Alkermes plc (ALKS) Q1 2020 Earnings Report, Transcript and Summary

Greetings and welcome to the Alkermes First Quarter2020 Financial Results Conference Call. My name is Melissa and I will be your conference operator today. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note that this conference is being recorded. I'll now turn the conference over to Sandra Coombs, Vice President of Investor Relations. Sandy, you may begin.

Thank you. Welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter ended March 31, 2020. With me today are Richard Pops, our CEO; Todd Nichols, our SVP of Sales and Marketing; and Jim Frates, our CFO. During the Q&A session, we will also be joined by Iain Brown, our SVP of Finance. 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, our press release issued this morning, and our most recent annual and quarterly reports filed with the SEC 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 Rich to provide an update on the company's response to the COVID-19 pandemic.

Thank you, Sandy, and good morning everybody. I hope everybody is staying well. So before we getting into our first quarter results and an update on the business, I have to note the challenging circumstances caused by COVID-19, the acute and wide ranging impact that this virus has had on health and economic wellbeing of our communities is significant. We activated quickly and with compassion to navigate the difficult conditions and today Todd will provide a detailed review of the commercial impact that we have observed particularly on VIVITROL in the first few weeks of April and our mitigation efforts. Jim will outline the potential implications for our financial results and discuss the impact on our ability to provide expectations for the balance of 2020. In the face of this pandemic, Alkermes has adapted our business practices so that we can continue to meet our public health responsibilities which have become even more pronounced. People living with serious mental illness and addiction, conditions that are often stigmatized and marginalized in our society, have an ongoing need for their medicines, yet many are facing challenges in accessing their caregivers and the healthcare system. We are an active participant along with many other stakeholders in efforts to ensure that the treatment system continues to function for these patients for their families and their communities. As we work together to navigate the rapidly evolving environment, our two main priorities are to protect the health of our employees and to help ensure that the healthcare providers and patients have uninterrupted access to our medicines. Our team organized quickly and our response has evolved over three distinct stages. In the first stage we mobilized the change the way we do business to protect the wellbeing of our employees, implement physical distancing, and maintain business continuity. This included adopting work from home policies for those who could do their jobs remotely and for our field-based personnel transitioning to virtual healthcare provider engagement. We are the only manufacturer of several important medicines the patients rely on including sterile injectables and complex solid oral dose forms. For our employees to continue to work on critical tasks in our manufacturing facilities and in our laboratories, we instituted additional safety precautions including increased protective equipment, sanitization and physical distancing practices. In the second stage of our response our focus expanded to preserving our ability to supply for the foreseeable future one commercial product to the patients that rely on VIVITROL and ARISTADA; two, third party products that we manufacture; and three, investigational products for our ongoing clinical trials. At this time we do not anticipate any supply interruptions. However, we and our clinical supply chain partners are regularly assessing the situations and adapting as appropriate. Our focus extends beyond the manufacturer of our medicines. It is more important now than ever that we support people living with schizophrenia, opioid dependence, and alcohol dependence and help to ensure that they have the information and the resources to help them access treatment. Todd will outline some of our efforts to support patients and healthcare providers in this environment. In the third stage of our response we're focused on how we can find new streamlined ways of working, eliminate unnecessary expenditures and gain a competitive advantage by being more agile in meeting the needs of our stakeholders. We have an opportunity to be creative and develop new best practices that can have a lasting and positive impact on the way we conduct our business. We recognize that this is a dynamic situation. We are closely monitoring the latest information on COVID in order to make timely informed decisions designed to protect the health of our employees, support uninterrupted access to our medicines and continue the advancement of our research. So with that, I'll turn the call over to Todd for a review of our first quarter commercial performance and response to COVID-19 on the commercial front.

Thanks Rich, and good morning everyone. Coming into Q1 our commercial organization was focused on starting the year strong with a heightened sense of urgency to drive revenue and to continue to adapt to patient needs. We made steady progress against our commercial strategy this past quarter and our Q1 results reflect the initial success of these efforts as we achieved all-time highs in healthcare provider adoption for both ARISTADA and VIVITROL. As we entered the second quarter, we began to see the impact of the COVID-19 pandemic on our commercial portfolio, with a more pronounced impact on VIVITROL than ARISTADA. In the first few weeks of April, VIVITROL's factory shipments have been approximately 25% lighter than our pre-COVID expectations. However, it is too early to reliably extrapolate a trend forward given the dynamic situation. ARISTADA has not been impacted as much, but we have seen flattening in prescription data and factory shipments over the last few weeks. At this time, we can't predict with certainty what the duration or magnitude of the COVID impact will be across our commercial portfolio. But I will outline our efforts to adapt to the current environment following a discussion of our Q1 results. Starting with VIVITROL, net sales in the first quarter increased 14% year-over-year to $78.8 million driven by 13% unit growth. The number of healthcare provider accounts prescribing the VIVITROL increased approximately 10% year-over-year as we work to expand the VIVITROL provider network. Due to the important overlay of policy and funding at the state level, VIVITROL's growth continued to be geographically driven. In the first quarter, our top five states represented 42% of net sales. Year-over-year growth for Q1 was driven by continued strength and growth in California, New York and Florida, and broad-based growth in states with lower VIVITROL share with 20 states growing more than 25% year-over-year. Geographic diversification remains an important part of our long-term growth strategy. VIVITROL demand showed encouraging trends as we continue to diversify the business across alcohol dependence and opioid dependence, particularly in states where VIVITROL has experienced strong recent growth like California and Michigan we saw greater contributions from the alcohol dependence indication. Looking ahead, our strategy will continue to be guided by responding to patient needs which is particularly important in the current environment as COVID-19 and efforts to contain its spread are disrupting access to care for some patients seeking addiction treatment services. For example, over the last three weeks VIVITROL new patient starts have been under pressure. The more pronounced impact on new patient starts could be driven by a variety of factors, including the closure of certain addiction treatment centers, decreased access to detox services, and a decrease in patients' desire to seek care and ability to engage with healthcare providers. Of note, certain areas hit hardest and earliest by the pandemic in the United States like New York, California and Massachusetts are also top VIVITROL geographies. We believe this alignment is augmenting the impact that we have seen on VIVITROL over the last three weeks. We will be monitoring trends in these geographies carefully in the weeks and months ahead. In response to COVID-19 challenges, we pivoted quickly to support the needs of our customers and protect the health and wellbeing of our employees. We rapidly transitioned our customer engagement strategy to a virtual model and focused on advancing our digital capabilities while continuing to support broad access to our medicines and the needs of healthcare providers and patients. To support providers, we are providing educational materials virtually while helping them navigate reimbursement for telehealth services. To support patients we are highlighting our patient services resources, expanding our injection site network and updating our provider locators to reflect these additional sits of care where patients can receive injections. As an example, we recently engaged with Albertsons which now offer access to injections at 900 of its on-site pharmacies predominately in the Midwest and West Coast regions, and we continue to engage with other potential injection providers to further expand patient access. We're monitoring the situation and will adopt additional measures to support access to treatment as appropriate. Turning to the ARISTADA product family, net sales in the first quarter increased 70% year-over-year to $51 million. This growth reflects underlying demand and impact of inventory fluctuations in the first quarter of 2019. Underlying total prescription data for ARISTADA demonstrated solid growth of 43% year-over-year in terms of months of therapy. In March 2020 ARISTADA's market share for new prescriptions in terms of months of therapy achieved an all-time high of 10% in the overall market for long-acting atypical antipsychotics. Market share for new brand prescriptions hit 13.2% in February 2020, the latest month of available data, which we believe is a useful leading indicator for the trajectory of growth for ARISTADA. The progress we are making reflects an intense focus on execution as we communicate the value proposition of ARISTADA and its differentiated positioning in the market. Heading into 2020 we sharpened our focus on driving utilization at a two-month and 64 doses [ph] in ARISTADA and INITIO. Positive data from our Phase 3 ALPINE study which we announced in the middle of last year and continue to rollout is an important element of our strategy to drive awareness of the benefits of INITIO and the two-month dose among healthcare providers. Particularly within the context of reduced personal interactions, we believe the two-month dose offering along with ARISTADA and INITIO has resonated with physicians. With a differentiated product family, a strong payer access profile, and a compelling value proposition, we have a clear opportunity to drive the growth of ARISTADA in the future. As I mentioned, the impact of COVID-19 on ARISTADA has been less pronounced than that seen with VIVITROL, but we have seen a flattening of weekly prescription data and wholesale of shipments to-date in April. As an injectable medicine ARISTADA utilization relies on healthcare provider administration and is too early to predict whether the pandemic and social distancing practices will have a measurable impact on patient access to ARISTADA going forward. Similar to VIVITROL, we are implementing strategies to support patients and healthcare providers, including expanding our injection network and updating provider locators for ARISTADA. We are highlighting our patient access and support services and deploying virtual resources for HCP's and digital awareness campaigns. We believe these efforts will not only help mitigate potential disruptions, but also present an opportunity to develop new and more efficient best practices that can be translated into competitive advantages over the long-term. Turning to our launch preparations for 3831 which will be intensified throughout the remainder of the year. We are planning for spectrum of launch scenarios in the event that COVID-19 disruptions continue to present challenges and will work to navigate the evolving environment. We expect the keys to a successful launch will remain awareness, sales force planning and meaningful market access. As we prepare for launch we have an opportunity to drive awareness through disease state education campaigns and scientific exchange. This includes presentations of 3831 data at a number of planned scientific congresses and some of which will take place in virtual formats. 3831 represents an important opportunity to capture operating efficiencies and maximize the value of our commercial infrastructure. With capabilities already in place in terms of access to reimbursement, medical affairs and marketing, our primary investment as we prepare for launch will be expanding our psychiatry field sales organization. Currently, our field team is right-sized to address the concentrated universe of physicians driving utilization of long-acting injectables. To accommodate the broader footprint of prescribers for oral antipsychotics across potential indications for both schizophrenia and bipolar one disorder, we plan to appropriately expand the field sales organization to meet the opportunity. We are evaluating a number of strategies and configurations and will be finalizing that sales force planning over the coming months. Establishing meaningful market access will be an important factor in driving early success of the launch. We have completed our contracting research, are updating our pricing research, and are developing engagement health plans for key payers. Moving forward, we remain deeply committed to serving the vulnerable populations that suffer from serious mental illness and addiction. Across the commercial portfolio, we are focused on execution and building new capabilities in this dynamic environment and we look forward to sharing our progress with you. And with that, I'll hand this over to Jim to provide our financial results for the quarter and an update on guidance.

Thank you, Todd, and good morning everyone. I am pleased to report solid first quarter results. We generated $246.2 million in total revenues driven by year-over-year growth in our proprietary products in our diverse revenue base. We recorded a GAAP net loss of $38.7 million and non-GAAP net income of $1.7 million. I'll start with our key financial highlights for the quarter and then discuss the impact of COVID-19 on our business and financial outlook for 2020. VIVITROL net sales in the first quarter increased 14% year-over-year to $78.8 million driven primarily by 13% unit growth. Gross to net adjustments of 49% in the quarter were comparable to the first quarter of 2019. Consistent with seasonal patterns, VIVITROL net sales declined sequentially due primarily to the drawdown on the Q4 inventory bill as well as slightly higher gross to net adjustments. At the end of the first quarter, inventory levels were back within the range with just under two and a half weeks of inventory at our wholesaler and specialty pharmacies. Turning to the ARISTADA product family, net sales in the first quarter increased nearly 70% year-over-year to $51 million. This increase was driven by strong underlying demand and also the significant inventory drawdown that ARISTADA experienced in the first quarter of 2019, which reduced ARISTADA net sales in the same period last year. As Todd mentioned, we believe ARISTADA total prescription growth of 43% year-over-year in terms of months of therapy better represents underlying demand trends for ARISTADA. Gross to net adjustments during the first quarter of 2020 were 51.8% as compared to 49% in Q1 2019 reflecting consolidation of certain Medicaid plans into broader volume consortiums. Sequentially ARISTADA net sales declined due to the typical seasonal inventory patterns as well as slightly higher gross to net adjustments. Inventory in the wholesale channel remains at roughly four weeks, which is a typical level for ARISTADA. Moving on to our manufacturing royalty business, in the first quarter our manufacturing and royalty revenues were $116.3 million compared to $108.9 million in the same period in the prior year, driven primarily by long-acting injectable in our psychotics. Revenues from RISPERDAL CONSTA, INVEGA SUSTENNA and INVEGA TRINZA increased 9% year-over-year to $82.2 million, driven by increased end market sales of INVEGA SUSTENNA and INVEGA TRINZA and the timing of manufacturing batches for RISPERDAL CONSTA. The growth in net sales of our proprietary commercial products and royalty and manufacturing revenues more than offset the decline in our R&D revenues, as the reimbursement of the development expenses for VUMERITY from Biogen largely ended in the fourth quarter of last year with the approval of that product. In the first quarter of 2020 we recorded $243,000 of R&D revenues as compared to $14.7 million in Q1 2019. Turning to expenses, our total operating expenses were $283.6 million for the first quarter, down from $299.1 million in the same period in the prior year. Our R&D expenses for the first quarter were $93.3 million compared to $102.6 million for the prior year reflecting the completion of the VUMERITY development program in 2019 which was somewhat offset by increased activity in patient enrollment in the ALKS 4230 clinical program. SG&A expenses for the first quarter were $133.4 million reflecting investment in the strong start initiatives related to VIVITROL and ARISTADA growth and compares to $141.2 million for the prior year. Turning to our balance sheet, we ended the first quarter with approximately $550 million in cash and total investments compared to approximately $614 million at the end of 2019. The decrease is reflective of normal seasonal patterns in cash flows and changes in working capital. The company's total debt outstanding was approximately $277 million at the end of the first quarter related to our term loan due in March 2023. I'll shift now to the impact of COVID-19 and our financial expectations for 2020. Today we are withdrawing our previously provided 2020 financial expectations due to the uncertainty surrounding COVID-19 disruptions to the healthcare system. While our first quarter results were in line with our operating plan and slightly ahead of our financial expectations, as the realities of the pandemic and the efforts to contain it has intensified around the country in mid-March as Todd mentioned. We began to see disruption in patient access to addiction treatment services and to a lesser extent treatment services for schizophrenia. We expect that the impact of the COVID-19 on Alkermes business will be driven primarily by the severity and duration of the pandemic. At this time, we are unable to reasonably predict the extent of the pandemic impact on our future results as it pressed across the country. We're monitoring demand on a daily basis and implementing mitigation strategies as Todd outlined. As we confront this pandemic, we're very focused on exercising financial discipline. We will continue to analyze our cost base, make adjustments as we better understand the impact of the pandemic on our topline, and allocate our capital appropriately to areas where we see the highest potential return on investment. As we do our part in this evolving environment to protect the safety of our employees, support uninterrupted access of our products to healthcare providers and patients, and facilitate business continuity. We continue to be in a position of financial strength. With a diverse well-capitalized business, we believe are well positioned to weather the impact of this pandemic. With sufficient liquidity to advance our operating objectives and rebound when the public health responses allow. With that, I'll turn the call back over to Richard.

That's great. Thank you, Jim and thank you, Todd. So as you've heard, we had a strong first quarter and we're adapting live everyone else to COVID-19 environment. And while none of us has a clear sense of when the major disruptions will be behind us, we believe we have a resilient business and our plan to emerge from this even more focused. Our research and development activities continue to advance. Our first priority is to support treatment continuity and ensure patient safety in our ongoing clinical trials. We are in frequent communication with investigators, and like other biopharmaceutical companies, we are identifying ways to streamline study visits and enhance data collection to reduce burden on the patients as well as on the investigator sites. Efforts like this have the potential to extend beyond the current environment and have a long-lasting positive impact on how clinical trials are conducted in the country. Another priority is to keep advancing our most important programs, including initiating new clinical trial sites and protocols for our key investigational medicines. And I'd say that ALKS 4230 in oncology is one of those. The potential for ALKS 4230 in both monotherapy and combination studies continues to be supported as the clinical data accumulates across our intravenous and subcutaneous dosing studies. Across what we call the ARTISTRY development program March was our highest enrolling month. We continue to enroll patients in both ARTISTRY-1 and ARTISTRY-2. We have seen a slowing of enrollment in April as some sites and investigators in our network have temporarily paused enrollment of new patients due to COVID-19, which we expect will result in minor delays to those trials. Looking ahead, we expect activation of select ex-U.S. sites primarily in the Asia-Pacific region and Europe this quarter and we will resume our plans to further expand our clinical trial network as soon as possible. With the resources and the capabilities to continue to advance 4230 at this stage of its development, we are focused on building the data set that will lead ultimately to broad-based collaboration. If 4230 lives up to its promise we see collaborating as a key to maximally explore its therapeutic potential for patients and driving value creation for shareholders. For ALKS 3831, our novel oral atypical antipsychotic, the NDA for schizophrenia and bipolar I disorder is currently under review at FDA. So the PDUFA target action dated November of this year. We have not been made aware of any potential delays in the review timeline. The FDA recently communicated to us their intention to hold an Advisory Panel, although they have not yet shared details regarding the focus or format in the current environment. Because this NDA contains a new molecular entity and involves two different review divisions, we plan for an Adcom [ph] and have been preparing since we submitted the application in November of last year. With the efficacy of olanzapine and a differentiated tolerability profile, ALKS 3831 has the potential to be an important new treatment option, one that builds on the presence that we've built in schizophrenia with ARISTADA. The other area of intense scientific interest is our HDAC-inhibitor platform. That work largely remains on track. In order to maintain momentum and continuity of those efforts, our team has been innovative in geographically shifting work conducted by contract research organizations as COVID-19 has spread and peaked. Integration across research and early stage development has been critical as we prioritize the most high-value experiments and continuously assess optimal internal and external sourcing options. Across the organization innovation being brought forward and our people's ability to be nimble and adaptive in this environment is remarkable. I am proud to see all that continues to be accomplished and I'm grateful for the resilience and dedication of our employees as we navigate these challenging times together. We are focused on delivering on the key operational objectives to advance the business and build the value of the company. In responding to this crisis, the biopharmaceutical industry has the opportunity to demonstrate and underscore our immense value to society. Diagnostics, therapeutics, vaccines, these are the first order priorities for changing the pandemic. At Alkermes we are focused on some of the most important health implications that can be exacerbated by social isolation, economic hardship, and fear. During and in the wake of the pandemic care and treatment of serious mental illness and addictions will take on a new level of importance. We are very proud of the role we play to help people struggling with these disorders. So I'll finish there and turn the call back to the Sandy to run the Q&A. Sandra Coombs Great, thank you, Rich. Melissa, we will now open the call for Q&A please.

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

Great, thank you very much. I appreciate it. You described the adaptations that you're working on in terms of the sales efforts, including injection sites at places such as a pharmacy or Albertsons. Can you quantify a little bit in terms of the extent to which you see that as being something that could be a go forward option, and particularly between opioid addiction versus the alcohol side, which I think has been a very relevant part of your mixed shift efforts? You had talked about maybe marketing more, putting more emphasis on the alcohol treatment side. Can you just maybe help put some shape for that? Thank you.

Yes Chris, let me spend, this is Todd. Let me spend just a few minutes on that. To your point, we've spent a great deal of time and put a lot of thought over the last couple of weeks. More so probably the last month or so thinking about how do we expand access to injections, not only for VIVITROL, but also for ARISTADA. In one of those areas, clearly, there's an opportunity with pharmacists, and we're seeing that across the healthcare spectrum as well, too. There's a lot of energy right now, a lot of acceptance of allowing pharmacists at the state level to practice at the top of their license. And so we're working very closely at the policy level, at the state level as well, and also with a lot of the major retailers having discussions regarding how do we expand access to injections. It's very early. I will tell you at this point right now we're excited about the situation that we have with Albertsons right now. It is early that we're seeing some really nice encouraging signs at the state level from other customers that have, that are open to discussions like this. And so, we think that this is going to be a big part of delivering injectables similar to the way that vaccines are delivered in the long term. So although this is clearly an opportunity for us right now, with the COVID situation, this will be a long-term opportunity for both products as well. So it's not just VIVITROL it's VIVITROL and ARISTADA.

Hey Chris, this is Richard, I want to add on that because it's a bigger conversation we can have, but I think this maybe one of the fundamental changes that derives from the pandemic. And it's not just retail pharmacies and use of pharmacies for injection. It's the idea of telemedicine as a way of deploying psychiatric services to patients across the country, particularly in rural America. And I think an important, we think an important component of the telemedicine would be the availability of long acting injectables as a compliment to the telemedicine that could be dispensed across the country in different sites of care. So this is one of those fundamental changes that we're interested in driving in both psychiatry and in addiction.

Got it and then one quick question for Jim, you had talked about the mix shift in terms of payers and consolidation of Medicaid type, payers, et cetera. Are we about to anniversary or done with that, or where along the course of those transitions are we if that can continue to be the case or is there any chance that that lessens at all particularly as we get towards the midpoint in second half of this year? Thank you.

Yes, thanks Chris. And specifically it affected our gross to net this year compared to last year with ARISTADA. I think the major consolidation has probably come through the providers of Medicare and Medicaid Services from a commercial side. The DMS have gotten bigger and I think from a - I mean it is hard to predict what's going to happen in the future, but I think those impacts really are we've seen. And we might see another point or two in gross to net through the course of the year for ARISTADA, but we don't see a major change. So I think we've seen the major impact of those consolidations on the ARISTADA side.

Right, thank you I’ll get back in the queue.

You’re welcome.

Thanks Chris.

Thank you. Our next question comes from line of Jason Gerberry with Bank of America. Please proceed with your question.

Hey, good morning. Thank you for taking my questions. Just a follow up on VIVITROL first. You mentioned new patient starts is being more negatively impacted and I'm just curious, you mentioned closure of clinics. So I'm just curious how adherence is looking from your perspective with preexisting patients being able to come back. I know that you talked about the clinics being a longer term opportunity but in the near-to-medium term, how are patients you know, managing their follow up treatments, and is that also being negatively impacted?

Yes. Hi, Jason, this is Todd. Yes, glad you asked that as well, something that we're watching very closely. A couple different questions in that. It's a little too early to determine if there is an impact on adherence. VIVITROL adherence is somewhere in the range of around 3.9 to 4 historically over time. So, based on this situation, we don't have a good sense that that has actually changed at this point right now. A lot of the disruptions that we are hearing and seeing right now are really regionally based and I think the best assessment that I would point you to was really the hot spot states as I mentioned in my prepared remarks, New York, California, Florida, Michigan, some of those areas. We are very close to our customers across the U.S. Then in some of those areas, we're hearing more disruption than in other parts of the country as well. And so it really depends upon the state, the site of care that the physician is practicing in, and also the patient profile. We do know that the VIVITROL patient is a very committed patient and so we're still very encouraged by that, because that's a patient that's made a commitment to the product as well. And so we're going to be monitoring adherence, we're going to be monitoring closures at the state level, and then also when the policies at the state level start to loosen up, and we start to see patient flow start to increase more specifically and hopefully in the coming weeks and months.

Great. And if I could just follow up with the comment about closure of addiction clinics, is this something that you'd expect to be more temporary? Can you put any metrics around this? I'm just curious, like dental offices should you - would we expect a reopening of these offices once the economies reopened? And then my second follow up to that is just thinking about sales and marketing that's more discretionary in nature of the spending. How you can potentially flex down spend during this period, or do you have to actually step up your discretionary marketing spend because you don't have that physical touch point with the physician?

Yes, Jason again, I'm glad you asked that as well too. I think the first thing to keep in mind how we think about this is that VIVITROL will continue to be a very important element of our nation's response to the opioid crisis. And we do see growth opportunities for VIVITROL in the future as well. So we do believe our going assumption right now is that this is an acute issue right now that's really being driven by the pandemic at this point as well. It's hard to tell. So your question on quantification is very difficult for us to quantify that at this point. Hopefully in the future, we will be able to provide more data on that as well. But we do believe that this is a little bit more of an acute issue as well. And your point on discretionary spend and investment with our commercial resources in marketing dollars, as you've heard from my prepared remarks, and also from Rich as well, we shifted very, very quickly in the latter part of March to make sure that we were shifting our resources to support patient needs. And we really saw that in three areas. Number one, the first area is around making sure that we're maximizing virtual engagement, and that we're being relevant to our customers to the programs that we're offering them. Secondly, is that we're expanding access to injections and we're doing a lot of work in that area right now and we're enthusiastic about that work. And then thirdly is building new capabilities such as our digital presence as well. And so we have increased some resources in the digital domain to make sure that we're communicating the value proposition of both brands of VIVITROL and ARISTADA to healthcare providers, but also to patients as well.

Got it, thank you so much.

Hey, Jason, it's Rich. I just want to build on something Todd said, that well, it's not something to focus on in Q2. We have had conversations with major providers and payers, and public health officials about the aftermath of COVID-19. And right now, what is happening in homes around the country as alcohol and opioid use is growing as people deal with social isolation and in dealing with the consequences of the way that people are living their lives right now. There's a serious concern. And to Todd's point, VIVITROL is a mainstay medicine in the treatment of these conditions. So while we can't predict when this is going to be over, there is going to be a tail to this sequestration period and it's going to be quantified in the rates of alcohol and opioid use disorders as well as other psychiatric manifestations.

Got it, thank you.

You are welcome.

Thank you. Our next question comes from line of Cory Kasimov with JPMorgan. Please proceed with your question.

Hey, good morning, guys. Thank you for taking my questions. First of all, I want to ask you is, for the first quarter do you see any early pull through of either ARISTADA or VIVITROL that helped with the quarter or were there any other COVID-19 related tailwinds for the commercial business as we've seen some other companies talked about so far this earnings season? And then I have a follow up.

Yes, hey, Cory, it’s Jim. We have not seen dramatic changes with the COVID tailwinds, let's say in the beginning. Inventory levels actually came down as we would have expected from Q4 to Q1. So I think we can say that it was really the focused effort of Todd and the commercial teams and really nice underlying unit growth, that 47% growth compared to last year that we saw in ARISTADA, and the 13% growth that we saw in VIVITROL I think. We're off to a good start this year and like many companies, I think many people across the country before we got the surprise from the COVID pandemic.

Okay.

Yes, Cory. If I could just add to Jim's comment as well too. We started - our focus for the year was to start strong and really focus on commercial execution. And so we are seeing some encouraging signs, and also some encouraging feedback from our customers around the value proposition for 1064 in our two-month dose offering as well, it's been, it's a major underpinning of our commercial strategy as well. So 1064 plus initial [ph]. It's a little early to quantify it, but we are seeing that the distribution of doses is directionally moving in the right direction with 1064. And to Rich's earlier comment as well too, as we are seeing some encouraging, some signs and trends with alcohol for VIVITROL as well too, so we are optimistic about that.

Okay, that actually was going into what my second question was going to be in terms of the commentary around the two-month dosing, and that is not surprisingly resonating well, but if you're seeing it, I was curious if you're seeing an uptick in the actual adoption, but even maybe going a step beyond that, what is the feasibility if at all of implementing at home nursing to administer your products and do you think payers would be receptive to something like that?

Todd do you want to take…?

Yes, absolutely. Cory, so we're looking at the feasibility of a number of opportunities to expand injection for patients. Our number one focus obviously is to be patient focused, patient centric to make sure that patients have access to our medicines as well too. So we're looking at all kinds of alternate site injections as well too. I can't give you anything firm at this point on strategically where we'll go, but we are looking at a number of different options.

Okay.

Hey, Cory, It’s Rich. I was beginning to answer that before, but I was on mute. So thanks Todd for jumping in. Sign of the times, isn't it? We are having some really interesting conversation with large payers and others in this moment as we look around the country. There are islands of best practices around the country where things like at home care for addiction are being implemented in pilot programs. And you can see that the data are being developed in certain these pilot programs. And we're talking to two major payers about consolidating these now, anecdotal or even small pilot programs into what could represent a model of comprehensive care within a major payment system. So a long answer to a simple question, but absolutely, yes, there's an opportunity here over time to change the way that some of these conditions are treated across the country.

Okay, thanks, guys. I appreciate the answers.

Thank you. Our next question comes from line of Umer Raffat with Evercore ISI. Please proceed with your question.

Hi, thanks so much for taking my question. Maybe first on 3831 and I had two follow ups. Richard, you mentioned FDA, I just want to make sure I heard it right. FDA has told you guys that there's an AdCom, is that right?

Yes, they told us somewhere that we should plan for AdCom, but haven't given us any specifics about the about the content or the format yet. So it's almost like a placeholder count on it you're not having one as of now, count on it?

Right, so I guess, Richard, I was just thinking about some of the recent approvals and ITCI Intra-Cellular was told they might need an AdCom given some of the preclinical things that they were looking at. It never ended up happening. But generally speaking, the trend has been not to have AdComs. And considering samidorphan was already reviewed as part of the 5461 review, I'm just trying to understand what the issue could be, has an issue come up during the review?

No, there's been no issue come up in the review. As I mentioned earlier – because it's an interesting label, right? Because it's a 505(b)(2) off of leveraging – I'm sorry, olanzapine safety and efficacy information as well as b1 level of clinical trials we ran ourselves, yet we're looking for also a differentiated weight claim, because of obviously the profiles seemed different, so metabolism difference in the review as well. So when we put together the integrated summary of safety, integrated summary of efficacy, it's with the knowledge it will be reviewed by both of those divisions. So we don't know yet, but if there is an issue or what the issue may be or if it's more of a labeling discussion, we just don't know yet, but we'll give you guys more information as we get more information through the review.

Got it. And Richard, maybe this is for you and Jim both of you. As I look at and I was just trying to crunch the numbers and I guess what I'm arriving at is, if the revenues track around $1 billion total revenues in that scenario, and let's say the cost tracked slightly lower than the lower end of the guidance you guys previously gave out, the cash burn will be about $100 million. If the revenues are lower and or the cash and OpEx isn't managed more carefully, cash burn could approach $200 million plus quite easily. So the question I have is, your net cash, cash minus debt right now is $273 million right now. Do you have a number in mind of how much of your net cash balance are you willing to spend this year? And I guess what I'm really getting at is your OpEx expectation, because that's something you can control?

Yes I'll give you the first answer and then I’ll let Jim answer as well. But, you just have to be real careful right now of projecting to the end of the year, based on circumstances of COVID-19. We think the economy is going to open back up and there's going to be a resurgence of access to our medicines and need for those medicines. With that said, as Jim said in his remarks, we have to pay attention that topline so we can modulate the spend to make sure that we don't burn significant amount of cash this year. But I'll let Jim give you a little bit more color on that.

Sure thanks Umer, and I think that point is exactly right. We've seen three or four weeks of a dramatic impact in COVID with the social distancing and shelter-in-place activities, particularly in, as you know in New York and the surrounding regions. But as we come back out, the treatment of addiction and serious mental illness, we don't think is going to be effective long term and may in fact have a significant rebound. So the short-term changes is why we've currently suspended guidance. And as if we see those changes, dramatically impact our revenue going forward we will absolutely be active in terms of managing the cost line. There's a lot we can do, obviously, things are changing like travel and in person meetings on the on the SG&A side. There's launch costs and expectations around 3831 and what we invest in that as we move forward through the course of the year. And then there's obviously going to be an impact on clinical trials, as we mentioned. And we hope that's counted in the terms of months or weeks in terms of the delay of clinical studies. But if our – again if this COVID 19 pandemic goes longer than we expect, those costs are going to be modulated as well. So we have a lot of things we can control and our target this year, as you know was for a $50 million, positive non-GAAP net income around the ranges of our guidance. We've been impacted by COVID in the short term, and we're going to watch that very, very carefully, and take active steps depending on what happens.

Right, but Jim and Rich if I may, just to follow up on that, is it reasonable for us to assume that of the net cash balance of $273 million there is a number in mind, there is a threshold in mind for both of you beyond which you're not willing to burn more. Like is it fair to assume you're not going to burn more than let's say $200 million in cash this year?

Yes I wouldn't put a number on it at this moment, but the answer of that is yes.

Got it. Thank you very much.

Thank you. Our next question comes from line of Paul Matteis with Stifel. Please proceed with your question.

Great, thanks so much for my questions. On VIVITROL and ARISTADA, historically in the non kind of pandemic world that we lived in only a few months ago, what was the historical annual persistence rate for these medications? And I guess what I'm trying to get at is, when you think about 2019 or 2018, how much were these medicines reliant on new patient starts even just to keep revenues stable let alone growth. And I guess when you look forward to the later parts of this year, do you worry at all that given the kind of looming threat of a second wave that new patient starts in these medications could be more durably impacted given that while the oral alternatives in certain contexts are an ideal, they are there? And then I have one follow up. Thanks so much.

Yes Paul, this is Todd. I'll take the first part of that as well. So we watched the persistency curves pretty closely with both brands. As I've said earlier, for VIVITROL it's approximately 3.9, for ARISTADA a little bit better than that around 5, which is pretty consistent that you start to see…

You saw average duration treatment in months is that right?

It’s right, that's right. Yes thank you for the clarification, average duration and treatment a month, which is pretty consistent with what you would see with longer acting injectables. In fact, we start to see a little bit of a move with ARISTADA as we start to get more utilization with the 1064, which is a two-month dosing option as well. And that's in line with what our expectations are as well, strategically. I think the big question you're talking about is just patient flows. What is the anticipation with patient flows? And for us, the way we think about that and across the organization is that you know, we are in a short term disruptive period, right now. These are very vulnerable patients there with serious mental illness and addiction. They need services, they need treatment, they need variable options as well, too. So we fully believe that these patients will come back to treatment as soon as the social distancing practices are lifted, as soon as access is available to them as well too. So to your earlier comment, VIVITROL is a little bit more vulnerable to new patient flows. The new patient flow for VIVITROL is approximately 20% to 25%. For ARISTADA, it's around 9% to 10%. We watch that with MBRXs and also within NRXs as well too. And so we watch it very closely, but we think we're in a short term situation here. We also believe that a lot of the best practices that we're going to see across the healthcare sector in general and then life sciences will apply into the fall into the winter as well. So companies and patients and healthcare providers will actually get, we believe will get much better in how to manage patient flows, how to manage their offices, how to manage patient appointments and so forth as we move through this period of time right now. And that was one of the comments that that Rich made earlier as well too. We fully plan on leveraging the best practices and the capabilities that we're developing right now as a commercial organization. And we'll actually apply those even to the launch of 3831 as well.

Got it, okay. If I could clarify on your comments around VIVITROL, so average duration of treatment historically is four months, does that mean half of patients just continue by month four, in which case you kind of need to keep returning over the patient base? And I guess, maybe one other way to think about it, because I wasn't sure the context around the other numbers you gave at the second percentages, but just maybe in 2019, I don't know if you can say this, but what percent of VIVITROL revenues were from new patient adds?

I don't I don't have that level of detail right now. But the way that I would say to think about this, as well is, we see the greatest drop off of persistency after the first and second month. Once a patient stays on therapy for at least two to three months, they tend to have a longer duration of therapy. So it's typically the first month that we see the greatest drop off. One of the predominant reasons why and you've heard us talk about this on previous calls, as well is around continuity of care. It's really important that the system is set up to treat these patients, these addiction patients that come through inpatient services that are in residential treatment centers as well too, that they have a solid continuity of care plan as well too. So we do put a lot of emphasis and a lot of thinking around how do we support strong continuity of care.

Okay, thanks. Maybe just one last question for detoxing a new patient before they go on to VIVITROL, you talked about the specific addiction centers, I guess, is that largely the context in which this sort of - is that largely the context in which the pre-treatment detox occurs, or is it ever occurring also just kind of in general hospital units where you might actually be competing for space from a COVID search?

Yes, that's - let me spend just a few minutes on that. You're thinking about it the right way. Predominantly, detoxification prior to initiation with a VIVITROL would happen in an inpatient unit. Typically, that's where you see that. And so, we do see ramifications that are very consistent with the broader healthcare landscape around social distancing, the surgeon and patients for COVID-19 that are in the hospital sector as well. But I will also let you know that is an emerging trend and some of the emphasis that we placed is how do we establish the right environment for outpatient detox as well. And so, as we've talked about in the past, we have a strategic approach within our market access group, regarding making sure there is a proper environment for reimbursement about patient detox, and that is a strategic pillar for us. But to your point, the majority of the detox has happened in inpatient setting as well too. And that includes various different settings of care, not only from inpatient hospital, but also in the criminal justice setting as well.

Got it. Okay, thanks so much for the color. I appreciate it.

Yes.

Thanks, Paul. Before we take the next question, I ask that the remaining folks in the queue limit themselves to one question, so we can get to as many people as possible in our remaining time.

Thank you. Our next question comes from line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your question.

Hi, thanks for taking my question. Maybe just quickly on VIVITROL and given the COVID-19 pandemic, are you seeing any funding at the state level with potential funding you had for 2020 being redirected towards COVID-19 versus addiction, and when do you think we'll get that bolus of funding for addiction post COVID pandemic that you've talked about with these knock on effects?

So hey, Brandon. I'll start and I'll ask Todd for any color he might be seeing. But no, the federal funding that's been allocated to address the opioid crisis is flowing from the Federal Government appropriations and into the States, then the states have within the context of the statute, the ability to deploy those monies for the treatment of opioid and other addictions. So we don't see any interruption in that allocated funding which is substantial and coming from the Federal Government. On the frontlines at the state level, we haven't seen it manifest itself yet, but Todd, do you have any comment on that?

No, I think you've covered it Rich.

Yes.

Great, thank you.

Thanks Brandon.

Thank you. Our next question comes from line of Biren Amin with Jefferies. Please proceed with your question.

Yes. Hi, guys. Thanks for taking my questions. On ARISTADA, you've stated 43% year-over-year growth on prescriptions. Can you just provide in terms of that growth, what came from new patients starts versus switches and on patient switches, were these from other monthly LAIs or all psychotic?

Yes, and this is Todd. I'll start with that as well too. So new patient starts, the way we think about new patient starts is really in two domains, inter-axis or new prescriptions, which we're very pleased with hitting an all-time high of 10%. But then, more specifically, one of the metrics that we follow very closely is new to brand share. These are patients that haven't been on the product for certain period of time. And as I said in my prepared remarks, we've hit all-time highs of 13.2% right now, and it's an all-time high for the brand at this period of launch as well, and we're very encouraged with that. Our sense right now, our data and even the qualitative feedback that we received through our research says that a substantial majority of that is now coming through 1064, which is right in line with what our strategy is at this point right now, so we feel really good about that.

Great, thank you.

Thank you. Our next question comes from the line of Marc Goodman with SVB Leerink. Please proceed with your question.

Yes, good morning. Can you just clarify one of your previous comments? I think someone asked about VIVITROL and ARISTADA sales in the first quarter and if there was any, I guess the question is, was there any pull through into the quarter? We're hearing from multiple pharma companies that there is a huge amount of sales that they're booking the first quarter that they - for multiple reasons obviously. And so it sounds like you believe VIVITROL and ARISTADA did not have any of that in the quarter. And I was wondering if you could just comment on that as well as the manufacturing royalty revenues, because obviously that has implications for how you're going to be booking revenues going forward. So just give us a sense of what J&J is telling you of INVEGA and all those products, did they get pulled through? I mean, can you just give us a sense of what's going on there so we understand that trend? And could you also just clarify your comment about the 25% below expectations on VIVITROL for April below what expectations were you expecting it to be down 25 and it was worse or just maybe you could help us with that number? Thanks.

Sure, Mark. It's Jim. Good morning. Yes. And I think so, what it's very hard to understand exactly what's happening, right, because we're three weeks, and we haven't had all the reports three weeks into April. So we haven't seen all the reports that we would look at. Some of those are going to be coming out in early May in terms of demand sales and things like that. But as we look at our orders to our wholesalers, again, the best we can do is compare it to Q1 of last year. And the trends that we saw through the quarter were pretty consistent for both VIVITROL and ARISTADA. And again the inventory drawdown, compared to where we sat at December of ‘19. was strong and consistent. So, we're down roughly 6000 units in inventory from where we were with VIVITROL and roughly 3500 units from where we were with ARISTADA. So we think that those orders out to the wholesalers were again, they were consistent through the months. And we had a very strong first quarter. As Todd was discussing the move towards the two months injection for ARISTADA, I mean, I think that's an interesting anecdote that we're hearing from the field is that, perhaps the shift to a two-month injection is part of the thinking. And you know again, the shift to a monthly injection if you're not going to be able to see the patient for some period of time, actually the benefit of a monthly LAI either for a month or two months actually is it a real one for patients and for physicians in this scenario. So just want to make sure I get your questions. So I think we saw consistent growth in VIVITROL and ARISTADA, again compared to what we saw last quarter. From J&J, we really haven't had information that there's been a change in their growth rates with SUSTENNA. We saw consistent growth again with what they saw in the quarter. So we haven't seen any difference with the long acting injectable part of that business from J&J either. So I think we just had a strong first quarter as we headed into the COVID impact. And when it comes to our comments on the 25% decline with VIVITROL, that was based on our expectations at the beginning of the year for April. So the growth we saw on the first quarter, the second quarter is typically one of the strongest quarters we have. So we expected to see continued growth in VIVITROL and the trends there. And in the first three weeks in April, we've seen again, that roughly 25% change in terms of orders. Very hard to predict how long that's going to last what the duration will be. Again, we think it's very focused. We know it's very focused in the Northeast around New York, New Jersey, Massachusetts. And we'll be watching those trends as we go through the rest of the year. So hopefully that's a little bit more clarity.

Thanks.

You are welcome.

Thank you. Our next question comes from line of Vamil Divan with Mizuho. Please proceed with your question.

Great, thanks. Thanks for all the color on the call. Thanks for taking my question. So just maybe a couple to of clarify 4230. You mentioned the activation of [indiscernible] in Asia-Pac and Europe. I was just curious, is that a new sort of change because of the dynamics in the U.S. right now they are sort of expanding out? Right through that, was that already sort of planned, and you're just sort of highlighting that, it's still taking place in the second quarter? And then you mentioned the data release later this year. I'm wondering if you can just give a little more expectation there. Obviously, things are fluid, but is that - should we expect something around the timeframe or any other sort of time point that we should be looking out for the next data set from that product? Thanks.

Good morning Vamil. It’s Rich. The Asia Pacific Europe site expansion has always been part of the plan, particularly as we look at the ARTISTRY-1 intravenous protocol for looking to monotherapy in renal and in melanoma, a lot of the expectation for that enrollment comes from ex U.S. sites. So Western Europe is still pretty much quiet right now, but Asia Pacific and other parts of Europe are starting to come back up. So we have ambitious plans for Q1 and Q2 site activations. Those have been shifted a little bit, but they're still very much part of the plan we came up with last year. And we'll see, certainly we expect a data around the [indiscernible] and the September timeframe and we'll present data. We're all pretty fluid right now in trying to understand how these medical meetings are going to be conducted and when abstract deadlines are going to be firmed up. They're fairly flexible right now. So we're accumulating data across the program and we'll certainly by the fall be in a position I think to provide a significant update.

Thank you. Our next question comes from the line of Akash Tewari with Wolfe Research. Please proceed with your question.

Hey, guys, thanks so much. Can you give any more color on the 3831 potential outcome? How many patients in the 3831 trials are on background opioids and were there any serious adverse events related to opioid withdrawal caused by samidorphan that you observed? And just on TECFIDERA, given the TECFIDERA patent win, do you feel like there need to be a reset on royalty estimates for VUMERITY going forward? And it looks like consensuses is baking in like a $400 million VUMERITY drug next year. So do you think maybe the launch expectations need to be a bit more temporary? Thank you.

Hey Akash I'll take the beginning of that. The 3831 no, I don't have specific numbers on people on background opioids, but no there's no issue in the NDA that is appearing in the data that says anything to samidorphan's opioid receptor antagonists properties contributing any safety signal. No, that's not the issue I think, I think it's more what I was responding to when I answered Umer's question about the new drug application. VUMERITY, the first quarter sales of VUMERITY were de minimis. And they are – Biogen is obviously in charge of this. We did the deal with Biogen because of their marketing and commercial prowess in MS. This drug has very nice features and so, we're going to be looking for more growth of that. I'll let Jim and Sandy comment on the expectations, but I don't actually know what street models are for it this year. But we expected to grow and then we think it's an important product and we're looking for more performance from Biogen as the year plays through.

Got it.

Yes I think the models for – most of the models that incorporate VUMERITY are from Biogen’s analysts. So we'll be looking to see their new models come in over the next few days. But I don't want to speculate on what that range looks like right now. We have time for one more question, please Melissa.

Thank you. Our next question comes from line of Douglas Tsao with H.C. Wainwright. Please proceed with your question.

Hi, good morning. Thanks for taking the questions. Just, I know you spoke about some of the geographic impact on VIVITROL in terms of regions most affected by COVID. Just curious are you seeing any regional trends on the impact for ARISTADA so far? Just so we can think about how it might play forward as certain states start to ease restrictions? Thank you.

Yes Doug, this is Todd. We're seeing some similar feedback from customers regarding social distancing practices, but there is a nuance of difference. The difference that we're really watching with ARISTADA more so is the ability of clinics to still accept patients when they originate for injection. So, watching the broader trends within psychiatry, psychiatry is one of the specialties that's adopted telemedicine more rapidly than other therapeutic areas. By some estimates, psychiatrists will report that they practice telemedicine at a rate of around 80%. Our feedback the qualitative feedback that we consistently receive is even though there is a practice of telemedicine a lot of the sites that patients will originate to accept injections at the physician offices are still open and still available. And so right now, we don't see as dramatic of a geographic disruption for ARISTADA like we do with VIVITROL.

Okay, great. Thank you very much.

Okay, great. Thanks, everyone for joining us on the call this morning. If you have any followup questions, please don't hesitate to reach out to us at the company. Thank you very much.

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