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2023-01-10

 

 

 

 

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, 2023

 

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 4Ireland, 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, a 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 21, 2023 was 166,121,384 shares.

 

 

 

 

 

 


 

 

ALKERMES PLC AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

 

 

 

 

 

Page No.

PART I - FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (unaudited):

 

 

Condensed Consolidated Balance Sheets — March 31, 2023 and December 31, 2022

5

 

Condensed Consolidated Statements of Operations and Comprehensive Loss — For the Three Months Ended March 31, 2023 and 2022

6

 

Condensed Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2023 and 2022

7

 

Condensed Consolidated Statements of Shareholders’ Equity — For the Three Months Ended March 31, 2023 and 2022

8

 

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

31

Item 4.

Controls and Procedures

32

 

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

Signatures

36

 

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”) may 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 expectations related to product development; regulatory filings, approvals and timelines; therapeutic and commercial value, scope and potential; and the costs and expenses related to such activities and expectations;

 

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

 

our expectations regarding the competitive, payer, legislative, regulatory and policy landscape, and changes therein, related to our products, including competition from generic forms of our products or competitive products and development programs; barriers to access or coverage of our products and potential changes in reimbursement of our products; and legislation, regulations, executive orders, guidance or other measures that may impact pricing and reimbursement of, and access to, our products;

 

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

 

our expectations regarding future amortization of intangible assets;

 

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

 

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

 

our expectations regarding near‑term changes in the nature of our market risk exposures or in our 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 expenditures for our operations and our ability to finance such capital requirements and expenditures;

 

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 ongoing novel coronavirus (“COVID-19”) pandemic on our business and operations;

 

our expectations regarding the potential separation of our neuroscience business and oncology business, including anticipated timing, effects, costs, benefits and tax treatment; and

 

other expectations discussed elsewhere in this Form 10-Q.

Actual results might differ materially from those expressed or implied by these forward-looking statements because these forward-looking statements are subject to risks, assumptions and uncertainties. In light of these risks, assumptions and uncertainties, the forward-looking expectations 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

3


 

information, future events or otherwise. For information about 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, 2022, filed with the United States (“U.S.”) Securities and Exchange Commission (the “SEC”) on February 16, 2023 (our “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. While we believe that any industry publications and third-party research, surveys and studies from which data is included in this Form 10-Q are reliable, we have not independently verified any such data. This Form 10-Q may also include data based on our own internal estimates and research. Our internal estimates and research have not been verified by any independent source and 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 or implied in this Form 10-Q.

Note Regarding Company and Product References

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. We have a portfolio of proprietary commercial products focused on alcohol dependence, opioid dependence, schizophrenia and bipolar I disorder, and a pipeline of product candidates in development for neurological disorders and cancer. Use of terms such as “us,” “we,” “our,” “Alkermes” or the “Company” in this Form 10-Q is meant to refer to Alkermes plc and its consolidated subsidiaries. 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 licensed products, 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 U.S. federal trademark registrations (“®”) and other trademarks (“TM”), including ALKERMES®, ARISTADA®, ARISTADA INITIO®, LinkeRx®, LYBALVI®, NanoCrystal® and VIVITROL®.

The following are trademarks of the respective companies listed: ANJESO®—Baudax Bio, Inc.; BYANNLI®, INVEGA®, INVEGA HAFYERA®, INVEGA SUSTENNA®, INVEGA TRINZA®, TREVICTA®, XEPLION®, and RISPERDAL CONSTA®—Johnson & Johnson or its affiliated companies; CABENUVA®—ViiV Healthcare UK (No.3) Limited; KEYTRUDA®—Merck Sharp & Dohme Corp.; and VUMERITY®—Biogen MA Inc. (together with its affiliates, “Biogen”). 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 may be 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, 2023

 

December 31, 2022

 

 

(In thousands, except share and per share amounts)

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$321,401

 

$292,473

Investments—short-term

 

279,058

 

315,992

Receivables, net

 

269,178

 

287,967

Inventory

 

184,984

 

181,418

Contract assets

 

8,429

 

8,929

Prepaid expenses and other current assets

 

47,008

 

43,527

Total current assets

 

1,110,058

 

1,130,306

PROPERTY, PLANT AND EQUIPMENT, NET

 

321,109

 

325,361

DEFERRED TAX ASSETS

 

151,232

 

115,602

RIGHT-OF-USE ASSETS

 

111,586

 

115,855

INVESTMENTS—LONG-TERM

 

92,083

 

131,610

GOODWILL

 

92,873

 

92,873

INTANGIBLE ASSETS, NET

 

28,880

 

37,680

OTHER ASSETS

 

14,906

 

14,691

TOTAL ASSETS

 

$1,922,727

 

$1,963,978

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts payable and accrued expenses

 

$190,149

 

$220,089

Accrued sales discounts, allowances and reserves

 

282,264

 

252,115

Operating lease liabilities—short-term

 

15,304

 

15,722

Contract liabilities—short-term

 

2,193

 

6,816

Current portion of long-term debt

 

3,000

 

3,000

Total current liabilities

 

492,910

 

497,742

LONG-TERM DEBT

 

289,635

 

290,270

OPERATING LEASE LIABILITIES—LONG-TERM

 

86,112

 

89,829

OTHER LONG-TERM LIABILITIES

 

48,494

 

42,384

Total liabilities

 

917,151

 

920,225

COMMITMENTS AND CONTINGENT LIABILITIES (Note 14)

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

Preferred shares, par value, $0.01 per share; 50,000,000 shares authorized; zero issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

Ordinary shares, par value, $0.01 per share; 450,000,000 shares authorized; 171,518,796 and 168,951,193 shares issued; 166,058,960 and 164,377,009 shares outstanding at March 31, 2023 and December 31, 2022, respectively

 

1,715

 

1,690

Treasury shares, at cost (5,459,836 and 4,574,184 shares at March 31, 2023 and December 31, 2022, respectively)

 

(185,606)

 

(160,862)

Additional paid-in capital

 

2,938,726

 

2,913,099

Accumulated other comprehensive loss

 

(8,129)

 

(10,889)

Accumulated deficit

 

(1,741,130)

 

(1,699,285)

Total shareholders’ equity

 

1,005,576

 

1,043,753

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$1,922,727

 

$1,963,978

 

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,

 

 

 

2023

 

 

2022

 

 

 

(In thousands, except per share amounts)

 

REVENUES:

 

 

 

 

 

 

 

 

Product sales, net

 

$

214,727

 

 

$

171,268

 

Manufacturing and royalty revenues

 

 

72,862

 

 

 

105,170

 

License revenue

 

 

 

 

 

2,000

 

Research and development revenue

 

 

6

 

 

 

107

 

Total revenues

 

 

287,595

 

 

 

278,545

 

EXPENSES:

 

 

 

 

 

 

 

 

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

 

 

58,175

 

 

 

55,159

 

Research and development

 

 

93,637

 

 

 

95,953

 

Selling, general and administrative

 

 

174,477

 

 

 

145,052

 

Amortization of acquired intangible assets

 

 

8,800

 

 

 

8,966

 

Total expenses

 

 

335,089

 

 

 

305,130

 

OPERATING LOSS

 

 

(47,494

)

 

 

(26,585

)

OTHER EXPENSE, NET:

 

 

 

 

 

 

 

 

Interest income

 

 

4,966

 

 

 

573

 

Interest expense

 

 

(5,288

)

 

 

(2,350

)

Change in the fair value of contingent consideration

 

 

 

 

 

(19,067

)

Other (expense) income, net

 

 

(39

)

 

 

2,431

 

Total other expense, net

 

 

(361

)

 

 

(18,413

)

LOSS BEFORE INCOME TAXES

 

 

(47,855

)

 

 

(44,998

)

INCOME TAX BENEFIT

 

 

(6,010

)

 

 

(9,095

)

NET LOSS

 

$

(41,845

)

 

$

(35,903

)

LOSS PER ORDINARY SHARE:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.25

)

 

$

(0.22

)

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

165,085

 

 

 

162,483

 

COMPREHENSIVE LOSS:

 

 

 

 

 

 

 

 

Net loss

 

$

(41,845

)

 

$

(35,903

)

Holding gain (loss), net of a tax provision (benefit) of $488 and $(1,382), respectively

 

 

2,760

 

 

 

(4,511

)

COMPREHENSIVE LOSS

 

$

(39,085

)

 

$

(40,414

)

 

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,

 

 

 

2023

 

 

2022

 

 

 

(In thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(41,845

)

 

$

(35,903

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

18,714

 

 

 

19,197

 

Share-based compensation expense

 

 

22,643

 

 

 

18,343

 

Deferred income taxes

 

 

(36,117

)

 

 

(29,301

)

Change in the fair value of contingent consideration

 

 

 

 

 

19,067

 

Other non-cash charges

 

 

369

 

 

 

371

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

18,789

 

 

 

63,290

 

Contract assets

 

 

500

 

 

 

(6,849

)

Inventory

 

 

(2,029

)

 

 

(4,285

)

Prepaid expenses and other assets

 

 

(3,697

)

 

 

(15,351

)

Right-of-use assets

 

 

4,269

 

 

 

4,129

 

Accounts payable and accrued expenses

 

 

(30,154

)

 

 

(33,414

)

Accrued sales discounts, allowances and reserves

 

 

30,148

 

 

 

27,956

 

Contract liabilities

 

 

(4,287

)

 

 

(2,980

)

Operating lease liabilities

 

 

(4,379

)

 

 

(4,411

)

Other long-term liabilities

 

 

5,774

 

 

 

1,819

 

Cash flows (used in) provided by operating activities

 

 

(21,302

)

 

 

21,678

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Additions of property, plant and equipment

 

 

(6,860

)

 

 

(7,791

)

Proceeds from the sale of equipment

 

 

 

 

 

 

Proceeds from contingent consideration

 

 

 

 

 

501

 

Return of Fountain Healthcare Partners II, L.P. investment

 

 

 

 

 

485

 

Purchases of investments

 

 

(23,898

)

 

 

(114,615

)

Sales and maturities of investments

 

 

103,608

 

 

 

60,779

 

Cash flows provided by (used in) investing activities

 

 

72,850

 

 

 

(60,641

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

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

 

 

2,874

 

 

 

1,795

 

Employee taxes paid related to net share settlement of equity awards

 

 

(24,744

)

 

 

(17,069

)

Principal payments of long-term debt

 

 

(750

)

 

 

(750

)

Cash flows used in financing activities

 

 

(22,620

)

 

 

(16,024

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

28,928

 

 

 

(54,987

)

CASH AND CASH EQUIVALENTS—Beginning of period

 

 

292,473

 

 

 

337,544

 

CASH AND CASH EQUIVALENTS—End of period

 

$

321,401

 

 

$

282,557

 

SUPPLEMENTAL CASH FLOW DISCLOSURE:

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Purchased capital expenditures included in accounts payable and accrued expenses

 

$

1,762

 

 

$

4,058

 

 

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)

 

 

 

 

Ordinary Shares

 

 

Additional

Paid-In

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Treasury Stock

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Total

 

 

 

(In thousands, except share data)

 

BALANCE — December 31, 2022

 

 

168,951,193

 

 

$

1,690

 

 

$

2,913,099

 

 

$

(10,889

)

 

$

(1,699,285

)

 

 

(4,574,184

)

 

$

(160,862

)

 

$

1,043,753

 

Issuance of ordinary shares under employee stock plans

 

 

2,567,603

 

 

 

25

 

 

 

2,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,874

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(885,652

)

 

 

(24,744

)

 

 

(24,744

)

Share-based compensation

 

 

 

 

 

 

 

 

22,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,778

 

Unrealized gains on marketable securities, net of tax provision of $488

 

 

 

 

 

 

 

 

 

 

 

2,760

 

 

 

 

 

 

 

 

 

 

 

 

2,760

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(41,845

)

 

 

 

 

 

 

 

 

(41,845

)

BALANCE — March 31, 2023

 

 

171,518,796

 

 

$

1,715

 

 

$

2,938,726

 

 

$

(8,129

)

 

$

(1,741,130

)

 

 

(5,459,836

)

 

$

(185,606

)

 

$

1,005,576

 

 

 

 

 

Ordinary Shares

 

 

Additional

Paid-In

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Treasury Stock

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

Total

 

 

 

(In thousands, except share data)

 

BALANCE — December 31, 2021

 

 

165,790,549

 

 

$

1,658

 

 

$

2,798,325

 

 

$

(3,723

)

 

$

(1,541,018

)

 

 

(3,853,222

)

 

$

(142,658

)

 

$

1,112,584

 

Issuance of ordinary shares under employee stock plans

 

 

1,953,293

 

 

19

 

 

 

1,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,795

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(678,209

)

 

 

(17,069

)

 

 

(17,069

)

Share-based compensation

 

 

 

 

 

 

 

 

18,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,494

 

Unrealized loss on marketable securities, net of tax benefit of $1,382

 

 

 

 

 

 

 

 

 

 

 

(4,511

)

 

 

 

 

 

 

 

 

 

 

 

(4,511

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,903

)

 

 

 

 

 

 

 

 

(35,903

)

BALANCE — March 31, 2022

 

 

167,743,842

 

 

$

1,677

 

 

$

2,818,595

 

 

$

(8,234

)

 

$

(1,576,921

)

 

 

(4,531,431

)

 

$

(159,727

)

 

$

1,075,390

 

 

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 the fields of neuroscience and oncology. Alkermes has a portfolio of proprietary commercial products focused on alcohol dependence, opioid dependence, schizophrenia and bipolar I disorder and a pipeline of product candidates in development for neurological disorders and cancer. 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.

On November 2, 2022, the Company announced its intent, as approved by its board of directors, to separate its neuroscience business and oncology business. The Company is exploring a separation of the oncology business into an independent, publicly-traded company (referred to herein as “Oncology Co.”) as part of an ongoing review of strategic alternatives for the oncology business. Following the potential separation, the Company would retain its focus on driving growth of its proprietary commercial products: LYBALVI, ARISTADA/ARISTADA INITIO and VIVITROL, and advancing the development of pipeline programs focused on neurological disorders. The Company also expects to retain manufacturing and royalty revenues related to its licensed products and third-party products using its proprietary technologies under license. Oncology Co. would focus on the discovery and development of cancer therapies, including the continued development of nemvaleukin alfa and the Company’s portfolio of novel, preclinical engineered cytokines. The separation, if consummated, is expected to be completed in the second half of 2023 and is subject to customary closing conditions, including final approval by the Company’s board of directors and receipt of a private letter ruling from the IRS and/or a tax opinion from the Company’s tax advisor.

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, 2023 and 2022 are unaudited and have been prepared on a basis substantially consistent with the audited financial statements for the year ended December 31, 2022. 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 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 Company’s 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 accompanying 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 Company’s 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 that Company management 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, but not limited to, 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

9


ALKERMES PLC AND SUBSIDIARIES

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

 

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 conditions or using different assumptions.

Segment Information

The Company operates as one business segment, which is the business of developing, manufacturing and commercializing medicines designed to address unmet medical needs of patients in major therapeutic areas. The Company’s chief decision maker, its Chief Executive Officer and chairman of its board of directors, reviews the Company’s operating results on an aggregate basis and manages the Company’s operations as a single operating unit.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board 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 accounting pronouncements that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

 

Product Sales, Net

The Company’s product sales, net consist of sales in the U.S. of VIVITROL, ARISTADA and ARISTADA INITIO and, following its commercial launch in October 2021, LYBALVI, primarily to wholesalers, specialty distributors and pharmacies. During the three months ended March 31, 2023 and 2022, the Company recorded product sales, net, as follows:

 

 

 

Three Months Ended March 31,

 

(In thousands)

 

2023

 

 

2022

 

VIVITROL

 

$

96,659

 

 

$

84,854

 

ARISTADA and ARISTADA INITIO

 

 

80,077

 

 

 

72,485

 

LYBALVI

 

 

37,991

 

 

 

13,929

 

Total product sales, net

 

$

214,727

 

 

$

171,268

 

 

Manufacturing and Royalty Revenues

During the three months ended March 31, 2023 and 2022, the Company recorded manufacturing and royalty revenues from its collaboration arrangements as follows:

 

 

 

Three Months Ended March 31, 2023

 

(In thousands)

 

Manufacturing Revenue

 

 

Royalty Revenue

 

 

Total

 

Long-acting INVEGA products(1)

 

$

 

 

$

13,562

 

 

$

13,562

 

VUMERITY

 

 

12,649

 

 

 

16,225

 

 

 

28,874

 

RISPERDAL CONSTA

 

 

10,416

 

 

 

566

 

 

 

10,982

 

Other

 

 

15,375

 

 

 

4,069

 

 

 

19,444

 

 

 

$

38,440

 

 

$

34,422

 

 

$

72,862

 

 

 

 

Three Months Ended March 31, 2022

 

(In thousands)

 

Manufacturing Revenue

 

 

Royalty Revenue

 

 

Total

 

Long-acting INVEGA products(1)

 

$

 

 

$

37,054

 

 

$

37,054

 

VUMERITY

 

 

11,395

 

 

 

19,200

 

 

 

30,595

 

RISPERDAL CONSTA

 

 

15,578

 

 

 

1,848

 

 

 

17,426

 

Other

 

 

11,854

 

 

 

8,241

 

 

 

20,095

 

 

 

$

38,827

 

 

$

66,343

 

 

$

105,170

 

 

 

(1)

“Long-acting INVEGA products”: INVEGA SUSTENNA/XEPLION (paliperidone palmitate), INVEGA TRINZA/TREVICTA (paliperidone palmitate) and INVEGA HAFYERA/BYANNLI (paliperidone palmitate).  

10


ALKERMES PLC AND SUBSIDIARIES

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

 

In November 2021, the Company received notice of partial termination of an exclusive license agreement with Janssen Pharmaceutica N.V., a subsidiary of Johnson & Johnson (“Janssen Pharmaceutica”). Under this license agreement, the Company provided Janssen Pharmaceutica with rights to, and know-how, training and technical assistance in respect of, the Company’s small particle pharmaceutical compound technology, known as NanoCrystal technology, which was used to develop INVEGA SUSTENNA/XEPLION, INVEGA TRINZA/TREVICTA and INVEGA HAFYERA/BYANNLI. When the partial termination became effective in February 2022, Janssen Pharmaceutica ceased paying royalties related to sales of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA in the U.S. Accordingly, the Company has not recognized royalty revenue related to U.S. sales of these products since February 2022. In April 2022, the Company commenced binding arbitration proceedings related to, among other things, Janssen Pharmaceutica’s partial termination of this license agreement and Janssen Pharmaceutica’s royalty and other obligations under the agreement. On December 21, 2022, the Company received an interim award (the “Initial Interim Award”) in these proceedings from the arbitral tribunal (the “Tribunal”), in which the Tribunal agreed with the Company’s position that, while Janssen Pharmaceutica may terminate the agreement, it may not continue to sell Products (as defined in the agreement) developed during the term of the agreement without paying royalties pursuant to the terms of the agreement. On April 19, 2023, the Company received a second interim award (the “Second Interim Award”) from the Tribunal. Pursuant to the Second Interim Award, back royalties related to fiscal year 2022 and interest are due to the Company under the license agreement and a separate Know-How Royalty (as defined in the license agreement) term applies for each of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA, as follows: (i) the term for INVEGA SUSTENNA ends on August 20, 2024, (ii) the term for INVEGA TRINZA ends in the second quarter of 2030 (but no later than May 2030 when the license agreement expires), and (iii) the term for INVEGA HAFYERA ends in May 2030 (when the license agreement expires. The Tribunal directed the parties to confer and advise within 21 days concerning the rate of interest and proposed further proceedings, including whether any issues remain for resolution by the Tribunal prior to the Tribunal’s issuance of a final award. Refer to Note 14, Commitments and Contingencies within the “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q for additional information regarding the arbitration proceedings with Janssen Pharmaceutica.

 

Contract Assets

Contract assets include unbilled amounts resulting from sales under certain of the Company’s manufacturing contracts where revenue is recognized over time. The amounts included in the contract assets table below are classified as “Current assets” in the accompanying condensed consolidated balance sheets, as they relate to manufacturing processes that are completed in ten days to eight weeks.

Total contract assets at March 31, 2023 were as follows:

 

(In thousands)

 

Contract Assets

 

Contract assets at December 31, 2022

 

$

8,929

 

Additions

 

 

10,115

 

Transferred to receivables, net

 

 

(10,615

)

Contract assets at March 31, 2023

 

$

8,429

 

 

Contract Liabilities

 

Contract liabilities consist of contractual obligations related to deferred revenue. At March 31, 2023 and December 31, 2022, $2.2 million and $6.8 million of the contract liabilities, respectively, were classified as “Contract liabilities–short-term” in the accompanying condensed consolidated balance sheets and $4.2 million and $3.9 million of the contract liabilities, respectively, were classified as “Other long-term liabilities” in the accompanying condensed consolidated balance sheets.

Total contract liabilities at March 31, 2023 were as follows:

 

(In thousands)

 

Contract Liabilities

 

Contract liabilities at December 31, 2022

 

$

10,701

 

Additions

 

 

(934

)

Amounts recognized into revenue

 

 

(3,354

)

Contract liabilities at March 31, 2023

 

$

6,413

 

 

11


ALKERMES PLC AND SUBSIDIARIES

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

 

 

4. INVESTMENTS

Investments consisted of the following (in thousands):

 

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses

 

 

 

 

 

 

 

Amortized

 

 

 

 

 

 

Less than