Greetings. And welcome to the Alkermes Fourth Quarter 2023 Financial Results Conference Call. My name is Rob and I’ll be your operator for today’s call. All participant lines will be placed on mute to prevent background noise. Please note that this conference is being recorded. I’ll now turn the call over to Sandy Coombs, Senior Vice President of Investor Relations and Corporate Affairs. Sandy, you may begin.

Thank you, Rob. Good morning. Welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter and year ended December 31, 2023. With me today are Richard Pops, our CEO, Todd Nichols, our Chief Commercial Officer, and Blair Jackson, our Chief Operating Officer, who will be reviewing our financial results and expectations while our Chief Financial Officer, Iain Brown, is on medical leave. During today’s call, we will be referencing slides. These slides, along with our press release, related financial tables and reconciliations of the GAAP to non-GAAP financial measures that we’ll discuss today, are available on the Investors section of alkermes.com. 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 will open the call for Q&A. And now I will turn the call over to Richard for some opening remarks.

Great. Thank you, Sandy, and good morning, everyone. So 2023 was an eventful and productive year at Alkermes, one in which we repositioned the company and established a strong foundation for growth. We had an ambitious agenda last year, and we successfully achieved the major goals we set for ourselves. We entered 2023 in arbitration with JNJ and prevailed in that matter decisively, which reinstated significant cash flows due to us, strengthened our balance sheet and enabled us to raise our financial expectations. We had another pending matter relating to VIVITROL’s patent protection, which we also resolved on favorable terms. We entered the year with the goal of generating critical decision-making data for our orexin 2 receptor agonist, ALKS 2680, in a multifaceted phase 1 program. We were successful in doing that, generating narcolepsy type 1 data that support advancing into phase 2 in NT1 this year. We completed the separation of our oncology business, a major milestone for the company, freeing resources and focusing our R&D efforts in neuroscience. We delivered on a significant element of our multi-year initiative to drive operational efficiency by announcing the sale of our Athlone, Ireland GMP manufacturing facility, and that transaction is expected to close mid-year. And we also met our goal of continuing to drive our top-line revenue from proprietary products, including the continued strong launch of LYBALVI. Through these accomplishments, we emerged as a pure-play neuroscience company. Today, Alkermes can be characterized by three distinctive attributes. First, a commercial business with revenues over $1 billion driven by four core products, all developed by Alkermes. Second, proven development capabilities with an advancing neuroscience pipeline. And third, an efficient operating structure that positions the business for sustained profitability and significant cash generation. So with that as an intro, I'll turn the call over to Todd to review the commercial performance.

Great. Thank you, Rich. And good morning, everyone. I am pleased to share that we achieved strong year-over-year growth of 18% across our proprietary commercial portfolio in 2023, as we executed our commercial strategy for each of our three proprietary products and continued to demonstrate the operating leverage we are able to capture with our commercial infrastructure. Starting with LYBALVI. LYBALVI was the fastest growing oral atypical antipsychotic in the fourth quarter and for the full year. We launched LYBALVI two years ago with a broad, differentiated label that includes both schizophrenia and bipolar I disorder. In its second full year of launch, LYBALVI generated net sales of $191.9 million. For the fourth quarter, net sales increased 11% sequentially to $56.2 million driven primarily by demand. Prescriptions grew to approximately 46,700 TRxs for the fourth quarter, reflecting 11% sequential growth. During the quarter, inventory in the channel increased slightly, reflecting a normalization from lower levels at the end of Q3 and typical seasonal purchasing patterns. Gross-to-net adjustments widened to approximately 29% due to higher Medicaid utilization and certain one-time adjustments related to prior periods. In disease areas as complex and competitive as schizophrenia and bipolar I disorder, new medicines need to establish their place in the treatment paradigm through health care provider experience. We recently shared data from a long-term, phase 3 open-label extension study in which patients with schizophrenia or bipolar I disorder treated with LYBALVI for up to four years demonstrated stability in their symptoms and minimal changes in their body weight, lipid and glycemic parameters, and a safety profile that was consistent with what we had seen in previous studies. The data highlight the potential utility of LYBALVI as a foundational maintenance treatment option for people living with schizophrenia or bipolar I disorder and we look forward to sharing more data from the study at upcoming medical meetings. Looking ahead, in 2024 we expect LYBALVI net sales in the range of $275 to $295 million. For the first quarter of 2024, we expect net sales growth to be fairly flat compared to Q4 due to typical seasonal patterns, with more robust growth resuming in Q2. Turning to the ARISTADA product family. In 2023, ARISTADA net sales grew 8% year-over-year to $327.7 million. ARISTADA net sales in the fourth quarter grew 5% year-over-year to $83.4 million, driven primarily by demand growth of approximately 5% on a months-of-therapy basis. For 2024, we expect ARISTADA net sales in the range of $340 to $360 million as we continue to emphasize ARISTADA’s differentiated value proposition, including its once every two-month dosing option and the ARISTADA INITIO initiation regimen, both of which are supported by clinical data from our ALPINE study. Moving to VIVITROL. In 2023, VIVITROL net sales grew 6% year-over-year to $400.4 million, driven primarily by unit growth. VIVITROL net sales in the fourth quarter were flat year-over-year at $102.4 million. During the year, VIVITROL growth was driven primarily by the alcohol dependence indication which accounts for approximately 75% of the volume. Growth in the alcohol dependence indication was partially offset by erosion in the opioid dependence indication. As we look ahead, we expect these market dynamics to persist and expect VIVITROL net sales in the range of $410 to $430 million for 2024. Alcohol dependence is an important growth opportunity and our team remains energized about driving awareness and uptake in that underserved disease area. In 2024, we expect to achieve an important milestone for the company by generating more than $1 billion in proprietary net sales. Each of our proprietary products provides important contributions to the growth of the company, and we are focused on executing across the portfolio and are optimistic about the opportunities ahead. With that, I'll pass the call to Blair.

Thank you, Todd. In 2023, we successfully executed our strategy to position the business for sustained profitability and growth. Our financial results for 2023 reflect a number of one-time factors, such as back payments and reinstatement of the long-acting INVEGA royalties, one-time legal expenses associated with the Janssen arbitration and the settlement of the VIVITROL patent matter, and most notably the separation of the oncology business, which had operational financial and tax consequences. As a result of the completion of the separation in November, oncology related expenses incurred during the year qualify as discontinued operations. Expenses and our bottom-line results inclusive of these discontinued operations are fully outlined in our press release issued this morning. That said, today I’ll focus on continuing operations as those results are more relevant to the financial profile of the company going forward. Across the business, in 2023, we worked to streamline and position the company for future growth. With the moving pieces I mentioned now behind us, we have clarified and strengthened the financial profile of the business, and we believe we are well positioned to execute on our strategy as a pure-play neuroscience company. Over the next few minutes, I’ll take you through the details of our 2023 results, then turn to our 2024 financial expectations. Our 2023 financial results reflect strong performance of our core neuroscience business. We generated total revenues of nearly $1.7 billion, driven primarily by our proprietary product portfolio which grew 18% year-over-year. From a bottom-line perspective, we recorded GAAP net income of $355.8 million, compared to a GAAP net loss of $158.3 million in the prior year, and non-GAAP net income of $243.7 million, compared to $57.9 million in 2022. Turning to our proprietary products. For the year, we recorded VIVITROL net sales of $400.4 million, reflecting 6% growth year-over-year. Net sales of the ARISTADA product family increased 8% to $327.7 million in 2023, driven by unit growth; and LYBALVI net sales increased 100% year-over-year to $191.9 million. Moving on to our manufacturing and royalty business. For the year, we recorded manufacturing and royalty revenues of $743.4 million, compared to $332.0 million in the prior year. Revenues from the long-acting INVEGA products were $486.1 million, compared to $115.7 million in the prior year, reflecting the reinstatement and back payment of royalties related to these products in 2023. Revenues from VUMERITY were $129.3 million, compared to $115.5 million in the prior year. Turning to expenses for full year 2023. Costs of goods sold related to continuing operations were $253.0 million, reflecting a year-over-year increase of approximately $35 million driven by the increase in net sales of proprietary products. R&D expenses related to continuing operations were $270.8 million and flat year-over-year, reflecting focused investments in our neuroscience development programs, including the ALKS 2680 clinical program and support activities for our proprietary products. SG&A expenses related to continuing operations were $689.8 million in 2023. The increase of $99 million as compared to the prior year was primarily related to investment in the launch of LYBALVI and non-recurring legal expenses. During the year, we recorded a net tax benefit of $97.6 million, driven primarily by the partial release of a valuation allowance related to our Irish net operating loss carryforwards in the fourth quarter. This is a one-time adjustment due to the separation of the oncology business and our expectation of sustained profitability going forward. More detail can be found in our press release issued this morning. During the year, we undertook significant work to streamline our operations and enhance the growth and profitability of the business going forward. While this work was underway, we continued our focus on operational efficiency and generated strong profitability and cash flows with GAAP net income from continuing operations of $519.2 million, non-GAAP net income from continuing operations of $396.5 million and EBITDA from continuing operations of $486.3 million. Turning to our balance sheet, we ended the year in a strong financial position with $813.4 million in cash and total investments and with total debt outstanding of approximately $290 million. Looking ahead, we expect the business to continue to generate significant cash flow. In addition, upon the closing of the sale of our Athlone, Ireland manufacturing facility to Novo Nordisk expected later this year, Alkermes will be entitled to a one-time cash payment of $92.5 million for the facility and related assets, subject to customary adjustments in accordance with the purchase agreement. I’ll shift now to our financial expectations for 2024. These expectations were outlined in the press release and 8-K issued this morning. Starting with the topline, we expect total revenues for 2024 to be in the range of $1.5 to $1.6 billion and expect net sales from our proprietary products to exceed $1 billion, reflecting continued growth of our proprietary products, led by LYBALVI. Our total revenue expectations for the year also reflect the previously disclosed expiration of the royalty related to U.S. sales of one-month INVEGA SUSTENNA in August of 2024. In terms of expenses, our expectations for 2024 reflect reduced spend across all line items due to the separation of the oncology business, other 2023 non-recurrent expenses and our continued focus on efficiency and profitability. Costs of goods sold are expected to be in the range of $230 to $250 million. R&D expenses are expected to be in the range of $225 to $255 million, reflecting a decrease of approximately $150 million compared to 2023 as a result of the separation of the oncology business. This level of R&D spend accommodates initiation of the ALKS 2680 phase 2 program in narcolepsy, as well as preclinical work to advance additional orexin compounds in other disease areas, and support activities for our portfolio of proprietary products. SG&A expenses are expected to be in the range of $625 to $655 million, reflecting investments in the launch of LYBALVI and appropriate levels of support for VIVITROL and ARISTADA. With our enhanced profitability profile, we expect an effective tax rate of approximately 17% in 2024. We expect GAAP net income to be in the range of $350 to $390 million, EBITDA in the range of $445 to $485 million and non-GAAP net income in the range of $465 to $505 million. With a proprietary product topline that is expected to exceed $1 billion this year, a sharpened strategic focus, and an operating structure that we have carefully calibrated to support the needs of the business going forward, we believe we have positioned the company for significant growth and profitability. I'll now hand the call to Rich for a broader discussion of our capital allocation strategy.

Great. Thank you, Blair. So Alkermes now joins a small group of biopharmaceutical companies that have successfully developed and secured regulatory approval for novel medicines, effectively commercialized them and generated significant profitability and cash flow. With that distinction, our capital allocation strategy takes on new importance. Our capital allocation decisions are guided by a framework designed to drive near and long-term growth, and it starts with focus. Alkermes is now a pure-play neuroscience company, with demonstrable and leverageable commercial and scientific expertise. Our first priority is to maximize the potential of our current commercial products, with the most intense investment currently deployed to support the growth of LYBALVI. These investments are designed to drive growth over the near and medium term. Second, we will invest in our pipeline to develop and advance new neuroscience candidates that can drive significant value, including ALKS 2680 and additional earlier-stage programs. Investments in R&D are made with discipline and rigor, and with predefined stage-gates and success criteria for each program, with an emphasis on early translational clinical data. Third, beyond our internal efforts, we will explore external opportunities to expand our portfolio with assets that are a strong strategic fit. In these efforts, we plan to prioritize commercial assets that leverage our infrastructure and capabilities as well as development candidates that align with our expertise and fit within our core neuroscience focus. And the fourth element of our capital allocation strategy is to prudently return excess capital beyond our organic and inorganic growth needs to our shareholders. As Blair mentioned, looking ahead, we expect the business to continue to generate significant cash flow. This week, our Board of Directors approved a share repurchase program for up to $400 million, which we plan to deploy opportunistically over the next several years. With the significant work and accomplishments of 2023 behind us, we now set our sights on building the company for the future. Augmenting the pipeline will be a key strategic priority for the business this year. We gravitate toward development programs that align with our expertise and where there is a strong biological rationale, challenging molecular design, a clear clinical pathway with early proof-of-concept, and, importantly in this intense payer environment, the potential to significantly advance the standard of care. ALKS 2680 represents one such opportunity. The data in patients with narcolepsy type 1 from our phase 1b study were compelling and supported acceleration of the program into phase 2. Study start-up activities are underway, and we are on track to initiate next quarter. For narcolepsy type 2 and idiopathic hypersomnia, we are in the process of completing enrollment of the phase 1b study cohorts. Data from these cohorts will inform dose selection for a potential phase 2 study. The phase 2 program for ALKS 2680 will be conducted at multiple sites around the world and we are working to initiate them as quickly as possible. 2024 is set to be an exciting and important year, enabled by the significant work over the last several years to reposition the company. And we look forward to updating you on our progress and appreciate the continued support of our shareholders. And with that, I'll turn the call back to Sandy to run the Q&A.

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

Thank you. Our first question today will be from David Amsellem with Piper Sandler. Please go ahead with your question.

Hey, good morning. Just a couple. So, first, Richard, what do you make of Takeda not moving forward with the TAK-861 in NT2? My understanding is that they capped the dose due to some concerns about LiverTox. I guess the question here is just picking your brain, what do you make of that? And what does that mean for 2680? And then secondly, regarding dosing in NT2 and IH, can you just remind us what that looks like for 2680 relative to NT1, any changes there in your thinking? Thank you.

Hi, David. Thank you for the question. So the premise going into a study of a narcolepsy drug like 2680 orexin-2 receptor agonist in NT2 is that the dosing would have to be significantly higher than in NT1. On the order, we reckon between 2x to 3x to 4x, but what you would see. Our assumption is 2x to 3x with 2680. So it's not surprising to us that Takeda with the update they gave in early January that they might not have enough dosing flexibility to move beyond NT1 into that higher dose range necessary for NT2. So it wasn't particularly surprising, and we were actually encouraged to see that they had strong results in the NT1 cohort sort of reaffirming the pharmacology that we're all seeking to exploit in this therapeutic class that's emerging. With 2680, we are testing NT2 and IH, and we remain blinded in those as we complete the enrollment. We're testing just that at 2x to 3x from the doses that you saw in NT1. And because of the work we did in the healthy volunteers, we feel comfortable going up to those doses and higher, if necessary. But we'll wait to see the data to see exactly how that translates into patients with NT2 and IH.

And then your view regarding your competitor?

With respect to them in NT2 or NT1?

Yes. In NT2, I guess the question is, are you just - is this a class where you're just seeing these drugs behaving markedly differently from one another? And in that vein, it's hard to sort of make comparisons from one molecule to another. Is that the way we should think about it?

I think that's exactly the way we look at it. I think that fundamentally we believe that these molecules are because it demonstrated significantly different clinical properties. And we've seen that already bearing out with the Takeda program with the Jazz program with our program. And so at this point, our underlying assumptions with respect to the potential efficacy in NT2 are unchanged by the Takeda result. And in fact, as I said earlier, given the limitation of their dosing or fear of liver toxicity, and we weren't surprised to see that outcome.

Thank you...

Rob, I think we're ready for the next question.

The next question will be coming from the line of Akash Tiwari with Jefferies. Please proceed with your questions.

Hey. Thanks so much. So Rich, how concerned is your team that 2680's efficacious doses and NT2 patients will induce insomnia, given these NT2 patients have hypocretin levels that aren't as imperative NT1 and the half-life of 2680 is about 8 to 10 hours? And any sense on when patients will be taking the medication in your Phase II trials, right? Are there any protocol adjustments you can make to maybe help with that concern? And then on LYBALVI, what is the cost of the LYBALVI DTC program in your 2024 guidance? And what's your internal ROI hurdle to justify its continued investment? Thanks so much.

So Akash, I'll take the first one. So one of the things we like about 2680 is the dose proportionality that we've seen along with half-life. So as you - and you saw in the NT1 cohort, whereas you escalate from 1 to 3 to 8, you actually saw increased wakefulness and increased duration thereof. So we are as I said in my original hypothesis with respect to the PK and the dosimetry and NT2 is unchanged. It only changes in the face of data, which we're on the threshold of obtaining. So insomnia, just to be clear, as an AE, it's actually an indicator of efficacy. And so obviously, if you had persistent insomnia at a dose, the solution would be to lower the dose. And I think in so doing, you mitigate whatever concerns you would have about that. But we'll see that in the patient because you're entirely right. They have a much different background for superimposition of an orexin agonist than an NT1 patient where there is none, whereas in the NT2 IH patients there are detectable levels of orexin and just that the signaling thereof is not normal.

Yes. Regarding LYBALVI and our direct-to-consumer program, thank you for the question. We launched our main DTC campaign last year and introduced our digital assets at the start of 2023, followed by our linear TV efforts in the middle of Q2. We are pleased with the overall response from healthcare providers as well as patients. This initiative is vital for raising awareness and is an integral part of our marketing strategy to generate demand among physicians and enhance market access. The best indicator of our effectiveness is the increase in new patient starts. We saw solid growth in NBRxs during Q4, with a notable shift in new patients favoring bipolar over schizophrenia. In Q4, 56% of NBRxs were for bipolar patients, indicating a positive trend which we believe is influenced by our DTC campaign. We are monitoring key metrics like awareness levels among HCPs and patients, utilization of our digital platforms, and the rate of grants for the product, all of which are moving in a favorable direction. Our plan is to maintain this momentum into 2024. While I won't disclose all the specifics due to competitive reasons, I want to emphasize that we track this progress every quarter and make necessary adjustments, aiming to fully engage patients in 2024.

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

Thanks so much for the questions and congrats on the guidance and the expense discipline. That was kind of what I wanted to ask about in light of your comments, Rich, on BD, when you look at the margins, it looks like you're meeting or potentially exceeding your goals here. Where do you see margins going over time? Like what's kind of your goal? Are there peer company targets that you're thinking of? And how could doing business development spending more money on the R&D side, issuing any debt if that could be in the cards sort of play into the whole context of where you think the P&L structure is going here over the next 2 to 3 years? Thank you.

Paul, thanks for the question. I'll start, and then Blair has any color, please provide it. Our view now is that we've transformed the company, and it's taken a few years to do it. But now we enter 2024, and I think the guidance reflects it now in two ways. One, 2023, the complexity of the 23 cleanup by 2024, how clean it is, our view at the Board level, management level, is we're going to be a sustained profitable company from here on out. So we'll guide on an annual basis with respect to how we expect to manage the business. But we think we can drive profitability, pipeline expansion and prosecuting 2680 and its derivatives aggressively in the clinic. Obviously, we'll monitor the top line each year as that grows, we accommodated to the expense line in light of how the revenue line is growing, but we see sustained profitability, cash flow generation and pipeline expansion all going forward. Blair, anything you want add?

The only thing I'd add, Paul, is that we also, as you mentioned, have a very clean balance sheet, and that provides us optionality as we move forward and we can be opportunistic as need be.

Thank you. Our next question is from the line of Jessica Fye with JPMorgan. Please proceed with your question.

Hey, guys. This is Norm on for Jess Fye. Two questions from us. The 2024 guidance reflects really nice cost control on operating expenses. Is this sort of run rate we should expect the company to roughly maintain over the next few years? Or if not, how should we think about that? And then secondly, on 2680 can you confirm whether any visual disturbances have been observed in any of the NT2 or IH patients dosed so far? Thank you.

Great. Well, this is Blair. I'll take the first question with regard to the operational expenses. So you're right, we've spent a long time over the last couple of years really looking carefully at our cost structure and managing that across the organization. And we plan on being very disciplined as we move forward. That being said, as the business continues to grow, we will be growing those lines in line with that business, investing in research and development, investing in our key products. But I think you can envision, as Rich said, that we're going to maintain a healthy profitability margin moving forward in the foreseeable future.

And with respect to 2680 we've not released any data on the NT2 IH as we remain blinded.

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

Good morning, everyone. This is Charlie on for Chris. Thank you for taking our questions. Maybe shifting back over to LYBALVI. I had a question just regarding where LYBALVI ended up for fiscal year '23. I seem to recall earlier in the year last year, hearing commentary that LYBALVI was trending towards the upper end of fiscal year '23 guidance. And now we're seeing that we came in more towards the middle of that range. Just wondering what may have changed over the course of the year and whether there are implications that we need to keep in mind when we look at the fiscal year '24 guidance? And then just as a quick follow-up, I was wondering if we could hear some commentary around how the team sees the schizophrenia market potentially changing with the potential approval of KarXT from Karuna later this year? Thank you very much.

Yes, absolutely. So I'll take those questions as well. So for the full year 2023 LYBALVI net sales were $191.9 million overall. You might remember, in Q3, we saw a little bit of softness overall due to some inventory draw down and also some seasonality with patient visits. We do see a nice recovery of that into Q4, which led to 11% TRx growth. Overall, the full year of 2023 was really a demand-related story. So demand grew over 100% year-over-year, which we're really encouraged with. And that's very supportive of all of our market research when we talk to HCPs. They're seeing a lot of utility for LYBALVI right now, not only within bipolar disorder but also within schizophrenia. In terms of new competitive entrants into the marketplace, this is something that we watch very closely overall. There is the potential that KarXT could be approved sometime later this year. The way we think about that is that's a product that would be approved in one of our indications, which is schizophrenia. I think it's important to remember that LYBALVI basically has an equal contribution from TRxs from bipolar disorder and schizophrenia. So there's broad utility overall within the product. We also really believe in talking to HCPs as well that one of the most important attributes is efficacy in the marketplace. So any product that would be KarXT they were to come into the marketplace and really want to discuss and strengthen the overall perception in schizophrenia and efficacy. We think that's a good thing. And we actually think that's a good thing for LYBALVI. But overall, the last couple of years, we've built a really sophisticated commercial infrastructure. And regardless of any new entrants coming into the marketplace, we're ready, and we're ready to compete.

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

Thanks for taking my question. Coming back to 2680. Rich, I'm wondering if you can comment at all just how to think about the NT2 data update versus when we get the NT1 update just given the patient level variability. This seems like probably the data update on the MWT might inherently be a little noisier than the NT1 update, but just wondering if you can provide any perspective on that. And then I guess, is there a dose level with NT2 that you just don't want to go beyond? Is it 5x? Is it 6x? Just wanted to get your sense, it seems like at least from Takeda's prior commentary, there’s sort of a hypothesis around exposure and not wanting to trigger liver toxicity on a dosage-based hypothesis. So just curious sort of if there's a threshold that you don't want to exceed in the NT2 setting.

Yes, Jason, that's a thoughtful question. In NT2, we remain blinded to the pretest hypothesis as you described. Compared to NT1, where the sleep latencies in the first dataset we presented were all under 5 minutes, for NT2 and IH, we expect sleep latencies to vary from the low end up to around 20 minutes in a 40-minute test. This reflects the inherent variability. Our goal is to change that latency in a dose-dependent manner while maintaining an acceptable tolerability profile. We don't expect each patient to respond as uniformly as in NT1, but we do anticipate having the ability to influence wakefulness at doses that are both clinically acceptable and well tolerated. We will see the results once we unblind the data. We're testing in a fixed regimen that we established as our priority, similar to what we did with NT1. In NT1, we predetermined that we would test doses of 1, 3, and 8 milligrams, with each patient receiving all three doses or placebo in a randomized sequential manner. We selected a range of doses that are two or three times higher for T2s and IHS, and we're following the same approach. We found that the dose range was accurate for NT1, and we may find the same for NTIs, though there is a chance we could be too low, too high, or experience unacceptable tolerability. So far, our tolerability has been excellent, and we just need to review the data. To answer your question, we aren't concerned about exceeding the doses we selected as our priority; we’ll just need to analyze the data and decide on any necessary adjustments. It's worth noting that in healthy volunteers, we escalated to 50 milligrams without determining a maximum tolerated dose or observing any cardiovascular or other issues. Lastly, regarding liver toxicity, we do not believe it to be a dose-dependent issue for the class; instead, it seems to be specific to that particular molecule and not applicable to orexin receptor agonists in general.

Got it. And Rich, if I could squeeze a follow-up in. Is there a driving requirement in your Phase II that you're planning? I know it's one question we've gotten from investors just regarding visual disturbance, and if there'll be a driving requirement in that study protocol.

You will not be required to drive - that's a joke. No. What we will be doing is we will be doing visual assessments just as a matter of precaution to make sure we understand if there are on-target visual effects at any dose, that's something we want to investigate in Phase II.

Our next question comes from the line of Charles Duncan with Cantor Fitzgerald. Please proceed with your question.

Good morning. Thanks for taking our questions, and congrats on a strong execution transformative '23. I had a quick question on the pipeline and then one on LYBALVI. On the pipeline, regarding 2680, I guess I'm wondering if you can provide any more granularity on the timing or - and/or the design of the Phase II in NT1. And just a perspective on your view of NT2 versus NT1 in terms of being important for transforming the treatment of narcolepsy?

Thank you for the question. This is Rich. The Phase II design in NT1 is a straightforward parallel design study. We'll randomize patients after a 2-week washout of their existing medications into one of four arms: a dose of 2680 at 4, 6, or 8 milligrams or a placebo, and we'll evaluate them over a 6-week period. This will be where we assess the primary efficacy through the maintenance of wakefulness test. There will also be a subsequent safety extension for all patients. The primary endpoint includes the maintenance of wakefulness test and the Epworth Sleepiness Scale, and we will capture cataplexy rates in the NT1 patient population. If we are successful in NT1, we expect the NT2 study to resemble it, although MDI patients do not experience cataplexy. The basic structure will be similar with a parallel design, a 6-week study evaluating three doses and placebo. When we have the data, we'll analyze it. NT1 fundamentally involves a deficiency of orexin, and introducing an orexin agonist can drive significant wakefulness at clinically tolerable doses. NT2 is more empirical, and the distinction between the two types of narcolepsy is somewhat fluid. We expect higher doses will be needed for NT2 and that the tolerability curve has shifted, indicating that patients may tolerate higher doses due to reduced sensitivity to the orexin agonist compared to NT1, but we will confirm this with human data. If these drugs meet our expectations, they could significantly change the treatment landscape for NT1, which would be a major medical and commercial breakthrough. Extending this to NT2 and IH has two implications: it would target a much larger market and suggests that we can improve wakefulness in patients already on an orexin background, opening opportunities for other orexin agonist products beyond narcolepsy. We are eager to see the data for these reasons.

Makes sense. I appreciate the explanation. I have a quick question about LYBALVI, now that we are a year into it or a bit more, what is the growth like? Is it being driven by something specific or is it the persistence that might be surpassing your expectations? How do you assess the refills and persistence in this area?

Yes, absolutely. It's a really important question. I would say, overall, the dynamics across all those 3 are really healthy right now. First, if we just look at Q4, we just finished this quarter, overall TRx demand was 11%, which was really encouraging. If you look at it for the full year, over 100%. And again, both of those metrics led the branded category at year 2, which is great. And it's very consistent with what we hear in our market research. HCPs tell us that they're finding a lot of utility for the brand, the patients that they have on the product are having a good experience and they are planning to expand their utilization. So qualitatively, that's a good sign. We also look at persistency rates in terms of refills. We look at this in terms of claims level data. And it's been very encouraging as well there. Right now, we're seeing persistency levels that are consistent with the branded category and better than a land pain. And then I'll just kind of reinforce again. You heard in my prepared remarks the A38 data that was just released that we're going to be discussing at some medical meetings this year. That's some really important information. Those are patients that have been on the product long term for approximately 4 years. They're showing durability of efficacy. They're showing durability of the low weight gain and also the metabolic profile as well, too. So that's going to reinforce the persistency levels that we're expecting long term.

Thank you. Our next question is from the line of Umer Raffat with Evercore.

So we know Takeda obviously decided not to move forward in Narcolepsy Type 2. And it seems like that might have been because they don't want to go above doses of 10 milligrams with 861. I realize the upcoming data for you is single dose. And I wonder how are you thinking about doses of 15 to 20 milligrams for narcolepsy type 2 and IH knowing some of the visual disturbance observations at those dose levels previously?

I want to clarify our current perspective on NT2 compared to NT1. Our hypothesis is shaped by both our experiences and those of previous compounds in clinical settings. We anticipate an upward shift in the dose response curve regarding both tolerability and efficacy, meaning we are testing doses that are 2 to 3 times higher. We also expect the tolerability profile to evolve correspondingly. As the data becomes available, we will learn more about how this plays out. Our expectation is that there will be greater variability in baseline sleep latency among NT2 patients based on the MWT test results. Therefore, we aim to determine if we can achieve a dose-dependent shift at tolerable doses. This is the current design of the test, which includes a single exposure across multiple doses. This setup allows for the examination of the dose response and durability of that response, evaluated every 2 hours over a 10-hour study period. It replicates the data-rich format seen in NT1 with NT2. We believe that the tolerability profile established in the SAD study, where we didn’t identify a maximum tolerated dose at 50 milligrams, provides us with flexibility in dosing. We have selected these doses for further investigation in NT2 and IH. Once we unblind the data, we will determine if these doses are appropriate, whether we need to adjust them, or if any doses lack tolerability to promote meaningful wakefulness. However, our pretest hypothesis suggests that we should be able to induce wakefulness at a tolerable dose, and this hypothesis will soon be validated through data.

Got it. And Rich, is it reasonable to assume that there has been some discrepancy in how the market views visual disturbances compared to Alkermes' perspective? Do you believe those visual disturbances will not inhibit moving to doses like 20 milligrams?

Let's clarify the initial principles. We observed some light visual disturbances in healthy volunteers at doses exceeding 15 milligrams. These disturbances were mild or moderate and resolved on their own. Specifically, the disturbances included blurred vision, sensitivity to light, and discomfort from bright light; unlike some reports of hallucinations, we did not see those. We documented these visual disturbances in healthy volunteers but did not observe them in the full narcolepsy type 1 cohort tested at 1, 3, and 8 milligrams. Our perspective is that the mild, transient, self-limiting visual disturbances seen in healthy subjects are not a concern for the drug. If they are dose-dependent, it would be useful to explore this relationship, although we have not yet seen it. The potential exists that there may be a wakefulness threshold lower than the point at which these minor visual disturbances could occur. More scientific investigation is needed to understand this further. It’s certainly a possibility, and we will know more after Phase II. This study will involve consecutive daily dosing for six weeks, helping us gather all the adverse events. One key takeaway from experts is to be cautious in determining the adverse event profile based on single doses, as patients may adapt to these drugs over time, leading to changes in the reported adverse events. Therefore, we can expect a comprehensive data set upon finishing Phase II.

Our next questions come from the line of Marc Goodman with Leerink Partners.

I have two questions. First, can you discuss LYBALVI and the gross to net and how you're approaching this for the year? Should we expect this to keep changing over the next couple of years? What’s your strategy? Secondly, regarding VIVITROL, can you provide more insight into what’s happening with opioid dependence versus alcohol dependence, particularly this quarter and your expectations for the year? Is opioid dependence declining completely, or are both types growing with one growing faster than the other? Please clarify.

Yes, absolutely. So I'll take both of those. First, gross to net with LYBALVI. So for Q4, gross-to-net was approximately 29%. The increase was driven by higher Medicaid utilization and some one-time events. Our expectation going into the year is that it should be relatively stable at this point. So that's what we're expecting for the full year. I will say as well that we're in constant discussions with payers. And to the extent that we do sign some additional agreements that gross to net would widen, but the expectation for 2024 is that it would be in the upper 20s. In terms of VIVITROL right now, we're seeing really strong growth with our alcohol dependence strategy. And that's, as you know, is the largest part of the market, more than 24 million Americans. We did see some headwinds in Q4 for opioid dependence, but that's really a subnational phenomenon. So there was a little bit more of a decline overall for that indication, but the alcohol dependence is actually offsetting that. So our strategy is, again, is 75% of all of the volume and the units are coming through from alcohol dependence. And we've been transforming VIVITROL over the last several years. And our strategy is to continue to really go after that very large addressable market and really drive the brand through alcohol dependence.

Our final question is from the line of Ashwani Verma with UBS.

So I have 2 on Baldi. First one, can you update us on where you are on the LYBALVI commercial contracting? I think previously, like during the second half of last year, you said that you were looking at expanding presence in more commercial plans, just where we are in this process? And then second, so for the basalts still a little bit of a weight gain issue, but still much better than olanzapine. So my question is, as these obesity products become a little bit more affordable on commonplace, would patients on these weight loss drugs be more willing to consider LYBALVI versus not?

Yes, I'd be happy to address that. When we think about market access, we consider three channels: Medicaid, Medicare, and commercial. Access is influenced by the formulary designs of each payer. LYBALVI has strong access, and there is a pathway for patients. We focus on maintaining a healthy balance of contracting and services to help patients start their therapy. This is crucial because once gross to net begins to increase, it’s tough to reverse that trend. Our main goal is to achieve net sales profitability for every unit sold. We expect gross to net to remain stable compared to the end of 2024. We continuously engage with commercial payers, evaluating each opportunity on a case-by-case basis. We balance the expectations around gross to net with volume projections, prioritizing net sales. Currently, we believe LYBALVI remains accessible to most patients, as indicated by healthcare professionals, who view access as comparable to other branded agents. Therefore, we don't see access as a limiting factor right now. Regarding weight gain, this concern was central to LYBALVI's development, especially since olanzapine has metabolic side effects. We have addressed this with LYBALVI, and we expect that, given olanzapine's efficacy, broad utilization will continue. The benefits related to weight gain further reinforce its role as a foundational therapy for maintenance treatment. It remains to be seen how weight loss products entering the market will impact this, but we anticipate strong demand for LYBALVI into 2024.

Our final question is from the line of Mizuho Securities.

Could you, I guess, speak a little bit about what's your expectations are for the gross and net for notably, VIVITROL and ARISTADA for 2024. And also, can you sort of speak about what came out of the SG&A in 2023 versus 2024, if you were able to quantify that a little that be great. Just wondering how much you're planning to spend on DTC going into 2024. And a quick third question. What's the timing for the data readout for NT2 IH?

This is Blair. Why don't I start with just the SG&A? So I think it's important to recognize as you compare '23 to '24, that it becomes difficult because '23 was such a complicated year for us, a year where we had a number of activities that were ongoing. We have an efficiency program that we're running through the organization to ensure that we're driving efficiency on every line item. We also had a number of one-time expenses along in SG&A, particularly in the G&A element of that associated with the separation of the oncology business. So those things really drive the predominant difference between '23 and '24. And I'll turn it over to Todd to answer specific questions on TCC.

Yes, absolutely. Regarding direct-to-consumer efforts, we are very optimistic about the overall program we have in place. It has shown strong results in market research, and we are beginning to see positive effects on new patient starts. This is a comprehensive campaign that incorporates both television and digital assets, and our intention is to continue this approach in 2024. For competitive reasons, I won't provide specific details on our spending levels, but we monitor it closely throughout the year and on a quarterly basis, and we plan to keep investing in direct-to-consumer efforts. Concerning the gross-to-net ratio for VIVITROL and ARISTADA, we anticipate that both products will maintain consistency with recent trends, projecting around 54% for VIVITROL and approximately 56% for ARISTADA in 2024.

It's Rich. We're completing that enrollment as we speak. So when we clean up those data I'm looking to Sandy, but I think what we'll probably do is top line those data because there's not an immediate medical meeting until early summer or the fall. So it'll probably give us a sense on the top line of the results and then wait for a medical meeting for the full disclosure.

Alright. Thanks, Rob. Thanks, everyone, for joining us on the call today. Please don't hesitate to reach out to us at the company for any follow-up questions. Thank you.

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