 31,
|
|
|
Favorable/(Unfavorable)
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010-2009
|
|
|
2009-2008
|
|
|
|
(In millions)
|
|
|
Research and development programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Four-week RISPERDAL CONSTA
|
|
$
|
2.0
|
|
|
$
|
4.6
|
|
|
$
|
|
|
|
$
|
(2.6
|
)
|
|
$
|
4.6
|
|
BYDUREON
|
|
|
0.7
|
|
|
|
9.5
|
|
|
|
32.9
|
|
|
|
(8.8
|
)
|
|
|
(23.4
|
)
|
AIR®
Insulin
|
|
|
|
|
|
|
26.8
|
|
|
|
49.5
|
|
|
|
(26.8
|
)
|
|
|
(22.7
|
)
|
AIR PTH
|
|
|
|
|
|
|
|
|
|
|
5.1
|
|
|
|
|
|
|
|
(5.1
|
)
|
Other
|
|
|
0.4
|
|
|
|
1.2
|
|
|
|
2.0
|
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue under collaborative arrangements
|
|
$
|
3.1
|
|
|
$
|
42.1
|
|
|
$
|
89.5
|
|
|
$
|
(39.0
|
)
|
|
$
|
(47.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in the four-week RISPERDAL CONSTA revenues in the
year ended March 31, 2010, as compared to the year ended
March 31, 2009, was due to the decision made by
Johnson & Johnson Pharmaceutical Research &
Development, L.L.C. (J&JPRD), in August 2009
not to pursue further
50
development of this product and, consequently, we do not expect
to recognize any future revenue from this program. The decrease
in revenues earned under the BYDUREON development program in the
years ended March 31, 2010 and 2009, as compared to
March 31, 2008, was due to reduced activity as the program
neared the submission of the NDA to the FDA, which occurred in
May 2009.
The decrease in revenue from the AIR Insulin program in the year
ended March 31, 2009, as compared to the year ended
March 31, 2008, was due to the termination of the AIR
Insulin development program in March 2008. We were collaborating
with Lilly to develop inhaled formulations of insulin and other
potential products for the treatment of diabetes based on our
AIR pulmonary technology. The AIR pulmonary technology enables
the delivery of both small molecules and macromolecules to the
lungs. In June 2008, we entered into an agreement in connection
with the termination of the development and license agreements
and supply agreement for the development of AIR Insulin (the
AIR Insulin Termination Agreement). Under the AIR
Insulin Termination Agreement, we recognized $25.5 million
of R&D revenue in the three months ended June 30,
2008. We do not expect to record any revenue from the AIR
Insulin development program in the future. The AIR parathyroid
hormone (PTH) program was terminated in August 2007.
We do not expect to record any revenue from the AIR PTH
development program in the future.
Net
Collaborative Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
Years Ended March 31,
|
|
|
Favorable/(Unfavorable)
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010-2009
|
|
|
2009-2008
|
|
|
|
(In millions)
|
|
|
Net collaborative profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIVITROL losses funded by Cephalon, post termination
|
|
$
|
5.0
|
|
|
$
|
6.0
|
|
|
$
|
|
|
|
$
|
(1.0
|
)
|
|
$
|
6.0
|
|
Milestone revenue license
|
|
|
|
|
|
|
3.5
|
|
|
|
5.2
|
|
|
|
(3.5
|
)
|
|
|
(1.7
|
)
|
Milestone revenue cost recovery
|
|
|
|
|
|
|
|
|
|
|
5.3
|
|
|
|
|
|
|
|
(5.3
|
)
|
Net payments from Cephalon
|
|
|
|
|
|
|
|
|
|
|
9.6
|
|
|
|
|
|
|
|
(9.6
|
)
|
Recognition of deferred and unearned milestone revenue due to
termination of VIVITROL collaboration
|
|
|
|
|
|
|
120.7
|
|
|
|
|
|
|
|
(120.7
|
)
|
|
|
120.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net collaborative profit
|
|
$
|
5.0
|
|
|
$
|
130.2
|
|
|
$
|
20.1
|
|
|
$
|
(125.2
|
)
|
|
$
|
110.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the termination of the VIVITROL collaboration, Cephalon
had paid us an aggregate of $274.6 million in nonrefundable
milestone payments, and we were responsible to fund the first
$124.6 million of cumulative net losses incurred on
VIVITROL (the cumulative net loss cap). VIVITROL
reached the cumulative net loss cap in April 2007, at which time
Cephalon became responsible to fund all net losses incurred on
VIVITROL through December 31, 2007. Beginning
January 1, 2008, all net losses incurred on VIVITROL within
the collaboration were divided between us and Cephalon in
approximately equal shares. For the year ended March 31,
2009, we recognized no milestone revenue cost
recovery, as VIVITROL had reached the cumulative loss cap prior
to this reporting period. Milestone revenue license,
which related to the license provided to Cephalon to
commercialize VIVITROL, was being recognized on a straight-line
basis over a 10 year amortization schedule.
Upon the termination of the VIVITROL collaboration with
Cephalon, we recognized $120.7 million of net collaborative
profit which consisted of $113.9 million of unearned
milestone revenue that existed at December 1, 2008 (the
Termination Date) and $6.8 million of deferred
revenue. At the Termination Date, we had $22.8 million of
deferred revenue related to the original sale of two partially
completed VIVITROL manufacturing lines to Cephalon. We paid
Cephalon $16.0 million to acquire the title to these
manufacturing lines and accounted for the payment as a reduction
to deferred revenue. The remaining $6.8 million of deferred
revenue and the $113.9 million of unearned milestone
revenue were recognized as revenue in the three months ended
December 31, 2008, as we had no remaining performance
obligations to Cephalon and the
51
amounts were nonrefundable. Net payments from Cephalon were
received based upon the sharing of VIVITROL costs and losses
incurred during the reporting periods.
Upon termination of the VIVITROL collaboration, we received
$11.0 million from Cephalon to fund their share of
estimated VIVITROL losses during the one-year period following
the Termination Date. We recorded the $11.0 million as
deferred revenue and recognized $5.0 million and
$6.0 million as revenue though the application of a
proportional performance model based on net VIVITROL losses in
the years ended March 31, 2010 and 2009, respectively. We
do not expect to recognize any net collaborative profit from the
Cephalon collaboration in the future.
Cost
of Goods Manufactured and Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
Years Ended March 31,
|
|
|
Favorable/(Unfavorable)
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010-2009
|
|
|
2009-2008
|
|
|
|
(In millions)
|
|
|
Cost of goods manufactured and sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risperdal Consta
|
|
$
|
40.2
|
|
|
$
|
31.3
|
|
|
$
|
34.8
|
|
|
$
|
(8.9
|
)
|
|
$
|
3.5
|
|
Vivitrol
|
|
|
6.9
|
|
|
|
11.8
|
|
|
|
5.9
|
|
|
|
4.9
|
|
|
|
(5.9
|
)
|
Polymer
|
|
|
2.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods manufactured and sold
|
|
$
|
49.4
|
|
|
$
|
43.4
|
|
|
$
|
40.7
|
|
|
$
|
(6.0
|
)
|
|
$
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in cost of goods manufactured for RISPERDAL CONSTA
in the year ended March 31, 2010, as compared to the year
ended March 31, 2009, was primarily due to a
$7.2 million increase in overhead and support costs
allocated to cost of goods manufactured and a $1.8 million
increase in the cost for failed batches. These costs were
partially offset by a 2% decrease in the number of units of
RISPERDAL CONSTA shipped to Janssen. The increase in overhead
and support costs allocated to cost of goods manufactured is the
result of increasing the focus on manufacturing activities, as
compared to development activities, at our Ohio manufacturing
facility. The decrease in cost of goods manufactured for
RISPERDAL CONSTA in the year ended March 31, 2009, as
compared to the year ended March 31, 2008, was due to a 24%
decrease in the unit cost of RISPERDAL CONSTA, primarily due to
increased operating efficiencies, partially offset by a 19%
increase in the number of units of RISPERDAL CONSTA shipped to
Janssen to meet customer demand.
The decrease in cost of goods manufactured and sold for VIVITROL
in the year ended March 31, 2010, as compared to the year
ended March 31, 2009, was primarily due to a
$4.5 million reduction in costs incurred for failed batches
and costs related to the restart of the manufacturing line
following scheduled shutdowns of the line. Cost of goods
manufactured and sold for VIVITROL in the year ended
March 31, 2009 consisted of $7.7 million of cost of
goods manufactured for Cephalon incurred prior to the
Termination Date, $3.6 million for product we sold in the
U.S. after the Termination Date and $0.5 million of
cost of goods manufactured for Cilag for resale in Russia.
VIVITROL cost of goods manufactured for the year ended
March 31, 2008 consisted of $3.2 million of product
shipments to Cephalon and $2.7 million of idle capacity
costs, which consisted of manufacturing costs allocated to cost
of goods manufactured which were related to underutilized
VIVITROL manufacturing capacity.
We also began to manufacture polymer for Amylin for use in the
formulation of BYDUREON during the fourth quarter of fiscal year
2009.
Research
and Development Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Years Ended March 31,
|
|
Favorable/(Unfavorable)
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010-2009
|
|
2009-2008
|
|
|
(In millions)
|
|
Research and development
|
|
$
|
95.4
|
|
|
$
|
89.5
|
|
|
$
|
125.3
|
|
|
$
|
(5.9
|
)
|
|
$
|
35.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
The increase in research and development (R&D)
expenses for the year ended March 31, 2010, as compared to
the year ended March 31, 2009, was primarily due to
$18.7 million of costs we incurred as a result of the
relocation of our corporate headquarters from Cambridge,
Massachusetts to Waltham, Massachusetts. These costs consisted
primarily of the acceleration of depreciation on laboratory
related leasehold improvements located at our Cambridge facility
and the write-down of laboratory equipment that is no longer in
use and was disposed of. In addition, we had a $7.7 million
increase in clinical and pre-clinical study expense due to an
increase in the number of ongoing studies and we incurred
$2.9 million of expense under the collaboration and license
agreement we signed with Acceleron. These expenses were
partially offset by a $7.2 million decrease in overhead and
support costs allocated to R&D at our Ohio manufacturing
facility as discussed above under Cost of Goods Manufactured and
Sold, a decrease of $7.2 million in labor and benefits due
to a reduction in R&D headcount and a $4.5 million
decrease in occupancy costs due to the consolidation of space at
our Cambridge facility prior to our relocation to Waltham.
The decrease in R&D expenses for the year ended
March 31, 2009, as compared to the year ended
March 31, 2008, was primarily due to the termination of the
AIR Insulin development program in March 2008, the termination
of the AIR PTH development program in August 2007 and reductions
in costs incurred on the BYDUREON development program as the
program neared the submission of the NDA to the FDA, which
occurred in May 2009. In connection with the termination of the
AIR Insulin development program, we closed our AIR commercial
manufacturing facility located in Chelsea, Massachusetts and
reduced our workforce by approximately 150 employees (the
2008 Restructuring). In addition to the workforce
reductions, non-cash compensation, occupancy and depreciation
expense savings realized from the 2008 Restructuring, there were
reductions in laboratory expenses, including clinical raw
materials, professional service and third party packaging fees
related to the AIR Insulin and AIR PTH programs. These expense
reductions were partially offset by increased clinical study
costs related to the ALKS 33 and four-week RISPERDAL CONSTA
development programs, which began phase 1 clinical trials in
December 2008 and January 2009, respectively, and the ALKS 36
program, which began a phase 1 clinical trial in the second half
of calendar 2009 and the VIVITROL opioid dependence development
program, in which a multi-center registration study was
initiated in June 2008.
A significant portion of our R&D expenses (including
laboratory supplies, travel, dues and subscriptions, recruiting
costs, temporary help costs, consulting costs and allocable
costs such as occupancy and depreciation) are not tracked by
project as they benefit multiple projects or our technologies in
general. Expenses incurred to purchase specific services from
third parties to support our collaborative R&D activities
are tracked by project and are reimbursed to us by our partners.
We generally bill our partners under collaborative arrangements
using a negotiated FTE or hourly rate. This rate has been
established by us based on our annual budget of employee
compensation, employee benefits and the billable
non-project-specific costs mentioned above and is generally
increased annually based on increases in the consumer price
index. Each collaborative partner is billed using a negotiated
FTE or hourly rate for the hours worked by our employees on a
particular project, plus direct external costs, if any. We
account for our R&D expenses on a departmental and
functional basis in accordance with our budget and management
practices.
Selling,
General and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Years Ended March 31,
|
|
Favorable/(Unfavorable)
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010-2009
|
|
2009-2008
|
|
|
(In millions)
|
|
Selling, general and administrative
|
|
$
|
76.5
|
|
|
$
|
59.0
|
|
|
$
|
59.5
|
|
|
$
|
(17.5
|
)
|
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in selling, general and administrative costs for
the year ended March 31, 2010, as compared to the year
ended March 31, 2009, was primarily due to increased sales
and marketing costs as we became responsible for the marketing
and sale of VIVITROL in the U.S. beginning in December
2008. Our labor costs increased by $10.0 million and our
marketing costs increased by $3.0 million in the year ended
March 31, 2010, as compared to the year ended
March 31, 2009, primarily due to our commercialization of
VIVITROL. Also included in the labor costs for the year ended
March 31, 2010 are $1.5 million of severance costs and
53
share-based compensation expense in connection with the
resignation of our former President and Chief Executive Officer
in September 2009. In fiscal 2011, we expect selling and
marketing expenses to increase over fiscal 2010 in preparation
for the possible FDA approval of VIVITROL for the treatment of
opioid dependence and its potential launch in fiscal 2011.
The decrease in selling, general and administrative costs for
the year ended March 31, 2009, as compared to the year
ended March 31, 2008, was primarily due to a decrease in
share-based compensation expense, professional fees, taxes and
depreciation, partially offset by the increased sales and
marketing costs related to VIVITROL as we became responsible for
the marketing and sale of VIVITROL on December 1, 2008.
Impairment
and Restructuring Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
Years Ended March 31,
|
|
|
Favorable/(Unfavorable)
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010-2009
|
|
|
2009-2008
|
|
|
|
(In millions)
|
|
|
Impairment of long-lived assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11.6
|
|
|
$
|
|
|
|
$
|
11.6
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
6.4
|
|
|
|
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment and restructuring expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18.0
|
|
|
$
|
|
|
|
$
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2008, our collaborative partner Lilly announced the
decision to terminate the AIR Insulin development program. In
connection with the program termination, in March 2008 our board
of directors approved the 2008 Restructuring and as a result we
recorded a restructuring charge of $6.9 million, consisting
primarily of lease and severance related costs. As of
March 31, 2010, the only costs remaining from the 2008
Restructuring relate to lease costs on the exited facility,
which will be paid out through fiscal 2016.
In connection with the termination of the AIR Insulin
development program, we performed an impairment analysis on the
assets that supported the production of AIR Insulin, which
consisted of machinery and equipment and leasehold improvements
at the AIR commercial manufacturing facility. We determined that
the carrying value of the assets exceeded their fair value and
recorded an impairment charge of $11.6 million during the
three months ended March 31, 2008. Fair value was based on
internally and externally established estimates and the selling
prices of similar assets.
Other
(Expense) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
Years Ended March 31,
|
|
|
Favorable/(Unfavorable)
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010-2009
|
|
|
2009-2008
|
|
|
|
(In millions)
|
|
|
Interest income
|
|
$
|
4.7
|
|
|
$
|
11.4
|
|
|
$
|
17.8
|
|
|
$
|
(6.7
|
)
|
|
$
|
(6.4
|
)
|
Interest expense
|
|
|
(6.0
|
)
|
|
|
(13.7
|
)
|
|
|
(16.4
|
)
|
|
|
7.7
|
|
|
|
2.7
|
|
Other expense, net
|
|
|
(0.4
|
)
|
|
|
(1.6
|
)
|
|
|
(0.4
|
)
|
|
|
1.2
|
|
|
|
(1.2
|
)
|
Gain on sale of investment in Reliant Pharmaceuticals, Inc.
|
|
|
|
|
|
|
|
|
|
|
174.6
|
|
|
|
|
|
|
|
(174.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
$
|
(1.7
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
175.6
|
|
|
$
|
2.2
|
|
|
$
|
(179.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in interest income for the year ended
March 31, 2010, as compared to the year ended
March 31, 2009, was due to a lower average balance of cash
and investments and lower interest rates earned during the year
ended March 31, 2010 as compared to March 31, 2009.
The decrease in interest income for the year ended
March 31, 2009, as compared to the year ended
March 31, 2008, was due to lower interest rates earned
during the year ended March 31, 2009 as compared to
March 31, 2008, partially offset by a higher average
balance of cash and investments.
The decrease in interest expense for the year ended
March 31, 2010, as compared to the year ended
March 31, 2009, was due to the reduction in the outstanding
balance of our non-recourse 7% Notes as a result
54
of quarterly scheduled principal payments on the notes in the
year ended March 31, 2010 and repurchases of the notes in
the year ended March 31, 2009. The decrease in interest
expense for the year ended March 31, 2009, as compared to
the year ended March 31, 2008, was the result of our
repurchase of an aggregate total of $93.0 million principal
amount of the non-recourse 7% Notes in five separately
negotiated transactions during the year ended March 31,
2009. Included in interest expense for the year ended
March 31, 2009 is a loss on the extinguishment of the
non-recourse 7% Notes of $2.5 million, consisting of
$0.9 million of transaction fees and a $1.6 million
difference between the carrying value and the purchase price of
the non-recourse 7% Notes.
The non-recourse 7% Notes, which have a remaining principal
amount of $51.3 million at March 31, 2010, are
scheduled to be paid in full on January 1, 2012. On
May 11, 2010, we delivered a notice to the trustee of the
non-recourse 7% Notes exercising our option to redeem these
notes in full on July 1, 2010 in accordance with the
provisions of the purchase and sale agreement. This redemption
will result in an additional savings to us of $2.4 million
in interest through the scheduled maturity date in addition to
the $12.9 million we saved as a result of the purchase of
$93.0 million aggregate principal value of the non-recourse
7% Notes we made during the year ended March 31, 2009.
In the years ended March 31, 2010, 2009 and 2008, we
recorded
other-than-temporary
impairments on our investments in the common stock of our
collaborators of $0.1 million, $1.2 million and
$1.6 million, respectively, in other expense, net. In the
year ended March 31, 2008, this impairment charge was
offset by income earned on the change in the fair value of our
investments in the warrants of our collaborators.
We recorded a gain on sale of our investment in Reliant
Pharmaceuticals, Inc. (Reliant) of
$174.6 million in the year ended March 31, 2008. In
November 2007, Reliant was acquired by GlaxoSmithKline
(GSK) and under the terms of the acquisition we
received $166.9 million upon the closing of the transaction
in exchange for our investment in Series C convertible,
redeemable preferred stock of Reliant. In March 2009, we
received an additional $7.7 million of funds, which had
been held in escrow subject to the terms of an agreement between
GSK and Reliant. We purchased the Series C convertible,
redeemable preferred stock of Reliant for $100.0 million in
December 2001, and our investment in Reliant had been written
down to zero prior to the time of the sale.
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Years Ended March 31,
|
|
Favorable/(Unfavorable)
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010-2009
|
|
2009-2008
|
|
|
(In millions)
|
|
(Benefit) provision for income taxes
|
|
$
|
(5.1
|
)
|
|
$
|
0.5
|
|
|
$
|
5.9
|
|
|
$
|
5.6
|
|
|
$
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax benefit of $5.1 million for the year ended
March 31, 2010 primarily consists of a current federal
income tax benefit of $3.3 million and a deferred federal
and state tax benefit of $1.8 million. The current federal
income tax benefit is the result of a carryback of our 2010
alternative minimum tax (AMT) net operating loss
(NOL) pursuant to the Worker, Homeownership and
Business Act of 2009. This law increased the carryback
period for certain net operating losses from two years to five
years. Prior to the adoption of this law, we had recorded a full
valuation allowance against the credits that were established in
prior periods when we were subject to AMT provisions. The
deferred federal and state tax benefit was due to our
recognition of a $1.8 million income tax expense associated
the increase in the value of certain securities that we carried
at fair market value during the year ended March 31, 2010.
This income tax expense was recorded in other comprehensive
income. There were no similar income tax benefits or provisions
for the years ended March 31, 2009 and 2008. Our provision
for income taxes in the amount of $0.5 million and
$5.9 million for the years ended March 31, 2009 and
2008 primarily represents AMT due without regard to the cash
benefit of excess share-based compensation deductions. The AMT
paid creates a credit carryforward and a resulting deferred tax
asset, for which we have recorded a full valuation allowance.
At March 31, 2010, we had approximately $236.5 million
of federal NOL carryforwards, $57.8 million of state
operating loss carryforwards, and $18.7 million of foreign
NOL and foreign capital loss carryforwards,
55
which expire on various dates through the year 2030 or can be
carried forward indefinitely. These loss carryforwards are
available to reduce future federal and foreign taxable income,
if any, and are subject to review and possible adjustment by the
applicable taxing authorities. The available loss carryforwards
that may be utilized in any future period may be subject to
limitation based upon historical changes in the ownership of our
stock. We have a full valuation allowance of
$118.5 million, which was recorded based upon the
uncertainty surrounding future utilization of our deferred tax
assets.
Liquidity
and Capital Resources
Our financial condition is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Cash and cash equivalents
|
|
$
|
79.3
|
|
|
$
|
86.9
|
|
Investments short-term
|
|
|
202.1
|
|
|
|
236.8
|
|
Investments long-term
|
|
|
68.8
|
|
|
|
80.8
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and investments
|
|
$
|
350.2
|
|
|
$
|
404.5
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
247.1
|
|
|
$
|
307.1
|
|
Outstanding borrowings current and long-term
|
|
$
|
51.0
|
|
|
$
|
75.9
|
|
Our cash flows for the years ended March 31, 2010, 2009 and
2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
86.9
|
|
|
$
|
101.2
|
|
|
$
|
80.5
|
|
Cash (used in) provided by operating activities
|
|
|
(12.3
|
)
|
|
|
34.6
|
|
|
|
42.4
|
|
Cash provided by investing activities
|
|
|
28.0
|
|
|
|
45.4
|
|
|
|
61.9
|
|
Cash (used in) financing activities
|
|
|
(23.3
|
)
|
|
|
(94.3
|
)
|
|
|
(83.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
79.3
|
|
|
$
|
86.9
|
|
|
$
|
101.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our primary sources of liquidity are cash provided by operating
activities, payments received under R&D arrangements and
other arrangements with collaborators, private placements of
debt securities and equipment financing arrangements. The
decrease in cash, cash equivalents and investments during the
year ended March 31, 2010, as compared to the years ended
March 31, 2009 and 2008, was primarily due to the following:
|
|
|
|
|
During the year ended March 31, 2010, we made principal and
interest payments on our non-recourse 7% Notes of
$30.6 million and entered into a collaboration and license
agreement with Acceleron in exchange for a nonrefundable upfront
payment of $2.0 million and an equity investment of
$8.0 million.
|
|
|
|
We did not generate cash flows from operations during the year
ended March 31, 2010 as we had in the years ended
March 31, 2009 and 2008 due primarily to the termination of
the VIVITROL collaboration with Cephalon, which resulted in an
addition of approximately $16.2 million in payments for
sales and marketing costs as we hired a team of individuals to
market and sell VIVITROL in the year ended March 31, 2010
as compared to the year ended March 31, 2009. Prior to the
termination of the VIVITROL collaboration, our costs related to
VIVITROL were shared with Cephalon. We also increased the number
of R&D programs in the clinical or preclinical stage during
the year ended March 31, 2010, as compared to
March 31, 2009 and 2008.
|
|
|
|
During the year ended March 31, 2009, we received a
$40.0 million payment from Lilly in connection with the AIR
Insulin Termination agreement and received a $7.7 million
payment for the release of escrowed funds related to the sale of
our investment in Series C convertible, redeemable
preferred stock
|
56
|
|
|
|
|
of Reliant. Shortly after receiving the $40.0 million
payment, we announced an expansion of our common stock
repurchase program by $40.0 million, bringing the total
repurchase authorization under the program to
$215.0 million, and purchased $18.0 million of
treasury stock under the repurchase program. In addition, we
purchased an aggregate total of $93.0 million principal
amount of our non-recourse 7% Notes for $89.4 million,
which saves us $12.9 million in interest payments through
the scheduled maturity of the notes.
|
|
|
|
|
|
During the year ended March 31, 2008, we received
$166.9 million in exchange for our investment in
Series C convertible, redeemable preferred stock of Reliant
upon their acquisition by GSK and purchased $93.4 million
of treasury stock under our common stock repurchase program.
|
Our investments at March 31, 2010 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
Investments short-term
|
|
$
|
201,726
|
|
|
$
|
354
|
|
|
$
|
(27
|
)
|
|
$
|
202,053
|
|
Investments long-term
available-for-sale
|
|
|
64,705
|
|
|
|
691
|
|
|
|
(2,437
|
)
|
|
|
62,959
|
|
Investments long-term
held-to-maturity
|
|
|
5,857
|
|
|
|
|
|
|
|
|
|
|
|
5,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
272,288
|
|
|
$
|
1,045
|
|
|
$
|
(2,464
|
)
|
|
$
|
270,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our investment objectives are, first, to preserve liquidity and
conservation of capital and, second, to obtain investment
income. Our
available-for-sale
investments consist primarily of short and long-term
U.S. government and agency debt securities, debt securities
issued by foreign agencies and backed by foreign governments,
corporate debt securities, including student loan backed auction
rate securities and strategic equity investments, which includes
the common stock of a public company we have a collaborative
arrangement with. Our
held-to-maturity
investments consist of investments that are restricted and held
as collateral under certain letters of credit related to certain
of our lease agreements.
We classify
available-for-sale
investments in an unrealized loss position which do not mature
within the upcoming 12 months as long-term investments. We
have the intent and ability to hold these investments until
recovery, which may be at maturity, and it is more likely than
not that we would not be required to sell these securities
before recovery of their amortized cost. At March 31, 2010,
we performed an analysis of our investments with unrealized
losses for impairment and determined that they are temporarily
impaired.
At March 31, 2010, 4% of our investments are valued using
unobservable, or Level 3, inputs to determine fair value as
they are not actively trading and fair values could not be
derived from quoted market prices. These investments consist
primarily of student loan backed auction rate securities. At
March 31, 2009, 18% of our investments were valued using
Level 3 inputs and consisted primarily of investment grade
subordinated, medium term, callable
step-up
floating rate notes (FRNs) issued by several
large European and U.S. banks, student loan backed auction
rate securities and asset backed debt securities. During the
year ended March 31, 2010, we transferred, from a
Level 3 classification to a Level 2 classification,
all but one of our FRN investments as trading resumed for these
securities. In addition, during the year ended March 31,
2010, $22.6 million of Level 3 investments were
redeemed at par by the issuers.
Our investments in auction rate securities consist of taxable
student loan revenue bonds issued by the Colorado Student
Obligation Bond Authority (Colorado), with a cost of
$5.0 million and an estimated fair value of
$4.4 million, and Brazos Higher Education Service
Corporation (Brazos), with a cost of
$5.0 million and an estimated fair value of
$4.2 million. The bonds service student loans under the
Federal Family Education Loan Program (FFELP) and
are collateralized by student loans purchased by the
authorities, which are guaranteed by state sponsored agencies
and reinsured by the U.S. Department of Education. The
Colorado and Brazos securities were rated Aaa and Baa3 by
Moodys, respectively, at March 31, 2010. Liquidity
for these securities is typically provided by an auction process
that resets the applicable interest rate at pre-determined
intervals; however, the auctions have repeatedly failed since
January 2008. In making the determination that the decline in
the fair value of the auction rate securities was temporary, we
considered various factors, including, but not limited to: the
length of time each security was in an unrealized loss
57
position; the extent to which fair value was less than cost;
financial condition and near term prospects of the issuers; and
the intent not to sell these securities and assessment that it
is more likely than not that we would not be required to sell
these securities before the recovery of their amortized cost
basis. The estimated fair value of the auction rate securities
could change significantly based on future financial market
conditions or the financial condition of the issuers. We
continue to monitor the financial markets and the issuers and if
there is continued deterioration, the fair value of these
securities could decline further, which may result in an
other-than-temporary
impairment charge. On May 11, 2010, we received a notice
that the Colorado securities will be called at their par value
on May 27, 2010.
During the year ended March 31, 2010, the illiquidity of
our Level 3 investments did not have a material impact on
our overall liquidity, operations, financial flexibility or
stability. We expect to incur significant additional R&D
costs and other costs as we expand the development of our
proprietary product candidates, including costs related to
preclinical studies and clinical trials. Our costs, including
R&D costs for our product candidates, manufacturing, and
sales, marketing and promotional expenses for any current or
future products marketed by us or our collaborators, if any, may
exceed revenues in the future, which may result in losses from
operations. We believe that our current cash and cash
equivalents and short and long-term investments, combined with
anticipated revenues and anticipated interest income will
generate sufficient cash flows to meet our current anticipated
liquidity and capital requirements for the foreseeable future.
We expect to spend approximately $5.0 million during the
year ended March 31, 2011 for capital expenditures. We
spent $10.3 million more for capital expenditures during
the year ended March 31, 2010, as compared to the year
ended March 31, 2009, primarily due to the relocation of
our corporate headquarters from Cambridge, Massachusetts to
Waltham, Massachusetts, which occurred during the fourth quarter
of fiscal year 2010. We spent $16.4 million less on capital
expenditures during the year ended March 31, 2009, as
compared to the year ended March 31, 2008, primarily due to
the completion of work on our RISPERDAL CONSTA manufacturing
lines and the purchase of equipment in connection with the
BYDUREON program, which was later sold to Amylin at our cost.
Amounts included as construction in progress in the consolidated
balance sheets primarily include costs incurred for the
expansion of our manufacturing facilities in Ohio. We continue
to evaluate our manufacturing capacity based on expectations of
demand for our products and will continue to record such amounts
within construction in progress until such time as the
underlying assets are placed into service, or we determine we
have sufficient existing capacity and the assets are no longer
required, at which time we would recognize an impairment charge.
We continue to periodically evaluate whether facts and
circumstances indicate that the carrying value of these
long-lived assets to be held and used may not be recoverable.
Borrowings
At March 31, 2010, our borrowings consisted of
$51.3 million principal amount of our non-recourse
7% Notes, which have a carrying value of
$51.0 million. The non-recourse 7% Notes were
originally issued on February 1, 2005, with principal and
interest payments on the non-recourse 7% Notes due
quarterly. On May 11, 2010, we delivered a notice to the
trustee of the non-recourse 7% Notes exercising our option
to redeem these notes in full on July 1, 2010 in accordance
with the provisions of the purchase and sale agreement. The
price of the redemption will be 101.75% of the principal balance
on the redemption date. Accordingly, at March 31, 2010, we
classified the entire balance of the non-recourse 7% Notes
balance at March 31, 2010 as a current liability in the
accompanying consolidated balance sheets. As a result of
expected July 2010 redemption, we expect to save an additional
$2.4 million in interest through the scheduled maturity
date in addition to the $12.9 million we saved as a result
of purchases we made during the year ended March 31, 2009.
58
Contractual
Obligations
The following table summarizes our obligations to make future
payments under current contracts at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
One to
|
|
|
Three to Five
|
|
|
More Than
|
|
|
|
|
|
|
One Year
|
|
|
Three Years
|
|
|
Years
|
|
|
Five Years
|
|
|
|
|
|
|
(Fiscal
|
|
|
(Fiscal 2012-
|
|
|
(Fiscal 2014-
|
|
|
(After Fiscal
|
|
Contractual Cash Obligations
|
|
Total
|
|
|
2011)
|
|
|
2013)
|
|
|
2015)
|
|
|
2016)
|
|
|
|
(In thousands)
|
|
|
7% Notes principal(1)
|
|
$
|
51,333
|
|
|
$
|
25,666
|
|
|
$
|
25,667
|
|
|
$
|
|
|
|
$
|
|
|
7% Notes interest(1)
|
|
|
4,043
|
|
|
|
2,920
|
|
|
|
1,123
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
56,908
|
|
|
|
12,581
|
|
|
|
19,219
|
|
|
|
7,526
|
|
|
|
17,582
|
|
Purchase obligations
|
|
|
29,530
|
|
|
|
29,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expansion programs
|
|
|
2,351
|
|
|
|
2,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
144,165
|
|
|
$
|
73,048
|
|
|
$
|
46,009
|
|
|
$
|
7,526
|
|
|
$
|
17,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The non-recourse 7% Notes were issued by Royalty Sub. The
non-recourse 7% Notes are non-recourse to Alkermes, Inc.
(see Note 9 to the consolidated financial statements
included in this
Form 10-K).
The non-recourse 7% Notes mature on January 1, 2012,
however, on May 11, 2010, we delivered a notice to the
trustee of the non-recourse 7% Notes exercising our option
to redeem these notes in full on July 1, 2010. |
This table excludes any liabilities pertaining to uncertain tax
positions as we cannot make a reliable estimate of the period of
cash settlement with the respective taxing authorities. We have
approximately $0.2 million of long term liabilities
associated with uncertain tax positions at March 31, 2010.
In September 2006, we entered into a license agreement with RPI
which granted us exclusive rights to a family of opioid receptor
compounds discovered at RPI. Under the terms of the agreement,
RPI granted us an exclusive worldwide license to certain patents
and patent applications relating to its compounds designed to
modulate opioid receptors. We are responsible for the continued
research and development of any resulting product candidates. We
are obligated to pay annual fees of up to $0.2 million, and
tiered royalty payments of between 1% and 4% of annual net sales
in the event any products developed under the agreement are
commercialized. In addition, we are obligated to make milestone
payments in the aggregate of up to $9.1 million upon
certain
agreed-upon
development events. All amounts paid to RPI to date under this
license agreement have been expensed and are included in
R&D expense.
In December 2009, we entered into a collaboration and license
agreement with Acceleron which granted us an exclusive license
to Accelerons proprietary long-acting Fc fusion technology
platform, called the MEDIFUSION technology, which is designed to
extend the circulating half-life of proteins and peptides in
exchange for a nonrefundable upfront payment of
$2.0 million and an equity investment in Acceleron of
$8.0 million and certain potential milestone payments and
royalties. In addition, we will reimburse Acceleron for any
time, at an
agreed-upon
FTE rate, and materials Acceleron incurs on product development
and we are obligated to make developmental and sales milestone
payments in the aggregate of up to $110.0 million per
product in the event that certain development and sales goals
are achieved. We are also obligated to make tiered royalty
payments in the mid-single digits on annual net sales in the
event any products developed under the agreement are
commercialized. All amounts paid to Acceleron to date under this
license and collaboration agreement have been expensed and are
included in R&D expense, except for the $8.0 million
equity investment which is included in other assets in our
consolidated balance sheet at March 31, 2010.
Due to the contingent nature of the payments under the RPI and
Acceleron arrangements, we cannot predict the amount or period
in which royalty, milestone and other payments may be made and
accordingly they are not included in the table of contractual
maturities.
59
Off-Balance
Sheet Arrangements
At March 31, 2010, we were not a party to any off-balance
sheet arrangements that have, or are reasonably likely to have,
a current or future effect on our financial condition, changes
in financial condition, revenue or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Critical
Accounting Estimates
Our consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United
States (GAAP), which require management to make
estimates, judgments and assumptions that affect the amounts
reported in the consolidated financial statements and
accompanying notes. We believe that our most critical accounting
estimates are in the areas of revenue recognition, investments,
share-based compensation and income taxes.
Manufacturing
Revenues, Royalty Revenues and Product Sales, Net
For the year ended March 31, 2010, our manufacturing
revenues consisted of sales from RISPERDAL CONSTA, polymer for
use in BYDUREON and sales from VIVITROL for resale in Russia.
RISPERDAL CONSTA is sold exclusively to Janssen under a license
agreement in which we granted Janssen an exclusive worldwide
license to use and sell RISPERDAL CONSTA. We record
manufacturing revenues from sales of RISPERDAL CONSTA when the
product is shipped to Janssen at a price based on 7.5% of
Janssens net unit sales price for RISPERDAL CONSTA for the
calendar year. As the sales price is based on information
supplied to us by Janssen, this may require estimates to be
made. Differences between the actual RISPERDAL CONSTA revenues
and estimated RISPERDAL CONSTA revenues are reconciled and
adjusted in the period in which they become known. We also
receive a royalty from Janssen equal to 2.5% of net sales of
RISPERDAL CONSTA in the period the product is sold by Janssen.
We sell polymer to Amylin for use in the formulation of
BYDUREON. Under our arrangement with Amylin, we record
manufacturing revenues at an agreed upon price when polymer is
shipped to them. We sell VIVITROL to Cilag for resale in Russia
and the CIS. Under our arrangement with Cilag, we record
manufacturing revenues when VIVITROL is shipped to them at an
agreed upon price. We also earn a royalty equal to a minimum of
15% of net sales of VIVITROL in Russia and the CIS in the period
the product is sold by Cilag.
We recognize revenue from product sales of VIVITROL when
persuasive evidence of an arrangement exists, title to the
product and associated risk of loss has passed to the customer,
which is considered to have occurred when the product has been
received by the customer, when the sales price is fixed or
determinable and collectibility is reasonably assured. We sell
VIVITROL to wholesalers, specialty distributors and specialty
pharmacies.
We record VIVITROL product sales net of the following categories
of sales reserves and allowances: chargebacks; wholesaler fees;
inventory in the channel; Medicaid discounts; and other
discounts. Calculating each of these items involves estimates
and judgments and requires us to use information from external
sources. We believe we are able to make reasonable estimates of
sales allowance based on the history of VIVITROL sales, known
market events and trends, third party data, customer buying
patterns and knowledge of contractual and statutory
requirements. We establish sales allowance provisions in the
period that the related sales are recorded. The following is a
description of our significant sales allowances:
|
|
|
|
|
Chargebacks Wholesaler and specialty pharmacy
chargebacks are discounts that occur when contracted customers
purchase directly from an intermediary wholesale purchaser.
Contracted customers, which primarily consist of federal
government agencies purchasing under the federal supply
schedule, generally purchase the product at its contracted
price, plus a
mark-up from
the wholesaler. The wholesaler, in-turn, charges back to us the
difference between the price initially paid by the wholesaler
and the contracted price paid to the wholesaler by the customer.
The allowance for wholesaler chargebacks is based on expected
utilization of these programs. Wholesaler chargebacks
|
60
|
|
|
|
|
could exceed historical experience and our estimates of future
participation in these programs. To date, actual wholesaler
chargebacks have not differed materially from our estimates.
|
|
|
|
|
|
Reserve for inventory in the channel we defer
the recognition of revenue on shipments of VIVITROL to our
customers until the product has left the distribution channel.
We estimate product shipments out of the distribution channel
through data provided by external sources, including information
on inventory levels provided by our customers in the
distribution channel, as well as prescription information. In
order to match the cost of goods related to products shipped to
customers with the associated revenue, we defer the recognition
of the cost of goods to the period in which the associated
revenue is recognized.
|
|
|
|
Wholesaler Fees we maintain distribution
service agreements with a number of wholesaler and specialty
pharmacy customers that provide them with the opportunity to
earn discounts in exchange for the performance of certain
services.
|
|
|
|
Medicaid Rebates we record accruals for
rebates to states under the Medicaid Drug Rebate Program as a
reduction of sales when the product is shipped into the
distribution channel. We rebate individual states for all
eligible units purchased under the Medicaid program based on a
rebate per unit calculation, which is based on our Average
Manufacturer Price (AMP). We estimate expected unit
sales and rebates per unit under the Medicaid program and adjust
our rebate estimates based on actual unit sales and rebates per
unit.
|
Investments
At March 31, 2010, we held investments in
U.S. government and agency obligations, debt securities
issued by foreign agencies and backed by foreign governments,
corporate debt securities, auction rate securities and asset
backed debt securities. In addition, we hold strategic equity
investments, which include the common stock of a public company
we have a collaborative arrangement with. Substantially all of
our investments are classified as
available-for-sale
and are recorded at their estimated fair value. The valuation of
our
available-for-sale
securities for purposes of determining the amount of gains and
losses is based on the specific identification method. Our
held-to-maturity
investments are restricted investments held as collateral under
certain letters of credit related to our lease arrangements and
are recorded at amortized cost.
The earnings on our investment portfolio may be adversely
affected by changes in interest rates, credit ratings,
collateral value, the overall strength of credit markets and
other factors that may result in
other-than-temporary
declines in the value of the securities. On a quarterly basis,
we review the fair market value of our investments in comparison
to amortized cost. If the fair market value of a security is
less than its carrying value, we perform an analysis to assess
whether we intend to sell or whether we would more likely than
not be required to sell the security before the expected
recovery of the amortized cost basis. Where we intend to sell a
security, or may be required to do so, the securitys
decline in fair value is deemed to be
other-than-temporary
and the full amount of the unrealized loss is recorded within
earnings as an impairment loss. Regardless of our intent to sell
a security, we perform additional analysis on all securities
with unrealized losses to evaluate losses associated with the
creditworthiness of the security. Credit losses are identified
where we do not expect to receive cash flows sufficient to
recover the amortized cost basis of a security.
For equity securities, when assessing whether a decline in fair
value below our cost basis is
other-than-temporary,
we consider the fair market value of the security, the duration
of the securitys decline, and the financial condition of
the issuer. We then consider our intent and ability to hold the
equity security for a period of time sufficient to recover our
carrying value. Where we have determined that we lack the intent
and ability to hold an equity security to its expected recovery,
the securitys decline in fair value is deemed to be
other-than-temporary
and is recorded within earnings as an impairment loss.
We classify our financial assets and liabilities as
Level 1, 2 or 3 within the fair value hierarchy. Fair
values determined by Level 1 inputs utilize quoted prices
(unadjusted) in active markets for identical assets or
liabilities. Fair values determined by Level 2 inputs are
based on a market approach using quoted prices obtained from
brokers or dealers for similar securities or for securities for
which we have limited visibility
61
into their trading volumes. Valuations of these financial
instruments do not require a significant degree of judgment.
Fair values determined by Level 3 inputs utilize
unobservable data points for the asset. Our Level 3
investments are valued using discounted cash flow models. While
we believe the valuation methodologies are appropriate, the use
of valuation methodologies is highly judgmental and changes in
methodologies can have a material impact on our results of
operations.
Our investment in FRNs issued by RBS, auction rate
securities and asset backed debt securities are all valued using
a discounted cash flow model. The assumptions used in the
discounted cash flow models include estimates for interest
rates, the timing of cash flows, expected holding periods and
risk adjusted discount rates, which include provisions for
default and liquidity risk, which we believe to be the most
critical assumptions utilized within the analysis. We also
consider assumptions market participants would use in their
estimate of fair value, such as collateral underlying the
securities, the creditworthiness of the issuers, associated
guarantees and callability features,
Share-based
Compensation
In connection with valuing stock options, we utilize the
Black-Scholes option-pricing model, which requires us to
estimate certain subjective assumptions. These assumptions
include the expected option term, which takes into account both
the contractual term of the option and the effect of our
employees expected exercise and post-vesting termination
behavior, expected volatility of our common stock over the
options expected term, which is developed using both the
historical volatility of our common stock and implied volatility
from our publicly traded options, the risk-free interest rate
over the options expected term, and an expected annual
dividend yield. Due to the differing exercise and post-vesting
termination behavior of our employees and non-employee
directors, we establish separate Black-Scholes input assumptions
for three distinct employee populations: our senior management;
our non-employee directors; and all other employees. For the
year ended March 31, 2010, the ranges in weighted-average
assumptions were as follows:
|
|
|
Expected option term
|
|
5 - 7 years
|
Expected stock volatility
|
|
38% - 49%
|
Risk-free interest rate
|
|
1.83% - 3.05%
|
Expected annual dividend yield
|
|
|
In addition to the above, we apply judgment in developing
estimates of award forfeitures. For the year ended
March 31, 2010, we used a forfeiture estimate of 0% for our
non-employee directors, 5% for members of senior management and
14.5% for all other employees.
For all of the assumptions used in valuing stock options and
estimating award forfeitures, our historical experience is
generally the starting point for developing our assumptions,
which may be modified to reflect information available at the
time of grant that would indicate that the future is reasonably
expected to differ from the past.
During the year ended March 31, 2010, we granted restricted
stock units (RSUs) to certain of our
executives that vest upon the achievement of certain performance
criteria. The estimated fair value of these RSUs is based
on the market value of our stock on the date of grant.
Compensation expense for RSUs that vest upon the
achievement of performance criteria is recognized from the
moment we determine the performance criteria will be met to the
date we deem the event is likely to occur. Cumulative
adjustments are recorded quarterly to reflect subsequent changes
in the estimated outcome of performance-related conditions until
the date results are determined.
During the year ended March 31, 2009, we granted RSUs
to certain of our executives that vest upon the achievement of a
market condition. The estimated fair value of these RSUs
was determined through the use of a Monte Carlo simulation
model, which utilizes input variables that determine the
probability of satisfying
62
the market condition stipulated in the award and calculates the
fair market value for the performance award. The Monte Carlo
simulation model used the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
Expected
|
|
Risk-Free
|
Grant Date
|
|
Expected Volatility
|
|
Dividend Yield
|
|
Interest Rate
|
|
May 27, 2008
|
|
|
42.7
|
%
|
|
|
|
|
|
|
2.5
|
%
|
Compensation expense for these RSUs was recognized over a
service period derived from the Monte Carlo simulation model.
Impairment
of Long-Lived Assets
We review the carrying value of long-lived assets for potential
impairment on a periodic basis and whenever events or changes in
circumstances indicate the carrying value of an asset may not be
recoverable. We determine impairment by comparing the projected
undiscounted cash flows to be generated by the asset to its
carrying value. If an impairment is identified, a loss is
recorded equal to the excess of the assets net book value
over its fair value, and the cost basis is adjusted. The
estimated future cash flows, based on reasonable and supportable
assumptions and projections, require managements judgment.
Actual results could vary from these estimates.
Income
Taxes
We use the asset and liability method of accounting for deferred
income taxes. Our most significant tax jurisdictions are the
U.S. federal government and states. Significant judgments,
estimates and assumptions regarding future events, such as the
amount, timing and character of income, deductions and tax
credits, are required in the determination of our provision for
income taxes and whether valuation allowances are required
against deferred tax assets. In evaluating our ability to
recover our deferred tax assets, we consider all available
positive and negative evidence including our past operating
results, the existence of cumulative income in the most recent
fiscal years, changes in the business in which we operate and
our forecast of future taxable income. In determining future
taxable income, we are responsible for assumptions utilized
including the amount of state, federal and international pre-tax
operating income, the reversal of temporary differences and the
implementation of feasible and prudent tax planning strategies.
These assumptions require significant judgment about the
forecasts of future taxable income and are consistent with the
plans and estimates that we are using to manage the underlying
businesses. As of March 31, 2010, we determined that it is
more likely than not that the deferred tax assets will not be
realized and a full valuation allowance has been recorded.
We account for uncertain tax positions using a
more-likely-than-not threshold for recognizing and
resolving uncertain tax positions. The evaluation of uncertain
tax positions is based on factors that include, but are not
limited to, changes in tax law, the measurement of tax positions
taken or expected to be taken in tax returns, the effective
settlement of matters subject to audit, new audit activity and
changes in facts or circumstances related to a tax position. We
evaluate uncertain tax positions on a quarterly basis and adjust
the level of the liability to reflect any subsequent changes in
the relevant facts surrounding the uncertain positions. Our
liabilities for uncertain tax positions can be relieved only if
the contingency becomes legally extinguished through either
payment to the taxing authority or the expiration of the statute
of limitations, the recognition of the benefits associated with
the position meet the more-likely-than-not threshold
or the liability becomes effectively settled through the
examination process. We consider matters to be effectively
settled once the taxing authority has completed all of its
required or expected examination procedures, including all
appeals and administrative reviews; we have no plans to appeal
or litigate any aspect of the tax position; and we believe that
it is highly unlikely that the taxing authority would examine or
re-examine the related tax position. We also accrue for
potential interest and penalties related to unrecognized tax
benefits in income tax expense.
Recent
Accounting Pronouncements
Please refer to Note 1, New Accounting Pronouncements
in our Consolidated Financial Statements for a discussion of
new accounting standards.
63
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
We hold securities in our investment portfolio that are
sensitive to market risks. Our securities with fixed interest
rates may have their market value adversely impacted by a rise
in interest rates, while floating rate securities may produce
less income than expected if interest rates fall. Due in part to
these factors, our future investment income may fall short of
expectation due to a fall in interest rates or we may suffer
losses in principal if we are forced to sell securities that
decline in the market value due to changes in interest rates.
However, because we classify our investments in debt securities
as
available-for-sale,
no gains or losses are recognized due to changes in interest
rates unless such securities are sold prior to maturity or
declines in fair value are determined to be
other-than-temporary.
Should interest rates fluctuate by 10%, our interest income
would change by approximately $0.5 million over an annual
period. Due to the conservative nature of our short-term and
long-term investments and our investment policy, we do not
believe that we have a material exposure to interest rate risk.
Although our investments are subject to credit risk, our
investment policies specify credit quality standards for our
investments and limit the amount of credit exposure from any
single issue, issuer or type of investment.
Our investments that are subject to the greatest liquidity and
credit risk at this time are our investments in auction rate
securities. Holding all other factors constant, if we were to
increase the discount rate utilized in our valuation analysis of
the auction rate securities by 50 basis points (one-half of
a percentage point), this change would have the effect of
reducing the fair value of these investments by
$0.2 million at March 31, 2010. Also, holding all
other factors constant, if we were to increase the average
expected term utilized in our fair value analysis by one year,
this change would have the effect of reducing the fair value of
the auction rate securities by approximately $0.4 million
at March 31, 2010.
At March 31, 2010, the fair value of our non-recourse
7% Notes was $48.7 million and the carrying value was
$51.0 million. The interest rate on these notes are fixed
and therefore not subject to interest rate risk.
We do not believe that inflation and changing prices have had a
material impact on our results of operations.
Foreign
Currency Exchange Rate Risk
The manufacturing and royalty revenues we receive on RISPERDAL
CONSTA are a percentage of the net sales made by our
collaborative partner, Janssen. A majority of these sales are
made in foreign countries and are denominated in currencies in
which the product is sold. The manufacturing and royalty
payments on these foreign sales are calculated initially in the
foreign currency in which the sale is made and is then converted
into U.S. dollars to determine the amount that Janssen pays
us for manufacturing and royalty revenues. Fluctuations in the
exchange ratio of the U.S. dollar and these foreign
currencies will have the effect of increasing or decreasing our
manufacturing and royalty revenues even if there is a constant
amount of sales in foreign currencies. For example, if the
U.S. dollar weakens against a foreign currency, then our
manufacturing and royalty revenues will increase given a
constant amount of sales in such foreign currency. For the year
ended March 31, 2010, an average 10% strengthening of the
U.S. dollar relative to the currencies in which RISPERDAL
CONSTA is sold would have resulted in our RISPERDAL CONTSTA
manufacturing and royalty revenues being reduced by
approximately $6.5 million and $2.4 million,
respectively.
64
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Selected
Quarterly Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
Year Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing revenues
|
|
$
|
28,804
|
|
|
$
|
32,835
|
|
|
$
|
28,650
|
|
|
$
|
22,649
|
|
Royalty revenues
|
|
|
8,701
|
|
|
|
8,818
|
|
|
|
9,970
|
|
|
|
9,490
|
|
Product sales, net
|
|
|
4,226
|
|
|
|
4,643
|
|
|
|
5,451
|
|
|
|
5,925
|
|
Research and development revenue under collaborative arrangements
|
|
|
1,450
|
|
|
|
1,174
|
|
|
|
81
|
|
|
|
412
|
|
Net collaborative profit(1)
|
|
|
4,315
|
|
|
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
47,496
|
|
|
|
48,157
|
|
|
|
44,152
|
|
|
|
38,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods manufactured and sold
|
|
|
12,666
|
|
|
|
15,092
|
|
|
|
10,072
|
|
|
|
11,608
|
|
Research and development
|
|
|
25,586
|
|
|
|
20,664
|
|
|
|
22,577
|
|
|
|
26,536
|
|
Selling, general and administrative
|
|
|
19,268
|
|
|
|
20,625
|
|
|
|
17,739
|
|
|
|
18,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
57,520
|
|
|
|
56,381
|
|
|
|
50,388
|
|
|
|
57,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(10,024
|
)
|
|
|
(8,224
|
)
|
|
|
(6,236
|
)
|
|
|
(18,550
|
)
|
OTHER EXPENSE
|
|
|
(211
|
)
|
|
|
(545
|
)
|
|
|
(566
|
)
|
|
|
(345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(10,235
|
)
|
|
|
(8,769
|
)
|
|
|
(6,802
|
)
|
|
|
(18,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX (BENEFIT) PROVISION
|
|
|
(70
|
)
|
|
|
(60
|
)
|
|
|
15
|
|
|
|
(4,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(10,165
|
)
|
|
$
|
(8,709
|
)
|
|
$
|
(6,817
|
)
|
|
$
|
(13,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC NET LOSS PER SHARE
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED NET LOSS PER SHARE
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing revenues
|
|
$
|
38,610
|
|
|
$
|
33,039
|
|
|
$
|
20,533
|
|
|
$
|
24,662
|
|
Royalty revenues
|
|
|
8,581
|
|
|
|
8,439
|
|
|
|
7,970
|
|
|
|
8,257
|
|
Product sales, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,467
|
|
Research and development revenue under collaborative arrangements
|
|
|
31,450
|
|
|
|
5,252
|
|
|
|
3,736
|
|
|
|
1,649
|
|
Net collaborative profit(1)
|
|
|
1,351
|
|
|
|
581
|
|
|
|
123,422
|
|
|
|
4,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
79,992
|
|
|
|
47,311
|
|
|
|
155,661
|
|
|
|
43,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods manufactured and sold
|
|
|
14,314
|
|
|
|
12,071
|
|
|
|
5,536
|
|
|
|
11,475
|
|
Research and development
|
|
|
22,261
|
|
|
|
19,710
|
|
|
|
22,669
|
|
|
|
24,838
|
|
Selling, general and administrative
|
|
|
11,926
|
|
|
|
11,679
|
|
|
|
14,568
|
|
|
|
20,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
48,501
|
|
|
|
43,460
|
|
|
|
42,773
|
|
|
|
57,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
31,491
|
|
|
|
3,851
|
|
|
|
112,888
|
|
|
|
(13,273
|
)
|
OTHER EXPENSE
|
|
|
(774
|
)
|
|
|
(2,216
|
)
|
|
|
(503
|
)
|
|
|
(452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
30,717
|
|
|
|
1,635
|
|
|
|
112,385
|
|
|
|
(13,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION (BENEFIT)
|
|
|
1,030
|
|
|
|
(63
|
)
|
|
|
(330
|
)
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
29,687
|
|
|
$
|
1,698
|
|
|
$
|
112,715
|
|
|
$
|
(13,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC NET INCOME (LOSS) PER SHARE
|
|
$
|
0.31
|
|
|
$
|
0.02
|
|
|
$
|
1.18
|
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED NET INCOME (LOSS) PER SHARE
|
|
$
|
0.31
|
|
|
$
|
0.02
|
|
|
$
|
1.18
|
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $120.7 million recognized as revenue upon the
termination of the VIVITROL collaboration with Cephalon during
the three months ended December 31, 2008. |
65
All financial statements, other than the quarterly financial
data as required by Item 302 of
Regulation S-K
summarized above, required to be filed hereunder, are filed as
an exhibit hereto, are listed under Item 15(a) (1) and
(2), and are incorporated herein by reference.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
(a) Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the
Exchange Act). Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of
March 31, 2010 to provide reasonable assurance that
information required to be disclosed by us in the reports that
we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms and that such information is
accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
(b) Evaluation of internal control over financial reporting
Managements Annual Report on Internal Control over
Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting. Internal
control over financial reporting is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act as the process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial
Officer, and effected by our board of directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of
our financial statements for external purposes in accordance
with generally accepted accounting principles, and includes
those policies and procedures that:
1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets;
2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures are being made
only in accordance with the authorizations of management and
directors; and
3) provide reasonable assurance regarding the prevention or
timely detection of unauthorized acquisition, use or disposition
of assets that could have a material effect on our financial
statements.
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework provided in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. In completing our assessment, no material weaknesses
in our internal controls over financial reporting as of
March 31, 2010 were identified. Based on this assessment,
our management concluded that our internal control over
financial reporting was effective as of March 31, 2010.
The effectiveness of our internal controls over financial
reporting as of March 31, 2010 has been attested to
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report set forth under the
heading Report of Independent Registered Public Accounting
Firm, which is included in Part II, Item 8 of
this
Form 10-K.
66
(c) Changes in internal controls
No change in our internal control over financial reporting (as
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) occurred during the quarter ended
March 31, 2010 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
(d) Inherent Limitations of Disclosure Controls and
Procedures and Internal Control Over Financial Reporting
The effectiveness of our disclosure controls and procedures and
our internal control over financial reporting is subject to
various inherent limitations, including cost limitations,
judgments used in decision making, assumptions about the
likelihood of future events, the soundness of our systems, the
possibility of human error, and the risk of fraud. Moreover,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions and the risk that the degree of
compliance with policies or procedures may deteriorate over
time. Because of these limitations, there can be no assurance
that any system of disclosure controls and procedures or
internal control over financial reporting will be successful in
preventing all errors or fraud or in making all material
information known in a timely manner to the appropriate levels
of management.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item is incorporated herein by
reference to our Proxy Statement for our annual
shareholders meeting (the 2010 Proxy
Statement).
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is incorporated herein by
reference to the 2010 Proxy Statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item is incorporated herein by
reference to the 2010 Proxy Statement.
|
|
Item 13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
The information required by this item is incorporated herein by
reference to the 2010 Proxy Statement.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this item is incorporated herein by
reference to the 2010 Proxy Statement.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)(1) Consolidated Financial Statements The
consolidated financial statements of Alkermes, Inc. required by
this item are submitted in a separate section beginning on
page F-1
of this
Form 10-K.
(2) Financial Statement Schedules All schedules
have been omitted because the absence of conditions under which
they are required or because the required information is
included in the consolidated financial statements or notes
thereto.
67
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
|
|
|
3
|
.1
|
|
Third Amended and Restated Articles of Incorporation as filed
with the Pennsylvania Secretary of State on June 7, 2001.
(Incorporated by reference to Exhibit 3.1 to our Annual
Report on
Form 10-K
for the fiscal year ended March 31, 2001 (File
No. 001-14131).)
|
|
3
|
.1(a)
|
|
Amendment to Third Amended and Restated Articles of
Incorporation as filed with the Pennsylvania Secretary of State
on December 16, 2002 (2002 Preferred Stock Terms).
(Incorporated by reference to Exhibit 3.1 to our Current
Report on
Form 8-K
filed on December 16, 2002 (File No. 001-14131).)
|
|
3
|
.1(b)
|
|
Amendment to Third Amended and Restated Articles of
Incorporation as filed with the Pennsylvania Secretary of State
on May 14, 2003. (Incorporated by reference to
Exhibit A to Exhibit 4.1 to our Report on
Form 8-A
filed on May 2, 2003 (File
No. 000-19267).)
|
|
3
|
.2
|
|
Second Amended and Restated By-Laws of Alkermes, Inc.
(Incorporated by reference to Exhibit 3.2 to our Current
Report on
Form 8-K
filed on September 28, 2005.)
|
|
4
|
.1
|
|
Specimen of Common Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4 to our Registration
Statement on
Form S-1,
as amended (File
No. 033-40250).)
|
|
4
|
.2
|
|
Specimen of Non-Voting Common Stock Certificate of Alkermes,
Inc. (Incorporated by reference to Exhibit 4.4 to our
Annual Report on
Form 10-K
for the fiscal year ended March 31, 1999 (File
No. 001-14131).)
|
|
4
|
.3
|
|
Rights Agreement, dated as of February 7, 2003, as amended,
between Alkermes, Inc. and EquiServe Trust Co., N.A., as
Rights Agent. (Incorporated by reference to Exhibit 4.1 to
our Report on
Form 8-A
filed on May 2, 2003 (File
No. 000-19267).)
|
|
4
|
.4
|
|
Indenture, dated as of February 1, 2005, between RC Royalty
Sub LLC and U.S. Bank National Association, as Trustee.
(Incorporated by reference to Exhibit 4.1 to our Current
Report on
Form 8-K
filed on February 3, 2005.)
|
|
4
|
.5
|
|
Form of Risperdal
Consta®
PhaRMAsm
Secured 7% Notes due 2018. (Incorporated by reference to
Exhibit 4.1 to our Current Report on
Form 8-K filed on
February 3, 2005.)
|
|
10
|
.1
|
|
Amended and Restated 1990 Omnibus Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.2 to our Annual
Report on
Form 10-K
for the fiscal year ended March 31, 1998 (File
No. 001-14131).)+
|
|
10
|
.2
|
|
Stock Option Plan for Non-Employee Directors, as amended.
(Incorporated by reference to Exhibit 99.2 to our
Registration Statement on
Form S-8
filed on October 1, 2003 (File
No. 333-109376).)+
|
|
10
|
.3
|
|
Lease, dated as of October 26, 2000, between FC88 Sidney,
Inc. and Alkermes, Inc. (Incorporated by reference to
Exhibit 10.3 to our Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2000 (File
No. 001-14131).)
|
|
10
|
.4
|
|
Lease, dated as of October 26, 2000, between Forest City 64
Sidney Street, Inc. and Alkermes, Inc. (Incorporated by
reference to Exhibit 10.4 to our Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2000 (File
No. 001-14131).)
|
|
10
|
.5
|
|
Lease Agreement, dated as of April 22, 2009 between PDM
Unit 850, LLC, and Alkermes, Inc. (Incorporated by reference to
Exhibit 10.5 to our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2009.)
|
|
10
|
.5(a)
|
|
First Amendment to Lease Agreement between Alkermes, Inc. and
PDM Unit 850, LLC, dated as of June 18, 2009 (Incorporated
by reference to Exhibit 10.2 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009.)
|
|
10
|
.6
|
|
License Agreement, dated as of February 13, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica Inc. (U.S.) (assigned to Alkermes Inc. in July
2006). (Incorporated by reference to Exhibit 10.19 to our
Annual Report on
Form 10-K
for the fiscal year ended March 31, 1996 (File
No. 000-19267).)*
|
68
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
|
|
|
10
|
.7
|
|
License Agreement, dated as of February 21, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (worldwide except U.S.) (assigned to
Alkermes Inc. in July 2006). (Incorporated by reference to
Exhibit 10.20 to our Annual Report on
Form 10-K
for the fiscal year ended March 31, 1996 (File
No. 000-19267).)*
|
|
10
|
.8
|
|
Manufacturing and Supply Agreement, dated August 6, 1997,
by and among Alkermes Controlled Therapeutics Inc. II, Janssen
Pharmaceutica International and Janssen Pharmaceutica, Inc.
(assigned to Alkermes Inc. in July 2006). (Incorporated by
reference to Exhibit 10.19 to our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2002 (File
No. 001-14131).)***
|
|
10
|
.8(a)
|
|
Third Amendment To Development Agreement, Second Amendment To
Manufacturing and Supply Agreement and First Amendment To
License Agreements by and between Janssen Pharmaceutica
International Inc. and Alkermes Controlled Therapeutics Inc. II,
dated April 1, 2000 (assigned to Alkermes Inc. in July
2006) (with certain confidential information deleted).
(Incorporated by reference to Exhibit 10.5 to our Quarterly
Report on
Form 10-Q
for the quarter ended December 31, 2004.)****
|
|
10
|
.8(b)
|
|
Fourth Amendment To Development Agreement and First Amendment To
Manufacturing and Supply Agreement by and between Janssen
Pharmaceutica International Inc. and Alkermes Controlled
Therapeutics Inc. II, dated December 20, 2000 (assigned to
Alkermes Inc. in July 2006) (with certain confidential
information deleted). (Incorporated by reference to
Exhibit 10.4 to our Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2004.)****
|
|
10
|
.8(c)
|
|
Addendum to Manufacturing and Supply Agreement, dated August
2001, by and among Alkermes Controlled Therapeutics Inc. II,
Janssen Pharmaceutica International and Janssen Pharmaceutica,
Inc. (assigned to Alkermes Inc. in July 2006). (Incorporated by
reference to Exhibit 10.19(b) to our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2002 (File
No. 001-14131).)***
|
|
10
|
.8(d)
|
|
Letter Agreement and Exhibits to Manufacturing and Supply
Agreement, dated February 1, 2002, by and among Alkermes
Controlled Therapeutics Inc. II, Janssen Pharmaceutica
International and Janssen Pharmaceutica, Inc. (assigned to
Alkermes Inc. in July 2006). (Incorporated by reference to
Exhibit 10.19(a) to our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2002.)***
|
|
10
|
.8(e)
|
|
Amendment to Manufacturing and Supply Agreement by and between
JPI Pharmaceutica International, Janssen Pharmaceutica Inc. and
Alkermes Controlled Therapeutics Inc. II, dated
December 22, 2003 (assigned to Alkermes Inc. in July 2006)
(with certain confidential information deleted). (Incorporated
by reference to Exhibit 10.8 to our Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2004.)****
|
|
10
|
.8(f)
|
|
Fourth Amendment To Manufacturing and Supply Agreement by and
between JPI Pharmaceutica International, Janssen Pharmaceutica
Inc. and Alkermes Controlled Therapeutics Inc. II, dated
January 10, 2005 (assigned to Alkermes Inc. in July 2006)
(with certain confidential information deleted). (Incorporated
by reference to Exhibit 10.9 to our Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2004.)****
|
|
10
|
.9
|
|
Agreement by and between JPI Pharmaceutica International,
Janssen Pharmaceutica Inc. and Alkermes Controlled Therapeutics
Inc. II, dated December 21, 2002 (assigned to Alkermes Inc.
in July 2006) (with certain confidential information deleted).
(Incorporated by reference to Exhibit 10.6 to our Quarterly
Report on
Form 10-Q
for the quarter ended December 31, 2004.)****
|
|
10
|
.9(a)
|
|
Amendment to Agreement by and between JPI Pharmaceutica
International, Janssen Pharmaceutica Inc. and Alkermes
Controlled Therapeutics Inc. II, dated December 16, 2003
(assigned to Alkermes Inc. in July 2006) (with certain
confidential information deleted). (Incorporated by reference to
Exhibit 10.7 to our Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2004.)****
|
|
10
|
.10
|
|
Patent License Agreement, dated as of August 11, 1997,
between Massachusetts Institute of Technology and Advanced
Inhalation Research, Inc. (assigned to Alkermes, Inc. in March
2007), as amended. (Incorporated by reference to
Exhibit 10.25 to our Annual Report on
Form 10-K
for the fiscal year ended March 31, 1999 (File
No. 001-14131).)**
|
69
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
|
|
|
10
|
.11
|
|
Employment agreement, dated as of December 12, 2007, by and
between Richard F. Pops and Alkermes, Inc. (Incorporated by
reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2007.)+
|
|
10
|
.11(a)
|
|
Amendment to Employment Agreement by and between Alkermes, Inc.
and Richard F. Pops. (Incorporated by reference to
Exhibit 10.5 to our Current Report on
Form 8-K
filed on October 7, 2008.)+
|
|
10
|
.11(b)
|
|
Amendment No. 2 to Employment Agreement by and between
Alkermes, Inc. and Richard F. Pops, dated September 10,
2009. (Incorporated by reference to Exhibit 10.2 to our
Current Report on
Form 8-K
filed on September 11, 2009.)+
|
|
10
|
.12
|
|
Employment agreement, dated as of December 12, 2007, by and
between David A. Broecker and Alkermes, Inc. (Incorporated by
reference to Exhibit 10.2 to our Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2007.)+
|
|
10
|
.12(a)
|
|
Amendment to Employment Agreement by and between Alkermes, Inc.
and David A. Broecker. (Incorporated by reference to
Exhibit 10.6 to our Current Report on
Form 8-K
filed on October 7, 2008.)+
|
|
10
|
.13
|
|
Separation Agreement by and between Alkermes, Inc. and David A.
Broecker, dated September 10, 2009. (Incorporated by
reference to Exhibit 10.1 to our Current Report on
Form 8-K
filed on September 11, 2009.)+
|
|
10
|
.14
|
|
Form of Employment Agreement, dated as of December 12,
2007, by and between Alkermes, Inc. and each of Kathryn L.
Biberstein, Elliot W. Ehrich, M.D., James M. Frates,
Michael J. Landine, Gordon G. Pugh. (Incorporated by reference
to Exhibit 10.3 to our Quarterly Report on
Form 10-Q
for the quarter ended December 31, 2007.)+
|
|
10
|
.14(a)
|
|
Form of Amendment to Employment Agreement by and between
Alkermes, Inc. and each of each of Kathryn L. Biberstein, Elliot
W. Ehrich, M.D., James M. Frates, Michael J. Landine,
Gordon G. Pugh. (Incorporated by reference to Exhibit 10.7
to our Current Report on
Form 8-K
filed on October 7, 2008.)+
|
|
10
|
.15
|
|
Form of Covenant Not to Compete, of various dates, by and
between Alkermes, Inc. and each of Kathryn L. Biberstein and
James M. Frates. (Incorporated by reference to
Exhibit 10.15 to our Annual Report on
Form 10-K
for the year ended March 31, 2007.)+
|
|
10
|
.15(a)
|
|
Form of Covenant Not to Compete, of various dates, by and
between Alkermes, Inc. and each of Elliot W. Ehrich, M.D.,
Michael J. Landine, and Gordon G. Pugh. (Incorporated by
reference to Exhibit 10.15(a) to our Annual Report on
Form 10-K
for the year ended March 31, 2007.)+
|
|
10
|
.16
|
|
Form of Indemnification Agreement by and between Alkermes, Inc.
and each of its directors and executive officers (Incorporated
by reference to Exhibit 10.1 to our Current Report on
Form 8-K
filed on March 25, 2010.)+
|
|
10
|
.17
|
|
License and Collaboration Agreement between Alkermes, Inc. and
Cephalon, Inc. dated as of June 23, 2005. (Incorporated by
reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2005.)*****
|
|
10
|
.17(a)
|
|
Supply Agreement between Alkermes, Inc. and Cephalon, Inc. dated
as of June 23, 2005. (Incorporated by reference to
Exhibit 10.2 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2005.)*****
|
|
10
|
.17(b)
|
|
Amendment to the License and Collaboration Agreement between
Alkermes, Inc. and Cephalon, Inc. dated as of December 21,
2006. (Incorporated by reference to Exhibit 10.16(b) to our
Annual Report on
Form 10-K
for the year ended March 31, 2007.)******
|
|
10
|
.17(c)
|
|
Amendment to the Supply Agreement between Alkermes, Inc. and
Cephalon, Inc. dated as of December 21, 2006. (Incorporated
by reference to Exhibit 10.16(c) to our Annual Report on
Form 10-K
for the year ended March 31, 2007.)******
|
|
10
|
.18
|
|
Accelerated Share Repurchase Agreement, dated as of
February 7, 2008, between Morgan Stanley & Co.
Incorporated and Alkermes, Inc. (Incorporated by reference to
Exhibit 10.17 to our Annual Report on
Form 10-K
for the year ended March 31, 2008.)
|
70
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
|
|
|
10
|
.19
|
|
Alkermes, Inc. 1998 Equity Incentive Plan as Amended and
Approved on November 2, 2006. (Incorporated by reference to
Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 31, 2006.)+
|
|
10
|
.19(a)
|
|
Form of Stock Option Certificate pursuant to Alkermes, Inc. 1998
Equity Incentive Plan. (Incorporated by reference to
Exhibit 10.37 to our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2006.)+
|
|
10
|
.20
|
|
Alkermes, Inc. Amended and Restated 1999 Stock Option Plan.
(Incorporated by reference to Appendix A to our Definitive
Proxy Statement on Form DEF 14/A filed on July 27,
2007.)+
|
|
10
|
.20(a)
|
|
Form of Incentive Stock Option Certificate pursuant to the 1999
Stock Option Plan, as amended. (Incorporated by reference to
Exhibit 10.35 to our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2006.)+
|
|
10
|
.20(b)
|
|
Form of Non-Qualified Stock Option Certificate pursuant to the
1999 Stock Option Plan, as amended. (Incorporated by reference
to Exhibit 10.36 to our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2006.)+
|
|
10
|
.21
|
|
Alkermes, Inc. 2002 Restricted Stock Award Plan as Amended and
Approved on November 2, 2006. (Incorporated by reference to
Exhibit 10.3 to our Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 31, 2006.)+
|
|
10
|
.21(a)
|
|
Amendment to Alkermes, Inc. 2002 Restricted Stock Award Plan.
(Incorporated by reference to Appendix B to our Definitive
Proxy Statement on Form DEF 14/A filed on July 27,
2007.)+
|
|
10
|
.22
|
|
2006 Stock Option Plan for Non-Employee Directors. (Incorporated
by reference to Exhibit 10.4 to our Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 2006.)+
|
|
10
|
.22(a)
|
|
Amendment to 2006 Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Appendix C to our Definitive
Proxy Statement on Form DEF 14/A filed on July 27,
2007.)+
|
|
10
|
.23
|
|
Alkermes Fiscal 2008 Named-Executive Bonus Plan. (Incorporated
by reference to Exhibit 10.1 to our Current Report on
Form 8-K
filed on April 26, 2007.)+
|
|
10
|
.24
|
|
Alkermes Fiscal Year 2009 Reporting Officer Performance Pay
Plan. (Incorporated by reference to Exhibit 10.1 to our
Current Report on
Form 8-K
filed on May 16, 2008.)+
|
|
10
|
.25
|
|
Alkermes Fiscal Year 2010 Reporting Officer Performance Pay
Plan. (Incorporated by reference to Exhibit 10.1 to our
Current Report on
Form 8-K
filed on July 15, 2009.)+
|
|
10
|
.26
|
|
Alkermes Fiscal 2011 Reporting Officer Performance Pay Plan.
(Incorporated by reference to Exhibit 10.2 to our Current
Report on
Form 8-K
filed on March 25, 2010.)+
|
|
10
|
.27
|
|
Alkermes, Inc., 2008 Stock Option and Incentive Plan
(Incorporated by reference to Exhibit 10.1 to our Current
Report on
Form 8-K
filed on October 7, 2008.)+
|
|
10
|
.27(a)
|
|
Alkermes, Inc. 2008 Stock Option and Incentive Plan, Stock
Option Award Certificate (Incentive Stock Option) , as amended #
|
|
10
|
.27(b)
|
|
Alkermes, Inc. 2008 Stock Option and Incentive Plan, Stock
Option Award Certificate (Non-Qualified Option) , as amended #
|
|
10
|
.27(c)
|
|
Alkermes, Inc. 2008 Stock Option and Incentive Plan, Stock
Option Award Certificate (Non-Employee Director) (Incorporated
by reference to Exhibit 10.4 to our Current Report on
Form 8-K
filed on October 7, 2008.)+
|
|
10
|
.27(d)
|
|
Alkermes, Inc. 2008 Stock Option and Incentive Plan, Restricted
Stock Unit Award Certificate (Time Vesting Only). (Incorporated
by reference to Exhibit 10.1 to our Current Report on
Form 8-K
filed on May 22, 2009.)+
|
|
10
|
.27(e)
|
|
Alkermes, Inc. 2008 Stock Option and Incentive Plan, Restricted
Stock Unit Award Certificate (Performance Vesting Only).
(Incorporated by reference to Exhibit 10.2 to our Current
Report on
Form 8-K
filed on May 22, 2009.)+
|
|
10
|
.28
|
|
Development and License Agreement, dated as of May 15,
2000, by and between Alkermes Controlled Therapeutics Inc. II
and Amylin Pharmaceuticals, Inc., as amended on October 24,
2005 and July 17, 2006 (assigned, as amended, to Alkermes,
Inc. in July 2006). #*******
|
|
21
|
.1
|
|
Subsidiaries of Alkermes, Inc..#
|
71
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
|
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP.#
|
|
24
|
.1
|
|
Power of Attorney (included on signature pages).#
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification.#
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification.#
|
|
32
|
.1
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.#
|
|
|
|
* |
|
Confidential status has been granted for certain portions
thereof pursuant to a Commission Order granted September 3,
1996. Such provisions have been filed separately with the
Commission. |
|
** |
|
Confidential status has been granted for certain portions
thereof pursuant to a Commission Order granted August 19,
1999. Such provisions have been filed separately with the
Commission. |
|
*** |
|
Confidential status has been granted for certain portions
thereof pursuant to a Commission Order granted
September 16, 2002. Such provisions have been separately
filed with the Commission. |
|
**** |
|
Confidential status has been granted for certain portions
thereof pursuant to a Commission Order granted
September 26, 2005. Such provisions have been filed
separately with the Commission. |
|
***** |
|
Confidential status has been granted for certain portions
thereof pursuant to a Commission Order granted July 31,
2006. Such provisions have been filed separately with the
Commission. |
|
****** |
|
Confidential status has been granted for certain portions
thereof pursuant to a Commission Order granted April 15,
2008. Such provisions have been filed separately with the
Commission. |
|
******* |
|
Confidential treatment status has been requested as to certain
portions thereof, which portions are omitted and filed
separately with the Securities and Exchange Commission. |
|
+ |
|
Indicates a management contract or any compensatory plan,
contract or arrangement. |
|
# |
|
Filed herewith. |
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ALKERMES, INC.
Richard F. Pops
Chairman, President and Chief Executive Officer
May 21, 2010
POWER OF
ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Each person whose signature appears below in so signing also
makes, constitutes and appoints Richard F. Pops and James M.
Frates, and each of them, his true and lawful attorney-in-fact,
with full power of substitution, for him in any and all
capacities, to execute and cause to be filed with the Securities
and Exchange Commission any and all amendments to this
Form 10-K,
with exhibits thereto and other documents in connection
therewith, and hereby ratifies and confirms all that said
attorney-in-fact or his substitute or substitutes may do or
cause to be done by virtue hereof.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Richard
F. Pops
Richard
F. Pops
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
May 21, 2010
|
|
|
|
|
|
/s/ James
M. Frates
James
M. Frates
|
|
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
|
May 21, 2010
|
|
|
|
|
|
/s/ David
W. Anstice
David
W. Anstice
|
|
Director
|
|
May 21, 2010
|
|
|
|
|
|
/s/ Floyd
E. Bloom
Floyd
E. Bloom
|
|
Director
|
|
May 21, 2010
|
|
|
|
|
|
/s/ Robert
A. Breyer
Robert
A. Breyer
|
|
Director
|
|
May 21, 2010
|
|
|
|
|
|
/s/ Gerri
Henwood
Gerri
Henwood
|
|
Director
|
|
May 21, 2010
|
|
|
|
|
|
/s/ Paul
J. Mitchell
Paul
J. Mitchell
|
|
Director
|
|
May 21, 2010
|
73
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Alexander
Rich
Alexander
Rich
|
|
Director
|
|
May 21, 2010
|
|
|
|
|
|
/s/ Mark
B. Skaletsky
Mark
B. Skaletsky
|
|
Director
|
|
May 21, 2010
|
|
|
|
|
|
/s/ Michael
A. Wall
Michael
A. Wall
|
|
Director and Chairman Emeritus
|
|
May 21, 2010
|
74
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Alkermes, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations and
comprehensive (loss) income, shareholders equity and cash
flows present fairly, in all material respects, the financial
position of Alkermes, Inc. and its subsidiaries at
March 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in
the period ended March 31, 2010 in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of March 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Managements Annual Report on Internal Control
over Financial Reporting under Item 9A. Our responsibility
is to express opinions on these financial statements and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCooperLLP
Boston, Massachusetts
May 21, 2010
F-1
ALKERMES,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
March 31,
2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
79,324
|
|
|
$
|
86,893
|
|
Investments short-term
|
|
|
202,053
|
|
|
|
236,768
|
|
Receivables
|
|
|
25,316
|
|
|
|
24,588
|
|
Inventory
|
|
|
20,653
|
|
|
|
20,297
|
|
Prepaid expenses and other current assets
|
|
|
10,936
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
338,282
|
|
|
|
376,046
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
96,905
|
|
|
|
106,461
|
|
INVESTMENTS LONG-TERM
|
|
|
68,816
|
|
|
|
80,821
|
|
OTHER ASSETS
|
|
|
11,597
|
|
|
|
3,158
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
515,600
|
|
|
$
|
566,486
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
37,881
|
|
|
$
|
36,483
|
|
Deferred revenue current
|
|
|
2,220
|
|
|
|
6,840
|
|
Non-recourse RISPERDAL CONSTA secured 7% notes
current
|
|
|
51,043
|
|
|
|
25,667
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
91,144
|
|
|
|
68,990
|
|
|
|
|
|
|
|
|
|
|
NON-RECOURSE RISPERDAL CONSTA SECURED 7% NOTES
LONG-TERM
|
|
|
|
|
|
|
50,221
|
|
DEFERRED REVENUE LONG-TERM
|
|
|
5,105
|
|
|
|
5,238
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
6,735
|
|
|
|
7,149
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
102,984
|
|
|
|
131,598
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 15)
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Capital stock, par value, $0.01 per share; 4,550,000 shares
authorized (includes 3,000,000 shares of preferred stock);
none issued
|
|
|
|
|
|
|
|
|
Common stock, par value, $0.01 per share;
160,000,000 shares authorized; 104,815,328 and
104,044,663 shares issued; 94,870,063 and
94,536,212 shares outstanding at March 31, 2010 and
2009, respectively
|
|
|
1,047
|
|
|
|
1,040
|
|
Non-voting common stock, par value, $0.01 per share;
450,000 shares authorized; 382,632 shares issued and
outstanding at March 31, 2010 and 2009
|
|
|
4
|
|
|
|
4
|
|
Treasury stock, at cost (9,945,265 and 9,508,451 shares at
March 31, 2010 and 2009, respectively)
|
|
|
(129,681
|
)
|
|
|
(126,025
|
)
|
Additional paid-in capital
|
|
|
910,326
|
|
|
|
892,415
|
|
Accumulated other comprehensive loss
|
|
|
(3,392
|
)
|
|
|
(6,484
|
)
|
Accumulated deficit
|
|
|
(365,688
|
)
|
|
|
(326,062
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
412,616
|
|
|
|
434,888
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
515,600
|
|
|
$
|
566,486
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
ALKERMES,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
Years
Ended March 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing revenues
|
|
$
|
112,938
|
|
|
$
|
116,844
|
|
|
$
|
101,700
|
|
Royalty revenues
|
|
|
36,979
|
|
|
|
33,247
|
|
|
|
29,457
|
|
Product sales, net
|
|
|
20,245
|
|
|
|
4,467
|
|
|
|
|
|
Research and development revenue under collaborative arrangements
|
|
|
3,117
|
|
|
|
42,087
|
|
|
|
89,510
|
|
Net collaborative profit
|
|
|
5,002
|
|
|
|
130,194
|
|
|
|
20,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
178,281
|
|
|
|
326,839
|
|
|
|
240,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods manufactured and sold
|
|
|
49,438
|
|
|
|
43,396
|
|
|
|
40,677
|
|
Research and development
|
|
|
95,363
|
|
|
|
89,478
|
|
|
|
125,268
|
|
Selling, general and administrative
|
|
|
76,514
|
|
|
|
59,008
|
|
|
|
59,508
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
11,630
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
6,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
221,315
|
|
|
|
191,882
|
|
|
|
243,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING (LOSS) INCOME
|
|
|
(43,034
|
)
|
|
|
134,957
|
|
|
|
(2,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (EXPENSE) INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4,667
|
|
|
|
11,400
|
|
|
|
17,834
|
|
Interest expense
|
|
|
(5,974
|
)
|
|
|
(13,756
|
)
|
|
|
(16,370
|
)
|
Gain on sale of investment in Reliant Pharmaceuticals, Inc.
|
|
|
|
|
|
|
|
|
|
|
174,631
|
|
Other expense, net
|
|
|
(360
|
)
|
|
|
(1,589
|
)
|
|
|
(476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income, net
|
|
|
(1,667
|
)
|
|
|
(3,945
|
)
|
|
|
175,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME BEFORE INCOME TAXES
|
|
|
(44,701
|
)
|
|
|
131,012
|
|
|
|
172,830
|
|
(BENEFIT) PROVISION FOR INCOME TAXES
|
|
|
(5,075
|
)
|
|
|
507
|
|
|
|
5,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
$
|
(39,626
|
)
|
|
$
|
130,505
|
|
|
$
|
166,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
$
|
(0.42
|
)
|
|
$
|
1.37
|
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
$
|
(0.42
|
)
|
|
$
|
1.36
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
94,839
|
|
|
|
95,161
|
|
|
|
100,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
|
94,839
|
|
|
|
96,252
|
|
|
|
102,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(39,626
|
)
|
|
$
|
130,505
|
|
|
$
|
166,979
|
|
Unrealized losses on marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding gains (losses), net of tax
|
|
|
2,998
|
|
|
|
(6,153
|
)
|
|
|
(3,849
|
)
|
Less: Reclassification adjustment for losses included in net
(loss) income
|
|
|
94
|
|
|
|
1,195
|
|
|
|
1,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on marketable securities
|
|
|
3,092
|
|
|
|
(4,958
|
)
|
|
|
(2,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) INCOME
|
|
$
|
(36,534
|
)
|
|
$
|
125,547
|
|
|
$
|
164,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
ALKERMES,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
Years
Ended March 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-voting
|
|
|
Additional
|
|
|
Currency
|
|
|
Gain/(Loss) on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Translation
|
|
|
Marketable
|
|
|
Accumulated
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Adjustments
|
|
|
Securities
|
|
|
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
(In thousands, except share data)
|
|
|
BALANCE April 1, 2007
|
|
|
101,550,673
|
|
|
$
|
1,015
|
|
|
|
382,632
|
|
|
$
|
4
|
|
|
$
|
837,727
|
|
|
$
|
(142
|
)
|
|
$
|
895
|
|
|
$
|
(623,546
|
)
|
|
|
(823,677
|
)
|
|
$
|
(12,492
|
)
|
|
$
|
203,461
|
|
Issuance of common stock under employee stock plans
|
|
|
1,426,675
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
11,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,159
|
|
Receipt of Alkermes stock for the purchase of stock
options or to satisfy minimum tax withholding obligations
related to stock based awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85,769
|
)
|
|
|
(1,480
|
)
|
|
|
|
|
Repurchase of common stock for treasury, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,968,736
|
)
|
|
|
(93,350
|
)
|
|
|
(93,350
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,222
|
|
Excess tax benefit from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,279
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,979
|
|
|
|
|
|
|
|
|
|
|
|
166,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE March 31, 2008
|
|
|
102,977,348
|
|
|
$
|
1,030
|
|
|
|
382,632
|
|
|
$
|
4
|
|
|
$
|
869,695
|
|
|
$
|
(142
|
)
|
|
$
|
(1,384
|
)
|
|
$
|
(456,567
|
)
|
|
|
(7,878,182
|
)
|
|
$
|
(107,322
|
)
|
|
$
|
305,314
|
|
Issuance of common stock under employee stock plans
|
|
|
1,067,315
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
7,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,059
|
|
Receipt of Alkermes stock for the purchase of stock
options or to satisfy minimum tax withholding obligations
related to stock based awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,067
|
)
|
|
|
(707
|
)
|
|
|
|
|
Repurchase of common stock for treasury, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,569,202
|
)
|
|
|
(17,996
|
)
|
|
|
(17,996
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,884
|
|
Excess tax benefit from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,958
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,505
|
|
|
|
|
|
|
|
|
|
|
|
130,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE March 31, 2009
|
|
|
104,044,663
|
|
|
$
|
1,040
|
|
|
|
382,632
|
|
|
$
|
4
|
|
|
$
|
892,415
|
|
|
$
|
(142
|
)
|
|
$
|
(6,342
|
)
|
|
$
|
(326,062
|
)
|
|
|
(9,508,451
|
)
|
|
$
|
(126,025
|
)
|
|
$
|
434,888
|
|
Issuance of common stock under employee stock plans
|
|
|
770,665
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
2,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,593
|
|
Receipt of Alkermes stock for the purchase of stock
options or to satisfy minimum tax withholding obligations
related to stock based awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108,410
|
)
|
|
|
(972
|
)
|
|
|
|
|
Repurchase of common stock for treasury, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(328,404
|
)
|
|
|
(2,684
|
)
|
|
|
(2,684
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,107
|
|
Excess tax benefit from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246
|
|
Unrealized gain on marketable securities, net of tax of $1,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,092
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,626
|
)
|
|
|
|
|
|
|
|
|
|
|
(39,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE March 31, 2010
|
|
|
104,815,328
|
|
|
$
|
1,047
|
|
|
|
382,632
|
|
|
$
|
4
|
|
|
$
|
910,326
|
|
|
$
|
(142
|
)
|
|
$
|
(3,250
|
)
|
|
$
|
(365,688
|
)
|
|
|
(9,945,265
|
)
|
|
$
|
(129,681
|
)
|
|
$
|
412,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
ALKERMES,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended March 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(39,626
|
)
|
|
$
|
130,505
|
|
|
$
|
166,979
|
|
Adjustments to reconcile net income to cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
13,921
|
|
|
|
14,810
|
|
|
|
19,445
|
|
Depreciation
|
|
|
25,026
|
|
|
|
10,265
|
|
|
|
12,138
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
11,630
|
|
Gain on sale of invstment in Reliant Pharmaceuticals, Inc.
|
|
|
|
|
|
|
|
|
|
|
(174,631
|
)
|
Realized losses on investments
|
|
|
94
|
|
|
|
1,195
|
|
|
|
1,570
|
|
Loss on purchase of non-recourse RISPERDAL CONSTA secured
7% Notes
|
|
|
|
|
|
|
2,512
|
|
|
|
|
|
Other non-cash charges
|
|
|
3,739
|
|
|
|
4,283
|
|
|
|
3,732
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(728
|
)
|
|
|
13,710
|
|
|
|
15,041
|
|
Inventory, prepaid expenses and other assets
|
|
|
(4,037
|
)
|
|
|
(5,140
|
)
|
|
|
(1,450
|
)
|
Accounts payable and accrued expenses
|
|
|
(2,064
|
)
|
|
|
2,014
|
|
|
|
(8,033
|
)
|
Unearned milestone revenue
|
|
|
|
|
|
|
(117,657
|
)
|
|
|
(11,093
|
)
|
Deferred revenue
|
|
|
(4,753
|
)
|
|
|
(14,525
|
)
|
|
|
6,961
|
|
Other long-term liabilities
|
|
|
(1,638
|
)
|
|
|
(1,366
|
)
|
|
|
135
|
|
Payment or purchase of non-recourse RISPERDAL CONSTA secured
7% notes attributable to original issue discount
|
|
|
(2,181
|
)
|
|
|
(6,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows (used in) provided by operating activities
|
|
|
(12,247
|
)
|
|
|
34,590
|
|
|
|
42,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(15,787
|
)
|
|
|
(5,502
|
)
|
|
|
(21,890
|
)
|
Proceeds from the sale of equipment
|
|
|
248
|
|
|
|
7,717
|
|
|
|
|
|
Investment in Acceleron Pharmaceuticals, Inc.
|
|
|
(8,000
|
)
|
|
|
|
|
|
|
|
|
Proceeds from the sale of investment in Reliant Pharmaceuticals,
Inc.
|
|
|
|
|
|
|
7,766
|
|
|
|
166,865
|
|
Purchases of investments
|
|
|
(465,387
|
)
|
|
|
(609,741
|
)
|
|
|
(639,582
|
)
|
Sales and maturities of investments
|
|
|
516,935
|
|
|
|
645,120
|
|
|
|
556,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by investing activities
|
|
|
28,009
|
|
|
|
45,360
|
|
|
|
61,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of common stock for share-based
compensation arrangements
|
|
|
2,593
|
|
|
|
7,059
|
|
|
|
11,159
|
|
Excess tax benefit from share-based compensation
|
|
|
246
|
|
|
|
80
|
|
|
|
122
|
|
Payment of debt and capital leases
|
|
|
|
|
|
|
(47
|
)
|
|
|
(1,579
|
)
|
Payment or purchase of non-recourse RISPERDAL CONSTA secured
7% notes
|
|
|
(23,486
|
)
|
|
|
(83,394
|
)
|
|
|
|
|
Purchase of common stock for treasury
|
|
|
(2,684
|
)
|
|
|
(17,996
|
)
|
|
|
(93,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used-in financing activities
|
|
|
(23,331
|
)
|
|
|
(94,298
|
)
|
|
|
(83,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(7,569
|
)
|
|
|
(14,348
|
)
|
|
|
20,741
|
|
CASH AND CASH EQUIVALENTS Beginning of period
|
|
|
86,893
|
|
|
|
101,241
|
|
|
|
80,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS End of period
|
|
$
|
79,324
|
|
|
$
|
86,893
|
|
|
$
|
101,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
4,918
|
|
|
$
|
15,342
|
|
|
$
|
12,002
|
|
Cash paid for taxes
|
|
$
|
114
|
|
|
$
|
860
|
|
|
$
|
5,300
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased capital expenditures included in accounts payable and
accrued expenses
|
|
$
|
2,798
|
|
|
$
|
1,774
|
|
|
$
|
3,074
|
|
Sales of property, plant and equipment included in receivables
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,717
|
|
Net share exercise of warrants into common stock of the issuer
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,994
|
|
Funds held in escrow for the sale of investment in Reliant
Pharmaceuticals, Inc.
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,766
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
ALKERMES,
INC. AND SUBSIDIARIES