Alkermes plc (ALKS) Q3 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Alkermes conference call to discuss the company's third quarter fiscal year 2012 financial results. [Operator Instructions] Please be advised this call is being recorded at Alkermes’ request. At this time, I'd like to introduce your host for today's call, Ms. Rebecca Peterson, Vice-President of Corporate Communications at Alkermes. Please go ahead.

Thanks. Good afternoon and welcome to the Alkermes plc conference call to discuss our financial results for the third quarter of fiscal 2012, which ended on December 31, 2011. With me this afternoon are Richard Pops, our CEO, Shane Cooke, our President, and Jim Frates our CFO. Before we begin today, let me remind you that we will make forward-looking statements relating to, among other things, our expectations concerning the commercialization of Risperdal Consta, Invega Sustenna, Ampyra/Fampyra, Bydureon and Vivitrol; the financial and operational impact of the merger between Alkermes, Inc. and Élan Drug Technologies, which we will refer to today as 'EDT'; our future financial expectations and business performance; and our expectations concerning the therapeutic value and clinical development of our product candidates. Listeners are cautioned that these forward-looking statements are neither promises nor guarantees and are subject to a high degree of uncertainty and risk. Our press release issued today, our registration statement on Form S-4, effective on August 4th, 2011 filed with the SEC and our other filings with the SEC identify risk factors that could cause our actual performance to different materially from those projected to suggested in the forward-looking statements. We undertake no obligation to update or revise the information provided on this call as a result of new information or future results or developments. This afternoon, Jim Frates, will discuss our third quarter financial results, and Richard Pops will provide an update on the Company. After our formal remarks, we'll open it up for Q&A. Now, I'd like to turn the call over to Jim.

Thanks, Rebecca. Good morning, everyone. Today, we're reporting the first full quarter of results for Alkermes, plc, which we believe provide a clear indication of the financial strength of the combined company following the merger of Alkermes, Inc. and EDT in September. This morning, I'll be discussing the financial performance of the company, which is driven by our key commercial products and the financial discipline we apply to investments in our pipeline. I will also outline improvements to our financial expectations for fiscal 2012. Let me start by providing some highlights of our third quarter results. We reported total revenues of $126 million, which is a more than 185% increase over the third quarter of last year, reflecting the breadth and scale of the combined company's commercial portfolio. Revenues were driven by the growth of our key commercial products and the strong performance of some of the more mature products. Revenues related to Risperdal Consta and Invega Sustenna, our long-acting atypical franchise, were the most significant contributors to our top line during the third quarter and provide the most obvious example of the transformative nature of the merger. Together, Risperdal Consta and Invega Sustenna are the dominant long-acting atypical franchise in the world. As J&J stated on their recent earnings call, "The total sales of our long-acting injectables, including Invega Sustenna, increased nearly 20% operationally versus a year ago due to an increase in combined market share." For the quarter, Alkermes reported manufacturing and royalty revenues related to Risperdal Consta and royalty revenues related to Invega Sustenna, which is marketed as Xeplion in the EU, have approximately $47.6 million. For the calendar year ended December 31st, 2011, worldwide sales of Risperdal Consta and Invega Sustenna were estimated to be approximately $2 billion. On average, we anticipate our net economics on Risperdal Consta and Invega Sustenna will be roughly equal. However, for modeling purposes, I want to remind you that Invega Sustenna's royalty rate is tiered annually between 5% and 9%, so our royalties will be at the lower end of this range at the beginning of the calendar year and will tier up as certain sales milestone levels are reached. Manufacturing and royalty revenues for Ampyra and Fampyra were $10.2 million during the third quarter. Acorda's unaudited net sales of Ampyra during the quarter were approximately $57 million in the United States. For the calendar year, unaudited net sales of Ampyra in the U.S. were approximately $210 million. Biogen continues to launch Fampyra on a country-by-country basis in the E.U., and early indications are very positive. Just this week, Biogen reported quarterly sales of Fampyra of $10.4 million. As a reminder, our economics on the product are a combined manufacturing and royalty rate of 18% of worldwide net sales, of which we net roughly 15% to 16% after our cost of goods. Acorda recently guided that they expect $255 to $275 million in Ampyra net sales in the United States, in calendar 2012. With this anticipated growth in the U.S. and additionally, the launch of the product around the world by Biogen, we're confident that the Ampyra/Fampyra franchise will be an important source of growth for the company. Net sales of Vivitrol for the third quarter of fiscal 2012 were $10.6 million, representing the tenth consecutive quarter of growth. This reflects 7% growth sequentially, and 38% growth over the same quarter last year on an operational basis. Turning to Bydureon, last week, we and our partners at Amylin, announced that Bydureon had been approved by the FDA, making Bydureon the first and only approved once-weekly treatment for type 2 diabetes. Amylin's preparations are underway, and they plan to launch the product in the coming weeks in the United States, which will trigger a $7 million milestone to Alkermes that we expect to recognize in our fourth quarter fiscal 2012 results. Bydureon is now approved in 31 countries, and commercial launches are underway in 10. As a reminder, Bydureon is profitable to Alkermes from the first dollar of sales. Alkermes receives an 8% royalty on the first 40 million units sold in a year, and a 5.5% royalty on units exceeding 40 million in a year. Each calendar year, the royalty rate resets to 8%. In addition to our 5 key commercial products, during the third quarter of fiscal 2012, Alkermes earned stronger than expected revenues from some of our mature products, including $15.7 million from Tricor-245; $11.6 million from Ritalin LA and Focalin XR; and $6.6 million Verelan. These revenues provided upside to our results this quarter, and proved to be more resilient than we originally modeled. That said, with generic entrants expected or already on the market for some of these products, we anticipate the revenue contribution from the products will decrease in the near-term. As we've said previously, in 5 years, we expect revenues from more mature products to be approximately $80 million annually. However, this decline is expected to be more than offset by the growth of our 5 key commercial products. Turning to expenses, total operating expenses for the third quarter were $130.6 million. The increase in R&D expenses from the second quarter of fiscal 2012 reflects the inclusion of expenses associated with the former EDT business, and the advancement of pipeline candidates in their later-stage development. The increase in SG&A expenses was also primarily due to the inclusion of expenses related to the former EDT business, and $4.4 million of 1-time merger related expenses. During the quarter we incurred a non-cash expense for the amortization of intangible assets of $11.9 million, related to the purchase of EDT. As we have said previously, we expect annual charges related to the amortization of the deal, in the range of $40 to $80 million, which will follow a bell curve over approximately the next 10 years. Then, interest expense for the quarter was $10.1 million, which included $10.5 million of interest expense incurred on the $450 million of term loans secured to fund the merger with EDT. Included with an interest expense is $8.7 million of cash interest and $1.8 million of amortized financing costs. Finally, our adjusted EBITDA for the quarter was a positive $29.7 million, compared to an adjusted EBITDA loss of $4.1 million for the same quarter last year. This is the second obvious place where you can see the powerful effect of the merger on our financial results, as we've moved from a loss position, to one of generating substantial positive adjusted EBITDA, not just this quarter or this year but for the foreseeable future. We believe adjusted EBITDA is the most appropriate financial measure of our ongoing business operations, since it provides a clear picture of the fundamentals of our business. For a full reconciliation of our adjusted EBITDA to GAAP, please review the press release issued earlier this morning. As of December 31, 2011, we had approximately $234 million in cash in total investments. The decrease in cash from the September 30, balance of approximately $241 million, was primarily related to the payment of merger-related expenses, interest and taxes, and changes in working capital. With respect to our financial expectations for Fiscal 2012 we are increasing our total revenue expectations and maintaining our expense expectations, resulting in an improvement in the GAAP net loss and increased adjusted EBITDA. I'll now walk you through the key elements of our improved expectations for the remainder of Fiscal Year 2012. We are increasing total revenue guidance to a range of from $370 to $400 million, up from a range of $350 to $380 million. Within this new guidance we are maintaining our previous revenue expectations for Aripiprazole and Vivitrol. This strong base of revenues represents a diversified portfolio, and we expect growth to be driven by our 5 key commercial products. Consistent with our increase in revenues, we now expect a lower GAAP net loss in the range of $70 to $82 million, improved from a previous expectation of a GAAP net loss in the range of $90 to $102 million. Likewise, our expectations for adjusted EBITDA are improving, to a range of $65 million to $75 million, up from our previous range of $45 to $55 million. Our complete financial expectations for Fiscal 2012 are outlined in the press release issued this morning. The results we reported today from the first full quarter of the combined company underscore the financial strength and scale of the new Alkermes plc, and we believe all the elements are in place to drive strong financial performance. As usual, we'll provide our Fiscal 2013 guidance, on our year-end conference call in May. But we've recently given a ballpark Fiscal 2013 revenue expectation approaching $500 million. We're off to a great start for the combined business, with near and long-term growth opportunities. And with that, I'll turn the call over to Rich.

That's great. Thank you, Jim. Good morning everyone. So this was a fantastic quarter for Alkermes and it caps off a remarkably productive 6-month period, with significant progress made across the company, including the close of the EDT merger, the launch of Bydureon in EU and the approval of Bydureon by the FDA, positive date on ALKS-9070 and the start of our clinical program and encouraging data on ALKS-4061 and the accelerated start of that phase II study in major depressive disorder. Alkermes now has the elements in place to become a major biotechnology company. It's not by accident; it's the result of putting in place an amalgam of people, technologies, manufacturing capabilities, commercial products, financial resources, and scientific expertise. All of these elements enabled to 2 majors growth drivers for calendar 2012. First, we have a powerful financial engine in place and we set clear financial targets that we're managing the business to meet. Second, we have an increasingly valuable late-stage pipeline, and a R&D strategy that's focused on return on investment. And I'll cover these in turn. The financial engine is driven by these 5 key commercial products. Risperdal Consta, Invega Sustenna, and Ampyra, Vivitrol and Bydureon. Each of these products is a singular product in its class, on patent for a long time, and in a way, these products have hardwired growth potential into our P&L for the next several years. So let's start with Bydureon. As I'm sure you know by now, we and our partners at Amylin announced last Friday that Bydureon was approved by the FDA, making it the first and only once weekly, GOP1 approved by it in the US. Congratulations to our colleagues at Amylin and to the many Alkermes employees who worked so hard on Bydureon for so many years. So now Bydureon joins our expanding list of commercial products available to patients in the U.S. and around the world. In the US, Amylin will be responsible for the sales and marketing of Bydureon. We're encouraged by their commitment and focus on successful execution. Amylin will utilize the commercial force of 650 diabetes sales specialists, many of whom have previous market experience with both Byetta and Symlin. Outside the U.S., Amylin intends to seek a commercial partner, and we understand that those discussions are underway in earnest. Bydureon is a game changer in the treatment of Type 2 diabetes, and we're very proud of our role in its development. We expect it to be a meaningful contributor to our growth and margin expansion since we have no costs associated with the product, just pure royalties on net sales. Amylin announced the price for Bydureon on their conference call last week of approximately $323 per month, which is a slight premium to Byetta, and a discount to high-dose Victoza. We think that's smart at this price point. For the only once weekly diabetes medication, it provides continuous glycemic control. This will be attractive to physician, patients, and importantly payers. Turning to the atypical franchise. On a combined basis, Risperdal Consta, and Invega Sustenna sales are growing at a double-digit rate. Recall that Risperdal Consta is approved in more than 90 countries with the majority of its sales coming from outside the U.S. At the E.U. launch of Invega Sustenna or Xeplion is just now beginning. So we believe we are at the beginning of a protracted period of expansion for this franchise. For Ampyra, at the beginning of January, our partners at Acorda announced strong, unaudited net sales for the fourth quarter, as the U.S. launch continues to gain momentum. Outside the U.S., Biogen has now launched a product in Germany, Australia, U.K., Norway, Denmark and Iceland. We expect an E.U. launch to roll out to additional countries as reimbursement discussions are finalized. Acorda has also stated that they are advancing the development of potential new indications for Ampyra in M.S. and other CNS diseases. These potential new indications represent large markets with significant unmet medical need. And it is exciting to see the extent of the clinical research supporting the future potential of Ampyra. On the Vivitrol front, this quarter marked our 10th consecutive quarter of growth, as we continue to roll out the opioid-dependence indication. Looking over the longer term, you have heard us talk about and we continue to be interested in the opportunities for Vivitrol in States and in the Criminal Justice system. This is the part of the market that we think Vivitrol has the ability to essentially dominate as the only once-monthly, non-addictive opiate receptor antagonist that prevents relapse to opioid dependence. These 5 commercial products, each with intrinsic growth, will drive our financial performance. They are complemented by the late-stage pipeline. Before I provide an update on some of the late-stage candidates themselves, let me discuss briefly our targeted ROI-driven R&D strategy. The idea is to do very little basic discovery work. We design molecules rationally, in order to solve a particular clinical or medical opportunity, characterize them rigorously pre-clinically, and then move quickly into cost effective studies in humans that can give us a clear proof-of-concept. This approach allows us to assess the viability of new pipeline candidates early and devote our resources to advancing the most promising candidates quickly to registration of staged trials. This approach has been incredibly productive, and has yielded what we believe is an exciting CNS pipeline that we expect will generate meaningful new drugs, ones that become important new treatment options in their classes and also sources of significant revenue for Alkermes into the next decade and beyond. Consistent with this approach, ALKS-9070 is a proprietary, injectable, long-acting, new chemical entity that metabolizes in the body into Aripiprazole, which is available commercially as Abilify. We knew exactly the type of molecule we needed to design in order to meet pre-specified clinical and commercial criteria. A phase III study of ALKS-9070 is underway in enrolling patients. This multi-center trial is designed to include 690 patients with schizophrenia, and will be enrolling throughout this year. Data from this study are expected in mid-calendar of 2013. We are very excited about the prospects for ALKS-9070. Separate from the inherent features of Aripiprazole as an anti-psychotic, namely the efficacy and tolerability. We see 2 key differentiating features of 9070. The range of doses we can deliver, and the product presentation itself. Based on our human Phase I PK data, we believe we can offer 9070 dose strengths to cover the full range of oral Abilify doses, including the highest dose that is commonly used to treat schizophrenia. This is an important attribute, as it will allow a clinician to easily transition a patient from any daily dose of oral Abilify to a corresponding monthly dose of ALKS-9070. In addition, we have learned through our experience with Consta and Sustenna that product presentation matters in the real world. We are designing ALKS-9070 to be a ready-to-use pre-filled syringe. This is a huge opportunity for us, one that leverages much of our experience, and we are very excited to be advancing this program. ALKS-37 is a drug you will be hearing a lot more about in the coming year. ALKS-37 is our orally active, peripherally restricted opiate antagonist, for the treatment of opioid-induced constipation. 280 million prescriptions were written for opioid analgesics in the U.S. in 2010, which is an incredible number when you think that there are only about 300 million people in the entire country. Most patients on opioid therapy will experience GI motility problems. We designed ALKS-37 to have precise opioid receptor selectivity, and to be orally available and metabolically robust, so they can be dosed once a day. Further, in addition to designing it not to cross the blood-brain barrier, we designed it to stay in the GI tract with low systemic exposure, with the goal of not only making it effective but very well tolerated. We saw evidence of these features in the Phase II data we presented last year. And we expect to see these qualities reinforced in the clinical data in our ongoing Phase II-2b program, which includes more than 200 patients and is expected to read out in mid-calendar 2012. We then plan to move forward with 2 parallel Phase III study. Another proprietary CNS candidate, ALKS-5461, is a sophisticated opioid-receptor modulator. Just a few weeks ago, we announced the positive results of a Phase I-b study of 32 patients, with major depressive disorder who failed standard therapy. 2 things about the data caught our attention. First, the magnitude of the anti-depressant effect, and second, the rapid response the patients had to treatment with 5461. At day 7 of the study, ALKS-5461 was shown to significantly reduce depressive symptoms, as measured by the Hamilton Depression rating scale. As you may know, SSRIs and other medications can take weeks to illicit a pharmacological response, so to see such a clear signal, in a small number of patients and achieve statistical seen evidence by day 7, you can see why we have moved very quickly to expand and elaborate these findings in a bigger Phase II study which is now underway. We expect that data in-hand in the first half of calendar 2013. This is a large market with an estimated 6 million patients in the U.S. who don't adequately respond to their first course of treatment, who need a well-tolerated, non-addictive treatment with a new mechanism of action. I'll end where I began. This was an excellent quarter, and the beginning of something very important. These 2 elements, a powerful financial engine coupled to an increasingly valuable and late-stage pipeline, create a really exciting company with all the elements in place to build what we think is going to be one of the next big biotechnology companies. With that, I'll finish and turn the call back to Rebecca for questions.

Thanks, Rich. We will now open up the call for Q&A.

[Operator Instructions] The first question is from Graig Suvannavejh from Jeffries.

I have just 3. First of all, I'm sure we were all pleased to see the increase in revenue guidance for the year. I know you've maintained Vivitrol as a constant, is there any one other particular driver that is giving you increased confidence in terms of raising that revenue guidance? My second question just has to do with current expectations around Élan, and their potential plan to sell-down their stake in Alkermes stock. And then my last question, if I could, is just going back to Bydureon and congrats on that approval there. Have you been able to calculate the sales threshold, I guess, in which that Bydureon royalties steps down from 8% to 5.5%?

I'll take the financial questions, Graig. So I revenue guidance, I think one of the key drivers is across the board, the products are doing well, particularly, the mature products as we mentioned. And now that we have clarity about the timing of Amylin's expected launch of Bydureon, that's an additional $7 million milestone for us that we expect to receive in the February-March time frame, so that's on first commercial sales, and that's probably the largest part of the increase. But across the board all the products are doing well. Secondly, on Bydureon and the calculation of the step-down in royalties as it were, I think we're very pleased with the pricing, as Rich mentioned. And if you do the calculation based on -- you have to make some certain assumptions about gross-to-net, which we don't know, and also the mix between the U.S. and Europe. But we've made a conservative 50/50 assumption in about the mix, the U.S. and X-U.S., and the gets you to roughly, $2 billion in sales. So, we look forward to the time when we have to be doing this calculation with you all in more detail. So, $2 billion in sales is around the time we need to think about the royalty changing from the 8%. And on the Élan stake, this is going to be governed by the shareholder agreement that we have with Élan, they're really in the driver seat there and you can refer to that. There's basically a 6-month lockup from the closing of the deal, so nothing can happen before then. I think you can expect it be orderly, it's going to be in a marketed transaction that we'll be involved in, and I think everybody will see it when it’s happening.

The next question is from Ami Fadia, from UBS.

I actually just had 2 quick questions. Firstly, you mentioned ALKS-37, and I wanted to sort of go back to the data that was presented last year and dig further on the slight trend towards the decline in the pain effect of the drug in some cases, or I think it was in one particular dose. Could you address that and give us a sense of why you think that may not be an issue going forward? And then, secondly, at this point where do you think investors are under-appreciating some of the growth drivers? You've talked about sort of the 5 products. Where do you think -- or which product do you think is least appreciated at this point?

It's Rich. I'll take your question. The great thing about ALKS-37 is that nobody will need to try to figure out the data that we presented last year, because we're going to have 200 patients with new data coming midyear. The point I'm trying to make is that any questions or any concerns, or even any features in the data that we think are very positive will be completely elaborated in this bigger data set. So, we'll have a better sense of the range of doses. We'll have a sense of the appropriate end points. We'll have a better sense of the duration of effect. We'll have all the variables that are being tested in this series of clinical trials. So I really look forward to getting that data midyear, because then I think we will be able to position this product versus data we've seen from other competitive products that are in development right now. But as I've said before, we're playing the game to win, which is why we're investing so much in Phase IIB to really get a clear profile that you all can see and compare to other drugs, as well. On the portfolio, I actually think that this quarter is really important because, for the first time, it allows the numbers to speak for themselves. To the extent that we're under-appreciated, and I'm not sure whether we are or we aren't, it's very difficult to be under-appreciated when you begin to see the transformative financial impact of this deal and we're generating significant amounts of EBITDA. We've seen significant amounts of growth, quarter-on-quarter and we have products that are -- with the exception of Consta, which has been around for a bit -- really at the beginning of their lifecycle. So as I said in my earlier remarks, in many ways there is hard-wired growth in the P&L as these products continue to grow. The pipeline, I think, is where people are going to be getting a lot more appreciation, just because it's getting so much later stage. ALKS-9070 is in Phase III, and you'll be able to build models around the impact of a long-acting Abilify in the schizophrenia market. ALKS-37 we just talked about. With that data this year, you'll be able to position it and begin to get a sense of what this market's going to look like. 5461 is the more recent one to add to the portfolio, and that's one that I think has a real potential to surprise people, as people begin to understand both the market and the role of a new mechanism in patients that have failed standard therapy. So I think it's a year where a lot of it comes together and people begin to get a new appreciation for the business.

The next question is from Cory Kasimov from JPMorgan.

I have a couple on your commercial portfolio and one on the pipeline. First of all, how is the Bydureon royalty paid? Do you receive the 8% of sales in the quarter those sales are generated? Or is there a lag to that?

No, Cory. We'll be recognizing the revenue in the quarter that the sales are made. We'll be paid 30 days after the end of the quarter. The cash will come in under a normal contract in the normal course. But we'll be recognizing revenue in the quarter those sales are generated.

We can just back in based off your royalty to what the actual sales were?

Yes, exactly.

Is it possible for you to break down the revenue between Sustenna and Consta, that $48 million number? Can you tell us what was what?

We're under a little constraint because J&J hasn't guided to what Sustenna is. But I think you can use the 20% growth that we've seen. $38 million of that $47 million or so that we reported this quarter is related to Risperdal Consta. That will be in our Q.

Perfect. On the pipeline, I realize it's only been about 6 weeks now, but do you have any early insights from the ALKS-9070 phase 3 with regard to, may be accruable, but more importantly, investor interest in the program?

It's a little early to say. As you said, we're just a few weeks into it, although we are accruing, but I think the investor interest is quite high.

The next question is from Anant Padmanabhan from Cowen and Company.

I have a couple. One a follow up on ALKS-37. Given the partnering activity in the OIC space historically, how should we think about your plans to partner this product? Should we assume that any partnership would be after the Phase II B results?

Yes, I think that's probably the best assumption is -- the most general comment I'll make is we're not really limited in developing ALKS-37 by waiting for a partner. We'll look for a partner that can maximize the commercial potential globally for the product. In the meantime, we're hammering on the clinical program ourselves. We have the resources. We have the capability. We have the desire and finances to do it. It puts us in a really nice position. Because we're already talking to pharmaceutical companies. As we meet with them and they learn more about the program, they have questions. Many of those questions will be answered with data. I think that data readout mid-year will be important not only for the partners, but for us as well, in terms of the competitive position.

And then just on the royalty streams, you just talked about Bydureon. Taking a step back, could you comment on, of your full royalty streams, which of these could be accurately predicted by prescriptions and reported sales? And which of them will tend to be fairly lumpy over the course of the next couple of years?

I'll try to give some color on that. I think, again, with the 5 key products each have different channels, obviously, and I think the best trends to rely on are the ones with longer histories so you can actually relate the IMS sales to the trends that are there. But I also think we'll be very focused on providing the end sales of each of the products so you can track them.

I'll just add to that. Really, any agreement that has a manufacturing component, those are the ones that are more lumpy in nature, ones that are pure royalty on sales are more predictable in nature. So it’s really just looking at each agreement and understanding whether there is a manufacturing component.

The next question is from Tom Russo from Baird.

I am looking for a little additional color on the other EDT business. I know you made comments that it was strong in the quarter and it looked to me that it was the highest in maybe 2 years. Was there anything specifically that drove that?

No Tom, I think actually it’s been pretty consistent and certainly as you look back to a year-ago quarter, it was a strong quarter. I think the main thing would be actually in December, since this is the year-end for a lot of the larger pharmaceutical partners that we have. Often times, if the sales are doing well in a particular year, the December quarter will be higher than the September quarter or the following March quarter. I think that has a lot to do with it, and I think also its having a portfolio of twenty-plus products and most of them came in at the higher end of our expectations. Therefore, we had the opportunity to raise guidance for the year.

Okay. On the topic of guidance, the revenue guidance increased by about $20 million at the midpoint, and COGS was not changed. Was that more because the Bydureon royalty was a big driver of the increased guidance or the breadth of the range for COGS? Is there some explanation for why COGS wouldn't go up with revenues?

No, I think we are still in the range, Tom, for the COGS and again some of the key drivers, you're right, Bydureon and Invega Sustenna are pure royalties. So as they add in to the business, going forward, we're going to be seeing improving COGS. And I also said we're trying to manage in a disciplined manner and we are really proud of the fact that we're increasing revenue guidance by that average of $20 million and we're also increasing our adjusted EBITDA guidance by that same $20 million dollars as we try to manage our expenses well.

Okay. Last question. I don't know if you will comment on this yet, if you just annualized this quarter and if you look at what you are implying at the midpoint for the fiscal fourth quarter, you are kind of already at a $500 million run rate. The street, I think, is only looking for about 3% revenue growth off of that in 2013. Would your view be that that's too conservative? You made the comment about roundly $500 million next year, but it seems like that would be very conservative based on this quarter and what you are implying for next quarter. So I would just would love to hear any thoughts on that.

Tom, I think that we're pretty pleased with the circa $500 million and it's early. We haven't given guidance yet for 2013, so I'd say that. I'd also say, again, this is a very good quarter for us on a revenue basis. As I mentioned, that push that many of our partners have had in the fourth quarter, one can't annualize that through the year. It was a very good quarter for many of our products. And then finally, I think the $14 million of milestone payments that we received from Bydureon for those first commercial sales also have to be built-in. We certainly were not planning on that second milestone for the launch in the U.S. being in fiscal year '12, when we first gave our guidance in the beginning part of the year just out of conservatism. I think we'll see. The growth of the portfolio is doing well. We'll see how we progress during the year. And we're trying to maintain and manage on a conservative basis and hopefully, continue to beat expectations.

The next question is from Steve Byrne from Bank of America.

Jim, you mentioned that your Consta sales are near $38 million. That would suggest J&J didn't have much of an inventory drawdown. Is that in line with your view? And are you expecting somewhat of an inventory drawdown in this fiscal's fourth quarter given they had a build in the last couple quarters?

I think as I mentioned in the remarks, we are not changing our Risperdal Consta manufacturing guidance. I think that is really progressing as we planned. We did start off with 2 very strong quarters. That has been the trend for the last few years. Again, the beginning of their calendar year, our June and September quarters, have historically been strong. So Risperdal Consta is doing well. Actually, units were up around the world this quarter. We like to look at it as a combined business, which for the last 2 quarters has been growing at close to 20%. If you're talking about a major aspect of the long-term opportunity, this sustainable, long-acting, injectable franchise is, I think, the key to our long-term growth.

And then a question about 9070. The trial you have underway is a placebo-controlled. Do you have plans or believe you need to compare 9070 to oral anti-psychotics?

I think for Europe, we'll want to run a comparative study, but we haven't started that study yet. And let me just build on what Jim said about the Consta-Sustenna franchise. The fact that it's $2 billion of business growing at double-digits rates, that is exactly the platform that we want to build 9070 off of. Because this long-acting atypical market is getting more and more traction around the world, more clinicians are getting exposed to the benefits of long-acting injectables but the market is satisfied only with risperidone and paliperidone, which are basically the same molecule. It is creating this growing opportunity, the slipstream, for a long-acting formulation for a drug like Abilify, which is a really well tolerated drug.

The next question is from Mario Corso, from Caris & Company.

Can you talk a little about Vivitrol, and what you see going on there, and what's happening going forward? I know you're starting the new prison base study. And then also, in terms of mature products from EDT, can you talk a little bit about your expectations on the timing and magnitude of generic competition?

It's Rich, I'll take that. Vivitrol continues just to make the steady progress, with its tenth consecutive quarter growth, as both Jim and I mentioned in the call. We expect it to fall within the range that we guided to, and we'll guide on its continued growth in the following year. But the point that you raised about the criminal justice studies is an important one. There's a number of exciting pilot level programs that are happening in states around the country, most recently, the announcement we made yesterday in this study on patients leaving prison. I think they're indicative of a potential general trend in the future for the use of a long-acting, monthly injectable that prevents relapse to opioid dependence. So one of the nice things about the EDT transaction is that it gives in the portfolio, it gives time for Vivitrol to grow into what Vivitrol is going to become. So we remain quite enthusiastic about that. On the mature products, it's such a massive simultaneous equation of all these different products that essentially, what we've said is what we've said before, which is, if you fast forward 5 years from now, we expect revenues from mature products to be about $80 million a year. And how it gets from here to there will be not in a straight line, depending on what happens in the courts and what happens with competitors and what happens with patents and so forth. But we think generally, that's the general trend and we understand how the story will end.

And Mario, I'll just add to that. Further, we expect that the decline in revenue from the mature products will be more than offset as these key commercial products that we've mentioned today ramp up in sales.

The next question is from William Tanner, from Lazard Capital Markets.

Jim, just on R&D, how do we think about that going forward? I appreciate that you guys, in the next quarter or so, will provide 2013 guidance, but if you're $160 million run rate-ish now, what should we think about as puts and takes that might impact that in 2013? And I guess I'm looking for, perhaps, some reiteration of the philosophy that that really isn't an R&D budget; that's a percent of sales versus really dedicated to the specific programs. And I have a couple of other questions.

Sure, Bill. I think you're right. And, as I said in the remarks, maybe too subtly, the R&D expense that we've seen, which is around $40 million this quarter, does include all the expenses from the new EDT business, and an increase in the spending as we've started the Phase III in ALKS-9070. I think you'll see the takes, or the rolling over of those pretty large Phase II studies in the ALKS-37 as part of it. The number of other studies that are ongoing, that will stay at the smaller level, but the main driver is that Phase III 9070 Study and that's well within our budgeted plans. And we said at our Analysts' Day in the summer that we think that spending between $150, $180 million on R&D will give us plenty of opportunity to advance this pipeline over time. And we will move over time, like every other big biotech company, to the sort of standard margins. But at this stage, we're looking at it as an amount of money to spend on R&D and working our R&D budget within that. We also have, obviously, partnerships. Those will be quite lumpy. We're not planning on those as we plan out our budgets, but that'll be something over time. As we talked about, there are some very good commercial reasons to do partnerships around these products if they're successful.

And then, Rich, just on Vivitrol, I'm just kind of curious. I guess the commercial opportunities may or may not have unfolded as expected, and the incarceration study, the pilot study, I'm sure is not a very big number. But I'm just curious as to your thoughts on continued investment in that product.

We see Vivitrol as having a really long patent life and no competition other than inertia [indiscernible] of inaction. And because it's incredibly efficacious, and because of its particular mechanism of action in the opioid dependence setting where it blocks the opioid receptors and has a label that says, "Prevents relapse to opioid dependence", there are a number of places where we think we can really create a dominant presence for Vivitrol compared to any other treatment approach. That's the good news. The bad news is that requires changes in the way large systems operate, and so I think it's worth our time to just keep chipping away at it. Pilot programs tend to work, they tend to lead to bigger opportunities for Vivitrol. And we're just going to let this gestate.

And then, maybe, one last question on Bydureon. I know in fiscal 2013, its royalties aren't going to be a big revenue component, but are your Bydureon projections going forward for the royalties for drug, are those in-house determined, or are you getting some help from the folks at Amylin in terms of what their expectations for the drug sales are going to be?

I think it's both, but it's very much in flux right now with the drug just having gotten approved. They are just getting ready to launch, so they'll set the trajectory at launch. Europe is still a bit in flux with Lily transitioning to a partner to-be-determined. I think that we have a sense that there is a real opportunity. We saw numbers this morning from Novo that they sold $1.1 billion of Victoza [ph] in 2011. I think that's a fantastic and necessary prerequisite to Bydureon being a big drug. So I think we're going to be quite optimistic.

Longer-term, there should be some concordance between what you're expectations are for royalties and what Amylin thinks they're going to sell.

Yes, you would think.

The last question will be from Terence Flynn from Goldman Sachs.

Rich, you mentioned the study for 9070 that I guess one of the potential advantages of your compound is the formulation or delivery device, and that at time of launch you'd have a prefilled syringe. I was just wondering what current device you're using in the ongoing Phase III Study. Is that the commercial device? Or if there's more work that has to be done on the device? And what those gating steps might be.

Terrence, we're not using the final commercial device yet, but we're injecting a suspension of 9070. But that is on the development plan to be ready for launch.

What are some of the gating steps left, I guess?

In that formulation?

In the commercial formulation, yes.

It's, as you may know, putting together a pre-filled syringe is almost a separate development project, separate from developing the NCE and testing its effect [on man]. We decided to move as fast as we can on the NCE side of it and run the device development in parallel. It's fairly straightforward. This is an IM injection, so we're not looking for tiny needle gauge or small injection volumes. We're simply looking for stable suspension that we'll swap over to for commercial launch.

All right. Thanks everyone for dialing in today. If you have any additional questions, please don't hesitate to contact the company. Have a good day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.