results. At March 31, 2017, there were no potential losses from claims, asserted or unasserted, or legal proceedings the Company determined were probable of occurring.
ARISTADA
On July 13, 2015, Otsuka Pharmaceutical Development & Commercialization, Inc. (“Otsuka PD&C”) filed a Citizen Petition with the U.S. Food and Drug Administration (“FDA”) which requested that the FDA refuse to approve the NDA for ARISTADA or delay approval of such NDA until the exclusivity rights covering long-acting aripiprazole expire in December 2017. The FDA approved ARISTADA on October 5, 2015 and, concurrent with such approval, denied Otsuka PD&C’s Citizen Petition.
On October 15, 2015, Otsuka Pharmaceutical Co., Ltd., Otsuka PD&C, and Otsuka America Pharmaceutical, Inc. (collectively, “Otsuka”) filed an action for declaratory and injunctive relief with the U.S. District Court for the District of Columbia (the “DC Court”) against Sylvia Mathews Burwell, Secretary, U.S. Department of Health and Human Services; Dr. Stephen Ostroff, Acting Commissioner, FDA; and the FDA, requesting that the DC Court (a) expedite the legal proceedings; (b) declare that the FDA’s denial of Otsuka’s claimed exclusivity rights and approval of the ARISTADA NDA were arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law; (c) vacate the FDA’s approval of the ARISTADA NDA and vacate any FDA decisions or actions underlying or supporting or predicated upon that approval; (d) declare that Otsuka’s claimed exclusivity rights preclude the FDA from granting approval of the Alkermes NDA until the expiration of such exclusivity rights in December 2017; and (e) grant any and all other, further, and additional relief, including all necessary and appropriate protective preliminary, interim, or permanent relief, as the nature of the cause may require, including all necessary and appropriate declarations of rights and injunctive relief. The Company successfully intervened in, and received the DC Court’s approval to become a party to, this action.
On July 28, 2016, the DC Court issued an opinion in favor of the Company and the FDA, affirming in all respects the FDA’s decision to approve ARISTADA for the treatment of schizophrenia, and denying the action filed by Otsuka for declaratory and injunctive relief. Otsuka has filed an appeal of the DC Court’s decision with the U.S. Court of Appeals for the District of Columbia Circuit (“DC Circuit”) asking the DC Circuit to reverse the DC Court’s decision, vacate the FDA’s approval of the ARISTADA NDA and remand the case to the DC Court for consideration of any appropriate equitable remedy for Otsuka’s lost exclusivity. The DC Circuit’s appellate hearing for this matter occurred on December 12, 2016. The Company believes Otsuka’s action is without merit and will continue to vigorously defend ARISTADA against such action. For information about risks relating to this action, see “Part I, Item 1A—Risk Factors” of the Annual Report and specifically the section entitled “Citizen Petitions and other actions filed with, or litigation against, the FDA or other regulatory agencies or litigation against Alkermes may negatively impact the approval of our products and our business.”
AMPYRA
AMPYRA ANDA Litigation
Ten separate Paragraph IV Certification Notices have been received by the Company and/or its partner Acorda from Accord Healthcare, Inc. (“Accord”); Actavis Laboratories FL, Inc. (“Actavis”); Alkem Laboratories Ltd. (“Alkem”); Apotex Corporation and Apotex, Inc. (collectively, “Apotex”); Aurobindo Pharma Ltd. (“Aurobindo”); Mylan Pharmaceuticals, Inc. (“Mylan”); Par Pharmaceutical, Inc. (“Par”); Roxane Laboratories, Inc. (“Roxane”); Sun Pharmaceutical Industries Limited and Sun Pharmaceuticals Industries Inc. (collectively, “Sun”); and Teva Pharmaceuticals USA, Inc. (“Teva,” and collectively with Accord, Actavis, Alkem, Apotex, Aurobindo, Mylan, Par, Roxane and Sun, the “ANDA Filers”) advising that each of the ANDA Filers had submitted an abbreviated NDA (“ANDA”) to the FDA seeking marketing approval for generic versions of AMPYRA (dalfampridine) Extended-Release Tablets, 10 mg. The ANDA Filers challenged the validity of the Orange Book-listed patents for AMPYRA, and they also asserted that their generic versions do not infringe certain claims of these patents. In response, the Company and/or Acorda filed lawsuits against the ANDA Filers in the U.S. District Court for the District of Delaware (the “Delaware
Court”) asserting infringement of U.S. Patent No. 5,540,938 (the “‘938 Patent”), which the Company owns, and U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685, which are owned by Acorda. Requested judicial remedies included recovery of litigation costs and injunctive relief.
All lawsuits were filed within 45 days from the date of receipt of each of the Paragraph IV Certification Notices from the ANDA Filers. As a result, a 30-month statutory stay of approval period applied to each of the ANDA Filers’ ANDAs under the U.S. Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”). The 30-month stay started on January 22, 2015, and restricted the FDA from approving the ANDA Filers’ ANDAs until July 2017 at the earliest, unless a Federal district court issued a decision adverse to all of the asserted Orange Book-listed patents prior to that date. Lawsuits with eight of the ANDA filers have been consolidated into a single case.
The Company and/or Acorda entered into a settlement agreement with each of Accord, Actavis, Alkem, Apotex, Aurobindo, Par and Sun (collectively, the “Settling ANDA Filers”) to resolve the patent litigation that the Company and/or Acorda brought against the Settling ANDA Filers in the Delaware Court. As a result of the settlement agreements, the Settling ANDA Filers will be permitted to market generic versions of AMPYRA in the U.S. at a specified date in the future. The parties submitted their respective settlement agreements to the U.S. Federal Trade Commission and the U.S. Department of Justice, as required by federal law. The settlements with the Settling ANDA Filers did not impact the patent litigation that the Company and Acorda brought against the remaining ANDA Filers (the “Non-Settling ANDA Filers”), as described in this Form 10-Q.
On March 31, 2017, after a bench trial, the Delaware Court issued an opinion (the “Delaware Court Decision”), upholding the validity of the ‘938 Patent, which pertains to the formulation of AMPYRA and is set to expire in July 2018, and finding that Apotex, Mylan, Roxane and Teva stipulated that their proposed generic forms of AMPYRA infringed the ‘938 Patent. The Delaware Court also invalidated U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685. Acorda has indicated that it will appeal the Delaware Court Decision with respect to the findings on U.S. Patent Nos.
8,007,826; 8,354,437; 8,440,703; and 8,663,685.
In addition, the Non-Settling ANDA Filers may appeal the Delaware Court Decision with respect to
the validity of the
‘
938 Patent.
Mylan challenged the jurisdiction of the Delaware Court with respect to the Delaware action. In January 2015, the Delaware Court denied Mylan’s motion to dismiss. Subsequently, in January 2015, the Delaware Court granted Mylan’s request for an interlocutory appeal of its jurisdictional decision to the
U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”)
. In March 2016, the Federal Circuit denied Mylan’s appeal, and the case remains in the Delaware Court. Mylan requested the Federal Circuit to reconsider its decision. However, on June 20, 2016, the Federal Circuit denied Mylan’s request. Mylan filed an appeal with the U.S. Supreme Court, which was denied. Due to Mylan’s motion to dismiss, the Company, along with Acorda, also filed another patent infringement suit against Mylan in the U.S. District Court for the Northern District of West Virginia asserting the same U.S. Patents and requesting the same judicial relief as in the Delaware action. In December 2014, the Company, along with Acorda, filed a motion in the Northern District of West Virginia to stay that action in deference to the Delaware action. In February 2015, the District Court for the Northern District of West Virginia granted the motion to stay the proceeding. The patent infringement case against Mylan, however, was part of the consolidated Delaware action.
In addition to the Paragraph IV Certification Notices received from the ANDA Filers, in April 2017, Acorda received an additional Paragraph IV Certification Notice from Micro Labs, Ltd. (“Micro Labs”), contending that
U.S. Patent Nos.
8,007,826; 8,354,437; 8,440,703; and 8,663,685
are invalid and not infringed by Micro Labs’ proposed generic version of AMPYRA
(dalfampridine) Extended-Release Tablets, 10 mg
. If a lawsuit is brought within 45 days from receipt of such
Paragraph IV Certification Notice
, the FDA cannot approve Micro Labs’ ANDA for 30 months (unless
a Federal district court issues a decision adverse to all of the asserted Orange Book-listed patents prior to that date
)
.
The Company intends to vigorously enforce its intellectual property rights. For information about risks relating to the AMPYRA Paragraph IV litigations and other proceedings see “Part II, Item 1A—Risk Factors”
in this Form 10-Q and
“Part I, Item 1A—Risk Factors” of the Company’s Annual Report.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes beginning on page 5 of this Form 10-Q, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included in our Annual Report, which has been filed with the SEC.
Executive Summary
Net loss for the three months ended March 31, 2017 was $68.9 million, or $
0.45
per ordinary share— basic and diluted, as compared to a net loss of $77.4 million, or $0.51 per ordinary share— basic and diluted for the three months ended March 31, 2016. The decrease in the net loss incurred in the three months ended March 31, 2017, as compared to the three months ended March 31, 2016, was primarily due to a $35.0 million increase in revenues, particularly in net sales of VIVITROL and ARISTADA, which increased by $14.6 million and $12.5 million, respectively. This was partially offset by an increase in operating expenses of $29.0 million, of which cost of goods manufactured and sold and selling, general and administrative (“SG&A”) expenses had the largest increases of $12.7 million and $12.4 million, respectively. These items are discussed in greater detail later in the “
Results of Operations”
section of this Item 2 of this Form 10-Q.
Products
Marketed Products
The key marketed products discussed below are expected to generate significant revenues for us. See the description of the marketed products below and refer to the “Patents and Proprietary Rights” section of our Annual Report for information with respect to the intellectual property protection for these marketed products.
Summary information regarding our proprietary products includes:
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Product
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Indication(s)
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Licensee
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Territory
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Schizophrenia
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None
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Commercialized by Alkermes in the U.S.
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Alcohol dependence and Opioid dependence
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None
Cilag GmbH International (“Cilag”)
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Commercialized by Alkermes in the U.S.
Russia and Commonwealth of Independent States (“CIS”)
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Summary information regarding products that use our proprietary technologies includes:
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Product
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Indication(s)
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Licensee
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Territory
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RISPERDAL CONSTA
|
|
Schizophrenia and Bipolar I disorder
|
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Janssen Pharmaceutica Inc. ("Janssen, Inc.") and Janssen Pharmaceutica International, a division of Cilag International AG ("Janssen International")
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Worldwide
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INVEGA SUSTENNA
|
|
Schizophrenia and Schizoaffective disorder
|
|
Janssen Pharmaceutica N.V. (together with Janssen, Inc., Janssen International and their affiliates "Janssen")
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U.S.
|
XEPLION
INVEGA TRINZA
|
|
Schizophrenia
Schizophrenia
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Janssen
Janssen
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|
All countries outside of the U.S. (“ROW”)
U.S.
|
TREVICTA
|
|
Schizophrenia
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|
Janssen
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|
ROW
|
AMPYRA
FAMPYRA
|
|
Treatment to improve walking in patients with MS, as demonstrated by an increase in walking speed
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Acorda
Biogen, under sublicense from Acorda
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U.S.
ROW
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BYDUREON
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Type 2 diabetes
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AstraZeneca plc (“AstraZeneca”)
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Worldwide
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Proprietary Products
We develop and commercialize products designed to address the unmet needs of patients suffering from addiction and schizophrenia.
ARISTADA
ARISTADA (aripiprazole lauroxil) is an extended-release intramuscular injectable suspension approved in the U.S. for the treatment of schizophrenia. ARISTADA is the first of our products to utilize our proprietary LinkeRx technology. ARISTADA is a prodrug; once in the body, ARISTADA is likely converted by enzyme-mediated hydrolysis to N-hydroxymethyl aripiprazole, which is then hydrolyzed to aripiprazole. ARISTADA is the first atypical antipsychotic with once-monthly and six-week dosing options to deliver and maintain therapeutic levels of medication in the body. ARISTADA has three dosing options (441 mg, 662 mg and 882 mg) and is packaged in a ready-to-use, pre-filled product format. We developed, manufacture and commercialize ARISTADA in the U.S.
VIVITROL
VIVITROL (naltrexone for extended-release injectable suspension) is the only once-monthly, non-addictive, injectable medication approved in the U.S., Russia and certain countries of the CIS for the treatment of alcohol dependence and for the prevention of relapse to opioid dependence, following opioid detoxification. VIVITROL uses our polymer-based microsphere injectable extended-release technology to deliver and maintain therapeutic medication levels in the body through one intramuscular injection every four weeks. We developed and exclusively manufacture VIVITROL. We commercialize VIVITROL in the U.S., and Cilag commercializes VIVITROL in Russia and certain countries of the CIS.
Products Using Our Proprietary Technologies
We have granted licenses under our proprietary technologies to enable third parties to develop, commercialize and, in some cases, manufacture products for which we receive royalties and/or manufacturing revenues. Such arrangements include the following:
INVEGA SUSTENNA/XEPLION, INVEGA TRINZA/TREVICTA and RISPERDAL CONSTA
INVEGA SUSTENNA/XEPLION (paliperidone palmitate), INVEGA TRINZA/TREVICTA (paliperidone palmitate) and RISPERDAL CONSTA (risperidone long-acting injection) are long-acting atypical antipsychotics owned and commercialized worldwide by Janssen that incorporate our proprietary technologies.
INVEGA SUSTENNA is approved in the U.S. for the treatment of schizophrenia and for the treatment of schizoaffective disorder as either a monotherapy or adjunctive therapy. Paliperidone palmitate extended-release injectable suspension is approved in the European Union ("EU") and other countries outside of the U.S. for the treatment of schizophrenia and is marketed and sold under the trade name XEPLION. INVEGA SUSTENNA/XEPLION uses our nanoparticle injectable extended-release technology to increase the rate of dissolution and enable the formulation of an aqueous suspension for once-monthly intramuscular administration. INVEGA SUSTENNA/XEPLION is manufactured by Janssen.
INVEGA TRINZA is an atypical antipsychotic injection for the treatment of schizophrenia used in people who have been treated with INVEGA SUSTENNA for at least four months. INVEGA TRINZA, is the first schizophrenia treatment to be taken once every three months. TREVICTA (paliperidone palmitate a 3-monthly injection), is approved in the EU for the maintenance treatment of schizophrenia in adult patients who are clinically stable on XEPLION. INVEGA TRINZA/TREVICTA uses our proprietary technology and is manufactured by Janssen.
RISPERDAL CONSTA is approved in the U.S. for the treatment of schizophrenia and as both monotherapy and adjunctive therapy to lithium or valproate in the maintenance treatment of bipolar I disorder. RISPERDAL CONSTA is approved in numerous countries outside of the U.S. for the treatment of schizophrenia and the maintenance treatment of
bipolar I disorder. RISPERDAL CONSTA uses our polymer-based microsphere injectable extended-release technology to deliver and maintain therapeutic medication levels in the body through just one intramuscular injection every two weeks. RISPERDAL CONSTA microspheres are exclusively manufactured by us.
AMPYRA/FAMPYRA
AMPYRA (dalfampridine)/FAMPYRA (fampridine) is believed to be the first treatment approved in the U.S. and in over 50 countries across Europe, Asia and the Americas to improve walking in adults with MS who have walking disability, as demonstrated by an increase in walking speed. Extended-release dalfampridine tablets are marketed and sold by Acorda in the U.S. under the trade name AMPYRA and by Biogen outside the U.S. under the trade name FAMPYRA. In July 2011, the European Medicines Agency (“EMA”) conditionally approved FAMPYRA in the EU for the improvement of walking in adults with MS. This authorization was renewed as of August 2016. AMPYRA and FAMPYRA incorporate our oral controlled-release technology. AMPYRA and FAMPYRA are manufactured by us.
We have received notices of
ANDA
filings for AMPYRA asserting that a generic form of AMPYRA would not infringe AMPYRA’s Orange Book-listed patents and/or those patents are invalid.
In response,
we and/or Acorda filed lawsuits against certain of the ANDA filers in the
Delaware Court
asserting infringement of the ‘938 Patent, which we own, and U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685, which are owned by Acorda. On March 31, 2017, the Delaware Court upheld the ‘938 Patent, which pertains to the formulation of AMPYRA and is set to expire in July 2018, and invalidated U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685, which pertain to AMPYRA. Acorda has indicated that it will appeal the Delaware Court’s decision, with respect to the findings on U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685. For further discussion of the legal proceedings related to the patents covering AMPYRA, see “Part II, Item 1—Legal Proceedings” in this Form 10-Q, and f
or information about risks relating to such legal proceedings see “Part II, Item 1A—Risk Factors” in this Form 10-Q and
“Part I, Item 1A—Risk Factors” of our Annual Report.
The legal proceedings related to the patents covering AMPYRA do not involve the patents covering FAMPYRA, and the latest of the patents covering FAMPYRA expires in April 2025 in the EU.
BYDUREON
BYDUREON (exenatide extended-release for injectable suspension) is approved in the U.S. and the EU for the treatment of type 2 diabetes. AstraZeneca is responsible for the development and commercialization of BYDUREON worldwide. BYDUREON, a once-weekly formulation of exenatide, uses our polymer-based microsphere injectable extended-release technology. BYDUREON is manufactured by AstraZeneca. BYDUREON Pen 2 mg, a pre-filled, single-use pen injector that contains the same formulation and dose as the original BYDUREON single-dose tray, is available in the U.S., certain countries in the EU and Japan.
Key Development Programs
Our R&D is focused on leveraging our formulation expertise and proprietary product platforms to develop novel, competitively advantaged medications designed to enhance patient outcomes in major CNS disorders, such as schizophrenia, addiction, depression and MS. As part of our ongoing R&D efforts, we have devoted, and will continue to devote, significant resources to conducting pre-clinical work and clinical studies to advance the development of new pharmaceutical products. The discussion below highlights our current key R&D programs. Drug development involves a high degree of risk and investment, and the status, timing and scope of our development programs are subject to change. Important factors that could adversely affect our drug development efforts are discussed in “Part I, Item 1A—Risk Factors” of our Annual Report. Refer to the “Patents and Proprietary Rights” section of our Annual Report for information with respect to the intellectual property protection for our development products.
The following graphic summarizes the status of our key development programs:
Aripiprazole Lauroxil Two-Month Dose
Aripiprazole lauroxil, an intramuscular injectable atypical antipsychotic, which is currently commercially available as ARISTADA, with once-monthly and six-week dosing options, for the treatment of schizophrenia is also currently in development with a two-month dosing interval. In October 2016, the FDA accepted our supplemental NDA (“sNDA”) for a two-month dosing option of aripiprazole lauroxil extended-release injectable suspension for the treatment of schizophrenia and assigned it a Prescription Drug User Fee Act (“PDUFA”) action date of June 5, 2017.
ALKS 5461
ALKS 5461 is a proprietary, once-daily, oral sublingual investigational medicine with a novel mechanism of action in development for the adjunctive treatment of major depressive disorder (“MDD”) in patients with an inadequate response to standard antidepressant therapies. ALKS 5461 is composed of samidorphan in combination with buprenorphine. Samidorphan is a proprietary oral opioid modulator characterized by limited hepatic metabolism and durable pharmacologic activity in modulating brain opioid receptors. In October 2013, the FDA granted Fast Track status for ALKS 5461 for the adjunctive treatment of MDD in patients with inadequate response to standard antidepressant therapies.
In February 2017, we met with the FDA’s Division of Psychiatric Products at a Type C meeting to discuss ALKS 5461. We have requested a pre-NDA meeting with the FDA and plan to submit the NDA for ALKS 5461 in the second half of 2017.
In April 2017, we announced plans to initiate a phase 3 study of ALKS 5461 in the second quarter of 2017. Study 217 will continue our focus on patients suffering from refractory depression and use the Montgomery—Åsberg Depression Rating Scale (“MADRS”), and will also include additional scales and endpoints related to social interaction, anhedonia and resilience, which are regulated by the opioid system and where ALKS 5461 may have particular benefit.
ALKS 3831
ALKS 3831 is a novel, proprietary, oral investigational medicine designed as a broad-spectrum antipsychotic for the treatment of schizophrenia. ALKS 3831 is composed of samidorphan in combination with the established antipsychotic drug olanzapine, which is generally available under the name ZYPREXA. ALKS 3831 is designed to provide the strong antipsychotic efficacy of olanzapine and a differentiated safety profile with favorable weight and metabolic properties.
Results from ENLIGHTEN-1 and ENLIGHTEN-2, the two phase 3 studies from the ENLIGHTEN pivotal program for ALKS 3831, are expected in the mid-2017 and in mid-2018, respectively. We expect to use safety and efficacy data from the ENLIGHTEN pivotal program, if successful, to serve as the basis for an NDA to be submitted to the FDA.
Results from the exploratory phase 1 metabolic study of ALKS 3831, assessing the effects of ALKS 3831 on whole body insulin sensitivity, lipid metabolism and other important metabolic parameters compared to olanzapine, are expected in mid-2017.
In January 2017, we announced plans to initiate a phase 3 study of ALKS 3831 in young adult patients. The study will assess the weight gain profile of ALKS 3831 compared to treatment with olanzapine. The study is expected to initiate in the second quarter of 2017.
In April 2017, we announced data from the phase 2 study of ALKS 3831 in patients with schizophrenia and co-occurring alcohol use disorder. The pre-specified endpoint was a novel composite measure of disease exacerbation as measured by a series of potential events ranging from hospitalization to arrest. The study did not show a difference on this endpoint, as the ALKS 3831 and olanzapine treatment groups performed similarly well. While both groups experienced an improvement in Positive and Negative Syndrome Scale (“PANSS”) total scores, which was an explanatory endpoint in the study, a greater improvement was observed in subjects on ALKS 3831 at the end of the study period. Analysis of the full dataset is ongoing and we will present data at a future medical meeting.
ALKS 8700
ALKS 8700 is a novel, proprietary, oral investigational monomethyl fumarate (“MMF”) molecule in development for the treatment of MS. ALKS 8700 is designed to rapidly and efficiently convert to MMF in the body and to offer differentiated features as compared to the currently marketed dimethyl fumarate, TECFIDERA. In March 2017, in order to assess the differentiated gastrointestinal tolerability profile of ALKS 8700, we initiated an elective randomized, head-to-head phase 3 study of the gastrointestinal tolerability of ALKS 8700 compared to TECFIDERA in patients with relapsing-remitting MS.
The pivotal clinical program for ALKS 8700 consists of pharmacokinetic bridging studies comparing ALKS 8700 and TECFIDERA and a two-year, multicenter, open-label study designed to assess the safety of ALKS 8700, which we initiated in December 2015. We expect to complete the clinical registration requirements for ALKS 8700 by year-end, and to complete the required non-clinical studies and file a 505(b)(2) NDA in 2018.
For more information about 505(b)(2) NDAs, see “Part 1, Item 1—Business, Regulatory, Hatch-Waxman Act” of our Annual Report.
ALKS 6428
ALKS 6428 is designed to help healthcare providers transition patients from physical dependence on opioids to initiation with VIVITROL. ALKS 6428 is an investigational regimen of ascending doses of oral naltrexone administered in conjunction with ancillary medications, including buprenorphine, during a seven-day treatment period, prior to first VIVITROL injection. In February 2017, we announced that ALKS 6428 did not meet its primary endpoint in a phase 3 study, and no statistically significant difference between treatment groups was observed. Patients in each of the three treatment arms (ALKS 6428 plus tapering doses of buprenorphine, ALKS 6428 plus placebo, and placebo) performed equally well, with a similar percentage of patients successfully transitioning to initiation with VIVITROL. The company is continuing to analyze the full data set from the study. A second phase 3 study of ALKS 6428 is ongoing in patients who want to transition from buprenorphine maintenance therapy to initiation with VIVITROL for the treatment of opioid dependence.
ALKS 4230
ALKS 4230 is an engineered fusion protein designed to preferentially bind and signal through the intermediate affinity interleukin-2 (IL-2) receptor complex, thereby selectively activating and increasing the number of immunostimulatory tumor-killing immune cells while avoiding the expansion of immunosuppressive cells that interfere with anti-tumor response. The selectivity of ALKS 4230 is designed to leverage the proven anti-tumor effects while overcoming limitations of existing IL-2 therapy, which activates both immunosuppressive and tumor-killing immune cells. We filed an Investigational New Drug application with the FDA in the first quarter of 2016 and initiated a phase 1 clinical trial in May 2016. This phase 1 study is being conducted in two stages: a dose-escalation stage followed by a dose-expansion stage. The first stage of the study is designed to determine a maximum tolerated dose, and to identify the optimal dose range of ALKS 4230 based on measures of immunological-pharmacodynamic effects. Following the identification of the optimal dose range of ALKS 4230 in the first stage of the study, the dose-expansion stage of the study will evaluate ALKS 4230 in patients with selected solid tumor types. Initial data from the first stage of the phase 1 study are expected in 2017.
Results of Operations
Manufacturing and Royalty Revenues
Manufacturing fees are earned for the manufacture of products under arrangements with our collaborators when product is shipped to them at an agreed upon price. Royalties are earned on our collaborators' sales of products that incorporate our technologies. Royalties are generally recognized in the period the products are sold by our collaborators. The following table compares manufacturing and royalty revenues earned in the three months ended March 31, 2017 and 2016:
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Three Months Ended
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Change
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March 31,
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Favorable/
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(In millions)
|
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2017
|
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2016
|
|
(Unfavorable)
|
|
Manufacturing and royalty revenues:
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|
|
|
|
|
|
|
|
|
|
INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA
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$
|
39.2
|
|
$
|
31.4
|
|
$
|
7.8
|
|
AMPYRA/FAMPYRA
|
|
|
29.2
|
|
|
28.2
|
|
|
1.0
|
|
RISPERDAL CONSTA
|
|
|
20.8
|
|
|
23.3
|
|
|
(2.5)
|
|
BYDUREON
|
|
|
12.3
|
|
|
10.5
|
|
|
1.8
|
|
Other
|
|
|
13.2
|
|
|
12.8
|
|
|
0.4
|
|
Manufacturing and royalty revenues
|
|
$
|
114.7
|
|
$
|
106.2
|
|
$
|
8.5
|
|
The increase in INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA royalty revenues was due to an increase in Janssen’s end-market sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA. During the three months ended March 31, 2017, Janssen’s end-market sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA were $604.0 million, as compared to $513.0 million in the three months ended March 31, 2016. Under our agreement with Janssen, we earn royalty revenues on end-market net sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA of: 5% on calendar year net sales up to $250 million; 7% on calendar year net sales of between $250 million and $500 million; and 9% on calendar year net sales exceeding $500
million. The royalty rate resets to 5% at the beginning of each calendar year.
The increase in AMPYRA/FAMPYRA manufacturing and royalty revenues was primarily due to a 10% increase in the amount of FAMPYRA shipped to Biogen and a 2% increase in FAMPYRA royalty revenues, partially offset by a 4% decrease in the amount of AMPYRA shipped to Acorda. Under our supply and license agreements with Acorda, we earn manufacturing and royalty revenues when AMPYRA is shipped to Acorda, either by us or a third-party manufacturer, we earn manufacturing revenue when FAMPYRA is shipped to Biogen and we earn royalty revenues on end-market sales of FAMPYRA.
On March 31, 2017, the Delaware Court
upheld the ‘938 Patent, which pertains to the formulation of AMPYRA
and is set to expire in July 2018, and invalidated U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685, which pertain to AMPYRA.
Upon expiry of the
‘938 Patent
in July 2018, and assuming Acorda is unsuccessful in appealing the Delaware Court’s decision
with respect to the findings on
U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685, we can expect
competition from generic forms of AMPYRA
that would impact our manufacturing and royalty revenues. We expect our manufacturing and royalty revenues to decline in advance of generic entry in anticipation of reduced demand for AMPYRA.
For further discussion of the legal proceedings related to the patents covering AMPYRA, see “Part II, Item 1—Legal Proceedings” in this Form 10-Q, and f
or information about risks relating to such legal proceedings see “Part II, Item 1A—Risk Factors” in this Form 10-Q and
“Part I, Item 1A—Risk Factors” of our Annual Report. The legal proceedings related to the patents covering AMPYRA do not involve the patents covering FAMPYRA, and the latest of the patents covering FAMPYRA expires in April 2025 in the EU.
The decrease in RISPERDAL CONSTA manufacturing and royalty revenues was due to an 11% decrease in manufacturing revenue and a 10% decrease in royalty revenues. The decrease in manufacturing revenues was primarily due to a 13% decrease in the price we earned on shipments of RISPERDAL CONSTA to Janssen, partially offset by a 10% increase in the amount of RISPERDAL CONSTA shipped to Janssen. The decrease in royalty revenues was due to Janssen’s end-market sales of RISPERDAL CONSTA declining from $231.0 million in the three months ended March 31, 2016 to
$207.0 million in the three months ended March 31, 2017.
The increase in BYDUREON royalty revenues was due to an increase in end-market sales of BYDUREON by AstraZeneca. During the three months ended March 31, 2017, AstraZeneca’s end-market sales of BYDUREON were $152.8 million, as compared to $135.4 million in the three months ended March 31, 2016.
Product Sales, net
Our product sales, net consist of sales of VIVITROL and ARISTADA in the U.S., primarily to wholesalers, specialty distributors and specialty pharmacies. The following table presents the adjustments deducted from product sales, gross to arrive at product sales, net for sales during the three months ended March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2017
|
|
% of Sales
|
|
|
2016
|
|
% of Sales
|
|
|
Product sales, gross
|
|
$
|
132.6
|
|
100.0
|
%
|
|
$
|
80.5
|
|
100.0
|
%
|
|
Adjustments to product sales, gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicaid rebates
|
|
|
(27.6)
|
|
(20.8)
|
%
|
|
|
(13.7)
|
|
(17.0)
|
%
|
|
Product discounts
|
|
|
(10.2)
|
|
(7.7)
|
%
|
|
|
(4.6)
|
|
(5.7)
|
%
|
|
Chargebacks
|
|
|
(9.7)
|
|
(7.3)
|
%
|
|
|
(6.1)
|
|
(7.6)
|
%
|
|
Co-pay assistance
|
|
|
(1.9)
|
|
(1.4)
|
%
|
|
|
(1.9)
|
|
(2.4)
|
%
|
|
Other
|
|
|
(6.7)
|
|
(5.1)
|
%
|
|
|
(4.8)
|
|
(5.9)
|
%
|
|
Total adjustments
|
|
|
(56.1)
|
|
(42.3)
|
%
|
|
|
(31.1)
|
|
(38.6)
|
%
|
|
Product sales, net
|
|
$
|
76.5
|
|
57.7
|
%
|
|
$
|
49.4
|
|
61.4
|
%
|
|
Our product sales, net for VIVITROL and ARISTADA in the three months ended March 31, 2017 were $58.5 million and $18.0 million, respectively, as compared to $43.8 million and $5.6 million in the three months ended March 31, 2016, respectively. The increase in product sales, gross was due to a 43% increase in the number of VIVITROL units
sold and a 431% increase in the number of ARISTADA units sold. ARISTADA was first commercialized in October 2015. The increase in the amount of Medicaid rebates as a percentage of sales was primarily due to an increase in the amount of VIVITROL sold under the Medicaid Drug Rebate Program.
Costs and Expenses
Cost of Goods Manufactured and Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change
|
|
|
|
March 31,
|
|
Favorable/
|
|
(In millions)
|
|
2017
|
|
2016
|
|
(Unfavorable)
|
|
Cost of goods manufactured and sold
|
|
$
|
40.4
|
|
$
|
27.7
|
|
$
|
(12.7)
|
|
The increase in the cost of goods manufactured and sold was primarily due to increased sales of VIVITROL and ARISTADA
. Cost of goods manufactured and sold for VIVITROL increased by $5.0 million and cost of goods sold for ARISTADA increased by $1.9 million. In addition, cost of goods manufactured for RISPERDAL CONSTA increased by $2.3 million
.
Research and Development Expense
For each of our R&D programs, we incur both external and internal expenses. External R&D expenses include costs related to clinical and non-clinical activities performed by contract research organizations, consulting fees, laboratory services, purchases of drug product materials and third-party manufacturing development costs. Internal R&D expenses include employee-related expenses, occupancy costs, depreciation and general overhead. We track external R&D expenses for each of our development programs; however, internal R&D expenses are not tracked by individual program as they benefit multiple programs or our technologies in general.
The following table sets forth our external R&D expenses relating to our individual key development programs and all other development programs, and our internal R&D expenses by the nature of such expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change
|
|
|
|
March 31,
|
|
Favorable/
|
|
(In millions)
|
|
2017
|
|
2016
|
|
(Unfavorable)
|
|
External R&D Expenses:
|
|
|
|
|
|
|
|
|
|
|
Key development programs:
|
|
|
|
|
|
|
|
|
|
|
ALKS 3831
|
|
$
|
25.8
|
|
$
|
14.2
|
|
$
|
(11.6)
|
|
ALKS 8700
|
|
|
14.7
|
|
|
3.7
|
|
|
(11.0)
|
|
ALKS 5461
|
|
|
9.2
|
|
|
12.7
|
|
|
3.5
|
|
ALKS 6428
|
|
|
2.9
|
|
|
5.0
|
|
|
2.1
|
|
ARISTADA and ARISTADA line extensions
|
|
|
1.9
|
|
|
14.4
|
|
|
12.5
|
|
Other external R&D expenses
|
|
|
8.9
|
|
|
16.0
|
|
|
7.1
|
|
Total external R&D expenses
|
|
|
63.4
|
|
|
66.0
|
|
|
2.6
|
|
Internal R&D expenses:
|
|
|
|
|
|
|
|
|
|
|
Employee-related
|
|
|
31.7
|
|
|
27.0
|
|
|
(4.7)
|
|
Occupancy
|
|
|
2.4
|
|
|
2.5
|
|
|
0.1
|
|
Depreciation
|
|
|
2.4
|
|
|
1.7
|
|
|
(0.7)
|
|
Other
|
|
|
4.9
|
|
|
3.9
|
|
|
(1.0)
|
|
Total internal R&D expenses
|
|
|
41.4
|
|
|
35.1
|
|
|
(6.3)
|
|
Research and development expenses
|
|
$
|
104.8
|
|
$
|
101.1
|
|
$
|
(3.7)
|
|
These amounts are not necessarily predictive of future R&D expenses. In an effort to allocate our spending most effectively, we continually evaluate the products under development, based on the performance of such products in pre-clinical and/or clinical trials, our expectations regarding the likelihood of their regulatory approval and our view of their commercial viability, among other factors.
The increase in the expenses related to ALKS 3831 was primarily due to the timing of activity within the ENLIGHTEN-1 and ENLIGHTEN-2 pivotal trials, which were initiated in December 2015 and February 2016, respectively. The increase in expenses related to ALKS 8700 was primarily due to further progression of the two-year,
multicenter, open-label phase 3 study designed to assess the safety of ALKS 8700, which was initiated in December 2015 and is actively enrolling. We also initiated a phase 3 gastrointestinal tolerability study in March 2017. The decrease in expenses related to ALKS 5461 was primarily due to the completion of the three core phase 3 studies related to the program. We announced topline results of the FORWARD-3 and FORWARD-4 studies in January 2016 and topline results from FORWARD-5 were announced in October 2016. The decrease in expenses related to ALKS 6428 was primarily due to the completion of a phase 3 clinical study in which topline results were announced in February 2017. The decrease in expenses related to ARISTADA and ARISTADA line extensions was primarily due to the timing of the phase 1 clinical study of extended dosing intervals of aripiprazole lauroxil in patients with schizophrenia.
The increase in employee-related expenses was primarily due to an increase in R&D headcount of 13% from March 31, 2016 to March 31, 2017.
Selling, General and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change
|
|
|
|
March 31,
|
|
Favorable/
|
|
(In millions)
|
|
2017
|
|
2016
|
|
(Unfavorable)
|
|
Selling, general and administrative expense
|
|
$
|
102.1
|
|
$
|
89.7
|
|
$
|
(12.4)
|
|
The increase in SG&A expense was primarily due
to an increase in employee-related expenses of $4.1 million and marketing and professional service fees of $7.2 million. The increase in employee-related expenses was primarily due to a 13% increase in our SG&A-related headcount from March 31, 2016 to March 31, 2017.
The increase in marketing and professional services fees was primarily due to additional brand investments in both VIVITROL and ARISTADA, as well as an increase in patient access support services, such as reimbursement and transition assistance, for both of these products.
Amortization of Acquired Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change
|
|
|
|
March 31,
|
|
Favorable/
|
|
(In millions)
|
|
2017
|
|
2016
|
|
(Unfavorable)
|
|
Amortization of acquired intangible assets
|
|
$
|
15.3
|
|
$
|
15.2
|
|
$
|
(0.1)
|
|
We amortize our amortizable intangible assets using the economic use method, which reflects the pattern that the economic benefits of the intangible assets are consumed as revenue is generated from the underlying patent or contract.
Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at March 31, 2017 is expected to be approximately $60.0 million, $60.0 million, $55.0 million, $50.0 million and $45.0 million in the years ending December 31, 2017 through 2021, respectively.
Income Tax (Benefit) Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change
|
|
|
|
March 31,
|
|
Favorable/
|
|
(In millions)
|
|
2017
|
|
2016
|
|
(Unfavorable)
|
|
(Benefit) provision for income taxes
|
|
$
|
(3.7)
|
|
$
|
0.4
|
|
$
|
4.1
|
|
The income tax (benefit) provision in the three months ended March 31, 2017 and 2016 primarily relates to U.S. federal and state taxes. The favorable change in income taxes in the three months ended March 31, 2017, as compared to the corresponding prior period, was primarily due to the recognition of excess tax benefits related to share-based compensation.
In March 2016, the FASB issued guidance as part of its simplification initiative that involves several aspects of the accounting for share-based payment transactions including the requirement that all future excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the income statement. On January 1, 2017, we adopted this standard on a modified retrospective basis, which resulted in a cumulative-effect adjustment of $61.5 million to accumulated deficit due to the change in the accounting treatment of excess tax benefits and tax deficiencies.
Liquidity and Financial Condition
Our financial condition is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
(In millions)
|
|
U.S.
|
|
Ireland
|
|
Total
|
|
U.S.
|
|
Ireland
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
64.3
|
|
$
|
117.0
|
|
$
|
181.3
|
|
$
|
81.2
|
|
$
|
105.2
|
|
$
|
186.4
|
|
Investments—short-term
|
|
|
183.2
|
|
|
111.9
|
|
|
295.1
|
|
|
184.4
|
|
|
126.5
|
|
|
310.9
|
|
Investments—long-term
|
|
|
63.4
|
|
|
49.6
|
|
|
113.0
|
|
|
60.1
|
|
|
61.8
|
|
|
121.9
|
|
Total cash and investments
|
|
$
|
310.9
|
|
$
|
278.5
|
|
$
|
589.4
|
|
$
|
325.7
|
|
$
|
293.5
|
|
$
|
619.2
|
|
Outstanding borrowings—short and long-term
|
|
$
|
283.1
|
|
$
|
—
|
|
$
|
283.1
|
|
$
|
283.7
|
|
$
|
—
|
|
$
|
283.7
|
|
At March 31, 2017, our investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Estimated
|
|
(In millions)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
Investments—short-term
|
|
$
|
295.2
|
|
$
|
0.1
|
|
$
|
(0.2)
|
|
$
|
295.1
|
|
Investments—long-term available-for-sale
|
|
|
109.9
|
|
|
—
|
|
|
(0.3)
|
|
|
109.6
|
|
Investments—long-term held-to-maturity
|
|
|
3.4
|
|
|
—
|
|
|
—
|
|
|
3.4
|
|
Total
|
|
$
|
408.5
|
|
$
|
0.1
|
|
$
|
(0.5)
|
|
$
|
408.1
|
|
Our investment objectives are, first, to preserve liquidity and conserve capital and, second, to generate investment income. We mitigate credit risk in our cash reserves by maintaining a well-diversified portfolio that limits the amount of investment exposure as to institution, maturity and investment type. However, the value of these securities may be adversely affected by the instability of the global financial markets, which could, in turn, adversely impact our financial position and our overall liquidity. 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 and corporate debt securities. 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 12 months, as long-term investments. Available-for-sale investments in an unrealized gain position are classified as short-term investments, regardless of maturity date. 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, 2017, we performed an analysis of our investments with unrealized losses for impairment and determined that they were temporarily impaired.
Sources and Uses of Cash
We expect that our existing cash and investments balance will be sufficient to finance our anticipated working capital and other cash requirements, such as capital expenditures and principal and interest payments, for at least twelve months following the date from which this Form 10-Q was issued. Subject to market conditions, interest rates and other factors, we may pursue opportunities to obtain additional financing in the future, including debt and equity offerings, corporate collaborations, bank borrowings, arrangements relating to assets or other financing methods or structures.
Information about our cash flows, by category, is presented in the “Condensed Consolidated Statements of Cash Flows”. The following table summarizes our cash flows for the three months ended March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2017
|
|
2016
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
186.4
|
|
$
|
181.1
|
|
Cash used in operating activities
|
|
|
(13.7)
|
|
|
(57.2)
|
|
Cash provided by investing activities
|
|
|
15.4
|
|
|
72.7
|
|
Cash (used in) provided by financing activities
|
|
|
(6.8)
|
|
|
3.4
|
|
Cash and cash equivalents, end of period
|
|
$
|
181.3
|
|
$
|
200.0
|
|
The decrease in cash flows used in operating activities was primarily due to a 20% increase in cash received from our customers and a 14% decrease in cash paid to our suppliers, partially offset by a 13% increase in cash paid to our employees. The increase in cash received from our customers was primarily due to the increase in revenue, as previously discussed. The decrease in cash paid to our suppliers was primarily related to the timing of payments. The increase in cash paid to employees was primarily due to a 17% increase in our headcount from March 31, 2016 to March 31, 2017.
The decrease in cash flows provided by investing activities in the three months ended March 31, 2017, as compared to the three months ended March 31, 2016, was primarily due to a $74.9 million decrease in the net sales of investments. This was partially offset by a $2.6 million decrease in cash paid for property, plant and equipment and the $15.0 million investment we made in Reset in February 2016.
The decrease in cash flows (used in) provided by financing activities in the three months ended March 31, 2017, as compared to the three months ended March 31, 2016, was primarily due to a decrease of $6.2 million in cash received from our employees from the exercise of stock options, net of amounts withheld for taxes.
Borrowings
At March 31, 2017, the principal balance of our borrowings consisted of $286.5 million outstanding under our Term Loan B-1. Refer to Note 10,
Long-Term Debt
, within the “Notes to Consolidated Financial Statements” of our Annual Report, for a discussion of our outstanding term loans.
Contractual Obligations
Refer to the “
Contractual Obligations
” section within “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report for a discussion of our contractual obligations. Our contractual obligations have not materially changed from the date of that Annual Report.
In March 2017, we entered into a lease agreement to lease approximately 65,000 square feet of office space in Waltham, Massachusetts (the “Building”). Beginning March 1, 2017, the Company began leasing approximately 43,290 square feet (“Premises A”) of the Building, and, on January 1, 2018, the Company will gain access to the additional 21,645 square feet (“Premises B”). The lease on both Premises A and Premises B ends on September 30, 2020 and will result in rental expense of approximately $1.2 million in 2017 and $2.2 million from 2018 through 2020.
Off-Balance Sheet Arrangements
At March 31, 2017, 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 material to investors.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. Refer to "
Critical Accounting Estimates
" within “Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report for a discussion of our critical accounting estimates.
New Accounting Standards
Refer to “New Accounting Pronouncements” included in Note 2,
Summary of Significant Accounting Policies
in the “Notes to Condensed Consolidated Statements” in this Form 10-Q for a discussion of new accounting standards.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Market risks related to our investment portfolio, and the ways we manage such risks, are summarized in “Part II, Item 7A – Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report. We regularly review our marketable securities holdings and shift our investment holdings to those that best meet our investment objectives, which are, first, to preserve liquidity and conserve capital and, second, to generate investment income. Apart from such adjustments to our investment portfolio, there have been no material changes to our market risks since December 31, 2016, and we do not anticipate any near-term changes in the nature of our market risk exposures or in our management's objectives and strategies with respect to managing such exposures.
We are exposed to foreign currency exchange risk related to manufacturing and royalty revenues we receive on certain of our products, partially offset by certain operating costs arising from expenses and payables at our Irish operations that are settled predominantly in Euro. These foreign currency exchange rate risks are summarized in “Part II, Item 7A – Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report. There has been no material change in our assessment of our sensitivity to foreign currency exchange rate risk since December 31, 2016.
Item 4.
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 the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), on March 31, 2017. 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, 2017 to provide reasonable assurance that the 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 SEC’s 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. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
b) Change in Internal Control Over Financial Reporting
During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. The outcome of any such proceedings, regardless of the merits, is inherently uncertain. For a description of risks relating to
these and other legal proceedings we face, see “Part II, Item 1A—Risk Factors” in this Form 10-Q and “Part I, Item 1A – Risk Factors” of our Annual Report.
ARISTADA
On July 13, 2015, Otsuka PD&C filed a Citizen Petition with the FDA which requested that the FDA refuse to approve the NDA for ARISTADA or delay approval of such NDA until the exclusivity rights covering long-acting aripiprazole expire in December 2017. The FDA approved ARISTADA on October 5, 2015 and, concurrent with such approval, denied Otsuka PD&C’s Citizen Petition.
On October 15, 2015, Otsuka filed an action for declaratory and injunctive relief with the DC Court against Sylvia Mathews Burwell, Secretary, U.S. Department of Health and Human Services; Dr. Stephen Ostroff, Acting Commissioner, FDA; and the FDA, requesting that the DC Court (a) expedite the legal proceedings; (b) declare that the FDA’s denial of Otsuka’s claimed exclusivity rights and approval of the ARISTADA NDA were arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law; (c) vacate the FDA’s approval of the ARISTADA NDA and vacate any FDA decisions or actions underlying or supporting or predicated upon that approval; (d) declare that Otsuka’s claimed exclusivity rights preclude the FDA from granting approval of our NDA until the expiration of such exclusivity rights in December 2017; and (e) grant any and all other, further, and additional relief, including all necessary and appropriate protective preliminary, interim, or permanent relief, as the nature of the cause may require, including all necessary and appropriate declarations of rights and injunctive relief. We successfully intervened in, and received the DC Court’s approval to become a party to, this action.
On July 28, 2016, the DC Court issued an opinion in our and the FDA’s favor, affirming in all respects the FDA’s decision to approve ARISTADA for the treatment of schizophrenia, and denying the action filed by Otsuka for declaratory and injunctive relief. Otsuka has filed an appeal of the DC Court’s decision with the DC Circuit asking the DC Circuit to reverse the DC Court’s decision, vacate the FDA’s approval of the ARISTADA NDA and remand the case to the DC Court for consideration of any appropriate equitable remedy for Otsuka’s lost exclusivity. The DC Circuit’s appellate hearing for this matter occurred on December 12, 2016. We believe Otsuka’s action is without merit and will continue to vigorously defend ARISTADA against such action. For information about risks relating to this action, see “Part I, Item 1A—Risk Factors” of the Annual Report and specifically the section entitled “Citizen Petitions and other actions filed with, or litigation against, the FDA or other regulatory agencies or litigation against Alkermes may negatively impact the approval of our products and our business.”
AMPYRA
AMPYRA ANDA Litigation
Ten separate Paragraph IV Certification Notices have been received by us and/or our partner Acorda from the ANDA Filers advising that each of the ANDA Filers had submitted an ANDA to the FDA seeking marketing approval for generic versions of AMPYRA (dalfampridine) Extended-Release Tablets, 10 mg. The ANDA Filers challenged the validity of the Orange Book-listed patents for AMPYRA, and they also asserted that their generic versions do not infringe certain claims of these patents. In response, we and/or Acorda filed lawsuits against the ANDA Filers in the Delaware Court asserting infringement of the ‘938 Patent, which we own, and U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685, which are owned by Acorda. Requested judicial remedies included recovery of litigation costs and injunctive relief.
All lawsuits were filed within 45 days from the date of receipt of each of the Paragraph IV Certification Notices from the ANDA Filers. As a result, a 30-month statutory stay of approval period applied to each ANDA Filers’ ANDA under the Hatch-Waxman Act. The 30-month stay started on January 22, 2015, and restricted the FDA from approving the ANDA Filers’ ANDAs until July 2017 at the earliest, unless a Federal district court issued a decision adverse to all of the asserted Orange Book-listed patents prior to that date. Lawsuits with eight of the ANDA filers have been consolidated into a single case.
We and/or Acorda entered into a settlement agreement with each of the Settling ANDA Filers to resolve the patent litigation that the Company and/or Acorda brought against the Settling ANDA Filers in the Delaware Court. As a result of the settlement agreements, the Settling ANDA Filers will be permitted to market generic versions of AMPYRA in the U.S. at a specified date in the future. The parties submitted their respective settlement agreements to the U.S. Federal Trade Commission and the U.S. Department of Justice, as required by federal law. The settlements with the Settling ANDA Filers did not impact the patent litigation that we and Acorda brought against the Non-Settling ANDA Filers, as described in this Form 10-Q.
On March 31, 2017, after a bench trial, the Delaware Court Decision, upholding the validity of the ‘938 Patent, which pertains to the formulation of AMPYRA and is set to expire in July 2018, and finding that Apotex, Mylan, Roxane and Teva stipulated that their proposed generic forms of AMPYRA infringed the ‘938 Patent. The Delaware Court also invalidated U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685. Acorda has indicated that it will appeal the Delaware Court Decision with respect to the findings on U.S. Patent Nos.
8,007,826; 8,354,437; 8,440,703; and 8,663,685.
In addition, the Non-Settling ANDA Filers may appeal the Delaware Court Decision with respect to
the validity of the
‘
938 Patent.
Mylan challenged the jurisdiction of the Delaware Court with respect to the Delaware action. In January 2015, the Delaware Court denied Mylan’s motion to dismiss. Subsequently, in January 2015, the Delaware Court granted Mylan’s request for an interlocutory appeal of its jurisdictional decision to
the Federal Circuit
. In March 2016, the Federal Circuit denied Mylan’s appeal, and the case remains in the Delaware Court. Mylan requested the Federal Circuit to reconsider its decision. However, on June 20, 2016, the Federal Circuit denied Mylan’s request. Mylan filed an appeal with the U.S. Supreme Court, which was denied. Due to Mylan’s motion to dismiss, we, along with Acorda, also filed another patent infringement suit against Mylan in the U.S. District Court for the Northern District of West Virginia asserting the same U.S. Patents and requesting the same judicial relief as in the Delaware action. In December 2014, we, along with Acorda, filed a motion in the Northern District of West Virginia to stay that action in deference to the Delaware action. In February 2015, the District Court for the Northern District of West Virginia granted the motion to stay the proceeding. The patent infringement case against Mylan, however, was part of the consolidated Delaware action.
In addition to the Paragraph IV Certification Notices received from the ANDA Filers, in April 2017, Acorda received an additional Paragraph IV Certification Notice from Micro Labs, contending that
U.S. Patent Nos.
8,007,826; 8,354,437; 8,440,703; and 8,663,685
are invalid and not infringed by Micro Labs’ proposed generic version of AMPYRA
(dalfampridine) Extended-Release Tablets, 10 mg
. If a lawsuit is brought within 45 days from receipt of such
Paragraph IV Certification Notice
, the FDA cannot approve Micro Labs’ ANDA for 30 months (unless
a Federal district court issues a decision adverse to all of the asserted Orange Book-listed patents prior to that date
)
.
We intend to vigorously enforce our intellectual property rights. For information about risks relating to the AMPYRA Paragraph IV litigations and other proceedings see “Part II, Item 1A—Risk Factors”
in this Form 10-Q and
“Part I, Item 1A—Risk Factors” of our Annual Report.
AMPYRA IPR Proceedings
A hedge fund (acting with affiliated entities and individuals and proceeding under the name of the Coalition for Affordable Drugs) filed IPR petitions with the USPTO, challenging U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685, which are owned by Acorda, representing four of the five AMPYRA Orange Book-listed patents. In March 2016, the USPTO’s PTAB instituted the IPR, and oral argument for the IPR was held on January 19, 2017. On March 9, 2017, the PTAB
upheld the challenged claims. This decision does not affect the litigation discussed in the “AMPYRA ANDA Litigation” section above.
BYDUREON, RISPERDAL CONSTA AND VIVITROL IPR Proceedings
On June 3, 2016, Luye filed two separate IPR petitions challenging the ‘061 Patent, which is an Orange Book-listed patent for each of BYDUREON, RISPERDAL CONSTA and VIVITROL. We opposed the institution of these IPR petitions. On November 30, 2016, the USPTO’s PTAB instituted one of Luye’s IPR petitions and denied instituting
Luye’s other IPR petition. Oral argument, if requested, for the instituted IPR is currently scheduled for August 28, 2017. A decision on the instituted IPR would be expected, pursuant to the statutory time frame, by November 30, 2017.
We will vigorously defend the ‘061 Patent in the IPR proceedings. For information about risks relating to the ‘061 Patent IPR proceedings see “Part I, Item 1A—Risk Factors” in our Annual Report and specifically the sections entitled “Patent protection for our products is important and uncertain” and “Uncertainty over intellectual property in the pharmaceutical industry has been the source of litigation, which is inherently costly and unpredictable.”
Item 1A.
Risk Factors
We face claims against our intellectual property rights and competition from generic drug manufacturers, which, for AMPYRA, could result in entry of generic competition in July 2018 or, in certain circumstances, earlier.
In the U.S., generic manufacturers of innovator drug products may file
abbreviated New Drug Applications (“ANDAs
”) and, in doing so, certify that their products do not infringe the innovator’s patents and/or that the innovator’s patents are invalid or unenforceable. This often results in litigation between the innovator and the ANDA applicant. This type of litigation is commonly known as “Paragraph IV” litigation in the U.S.
We have received notices of ANDA filings for AMPYRA asserting that generic forms of AMPYRA would not infringe AMPYRA’s Orange Book-listed patents and/or those patents are invalid.
In response, we and/or
our partner,
Acorda
Therapeutics, Inc. (“Acorda”),
filed lawsuits against the
ANDA
filers in the
U.S. District Court for the District of Delaware (the “Delaware Court
”)
asserting infringement of
U.S. Patent No. 5,540,938 (the
“‘938 Patent
”),
which we own, and
U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685,
which are owned by
Acorda
.
On March 31, 2017, the Delaware Court
issued an opinion upholding the validity of the
‘938 Patent
, which pertains to the formulation of AMPYRA and is set to expire in July 2018, and
invalidating
U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685, which pertain to AMPYRA.
Acorda has indicated that it will appeal the
opinion issued by the Delaware Court with respect to its findings on U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685. In addition, the
ANDA filers who have not entered into settlement agreements with us and/or Acorda (the “Non-Settling ANDA Filers
”) may appeal
the opinion issued by the Delaware Court with respect to its findings on the validity of
the
‘
938 Patent with the objective of commercializing their
generic forms of AMPYRA before the ‘938 Patent’s July 2018 expiration date
.
If the
U.S. Court of Appeals for the Federal Circuit
(the “
Federal Circuit
”)
upholds the Delaware Court’s findings with respect to
U.S. Patent Nos.
8,007,826; 8,354,437; 8,440,703; and 8,663,685
and, if appealed by the Non-Settling ANDA Filers, the validity of the ‘938 Patent
, we can expect competition from generic forms of AMPYRA as early as July 2018 when
the
‘938 Patent
expires.
If the Federal Circuit upholds the Delaware Court’s findings with respect to
U.S. Patent Nos.
8,007,826; 8,354,437; 8,440,703; and 8,663,685
and, if appealed by the Non-Settling ANDA Filers
, overturns the
Delaware Court’s upholding of the validity of the
‘938 Patent
, competition from generic forms of AMPYRA may occur before the July 2018 expiry of
the
‘938 Patent
.
Continued litigation based on such appeals may be costly and time consuming. For further discussion of the legal proceedings related to the patents covering AMPYRA, see “Part II, Item 1—Legal Proceedings” in this Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2017.
Although we intend to vigorously enforce our intellectual property rights, there can be no assurance that we will prevail in our defense of our patent rights. Our existing patents could be invalidated, found unenforceable or found not to cover generic forms of our products. If an ANDA filer were to receive
U.S. Food and Drug Administration approval to sell a generic version of our products and/or prevail in any patent litigation, our products would become subject to increased competition and
demand for and sales of our products would likely decline significantly, resulting in decreased revenue
. Our results of operations may be adversely affected
by such decreased revenue.
There have been no other material changes from the risk factors disclosed in our Annual Report. For a further discussion of our Risk Factors, refer to “Part I, Item 1A – Risk Factors” of our Annual Report.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
On September 16, 2011, our board of directors authorized the continuation of the Alkermes, Inc. program to repurchase up to $215.0 million of our ordinary shares at the discretion of management from time to time in the open
market or through privately negotiated transactions. We did not purchase any shares under this program during the three months ended March 31, 2017. As of March 31, 2017, we had purchased a total of 8,866,342 shares at a cost of $114.0 million.
During the three months ended March 31, 2017,
we acquired 225,519 Alkermes ordinary shares, at an average price of $58.30 per share related to the vesting of employee equity awards to satisfy withholding tax obligations. During the three months ended March 31, 2017, we acquired 712 Alkermes ordinary shares, at an average price of $55.66 per share, tendered by employees as payment of the exercise price of stock options granted under our equity compensation plans.
Item 5.
Other Information
The Company's policy governing transactions in its securities by its directors, officers and employees permits its officers, directors and employees to enter into trading plans in accordance with Rule 10b5-1 under the Exchange Act. During the quarter ended March 31, 2017, Dr. Elliot W. Ehrich, an executive officer of the Company, entered into a trading plan in accordance with Rule 10b5-1 and the Company’s policy governing transactions in its securities by its directors, officers and employees. The Company undertakes no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan.
Item 6.
Exhibits
The exhibits listed on the Exhibit Index immediately preceding such exhibits, which is incorporated herein by reference, are filed or furnished as part of this Form 10-Q.
SIGNATURES
Pursuant to the requirements 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.
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ALKERMES plc
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(Registrant)
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By:
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/s/ Richard F. Pops
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Chairman and Chief Executive Officer
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(Principal Executive Officer)
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By:
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/s/ James M. Frates
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Senior Vice President and Chief Financial Officer
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(Principal Financial Officer)
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Date: April 27, 2017
EXHIBIT INDEX
+ XBRL (Extensible Business Reporting Language).
# Filed herewith.
‡ Furnished herewith.
† Indicates a management contract or any compensatory plan, contract or arrangement.
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