Item 1. Condensed Consolidated Financial Statements:
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited)
1. THE COMPANY
Alkermes plc is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to research, develop and commercialize, both with partners and on its own, pharmaceutical products that are designed to address unmet medical needs of patients in major therapeutic areas. The Company has a diversified portfolio of commercial drug products and a clinical pipeline of product candidates focused on CNS disorders such as schizophrenia, depression, addiction and MS, and oncology. Headquartered in Dublin, Ireland, the Company has an R&D center in Waltham, Massachusetts; an R&D and manufacturing facility in Athlone, Ireland; and a manufacturing facility in Wilmington, Ohio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company for the three and six months ended June 30, 2019 and 2018 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the year ended December 31, 2018. The year-end condensed consolidated balance sheet data, which is presented for comparative purposes, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the U.S. (commonly referred to as “GAAP”). In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, that are necessary to state fairly the results of operations for the reported periods.
These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company, which are contained in the Company’s Annual Report. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for any full fiscal year.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Alkermes plc and its wholly-owned subsidiaries as disclosed in Note 2,
Summary of Significant Accounting Policies,
in the “Notes to Consolidated Financial Statements” accompanying the Annual Report. Intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, judgments and methodologies, including those related to revenue from contracts with its customers and related allowances, impairment and amortization of intangibles and long-lived assets, share-based compensation, income taxes including the valuation allowance for deferred tax assets, valuation of investments, contingent consideration and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Segment Information
The Company operates as one business segment, which is the business of developing, manufacturing and commercializing medicines. The Company’s chief decision maker, the Chairman of the Board and Chief Executive Officer, reviews the Company’s operating results on an aggregate basis and manages the Company’s operations as a single operating unit.
10
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
Income Taxes
The Company’s provision for income taxes or income tax benefit primarily relates to U.S. federal and state taxes. The Company records a deferred tax asset or liability based on the difference between the financial statement and tax basis of its assets and liabilities, as measured by enacted jurisdictional tax rates assumed to be in effect when these differences reverse. At June 30, 2019, the Company maintained a valuation allowance against certain of its U.S. and foreign deferred tax assets. The Company evaluates, at each reporting period, the need for a valuation allowance on its deferred tax assets on a jurisdiction-by-jurisdiction basis.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued guidance that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
Effective January 1, 2019, the Company adopted the requirements under Accounting Standards Update (“ASU”) 2016-02,
Leases
(“Topic 842”) using the optional modified retrospective transition method and recognized a cumulative-effect adjustment to the condensed consolidated balance sheet on the date of adoption. Comparative periods have not been restated. Topic 842 was issued in order to increase transparency and comparability among organizations by recognizing right-of-use lease assets and operating lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous GAAP (“Topic 840”) and Topic 842 is the recognition of right-of-use lease assets and lease liabilities by lessees for those leases classified as operating leases under Topic 840. At January 1, 2019, the Company recorded a right-of-use asset of $20.1 million and an operating lease liability of $22.1 million. For additional information regarding how the Company is accounting for leases under Topic 842, refer to Note 9,
Leases
, in the “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q.
In June 2016, the FASB issued ASU 2016-13,
Measurement of Credit Losses on Financial Instruments
, to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU becomes effective for the Company in the year ending December 31, 2020, with early adoption permitted for the Company in the year ending December 31, 2019. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07,
Improvements to Nonemployee Share-Based Payment Accounting
, which addresses the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718,
Compensation – Stock Compensation
, to include share-based payment transactions for acquiring goods and services from nonemployees. This ASU became effective for and was adopted by the Company in the year ending December 31, 2019 and the adoption of the ASU did not have an impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14,
Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
, which aims to improve the effectiveness of fair value measurement disclosures. The amendments in this ASU modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. This ASU becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.
11
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
In August 2018, the FASB issued ASU 2018-15,
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. This ASU becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18,
Clarifying the Interaction Between Topic 808 and Topic 606
, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic 606. This ASU becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Under Topic 606, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under Topic 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract(s); and (v) recognize revenues when (or as) the Company satisfies the performance obligation(s).
Manufacturing and Royalty Revenues
During the three and six months ended June 30, 2019 and 2018, the Company recorded manufacturing and royalty revenues as follows:
|
|
Three Months Ended June 30, 2019
|
|
|
Six Months Ended June 30, 2019
|
|
(In thousands)
|
|
Manufacturing Revenue
|
|
|
Royalty Revenue
|
|
|
Total
|
|
|
Manufacturing Revenue
|
|
|
Royalty Revenue
|
|
|
Total
|
|
INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA
|
|
$
|
—
|
|
|
$
|
67,289
|
|
|
$
|
67,289
|
|
|
$
|
—
|
|
|
$
|
120,586
|
|
|
$
|
120,586
|
|
RISPERDAL CONSTA
|
|
|
20,506
|
|
|
|
4,068
|
|
|
|
24,574
|
|
|
|
38,428
|
|
|
|
8,453
|
|
|
|
46,881
|
|
AMPYRA/FAMPYRA
|
|
|
6,474
|
|
|
|
3,317
|
|
|
|
9,791
|
|
|
|
12,153
|
|
|
|
9,823
|
|
|
|
21,976
|
|
Other
|
|
|
11,399
|
|
|
|
14,844
|
|
|
|
26,243
|
|
|
|
18,745
|
|
|
|
28,624
|
|
|
|
47,369
|
|
|
|
$
|
38,379
|
|
|
$
|
89,518
|
|
|
$
|
127,897
|
|
|
$
|
69,326
|
|
|
$
|
167,486
|
|
|
$
|
236,812
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
Six Months Ended June 30, 2018
|
|
(In thousands)
|
|
Manufacturing Revenue
|
|
|
Royalty Revenue
|
|
|
Total
|
|
|
Manufacturing Revenue
|
|
|
Royalty Revenue
|
|
|
Total
|
|
INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA
|
|
$
|
—
|
|
|
$
|
63,250
|
|
|
$
|
63,250
|
|
|
$
|
—
|
|
|
$
|
109,336
|
|
|
$
|
109,336
|
|
RISPERDAL CONSTA
|
|
|
17,237
|
|
|
|
4,694
|
|
|
|
21,931
|
|
|
|
35,029
|
|
|
|
9,606
|
|
|
|
44,635
|
|
AMPYRA/FAMPYRA
|
|
|
11,543
|
|
|
|
8,135
|
|
|
|
19,678
|
|
|
|
25,106
|
|
|
|
22,831
|
|
|
|
47,937
|
|
Other
|
|
|
8,148
|
|
|
|
15,234
|
|
|
|
23,382
|
|
|
|
14,384
|
|
|
|
26,550
|
|
|
|
40,934
|
|
|
|
$
|
36,928
|
|
|
$
|
91,313
|
|
|
$
|
128,241
|
|
|
$
|
74,519
|
|
|
$
|
168,323
|
|
|
$
|
242,842
|
|
12
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
Product Sales, Net
The Company’s product sales, net consist of sales of VIVITROL and ARISTADA (together with ARISTADA INITIO) in the U.S., primarily to wholesalers, specialty distributors and pharmacies. Product sales, net are recognized when the customer obtains control of the product, which is when the product has been received by the customer.
During the three and six months ended June 30, 2019 and 2018, the Company recorded product sales, net, as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
VIVITROL
|
|
$
|
88,199
|
|
|
$
|
76,203
|
|
|
$
|
157,382
|
|
|
$
|
138,885
|
|
ARISTADA
|
|
|
48,436
|
|
|
|
33,604
|
|
|
|
78,734
|
|
|
|
62,764
|
|
Total product sales, net
|
|
$
|
136,635
|
|
|
$
|
109,807
|
|
|
$
|
236,116
|
|
|
$
|
201,649
|
|
Research and Development Revenue
The Company recorded research and development (“R&D”) revenue of $13.6 million and $27.4 million during the three and six months ended June 30, 2019, respectively, and $17.8 million and $35.3 million during the three and six months ended June 30, 2018, respectively, related to its license and collaboration agreement with Biogen for diroximel fumarate (“BIIB098”). The Company expects to earn an additional $26.9 million in R&D revenue under this agreement with Biogen through 2021.
Contract Assets
—Contract assets include unbilled amounts resulting from sales under certain of the Company’s manufacturing contracts where revenue is recognized over time. The products included in the contract assets table below complete the manufacturing process in ten days to eight weeks. Contract assets are classified as current.
Contract assets consisted of the following:
(In thousands)
|
|
Contract Assets
|
|
Contract assets at January 1, 2019
|
|
$
|
8,230
|
|
Additions
|
|
|
19,829
|
|
Transferred to receivables, net
|
|
|
(15,369
|
)
|
Contract assets at June 30, 2019
|
|
$
|
12,690
|
|
Contract Liabilities
—Contract liabilities consist of contractual obligations related to deferred revenue.
Contract liabilities consisted of the following:
(In thousands)
|
|
Contract Liabilities
|
|
Contract liabilities at January 1, 2019
|
|
$
|
12,694
|
|
Additions
|
|
|
2,101
|
|
Amounts recognized into revenue
|
|
|
(1,071
|
)
|
Contract liabilities at June 30, 2019
|
|
$
|
13,724
|
|
13
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
4. INVESTMENTS
Investments consisted of the following (in thousands):
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
Less than
|
|
|
Greater than
|
|
|
Estimated
|
|
June 30, 2019
|
|
Cost
|
|
|
Gains
|
|
|
One Year
|
|
|
One Year
|
|
|
Fair Value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
172,509
|
|
|
$
|
765
|
|
|
$
|
—
|
|
|
$
|
(64
|
)
|
|
$
|
173,210
|
|
U.S. government and agency debt securities
|
|
|
114,271
|
|
|
|
560
|
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
114,825
|
|
International government agency debt securities
|
|
|
85,970
|
|
|
|
357
|
|
|
|
—
|
|
|
|
(22
|
)
|
|
|
86,305
|
|
Total short-term investments
|
|
|
372,750
|
|
|
|
1,682
|
|
|
|
(1
|
)
|
|
|
(91
|
)
|
|
|
374,340
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
13,545
|
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
(35
|
)
|
|
|
13,500
|
|
U.S. government and agency debt securities
|
|
|
4,170
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
4,167
|
|
International government agency debt securities
|
|
|
2,019
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,019
|
|
|
|
|
19,734
|
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
(35
|
)
|
|
$
|
19,686
|
|
Held-to-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
1,820
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,820
|
|
Fixed term deposit account
|
|
|
1,667
|
|
|
|
126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,793
|
|
|
|
|
3,487
|
|
|
|
126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,613
|
|
Total long-term investments
|
|
|
23,221
|
|
|
|
126
|
|
|
|
(13
|
)
|
|
|
(35
|
)
|
|
|
23,299
|
|
Total investments
|
|
$
|
395,971
|
|
|
$
|
1,808
|
|
|
$
|
(14
|
)
|
|
$
|
(126
|
)
|
|
$
|
397,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
120,197
|
|
|
$
|
57
|
|
|
$
|
(62
|
)
|
|
$
|
(274
|
)
|
|
$
|
119,918
|
|
U.S. government and agency debt securities
|
|
|
80,055
|
|
|
|
115
|
|
|
|
(11
|
)
|
|
|
(87
|
)
|
|
|
80,072
|
|
International government agency debt securities
|
|
|
72,091
|
|
|
|
85
|
|
|
|
(8
|
)
|
|
|
(117
|
)
|
|
|
72,051
|
|
|
|
|
272,343
|
|
|
|
257
|
|
|
|
(81
|
)
|
|
|
(478
|
)
|
|
|
272,041
|
|
Held-to-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
492
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
492
|
|
Total short-term investments
|
|
|
272,835
|
|
|
|
257
|
|
|
|
(81
|
)
|
|
|
(478
|
)
|
|
|
272,533
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
53,505
|
|
|
|
—
|
|
|
|
(185
|
)
|
|
|
(93
|
)
|
|
$
|
53,227
|
|
U.S. government and agency debt securities
|
|
|
18,474
|
|
|
|
—
|
|
|
|
(21
|
)
|
|
|
(12
|
)
|
|
|
18,441
|
|
International government agency debt securities
|
|
|
5,457
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
5,453
|
|
|
|
|
77,436
|
|
|
|
—
|
|
|
|
(210
|
)
|
|
|
(105
|
)
|
|
|
77,121
|
|
Held-to-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
1,820
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,820
|
|
Fixed term deposit account
|
|
|
1,667
|
|
|
|
136
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,803
|
|
|
|
|
3,487
|
|
|
|
136
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,623
|
|
Total long-term investments
|
|
|
80,923
|
|
|
|
136
|
|
|
|
(210
|
)
|
|
|
(105
|
)
|
|
|
80,744
|
|
Total investments
|
|
$
|
353,758
|
|
|
$
|
393
|
|
|
$
|
(291
|
)
|
|
$
|
(583
|
)
|
|
$
|
353,277
|
|
14
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
The proceeds from the sales and maturities of marketable securities, which were identified using the specific identification method and were primarily reinvested, were as follows:
|
|
Six Months Ended June 30,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Proceeds from the sales and maturities of marketable securities
|
|
$
|
79,104
|
|
|
$
|
133,101
|
|
Realized gains
|
|
$
|
—
|
|
|
$
|
4
|
|
Realized losses
|
|
$
|
5
|
|
|
$
|
5
|
|
The Company’s available-for-sale and held-to-maturity securities at June 30, 2019 had contractual maturities in the following periods:
|
|
Available-for-sale
|
|
|
Held-to-maturity
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
(In thousands)
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
Within 1 year
|
|
$
|
255,326
|
|
|
$
|
255,736
|
|
|
$
|
1,820
|
|
|
$
|
1,820
|
|
After 1 year through 5 years
|
|
|
137,158
|
|
|
|
138,290
|
|
|
|
1,667
|
|
|
|
1,793
|
|
Total
|
|
$
|
392,484
|
|
|
$
|
394,026
|
|
|
$
|
3,487
|
|
|
$
|
3,613
|
|
At June 30, 2019, the Company believed that the unrealized losses on its available-for-sale investments were temporary. The investments with unrealized losses consisted primarily of corporate debt securities. In making the determination that the decline in fair value of these securities was temporary, the Company considered various factors, including, but not limited to: the length of time each security was in an unrealized loss position; the extent to which fair value was less than cost; financial condition and near-term prospects of the issuers; the Company’s intent not to sell these securities; and the assessment that it is more likely than not that the Company would not be required to sell these securities before the recovery of their amortized cost basis.
In May 2014, the Company entered into an agreement whereby it is committed to provide up to €7.4 million to a partnership, Fountain Healthcare Partners II, L.P. of Ireland (“Fountain”), which was created to carry on the business of investing exclusively in companies and businesses engaged in the healthcare, pharmaceutical and life sciences sectors. As of June 30, 2019, the Company’s total contribution in Fountain was equal to €5.5 million. The Company’s commitment represents approximately 7% of the partnership’s total funding. The Company is accounting for its investment in Fountain under the equity method. During the three and six months ended June 30, 2019 and 2018, the Company recorded a decrease in its investment in Fountain of less than $0.1 million.
The changes recorded
represent the Company’s proportional share of Fountain’s net losses for these periods. The Company’s $
5.9
million and $5.5 million net investment in Fountain at June 30, 2019 and December 31, 2018, respectively, was included within “Other assets” in the accompanying condensed consolidated balance sheets.
5. FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
51,593
|
|
|
$
|
51,593
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. government and agency debt securities
|
|
|
118,992
|
|
|
|
70,233
|
|
|
|
48,759
|
|
|
|
—
|
|
Corporate debt securities
|
|
|
186,710
|
|
|
|
—
|
|
|
|
186,710
|
|
|
|
—
|
|
International government agency debt securities
|
|
|
88,324
|
|
|
|
—
|
|
|
|
88,324
|
|
|
|
—
|
|
Contingent consideration
|
|
|
26,100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,100
|
|
Common stock warrants
|
|
|
1,906
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,906
|
|
Total
|
|
$
|
473,625
|
|
|
$
|
121,826
|
|
|
$
|
323,793
|
|
|
$
|
28,006
|
|
15
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
54,590
|
|
|
$
|
54,590
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. government and agency debt securities
|
|
|
98,513
|
|
|
|
60,107
|
|
|
|
38,406
|
|
|
|
—
|
|
Corporate debt securities
|
|
|
173,637
|
|
|
|
—
|
|
|
|
173,145
|
|
|
|
492
|
|
International government agency debt securities
|
|
|
77,504
|
|
|
|
—
|
|
|
|
77,504
|
|
|
|
—
|
|
Contingent consideration
|
|
|
65,200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
65,200
|
|
Common stock warrants
|
|
|
1,205
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,205
|
|
Total
|
|
$
|
470,649
|
|
|
$
|
114,697
|
|
|
$
|
289,055
|
|
|
$
|
66,897
|
|
The Company transfers its financial assets and liabilities, measured at fair value on a recurring basis, between the fair value hierarchies at the end of each reporting period.
There were no transfers of any securities between the fair value hierarchies during the six months ended June 30, 2019. The following table is a rollforward of the fair value of the Company’s assets whose fair values were determined using Level 3 inputs at June 30, 2019:
(In thousands)
|
|
Fair Value
|
|
Balance, January 1, 2019
|
|
$
|
66,897
|
|
Change in the fair value of contingent consideration
|
|
|
(29,100
|
)
|
Payment received for contingent consideration
|
|
|
(10,000
|
)
|
Impairment of corporate debt security
|
|
|
(492
|
)
|
Increase in the fair value of warrants
|
|
|
701
|
|
Balance, June 30, 2019
|
|
$
|
28,006
|
|
The Company’s investments in U.S. government and agency debt securities, international government agency debt securities and corporate debt securities classified as Level 2 within the fair value hierarchy were initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing market-observable data. The market-observable data included reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validated the prices developed using the market-observable data by obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active.
The Company’s contingent consideration relates to the divestiture of its Gainesville, GA facility in March 2015 (the “Gainesville Transaction”). On December 20, 2018, the Company entered into a Second Amendment to the Purchase and Sale Agreement (“Purchase and Sale Agreement Amendment”) with Recro Pharma, Inc. (“Recro”), pursuant to which the Company received a $5.0 million payment in the first quarter of 2019 and another $5.0 million payment in the second quarter of 2019; the Company is eligible to receive low double-digit royalties on net sales of IV/IM and parenteral forms of Meloxicam and any other product with the same active ingredient as Meloxicam IV/IM that is discovered or identified using certain of the Company’s IP to which Recro was provided a right of use, through license or transfer (the “Meloxicam Product(s)”); and is eligible to receive up to $130.0 million in milestone payments upon the achievement of certain regulatory and sales milestones related to the Meloxicam Products.
16
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
In accordance with the accounting standard for fair value measurements,
the Company’s
contingent consideration has been classified as a Level 3 asset as its fair value is based on significant inputs not observable in the market. The fair value of the contingent consideration
at
June 30, 2019
was determined as follows:
|
•
|
The Company received a $5.0 million payment in the first quarter of 2019 and another $5.0 million payment in the second quarter of 2019; the Company is entitled to receive $5.0 million upon regulatory approval of a New Drug Application (“NDA”) for the first Meloxicam Product; and $45.0 million in seven equal, annual installments beginning on the first anniversary of such approval. The fair value of the regulatory milestone was estimated based on applying the likelihood of achieving the regulatory milestone and applying a discount rate from the expected time the milestone will occur to the balance sheet date. The Company expects the regulatory milestone event to occur in the third quarter of 2020 and used a discount rate of 17.0%;
|
|
•
|
The Company is entitled to receive future royalties on net sales of Meloxicam Products. To estimate the fair value of the future royalties, the Company assessed the likelihood of a Meloxicam Product being approved for sale and estimated the expected future sales given approval and IP protection. These expected payments were then discounted using a discount rate of 17.0%, which the Company believes captures a market participant’s view of the risk associated with the expected payments; and
|
|
•
|
The Company is entitled to receive payments of up to $80.0 million upon achieving certain sales milestones on future sales of the Meloxicam Products. The sales milestones were determined through the use of a real options approach, where net sales are simulated in a risk-neutral world. To employ this methodology, the Company used a risk-adjusted expected growth rate based on its assessments of expected growth in net sales of the approved Meloxicam Product, adjusted by an appropriate factor capturing their respective correlation with the market. A resulting expected (probability-weighted) milestone payment was then discounted at a cost of debt of 17.0%.
|
Significant judgment was employed in determining the appropriateness of these assumptions at the acquisition date and for each subsequent period. Accordingly, changes in assumptions described above could have a material impact on the increase or decrease in the fair value of contingent consideration recorded in any given period.
In March 2019, Recro received a second complete response letter (“CRL”) from the U.S. Food and Drug Administration (“FDA”) regarding its NDA for IV Meloxicam. As a result of Recro’s receipt of this second CRL, the Company delayed its anticipated date for the FDA’s approval of the IV Meloxicam NDA and reduced the probability of success and amount of forecasted sales due to this delay in our valuation model. At June 30, 2019 and December 31, 2018, the Company determined that the value of the contingent consideration was $26.1 million and $65.2 million, respectively. The Company recorded a decrease of $6.5 million and $29.1 million during the three and six months ended June 30, 2019, respectively, and $19.6 million and $21.5 million in the three and six months ended June 30, 2018, respectively, within “Change in the fair value of contingent consideration” in the accompanying condensed consolidated statements of operations and comprehensive loss.
The carrying amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term nature.
6. INVENTORY
Inventory is stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. Inventory consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Raw materials
|
|
$
|
31,729
|
|
|
$
|
31,824
|
|
Work in process
|
|
|
44,833
|
|
|
|
38,019
|
|
Finished goods
(1)
|
|
|
18,218
|
|
|
|
20,353
|
|
Total inventory
|
|
$
|
94,780
|
|
|
$
|
90,196
|
|
(1)
|
At June 30, 2019 and December 31, 2018, the Company had $15.0 million and $11.0 million, respectively, of finished goods inventory located at its third-party warehouse and shipping service provider.
|
17
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Land
|
|
$
|
6,560
|
|
|
$
|
6,486
|
|
Building and improvements
|
|
|
172,410
|
|
|
|
157,053
|
|
Furniture, fixtures and equipment
|
|
|
328,164
|
|
|
|
314,831
|
|
Leasehold improvements
|
|
|
20,105
|
|
|
|
20,105
|
|
Construction in progress
|
|
|
95,720
|
|
|
|
88,983
|
|
Subtotal
|
|
|
622,959
|
|
|
|
587,458
|
|
Less: accumulated depreciation
|
|
|
(296,729
|
)
|
|
|
(277,471
|
)
|
Total property, plant and equipment, net
|
|
$
|
326,230
|
|
|
$
|
309,987
|
|
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consisted of the following:
|
|
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
(In thousands)
|
|
Weighted Amortizable Life (Years)
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
Goodwill
|
|
|
|
$
|
92,873
|
|
|
$
|
—
|
|
|
$
|
92,873
|
|
|
$
|
92,873
|
|
|
$
|
—
|
|
|
$
|
92,873
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration agreements
|
|
12
|
|
$
|
465,590
|
|
|
$
|
(333,834
|
)
|
|
$
|
131,756
|
|
|
$
|
465,590
|
|
|
$
|
(319,311
|
)
|
|
$
|
146,279
|
|
NanoCrystal technology
|
|
13
|
|
|
74,600
|
|
|
|
(42,826
|
)
|
|
|
31,774
|
|
|
|
74,600
|
|
|
|
(38,942
|
)
|
|
|
35,658
|
|
OCR technologies
|
|
12
|
|
|
42,560
|
|
|
|
(35,104
|
)
|
|
|
7,456
|
|
|
|
42,560
|
|
|
|
(33,496
|
)
|
|
|
9,064
|
|
Total
|
|
|
|
$
|
582,750
|
|
|
$
|
(411,764
|
)
|
|
$
|
170,986
|
|
|
$
|
582,750
|
|
|
$
|
(391,749
|
)
|
|
$
|
191,001
|
|
Based on the Company’s most recent analysis, amortization of intangible assets included within its condensed consolidated balance sheet at June 30, 2019 is expected to be approximately $40.0 million, $40.0 million, $40.0 million, $35.0 million and $35.0 million in the years ending December 31, 2019 through 2023, respectively. Although the Company believes such available information and assumptions are reasonable, given the inherent risks and uncertainties underlying its expectations regarding such future revenues, there is the potential for the Company’s actual results to vary significantly from such expectations. If revenues are projected to change, the related amortization of the intangible assets will change in proportion to the change in revenues.
9. LEASES
The Company adopted Topic 842 on January 1, 2019. Upon adoption, the Company elected the package of transition practical expedients, which allowed it to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for existing leases. The Company also elected the practical expedient to not reassess certain land easements and made an accounting policy election to not recognize leases with an initial term of 12 months or less within its condensed consolidated balance sheets and to instead recognize those lease payments on a straight-line basis in its condensed consolidated statements of operations over the lease term.
The Company elected to adopt this standard using the optional modified retrospective transition method with no restatement of its prior periods or cumulative adjustment to retained earnings. With the adoption of Topic 842
, the Company’s condensed consolidated balance sheet now contains the following line items: Right-of-use assets, Operating lease liabilities—short-term and Operating lease liabilities—long-term.
18
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
The Company determined that
it
held
the following
significant
operating leases of office and laboratory space
as of January 1, 2019
:
|
•
|
An operating lease for 175,000 square feet of office and laboratory space in Waltham, Massachusetts that expires in 2021, with an option to extend the term for up to two five-year periods
;
|
|
•
|
An operating lease for 67,000 square feet of office space in Waltham, Massachusetts that expires in 2020, with an option to extend the term for up to two one-year periods;
|
|
•
|
An operating lease for 14,600 square feet of office space in Dublin, Ireland that expires in 2022, with an option to extend the term for an additional five-year period; and
|
|
•
|
An operating lease for 7,000 square feet of corporate office and administrative space in Washington, D.C. that expires in 2029 and includes an option to extend the term for an additional five-year period
.
|
The Company also has two additional operating leases that are included in its lease accounting but are not considered significant.
As all the existing leases subject to the new lease standard were previously classified as operating leases by the Company, they were similarly classified as operating leases under the new standard. The Company has determined that the identified operating leases did not contain non-lease components and require no further allocation of the total lease cost. Additionally, the agreements in place did not contain information to determine the rate implicit in the leases. As such, the Company calculated the incremental borrowing rate based on the assumed remaining lease term for each lease in order to calculate the present value of the remaining lease payments. At June 30, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 4.64% and 4.1 years, respectively.
As of June 30, 2019, right-of-use assets and liabilities arising from operating leases were $15.9 million and $17.6 million, respectively. During the three and six months ended June 30, 2019, cash paid for amounts included for the measurement of lease liabilities was $2.3 million and $4.6 million, respectively and the Company recorded operating lease expense of $2.1 million and $4.2 million, respectively.
Future lease payments under non-cancelable leases as of June 30, 2019 and December 31, 2018:
|
|
June 30,
|
|
|
December 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
2019
|
|
$
|
4,492
|
|
|
$
|
9,394
|
|
2020
|
|
|
8,651
|
|
|
|
10,717
|
|
2021
|
|
|
2,519
|
|
|
|
4,706
|
|
2022
|
|
|
500
|
|
|
|
2,455
|
|
2023
|
|
|
509
|
|
|
|
2,389
|
|
Thereafter
|
|
|
3,107
|
|
|
|
23,940
|
|
Total lease payments
|
|
$
|
19,778
|
|
|
$
|
53,601
|
|
Less: imputed interest
|
|
|
(2,204
|
)
|
|
|
—
|
|
Total operating lease liabilities
|
|
$
|
17,574
|
|
|
$
|
53,601
|
|
In March 2018, the Company entered into a lease agreement for approximately 220,000 square feet of office and laboratory space located in a building that is being built at 900 Winter Street, Waltham, Massachusetts (“900 Winter Street”). The Company plans to occupy the premises in early 2020. The initial term of the lease shall commence on the earlier of: (i) the Delivery Date (defined as the later of (a) January 20, 2020, or (b) the date on which the landlord substantially completes its work in accordance with the terms of the lease), or (ii) the date the Company enters into possession of all or any substantial portion of 900 Winter Street for the conduct of its business (the “Commencement Date”). The initial lease term expires on the last day of the calendar month in which the fifteenth (15
th
) anniversary of the Commencement Date occurs, with an option to extend for an additional ten (10) years.
19
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
As the Company (a) does
not
have
the right to obtain or control the leased premises during the construction period
;
(
b
)
does not have the right
of payment for the partially constructed assets
and, thus, could be potentially leased to another tenant
;
and (
c
)
does
not legally
own
or
control
the land on which the property improvements
are being
constructed
, it was not included
as a
right-of-use asset at
June
3
0
, 2019
. Additionally, the future lease payments, outlined above, included the 900 Winter Street payments as of December 31, 201
8
; these payments are not included in the table under Topic 842
.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Accounts payable
|
|
$
|
42,880
|
|
|
$
|
39,767
|
|
Accrued compensation
|
|
|
54,011
|
|
|
|
67,613
|
|
Accrued sales discounts, allowances and reserves
|
|
|
147,608
|
|
|
|
152,911
|
|
Accrued other
|
|
|
75,991
|
|
|
|
73,471
|
|
Total accounts payable and accrued expenses
|
|
$
|
320,490
|
|
|
$
|
333,762
|
|
11. LONG-TERM DEBT
Long-term debt consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
2023 Term Loans, due March 26, 2023
|
|
$
|
278,224
|
|
|
$
|
279,308
|
|
Less: current portion
|
|
|
(2,843
|
)
|
|
|
(2,843
|
)
|
Long-term debt
|
|
$
|
275,381
|
|
|
$
|
276,465
|
|
In March 2018, the Company amended and refinanced its existing term loan, referred to as Term Loan B-1 (as so amended and refinanced, the “2023 Term Loans”), in order to, among other things, extend the due date of the loan from September 25, 2021 to March 26, 2023, reduce the interest payable from LIBOR plus 2.75% with a LIBOR floor of 0.75% to
LIBOR
plus
2.25
% with a
0
% LIBOR floor and increase covenant flexibility (the “Refinancing”).
The Refinancing involved multiple lenders who were considered members of a loan syndicate. In determining whether the Refinancing was to be accounted for as a debt extinguishment or a debt modification, the Company considered whether creditors remained the same or changed and whether the changes in debt terms were substantial. A change in the debt terms was considered to be substantial if the present value of the remaining cash flows under the new terms of the 2023 Term Loans was at least 10% different from the present value of the remaining cash flows under the former Term Loan B-1 (commonly referred to as the “10% Test”). The Company performed a separate 10% Test for each individual creditor participating in the loan syndication. With the exception of one lender, who owned 1% of the total outstanding principal amount of Term Loan B-1 at the date of the Refinancing and was accounted for as a debt extinguishment, the Refinancing was accounted for as a debt modification.
The Refinancing resulted in a $2.3 million charge in the three months ended March 31, 2018, which was included in “Interest expense” in the accompanying condensed consolidated statement of operations and comprehensive loss.
The estimated fair value of the 2023 Term Loans, which was based on quoted market price indications (Level 2 in the fair value hierarchy, as described in Note 5,
Fair Value Measurements
, above) and which may not be representative of actual values that could have been, or will be, realized in the future, was $278.2 million and $274.7 million at June 30, 2019 and December 31, 2018, respectively.
20
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
12. SHARE-BASED COMPENSATION
Share-based compensation expense consisted of the following:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Cost of goods manufactured and sold
|
|
$
|
2,505
|
|
|
$
|
2,454
|
|
|
$
|
4,483
|
|
|
$
|
3,872
|
|
Research and development
|
|
|
8,135
|
|
|
|
8,552
|
|
|
|
15,881
|
|
|
|
15,266
|
|
Selling, general and administrative
|
|
|
17,605
|
|
|
|
19,927
|
|
|
|
32,497
|
|
|
|
31,837
|
|
Total share-based compensation expense
|
|
$
|
28,245
|
|
|
$
|
30,933
|
|
|
$
|
52,861
|
|
|
$
|
50,975
|
|
At June 30, 2019 and December 31, 2018, $3.0 million and $2.7 million, respectively, of share-based compensation cost was capitalized and recorded as “Inventory” in the accompanying condensed consolidated balance sheets.
In February 2017, the compensation committee of the Company’s board of directors approved awards of restricted stock units (“RSUs”) to all employees employed by the Company during 2017, in each case subject to vesting on the achievement of the following performance criteria: (i) FDA approval of the NDA for ALKS 5461, (ii) the achievement of the pre-specified primary efficacy endpoints in each of two phase 3 studies of ALKS 3831, and (iii) revenues equal to or greater than a pre-specified amount for the year ending December 31, 2019. These performance criteria are being assessed over a performance period of three years from the date of the grant.
In December 2018, the Company achieved the pre-specified primary efficacy endpoints on its second of the two phase 3 studies of ALKS 3831, resulting in the vesting of a portion of the performance-based RSUs and the recognition of $17.1 million in share-based compensation expense related to these awards. The Company recognized $2.1 million, $6.7 million and $8.3 million of this expense in cost of goods manufactured and sold; R&D expense; and SG&A expense, respectively.
At June 30, 2019, there was $32.4 million of unrecognized compensation cost related to the remaining unvested portion of the performance-based RSUs, which would be recognized in accordance with the terms of the award if and when the Company deems it probable that the performance criteria will be met. The unvested portion of the awards will expire if the performance conditions have not been met on or before the three-year anniversary of the grant date.
13. LOSS PER SHARE
Basic loss per ordinary share is calculated based upon net loss available to holders of ordinary shares divided by the weighted average number of shares outstanding. For the three and six months ended June 30, 2019 and 2018, as the Company was in a net loss position, the diluted loss per share calculation did not assume conversion or exercise of stock options and awards as they would have had an anti-dilutive effect on loss per share.
The following potential ordinary equivalent shares have not been included in the net loss per ordinary share calculation because the effect would have been anti-dilutive:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
|
14,548
|
|
|
|
11,572
|
|
|
|
14,217
|
|
|
|
10,465
|
|
Restricted stock units
|
|
|
3,254
|
|
|
|
2,832
|
|
|
|
2,609
|
|
|
|
2,819
|
|
Total
|
|
|
17,802
|
|
|
|
14,404
|
|
|
|
16,826
|
|
|
|
13,284
|
|
21
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
14. COMMITMENTS AND CONTINGENT LIABILITIES
Litigation
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. On a quarterly basis, the Company reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated, the Company would accrue a liability for the estimated loss. Because of uncertainties related to claims and litigation, accruals are based on the Company’s best estimates, utilizing all available information. On a periodic basis, as additional information becomes available, or based on specific events such as the outcome of litigation or settlement of claims, the Company may reassess the potential liability related to these matters and may revise these estimates, which could result in material adverse adjustments to the Company’s operating results.
At June 30, 2019, there were no potential material losses from claims, asserted or unasserted, or legal proceedings the Company determined were probable of occurring.
INVEGA SUSTENNA ANDA Litigation
In January 2018, Janssen Pharmaceuticals NV and Janssen Pharmaceuticals, Inc. initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Teva Pharmaceuticals USA, Inc. (“Teva”), who filed an abbreviated new drug application (“ANDA”) seeking approval to market a generic version of INVEGA SUSTENNA before the expiration of U.S. Patent No. 9,439,906. Requested judicial remedies included recovery of litigation costs and injunctive relief. The Company is not a party to these proceedings.
For information about risks relating to the INVEGA SUSTENNA Paragraph IV litigation, see “Part I, Item 1A—Risk Factors” of the Company’s Annual Report, including the section entitled “—We or our licensees may face claims against intellectual property rights covering our products and competition from generic drug manufacturers.”
AMPYRA ANDA Litigation
Eleven 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”); MicroLabs Limited (“MicroLabs”); 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 (collectively with Accord, Actavis, Alkem, Apotex, Aurobindo, MicroLabs, Mylan, Par, Roxane and Sun, 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 one or more 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 asserting infringement of one or more of the Orange Book-listed patents for AMPYRA. 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 first 30-month stay 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 were consolidated into a single case.
The Company and/or Acorda entered into a settlement agreement with each of Accord, Actavis, Alkem, Apotex, Aurobindo, MicroLabs, Par and Sun to resolve the patent litigation that the Company and/or Acorda brought against these settling ANDA Filers. The settlements with these settling ANDA Filers did not impact the patent litigation that the Company and Acorda brought against the remaining ANDA Filers, including as described below.
22
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
I
n M
arch
2017, after a bench trial, the
U.S. District Court for the District of
Delaware
(the “Delaware
Court
”)
issued an opinion (the “Delaware Court Decision”),
which, among other things, invalidated
U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685
. The Delaware Court also upheld the validity of the
U.S. Patent No. 5,540,938
which pertain
ed
to the formulation of AMPYRA, but that patent expired on July 30, 2018.
In May 2017, Acorda filed an appeal with the Federal Circuit of 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.
On September 10, 2018, the Federal Circuit affirmed the Delaware Court Decision, which invalidated
U.S. Patent Nos. 8,007,826; 8,354,437; 8,440,703; and 8,663,685
.
I
n
October 2018
,
Acorda filed a petition for rehearing and rehearing en banc of the Federal Circuit’s decision
, but in
January 2019, the Federal Circuit denied Acorda’s petition.
I
n
April 2019
, Acorda filed
a petition for writ of certiorari to the Supreme Court of the United States.
In June 2019,
Roxane, Mylan and Teva filed a
brief in opposition to Acorda’s petition
and
Acorda filed
a
reply brief
to such opposition.
For information about risks relating to the AMPYRA Paragraph IV litigations and other proceedings see “Part I, Item 1A—Risk Factors” of the Company’s Annual Report, including the section entitled “—We or our licensees may face claims against intellectual property rights covering our products and competition from generic drug manufacturers.”
VIVITROL IPR Proceeding
In April 2018, Amneal Pharmaceuticals LLC (“Amneal”) filed a petition with the Patent Trial and Appeal Board (the “PTAB”) of the U.S. Patent and Trademark Office seeking an inter partes review (“IPR”) of U.S. Patent Number 7,919,499 (the “ ’499 Patent”), which is an Orange Book-listed patent for VIVITROL, seeking cancellation of claims 1-13 of the ’499 Patent. On November 7, 2018, the PTAB issued an order instituting an IPR of all challenged claims. A hearing with the PTAB is scheduled for July 29, 2019, and a decision on the matter is expected from the PTAB by November 7, 2019. The Company will vigorously defend the ’499 Patent in the IPR proceedings. For information about risks relating to the ’499 Patent IPR proceedings see “Part I, Item 1A—Risk Factors” in the Company’s Annual Report, including the sections entitled “— Patent protection for our products is important and uncertain” and “— Uncertainty over intellectual property in the biopharmaceutical industry has been the source of litigation, which is inherently costly and unpredictable, could significantly delay or prevent approval or commercialization of our products, and could adversely affect our business.”
RISPERDAL CONSTA European Opposition Proceedings
In December 2016, Nanjing Luye Pharmaceutical Co Ltd, Pharmathen SA, Teva Pharmaceutical Industries Ltd and Dehns Ltd (a law firm representing an unidentified opponent) filed notices of opposition with the European Patent Office (the “EPO”) in respect of EP 2 269 577 B (the “EP ’577” Patent), which is a patent directed to certain risperidone microsphere compositions, including RISPERDAL CONSTA. Following a hearing on the matter in January 2019, the EPO issued a written decision revoking the EP’577 Patent in April 2019. The Company filed a notice of appeal of the decision to the EPO’s Technical Boards of Appeal on June 12, 2019 and will continue to vigorously defend the EP ’577 Patent. For information about risks relating to the EP ’577 Patent opposition proceedings see “Part I, Item 1A—Risk Factors” of the Company’s Annual Report, including the sections entitled “— Patent protection for our products is important and uncertain” and “— Uncertainty over intellectual property in the biopharmaceutical industry has been the source of litigation, which is inherently costly and unpredictable, could significantly delay or prevent approval or commercialization of our products, and could adversely affect our business.”
RISPERDAL CONSTA ANDA Litigation
On July 17, 2019, the Company, together with Janssen Pharmaceuticals, Inc., initiated a patent infringement lawsuit in the United States District Court for the District of Delaware against Luye Pharma Group Ltd., Luye Pharma (USA) Ltd., Nanking Luye Pharmaceutical Co., Ltd. and Shandong Luye Pharmaceutical Co., Ltd. (collectively, “Luye”). Luye filed a 505(b)(2) NDA seeking approval to market a competing product to RISPERDAL CONSTA before the expiration of U.S. Patent No. 6,667,061. Requested judicial remedies included, among other things, recovery of litigation costs and injunctive relief. On July 23, 2019, Luye filed its answer and affirmative defenses.
For information about risks relating to the RISPERDAL CONSTA Paragraph IV litigation, see “Part I, Item 1A—Risk Factors” of the Company’s Annual Report, including the section entitled “—We or our licensees may face claims against intellectual property rights covering our products and competition from generic drug manufacturers.”
23
ALKERMES PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)
Government Matters
In June 2017 and January 2019, the Company received a subpoena and a civil investigative demand, respectively, each from an Office of the U.S. Attorney for documents related to VIVITROL. The Company is cooperating with the government.
Securities Litigation
In November 2017, a purported stockholder of the Company filed a putative class action against the Company and certain of its officers (collectively, “Defendants”) in the United States District Court for the Southern District of New York captioned
Gagnon v. Alkermes plc, et al., No. 1:17-cv-09178
. This complaint was amended twice since its initial filing. The second amended complaint was filed on behalf of a putative class of purchasers of Alkermes securities during the period of February 24, 2015 through November 14, 2017 and alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements and omissions regarding the Company’s marketing practices related to VIVITROL. The lawsuit sought, among other things, unspecified damages for alleged inflation in the price of securities, and reasonable costs and expenses, including attorneys’ fees. In June 2018, Defendants filed a motion to dismiss the second amended complaint and in March 2019, the United States District Court for the Southern District of New York issued an order granting Defendants’ motion to dismiss and dismissing the case in its entirety and with prejudice. In April 2019, the plaintiff filed a motion for partial reconsideration, which was denied by the Court on July 2, 2019. Plaintiff has until August 2, 2019 to file a notice of appeal of the Court’s decision to the United States Court of Appeals for the Second Circuit. For information about risks relating to this action, see “Part I, Item 1A—Risk Factors” of the Company’s Annual Report, including the section entitled “—Litigation or arbitration against Alkermes, including securities litigation, or citizen petitions filed with the FDA, may result in financial losses, harm our reputation, divert management resources, negatively impact the approval of our products, or otherwise negatively impact our business.”
In December 2018 and January 2019, purported stockholders of the Company filed putative class actions against the Company and certain of its officers in the United States District Court for the Eastern District of New York captioned
Karimian v. Alkermes plc, et al., No. 1:18-cv-07410
and.
McDermott v. Alkermes plc, et al., No. 1:19-cv-00624,
respectively. In March 2019, the United States District Court for the Eastern District of New York consolidated the two cases and appointed a lead plaintiff. The plaintiff filed an amended complaint on July 9, 2019 naming one additional officer of the Company and one former officer of the Company as defendants. The amended complaint was filed on behalf of a putative class of purchasers of Alkermes securities during the period of July 31, 2014 through November 1, 2018 and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, based on allegedly false or misleading statements and omissions regarding the Company’s clinical methodologies and regulatory submission for ALKS 5461 and the FDA’s review and consideration of that submission. The lawsuit seeks, among other things, unspecified money damages, prejudgment and postjudgment interest, reasonable attorneys’ fees, expert fees and other costs. For information about risks relating to this action, see “Part I, Item 1A—Risk Factors” of the Company’s Annual Report, including the section entitled “—Litigation or arbitration against Alkermes, including securities litigation, or citizen petitions filed with the FDA, may result in financial losses, harm our reputation, divert management resources, negatively impact the approval of our products, or otherwise negatively impact our business.”
24