Alkermes plc (ALKS) Q4 2017 Earnings Report, Transcript and Summary

Good morning, and welcome to the Alkermes plc Fourth Quarter and Year-end 2017 Financial Results. My name is Brendon and I’ll be your operator for this call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session [Operator Instructions] Please note this conference is being recorded. And I will now turn it over to Sandra Coombs, Co-Head of Investor Relations. Sandra, you may begin.

Thank you. Welcome to the Alkermes plc conference call to discuss our financial results for the quarter and year ended December 31, 2017. With me today are Richard Pops, our CEO; and Jim Frates, our CFO. Before we begin, I encourage everyone to go the Investors section of alkermes.com to find our press release and related financial tables, including a reconciliation of the GAAP to non-GAAP financial measures that we’ll discuss today. We believe the non-GAAP financial results in conjunction with the GAAP results are useful in understanding the ongoing economics of our business. Our discussions during this conference call will include forward-looking statements. Actual results could differ materially from these forward-looking statements. Please see our Slide 2 of the accompanying presentation, and our most recent annual and quarterly reports for important risk factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise the information provided on this call or in the accompanying presentation as a result of new information or future results or developments. Today, Jim Frates will discuss our financial results and 2018 guidance. And Richard Pops will provide an update on the company. After our remarks, we will open the call for Q&A. Now, I’ll turn the call over to Jim.

Thanks, Sandy. Good morning, everyone. 2017 was an important year for our business and we saw continued growth in VIVITROL and ARISTADA and executed on our objectives across the company. Our financial results for the fourth quarter and year ended December 31, 2017 were slightly ahead of expectations, and were characterized by strong revenue growth from our commercial portfolio notably our proprietary product s, upside from our collaboration with Biogen as well as focused investments in our advancing late-stage pipeline and CNS medicines. I will start with our key financial highlights. For the quarter, our total revenues were $275.4 million and we recorded a non-GAAP net income of approximately $50.3 million. This resulted in record total revenues for 2017 of $903.4 million and a non-GAAP net income of $27.8 million compared to a non-GAAP net loss of $10.3 million in 2016. Last year we grew revenues 21%, while expenses increased only 10% and we invested in our portfolio and our commercial operations. With approximately $591 million in cash and total investments at year end, and a portfolio of differentiated approved products in Phase 3 candidates in major markets. We are well-positioned to execute on our transformative growth as we await key milestones on each of our pipeline candidates in 2018. Let me now review some of the key drivers of our financial performance during the quarter, starting with VIVITROL. In the fourth quarter, VIVITROL net sales grew 22% to $75.6 million compared to $62.1 million for the same period last year. During the quarter, we saw unit growth of 28% compared to the fourth quarter of 2016, reflecting continued growth in both commercial and Medicaid units. On a sequential quarter basis, net sales grew 9%. Our fourth quarter growth did include inventory build that is typical at year-end of approximately $5 million, which we expect to work through in the first quarter of 2018. As in previous years, due to yearend inventory build and the reset of commercial plan deductibles, we expect our first quarter 2018 net sales will be down sequentially with growth resuming in the second quarter. For the full-year of 2017, VIVITROL net sales grew 29% to $269.3 million, reflecting solid volume growth. As we saw in the third quarter, the growth rates remain moderate in some of our largest states like Ohio and Massachusetts in the fourth quarter. But we also saw growth accelerate in important states such as Illinois, Indiana and Pennsylvania. The 21st Century Cures Act provided $500 million of new funds to states to address the opioid epidemic in 2017. Funding is slowly flowing from the states into the treatment system, but we've not yet seen a meaningful impact on changing the treatment landscape. An additional $500 million will be distributed to states this year and should subsequently flow into the treatment system. We also continue to monitor expansion in state programs as a leading indicator for interest in VIVITROL and that growth remains strong. Since we reported our Q3 results in October, we’ve seen a number of programs expand from 560 to approximately 630 programs. On the access side, we saw a major policy change in California as VIVITROL coverage was expanded in the Medi-Cal program at the end of 2017. Previously, VIVITROL was available under the pharmacy benefit only for limited populations of Medi-Cal beneficiaries, California has been one of our top five states for sometime primarily driven by sheer population as access to VIVITROL was limited, but we still have work to do. This is an important new opportunity in a large market and VIVITROL is well-positioned for growth in California over the long-term. For 2018, we expect VIVITROL net sales in the range of $300 million to $330 million, reflecting current growth trends. Looking ahead, we remain optimistic and encouraged that VIVITROL will continue to play an increasingly important role in addressing the opioid epidemic. We're focused on expanding our provider networking key states, raising awareness of VIVITROL in those states with highly developed networks and highlighting new clinical data. Coupled with our policy work to ensure equal access to all entities, we're focused on continuing VIVITROL's momentum. Turning to ARISTADA. In the fourth quarter, we met our expectations and generated net sales of $28.3 million, resulting in net sales for the year of $93.5 million. During the quarter, we continued to gain traction in the growing market for long-acting atypical antipsychotics. ARISTADA's market share for new prescriptions in terms of months of therapy in the long-acting aripiprazole market, was approximately 24% in the fourth quarter compared to approximately 17% in the fourth quarter of last year. 2017 was a big year for the ARISTADA product family with the addition of the 2-month dose in June and the submission of a new drug application for the initiation product with the PDUFA date at the end of June 2018. We see the combination of the ARISTADA initiation product and the 2-month dose as a distinctive offering that will drive additional growth in this market. Looking ahead to 2018, we expect strong growth for ARISTADA with net sales in the range of $140 million to $160 million. These expectations include a modest increase in our gross to net as certain payer consolidations take effect and as volumes with certain large Medicaid plans continue to accelerate. Over the long-term, we believe ARISTADA's differentiated product features will drive its market share in the growing long-acting atypical market. Moving on to our royalty and manufacturing business, we saw overall revenues of $505.3 million in 2017, driven by revenues of approximately $300 million from RISPERDAL CONSTA and INVEGA SUSTENNA and INVEGA TRINZA, which increased10% year-over-year and $117 million from the AMPYRA/FAMPYRA franchise. During the fourth quarter, we also recognized a $28 million upfront payment from Biogen related to the licensing collaboration agreement we announced in November, in which we granted Biogen an exclusive worldwide license to develop and commercialize ALKS 8700, which is now known as BIIB098. There are three key financial benefits of this agreement that make the deal attractive for us on an operational and NPV basis: additional milestone payments, the elimination of development and commercialization costs from the ALKS P&L, and a substantial royalty on worldwide net sales. I will review each of these in turn. Under the terms, Alkermes will receive additional milestone payments of up to $200 million upon certain clinical and regulatory achievements. The first of these is a $50 million payment, following initial data from the head-to-head gastrointestinal tolerability study expected in mid-2018. The second milestone payment of $150 million would be payable upon FDA approval. Next as of January 1, 2018, Biogen is responsible for all development expenses related to BIIB098. Alkermes will continue to lead the clinical development program and record the associated R&D expenses for BIIB098 and these expenses will be reimbursed by Biogen and recorded as R&D revenue. We estimate this will be roughly $60 million in revenue in 2018. Additionally, the cost savings that we will capture by not building a proprietary MS commercial organization are significant and will allow us to focus our resources on commercial initiatives core to our psychiatry portfolio and on advancing our pipeline. Lastly, with Biogen's established MS commercialization of organization, we now model more rapid commercialization of BIIB098. Biogen will pay Alkermes a mid-teens royalty on worldwide net sales of BIIB098, including certain minimum annual payments in the first five years following FDA approval. With patent life into 2020 -- 2033, excuse me, we expect this will be a significant long-term revenue stream for Alkermes. Turning back to our financial results. In terms of expenses, for the full-year we recorded R&D expenses of approximately $413 million, reflecting investments in the pivotal program through ALKS 3831, BIIB098 and ALKS 5461. Our 2017 SG&A expenses of approximately $422 million reflect additional investments in VIVITROL and ARISTADA, as well as administrative functions across the company to support a heightened level of activity. Our fourth quarter and 2017 results also reflect the impact of U.S tax reform. We recorded a charge of $21.5 million due to the reduction in value of our deferred tax assets resulting from the lower U.S corporate tax rate. Going forward, we expect this tax reform will have a beneficial impact on the company and yield a net tax rate in the mid-teens. Looking ahead. our financial expectations for 2018 reflect our growing base business and a new level of activity across the organization as we prepare for the anticipated launch of our next commercial product ALKS 5461. We currently expect total revenues to be in the range of $975 million to $1.025 billion with growth driven primarily by VIVITROL and ARISTADA. These expectations also reflect a favorable impact on our top line related to the expected $50 million payment and reimbursement of the BIIB098 related R&D expenses from Biogen, as well as the impact of anticipated generic competition for AMPYRA beginning in July of 2018. Our total royalty and manufacturing revenue for the AMPYRA and FAMPYRA franchise is expected to be in the range of $40 million to $50 million for 2018. We expect cost of goods sold to be in the range of $180 million to $190 million, reflecting increasing product net sales. R&D expenses are expected to be in the range of $415 to $445 million, driven by investment in our pivotal development program for ALKS 3831, continued focus on ALKS 5461 as we progress towards anticipated approval and launch and continued investment in ALKS 4230. Importantly, in 2018, we will make significant SG&A investments in preparation for the anticipated launch of ALKS 5461. We see ALKS 5461 as a potential blockbuster and are investing appropriately in its launch. Our expectations for SG&A expense in the range of $555 million to $585 million reflect our plans to expand our field sales team by approximately 200 sales representatives in mid 2018 as we prepare for the potential launch of ALKS 5461 in early 2019, as well as additional investments to support the continued growth of VIVITROL and ARISTADA. These operating expense expectations also reflect share-based compensation of approximately $140 million. The increase over 2017 is related primarily to companywide stock performance awards, which are expected to vest in late 2018 upon each of the FDA approval of ALKS 5461 or the successful completion of the ALKS 3831 Phase 3 program. As a result of our growing top line and important investments that we will make in our commercial organization, we expect our non-GAAP net loss to be in the range of $5 million to $35 million for 2018. We also plan to invest $80 million to $90 million in capital expenditures, primarily related to increased capacity for VIVITROL and ALKS 5461. We are very pleased with what we've accomplished in 2017 and expect our business to experience a shift in scale as we anticipate the launch of ALKS 5461, pivotal data from 3831, and the NDA submission for BIIB098. This year of investment will lay the foundation for transformational growth as we launch ALKS 5461 and we're well-positioned financially and operationally to deliver on our strategy this year and beyond. With that, I will turn the call over to Richard.

That’s great. Thank you, Jim. Good morning, everyone. So some years are head down, focused on execution. That was the case in 2017 and we made important advances across our growing business. Other years are about news and that's the case in 2018. We're now on the cusp of significant value creating catalyst across our entire portfolio. For ARISTADA, a PDUFA date in June with expected FDA approval for our new initiation product. For ALKS 5461, potential FDA action on our recently submitted NDA for the adjunctive treatment of major depression. For ALKS 3831, pivotal Phase 3 data, which is positive will lead to an NDA submission for the schizophrenia medicine in 2019. For BIIB098, formerly ALKS 8700, completion of the clinical program and submission of the NDA. And for ALKS 4230, our immuno-oncology candidate eagerly anticipated early clinical data. 2018 is the year of transformative news flow. So before I get each of these important catalysts, I want to spend a moment on the organization we built at Alkermes, and how our actions are informed by our core progress of great science, deep compassion and real impact. Alkermes unique profile is based on the foundation of four key elements. The first is our distinctive focus in psychiatry. We develop innovative, patient centered medicines, designed to address large chronic diseases that affect millions of patients and represent major public health priorities. Second, we have a strong and growing commercial business and have built unique commercial capabilities in order to navigate these challenging disease areas. Third is the pipeline. It's robust, late stage and full of news flow in 2018. We've developed expertise in the biology and chemistry of the brands endogenous opioid system, which has opened new opportunities in depression, schizophrenia and other CNS diseases. And fourth, is the organization itself. We have a solid financial foundation and a strong international organization built for the environment we work in and the scale we aspire to achieve. Our people and our culture are not so secret weapons. One of those people has been Shane Cooke, our President, who joined when we merged EDT and Alkermes in 2011. We are announcing today that Shane will be retiring from the company at the end of the first quarter. I want to thank Shane for his contributions to our successes over the past years. But Shane will not disappear from view. He has been appointed to serve on Alkermes Board of Directors as his experience, financial acumen and standing in the Irish business community will continue to be of great value to the company. Before I turn to the pipeline, let me add a few thoughts to Jim on VIVITROL and ARISTADA. VIVITROL is a unique product. It is a long-acting injectable opioid antagonist and it is the only drug that is approved for the prevention of relapse to opioid dependence following opioid detoxification. Importantly, VIVITROL is one of only three FDA approved treatment options for opioid dependence, which is a national epidemic growing by the day. VIVITROL's role in addressing this crisis will continue to grow by necessity. There's an expanding body of clinical data supporting the use of VIVITROL. Scientifically and medically, our understanding of addiction and its treatment is expanding every day. The powerful role of antagonist medicine is becoming more clear and we've made significant progress toward identifying detoxification and induction strategies that could be done comfortably in an outpatient setting. Politically, policy makers are talking about the opioid crisis beginning to activate for funding and for change. With all of that said, we’re neither complacent nor satisfied with what has been objectively strong growth of the VIVITROL. Not enough people are aware of VIVITROL. Not enough patients are being offered VIVITROL and not enough doctors are providing VIVITROL, and that must change. As a nation, we’re not yet doing a good job in addressing this crisis and the inadequate treatment system needs to evolve. There are new data, new policies and new funding initiatives that need to be integrated into our national response. Last week the budget passed by Congress and signed by the President, dedicated $6 billion in new funds that will need to make their way to the community. This funding must be accompanied by systematic changes. It will not happen overnight, but know that we at Alkermes are in the thick of it, working on the frontlines. The trends are slowly moving in the right direction and our commitment remain steadfast. 2018 will be another important year for this important product. Turning to ARISTADA, ARISTADA is progressing nicely and we’re particularly pleased with the traction we’re getting with the two-month dose following its approval and launched last summer. Our work to expand this product family continues this year with expected FDA approval in June of a new initiation dose that removes the need for a multi-week oral lead-in period that most long-acting atypical is required. This initiation product opens up new opportunities to start treatment in the hospital setting and ensure continuity of care. If patients can initiate treatment immediately and then leave the hospital with two months of therapy on board, this has real practical implications in the community and is an offering unique to ARISTADA. To support this, we will be expanding our commercial presence in hospitals were more than one-third of patients initiate treatment on long acting atypical. ARISTADA combines robust clinical evidence of efficacy with flexibility and product features that address the real world issues facing patients and providers. We believe these differentiating features are what will drive the long-term growth of this important medicine. Now to the pipeline. I will start with ALKS 5461 for the adjunctive treatment of major depressive disorder or MDD. MDD is a highly prevalent and disabling disorder. Despite the large number of approved agents, the majority of patients treated with standard antidepressants do not achieve adequate relied. In fact, there's been minimal progress in developing antidepressants with novel mechanism of action since the introduction of Prozac 30 years ago. MDD is a heterogeneous disorder and new agents with alternate mechanisms of action are urgently needed. Currently patients with an inadequate response to first-line medications have limited options. Atypical antipsychotics are the only FDA approved adjunctive therapies for MDD. These powerful medicines are associated with potential metabolic arrangements and motor disorders, including tardive dyskinesia. The occurrence of tardive dyskinesia in the context of antipsychotic treatment of depression, it has been previously underappreciated, but is now increasingly recognized as a real and significant risk. Other treatments such as electroconvulsive therapy are also associated with substantial patient safety risks. If approved, ALKS 5461 would establish a new category of depression medicines based on modulation of the brain's endogenous opioid system, which is a key regulator of human emotion and mood. More than a decade of research in human clinical testing culminated in the submission of the ALKS 5461 NDA last month. The submission was a massive undertaking and it's based on a comprehensive clinical efficacy and safety package with data from more than 30 clinical trials and more than 1,500 patients with MDD. With the NDA submission now complete and as we await acceptance and the assignment of the PDUFA date, we're quickly shifting focus. Our clinical and regulatory teams are beginning to prepare for potential advisory committee meeting likely in the second half of 2018. In parallel, our commercial organization is ramping up its prelaunch activities. Leveraging synergies with existing ARISTADA sales team, we expect to add approximately 200 sales representatives in mid-2018, which will enable us to reach psychiatrists and high prescribing general practitioners at launch. You will see comprehensive publication and scientific education plans rollout during the year as we educate the physician and scientific communities. Based on the high clinical need for new agents to treat depression and the consistent anti-depression activity and safety profile demonstrated in our clinical development program, ALKS 5461 has the potential to serve as an important therapeutic option for the adjunctive treatment of MDD. I couldn't be more proud of the Alkermes team for their relentless commitment to bringing this important medicine to patients struggling with depression. 2018 will be a definitive year for this program. 2018 will also be a defining year for 3831, our novel oral atypical antipsychotics for the treatment of schizophrenia. We designed 3831 to provide the antipsychotic efficacy of olanzapine, while addressing its associated weight and metabolic liabilities by expanding or extending olanzapine's spectrum of activity to include opioid receptor modulation. Our straightforward Phase 3 program is comprised of two studies. The first was Enlighten-1, a large antipsychotic efficacy study in 400 patients. We successfully completed that study with a clear positive outcome last summer. The second Phase 3 study Enlighten-2, is a six-month head-to-head study evaluating weight in patients receiving olanzapine or ALKS 3831, and we're nearing completion of enrollment in this 540 patients study. Running large studies in psychiatry requires careful execution, working with experienced investigators and trial sites, and focusing on patient retention. Schizophrenia is a particularly challenging area, but it's also a clinical development space we know well, and we’re encouraged by the blinded retention rates we've seen to date in the study. We look forward to updating you when we completed enrollment, and we’re on track to get top line data from Enlighten-2 in the fall. This data will complete the registration package, and if positive, we expect to submit the NDA for ALKS 3831 in 2019. Turning on to BIIB098, formerly known as ALKS 8700. Our novel oral monomethyl tumorate prodrug in Phase 3 development for the development -- for the treatment of relapsing forms of multiple sclerosis. We recently entered into a license collaboration agreement with Biogen, the world leader in MS. This was an important strategic deal that aligns the interests of Biogen in Alkermes and enables a more aggressive and expeditious path to market for BIIB098. With distinct expertise in commercializing fumarate, the leading commercial organization and an install base of prescribers familiar with the efficacy of TECFIDERA, but also its potential GI tolerability limitations, we believe the uptake of BIIB098 could be significantly broader and more rapid in Biogen's hands. This collaboration delivers the commercial partner that we wanted for this candidate from the outset at the terms we were aiming for and we’re delighted to be working together with Biogen now to bring this important potential medicine to patients. The clinical program we’ve been pursuing over the last several years is serving two masters. The first is obviously FDA approval. The second is to illuminate the differentiating features of BIIB098 compared to TECFIDERA, particularly as it relates to GI tolerability. In 2017, the clinical profile of BIIB098 came more clearly into focus. Prior to entering into the collaboration with Biogen, we presented important data at ECTRIMS for more than 570 patients in our ongoing open-label safety study. The data demonstrated the treatment with BIIB098 was associated with low rates of GI adverse events and that only 0.5% of subjects discontinued due to GI adverse events. We look forward to presenting more data on the program in collaboration with Biogen later this year. On the regulatory front, we completed the key clinical requirements for our NDA submission. Recall that the pivotal program for BIIB098 consists of two elements, pharmacokinetic bridging studies, enabling a 505(b)(2) regulatory pathway and data from the two-year safety study. We are now completing a number of standard clin/pharm studies for the registration package and remain on track to submit the NDA in the second half of the year. So, in summary, this is a new molecule for the treatment of MS, designed to have important differentiating features compared to TECFIDERA, the market leader. With compelling data, composition of matter patent protection into 2033, and the strongest commercial partner in the space, this program has the potential to drive significant value in 2018 and beyond. I will end with ALKS 4230, which is our novel immuno-oncology candidate. There has been a resurgence of interest in cytokine therapy, as standalone agents and in combination with checkpoint inhibitors. ALKS 4230 differs from other approaches being used in the IL-2 space. The science is sophisticated and the molecule design is elegant. We leveraged our experience in protein engineering to design a molecule that preferentially activate IL-2 signaling and increases the number of tumor killing immune cells. We did this by engineering a fusion protein comprised of IL-2 and the IL-2 alpha receptor chain, creating a molecule that sterically [ph] hindered from binding to the high affinity IL-2 receptor. ALKS 4230 preferentially binds to intermediate affinity IL-2 receptors, thereby promoting selective expansion in natural killer and CD8 cells without corresponding expansion of regulatory T cells. We're currently engaged in the dose escalation stage of our first clinical trial. In this stage, we're administering ALKS 4230, via the intravenous route in the inpatient regimen. We’re primarily focused on safety and immunological response. We expect to complete the dose escalation and move into the expansion stage later this year. We're also commencing IND enabling activities for subcutaneous dosing in Phase 1. So while it's still early days for this development program, we are well underway and we look forward to continuing our work on this -- in this area and sharing the data later this year. So I'll finish there. It's taken Alkermes decades of unwavering dedication to get to where we are today. A singular company with a distinct CNS focus in psychiatry, addressing the diseases of our time, mental illness, addiction, depression. 2018 will be unparalleled in terms of activity and catalysts as we turn over cards across the portfolio. And with that, I'll turn it back over to Sandy for the Q&A.

Thanks, Richard. Brendon, we will now open the call for Q&A, please.

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] Thank you. And from Jefferies we have Biren Amin. Please go ahead.

Yes. Thanks for taking my question. Maybe I'll start with the VIVITROL guidance. On the low-end it's just a 50% year-over-year growth rate. Richard, I just wanted to get an understanding of what's driving guidance and what impact have you seen from X:BOT if any in the data that was presented last year?

Good morning, Biren. I will let Jim answer that one. Then I will give some color as well.

Yes, thanks, Biren. VIVITROL is a different product to guide for as you know. The sales are very fragmented driven by various state-by-state growth rates that we see. So we're just taking a path that we have in the past, which is taking the last quarter's growth and really extrapolating that forward. But I’d point you to the whole breadth of the guidance, which is closer to 20% at its midpoint, we’re going to continue to work with the new data that’s come out, new funding that we're seeing from Washington and the new policy approaches that we're taking to make sure we drive growth across the state. So, one more layer down, we're still seeing growth slowdown a little bit in a couple of our key states like Ohio and Massachusetts. But at the same time in the quarter we saw accelerating growth from key states like Illinois, Indiana and Pennsylvania. So this is looking across all the 50 states and trying to get our best guess about both short and near-term -- excuse me, short and long-term, but long-term we remain very optimistic about VIVITROL.

And Biren, the only thing I will add is that if this were any other therapeutic category, data like X:BOT, which was the large randomized government sponsored study which change practice by physicians almost immediately in the community. But addiction being addiction, how tribal it is, it's going to take time to disseminate that information and to change practice, that's why in my comments I made the point that money enough -- money itself is not enough coming out of the government. We also have to address this fractured and fragmented treatment system and begin to change practice to drive better outcomes. People measuring outcomes, they’re going to use more VIVITROL.

Got it. And then maybe just a pipeline question on 3831 with Enlighten-2 data coming up later this year. What should we expect in terms of difference in weight gain versus olanzapine?

Well, if you remember what we did in Phase 2, which is a large 300 patient randomized Phase 2 study, we showed a couple of important things. Number one was statistically significant separation in weight gain on 3831 versus olanzapine, a. B, we also showed basically a flat weight gain curve for 3831 after the first 21 days or so. So what we’re hoping is in a larger study of 540 patients, we will see very similar results.'

Great. Thank you.

You’re welcome.

From JPMorgan we have Cory Kasimov. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. I guess, first of all, congratulations to Shane on his retirement as well as the appointment to the Board. So I’ve two questions for you, one on 5461 and then on 4230. So on 5461 first, can you remind us of how many sales reps you have today and with the 200 you're bringing in for this program, I guess, first of all, I take this as a sign of confidence in your expectations for approval, but while you wait on that will these reps be able to reinforce your sales infrastructure for ARISTADA, maybe even to a lesser extent VIVITROL as well?

Sure. Good morning, Cory. Right now we have about 170 -- 185 people promoting ARISTADA and another 80 or 85 doing VIVITROL as well. So we have that sum total across the states right now. So adding another 200 on to that is actually quite straightforward process. Our expectation is to hire that group as we move through the FDA approval process with 5461. And so, yes, these folks will be able to start off on ARISTADA and maybe even some VIVITROL before the final approval and launch of 5461. Note that in this category, as I’m sure you’re aware, FDA approval is obviously important, but then there will be another 90 days probably for DEA scheduling coming out of the approval. So during that time, obviously we will know that the drug is approving, going to be launched. We will have the field force out there helping on 5461 and getting into their territories and that will help us be ready for the day one launch of 5461.

Okay, all right. That’s helpful. And then with regard to the potential new sub-Q formulation for ALKS 4230, I guess, what type of dosing schedule would you expect to use for that? Have there been any differences in how this version has performed preclinically? And then, also can you remind us of the dosing schedule you're currently using for the IV and your dose escalation studies?

Yes. So our first in man studies where we’re really just trying to capture the biology that we saw both in vitro and preclinically in vivo. We are using intravenous route which is a five-day IV infusion each cycle. And it's part of the reason why the first studies have taken a long time because we have to enroll people from inpatient procedure starting a very low dose and ramping slowly from there. So that’s well underway. The preclinical data show that the subcutaneous route of the same formulation actually provides very nice PK profile. We are not disclosing right now what the regimen will be for this sub-Q, but we will as we move into the clinic with it.

Okay. Thanks for taking the questions.

You’re welcome.

From Credit Suisse we’ve Vamil Divan. Please go ahead.

Hi, great. Good morning, guys. Thanks for taking my questions. So just one in VIVITROL, you’ve previously talked about ALKS 6428 as an agent to help patients transition onto VIVITROL. It seems like that’s still a significant limitation to that, to help people getting on that product. Can you just give us the latest update on that product or other steps you might be taking to help people successfully get on to VIVITROL? And then I have one unrelated follow-up.

Sure. Good morning, Vamil. Yes, this -- one of the key findings from X:BOT and what we’re learning in the community is that this transition from patients on buprenorphine or even on opioids of any form to detoxification and induction with VIVITROL is quite straightforward for the people who do it. But for the people who don’t use VIVITROL, it can be quite intimidating. So there's been -- it's great interest from our company also from NIDA and other academic centers to start establishing these transition protocols, these induction protocols. 6428 was part of that process, saying that if we could put together a dosing kit of fractional doses of oral naltrexone that are send over a dosing card that would be coupled with decreasing doses of buprenorphine in the taper, that will be a nice kit. And so, what 6428 clinical work is telling us is that 6428 product itself may not even be necessary. What we’re showing is that through progressively reduced doses of buprenorphine coupled with comfort medication, the patients are very able at a high rate to transition from either being on buprenorphine or on short acting opioid agonists. So we expect this year to see more data. We’ve just completed our second clinical trial, which is a buprenorphine transition. We will present data on that this year and I think this can be a really important foundational element of the expanded use of VIVITROL over time.

Okay. Thanks. And then just one on 5461. What I assume you guys will announce publicly if and when that filing has been accepted, can you just confirm that? And then, just given the -- it sounds like a very large involved package, does that limit in any way to likelihood of receiving prior to your view simply based on the amount of data? I wasn’t sure how the FDA considers just the volume as opposed to these clinical impact that the drug may be having when they think about priority review status?

Well, I think that’s a great question actually because FDA's primary mandate is make sure they meet their obligations under PDUFA 6, the one that we are right now. So I suppose we're more relaxed about whether it's a standard review or a priority review as long as we have a first cycle approval, that's the -- that would be our goal. But I will confirm indeed will typical acceptance of that NDA will be within 60 to 74 days of that submission. So with the submission, at the end of January puts us in -- based on the calendar early April. And we will let you know when they get accepted for sure.

Okay. All right. Thank you.

From Evercore ISI we have Umer Raffat. Please go ahead.

Hi. Thanks so much for taking my question. Richard, there's so much interest in IL-2 space, but I get a sense this is not a program you've emphasized in the past, and I'm curious what are the key things you need to see to be more excited about it? And I was going to think about things like the pace at which this programs proceeded, so Nektar [ph], I think hit the Phase 1 about six months ahead of you guys, but they have a fair amount of more data. Maybe just speak to that. Perhaps, what are you guys seeing on T factor increase and Treg reduction versus Nektar, what dose do you think gets you to those levels as well as how important is the sub-Q program? Thank you.

Oh, good questions and I thought you wrote a nice piece on that stuff, Umer. I think it's fair to say that we haven't emphasized so much in our prepared remarks, in our public comments, because we’ve such a deep late stage pipeline, we’re really make -- trying to make sure our shareholders and investors understand 5461, 3831, 8700 before we get to a Phase 1 program. The biology of 4230 and the construction of the molecule, we're incredibly excited about. This was a new clinical area for us and because this was going to be a very active agent from the get-go and given the inpatient intravenous regimen, we just -- it took us a long time to move through the early dosing cohorts. But with the momentum now in the field and the fact that we're now into the more biologically active doses, I think that we should pick up some speed here for sure. We don't have data yet from our trials, because we really hadn't moved into the -- what we deem to be the therapeutically active doses on the tumor microenvironment and what are the -- the questioning has shifted with Nektar's progress to what's happening with respect to the tumor microenvironment. We will get those data as we move ahead. But what we're seeing so far is what we would have hoped to see which is expansion in CD8 cells, expansion in natural killer cells without a corresponding expansion in regulatory T cells. So, ultimately what drives the value in the program is a combination of the immunology plus tumor responses. And what we’re going to see now as we get to the -- hopefully we get to the dose that we think we can take into the expansion cohort, increase the denominator in multiple tumor types and start seeing this real beneficial effect for patients. That's for us. That's what’s going to drive the value of the program.

Richard, do you have a PD1 combo in your expansion cohort?

Not right now, but we will. We will expand into the combos as we go.

Okay, got it. So, I mean, just to be clear, as you start these expansion cohorts, maybe some of them will be monotherapy, but is it fair to assume that combo PD1 expansion cohorts are also starting at some point this year, meaning we could update on next summer for example for the combos?

I don’t want to put a timeline on, because I will say, Umer, our regional plan was simply to do the expansions as monotherapy. But based on more recent data and feedback from our investigators, I think there's real interest in the combos. So right now we’re planning to accelerate the combo elements of it, but I don't have a timeline for that yet.

Got it. Thank you so much.

You’re very welcome.

From Barclays we’ve Morgan Williams. Please go ahead.

Hi. Good morning. Thanks for taking the question. So just a quick follow-up on VIVITROL. Exactly how much of the 2018 guidance is coming from the top five states? And then, two quick questions. Just, first, if you could update us on the gross to net for ARISTADA and VIVITROL, specifically ARISTADA? Since you’ve mentioned there would be a modest increase from, I think about the low 40s that you communicated in the past. And then, just on the ARISTADA guidance, are you factoring in the initiation dose into the 2018 guidance? And if you could provide a little bit more color there on the sales ramp, assuming you get approval?

Sure, Morgan. Thanks. Good morning. It's Jim. I will take those and if I miss one just remind me. So, first, when it comes to VIVITROL, I think the top five states were not predicting as we go forward into 2018 guidance, a major change there. But obviously really the thing that drove our 2015 and 2016 growth was new states like Ohio and Pennsylvania really hitting a different growth trajectory. So I think if we see new states coming on with driving more growth, that will obviously change the top five, but that'll change the overall guidance for VIVITROL as well. So I think we're very much steady if she goes with VIVITROL as we seek to drive increased sales. The gross to nets are pretty consistent with what we saw in the third quarter and over the course of the year, little bit over 45% for VIVITROL and in the low 40% range for ARISTADA. And we're predicting that they move up a few percentage points through the year and that'll obviously have an impact on future growth. And then -- oh, the initiation dose. You know we are assuming approval for that and I think our view is that that's going to drive additional interest in the two-months as well, and that is all baked into our guidance as we go through the course of the year. But the important thing about the initiation dose, obviously, that’s a single dose and we obviously hope that patients are on numerous doses subsequently five or six doses on average would be what we would expect from a new start. So those new starts are very important, but they're not the majority of sales that you see coming from patient initiation.

So should we focus on, I think, in the past you said that about 30% of patients initiate therapy -- in patient. So is that kind of the bucket where we should be thinking of immediate impact from potential increased volumes there or should we be thinking about an expansion of that?

Yes, I think as Rich mentioned, long-term that that growth in the hospital is going to be key for us and that's one of the reasons we're excited about the initiation dose, but also the two-month dose because once we have the full complement of the ARISTADA family, it will be a nice opportunity for people to leave the hospital with two months of coverage and also get dose there without having to worry about oral supplementation. So that will be a nice opportunity for us as we go forward.

Great. Thank you so much.

You’re welcome.

Brendon, we have time for one more question please.

Thank you. And from Cowen & Company we have Pamela Barendt. Please go ahead.

Yes, hi. Thanks for taking my question. Good morning. The markets for …

Good morning.

… hi. The markets for addiction is poised to expand with competitive longer acting treatment option. Could you comment on how you see this impacting VIVITROL from a competitive standpoint, and also more broadly from an addiction treatment standpoint and market growth standpoint?

Hi, Pamela, it's Richard. I saw you give us an update from Pyongyang, but …

Yes, [indiscernible] right now, but he is doing everything, so …

It's pretty exciting though, I got to say. That’s great. Yes, the FDA approved at the end of last year a long-acting injectable form of buprenorphine and they’re -- they issued a complete response on another one. Our expectation is that the long-acting injectable bupes will come to market and that they're going to be a constructive part in changing the treatment paradigm that I referred to earlier. More doctors using injectable medicines that are branded and require access to specialty pharmacies and follow-up with their patients in combination with psychosocial counseling, this is all good. And so, because VIVITROL has such a numerically small market share compared to the partial agonist treatments. And couple also with the fact that X:BOT, this large randomized study shows that the efficacy is equivalent and the patients often prefer -- certain patients certainly prefer to be on antagonist treatment. I think it all bodes well for the continued medicalization of this category. It's difficult to overstate how different addiction treatment is from normal medicine. The treatment system is outside of medicine. Its comprised and built on an architectures that has been developed by the government with methadone clinics and waivered suboxone physicians rather than comprehensive centers treating addiction holistically. And as we move more in that direction, we think more long-acting medicines can be used, more long-acting buprenorphine that have less abuse and diversion potential in the community as well as more VIVITROL. So that’s a long-winded way of saying we’re on favor of it, and we expect it to be helpful to the market.

Thank you.

Thank you. We will now turn it back to Sandy Coombs for closing remarks.

Great. Thanks everyone for joining us on the call this morning. If you have any follow-up questions, please don’t hesitate to reach out to us. Thank you.

Thank you. And ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.