Greetings, and welcome to the Alkermes Fourth Quarter 2020 Financial Results Conference Call. My name is Rob, and I'll be your operator for today's call. [Operator Instructions] Please note this conference is being recorded. I will now turn the call over to Sandra Coombs, Vice President of Investor Relations. Sandy, you may begin.

Thank you. Good morning. Welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter and year ended December 31, 2020. With me today are Richard Pops, our CEO; and Iain Brown, our Chief Financial Officer; and Todd Nichols, our Chief Commercial Officer. 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. And now, I'll turn the call over to Richard.

Thank you Sandy. Good morning everyone. Hope you're all well. Let me start by saying in 2020, we demonstrated the resiliency of our organization and our business in response to historic challenges and we added new scientific financial and governance elements to the Alkermes story. Against the backdrop of a challenging and shifting environment, we identified our key strategic priorities and we held ourselves accountable to execute against them. We took pride in the fact that our work directly impacted people whose lives were even more challenged by the pandemic and we were compelled to figure out ways to keep our medicines accessible. So job one was commercial execution for VIVITROL and ARISTADA to support patients and to protect the company's topline. As COVID emerged and access to physicians and treatment centers became restricted, we adapted our approach to maintain continuity with prescribers to help ensure continued access to treatment. We developed a hybrid promotional model, tailored to each territory combining in-person and digital interactions. And we expect these adaptations to endure. The second priority was to advance our R&D programs, keeping our most important programs on track by figuring out ways to continue to advance program activity despite limitations on access to our own laboratories and the impact of COVID-19 on clinical trial sites around the world. We were successful in doing that. We prepared for and completed the successful advisory community meeting for LYBALVI, our oral antipsychotic candidate for the treatment of adults with schizophrenia and adults with bipolar I disorder. We significantly advanced nemvaleukin and hit key milestones for that program. And we met our goal of nominating our first clinical candidate from our HDAC inhibitor program. The third priority focused on the efficient management of the business from a financial and operational perspective. As the pandemic…

That's great. Thank you, Rich and hello everyone. I'd just like to kick off by saying how pleased I am to be assuming the role of CFO at this important time in the company's evolution. As we focus on value creation, the strategic priorities for the company are clear. Efficient management of our business from a financial and operational perspective are paramount and I'm optimistic about our potential to drive meaningful value through these initiatives. At the end of 2020, we announced a value-enhancement plan that established long-term profitability targets. The plan includes a commitment to achieving non-GAAP net income of approximately 25% of the company's total revenues in 2023 and approximately 30% in 2024. Over the next few years, we expect that our topline will be driven by growth of our diverse portfolio of commercial products and we will also focus in parallel on managing the major cost levers within the business our investments in R&D as we seek to replenish and advance the pipeline the spend that drives the growth of our proprietary commercial products and continued efforts to optimize our infrastructure and overall operating model. Turning to our financial performance, I'm pleased with our 2020 results which demonstrate efficient management of our business in response to the significant disruptions caused by the COVID-19 pandemic. These efforts underscore our focus on execution and reflect our commitment to driving bottom-line growth. For the year, we generated total revenue of $1.04 billion, driven by the strength and resilience of ARISTADA, the stabilization of VIVITROL in the second half of the year, and our diverse portfolio of manufacturing and royalty revenues. From a bottom-line perspective, we recorded a GAAP net loss of $110.9 million and a non-GAAP net income of $68.6 million. For the purposes of comparison year-over-year, it's important to…

Thanks, Iain, and good morning everyone. By anyone's estimation, 2020 was a year marked by unforeseen challenges, as the nation and our industry responded to the pandemic. We believe we have both a responsibility and an opportunity to help address unmet patient need in serious mental illness and addiction, which has been exacerbated by the pandemic. Our commercial performance last year, reflected innovation and adaptation by our team, as we supported health care providers and help patients maintain access to their medications in this difficult environment. I am pleased that we ended the year at the high end of our July 2020 net sales guidance ranges for VIVITROL and ARISTADA. Starting with VIVITROL. Net sales in the fourth quarter were $80 million, flat on a sequential basis to the third quarter. This reflects a continued stabilization, following a decline in volume in the spring due to disruptions to the treatment system related to COVID-19. While many treatment providers have adapted their practices and patient access to injections has improved, overall VIVITROL volume remained below last year's Q4 levels, with a 14% decline in units' year-over-year. In particular, new patient starts in opioid dependence were lower, primarily due to reduced access to detoxification services. While this trend persisted in the fourth quarter, the environment had improved compared to the height of the pandemic-related disruptions in the second quarter, as 19 of the top 20 states reflected higher volumes in the fourth quarter as compared to Q2. In 2021, we are focused on driving adoption of VIVITROL as a treatment option for alcohol dependence among providers' caregivers and patients. The contribution from alcohol dependence and the indication mix for VIVITROL has been on an upward trend, driven by both increased market share and growth of the category. The increased prescribing of medications…

That's great. Thank you, Todd. So as you've heard, we entered 2021 focused on execution across three domains: growing and diversifying our revenues, demonstrating the value of our R&D investments and managing the company for growth and long-term profitability. Each represents an important opportunity for value creation. Our R&D is focused on developing high-value candidates in two key therapeutic areas: neuroscience and oncology. I want to start with the neuroscience side, LYBALVI or ALKS 3831. You'll recall that we received a complete response letter in, November which included a request for information relating to LYBALVI manufacturing. Due to the pandemic FDA's ability to conduct pre-approval inspections is limited, and as a result, FDA has increasingly relied on remote records requests in order to complete its reviews. We submitted a response to FDA in December. FDA classified the resubmission as a complete Class II response and assigned a June one PDUFA date and subsequently requested that we provide additional records related more broadly to the manufacturer of LYBALVI. The Class II designation was consistent with FDA's recently issued guidance for the industry. The CRL and subsequent records requests are focused only on manufacturing. No questions or concerns were raised related to clinical efficacy or safety and no further clinical studies were requested. We'll continue to work closely with the FDA as it completes the review of the NDA and we look forward to bringing LYBALVI to patients as quickly as possible. As you heard from Todd, we believe this is an important medicine that can address a clear unmet need in the schizophrenia and bipolar one markets and enhance our psychiatry franchise. The second development in our neuroscience pipeline is our newest pipeline candidate ALKS 1140. This is the first candidate nominated from our platform of selective HDAC inhibitor compounds. This…

Thanks, Richard. Rob, we'll now open the call for Q&A please.

Thank you, Sandy. We’ll now be conducting the question-and-answer session. [Operator Instructions] Our first question comes from the line of Vamil Divan with Mizuho. Please proceed with your questions.

Great. Thanks. Thanks for taking the questions. So maybe first on your guidance. So I do like the total product level guidance you provided. It sounds like we may not be getting that much longer. But in terms of total sales and also the guidance for VIVITROL and ARISTADA, the ranges you gave this year, a little bit wider than what you've done in the past. So maybe can you just talk a little bit about why the wider ranges and a little more on your assumptions around those ranges, especially, I guess, in terms of recovery from the pandemic, as we go through the year and as our patients' ability to access those two products? And then on 4230, which, I think you said -- I mean, you mentioned you're having your discussion with the FDA. I think you said you hope to start registrational trials this year. Can you just confirm that that's what you said? Is that already sort of baked into your guidance, sort of, on the R&D side that those will begin at some point in 2021? Thanks.

Hey, Vamil, it's Rich. I'll let Iain handle the guidance stuff. I'll just take the last question first, which is, yes, we do plan to start the registration studies in both PROC and in melanoma this year.

Yes. Hi, Vamil. So just on your question around guidance. I think, as you know, we went with wider ranges and I think you answered the question really. It's really just around that COVID uncertainty. Certainly, in the first half of the year, we did say that one of our key assumptions as we put the guidance together was that, we did see things turning back to a little bit more of a normal state in the second half of the year. So just to provide a little bit of leeway, we widened the guidance ranges. We did talk obviously about a slightly lower Q1, which we've seen in the last couple of years for both VIVITROL and ARISTADA. So that's a typical seasonal pattern. But we expect continued growth in Q2 and beyond. So that's really what drove the wider ranges, just the uncertainty around COVID certainly in the first half of the year.

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

Yes. Hey. This is Thor on for Paul. Thanks so much for taking the question. Can you talk a little bit about on the 3831, how you expect the cadence of reimbursement to go in the second half post launch?

Yes, absolutely. I'll take that as well. So the first thing I would say is, we're really excited about this. As you heard in my prepared remarks and then also from what Rich said as well, there's a significant unmet need in this category. To date, we've had approximately 50 interactions with payers. Getting prepared for an eventual launch, and the feedback has been very consistent from what you've heard from us in the past that they believe that we'll continue to compete in a branded space. There's three categories with this; Medicaid, Medicare and Commercial. And typically in a launch market access will evolve over the first 12 months to 18 months. And that's our planning scenario. So we do know that there's going to be some restrictions at launch. Every product in this category has restrictions. So we do know that there's going to be some restrictions in the form of PAIs and step edits and we're preparing for that. So as we get closer to launch it will start to be a little bit more clear. And specifically in the launch year in the first 18 months it will be a lot more clear on what our launch profiles in terms of access looks like.

Great. Thanks so much.

Our next question is from the line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your questions.

Hi. Thanks for taking my question. Maybe just, sort of, on VIVITROL on that NIH study VIVITROL and bupropion for methamphetamine use disorder, I found that very interesting. So can you maybe help us just think about the potential for the commercial opportunity around this? Given that there's no current approved FDA treatment is this something you think if it was approved or you go to market would get fast uptake? Or do you think that it's probably going to be a little bit like alcohol where you're changing sort of the whole treatment paradigm and takes a little bit of time? Yes. Thank you very much.

Good morning. Hey, Brandon, it's Rich. I'll answer that for you. I'm actually quite excited about the data. That study was called ADAPT-2 and it was published in the New England Journal last month. It followed ADAPT-1, which was the first indication that the combination of VIVITROL and buproprion could have some effect in the treatment of methamphetamine use disorder. As you said, there are no treatments for stimulant use disorders. And in many parts of the country and you guys know, we're on the front lines of this in 50 states many communities methamphetamine has supplanted opioids as the principal addictive risk in the community. So there are treatments and the data are -- it's not a cure all. It doesn't work for everybody, but it certainly is a therapeutic approach using two well-known FDA-approved agents and a new regimen for VIVITROL actually administered once every three weeks in combination with bupropion. The investigators we've spoken to they're quite excited about the data. Now the limitations from us from a commercial standpoint is that it's not on the label. So what we'll do is we plan to have an interaction with FDA and talk about that. And -- so our argument being that it would make sense for us to be able to talk about it both the safety and the efficacy dosimetry and whatnot as the people on the frontline's providing the medicine. I don't know whether we'll be successful with that or not. It's not baked into any of our expectations for 2021 or beyond. I consider that to the upside, but I do believe that there is a -- there's an unmet need. It would require -- as you said nothing happens quickly in addiction. It would require a reconsideration of how patients flow into treatment and are treated with methamphetamine use disorder. But I think it's indicative of the broad potential that VIVITROL represents across opioids, alcohol and potentially other indications. And Todd if you have any other -- any comments please.

Yes, absolutely, Rich. The only thing that I would add to that is if you look at the data that's produced through SAMHSA they estimate about two million patients suffer from methamphetamine use disorder. So it is a significant unmet need in the marketplace.

Thank you. The next question is from the line of Cory Kasimov with JPMorgan. Please proceed with your question.

Hey. Good morning, guys. Thanks for taking the questions. Two of them for you. So first just wanted to get more clarity on LYBALVI and the comments around the launch in 2H. If the product is in fact approved by the June one PDUFA should we assume launching in July? Or is it going to be later than that? And then secondly in oncology and nemvaleukin and specifically on the subcu formulation, how close do you think you are to the recommended Phase II dose there? And should we be expecting like a data update in terms of efficacy results at your upcoming Investor Day? Thank you.

Good morning, Cory. Good to hear your voice. It's two good questions. We're planning right now to launch sometime after the PDUFA date in the second half. There's a lot of logistical issues that go into launch itself. We want to get through the FDA approval process and then we'll give you more precision as we do that. Nemvaleukin, we have moved into the expansion cohort on the weekly. We're starting the expansion at the once-weekly dose. We feel like we've qualified both the once-weekly and the once every three week dose. And we will indeed give you more update on those data as the year goes on. Possibly around ASCO, possibly around our Investor Day we haven't really decided yet, but that program is moving full steam ahead.

Thank you. The next question is from the line of Marc Goodman with SVB Leerink. Proceed with your question.

Hi, Rich. Can you talk a little bit about monetizing non-core assets? You talked about potentially acquiring an asset to leverage your infrastructure. You talked about partnership discussions for the oncology product business as part of this whole restructuring plan and commitment to targets. So I was wondering, if you could just give us an indication of what's happened so far maybe the timing of all this. Should we be expecting anything to be announced in the next six months or whatever? And then just secondly can you tell us what are you all assuming for the LAI market growth for this year? We know what you're thinking about for ARISTADA? Thanks.

Marc yes, all those things you listed are things that we're looking at. Essentially we're trying to say what represents the core essential parts of the business going forward. And then everything is not in that definition. Is there a market price that is in excess of what we might expect it to be or a fair market value that we could monetize in a way? And interestingly that includes -- obviously explicitly 4230 is not -- or nemvaleukin is not an out-license, we're not getting rid of it. It's just -- it's a really strong asset around which to collaborate and offset R&D expense. We think there's tremendous economic potential for us. So we're not going to let it go. There are other elements of the R&D portfolio that you guys haven't seen that might be the foundation for out-licensing or collaboration. And so, I won't put a time line around that at all. On the royalty monetization side, interestingly probably the most valuable royalty stream that we have is VUMERITY. It's also the one that has the least well-defined trajectory at this moment. As you know it started slowly in 2020, but re-subscriptions have been very positive. It's absolutely changed its slope. So I think as we move through 2021 and we get a better sense of what the ultimate value could be of VUMERITY, its virtue as a monetization stream of course is that; A, the royalty is high; and B, it's long lived. It's got a lot of patent life behind it. So I'll let Iain fill in any other blanks but essentially we're basically going back and looking at all those different elements of the business.

Yes. I think that was very comprehensive Rich. As you say I think we're actively looking at opportunities across the business. And we'll obviously announce those as they come to fruition. We wouldn't sort of preannounce anything that we're currently working on.

Yes. In terms of the LAI category, we're assuming this year that it will be approximately 7% market growth and that's really driven of course by COVID-related restrictions and also the normalizations of patient flow which we're assuming will start in the second half of the year.

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

Yes, hi guys. Thanks for taking my question. Given your market research what do you think is the biggest impediment to adoption for LYBALVI in the U.S.? And I guess what do you think is an untapped opportunity for LYBALVI in the -- for the U.S. launch? And then I guess the second question is, are there any opportunities that you could exploit for LYBALVI ex U.S. either yourselves or through partnering?

Yes. So I'll take that as well. There's -- again there's a -- it's a significant market opportunity. It's something we're really excited about. You're looking at a category north of - in the space of about $3.5 billion in sales for schizophrenia and bipolar. The big opportunity really is the churn and the patient population. Our research is pretty consistent. We've been doing this for a number of years. Patients cycle through five to seven treatment options. That's a leading indicator to say that you have to have individual treatments for different patients as well. When we go deeper into that, we see in the neighborhood of about 70,000 treatment switches or changes every single -- every single month. And so it just tells you the churn that is there, the primary reason is that physicians and patients have to make trade-off decisions. And they have to make trade-off decisions for efficacy versus tolerability versus safety as well. And so our research is really consistent with that. The opportunity for us with LYBALVI is really the powerful efficacy that olanzapine offers. Olanzapine in the US still commands a 20% share for schizophrenia, 11% share for bipolar. So we think that's a significant unmet need and also a really big opportunity for LYBALVI and we're very excited about that. As we said earlier, we're going to -- we're planning our commercial launch to make sure that we maximize that opportunity. We're going to have the sales force size and structure to reach 80% of the branded marketplace. We're established in the marketplace. We currently call in about 60% of the prescribers. So we're ready for this. This is an opportunity for us where we are going to show leverage. Our focus right now is really the US market. That's the biggest opportunity for this brand. It also obviously commands the highest price point as well too. So we think it's the most -- the best place for us to play in this marketplace is to stay within the US for now.

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

Hey. Thanks so much. Can you remind us of what the current profitability for VIVITROL and ARISTADA are separately? And in a situation where let's say sales for these products kind of flatten out over the next 3 to 5 years, what's kind of the low-hanging fruit on the SG&A side that could be cut -- that would allow you to hit your longer-term margin targets? And then on your 2021 R&D spend, can you roughly go over what's your product-by-product spend particularly for your IL-2 program and then also for your other undisclosed projects? Thank you.

Okay. So let me try and take those in order. I think on the profitability of our proprietary products, we haven't provided sort of detailed P&Ls for each product, but I'll tell you VIVITROL continues to be a very profitable product for us. ARISTADA broke into profitability this year. And then interestingly, as you look at the profiles for 2021, as we launch LYBALVI, this is where we start seeing the operating leverage really coming through from a P&L perspective. So some of the cost that was previously being allocated to both VIVITROL and more importantly ARISTADA is now being absorbed by LYBALVI. So ARISTADA becomes incrementally more profitable in 2021 as compared to 2020. And LYBALVI will take -- we believe will take a couple of years to break into profitability, obviously dependent upon the revenue trajectory. I think as sales flatten out and as we look at the SG&A spend, I think on the G&A side, we're very focused on keeping G&A spend as flat as possible and in sort of enhancing operational efficiencies within that part of the business. Sales and marketing, we have programs in support of all our proprietary products. And I think we can modulate some of that spend with regard to how those products are doing from a revenue perspective. And then in the last -- and the last question with regard to R&D spend in 2021, our biggest area of spend is going to be nemvaleukin. And I think from an external perspective -- we provide a breakout of our external expenses by program every quarter, we're anticipating an increase in nemvaleukin in the -- in the region of about $100 million worth of external R&D spends. And then the other two areas of investment -- significant investment for us would be firstly, the LYBALVI program. We have a young-adult study ongoing and then we have a post-marketing commitment with the FDA with regard to a pediatric study. And then as I mentioned earlier on, we do have the advancement of our HDAC platform, which would include a $25 million milestone payment, which we have factored into the guidance we've issued today. So, those will be the three areas of primary focus for the R&D organization in 2021.

Thank you.

The next question is from the line of Douglas Tsao with H.C. Wainwright. Please proceed with your question.

Hi, good morning. Thanks for taking the questions. Just quickly I think you mentioned that you would had subsequent to the resubmission of the NDA and LYBALVI some interactions with the FDA. Can you just provide some sort of color on what those were? Were those related to the same issues? And then on the HDAC program, I know that there is potential across a number of different indications. Just maybe walk through quickly sort of the selection process and how you anticipate choosing and narrowing down the focus? Thank you.

Hey Doug, it's Rich. Yes, LYBALVI, we and a number of other industry participants have been treated similarly. And because FDA isn't able to conduct pre-approval inspections, they've been relying on what we call the 704 records requests. So, when we got the CRL, they had asked us one question with respect to some development batches. We answered that question completely in the December submission. And then we just got another list of questions. It would be questions analogous that you would get if they were on-site doing a PAI. So, the good news is that you can tell the FDA so far is trying to do this without a pre-approval inspection, which would be good. So, we'll continue to answer their questions through this process hopefully within that envelope of the June 1st PDUFA date. And as you've heard us mentioned before, they did issue a guidance for industry I think in December, early January saying that essentially all of these resubmissions would be considered Class II resubmissions. So, it's not great for us or for the whole industry, but FDA is trying to deal with the fact that they're trying to protect their inspectorate from going into sites around the country in the midst of COVID. So, we'll work our way through that. The HDAC program is fascinating from a translational medicine point of view for what you -- your question indicates. The idea of synaptogenesis and synaptic function is cross -- across those multiple diseases. So, what we're going to -- our plan and we haven't fully elaborated yet, but our plan will be in the clinic to actually be interrogating a number of different disease states simultaneously in a basket approach using some of the more advanced biomarkers to look at activity in the brain. And those range from things like a C2A PET to other more traditional EEG or other biomarkers. So, our goal will be to look for signal. And we don't think that we'll just have one compound that will move into the clinic. As you know we've been also working on the HDAC progranulin side as well as the HDAC oncology side. So, we hope that we're just going to build a foundation of translational medicine as we put these into the clinic. So, a long answer to a simple question, but I think we're going to learn a lot with this first compound. That's why 1140 was so important to get our first well-characterized molecule in demand so we can begin to really elaborate its potential.

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

Hey, guys, good morning and thank you for taking my question. Maybe Rich, just on 4230 as it pertains to identifying a partner to sharing the cost and risk of developing across a number of tumors here, I'm just wondering how -- is it safe to assume that Nektar's Phase 2 -- I'm sorry Phase 3 data later this year early next year and some of the larger IL markets might be a gating factor to a deal and ensuring that you get the firm R&D funding commitments behind that or yourselves and partners really need to see the applicability of IL-2 in some of these settings before committing more to investments? And then just one point of clarification, sorry, if I missed it. But on the LYBALVI is your assumption in your guidance that you'd have a DEA controlled or uncontrolled product? Thanks.

Good morning Jason. On that last bit, we expect decontrol. That's what we've been waiting for. Samidorphan is an antagonist and it's been recommended as such. So it's just going through the process of descheduling. So we expect LYBALVI will be a descheduled drug. Interestingly on the 4230 question, nemvaleukin, I actually don't think that the Nektar data are going to be dispositive as to whether or not we will partner and for a couple of reasons. One is that as more and more data emerge, there's a limited number of people developing these IL-2 mutants. But they're definitely segregating into their own lengths. They're not interchangeable. Our drug is very different than Nektar's drug, very different than Roche's drug, very different than anybody else's drug. And in fact it's the only one that has a couple of features: One showing clear monotherapy efficacy; number two, being developed in a subcutaneous format as well. And showing evidence of activity in these pembro or PD-L1 checkpoint inhibitor unapproved tumor types and monotherapy at the same time. So we -- I think in the cancer world, there are companies that care a lot about cytokines. And they've already -- they understand the proven efficacy of IL-2. The question has been have you really teased out the efficacy piece of IL-2 and left the side effect the principal side effects behind. And I think we have cumulative amount of data now to answer that question. So, I think that we're going to be able to have these discussions and collaborate independent of whatever the result is from Nektar or anybody else.

Thank you. At this time, there are no additional questions. I will turn the call back to Sandy Coombs for closing remarks.

Great. Thanks Rob. Thanks everybody for joining us on the call today. Please don't hesitate to reach out to us at the company if you have any follow-up questions. Thank you.

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