Alkermes plc (ALKS) Q1 2019 Earnings Report, Transcript and Summary

Greetings and welcome to the Alkermes plc First Quarter 2019 Financial Results Conference Call. My name is Rob, and I’ll be your operator for today’s call. [Operator Instructions] Please note that this conference is being recorded. I’ll now turn the call over to Sandy Coombs, Vice President of Investor Relations. Sandy, you may begin.

Thanks, Rob. Good morning. Welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter ended March 31, 2019. With me today are Jim Frates, our CFO; Craig Hopkinson, our Chief Medical Officer; and Richard Pops, our CEO. Before we begin, I encourage everyone to go to 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 Slide 2 of the accompanying presentation and our most recent annual report 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. After our prepared remarks, we’ll open the call for Q&A. Now, I'll turn the call over to Jim for a review of our financial results.

Thank you, Sandy. Good morning everyone. Overall, our first quarter results reflect the strength and diversity of our business, as we generated total revenues of $223.1 million, driven by net sales of our proprietary products. Our first quarter results are typically affected by seasonal trends related to inventory fluctuation and commercial insurance plan reset. In particular this year, we saw significant impact in ARISTADA inventory during Q1. I’ll review the details in a moment, but underlying demand growth remains solid and within our expectations. We’re confident in our outlook for the year and today, we’re reiterating the 2019 guidance we provided in February. I’ll start with our key financial highlights. VIVITROL net sales in the first quarter increased 10% year-over-year to $69.2 million, driven by underlying unit growth of 8%. Sequentially, VIVITROL net sales declined due to the drawdown of year-end inventory build and the impact of commercial plan deductible resets as expected. Gross to net adjustments of 49.4% during the first quarter increased sequentially, but were slightly below the first quarter of 2018. Looking ahead, we expect quarterly net sales growth to resume and growth to net adjustments to be approximately 50% for the remainder of 2019. So, today, we are reiterating our expectation of VIVITROL net sales in the range of $330 million to $350 million for 2019. We continue to see positive activity with federal funding and state policy changes, which we believe will lead to increased access to medication for patients suffering from substance use disorder. VIVITROL net sales continue to be concentrated with our top five states representing 44% of volume in the first quarter. While new funding and initiatives to improve access to treatment continue to be rolled out across the country. States like California, Texas, Pennsylvania, New Jersey, and Kentucky are adopting more targeted policies and criminal justice and community settings and have removed certain access barriers to medications via legislation. We believe the progress being made in these areas will diversify VIVITROL’s growth. VIVITROL operates in a fragmented system where each state is unique and how it activates to address the opioid crisis. And as we’ve seen in prior years, individual states can have a significant impact on overall VIVITROL net sales. Our annual guidance is based on current trends, as the confluence of expected new funding, treatment guidelines, and policies all through the states the [status quo] treatment paradigm. We see potential for VIVITROL to become an increasingly utilized treatment option for patients. Turning to the ARISTADA product family. Net sales in the first quarter declined sequentially to $30.3 million, reflecting the impact of larger than expected seasonal inventory fluctuations. To put this into context, more than three-weeks’ worth of total inventory was drawn down from the distribution channel during the quarter. And inventory levels at the end of March were at the lowest we’ve seen since the end of 2017. In dollar terms, the impact of this inventory drawdown was approximately $10 million during the quarter. Q1 ARISTADA net sales were also impacted by higher growth to net adjustments of 49%, an increase from 44% in the fourth quarter of 2018. This reflects a higher proportion of government sales in the quarter and other typical quarterly fluctuations. Looking ahead, we expect gross to net adjustments to normalize to around 47% for the remainder of the year. Importantly, this impact of inventory fluctuations in gross to net adjustments masked underlying growth in total ARISTADA prescriptions, which rose by 5% sequentially during the quarter, surpassing the overall atypical LAI market, which rose by 1%. Looking ahead, there are a number of potential new growth drivers that we expect to benefit ARISTADA as we move toward the second half of the year, including the impact of our recently expanded commercial team, important new data from the ALPINE study and our recent national formulary addition. Starting with our commercial organization, we recently expanded our ARISTADA commercial field and hospital organization by approximately 60 sales reps. Half of those were onboarded and trained in the fourth quarter of 2018, while the other half joined the company during Q1. We expect to see an impact from these additions starting in the second quarter. Second, we recently announced positive results from our ALPINE study that evaluated the efficacy, safety, and tolerability of ARISTADA and the current market leader INVEGA SUSTENNA. We believe the results is a study or an important addition to the body of data supporting the efficacy of these two medications, and could help drive broader adoption of long acting injectables in the atypical antipsychotic market. The study also highlighted the unique attributes of the ARISTADA product family, in particular our ARISTADA initial and two-month dose offerings. Craig will take you through these top line data shortly. The last potential growth driver that I highlight today is the addition of ARISTADA to do important national formulary. The U.S. Department of Veterans affairs recently voted to add the ARISTADA product family, including ARISTADA INITIO to its national formulary at parity with INVEGA SUSTENNA. This addition facilitates access to an important and substantial pool of patients and we’re excited to help address the unmet needs of veterans struggling with Schizophrenia. Over the long term, we believe our expanded hospital and field commercial teams will help to drive ARISTADA’s market share in the long-acting atypical market as the overall market continues to grow at double-digit rates year-over-year. And today, we're reiterating our expectation of ARISTADA net sales in the range of $210 million to $230 million for the full-year of 2019. Moving onto our manufacturing and royalty business, we saw revenues of $108.9 million in the first quarter, compared to $114.6 million in the prior year. These results reflect a $17.9 million decline in revenues from AMPYRA following generic market entry near the end of 2018, which was partially offset by revenues from RISPERDAL CONSTA, INVEGA SUSTENNA and INVEGA TRINZA, which increased 10% to $75.6 million. In the first quarter, we also recognized R&D revenues from our collaboration with Biogen of $13.9 million related to the reimbursement of development expenses for diroximel fumarate. As a reminder, the PDUFA for diroximel fumarate is expected to occur in the fourth quarter of this year. Turning to expenses. Overall, our expenses for the first quarter were in-line with expectations. Our R&D expenses for the first quarter were $102.6 million, compared to $108.3 million for the prior year, driven by spend on our pivotal programs for ALKS 3831 and diroximel fumarate, as well as the expansion of our ALKS 4230 program. Our first quarter is SG&A expenses of $141.2 million, compared to $118.1 million in 2018 reflects investments in our commercial organization in support of both ARISTADA and VIVITROL. Looking ahead, we expect SG&A expenses to step up in the second quarter and then remain fairly stable for the remainder of the year. Of note, during the quarter we also recorded a non-cash charge of $22.6 million, related to IV Meloxicam, a product we sold the Recro Pharma in 2015 and for which we carry a contingent value on our balance sheet for expected future milestones and royalty payments from Recro. The non-cash charge we recorded was due to a decrease in the fair value of this contingent consideration, as a result of Recro Pharma’s receipt of a second complete response letter from the FDA in March, related to the NDA for IV Meloxicam. While this non-cash charge impacts our GAAP results, it does not impact our non-GAAP results. So, for the quarter, we recorded a GAAP net loss of $96.4 million, and non-GAAP net loss of $26 million. Turning to our balance sheet, we’re in a healthy financial position and ended the first quarter with approximately $625 million in cash and total investments, compared to approximately $620 million at the end of 2018. The company's total debt outstanding was approximately $279 million at the end of the first quarter. Overall, we’re well-positioned as we enter the second quarter. Given the growth opportunities from our proprietary products and anticipated progress in our pipeline candidates, we believe we have an important platform to drive long-term revenue growth, pipeline expansion, and profitability, and I look forward to updating you as we deliver on our strategy throughout the rest of the year. With that, I’ll turn the call over to Craig for a closer look at our recently presented data and an update on our pipeline.

Thank you, Jim. This morning I'm going to focus primarily on important new data we recently presented for both ARISTADA and ALKS 3831 at the 2019 Congress of the Schizophrenia International Research Society or SIRS. Of note today, I’ll be referring to slides as part of my prepared remarks. These slides are available on our website and in the webcast viewer. For ALKS 3831, we presented new data from ENLIGHTEN-2, a pivotal six-month study, comparing weight gain for 3831 head-to-head versus olanzapine, a new data from an interim analysis of the ongoing open label expansion study. The full presentation of the data set is available on our website and I encourage you to take a look at it. Today, I will highlight a few of the key takeaways. As background, you will recall that our scientific and clinical development goals for ALKS 3831 with the limit to serious weight gain associated with olanzapine while preserving its antipsychotic efficacy. The data from ENLIGHTEN-2 completed the development program that suggest would have met these goals. In ENLIGHTEN-2, ALKS 3831 met its co-primary weight related endpoints with a high degree of statistical significance. The study also provided a wealth of data in addition to the primary assessments. For example, in addition to assessing the weight gain profiles of the patients that completed the six-month study, we also looked at the profiles of those who did not. As you can see on Slide 13, the weight gain trajectories were different for the patients who discontinued olanzapine versus ALKS 3831. The majority of patients in the olanzapine group who discontinued prematurely gained a greater percentage of baseline weight that olanzapine completed. This pattern is consistent with historical data that suggests that olanzapine associated weight gain is typically underrepresented in control settings. In contrast, this pattern was not observed for ALKS 3831 suggesting that the observed weight difference between olanzapine and 3831, while significant may have been underrepresented in the study. We also presented the metabolic parameters measured in the study. As seen on Slide 14, in ENLIGHTEN-2, we observed changes from baseline for both groups in lipid and glucose lab parameters were generally small and not clinically meaningful. This is not surprising to us given the duration of the study. Data from previous olanzapine studies have shown variable metabolic parameters findings in studies of this duration, depending on study design and patient population. We believe that olanzapine significant metabolic liabilities derived from the significance and sustained accumulation of weight and center adiposity that patient experience over a longer period of time, which is why the preparing of the weight curve for 3831 is so important. Importantly, in the 52-week safety expansion study, all lab parameters remain stable with long-term treatment of ALKS 3831 and we saw the early elevation in triglyceride lab measurements observed during ENLIGHTEN-2 return to baseline. Waist Circumference data captured in ENLIGHTEN-2 provide more insight. Change of Waist Circumference is a measurement of central adiposity, and is well established prognostic variable that can be an indicator of metabolic risk. Data have shown that the mean changes of even a few centimeters can have significant impact from metabolic syndrome, and other cardio metabolic growth factors. As you can see on Slide 15, ALKS 3831 demonstrated a clinically meaningful and statistically significant difference from olanzapine and Waist Circumference very early in ENLIGHTEN-2 with continued separation for the entire six-month period. Notably, this separation occurred earlier than the separation in weight curves. Turning to the interim data from the ongoing open label safety expansion study on Slide 16. Importantly, for patients who continued on 3831, weight remained stable for the duration of the 52-week expansion, and for patients who switch from olanzapine to 3831 the previous year sending weight curves stabilized and remained flat during the extension period. These data demonstrate two important findings. First, our 3831’s effect on weights was durable and sustained following the first six weeks of the study. This is in contrast to what we know about long-term olanzapine use where weight gain may continue for many months and years. Second, our 3831 stabilized weight gain for patients that switched from olanzapine at six months, but did not result in weight loss for these patients. As the weight story becomes more clear, the most important attribute of ALKS 3831 will become its robust antipsychotic efficacy. Recall that each of ALKS 3831 olanzapine demonstrated statistically significant improvements in positive and negative syndrome scale scores or PANSS compared to baseline in ENLIGHTEN-1. In ENLIGHTEN-2, patients entered the study stabilized on all medication, however still modestly ill as based on the entry PANSS scores. As you can see on Slide 17, by the end of ENLIGHTEN-2 both groups had experienced clinically meaningful improvements in PANSS scores with the patients considered to be mildly ill based on these scores. The continued and sustained improvement in symptoms in the stable population is important as it reinforces the potent efficacy of olanzapine and ALKS 3831 demonstrated in ENLIGHTEN-1. Collectively, these new data further underscore ALKS 3831’s attributes and potential for ALKS 3831 to be a meaningful new treatment option for patients. We are preparing a new drug application and plan to submit the file later this year. Our first presentation wasn't just about ALKS 3831. We also presented newly unblinded topline results from ARISTADA ALPINE study, which we believe will have a high clinical relevance for physicians. ALPINE was the first of its kind six-month study evaluating the efficacy, safety, and tolerability of ARISTADA, and the market leading atypical LAI INVEGA SUSTENNA, when used to initiate patients experiencing an acute exacerbation of schizophrenia in the hospital and they maintain their treatment in the outpatient setting. The ALPINE study follows positive data from an open-label study presents a flat Congress in 2017 in which patients with inadequate response or intolerance to SUSTENNA will switch to treatment with ARISTADA for a period of six months. The purpose of the ALPINE study was twofold. First, to provide real world clinical evidence of the efficacy, safety, and tolerability of the ARISTADA initiation regimen together with the ARISTADA two-month dose in the context of a rigorous randomized study as the regulatory approvals for both ARISTADA INITIO and the two-month ARISTADA dose were based on pharmacokinetic evidence. Together, INITIO and the two-month dose provide a compelling new option for patients initiating long-term treatment in the hospital and as they transition to an outpatient treatment setting. The second objective was to provide clinicians with data that may help them make treatment decisions to their patients. To that end, ALPINE was designed to demonstrate robust antipsychotic efficacy of these to LAI and to answer the question of whether ARISTADA INITIO together with the ARISTADA two-months could demonstrate clinically meaningful reductions in PANSS total scores from baseline throughout the total treatment period and whether these reductions will be similar to those seen with INVEGA SUSTENNA treatment group. ALPINE was a multi-center randomized double-blind study in 200 subjects experiencing an acute exacerbation of schizophrenia. The study included a two-week inpatient phase during which all subjects were initiated on either ARISTADA or SUSTENNA followed by an outpatient phase for a total of six months. Patients randomized to ARISTADA were initiated using the ARISTADA INITIO regimen followed by ARISTADA two-month dosing for the duration of six months. Patient randomized INVEGA SUSTENNA received a loading dose of INVEGA SUSTENNA followed by monthly INVEGA SUSTENNA. The studies prespecified primary endpoints was the change from baseline in PANSS total scores at week four within each treatment group. Prespecified secondary endpoints included the change from baseline in PANSS total scores at week 9 and week 25 within each treatment group, as well as between treatment group comparisons at week 4, 9, and 25. We also conducted exploratory analyses regarding treatment retention as literature has shown us that adherence is critically important in preventing relapses and improving treatment outcomes for patients with Schizophrenia. As you can see on Slide 22, the study made its prespecified primary endpoints, demonstrating that both ARISTADA and INVEGA SUSTENNA had statistically significant and clinically meaningful reductions in PANSS scores from baseline at week four. Both with a p-value of less than 0.001. PANSS total scores continued to improve for both groups at week 9 and week 25, the studies prespecified secondary endpoints. As you can see, the results were similar and the confidence intervals overlap at each assessment point during the study. As seen on Slide 23, we saw numerical differences in the overall retention rates between groups with 56.6% of patients in the ARISTADA treatment group completing the study and 42.6% of patients in the INVEGA SUSTENNA treatment group completing the study. Slide 24 shows the most common AEs for each treatment group and the rates at which they were reported. These are different agents with different tolerability profiles. These topline data underscore that ARISTADA INITIO along with the two-month dose of ARISTADA together represents a novel approach to the treatment initiation, and a compelling clinical option for patients and healthcare professionals. These data show that a product with ARISTADA safety and tolerability profile does not require trade-off in terms of antipsychotic efficacy and we believe this will be important to physicians making treatment choices for their patients with Schizophrenia. We look forward to publishing the data from the ALPINE study and presenting full study results, including interesting additional findings on [indiscernible] side effects, sedation and other safety and tolerability measures at upcoming scientific meetings. Before I turn the call over to Rich, I’ll provide a brief update diroximel fumarate and ALKS 4230 and I’ll be happy to take questions later. Diroximel fumarate or BIIB098 [indiscernible] being developed in collaboration with Biogen for relapsing forms of multiple sclerosis. The FDA's review of our NDA is ongoing with regulatory action expected in the fourth quarter. EVOLVE-MS-1, our open-label safety study diroximel fumarate has demonstrated lower rates of gastrointestinal adverse events and discontinuations related to tolerability below 1%. We expect to complete our EVOLVE 2 study, which is evaluating the gastrointestinal tolerability profile of diroximel fumarate head-to-head against TECFIDERA later this year. For ALKS 4230, our novel immuno-oncology candidate, clinical studies are progressing in three different domains. The first is monotherapy where our hypothesis is that given the cell expansions we’re observing clinically, there is a potential for monotherapy efficacy in tumor types where IL-2 has shown efficacy. The dose escalation stage of the study is ongoing and once we have identified the optimal dose, we’ll expand into the next stage evaluating 4230 in patients with renal cell carcinoma or melanoma. The second is evaluation of ALKS 4230 in combination with the checkpoint inhibitor pembrolizumab, which is currently enrolling patients with a variety of tumor types. And the third, during the first quarter, we initiated a new Phase I/II study to explore the safety, tolerability and efficacy of ALKS 4230 administered subcutaneously once weekly and once every three weeks. So, the 4230 program is very active with a number of potential data readouts later this year. With that, I’ll turn the call over to Richard.

That was great. Thank you, Craig. I will be brief. I’ll just say these new data are important. They underscore Alkermes growing scientific and clinical presence in schizophrenia. They also demonstrate our commitment to developing new treatment options to patient that provide both robust antipsychotic activity and patient focused safety and tolerability attributes. This is true for both ARISTADA and for 3831. ENLIGHTEN-2 and ALPINE are not typical studies. Both test Alkermes medicine alongside efficacious standards of care. This is an example of the type of innovative study designed to provide useful information to clinicians making treatment decisions for their patient. Alkermes is focused on addiction and serious mental illness at a time when these are among the most important public health issues facing the country, areas of significant unmet need driving enormous cost to the health care system and to the society. They are real challenges to this business because these are areas of healthcare that are subject to intense price pressures, generic substitution, complex reimbursement and fragmented treatment systems. Those challenges, however, are balanced by the vast number of patients needing new medicines and the [dearth] of companies innovating in this area. We’ve assembled a collection of commercial capabilities and infrastructure, designed specifically to navigate these complex treatment systems and to operate in an evolving healthcare environment. We are well-positioned to drive expanded utilization of VIVITROL and ARISTADA in this environment. As we look ahead, ALKS 3831 in schizophrenia, if approved, could further build on and leverage the commercial infrastructure and capabilities that we’ve been putting in place. Building on that point, I’m pleased to announce the appointment of Todd Nichols to the position of Senior Vice President of Sales and Marketing in Alkermes. Todd brings more than 20 years of biopharmaceutical industry experience across a variety of leadership roles at major commercial organizations and has been involved in the launch of 14 pharmaceutical products, including multi-billion-dollar franchises. So, Todd joins us from Celgene, where he was responsible for developing and managing all aspects of U.S. commercial planning, strategy development and launch execution for ozanimod for multiple sclerosis. Todd’s commercial expertise of leadership and insights will be assets to us as we continue to drive expanded utilization of VIVITROL and ARISTADA and prepare for our next commercial opportunity with ALKS 3831. So, the basic hydraulics of the business are driven by the growth of the VIVITROL and ARISTADA and we see ALKS 3831 as our next major potential revenue growth driver. We’re focused on executing our business strategy both commercially and in our development pipeline with the planned submission of the NDA for ALKS 3831 mid-year, the PDUFA for VUMERITY in the fourth quarter and the first indication of 4230’s anti-tumor activity expected this year. We have an important catalyst ahead and look forward to updating you on our progress. So, with that, I’ll turn the call back to Sandy for the Q&A.

Thank you very much. Rob, we’ll now open the call for Q&A please.

Thank you, Sandy. [Operator Instructions] Thank you. Our first question is from the line of Chris Shibutani with Cowen. Please proceed with your question.

Great, thank you very much. Could I ask you about what’s you're thinking about in terms of investment, particularly from the standpoint of the pipeline? I think investors – we speak with would appreciate more visibility on how you’re prioritizing what you’re doing, particularly, as you think about the portfolio going forward and realize that there's been a lot of work that you guys have done in very challenging areas and you’ve articulated this very clearly. But can you give us some perspective on sort of what are the targets in terms of is it more balanced towards shifting towards oncology? Are you still thinking about expanding in the addiction space? Or how you’re thinking about internal work versus external BD, you know, business development? It's – anything that you can help us. Is it thinking about novel compounds or sort of further iteration of the expertise that you have to improve existing compounds or validated market? Just something about the shape that we can think about when we think about all those R&D investments and investment more broadly speaking to shape your future.

Good morning, Chris. Sure. We’ve actually proposed a number of different trade-offs and I’ll address them holistically. One trade-off is between internal and external; the other the trade-off is between psychiatry addiction and non-psychiatry addiction; and the third is between novel compounds and derivations of old compounds, and I think that the way we see it is as follows. On the internal and external, we have a very, very active internal R&D organization that’s been operating relatively quietly from external perspective for the last two or three years, and compounds are moving through that process and those will become more visible to you in the months ahead. We’re quite excited about that. Work tends to occur in two domains. And now I’ll move to that answer about psychiatry versus non-psychiatry. We are definitely interested in pushing the edge of the scientific frontier in addiction, as well as in schizophrenia and other mood disorders. So, our – we have so much presence there and so many adjacencies with the work we've done. I think we are going to be there for a while. With that said, our cytokine work to begin with 4230 on the biologics has led to other programs that derive from that lineage, both cytokine-driven biology as well as oncology. And so, we’re seeing more interesting oncology opportunities beginning to emerge on our laboratories. So, on the external front, we’re looking at similarly both. The goal on the external front is to finding where we have scientific insights that provide an ability to assess opportunities on the outside in a way that other people cannot. New and old, we’re definitely a bias toward new. I mean, I think in the world we are right now, the threshold for innovation is so high in order to drive reimbursement and utilization in the clinic that I think that we and anybody who is paying attention in this game has to move to highly differentiated new approaches.

Thanks for that commentary. And just a quick follow-up with the appointment of Todd Nichols, I couldn’t help, but notice of the wording explicitly and you mentioned, he's leading global commercial activities. Now, if we think about tangible revenues, it’s mostly a domestic business for you guys, can you elaborate about that global? How are you thinking about possible future opportunities to expand outside the U.S. commercially? Thank you.

Well as you know Chris, the U.S. business has been really front and center for our current portfolio of VIVITROL and ARISTADA. There's two vectors that take us potentially into the European world. 3831 is one, and so we’ll be seeking scientific advice in Europe based on the results of ENLIGHTEN-2 and ENLIGHTEN-1 in the strength of that package. And the second is 4230 because 4230 is clearly in the oncology world accessing OUS market is much more straightforward. So, we have both of those thoughts that are in the planning stages.

Right. The Street will look forward to meeting with Todd. Thanks, I’ll get back in the queue.

Alright. Thanks Chris.

Your next question is from the line of Cory Kasimov with JPMorgan. Please proceed with your question.

Hi, good morning guys. Thanks for taking my questions. I guess first one is, I'm curious how much ARISTADA volume growth is factored into your 2019 guidance? And are you modeling any sort of uptake in ARISTADA on the heels of the ALPINE study results for this year?

Hey Cory, it’s Jim. Good morning. So, the volume growth that we include in our guidance, if you look at the midpoint, it’s about – I think it's 48.9% or roughly 50%, which is very similar to volume growth that we saw in 2018 versus 2017. So, you know, we’re kind of following that same practice. You know even though ARISTADA is in the growth mode, we think that the new data that we’re seeing and the full-year of INITIO are really the drivers for the growth that we expect for ARISTADA through the rest of the year. I think ALPINE data, obviously, when we made our expectations, we did know what those results would be. So, those are things that would actually help us on top of that and we’ll certainly – you know before we get out and educate the whole market on that, that’s going to take some time and that is a potential upside for us as we move forward.

Okay. And then, a follow up on ARISTADA from the clinical side and with regard to that ALPINE study, are you able to provide a little bit more color on the different withdrawal rates that were defined as by subject that was seen between the two arms? I think it was 20% for ARISTADA and 31% for SUSTENNA. Curious about the primary reasons for this as the adverse event dropouts were pretty similar between the groups.

Yes, I mean – you know, Cory, you know, as with any clinical trial, as a different portion of the withdrawals by subject, its subject choice. For a lot of us, you don't land up having a clear reason as to why patients came off of the study. But, you know, it often relates to the differentiated safety profile as well because patients don’t always give clear reasons for coming off of a study. So, invariably, the three largest groups are always going to be adverse events, withdrawal by subject, and lost to follow-up. And so, we don’t often have color on the lost to follow-up or the withdrawal by subject because those are often just personal reasons for subjects coming off of a study.

Okay. And then, just to squeeze one more and to have a follow-up on Chris' question regarding Todd's appointment, I guess I'm curious how you see the commercial strategy evolving in the U.S.? I know he was asking internationally, but in the U.S. if at all?

Well, I think we have the basic architecture of the US commercial strategy in place, and I think that the – as it relates to VIVITROL and ARISTADA, the structure of sizing, the positioning and now with these new data for ARISTADA and just the basic things that are happening in the nation with respect to VIVITROL, we feel like there are some fundamental trends that are, you know, going to start to move our way. With the acknowledgement I always give the things, things happen slowly in both addiction and psychiatry notwithstanding the amount of data that’s mounting in support of the use of medicines like ours. The change – the step function is with the approval of 3831 that happens because that does a couple things for us. One, it provides another – I think what you could argue is leading medicine in this case because there is an oral compound, which will expand the footprint of a psychiatrist they will be calling on for schizophrenia medicine, which has positive feedback loop for ARISTADA as well. And the other thing is, as you know, we’re building hospital presence with ARISTADA because of the INITIO initiation regimen because so many patients are initiating in the hospital. So, the ability to be in the hospital and many patients switch their medications oral or otherwise during that inpatient stay. So, I think that we’re going to start seeing, for the first time, real commercial synergies with the launch of 3831.

Okay. Thanks for taking the questions.

You’re welcome.

Our next question is from the line of Jason Gerberry with Bank of America. Please proceed with your question.

Hi, good morning. This is [indiscernible] on for Jason. Thanks for taking my question. Two on VIVITROL, just curious given recent DOJ indictment filed against [indiscernible] do you see any positive commercial [indiscernible] VIVITROL? And secondly, related to your original guidance, thanks for providing color on reaffirming the VIVITROL guidance early in the remark, wonder really how is VIVITROL and the broader market is shaping up against the original plan? Do you feel more or less confident about your ability to come into high-end of the guidance range? And just curious do you expect to see a similar second half weighing as you saw in 2018 in terms of the VIVITROL revenue contribution? Thank you.

Yes. Hi, good morning. It’s Jim and could you just repeat that – the third part of the question? I didn’t hear that.

On VIVITROL, do you expect a similar second half weighting revenues due to second half as you saw in 2018? Thank you.

Weighting. Okay, sorry. Of course, yes. Well I think, you know, VIVITROL is doing well. I think we are – as you mentioned, we’ve reiterated guidance this year and, you know, we’re off to a start as we expected in the first quarter. I think it’s a little too early to give more color about where we’re going to end up ultimately with those ranges, and I think that the overall – we are starting to see – you know as we’re out there at more medical meetings etcetera, the idea that, you know, detoxification followed by medications like VIVITROL that can protect against relapse and focused on relapse prevention are gaining more understanding in credence and discussion because they set an important niche for patients who want to lead a life, you know, without taking opioids any longer. So, I think again, we’re confident about the future of VIVITROL, but we won’t give any more color on the perspectives. We do see generally that, you know, there tends to be a seasonal pattern with the second and third quarters being quite strong for VIVITROL, and, you know, those are patterns we expect through the course of the year, but we’ll continue to update you. And then, I guess the other thing I would say, as I mentioned in the call, we are seeing a broadening of the growth, which is important. You know that concentration – we used to talk about the Top 5 states being over 50% of sales. That’s slowly ticking down and now they are 44% of sale. So, as we’re seeing over 20 states with growth rates over 20% and that's an important breadth of the business that’s going to be important for us to continue through the course of the year. So, I think we’re optimistic about where VIVITROL is, but we have our work cut out for us because there are still people who don't understand that there's an option for a non-opioid treatment for opioid dependence.

And [indiscernible] this is Rich. I’ll make a brief comment on that indictment. I don't – I don't think it has much of an impact in the short term, certainly, but it does underscore just the enormous position, the dominant position that buprenorphine occupies in the treatment landscape in the U.S. And I think to the extent it gives people pause to say, hmm, are there alternatives other than buprenorphine? Of course, there are and just last week at the Prescription Drug and Opioid Summit, you saw that the Assistant Secretary of [indiscernible] Mental Health Services, [indiscernible] get up and talk to a large audience and talk about how now its established that patients undergoing detoxification should be put on to long-acting naltrexone i.e., VIVITROL without exception. And you never would've heard a talk like that even a year or two ago. So, we – you know, Jim and I always state on these calls, which we maintain as very, very strong optimism, but we temper it with our inability to translate into forecast that we can give you guys on calls like this. But the general feeling is that there's a tendency toward the use of more and more VIVITROL over time.

Thank you.

The next question is from the line of Biren Amin with Jefferies. Please proceed with your question.

Yes. Hi, guys. Thanks for taking my questions. Rich, you know, on the opioid addiction market, you know, given the DOJ’s focus on SUBOXONE film, do you expect any derivative benefits of VIVITROL sales as a result of increased focus on how SUBOXONE film has been marketed?

I can’t really add a whole lot more to what I just answered, Biren, which is – and I think that you can – if you were to draw a diagram of the U.S. opioid use disorder treatment market, you draw a giant circle that represents the SUBOXONE or buprenorphine or methadone world and you draw a very little circle, which is VIVITROL, and the overlap between the two circles of the doctors who prescribe both is very, very small. Yet the epidemic continues to rage out of control in the U.S. and policymakers and public health officials and criminal justice officials are mobilizing to make changes. So, it seems to us that there's so much logic to the increased use of detoxification, plus VIVITROL, not for all patients, but certainly for a much larger fraction of patients that are currently getting it that I think the focus on the policy around buprenorphine and SUBOXONE or methadone and VIVITROL is only good for VIVITROL.

Got it. And then just on ALKS 4230, can you maybe go over what type of data sets we should expect later this year from that program?

Yes, sure. So, in terms of our dose escalation phase, we definitely expect to complete our dose escalation for monotherapy that’s in the IV study, and we’ll be able to do determine what our Phase 2 dose is going to be. And then in parallel, obviously, we’ve got the combination on enrolling activity at the moment with pembrolizumab and we expect that those arms will start maturing and we’ll be able to have better readouts from that arm of the study towards the end of this year as well. So, you know, I think the combination arms are really optimized. That’s the patient population which is really – is really optimized to demonstrate responses both because they are beta prognostic patients that they – patients who are as sick and so they've got a better chance of responding. And then, obviously, we also believe that we’ll be able to initiate our monotherapy arm in a renal cell carcinoma, as well as melanoma, as soon as we get our established Phase 2 dose. And then, the other study is really looking at subcu and we hope to establish our subcu regimen towards the end of this year as well.

And for the subcu regimen, you’re hoping to go forward with the Q2 or Q3-week profile, is that correct?

Yes, it’s one week and three weeks of the two regimens we’re looking at.

And how do you – how you I guess come to a Q-week or Q3 weeks given, you know, IVPK profile?

We – it was basically modeled off of a lot of our preclinical data, as well as the profile of the compound, and you know, we – I think some of those data were presented last year at [SITC] and based on that we modeled out our sort of one-week and three-week regimen.

Got it. Thank you.

The next question is from the line of Liav Abraham with Citi. Please proceed with your question.

Good morning. Just a quick follow-up on 3831, when will you be starting to invest in the commercial infrastructure for the launch on that drug? Will that actually start in 2019? And can you put any numbers around that at this point?

Good morning, Liav. Our 2019 plans do not include, you know, commercial or field people related to 3831. Some of the increase in the spend that we’re expecting later in SG&A are for the, you know, young market research and our continuing education programs about the, you know, the broader needs in schizophrenia, market preparation work is at work, but we really don't have any major commercial spend in the plans in 2019. You know given that the NDA will go in, you know, midyear that launch will be more built into the 2020 plans.

Thank you. And then a follow-up on VIVITROL, can you comment a little further on where you’re seeing the greatest legislative and access activities outside of the states that represent the majority of revenues? And how do you anticipate that concentration of revenues on a state basis to evolve over 2019 and potentially beyond to the extent that you have visibility? Thank you.

Sure. I think the evolution of that will, I think, continue to remain steady. You know we’ve seen maybe a few percentage points as the states broaden out their usage. I think we have a lot of states, as I mentioned, you know, over 20 that are growing over 20%, but they are from a, you know, from a smaller level. So, the major states of Iowa, Pennsylvania and Massachusetts still make up the bulk of the sales, and I think when it comes to – so again, as best we can predict, I’d say that evolution will be steady. Although, as we saw in 2016, you know, a single state like Ohio really changing drove much larger growth rates than we've seen in the last few years, so one state can have a major impact. I might point to work in California and Michigan as being areas where, you know, last year we saw some changes in reimbursement in California with the State Medicaid opening up easier access to VIVITROL. Now that doesn't change practice overnight, but its access has improved. I think education improves, physicians begin to use the product and those – both county, city and state level programs can then start to grow. And so, we have high expectations for California as move forward. Last year, Michigan for instance, created a program where folks with two instances of DUIs on the alcohol side would be referred to further medical treatment, you know, under a state-based program, and we find that as an interesting opportunity, for instance, for VIVITROL. So, you know, there's also a number of states like Kentucky, you know, West Virginia, New Jersey that are also involved in expanding [drug court] programs. So, you know, I think that broader group of states is poised to continue to grow, and as we see those accelerating, we’ll update you through the quarters if any of those warrant, you know, particular highlights that might be, you know, changing the growth trajectory that we've outlined for our plans for 2019 at the stage.

Thank you.

You’re welcome.

The next question is from the line of Umer Raffat with Evercore. Please proceed with your questions.

Hi, this is [indiscernible] for Umer. Two questions for the quarter. The first is IMS is implying a sequential decline from Q4 to Q1 in VIVITROL. Is that consistent with the data that you’re seeing internally? And the second question is, you know, you are flagging these five new states, like California, Texas etcetera, in your slides. Should we expect an acceleration in VIVITROL trends like we saw a few years ago sort of kind of following up in the last comment as well?

Yes. Well I think again, the expectations that we have for VIVITROL are built into our, you know, into your guidance, which is consistent, I think, with what we saw last year. I think why we outline those particular states, you know, given people's interest as we’ve just were discussing, those I think are where we see the opportunities for growth to accelerate. So, you know, that broadening of the state needs to occur for us to hit our plans, but I would say that no particular state expansion is included in our anticipated guidance for 2019. As we said numerous times, and you know, Rich reiterated as well today, you know, what we do with VIVITROL is take our current growth trends, use those as our current expectations and seek to drive change in various states, and if that change takes hold, we’ll probably see accelerations and growth trends. As for the IMS decline quarter-to-quarter, you know, we’re not really seeing that in our own broader trends in terms of unit, you know, sales throughout the states and that's generally a – related to the fact that the IMS is really, you know, retail channels and VIVITROL’s sales are so much through government programs and slightly broader distribution channel that IMS doesn’t pick up. We tend to really see only kind of 70%-ish range of the cartons that are picked up by the IMS data. So, that’s always been a little spotty and I think you need to look at a broader trend in a single quarter to really understand what’s happening with VIVITROL.

Thank you. The next question is from the line of Paul Matteis with Stifel. Please go ahead with your question.

Hi, thanks so much. This is Ben [indiscernible] on for Paul. Just one question on ARISTADA, could you provide a little color as to which types of physicians or hospitals have been early adopters of INITI? And I guess with these practices in hospitals, I guess specifically where they, are they converting from INVEGA SUSTENNA, are you seeing utilization on practices that are new to the long acting market? Thank you.

Ben, this is Rich, I’ll to answer that. And I actually don’t have all the answers to that, but I will say that the INITIO has provided more of I think an entre into hospitals and I think in our last call we mentioned that there were 60, 70, or 80 or so hospitals that already opened up for use and is now Jim tells me greater than 100 hospitals that might have been using only the other long acting Aripiprazole product, but with you have an issue in two months, those hospitals are now opening up for the use of ARISTADA and the entire ARISTADA family. That’s really encouraging. We don’t really see that ARISTADA is a substitute for INVEGA SUSTENNA, we see – and that’s what’s so important about the ALPINE data that we really see these two medicines and we recall that INVEGA SUSTENNA incorporates Alkermes technology as well, we think that these should be the leading long acting injectable atypical’s and different patients had different needs and the patients who might benefit from ARISTADA and Aripiprazole might be a different patient that might benefit from Paliperidone and INVEGA SUSTENNA. So, I think that what we’re emerging is now that there are two of the LAI’s that have the features and the data that should drive long-term utilization in the hospital and the community and I think those are ARISTADA and SUSTENNA.

Thank you. The next question is from the line of Brandon Folkes with Cantor. Please proceed with your question.

Hi, thanks for taking my questions. Firstly, can you help us think about the size of [indiscernible] opportunity for ARISTADA? And why is this win expected when you gave initial guidance on your 4Q goal? Thank you.

Yes, thanks Brandon, it’s Jim. You know the size is a great question. There is roughly I think 110,000 over the course of the year, 110,000 months of therapy as it where in the VA, which works to about 6% [indiscernible] overall market and this is a market that we really haven’t had any, you know we’ve had a few hundred cartons in the VA so far for ARISTADA. So, it’s really quiet a substantially opportunity for us. And we included growth in the various markets and market growth is part of our guidance for 2019, but we didn’t know exactly when the VA formulary change would occur. So, I would say that, again with everything with ARISTADA it’s going to take some time, but this is a really a new opportunity for us in the VA, but it is going to take some time, because we’re on the formulary now as of this week, but each individual hospital and each individual [person] is going to then have to go through the paper work of adding ARISTADA to the formulary. So, what it does really now is allow our team to get out there and get into the VA and we expect that we will be able to bring the VA up to our overall market share, which is right now hovering around 7%. So, there is a real opportunity for us to increase ARISTADA penetration there.

Great, thanks very much. And maybe one follow-up if I may, post SIRS, is there any update you could give us on feedback that you received regarding the use of ALKS 3831 from a pharmacoeconomic proposition perspective?

Hi Brandon it’s Rich. I’ll let Craig answer because he was at SIRS and he got a lot of feedback from physicians and I’ll try and mention on the pharmacoeconomic side. Go ahead.

Yes. On the clinician front, there is lot of excitement. Indeed, around the 3831 data we had folks come up to us straight after the presentation asking when this would be available? How long they would have to wait? What the regulatory process would be? So, I think we’re getting a lot of traction. I think the next step is for us to really educate our investigators on the data and to present additional data at upcoming meetings. So, we will be presenting, you know, data at ACP conference coming up as well and ultimately the next step would be for us to publish our data. So, it’s all about education. So, I think on the payer front as well, you know once [indiscernible] in the clinical community, the next step is to start educating payers over the course of the year as we go through the regulatory process as well, but I’ll hand the rest of it over to Rich.

The only thing I’ll add is it, we all know that the challenge ahead of us, which we’ve been prepared for from the outset is to introduce a branded product in a genericized marketplace, into the government paid marketplace. Well, guess what? We’ve been doing that for quite a while with ARISTADA. ARISTADA is a branded medication at a significantly higher price point in a patient pollution that is forced to progress through multiple failed generics. So, that’s almost table stakes coming into Schizophrenia. You know that your patients are not going to get access to branded medicines right away, but with that said, given the average length of therapy on any antipsychotic it’s so brief that the churn is so significant and that – I phrase that in business terms, but in human terms it is really horrible. There are better medicines that should be used earlier in these patients journey and that’s part of the policy aspect of it. On the pharmacoeconomic side, these patients are extremely expensive. And they are expensive for two reasons. Number one, is in the short-term based on non-compliance relapse rehospitalization and those are out of pocket cost that payers are dealing with all the time. They are within health treatment systems or also within the criminal justice system. And second is the long-term [indiscernible] of non-treatment and/or treatment with weight gaining or other agents with significant weight [anabolic etcetera]. And those are quantifiable. And so, as we put together the [indiscernible] now to support our interactions with payers these are elements of that comprehensive work.

Great. Operator, I think we just have time for one more question this morning.

The question will come from the line of Marc Goodman with SVB Leerink.

Good morning. You talked about SG&A a little bit for the rest of the year, can you talk about R&D which seem to be a little light in the quarter and why that was and how that is going to ramp up through the year and the 5461, is that still being moved forward where we are on that? Second question is, on 3831, in the past you have given us a flavor for how many reps you are going to put on the ground and just curious if you could just reconfirm, are we still thinking somewhere in that 250 kind of rep range? And from an advertising and promotion spending, I know you don’t want to give us any type of numbers for one you start spending next year, but should we be thinking that this is going to be a spend that’s going to be like an ARISTADA, like a VIVITROL more or less, just give us a sense of just as much as you can just how relative the spend is going to be from that perspective? And have started to have the conversations with the payers in 3831, you started to talk about that a little bit, but I was just curious how much you really gotten into that? Thanks.

Mark, I’ll start with some of the financial questions and then I’m sure Rich will provide some color. So, from an R&D perspective, yes, we are going to ramp through the course of the year, I think generally that can be put on the addition of, you know as we talked about on the annual call in February, you know roughly a $75 million ballpark increase in spend on 4230 through the year. So, Craig outlined really the three broader initiatives that we have with the combo study, the monotherapy, as well as the subcu program, and those will really get started – they are started now, but they will be increasing in rate and spend through the course of the year. So, I think a pretty steady increase in R&D spend through the rest of the year to put us into our guidance range is how I model it from an R&D perspective. We still are enrolling and running study 217 for 5461, and until we figure out our long-term strategy with the agency, we think that study is important and has important data for us. So, we’ll continue on through the course of 2019 and 2020 until we update otherwise with 5461, and then in the 3831 area in terms of the number of reps, you know, I don’t think we really have an update now. I think as we are understanding our data, we’re doing the work in the background in terms of the sales force sizing and the overlap with high prescribers on the oral side and we’ll make those decisions as we get through into next year, but you know and from a launch perspective and spend, I think that, I’m not sure ARISTADA or VIVITROL are the right analogies. This is an oral agent. This has, I think blockbuster potential and will I think invest as the logic would dictate for an opportunity this size with olanzapine related compound without the metabolic issues, I think there is some really exciting opportunities that await us as people get educated about that data and see that market opportunity and understand the value and the use of ZYPREXA even with all its liabilities today. It is a compound that people use and find a lot of benefits from even with its liabilities that we think we’ve dealt with the 3831 data. You know, Rich I don’t know, any more perspectives from you?

Marc, all I would say is that on the payer side, we really wanted to get the ENLIGHTEN-2 data because that actually gives us the information to go talk to payers. So, we are just starting that work now and we’re looking forward and I’m going to challenge you to really take a closer look at the 3831 data because I want to underscore something that Craig said on the call, which is – there is so much focus on the weight data by necessity and correctly to establish that this agent has a different weight profile of olanzapine. Once that’s done, once that settles matter, the value proposition to patients with Schizophrenia is the efficacy and I think that tracing that you saw in the slide deck of patients who were stabilized in oral medications to go into ENLIGHTEN-2 they all improved on both olanzapine and 3831. There is a differential efficacy benefit for this medicine and when we talk to clinicians, once they are satisfied that the weight differential is real then what drives the utilization is the efficacy and I think that’s the whole we are filling in the marketplace and that’s why we’re so excited about it. So, I think we will leave it there.

Great. Alright. With that we’ve end our call this morning, but please don’t hesitate to reach us to us at the company if you have further questions that we can be helpful with. Thank you.

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.