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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form  10-Q

 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-35299

ALKERMES PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

 

Ireland

 

98-1007018

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

Connaught House

1 Burlington Road

Dublin 4 Ireland , D04 C5Y6

(Address of principal executive offices)

 

+ 353 - 1-772-8000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Ordinary shares, $0.01 par value

 

ALKS

 

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  Yes    No 

 

The number of the registrant’s ordinary shares, $0.01 par value, outstanding as of April 24, 2020 was 158,739,019 shares.

 

 

 

 

 

 


 

ALKERMES PLC AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

 

 

 

 

 

Page No.

PART I - FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (unaudited):

 

 

Condensed Consolidated Balance Sheets — March 31, 2020 and December 31, 2019

5

 

Condensed Consolidated Statements of Operations and Comprehensive Loss — For the Three Months Ended March 31, 2020 and 2019

6

 

Condensed Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2020 and 2019

7

 

Condensed Consolidated Statements of Shareholders’ Equity — For the Three Months Ended March 31, 2020 and 2019

8

 

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

35

Item 4.

Controls and Procedures

35

 

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 5.

Other Information

37

Item 6.

Exhibits

38

Signatures

39

 

2


 

Cautionary Note Concerning Forward-Looking Statements

This document contains and incorporates by reference “forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, these statements can be identified by the use of forward‑looking terminology such as “may,” “will,” “could,” “should,” “would,” “expect,” “anticipate,” “continue,” “believe,” “plan,” “estimate,” “intend,” or other similar words. These statements discuss future expectations and contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward‑looking information. Forward-looking statements in this Quarterly Report on Form 10-Q (this “Form 10-Q”) include, without limitation, statements regarding:

 

our expectations regarding our financial performance, including revenues, expenses, liquidity, capital expenditures and income taxes;

 

our expectations regarding our products, including those expectations related to product development, regulatory filings, regulatory approvals and regulatory timelines, therapeutic and commercial scope and potential, and the costs and expenses related to such activities;

 

our expectations regarding the initiation, timing and results of clinical trials of our products;

 

our expectations regarding the competitive landscape, and changes therein, related to our products, including competition from generic forms of our products or competitive products and competitive development programs;

 

our expectations regarding the financial impact of currency exchange rate fluctuations and valuations;

 

our expectations regarding future amortization of intangible assets;

 

our expectations regarding our collaborations, licensing arrangements and other significant agreements with third parties relating to our products, including our development programs;

 

our expectations regarding the impact of new legislation, rules, regulations and the adoption of new accounting pronouncements;

 

our expectations regarding near‑term changes in the nature of our market risk exposures or in management’s objectives and strategies with respect to managing such exposures;

 

our expectations regarding our ability to comply with restrictive covenants of our indebtedness and our ability to fund our debt service obligations;

 

our expectations regarding future capital requirements and capital expenditures and our ability to finance our operations and capital requirements;

 

our expectations regarding the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to our products and intellectual property (“IP”), including our patents;

 

our expectations regarding the impact of the novel coronavirus (“COVID-19”) global pandemic on our business and operations; and

 

other factors discussed elsewhere in this Form 10-Q.

Actual results might differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are subject to risks, assumptions and uncertainties. In light of these risks, assumptions and uncertainties, the forward-looking events discussed in this Form 10-Q might not occur. You are cautioned not to place undue reliance on the forward-looking statements in this Form 10-Q, which speak only as of the date of this Form 10-Q. All subsequent written and oral forward-looking statements concerning the matters addressed in this Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except as required by applicable law or regulation, we do not undertake any obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future

3


 

events or otherwise. For more information regarding the risks , assumptions and uncertainties of our business, see “ Part I, Item 1A —Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 201 9 (the “Annual Report”) and “Part II, Item 1A Risk Factors” in this Form 10-Q .

This Form 10-Q may include data that we obtained from industry publications and third-party research, surveys and studies. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. This Form 10-Q also may include data based on our own internal estimates and research. Our internal estimates and research have not been verified by any independent source and, while we believe the industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data. Such third-party data and our internal estimates and research are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Part I, Item 1A—Risk Factors” in our Annual Report and “Part II, Item 1A—Risk Factors” in this Form 10-Q. These and other factors could cause our results to differ materially from those expressed in this Form 10-Q.

Note Regarding Company and Product References

Alkermes plc (as used in this report, together with our subsidiaries, “Alkermes,” the “Company,” “us,” “we” and “our”) is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to research, develop and commercialize, both with partners and on its own, pharmaceutical products that are designed to address unmet medical needs of patients in major therapeutic areas. We have a diversified portfolio of marketed products focused on central nervous system (“CNS”) disorders such as addiction and schizophrenia and a pipeline of product candidates in the fields of neuroscience and oncology. Except as otherwise suggested by the context, (a) references to “products” or “our products” in this Form 10-Q include our marketed products, marketed products using our proprietary technologies, our product candidates and product candidates using our proprietary technologies, (b) references to the “biopharmaceutical industry” in this Form 10-Q are intended to include reference to the “biotechnology industry” and/or the “pharmaceutical industry” and (c) references to “licensees” in this Form 10-Q are used interchangeably with references to “partners.”

Note Regarding Trademarks

We are the owner of various United States (“U.S.”) federal trademark registrations (“ ® ”) and other trademarks (“ TM ”), including ALKERMES ® , ARISTADA ® , ARISTADA INITIO ® , LinkeRx ® , NanoCrystal ® and VIVITROL ® .

The following are trademarks of the respective companies listed: AMPYRA ® and FAMPYRA ® —Acorda Therapeutics, Inc. (“Acorda”); ANJESO TM —Baudax Bio, Inc.; INVEGA SUSTENNA ® , INVEGA TRINZA ® , TREVICTA ® , XEPLION ® , and RISPERDAL CONSTA ® —Johnson & Johnson (or its affiliates); TECFIDERA ® and VUMERITY ® —Biogen MA Inc. (together with its affiliates, “Biogen”); and ZYPREXA ® Eli Lilly and Company . Other trademarks, trade names and service marks appearing in this Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Form 10-Q are referred to without the ® and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

4


 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements:

ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

 

March 31, 2020

 

December 31, 2019

 

 

(In thousands, except share and per share amounts)

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$ 176,067

 

$ 203,771

Investments—short-term

 

319,927

 

331,208

Receivables, net

 

246,716

 

257,086

Contract assets

 

14,199

 

8,386

Inventory

 

109,314

 

101,803

Prepaid expenses and other current assets

 

46,361

 

59,716

Total current assets

 

912,584

 

961,970

PROPERTY, PLANT AND EQUIPMENT, NET

 

362,539

 

362,168

INTANGIBLE ASSETS, NET

 

140,915

 

150,643

RIGHT-OF-USE ASSETS

 

114,548

 

12,379

GOODWILL

 

92,873

 

92,873

DEFERRED TAX ASSETS

 

92,781

 

96,558

INVESTMENTS—LONG-TERM

 

53,744

 

79,391

CONTINGENT CONSIDERATION

 

39,200

 

32,400

OTHER ASSETS

 

16,762

 

17,021

TOTAL ASSETS

 

$ 1,825,946

 

$ 1,805,403

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts payable and accrued expenses

 

$ 313,592

 

$ 373,037

Operating lease liabilities—short-term

 

16,595

 

8,466

Contract liabilities—short-term

 

6,819

 

6,766

Long-term debt—short-term

 

2,843

 

2,843

Total current liabilities

 

339,849

 

391,112

LONG-TERM DEBT

 

273,751

 

274,295

OPERATING LEASE LIABILITIES—LONG-TERM

 

101,006

 

5,342

CONTRACT LIABILITIES—LONG-TERM

 

21,156

 

22,068

OTHER LONG-TERM LIABILITIES

 

27,166

 

27,144

Total liabilities

 

762,928

 

719,961

COMMITMENTS AND CONTINGENT LIABILITIES (Note 15)

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

Preferred shares, par value, $ 0.01 per share; 50,000,000 shares authorized; zero issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

Ordinary shares, par value, $ 0.01 per share; 450,000,000 shares authorized; 161,768,535 and 160,489,888 shares issued; 158,684,803 and 157,779,002 shares outstanding at March 31, 2020 and December 31, 2019, respectively

 

1,615

 

1,602

Treasury shares, at cost ( 3,083,732 and 2,710,886 shares at March 31, 2020 and December 31, 2019, respectively)

 

( 125,669 )

 

( 118,386 )

Additional paid-in capital

 

2,609,213

 

2,586,030

Accumulated other comprehensive loss

 

( 1,499 )

 

( 1,816 )

Accumulated deficit

 

( 1,420,642 )

 

( 1,381,988 )

Total shareholders’ equity

 

1,063,018

 

1,085,442

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$ 1,825,946

 

$ 1,805,403

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands, except per share amounts)

 

REVENUES:

 

 

 

 

 

 

 

 

Product sales, net

 

$

129,726

 

 

$

99,481

 

Manufacturing and royalty revenues

 

 

116,251

 

 

 

108,915

 

Research and development revenue

 

 

243

 

 

 

14,706

 

Total revenues

 

 

246,220

 

 

 

223,102

 

EXPENSES:

 

 

 

 

 

 

 

 

Cost of goods manufactured and sold (exclusive of amortization of acquired intangible assets shown below)

 

 

47,211

 

 

 

45,361

 

Research and development

 

 

93,279

 

 

 

102,570

 

Selling, general and administrative

 

 

133,372

 

 

 

141,220

 

Amortization of acquired intangible assets

 

 

9,728

 

 

 

9,952

 

Total expenses

 

 

283,590

 

 

 

299,103

 

OPERATING LOSS

 

 

( 37,370

)

 

 

( 76,001

)

OTHER INCOME (EXPENSE), NET:

 

 

 

 

 

 

 

 

Interest income

 

 

2,760

 

 

 

3,570

 

Interest expense

 

 

( 2,857

)

 

 

( 3,500

)

Change in the fair value of contingent consideration

 

 

6,800

 

 

 

( 22,600

)

Other expense, net

 

 

( 658

)

 

 

( 1,721

)

Total other income (expense), net

 

 

6,045

 

 

 

( 24,251

)

LOSS BEFORE INCOME TAXES

 

 

( 31,325

)

 

 

( 100,252

)

INCOME TAX PROVISION (BENEFIT)

 

 

7,329

 

 

 

( 3,854

)

NET LOSS

 

$

( 38,654

)

 

$

( 96,398

)

LOSS PER ORDINARY SHARE:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

( 0.24

)

 

$

( 0.62

)

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

158,095

 

 

 

156,336

 

COMPREHENSIVE LOSS:

 

 

 

 

 

 

 

 

Net loss

 

$

( 38,654

)

 

$

( 96,398

)

Unrealized gain, net of a tax provision of $ 87 and $ 229 , respectively

 

 

317

 

 

 

770

 

COMPREHENSIVE LOSS

 

$

( 38,337

)

 

$

( 95,628

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

( 38,654

)

 

$

( 96,398

)

Adjustments to reconcile net loss to cash flows from operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

20,608

 

 

 

19,642

 

Share-based compensation expense

 

 

19,813

 

 

 

24,616

 

Deferred income taxes

 

 

3,665

 

 

 

( 3,225

)

Change in the fair value of contingent consideration

 

 

( 6,800

)

 

 

22,600

 

Other non-cash charges

 

 

283

 

 

 

1,116

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

10,370

 

 

 

69,411

 

Contract assets

 

 

( 5,813

)

 

 

( 217

)

Inventory

 

 

( 6,842

)

 

 

( 1,700

)

Prepaid expenses and other assets

 

 

13,615

 

 

 

( 69

)

Right-of-use assets

 

 

3,926

 

 

 

2,131

 

Accounts payable and accrued expenses

 

 

( 51,254

)

 

 

( 15,888

)

Contract liabilities

 

 

( 859

)

 

 

725

 

Operating lease liabilities

 

 

( 2,378

)

 

 

( 2,297

)

Other long-term liabilities

 

 

48

 

 

 

1,765

 

Cash flows (used in) provided by operating activities

 

 

( 40,272

)

 

 

22,212

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Additions of property, plant and equipment

 

 

( 19,799

)

 

 

( 23,639

)

Proceeds from the sale of equipment

 

 

3

 

 

 

85

 

Proceeds from contingent consideration

 

 

 

 

 

5,000

 

Purchases of investments

 

 

( 27,212

)

 

 

( 102,127

)

Sales and maturities of investments

 

 

64,500

 

 

 

55,978

 

Cash flows provided by (used in) investing activities

 

 

17,492

 

 

 

( 64,703

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from the issuance of ordinary shares under share-based compensation arrangements

 

 

3,070

 

 

 

10,554

 

Employee taxes paid related to net share settlement of equity awards

 

 

( 7,283

)

 

 

( 8,880

)

Principal payments of long-term debt

 

 

( 711

)

 

 

( 711

)

Cash flows (used in) provided by financing activities

 

 

( 4,924

)

 

 

963

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

( 27,704

)

 

 

( 41,528

)

CASH AND CASH EQUIVALENTS—Beginning of period

 

 

203,771

 

 

 

266,762

 

CASH AND CASH EQUIVALENTS—End of period

 

$

176,067

 

 

$

225,234

 

SUPPLEMENTAL CASH FLOW DISCLOSURE:

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Purchased capital expenditures included in accounts payable and accrued expenses

 

$

5,242

 

 

$

7,850

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

7


 

ALKERMES PLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary Shares

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Treasury Stock

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Total

 

 

 

(In thousands, except share data)

 

BALANCE — December 31, 2019

 

 

160,489,888

 

 

 

1,602

 

 

 

2,586,030

 

 

 

( 1,816

)

 

 

( 1,381,988

)

 

 

( 2,710,886

)

 

 

( 118,386

)

 

 

1,085,442

 

Issuance of ordinary shares under employee stock plans

 

 

258,137

 

 

 

3

 

 

 

3,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,071

 

Receipt of Alkermes' shares for the exercise of stock options or to satisfy minimum tax withholding obligations related to share-based awards

 

 

1,020,510

 

 

 

10

 

 

 

( 10

)

 

 

 

 

 

 

 

 

( 372,846

)

 

 

( 7,283

)

 

 

( 7,283

)

Share-based compensation expense

 

 

 

 

 

 

 

 

20,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,125

 

Unrealized gain on marketable securities, net of tax provision of $ 87

 

 

 

 

 

 

 

 

 

 

 

317

 

 

 

 

 

 

 

 

 

 

 

 

317

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

( 38,654

)

 

 

 

 

 

 

 

 

( 38,654

)

BALANCE — March 31, 2020

 

 

161,768,535

 

 

$

1,615

 

 

$

2,609,213

 

 

$

( 1,499

)

 

$

( 1,420,642

)

 

 

( 3,083,732

)

 

$

( 125,669

)

 

$

1,063,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary Shares

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Treasury Stock

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Total

 

 

 

(In thousands, except share data)

 

BALANCE — December 31, 2018

 

 

158,180,833

 

 

$

1,579

 

 

$

2,467,323

 

 

$

( 3,280

)

 

$

( 1,185,368

)

 

 

( 2,423,489

)

 

$

( 108,969

)

 

$

1,171,285

 

Issuance of ordinary shares under employee stock plans

 

 

656,352

 

 

7

 

 

 

10,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,554

 

Receipt of Alkermes' shares for the exercise of stock options or to satisfy minimum tax withholding obligations related to share-based awards

 

 

740,689

 

 

7

 

 

 

93

 

 

 

 

 

 

 

 

 

( 269,357

)

 

 

( 8,980

)

 

 

( 8,880

)

Share-based compensation expense

 

 

 

 

 

 

 

 

24,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,810

 

Unrealized gain on marketable securities, net of tax provision of $ 229

 

 

 

 

 

 

 

 

 

 

 

770

 

 

 

 

 

 

 

 

 

 

 

 

770

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

( 96,398

)

 

 

 

 

 

 

 

 

( 96,398

)

BALANCE — March 31, 2019

 

 

159,577,874

 

 

$

1,593

 

 

$

2,502,773

 

 

$

( 2,510

)

 

$

( 1,281,766

)

 

 

( 2,692,846

)

 

$

( 117,949

)

 

$

1,102,141

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

8


ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited)

 

1. THE COMPANY

Alkermes plc is a fully integrated, global biopharmaceutical company that applies its scientific expertise and proprietary technologies to research, develop and commercialize, both with partners and on its own, pharmaceutical products that are designed to address unmet medical needs of patients in major therapeutic areas. Alkermes has a diversified portfolio of marketed products focused on central nervous system disorders such as addiction and schizophrenia and a pipeline of product candidates in the fields of neuroscience and oncology.  Headquartered in Dublin, Ireland, the Company has a research and development (“R&D”) center in Waltham, Massachusetts; an R&D and manufacturing facility in Athlone, Ireland; and a manufacturing facility in Wilmington, Ohio.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements of the Company for the three months ended March 31, 2020 and 2019 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the year ended December 31, 2019. The year-end condensed consolidated balance sheet data, which is presented for comparative purposes, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the U.S. (commonly referred to as “GAAP”). In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, that are necessary to state fairly the results of operations for the reported periods.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company, which are contained in the Annual Report. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for any full fiscal year.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Alkermes plc and its wholly-owned subsidiaries as disclosed in Note 2, Summary of Significant Accounting Policies, in the “Notes to Consolidated Financial Statements” accompanying the Annual Report. Intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, judgments and methodologies, including those related to revenue from contracts with its customers and related allowances, impairment and amortization of intangibles and long-lived assets, share-based compensation, income taxes including the valuation allowance for deferred tax assets, valuation of investments, contingent consideration and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Segment Information

The Company operates as one business segment, which is the business of developing, manufacturing and commercializing medicines. The Company’s chief decision maker, the Chief Executive Officer and Chairman of the Company’s board of directors, reviews the Company’s operating results on an aggregate basis and manages the Company’s operations as a single operating unit.

9


ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)

 

Risks and Uncertainties

In March 2020, COVID-19 was declared a global pandemic by the World Health Organization. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. The Company is closely monitoring and rapidly responding to the impact of COVID-19 on its employees, communities and business operations. Due to numerous uncertainties surrounding the COVID-19 pandemic, the Company is unable to predict the extent of the impact that the COVID-19 pandemic may have on the Company’s future financial condition and operating results. These uncertainties include, among other things, the ultimate severity and duration of the pandemic; governmental, business or other actions that have been, or will be, taken in response to the pandemic, including restrictions on travel and mobility, business closures and imposition of social distancing measures; impacts of the pandemic on the vendors or distribution channels in the Company’s supply chain and on the Company’s ability to continue to manufacture its products; impacts of the pandemic on the conduct of the Company’s clinical trials, including with respect to enrollment rates, availability of investigators and clinical trial sites or monitoring of data; impacts of the pandemic on healthcare systems that serve people living with opioid dependence, alcohol dependence and schizophrenia; impacts of the pandemic on the regulatory agencies with which the Company interacts in the development, review, approval and commercialization of its medicines; impacts of the pandemic on reimbursement for the Company’s products, including the Company’s Medicaid rebate liability, and for services related to the use of its products; and impacts of the pandemic on the U.S., Irish and global economies more broadly.

Despite disruptions to the Company’s business operations and the business operations of third parties on which it relies, the COVID-19 pandemic did not significantly impact the Company’s operating results and financial condition for the three months ended March 31, 2020.

We rely upon third parties for many aspects of our business, including the provision of goods and services related to the manufacture of our clinical products and our, and our partners’, marketed products, the conduct of our clinical trials, and the sale of marketed products from which we receive manufacturing and royalty revenue.

The marketed products from which the Company derives revenue, including manufacturing and royalty revenue, are primarily injectable medications administered by healthcare professionals, and given developments that have transpired to date, and may continue to transpire, in response to the pandemic, including the implementation of “shelter-in-place” policies, social distancing and other measures, the Company expects commercial sales of these marketed products to be adversely impacted.

As it relates to its proprietary marketed products, VIVITROL and ARISTADA, the Company has begun to see commercial impacts of the COVID-19 pandemic in the second quarter. As of the date of this Form 10-Q, April VIVITROL shipments are down from pre-COVID-19 expectations, and the Company has seen a flattening in prescription data and factory shipments of ARISTADA. The Company is actively working to respond to these developments, including by working to increase the number of providers able to administer these products and otherwise support uninterrupted access to these products.

The Company continues to operate its manufacturing facilities and supply its medicines, and it does not currently anticipate any supply interruptions. While the Company continues to conduct R&D activities, including its ongoing clinical trials, the COVID-19 pandemic has impacted, and may continue to impact, the timelines of certain of its early-stage discovery efforts and clinical trials. The Company is working with its internal teams, its clinical investigators, R&D vendors and critical supply chain vendors, to continually assess, and mitigate, the potential impact of COVID-19 on its manufacturing operations and R&D activities.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments , to provide financial statement users with more decision-useful information about the expected

10


ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)

 

credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This standard primarily impacts how firms account for credit losses and requires an impairment model, known as the current expected credit loss model, that is based on expected losses rather than incurred losses. Companies are required to carry an allowance for expected credit losses for most debt instruments (except those carried at fair value), trade receivables, lease receivables, reinsurance receivables, financial guarantee contracts and loan commitments. For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. The standard limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which the carrying value exceeds fair value and requires the reversal of previous recognized credit losses if fair value increase s . The Company’s investment portfolio primarily consists of available-for-sale securities carried at fair value. Further, the Company’s trade receivables do not have abnormally long terms and the Company has historically rarely written off trade receivables. The Company adopted this standard on January 1, 2020 and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , which aims to improve the effectiveness of fair value measurement disclosures. The amendments in this ASU modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements , including the consideration of costs and benefits. The Company adopted this standard on January 1, 2020 and the adoption of this standard did not have any impact on the Company’s financial statement disclosures.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. The Company adopted this standard on January 1, 2020 using the prospective transition method, whereby it applied the requirements to any eligible costs incurred after adoption. The Company did not incur any material eligible costs during the three months ended March 31, 2020.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes by removing certain exceptions to the general principles of Accounting Standards Codification (“ASC”) 740, Income Taxes (“Topic 740”). The amendments also improve consistent application of, and simplify, GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted this standard on January 1, 2020 and the adoption of this standard had no material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform , which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This amendment applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This ASU is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Under FASB ASC 606, Revenue from Contracts with Customers (“Topic 606”), the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under Topic 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance

11


ALKERMES PLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited) (Continued)

 

obligation(s) in the contract(s) ; and (v) recognize revenues when (or as) the Company satisfies the performance obligation(s).

 

Product Sales, Net

The Company’s product sales, net consist of sales of VIVITROL and ARISTADA (together with ARISTADA INITIO) in the U.S., primarily to wholesalers, specialty distributors and specialty pharmacies. Product sales, net are recognized when the customer obtains control of the product, which is when the product has been received by the customer.

During the three months ended March 31, 2020 and 2019, the Company recorded product sales, net, as follows:

 

 

 

Three Months Ended March 31,

 

(In thousands)

 

2020

 

 

2019

 

VIVITROL

 

$

78,769

 

 

$

69,183

 

ARISTADA/ARISTADA INITIO

 

 

50,957

 

 

 

30,298

 

Total product sales, net

 

$

129,726

 

 

$

99,481

 

 

Manufacturing and Royalty Revenues

During the three months ended March 31, 2020 and 2019, the Company recorded manufacturing and royalty revenues as follows:

 

 

 

Three Months Ended March 31, 2020

 

(In thousands)

 

Manufacturing Revenue

 

 

Royalty Revenue

 

 

Total

 

INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA

 

$

 

 

$

54,927

 

 

$

54,927

 

RISPERDAL CONSTA

&n