Greetings, and welcome to the Alkermes Second Quarter 2022 Earnings Call. My name is Melissa, and I will be your operator for today's call. [Operator Instructions]. Please note that this conference is being recorded. I will now turn the call over to Sandra Coombs, Senior Vice President, Investor Relations and Corporate Affairs. Sandy, you may begin.

Thank you. Good morning. And welcome to the Alkermes Plc's conference call to discuss our financial results and business update for the quarter ended June 30, 2022. With me today are Richard Pops, our CEO; Iain Brown, our CFO, 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, related financial tables, and reconciliations 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 on-going 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 two of the accompanying presentation, our press release issued this morning and our most recent annual and quarterly report 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 I'll turn the call over to Iain.

Thank you Sandy. Hello everyone and thank you for joining our call today. We delivered strong results during the second quarter driven by the performance of our proprietary commercial products and our disciplined management of our cost structure. The launch of LYBALVI continued to perform well during the quarter and we’re pleased to raise our financial expectations for the year based on this performance, and updated assumptions related to our royalties from sales of the long acting INVEGA products outside the United States. These top line improvements are expected to flow through to our bottom line results for the year. And I'll provide additional detail on these expectations in a moment. But first, I'll start with an overview of our second quarter financial highlights. We generated total revenues of $276.2 million driven by strength in our proprietary commercial product portfolio, which increased net sales by approximately 19% year-over-year. Starting with VIVITROL, net sales in the second quarter were $96.1 million reflecting 9% growth year-over-year. Gross to net adjustments in the second quarter of 51.1% reflected continued favourability with respect to previously booked Medicaid reserves. In Q2, inventory in the channel decreased by approximately $1 million consistent with typical seasonal and shipping patterns. Today, we are narrowing our expectation for VIVITROL net sales for the full year from a range of $355 million to $385 million to a range of $365 million to $385 million. We now expect gross to net adjustments to be approximately 51% for the full year, revised from our previous expectation of 52%. The ARISTADA product family generated net sales of $74.6 million, a 3% increase year-over-year. Gross the net adjustments were 54.2% in the second quarter, and inventory levels decreased by approximately $2 million. Today we're narrowing our ARISTADA net sales range for the full year…

Thanks, Iain. And good morning, everyone. In the second quarter, total product revenue from our proprietary commercial portfolio grew approximately 90% year-over-year to $190.8 million. This portfolio is the engine behind our company's top line performance. VIVITROL and ARISTADA performed well and leave all the strong – launch uptake continue to validate the value proposition of this important medicine and to underscore the significant unmet need in the schizophrenia and bipolar one markets. I'll start with LYBALVI's performance during the quarter. Net sales were $20.1 million reflecting robust unit growth. Total prescriptions in the second quarter were approximately 17,000, representing growth of approximately 64% quarter-over-quarter, driven by LYBALVI's differentiated product profile and our commercial execution. This strong demand was due in large part to increase prescriber breadth. As of the end of the second quarter, approximately 4260 prescribers had written their prescription for LYBALVI since its launch, which represents a 62% increase since the end of Q1. Based on our market research and anecdotal feedback from prescribers, interest in and experience with LYBALVI has grown within the treatment community. In a recent survey of 80 targeted health care providers responded site at both LYBALVI's overall efficacy and its weight gain profile compared to olanzapine and schizophrenia as a key driver of prescribing the product. And majority of the providers reported they intended to prescribe LYBALVI in the next 12 months. LYBALVI’s utilization source of business in Q2 are consistent with the first quarter prescriptions were split evenly between schizophrenia and bipolar one patients and patients switch to LYBALVI from olanzapine and other branded and generic agents. This data underscores the prescriber considered LYBALVI as an appropriate option for a broad range of patients. LYBALVI's market access position continues to evolve as we engage in pair discussions and plans move through…

That's great. Thank you, Todd. We are managing the company based on three clear priorities. The first is our commercial business, growing revenues from our proprietary products, with a focus on execution of the launch of LYBALVI. The second is executing our development plans for our oncology and neuroscience pipeline candidates to get to key decision points. And the third is operating the business efficiently with a goal of driving long term profitability. Midway through the year is a good time for us to assess our progress against these priorities. First on the commercial business. As you've just heard from Todd, we continue to execute our commercial strategy across our psychiatry and addiction portfolio. VIVITROL and ARISTADA continue to grow, and are important treatment options in their respective markets. With these two products, we operate in some of the most challenging disease areas and treatment systems in the pharmaceutical landscape. Through our successes and challenges with these products, we've sharpened our commercial capabilities, and established Alkermes as a trusted partner in serious mental illness and addiction. This is a strong foundation for LYBALVI. We've begun to establish a compelling launch trajectory, and expect LYBALVI to be important commercial asset for the long term. Our confidence is reinforced by the feedback we've received from physicians and patients using LYBALVI in the real world setting. To see our design intention for LYBALVI realized in patients with schizophrenia and bipolar one is gratifying for everyone associated with this development and its launch. Our launch strategy and the investments we're making are reflective of and commensurate with the long term opportunity. And we believe we're well positioned to deliver on the potential value of this important new medicine. Next, our R&D pipeline, starting with Nemvaleukin Alpha. Nemvaleukin is now the most advanced IL-2 immunotherapy…

Thank you, Richard. Melissa, we'll now open the call for Q&A, please.

Thank you. [Operator Instructions] Our first question comes from the line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your question.

Hi, thanks for taking my questions and congratulations on a strong quarter. Two questions from me, both on LYBALVI. Pretty broad prescriber base to date. Can you just talk about what is perhaps needed to go deeper in this prescribing base of physicians? Is it really just time and experience with the product? Is it sort of rolling out coverage or just waiting for other patients to start cycling switches from other medications. Just any color there would be helpful. And then I'll ask my second question because it may go together. Are you seeing LYBALVI move up in the treatment paradigm as yet, just either ahead of other brands or earlier on when maybe a patient may sell one or two generics granted that always will have to sell generics? Thank you.

Yes. I'll take both of those questions, the first one around the breadth of prescribing, which we're really pleased with, month-over-month, quarter-over-quarter as well. What we've learned from our research and anecdotal feedback, we talked to a lot of our targeted physicians, non-targeted physicians. And what we've learned is that clinical experience with LYBALVI leads to a growing efficacy perceptions. And so prescribers consistently report to us that the majority of LYBALVI patients are doing well and that they're expected to continue. So our belief right now is that the more experience that our targeted prescribers get with LYBALVI, they're seeing the value proposition play out, the efficacy of olanzapine, the weight-mitigating benefits, very similar that was in our ENLIGHTEN-2 study. So our belief is that more clinical experience will drive growth. And we just think that, that's space just on timing. So our expectation, Q3 and beyond is that prescriber breadth will continue to grow. In terms of positioning within lines of therapy, as you know, there are multiple, multiple lines of therapy. At this point, it's just too soon to tell. Our data is somewhat limited based on claims data, regarding if LYBALVI has moved up. Our expectation again is that LYBALVI will be treated like a branded agent, which most branded agents are really utilized within the switch market. So that's the place that LYBALVI will live.

Great. Thank you very much.

Thank you. Our next question comes from the line of Chris Shibutani with Goldman Sachs. Please proceed with your question.

Thank you very much and congratulations on the LYBALVI trends and the raised guidance there. You commented that the utilization seems to be so far balanced between the schizophrenia and bipolar indications. Can you comment about whether you expect this to continue to be the case and how that's threaded into the balance of the year guidance? And also maybe talk about acute versus maintenance settings for each of those and what we might expect from a trend standpoint? Thank you.

Absolutely. Yes, about half of LYBALVI patients thus far, at this point in launch are schizophrenia patients and approximately half are bipolar patients. We're also seeing that a fair amount are switches from olanzapine, which we did expect. Olanzapine is a meaningful product in the category. There are more olanzapine prescriptions written on an annual basis than the entire branded category. So we know that's a very large switch opportunity. We know that physicians consistently report to us that two thirds of olanzapine patients will gain weight, and that weight will happen within the first eight weeks. So we think there's a transition period that's very appropriate an opportunity for LYBALVI. Our expectation is that LYBALVI will be treated like other branded agent. We're seeing, again, a meaningful split between schizophrenia and bipolar. I think it's important to remember that olanzapine currently holds approximately a 20% share in schizophrenia and about a 13% share in bipolar. So they're both very large markets with meaningful opportunities. So our expectation is that, that split will continue. It could evolve a little bit over time, but we don't expect that will be in a meaningful way. At this point right now, when we look at the utilization, especially between acute and maintenance -- we don't have data that actually speaks to because it's relatively early between acute and maintenance settings. I think it's important to remember that LYBALVI is a very broad indication, schizophrenia, mixed episodes, maintenance episodes, monotherapy and bipolar and also adjunctive therapy. So we really believe, and the data is starting to play out and anecdotal feedback, that it's going to be used in a broad utility of settings and a broad utility of patients.

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

Hi, guys thanks for taking my question. Just a couple, if I may. One, if the gross to net on LYBALVI is sort of stable quarter-over-quarter as per your disclosures and the prescription data you report is around 17,000, which is about a 65% volume increase, that sort of implies at least off of the 1Q run rate a reported sales closer to 22 to 23 versus the 20 report. I was just curious if there was any inventory or any other one-offs on the reported number you could speak to? And I guess the other one is, and again, there's lack of clarity on it, but I did notice you lowered the gross to net expectations from 40% to 30% for the full year, which does imply that the second half to track at sort of low to mid-30s on gross to net. But Rich, I remember you made some comments at a recent broker conference suggesting you don't necessarily want to give up on gross to net early in the launch. So I was just trying to square those two. Thank you very much.

Yes. So Umer, I think in the prepared remarks earlier on when we talked about the gross to net for LYBALVI and sort of underlying demand is really what's driving the product at this point in time. The inventory level did increase during the quarter by around $1.8 million, which is what we were expecting. As demand increases, you would expect that inventory in the channel would continue to increase as well. So I wouldn't say there were anything unusual there. I think inventory is just tracking with the increase in demand. And then more from a full year perspective, as we take the gross to net from 40 down to 30, I think prelaunch, we made a number of assumptions around various dynamics, things like channel mix, access, commercial contracting and how much of the commercial business would be subject to NDC blocks. And in reality, what we've seen is favorability on a number of fronts there, including lower rebating across all the channels and less full NDC block, with the latter in particular driving a lower cost associated with our co-pay assistance program. So you're right that the gross to net average for the first half is around 26.5%. To get to the 30%, you'd see a tick up in the second half. And I think that would be more driven by sort of co-pay assistance utilization than anything else. But certainly not expecting that big step-up in the second half of the year to get to anywhere near to 40%, which we'd originally talked to.

Thank you.

Thank you. Our next question comes from the line of Akash Tiwari with Jefferies. Please proceed with your question.

Hi, this is Amy on for Akash. Just two quick questions. The first one is what type -- for the OX2 [ph] what type of healthy volunteer studies are you running? And could these studies be longer than what Takeda ran in order to properly tease out the liver toxic? And then on the VIVITROL IP, what's the impact of Teva's generic on the market? And would a potential entry for ALS to revisit its 2025 guidance? Thanks so much.

Amy, it's Rich. I'll take those. The first study that we're going to run for the orexin program will be a single ascending dose in healthy volunteers. We'll probably run that outside the U.S. And that study will be a traditional design of stepwise progression through ascending doses to get to what we expect to be either an MTD or a target engaging dose. From there, the only additional color we're going to give today is that we're going to move as quickly as we can into a proof-of-concept study in patients with narcolepsy as we clear those doses and move into the multiple dose study. Teva does not have a generic on the market yet. We're in a potential litigation with Teva now. The latest update on that is that we expect a court date sometime in the fourth quarter. And obviously, following that, we'll see how the business discussions or the legal process proceeds, but they're not on the market now. So we're going to -- we've guided for 2022, we'll guide for 2023 and 2023, but we've always been optimistic about our IP position on VIVITROL. And even superseding all that, it's a very, very complicated market, as you've heard over many years. It doesn't lend itself to a simple generic switching strategy.

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

Hi, this is Tiffany [ph] on for Cory. I'll add my congrats for the quarter. On LYBALVI, any changes in thinking about steady-state gross to net given the better-than-expected payer coverage to date and then the lowered full year expectation? And then any commentary on how you're thinking at this juncture about potential label expansion and their respective market opportunity for LYBALVI? Thanks.

So let me address the first one on LYBALVI steady state gross to net. And I think we're obviously we're pleased to be able to reduce the 2022 average rate from 40% down to the 30%. I think as we go forward, it's going to continue to be dynamic, that initial 12 to 18 months post launch as we are achieving access across all the channels. And I think steady state is going to be dependent largely upon what happens on the commercial contracting side of things. So we're not going to comment specifically around our contract and strategy there, but that's going to be a key determinant as to what the gross to net looks like longer term. There will be more color on that as we proceed with the launch and into 2023.

Yes, and in regards to life cycle management, our focus right now is fulfilling our post-marketing commitments with the FDA. Iain mentioned in his prepared remarks the pediatric study, which is a requirement, so we're focused on delivering against that as well. Outside of that, I think it's just important to remember that LYBALVI's in a very unique position right now. The brand actually launched with a very broad indication, schizophrenia and bipolar 1 disorder as well. And that's a very unique position. Most products don't launch with such a broad indication. So our focus right now is maximizing those two indications, learning from our advisers in the field, and then over time we'll make some decisions on what does the life cycle management look like. But that's into the future. But right now, it's about -- it's really around maximizing the current indications that we have.

Thank you.

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

Great. Thanks so much and congrats on the quarter and guidance rates. On LYBALVI, I wanted to just kind of understand a couple of the moving parts this quarter and the degree to which they were unexpected or not. So the $1.8 million inventory build and the better-than-expected net price, was this embedded in your $18 million to $20 million guidance for the quarter given that both of those aspects seem to be key in driving you reaching the top end of it? And then more broadly on the clinical context, I was curious, what are you seeing in terms of patients switching from olanzapine in terms of how long they've been on olanzapine previously? Are these patients who had been experiencing significant weight gain? I understand every situation is different, but I'd be interested in some of the qualitative context as it just relates to when clinically patients are switching drugs on to LYBALVI. Thanks so much.

So on the LYBALVI sales dynamics, Paul, I'd say, in the quarter, the increase in inventory was expected. We've always thought that inventory levels would increase in line with demand. So that was included into the $18 million to $20 million. I would say the 26% gross to net, we did have favorability there as compared to what we originally thought. It's still a little bit of lower small numbers in so far as gross sales were $27 million in the quarter. So one percentage point of gross to net is effectively $270,000. But there was a little bit of upside there on the gross to net side as compared to what we originally thought when we set the $18 million to $20 million.

Yes. And in regards to the olanzapine dynamics as well. The context is important. There's 7,000 patients that switch olanzapine treatment every single month. So it's a very broad amount of patients that switch. The data has been pretty consistent over the years in terms of the frequency. Claims data and physicians continue to report to us that the major driver of switching therapy is typically based upon tolerability with weight. We see that there's less tolerability for weight gain, especially for bipolar patients as well. So it's something that we're watching pretty closely at this point. But the switching opportunity at large is very big. There's approximately 13,000 patients in a generic setting that switched to a branded agent. And again, there's about 7,000 olanzapine patients that switch over time. We're watching those dynamics very, very closely. So what we hear consistently and what we see at this early junction right now is that the major drivers of switching is really around efficacy. And if physicians and patients have current or prior experience and a positive response to olanzapine, that's a good thing for LYBALVI. But if they're experiencing weight issues or there's a lack of efficacy within the broader context of other generics or other branded agents, they will consider LYBALVI as well, too. So it's early days at this point. But we think that the switching dynamic not only for olanzapine is strong, but also for the broader category is very large as well.

Great. Thank you for the color.

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

Yes, hi. Just on LYBALVI gross to nets, I understand that you don't really want to comment on kind of maintenance going forward. But I mean, if we started out thinking 40%, should we be thinking now 30% to 35% kind of maintenance? I mean, can you at least give us some sense of -- I mean, obviously, the numbers have come down. So maybe you can just help us a little bit there. And I may have missed this, but did you comment on persistence at all LYBALVI? Or I just don't remember what you said, but I'd be curious there. And on VUMERITY, is there anything else that you can tell us about where we are? We understand it's a supply issue with the API. But I mean, is this something that's a major problem that you think is going to last all year? Or is this something that you're fixing pretty quickly? Just curious on that. And then on the HDAC, I know you said that you're going to look at backup compounds. Are those far along? I'm just trying to remember. I think this came from an acquisition that you made and there was a lead asset. I just don't remember what was behind it and whether this is something that we're going to be waiting on for several years, or if you feel like you'll be back in the clinic kind of next year with the new one. Thanks.

So Marc, let me take the first one around the LYBALVI gross to net. So I think originally, we talked about steady state in that 35% to 45%. The key driver is really going to be what happens on the commercial contracting front as we go through the remainder of this year and into 2023. We don't want to comment too specifically around what the contracting strategy is going to be from that perspective. But I think that range of 35% to 45% is still valid. It's just where we're going to end up within that range.

Hi, Marc, it's Todd. I'll take the persistency question as well. The category at large is about five months. Our view right now is it's still a little early to really see what persistency would look like for LYBALVI. So no, I didn't -- we didn't comment on that. Over time, we'll be able to do that. We've got approximately 9,100 patients that have been on therapy that number needs to grow for us to do the right type of analysis to really look at the persistency level. The best leading indicator that we have right now is what we hear from the marketplace, from physicians through our research as well. And prescribers report that the majority of their LYBALVI patients are doing well, and they are expecting them to continue on LYBALVI. So we think that's a good leading indicator.

And Marc, it's Rich. I'll take the last couple. On the VUMERITY side, I'll leave it to Biogen to give most of the updates on that. I'll just say to the extent that we're involved, our technical teams are highly involved, and we see pathway to resolution of the manufacturing issues. So hopefully, that will be resolved relatively quickly. On the HDAC, you're right, the original chemistry derived from the acquisition of Rodan [ph] a couple of years ago. So we have backups that come from that original chemistry that are quite well along away. And then there might be some that are more remote because of different structures. But we're focused on the ones that derive from the original chemistry. So we would I would say that we will move quickly on those over the next few months and make the call.

Thanks.

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

Hi, good morning and congrats on the progress. Rich, just given the fact that it seems like profitability is coming in a little ahead of plans with the raise in guidance, how are you thinking about the balance between potentially hitting some of the long-term financial targets in terms of margins versus perhaps investing a little bit more on some of the early-stage programs?

Yes. I think we're deeply committed to hitting our long-term targets. That's priority number one just to show the financial discipline and reveal the growth and the leverage in the P&L. If we had additional capital to spend at this moment, I would probably emphasize it less on the early stage compounds and more on LYBALVI right now as we see the momentum build for the LYBALVI. So it's best to drill for oil in the fields that are already proven, and I think ARISTADA, VIVITROL and LYBALVI are growing nicely and they have a lot of potential left in them, with an emphasis there on LYBALVI. LYBALVI is our first real blockbuster potential drug as an oral compound in a large category. And the launch trajectory is just being established now, and that's what we want to affect as much as we can in the near term.

And Rich, as a follow-up, what specific investments would unique to drive some faster growth from above there?

DTC. That would be the focus in 2023 and beyond. So that's the spend we'll probably titrate as we see access build over the next several months as well as physician breadth. You really don't want to turn on your DTC campaign, if there are access restrictions or if a large number of physicians are unaware of your product. That's why you tend to wait a little bit later into the launch. So it's all tracking to plan now, which is encouraging. So those are the triggers will pull as we move into 2023 and 2024.

Okay. Great. And I know people asked earlier in terms of LYBALVI of sort of lines of treatment. But I'm just curious, do you know how quickly from other drugs people are switching sort of the weeks of therapy before making a switch to LYBALVI?

Yes, I'll take that one. The data that we watch very closely is just the dynamic on switching. So patients in schizophrenia and bipolar switch treatments on average about five to seven times. Bipolar patients switch much more quickly. So directionally, you're looking at a period of time of about 18 months to 24 months you'll see a bipolar patient switch pretty dramatically, a little bit longer for schizophrenia. Main reason for that is the bipolar patients don't tolerate issues with tolerability and/or efficacy as well, too. That's why we think that LYBALVI has a really unique value proposition within that patient profile.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Jason Gerberry, Bank of America. Please go ahead with your question.

Hi, good morning everyone. This is Chi [ph] on for Jason. Thanks for taking our question. I guess I just have one on the IL-2 nemvaleukin. When can we expect an update on the alternative dosing with [Indiscernible] IV and subcut? Should we expand an update by year-end 2022? And will the update be go/no-go decision or would there be clinical data accompanying that update? And I guess a follow-up to that would be now that sort of people have time to digest sort of the competitive update in the IL-2 front, specifically with the updates, I'm curious, how has the strategic interest in this category has changed? Since then, do you think, what level of data do you think Alkermes would need to generate to sort of -- have that strategic interest? Is it update from the alternative dosing? Or do you think you need more clinical data to talk about efficacy of IL-2 in different tumor types? Thanks.

I'll take these. So we're making good progress on both ARTISTRY-2 and ARTISTRY-3, ARTISTRY-2 being the once-weekly subcu, ARTISTRY-3 being the less frequent IV. On a less frequent IV, it's actually a basin design when we'll be looking at different doses and different regimens in order to -- we're quite confident that we'll come up with a less frequent IV dose. And the subcu has been underway for some time. We're seeing responses in the subcu. The question we're focused on subcu is durability. And we want to make sure that we have the same durability that characterizes IV IL-2. I would expect by the end of the year, we'll have more insight. I'm not ready to make a call right now whether we'll make a go/no-go or whether we'll just have additional data. Let's see how enrollment and durability persists over the year. But we're well on our way in both of those. And I do think that's an important component of assessing the commercial potential for IL-2 across multiple tumor types, understanding what the ultimate commercial dose might be. So I think for a number of potential strategic partners, that's an important question. But I think the most important part of the discussions with folks is exactly what you referenced, letting the dust settle post bempeg, which forces people to look at the IL-2s on an individual basis, and also in the case of nemvaleukin, thinking of it less as one of many IL-2 variants and more as a late-stage oncology product with its own data that support its value proposition. And so I think that's what's happening post-ASCO. That's why ASCO was so important for us to present all of the ARTISTRY-1 data so people could get a sense of this as an oncology agent, whether or not it's an IL-2 version at all. And as I mentioned in the prepared remarks, nemvaleukin is now the most advanced IL-2 in development. And it's supported by a lot of not just efficacy data as monotherapy and in combination with pembro. But importantly, the design intention of this is to recapitulate the efficacy of high-dose IL-2 without the hallmark toxicities. And so the data set is also augmented by a lot of safety data from a lot of patients that helped confirm the design hypothesis. So we'll keep going with ARTISTRY-6 and ARTISTRY-7, and we'll keep receptive to collaboration, and we'll collaborate when the time is right and the deal structure is appropriate for our shareholders.

Awesome, great. Thanks.

Thank you. Ladies and gentlemen, there are no further questions at this time. I'll turn the floor back to the company for any final comments.

Thank you. Thanks, everyone, for joining us on the call this morning. Please don't hesitate to reach out to us at the company if you have any follow-up questions or if we can be otherwise helpful. Thanks so much. Have a great day.

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