Alkermes plc. Q1 FY2023 Earnings Call

Greetings and welcome to the Alkermes First Quarter 2023 Financial Results Conference Call. My name is Rob and I'll be your operator for today's call. I'll now turn the call over to Sandra Coombs, Senior Vice President of Investor Relations and Corporate Affairs. Sandy, you may begin.

Thank you. Good morning. Welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter ended March 31, 2023. 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 ongoing economics of our business. Our discussions during this conference call will include forward-looking statements. Actual results could differ materially from these forward-looking statements. Please see Slide 2 of the accompanying presentation, our press release issued this morning, and our most recent annual and quarterly reports filed with the SEC for important risk factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise the information provided on this call or in the accompanying presentation as a result of new information or future results or developments. After our prepared remarks, we'll open the call for Q&A. And now, I'll turn the call over to Rich.

Thank you, Sandy. Good morning, everyone. We have a number of important and positive updates to go through today, so I'm going to get right into it. I'm going to start with a brief update on the announcement we made yesterday related to our arbitration with Janssen. I'm then going to hand it to Iain for a review of the financial results for the quarter and then to Todd for an overview of our commercial products. I'll come back then and close with an update on the progress we're making on the separation of the oncology business and our ALKS 2680 Orexin program. So, regarding the arbitration with Janssen, recall that this pertains to royalties in the U.S. sales of three long-acting INVEGA franchise products, INVEGA SUSTENNA, INVEGA TRINZA, and INVEGA HAFYERA which are antipsychotic medications as well as CABENUVA which is an HIV product. In January, we announced the Tribunal, which is a panel of three experienced arbitrators issued an interim award in which it agreed unanimously with Alkermes on the central issue of the arbitration, which is that while Janssen had the right to terminate the license agreements, it may not continue to sell the products developed under those agreements without paying royalties to Alkermes. Last week, we received the second favorable interim award from the panel which addressed the outstanding economic issues. First, for 2022, we are due back royalties of approximately $194 million. Second, related to 2023 and beyond, the award provides that a separate royalty term applies for each of INVEGA SUSTENNA, INVEGA TRINZA, and INVEGA HAFYERA. For INVEGA SUSTENNA, we would be owed royalties through August 24, which is consistent with our previous expectations. However, for both INVEGA TRINZA and INVEGA HAFYERA, the panel agreed with our position that the royalty term extends beyond 2024 through the second quarter of 2030. This would represent an additional six years of royalty revenues for these two medicines. In addition, the award provides that royalties for CABENUVA in the U.S. are owed through the end of 2036. So to summarize, once final, this would result in payment for back royalties due, reinstatement of royalties going forward, and royalty terms for INVEGA TRINZA, INVEGA HAFYERA, and CABENUVA into the 2030s. This represents significant potential economic upside and provides strategic capital to the balance sheet and additional long-term contributors to our P&L. In terms of the next steps, the panel directed the parties to confer and advise within 21 days as to whether either party believes that any issues remain for resolution by the panel prior to issuance of a final award. We are gratified by this latest interim award in support of our position and we look forward to the final award and resolution of this matter. So with that, I'm going to pass it to Iain for an overview of the quarter and then to Todd.

Great. Thank you, Rich and hello, everyone. I'm happy to report solid financial results for the first quarter, driven by the strength of our proprietary commercial product portfolio, our continued focus on operating efficiency, and the commercial leverage we have built into our business. We are confident that we can continue to build on this momentum as we look ahead through the remainder of 2023. As Rich mentioned, the anticipated outcome of the Janssen arbitration once final, represents significant potential upside to our current financial expectations for 2023 and our long-term profitability targets for 2024 and 2025. However, we will wait until we have further resolution of the dispute before revising any current or future financial expectations. In the meantime, today, based on the performance of our core business and as we've continued to execute across our strategic priorities, we are reiterating our financial expectations for 2023 which were detailed in our press release and 8-K filed on February 16. Now for the first quarter, we generated total revenues of $287.6 million, driven primarily by our proprietary product portfolio which grew 25% year-over-year. Starting with VIVITROL. Net sales in the quarter were $96.7 million, reflecting 14% growth year-over-year, driven primarily by the alcohol dependence indication. Inventory in the channel was fairly stable and gross-to-net deductions were within normal ranges for the quarter. For the full year, we continue to expect VIVITROL net sales in the range of $380 million to $410 million. Moving on to the ARISTADA product family. For the quarter, ARISTADA net sales increased 10% year-over-year to $80.1 million, primarily driven by underlying prescription growth of 10% on a month of therapy basis. Inventory in the channel and gross net adjustments were relatively stable for the quarter. And for the full year, we continue to expect ARISTADA net sales in the range of $315 million to $345 million. LYBALVI net sales for the quarter were $38 million, up 9% sequentially. Underlying prescription growth was 16%. End market demand grew at a faster pace than inventory in the channel which explains the difference between these two growth rates. Gross-to-net adjustments in Q1 were 26.4%, primarily reflecting a continuation of our disciplined contracting strategy in the commercial space. We continue to anticipate that gross-to-net adjustments will remain fairly stable in the high 20% range during the first half of the year and then may increase in the second half if we determine it as a benefit to contracting in the commercial channel. For the full year, we continue to expect LYBALVI net sales in the range of $180 million to $205 million, driven primarily by strong underlying demand. Moving on to our manufacturing and royalty business. In the first quarter, we recorded manufacturing and royalty revenues of $72.9 million compared to $105.2 million in the same period in the prior year. Royalties from sales of the long-acting INVEGA products were $13.6 million compared to $37.1 million for the first quarter of 2022. This decrease was driven primarily by Janssen's partial termination of the agreement related to royalties on sales of these products in the United States which is a subject of our ongoing arbitration with Janssen. Revenues from VUMERITY were $28.9 million compared to $30.6 million in the same period in the prior year and this decrease reflects a reduction in Biogen's end market net sales of the product. Turning to expenses. Total operating expenses were $335.1 million for the first quarter compared to $305.1 million in the same period in the prior year. R&D expenses for the first quarter decreased to $93.6 million compared to $96 million for the same period in the prior year, reflecting focused investments in the nemvaleukin clinical program, LYBALVI life cycle management studies, and our orexin 2 receptor agonist program. SG&A expenses increased to $174.5 million from $145.1 million for the same period in the prior year, reflecting continued investment in the launch of LYBALVI, including the start of the digital direct-to-consumer campaign, in addition to certain expenses related to the separation of the oncology business. Our top-line results, combined with our continued focus on disciplined operating expense management, resulted in a GAAP net loss of approximately $41.8 million and non-GAAP net income of approximately $2.4 million for the quarter. Turning to our balance sheet. We ended the first quarter with approximately $692.5 million in cash and total investments. And with total debt outstanding of approximately $292.6 million, we had a positive net cash position of approximately $400 million. As Rich noted earlier, a favorable resolution of the Janssen arbitration would further strengthen our balance sheet. Now today, we're reiterating our financial expectations for 2023 based on the solid performance of our commercial products and our continued focus on operational efficiencies. As a reminder, our financial expectations reflect the combined neuroscience and oncology business for the full year as we work toward the planned separation which we currently expect to complete in the second half of the year. And as I mentioned earlier, our financial expectations for 2023 do not yet reflect the potential upside that a favorable resolution of the Janssen arbitration is expected to provide. By way of a framework, we would expect to record the back royalties related to 2022 of $194 million, inclusive of interest as a lump sum which would be adjusted out of our non-GAAP net income measure due to the onetime nature of that anticipated payment. Separately, for royalties earned related to 2023 net sales of the long-acting INVEGA products, we would expect to record these as royalty revenues in the normal course. We estimate that this could be in the ballpark of approximately $250 million of incremental royalty revenue worldwide over and above our current financial expectations for 2023 and would flow through to both the GAAP and non-GAAP bottom line. So taking a step back, over the past several years, the company has done significant work to drive operational efficiency and calibrate our cost structure to appropriately support the company's strategic priorities and growth opportunities. Looking ahead, we believe that our core business is well positioned to achieve our current full year 2023 guidance as well as the accelerated profitability targets we announced earlier this year. As we plan for the separation of the oncology business, we will maintain our focus on the strength and potential of the neuroscience business which is characterized by its financial profile, the quality of its commercial portfolio and its potential for enhanced profitability and long-term growth. And with that, I'll hand the call over to Todd.

Great. Thank you, Iain and good morning, everyone. I'm pleased to share that we delivered strong growth across our proprietary commercial portfolio in the first quarter, building off the momentum we generated in 2022. Net sales from the portfolio increased 25% year-over-year and were driven by double-digit growth for each of our three brands: VIVITROL, ARISTADA, and LYBALVI. We are particularly pleased with the strong continued uptake of LYBALVI in the oral antipsychotic market. So, let's start there. During the quarter, LYBALVI net sales were $38 million. Total prescriptions grew 16% sequentially to approximately 33,000 TRxs for the first quarter. As of the end of the first quarter, nearly 24,000 patients have been treated with LYBALVI since launch. At this stage of the launch, our focus continues to be on expanding prescriber breadth which grew by 1,700 prescribers to approximately 9,300 health care providers who have written a prescription since launch. As we outlined earlier this year, our strategy for LYBALVI in 2023 is focused on three key initiatives: growing prescriber breadth, further leveraging our access profile, and building awareness for LYBALVI. Our direct-to-consumer campaign will be a key factor in accomplishing these goals. DTC campaigns have been shown to be highly effective in driving brand growth in many therapeutic areas, particularly in psychiatry, where market research and prescribing patterns suggest that when patients request a specific brand from their health care provider, there is a high likelihood they will be prescribed the brand requested. Our DTC strategy is grounded in deep patient and health care provider insights, including immediate consumption habits as well as the significant opportunity of unmet need in schizophrenia and bipolar 1 disorder. Our goal is to drive awareness and uptake for LYBALVI through execution of a broad, differentiated campaign across multiple media channels, including digital and TV. The digital portion of the campaign was initiated earlier this year and is highly targeted based on the media consumption patterns of people with bipolar 1 disorder and schizophrenia. Early returns from our digital campaign have been encouraging as evidenced by quantitative increases in website traffic, consumer engagement, and brand awareness. The TV component of our DTC program will launch next week and will be focused on bipolar 1 disorder. The campaign is designed to drive high levels of awareness among patients, caregivers, and health care providers. Market Access continues to play an important role for LYBALVI like all brands in the space. In Medicare and Medicaid, we currently have a pathway to access for all patients. On the commercial side, we have established a solid foundation. Looking ahead, we may look to strategically contract in the commercial space, balancing volume and the profitability of each unit. We believe LYBALVI is on a strong trajectory and look forward to sharing our progress with you. Turning to the ARISTADA product family. Net sales in the first quarter were $80.1 million, driven by TRx growth of approximately 10% year-over-year on a month of therapy basis. This performance was driven by ARISTADA's differentiated value proposition, including its once-every-2-month dosing option and the ARISTADA INITIO initiation regimen, both of which are supported by clinical data from our ALPINE study. We are seeing encouraging signs of a continued market recovery for LAIs and believe that we are well positioned to continue to drive growth for the brand. ARISTADA and LYBALVI represent important treatment options designed to address the real-world challenges patients face and are supported by proven clinical efficacy. We believe this differentiated psychiatric portfolio, together with our specialized commercial capabilities distinguishes Alkermes among health care providers, treatment systems, and payers and offers a platform for potential future growth. Turning to VIVITROL. Net sales in the first quarter increased 14% year-over-year to $96.7 million. The alcohol dependence indication continues to be an important driver of growth and accounts for approximately 65% of the VIVITROL volume. Importantly, prescriber breadth for VIVITROL has continued to expand within the alcohol dependence indication which has driven new patient starts over recent quarters. The trial in our VIVITROL and litigation with Teva took place in February, and the decision is expected in the second half of the year. We remain confident in the innovation embodied in VIVITROL. Regardless of the outcome of this litigation, we believe the nature of the product and the complexities and dynamics of the market in which it is commercialized make typical generic erosion unlikely. Overall, we are very pleased with the performance of our commercial product portfolio in the first quarter and believe we are well positioned to achieve the goals we outlined for the year ahead. We look forward to updating you on our progress throughout the year. And with that, I'll hand the call over to Rich.

That's great. Thank you, Todd. So at the beginning of the year, we outlined three strategic priorities: driving the ongoing launch of LYBALVI, advancing our Orexin program in narcolepsy and other hypersaline conditions, and executing on the planned separation of our oncology business. Four months in, we're advancing on all three and believe that we can drive significant value for shareholders. As you just heard from Todd, we're executing our strategy for LYBALVI, and we've established a strong platform for growth. LYBALVI clearly demonstrates the power of Alkermes science and the opportunity to leverage our commercial capabilities. I'm going to focus now on where we stand with the separation of the oncology business and the ALKS 2680 Orexin program. We believe the separation of the oncology business will reveal the value of our Neuroscience business, which has come more clearly into focus with the launch of LYBALVI and at the same time, provide shareholders and investors with an independent and more direct opportunity to realize value from the oncology investments that we've made. The separation is expected to yield a number of benefits for each business, including driving a sharp strategic focus, simplifying capital allocation decision-making, and increasing each business' flexibility to pursue growth and investment strategies more directly aligned with their respective goals. We've made significant progress in the quarter toward launching what would become a new independent public company named Neuro Oncology Plc. Last week, we announced that we submitted a confidential draft Form 10 registration statement with the SEC. In addition, we recently submitted a request for a private letter ruling to the IRS to support the separation as a tax-free distribution to Alkermes shareholders for U.S. federal income tax purposes. Submission of the Form 10 and the PLR request represent two labor-intensive and long lead-time work streams in support of separation. With these two initial submissions now in the review phase, we believe we'll be well positioned to complete the separation later this year as expected, subject to customary conditions, including final approval from our Board of Directors. We're also advanced in our process to identify and recruit senior management to lead Neuro Oncology. We're pleased with the high caliber of candidates interested in the opportunity and we look forward to sharing updates with you about the CEO role and other key leadership positions as they develop. As a standalone company, we expect Neuro-Oncology will be an attractive investment anchored by the potential of nemvaleukin, our novel investigational engineered IL-2 variant that is a potential first-in-class cancer immunotherapy. Nemvaleukin is the most advanced IL-2 variant in development and is distinguished by data generated in the clinic, showing anti-tumor activity as single-agent monotherapy and in combination with checkpoint inhibitors. In addition, Neuro-Oncology would have a pipeline of preclinical immunotherapy candidates, our engineered tumor-targeted IL-12 and engineered IL-18 programs, both of which have been advancing preclinical development and represent attractive oncology targets. With a late-stage asset and the potential to be the first-in-class medicine, preclinical pipeline assets, and clear developmental milestones ahead, we believe the separation of the oncology business represents an attractive opportunity for oncology-focused investors. So, shifting the focus back to Alkermes. Following the planned separation, we expect Alkermes to become a profitable pure-play neuroscience company with a clear and compelling investment thesis. LYBALVI launch success demonstrates our ability to leverage our commercial capabilities in complex addiction and psychiatry markets with strong top line driven by the growth of our proprietary products, a specialized commercial infrastructure and proven drug development capabilities. The standalone neuroscience business would represent a significant opportunity to capture operating leverage, drive growth and profitability, and advance new potential medicines for neurological disorders. So on that final point, let's spend some time on the Orexin program. We're certainly aware of the intense investor interest in this area. So, I'm going to give you a bit more detail than we might usually for a Phase I program. Our lead molecule is called ALKS 2680. It's a small molecule orexin 2 receptor agonist, designed as a once-daily oral tablet for the treatment of narcolepsy. During the quarter, our team made important progress in the ongoing Phase I clinical trial. With compounds of this type, early clinical data is highly informative, which is why we've structured the Phase I program with several components: a single ascending dose study, followed by a multiple ascending dose study in healthy volunteers and a Phase I has Phase Ib proof-of-concept study in patients. Structured this way, we can expeditiously cross multiple stage gates related to single and multiple-dose safety and tolerability, pharmacokinetics, and pharmacodynamics early in the program. To date, we've successfully advanced our single-ascending dose study to doses that exceed our expected therapeutic dose range. In the multiple ascending dose study, we've now cleared sufficient dose levels which we believe will be therapeutically relevant in narcolepsy to trigger the initiation of the Phase Ib proof-of-concept cohort in patients. In our single ascending dose work, all doses were well tolerated and we did not observe any dose-limiting toxicities. In addition to these early indicators of tolerability, the pharmacokinetic profile of ALKS 2680 has been consistent with our modeling which is encouraging and important given the desired time course of therapeutic effect with the goal of promoting wakefulness during the day and sleep consolidation at night. In the multiple ascending dose study, healthy volunteers are receiving once daily dosing of ALKS 2680 for 10 days. The primary objective of the study is to further elaborate the safety and tolerability profile of 2680 as well as to collect additional pharmacokinetic and pharmacodynamic data and this study is proceeding as planned. Taken together, data from the single and multiple ascending dose cohorts have provided initial confirmation of ALKS 2680's PK profile, dose response, and potency and provide encouraging signals that it's driving central activity based on EEG and other clinical signs. These data are highly informative and allow us to streamline the design of the next critical phase of the development program which is getting the drug into patients with narcolepsy. The proof-of-concept study will evaluate established clinical efficacy endpoints, including EEG-based maintenance of wakefulness tests in patients with narcolepsy type 1, narcolepsy type 2, and idiopathic hypersomnia. In a crossover design, subjects will act as their own control and receive single doses of multiple dose levels as well as a placebo with a washout period in between. With a small number of subjects per cohort, we believe this approach will allow us to efficiently assess dose response and inform dose ranges for potential future clinical studies. We're poised to commence subject enrollment in this cohort in the coming weeks following clearance from the ethics committee and continue to expect data from this Phase Ib later this year. The market opportunity, the strong biological relevance of the Orexin pathway, the early target validation work done across the space, all of these underpin the high level of excitement surrounding the orexin agonist class, both in the treatment community as well as among investors. We'll continue to focus on careful execution while expeditiously advancing this program. I'm going to end there. This is an exciting time at the company. We believe that the business is on the right track to create significant value for shareholders. We're confident in our strategy, and we'll remain sharply focused on executing on our strategic priorities. I look forward to sharing continued progress with you over the course of the year. So with that, I'll turn it back to Sandy to run the Q&A.

Thank you. We'll open the call for Q&A now, please.

Thank you, Sandy. We will now begin the question-and-answer session. Our first question comes from Akash Tewari with Jefferies.

So on the Orexin, your MAT study started in Feb. Can you go over how many dosing cohorts you've tested at this point from an exposure perspective? And if you've crossed levels that you think are therapeutically efficacious in narcolepsy and IH and have you seen any evidence of metabolite accumulation at this point? And just on LYBALVI, you grew 16% quarter-over-quarter on TRx but sales grew 9% heading into Q2, consensus is baking in 19% sales growth. Does that seem doable given gross nets are likelihood to worsen as we get deeper into 2023?

Akash, it's Rich. I'll start and then I'll hand it to Todd. The Orexin program, as you can tell from my earlier remarks, is really rolling now. I'm not going to give this specific information on the various dose levels other than to say that I think the program now encompasses over 60 subjects and between the SAD and the MAD and we are above doses that we think are therapeutically relevant for narcolepsy. And that's encouraging. And that's why we're really pleased to see the PK dose proportionality, tolerability, all those things. With respect to the metabolite profile, it's as we would have anticipated, we've been able to characterize the principal metabolites and we feel comfortable with where we are with that.

Yes. And I'll just pick up on LYBALVI as well. The first thing is we're not going to guide on the quarter for Q2. But what I would say is that we are really pleased with the uptake of LYBALVI. New patient starts, new prescriptions, TRxs. As we said on the call, TRxs grew 16% and quarter-over-quarter, we really believe that's a result of strong demand growth based on our expanding prescriber universe which is growing quarter-over-quarter and it's very supportive of the market research that we hear from HCPs as well. So we expect that to continue.

Our next question is from the line of Brandon Folkes with Cantor Fitzgerald.

Maybe firstly for me, just on LYBALVI and the launch of the broader DTC TV campaign. How should we think about the interplay of the broad DTC TV campaign ahead of contracting? And how should we think about the initial effectiveness of it and the interplay between perhaps a broad TV DTC campaign and contracting as the year unfolds?

Yes, we are very excited about the launch of the TV component of our consumer campaign, which will begin next week. This is a comprehensive campaign designed to support the earlier digital launch we executed. We have been preparing for this for several years and have gathered extensive insights from patients and healthcare professionals. We understand what patients need, and our testing with a large number of patients has yielded positive feedback. Market access is currently in a favorable position. There is a clear pathway for access for patients covered by Medicare and Medicaid as well as for the majority of those in the commercial sector. We are observing encouraging trends across all three segments, demonstrating strong utilization. In today's U.S. healthcare landscape, market access goes beyond just contracts; it involves creating pathways for access, providing support services, and ensuring that patients can effectively utilize our products. We have many support services available, and we are experiencing substantial engagement with our prior authorization and co-pay programs. Healthcare professionals are adept at navigating the complexities of market access and are familiar with the similar treatment of our products. Therefore, we feel confident about our position in market access, as patients can access our offerings. Our long-term strategy has focused on driving demand while also raising awareness. Our research indicates that if patients see and appreciate our campaign, they are likely to inquire about it with healthcare professionals, and there is a strong possibility that their requests will be met. We are enthusiastic about these developments.

Great. And just on a follow-up, just given the news on the spin, can you just update us on the latest on the alternative dosing for nemvaleukin and Alfa? Do you expect to make that data public ahead of the spin?

Brandon, it's Rich. That's happening primarily in a study called ARTISTRY-3 which is looking at less frequent IV dosing regimens, including once every three-week cycle and twice in a three-week cycle. And we're accumulating data in those cohorts right now. We will present those data as they mature. And I don't have a specific sense right now of what that looks like over the course of the year but we can get back to you on that.

And the subQ dosing, Rich?

SubQ is still in progress. The team currently believes that less frequent IV is likely a preferred method compared to subQ, although we can't confirm that for sure. For some cytokines, we have previously observed response data with subQ delivery, including pharmacodynamics. The main concern with subQ is the durability of the response, as one of the key aspects of the IL-2 pathway is achieving lasting responses. In the case of PROLEUKIN, it was effective as a subQ treatment, but the durability was not as strong. That is what we are exploring in our clinical trials.

Our next question comes from Umer Raffat with Evercore ISI.

I have two questions. First, Richard, could you remind us of the key clinical data you will reach regarding the ovarian study for nemvaleukin and the Phase III melanoma trial, as well as the Phase II trials? To what degree will these findings influence your decision to proceed with the spin? My second question is about the e-flux ratio of your orexin molecule compared to Takeda’s. What implications does this have for the dosage levels you consider clinically relevant or effective?

The key point regarding your question about the clinical trial is that we will proceed with the spin while both ARTISTRY-6 and ARTISTRY-7 are ongoing and blinded. The primary factor for us before the spin is the enrollment rate, which will help us understand our position in the overall enrollment process and allow us to estimate the timeline for when we can disclose results to guide the spin. We anticipate that the spin will occur in the third quarter. Enrollment in both ARTISTRY-7 and ARTISTRY-6 will be ongoing. ARTISTRY-7, which focuses on ovarian treatments, is a multi-arm study designed with all the necessary controls typical of a study enabling registration. Therefore, it is a well-structured and appropriately controlled study that we refer to as a registration-enabling study. I will refrain from commenting on the numerical eFlex ratio concerning the orexin candidates. However, it raises an important point about why each of these molecules will differ, as it involves more than just their potency as orexin receptor agonists. It also concerns their effective half-life and how well they engage their targets in the human body throughout the day. This includes the process of taking the tablet orally, its absorption into the bloodstream, its crossing of the blood-brain barrier, its arrival at target neuron concentrations, and how long it remains active or if it's affected by other pumps or eFlex mechanisms. All these factors were considered in the design of 2680. However, as I’ve mentioned before, the most critical insights come from studies in humans. Now that we are advancing to Phase I work, we are excited to begin working with patients who have narcolepsy type 1, which is the next step, and everything is on track for that.

Richard, if I may clarify, I'm thinking back and maybe I'm not recollecting properly. I recall we had discussed there will be potential interim looks ahead of the spin on the oncology side. Are you saying there's a change in plan? I just want to make sure I understand the right because I thought that was a trigger to go forward with the spin.

We have an ongoing data safety monitoring board with respect to the melanoma study that looks at futility and risk-benefit and we continue to pass those hurdles. I'm looking to Sandy to make sure that's an accurate statement.

Yes, that's accurate.

Our next question is from the line of Chris Shibutani with Goldman Sachs.

On 2680, as I think about how we should be interpreting the data that you'll have Phase Ib proof-of-concept across the different subtypes of patients in T1 and I think the expectation is that potentially the potency or dosing level would be different for NT2 and IH. It seems perhaps that you may be emphasizing IH over NT2 and with such a modest denominator, relatively speaking, 6 or 7 or so patients in each subtype. Can you help us understand how you're thinking about your positioning of your development plan and whether ultimately next steps may be to pursue specific segments because of the potential differences in dosing required?

Yes. Chris, that's a really important question because please don't misinterpret any of our comments that they were emphasizing IH or narcolepsy. If anything is the other direction, particularly in the wake of the IRA. I think that this orphan indication as a single indication, narcolepsy is really attractive because it's an orphan indication but it's a large orphan indication, spanning in NT1 and NT2. So if anything, I think that our focus is more likely to come down into the narcolepsy indications rather than the IH and excessive daytime sleepiness indications which we will pursue as this biology gets more clearly elaborated with additional compounds. I mean, we're not done here by any stretch of the imagination in the lab. And we see 2680 as the first embodiment focused on narcolepsy given a certain PK/PD potency profile. But if this is really central to the sleep-wake access and that circuitry is better elaborated, there's other drugs that could be developed here. But for the purposes of 2680 the Phase Ib proof-of-concept study is going to focus first on NT1 and that's the core of the bull's eye, then we'll enroll the NT2 patients in the IH patients. You're right, we expect dosing differential based on previous clinical women done by others between NT1 and NT2. But that's why potency is such an important variable. If you think that you could go as high as several fold higher into NT2 versus NT1, you want to start with this as high potency drug in NT1 as you can get. And so far, based on the modeling and the work we've seen in the clinic so far, the data are consistent with our hypothesis going in. Does that make sense?

Great. That makes sense. As a follow-up, I have a broader strategic question regarding the progress you're making with separating the company. Alkermes is based in Ireland, while most of the revenue has traditionally come from the U.S. Considering the neuroscience business portfolio and the potential for expansion with 2680, which has a significant market opportunity, could you discuss the advantages and disadvantages? Additionally, how are you, the management team, and the Board approaching the goal of enhancing global commercial presence, and to what extent do you plan to pursue this?

Yes. It's another good question, Chris. So Alkermes plc will remain an Irish Topco company with significant operations in the U.S. and in Ireland. But we have a really strong foundation for expansion ex U.S. Interestingly, our psychiatry portfolio, ARISTADA, VIVITROL, and LYBALVI to some extent, really we didn't have great opportunities outside the U.S. given the reference pricing in those markets. 2680 is a completely different story. I mean, that's absolutely a global product and we think about it as such. And so our registration strategy and our teams now are working through the strategy for a global presence. Given the size of the market on the order of a couple of hundred thousand patients in the U.S. and about three million worldwide, it's very tractable for a company and with our infrastructure to go after an OUS presence with respect to 2680. So we'll give you more information on that as it evolves.

Our next question is from the line of David Amsellem with Piper Sandler.

So regarding LYBALVI, you mentioned the possibility of a wider gross to net in the second half of this year related to new commercial contracts. Previously, you seemed more confident about this due to the effect of commercial contracting. Has anything changed in your discussions with commercial payers that led to this updated commentary? That’s the first question. Secondly, with the cash coming in from the Janssen win, can you explain how that might be used to support the oncology business? Also, you referred to strategic purposes—how are you planning to use capital more broadly to develop the neuroscience pipeline?

Yes, I'll start first with LYBALVI Market Access. I think the way to think about this, what we've been thinking about is the market access profile continues to be established and it will continue to be established. The most important thing right now is to make sure that patients have a pathway to access across the three channels, Medicare, Medicaid, and commercial. And we built a solid foundation across all three of those channels. I would say nothing's changed to your question. We are strategically managing growth to net to support our top-line growth. And our plan is to continue to determine over time if we need to change our access position within commercial. So we're actively discussing in discussions with all of the commercial payers regarding the future of LYBALVI. And if we do make a decision that we need to change that profile, our plan is to do so over time. And we'll keep you informed as things progress. But to your question, nothing has changed.

And then on the income and cash, assuming the final award reflects the interim awards. With respect to the oncology business, it would certainly be helpful in seeding the oncology business. That's not to say we would change the amount that we believe the oncology business needs in order to reach its next data inflection point which has always been tied to the level of funding that we provide. And then with respect to items beyond that, the cash is obviously a strategic asset and we could look to potentially augment the pipeline or further leverage the commercial infrastructure with appropriate products at some point into the future. But we'll provide more information as things materialize in that direction.

Our next question is from the line of Paul Matteis with Stifel.

I wanted to ask a question on LYBALVI in your full-year guidance. If you assume that the sequential script growth declines even a little over the next handful of quarters, say, 1% to 2%, even at stable gross to net, you get closer to the low end of your guidance. So I wonder if that's a realistic way to think about this or whether part of the assumption here is that the DTC is going to actually boost demand growth relative to what we just saw sequentially or whether Q1 was maybe just kind of a lighter quarter for various seasonal reasons.

Yes, I'll address that question as well. Our guidance accounts for a variety of scenarios related to demand, gross to net, and so forth. We are very optimistic about the trends we are observing. The story for Q1 was centered around demand, which increased by 16%. We have been working on this launch for about 18 months now and we continue to see strong uptake and a growing breadth of utilization. That is currently the best metric we are monitoring. We strongly believe that raising awareness through a direct-to-consumer campaign will help our demand objectives over time. Typically, with extensive campaigns like this, as seen in other categories and in psychiatry, it usually takes around six to twelve months to notice any significant change. We expect this to be a gradual process overall. We are confident that this will support our long-term growth goals for the brand. We feel encouraged at this moment and believe it is essential to expand prescriber reach, increase awareness, and maintain growing demand from quarter to quarter. I want to emphasize again, as Iain mentioned earlier, we are reaffirming our guidance today, along with our range, and we are confident in these projections.

Can you say anything about what the top end of your guidance would assume or what would have to happen?

No, at this point, we have provided the outlook. We have considered a range of possibilities regarding market access demand as well as direct-to-consumer. Therefore, we are comfortable with where that range stands currently.

Our next question is from the line of Jessica Fye with JPMorgan.

Just a couple on LYBALVI. Can you remind me of the payer mix between government and commercial in the bipolar market? And can you elaborate on what you mean by a pathway to access in commercial? Where does commercial coverage stand? And specifically, I guess, how could the quality of access be improved via contracting? And then I have one follow-up on the orexin.

Yes, absolutely. So overall, what you see across the category, across all the channels is typically, it's broken into one-third. It's about one-third commercial, one-third Medicaid, one-third Medicare. You see a little bit of a change within the bipolar space. There's a little bit more commercial and also a little bit more Medicaid and a little bit less Medicare. So the bipolar market is typically categorized by commercial and Medicare. We think about a pathway to access is it's broader than just gross to net and doing contracting as well. And that's really the dynamic in the U.S. health care system. And I'll keep in mind that it's a very large generic market. All of these products, all of the branded products have to step through generics. So that's not different for what LYBALVI is facing. And providers and HCPs in the U.S. are very comfortable with managing medical exceptions, prior authorizations and steps through. So our goal right now is to make sure that we're balancing and managing the access profile that would be across commercial, Medicaid and Medicare, along with the programs that HCPs and patients would need to be able to get access. And we also look very closely, we do a lot of research with patients and also with providers. And we hear really consistently that HCPs perceived that LYBALVI's formulary access is on par with branded competitors. And we see that in terms of the access that's happening within the marketplace at large. Over time, we'll continue to watch what's happening in the commercial space. We watch product, we watch our NDC block lives; we also have a number of lives that have open access. And so it's not a stagnant market. I can tell you that. It takes a lot of focus and attention and we put a lot of attention to this as well, too. And overall, we're going to be managing our gross to net. It's a big strategy for the company, making sure that we have the right access profile to support the long-term growth aspirations. And so we're in a good place with that right now. We have a solid foundation.

Okay. And then for the Orexin, thanks for the additional color in the prepared remarks, should we expect a more detailed update on the SAD and MAD results prior to learning the Phase Ib results later this year?

Jessica, it's Rich. I think that what we're trying to do is move as quickly as we can and being mindful of some of the major scientific meetings that occur in the fall, what the late-breaking status would be. So we'll try to present as much data as we can comprehensively and scientifically rather than just via press release. But I think the primary goal right now is to finish off the SAD MAD get the Phase Ib data, particularly with respect to the NT1 cohort as fast as possible. So we get a real sense of the clinical profile of the drug and then we'll present those data as rapidly and as comprehensively as we can.

Our next question comes from an indistinct speaker.

I understand you may have limitations on what you can share, but could you explain the necessary steps for the arbitrations to finalize the interim awards? Should we anticipate any additional interim awards? Additionally, can you provide information on the percentage of royalties that come from TRINZA and HAFYERA?

It's Rich. The arbitration process has been conducted in a careful manner, and we respect how the panel is managing it. They are allowing both parties to voice their concerns throughout the proceedings. The first interim award in January confirmed that Janssen can sell the product without paying us a royalty, which was determined in our favor. The next step involved applying this decision to the specific products and the associated royalty terms, which we have now clarified in the second interim award. We have numerical details for 2022 and projections for 2023, with each of the three products treated separately with varying terms. In the second interim award, the panel indicated that the parties have 21 days to inform them if there are any additional matters to address. We're close to concluding this process. From Alkermes' perspective, we believe there are no outstanding issues. We will see if J&J has any further concerns, but we are nearing the final award.

And then with regard to TRINZA and HAFYERA, this is based on IQVIA data in the U.S., we would estimate that somewhere between 20% to 25% of volume on a month of therapy basis is related to TRINZA and HAFYERA.

Our next question is from the line of Jason Gerberry with Bank of America.

Most of my questions have been asked but I'll ask a couple. Rich, in the past, just thinking about the whole VIVITROL generic threat and whatever shape it takes, you've talked about a lot of the commercial challenges to making or selling a generic of VIVITROL. Given the shift of the business to alcohol, I'm wondering, is this becoming more of a conventional channel product versus when there was more of an opioid component to revenue and starts were occurring in prisons and addiction clinics, maybe it was a harder product commercially to reach. So just wondering if there's any change that's noteworthy there? And then just as a follow-up, your comment about IRA and the orexins got me thinking, obviously, two indications you lose the Orphan Drug Shield. Have you thought about adjudicating two different NCEs in the orexin space, one for narcolepsy and one for IH?

Yes to the second question. Absolutely, yes. I mean that's what I think I was saying earlier, Jason. I think this whole pathway is so important and fundamental to awake the sleep-wake cycle, and I think our first embodiment is 2680, but we're already thinking about other ways of engaging that pathway. I wish VIVITROL became more conventional with the advent of the alcohol side. It remains, and I'll let Todd comment, these are definitely different settings of care than your classic medical setting. So it remains incredibly idiosyncratic and credit we bespoke with still a large overlay of public policy and government intervention in the way that patients get treated overall.

Yes, I'll add to that. Currently, 65% of VIVITROL's volume comes from alcohol dependence, and we are seeing record highs in utilization for this indication. At this point in its lifecycle, we are also experiencing unprecedented prescriber and account engagement. There is a strong receptivity to VIVITROL for alcohol dependence. It is not a standard retail product, and we have conducted numerous models and examined comparable situations. We believe that even with the introduction of a generic injectable naltrexone, it would not lead to significant low-cost small molecule erosion. As Rich mentioned, the market is quite complex. Understanding this complexity involves recognizing that there are multiple care settings involved—not just one—and there are different payer dynamics and fulfillment channels that differ from a typical retail product. Therefore, we consider the product and its commercialization attributes to be quite intricate and do not view this as a standard generic erosion.

Our next question is from the line of Marc Goodman of SVB Securities.

Which obviously, BD must be pretty important to you and I know that you're probably out there looking pretty actively for new molecules. Can you just talk about the landscape right now? I mean, do you feel like some of these smaller companies are capitulating on valuations? Are you closer this year than last year on bringing in some new assets from the outside?

Mark, it's Rich. A couple of years ago, you might have considered this area not very promising for business development, but I believe it's improving. The cost of capital for small companies is contributing to this positive change. We haven't aggressively pursued expanding the pipeline and R&D expenditures lately, as we've been focused on launching LYBALVI and advancing the orexin program and its derivatives, which we haven't discussed moving forward yet. We are in a good position with enough in the pipeline to get us started, but we don’t feel an urgency to take action just yet. We are allowing things to develop. Our business development team is sophisticated and has a wide range of expertise, looking at opportunities from late-stage commercial options to early-stage ideas, all aligned with our scientific capabilities. So, stay tuned. As we progress as a neuroscience company, we aim to enhance our pipeline in a cost-effective manner.

And orexins and derivatives, is that referring to the previous question about potentially having multiple orexins for the different channels of with cataplexy, without cataplexy, the IH, that kind of thing.

Yes. And there's a lot to be done as we figure out how to create these small molecule orexin receptor agonists. I think thinking that the full embodiment would be in the first drug is probably naive. So we want to make sure we're ahead of the curve on that.

Okay. Thanks, Mark. I think we have time for one more question.

That question comes from the line of Douglas Tsao with H.C. Wainwright.

Most of my questions have been asked and answered. But just in terms of the DTC campaign, I'm just curious, do you expect to have a greater impact on the demand for bipolar indication? Or do you think it would have more impact on the schizophrenia indication?

Yes. Doug, we believe that the two aspects work in harmony. The strength of LYBALVI lies in its broad indications, which is not common for products launched in this category. Over the past 18 months, we've realized that this market is primarily driven by efficacy, which sets LYBALVI apart. Therefore, we have crafted a unique campaign tailored for this purpose. We understand the media consumption habits of patients dealing with schizophrenia and bipolar disorder. The initial phase of our digital program focused specifically on these conditions. The TV aspect covers the bipolar market, which presents a significant opportunity. Patients often switch therapies multiple times, creating a major opportunity for us. Overall, this program functions cohesively; the digital component addresses both indications, while we will activate the bipolar patient population through television.

All right. Well, thanks, everyone, for joining us on the call today. Please don't hesitate to reach out if you have any follow-up questions. Thank you.

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