Earnings Call
Alkermes plc. (ALKS)
Earnings Call Transcript - ALKS Q4 2020
Operator, Operator
Greetings, and welcome to the Alkermes Fourth Quarter 2020 Financial Results Conference Call. My name is Rob, and I'll be your operator for today's call. Please note this conference is being recorded. I will now turn the call over to Sandra Coombs, Vice President of Investor Relations. Sandy, you may begin.
Sandra Coombs, Vice President of Investor Relations
Thank you. 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, 2020. With me today are Richard Pops, our CEO; and Iain Brown, our Chief Financial Officer; 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 and related financial tables, including a reconciliation 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 Richard.
Richard Pops, CEO
Thank you, Sandy. Good morning, everyone. Hope you're all well. Let me start by saying in 2020, we demonstrated the resiliency of our organization and our business in response to historic challenges and we added new scientific financial and governance elements to the Alkermes story. Against the backdrop of a challenging and shifting environment, we identified our key strategic priorities and we held ourselves accountable to execute against them. We took pride in the fact that our work directly impacted people whose lives were even more challenged by the pandemic and we were compelled to figure out ways to keep our medicines accessible. So job one was commercial execution for VIVITROL and ARISTADA to support patients and to protect the company's topline. As COVID emerged and access to physicians and treatment centers became restricted, we adapted our approach to maintain continuity with prescribers to help ensure continued access to treatment. We developed a hybrid promotional model, tailored to each territory combining in-person and digital interactions. And we expect these adaptations to endure. The second priority was to advance our R&D programs, keeping our most important programs on track by figuring out ways to continue to advance program activity despite limitations on access to our own laboratories and the impact of COVID-19 on clinical trial sites around the world. We were successful in doing that. We prepared for and completed the successful advisory community meeting for LYBALVI, our oral antipsychotic candidate for the treatment of adults with schizophrenia and adults with bipolar I disorder. We significantly advanced nemvaleukin and hit key milestones for that program. And we met our goal of nominating our first clinical candidate from our HDAC inhibitor program. The third priority focused on the efficient management of the business from a financial and operational perspective. As the pandemic evolved, we modeled a range of potential revenue disruptions and made adaptations to our cost base throughout the year. In December, we announced our value-enhancement plan designed to drive growth, improve operational and financial performance, and enhance shareholder value. For 2021, we're similarly focused in three major areas, with an explicit goal of revealing and elaborating the value that's embedded in this distinctive company. First, we want to continue to grow our revenue base. We have a substantial and growing topline, driven by important medicines that serve patient needs in difficult-to-treat diseases VIVITROL, ARISTADA and VUMERITY, each of the distinctive medicine with its own value proposition. We expect that if approved, LYBALVI will be another important product in our psychiatry portfolio and a new long-term revenue stream for the company. Second, is to demonstrate the value of the R&D investments we've been making. After being relatively quiet in 2020, in 2021, we'll reveal more about our efforts in our focus areas of neuroscience and oncology. Later this quarter, we'll host an Investor Day to give you a better understanding of these programs and some insights into additional candidates that we expect to emerge. The third area of focus is on profitability, making good on the commitments we established in the context of our value-enhancement plan. The plan includes a commitment to multiyear profitability targets, a focus on the company's cost structure, exploration of potential strategic opportunities, and continued governance enhancements. Iain will talk more about that in a minute, but we're excited about the plan and we think it provides a solid foundation for future valuation growth. We also announced some important changes to the leadership team at the beginning of this year. Blair Jackson was appointed to the position of Chief Operating Officer; and Iain Brown was appointed to the role of Chief Financial Officer. They each bring a wealth of experience and institutional knowledge to their new positions and I'm really pleased to have Blair and Iain assume these key leadership roles at this pivotal time as we position the company for our next stage of growth and advance our commitment to delivering value for all of our stakeholders. So, with that as an introduction, I'll hand the call over to Iain for a review of the 2020 results and our 2021 expectations.
Iain Brown, CFO
That's great. Thank you, Rich, and hello everyone. I'm pleased to start by expressing my excitement about stepping into the CFO role during such a crucial period in the development of the company. As we prioritize value creation, our strategic goals are clear. It's essential for us to manage our business efficiently from both financial and operational standpoints, and I am optimistic about our ability to create substantial value through these efforts. At the end of 2020, we initiated a value-enhancement plan with long-term profitability targets. This plan includes a goal to achieve non-GAAP net income of about 25% of total revenues in 2023 and approximately 30% in 2024. Over the coming years, we expect our revenue growth will be driven by our diverse range of commercial products, while also focusing on managing major cost drivers within the business, including our investments in R&D to support and enhance our product pipeline, ongoing infrastructure optimization, and the overall operating model. Regarding our financial performance, I am satisfied with our results for 2020, which reflect effective management in response to the significant challenges posed by the COVID-19 pandemic. These results highlight our emphasis on execution and our commitment to achieving bottom-line growth. For the year, we reported total revenue of $1.04 billion, fueled by the strong performance of ARISTADA, the stabilization of VIVITROL in the latter half of the year, and our varied manufacturing and royalty income. On a bottom-line basis, we recorded a GAAP net loss of $110.9 million but achieved a non-GAAP net income of $68.6 million. For a proper comparison year-over-year, we should remember that our 2019 results included $150 million in revenue from the approval of VUMERITY. Excluding that milestone revenue from 2019, our non-GAAP net income improved by over $100 million year-over-year, underscoring our commitment to driving bottom-line growth. For 2020, VIVITROL generated net sales of $310.7 million, although the pandemic negatively affected sales, resulting in an 8% year-over-year decrease in units sold. Gross-to-net adjustments rose to 49.9% for the year from 48.3% in 2019, largely due to a growing Medicaid population, partially offset by favorable sales reserve adjustments that enhanced net sales by around $10 million throughout the year. In the fourth quarter, VIVITROL net sales reached $80 million, remaining flat sequentially despite the pandemic's intensifying impact in the U.S. during that period. Units sold dropped by 5% compared to Q3, balanced by positive gross-to-net adjustments that fell to 50.6% in Q4 from 52.8% in Q3. Notably, unlike trends from previous years, we experienced minimal inventory buildup at year's end, totaling approximately $1.5 million. Turning to the ARISTADA product line, net sales for the year increased by 27% year-over-year to $241 million, driven by a 30% growth in volume. Gross-to-net adjustments for the year were 53.3%, compared to 49% in 2019, mainly due to heightened Medicaid usage. In the fourth quarter, net sales grew by 10% sequentially and 21% year-over-year to $68.9 million. Gross-to-net adjustments rose to 54.1% in Q4, with inventory levels increasing by around $5.2 million, slightly exceeding our expectations, which we anticipate will be addressed in the first quarter of 2021. Moving on to our manufacturing and royalty segment, we reported revenues of $484 million, compared to $447.9 million the previous year, primarily attributed to ongoing growth from INVEGA SUSTENNA and contributions from VUMERITY, which added $22.5 million for the year. In terms of expenses, our total operating costs in 2020 declined by nearly $200 million year-over-year. R&D expenses reached $394.6 million for 2020, down from $512.8 million in the prior year, reflecting our strategy to concentrate investments in R&D programs with the highest return potential. Additionally, 2019's R&D expenses included an $86.6 million charge associated with the acquisition of Rodin in Q4 of that year. SG&A expenses for 2020 were cut down to $538.8 million from $599.4 million in 2019, influenced by the impact of 2019's restructuring, COVID considerations, and ongoing cost management efforts throughout the year. Concerning our balance sheet, we concluded 2020 with about $660 million in cash and total investments, an increase from $614 million at the beginning of the year, bolstered chiefly by non-GAAP net income and changes in working capital, offset in part by capital expenditures of approximately $31 million for the year. The total debt outstanding at the end of the year stood at $275 million, leaving us with a net cash position of roughly $385 million. Looking ahead to our financial expectations for 2021, which we detailed in a press release issued earlier today, we anticipate improvements in pandemic-related conditions in the latter half of 2021. Should conditions not improve as expected, our ability to meet these targets could be adversely affected. Our expectations also account for anticipated growth in our commercial portfolio and focused investments to prepare for the expected launch of LYBALVI and to advance the clinical development program for nemvaleukin. Importantly, these expectations do not include any potential partnerships regarding nemvaleukin or other strategic opportunities. Therefore, for total revenues, we anticipate a range between $1.1 billion and $1.17 billion. For VIVITROL, we expect net sales to fall between $315 million and $345 million with gross-to-net adjustments of around 54%, influenced by increased Medicaid usage. For ARISTADA, we project net sales in the $260 million to $290 million range, reflecting expected volume growth, albeit slightly offset by anticipated gross-to-net adjustments, which we expect to rise to roughly 55%, again due to increased Medicaid utilization. Consistent with historical seasonal trends, our proprietary product net sales in Q1 2021 are expected to decline sequentially to about $65 million to $70 million for VIVITROL and approximately $50 million to $55 million for ARISTADA, with growth expected to resume in Q2. However, it's crucial to note that we do foresee an underlying increase in demand for both products, even with the lower sequential net sales figures. Our total revenue expectations for 2021 incorporate a modest contribution of up to $10 million from LYBALVI net sales, contingent upon approval, as we prepare for a launch in the latter half of the year. Additionally, as we look towards next year with our expected portfolio expansion, we may shift to providing a single total proprietary product net sales range in our guidance instead of separate ranges for each product. In terms of operating expenses for 2021, we foresee an uptick in cost of goods sold as volumes rise, projected to be between $190 million and $200 million. R&D expenses are expected in the range of $400 million to $430 million, which includes a possible $25 million milestone payment related to the submission of an IND or similar for ALKS 1140, the first clinical candidate from our HDAC inhibitor platform. This R&D expense range also reflects increased investment in nemvaleukin as we enhance its development program as well as ongoing investment in lifecycle management studies for LYBALVI. SG&A expenses are projected between $570 million and $600 million, a year-over-year increase due to expected phased investment in sales personnel and marketing support for the anticipated launch of LYBALVI. Overall, we are estimating a 2021 GAAP net loss in the range of $85 million to $125 million, with an anticipated non-GAAP net income range of $60 million to $100 million. We remain committed to achieving the profitability targets outlined in our value-enhancement plan, and there are multiple pathways to reach those goals. Regardless of the revenue trajectory, we will manage expenses and strive for efficiencies to meet our targets. The investments we are making in 2021 are intended to establish a solid foundation for growth while maintaining the non-GAAP profitability we achieved in 2020. In 2022, our focus will be on enhancing operating leverage from our psychiatry business as we establish the launch trajectory for LYBALVI. In conclusion, we are entering 2021 well equipped to execute our strategic priorities. Our diverse commercial portfolio, the expected launch of LYBALVI this year, and the advancement of our nemvaleukin program provide a robust basis for long-term value creation, and I look forward to sharing updates on our progress. Now, I'll turn the call over to Todd to discuss our commercial landscape.
Todd Nichols, Chief Commercial Officer
Thanks, Iain, and good morning everyone. By anyone's estimation, 2020 was a year marked by unforeseen challenges, as the nation and our industry responded to the pandemic. We believe we have both a responsibility and an opportunity to help address unmet patient needs in serious mental illness and addiction, which has been exacerbated by the pandemic. Our commercial performance last year reflected innovation and adaptation by our team, as we supported health care providers and helped patients maintain access to their medications in this difficult environment. I am pleased that we ended the year at the high end of our July 2020 net sales guidance ranges for VIVITROL and ARISTADA. Starting with VIVITROL, net sales in the fourth quarter were $80 million, flat on a sequential basis to the third quarter. This reflects a continued stabilization, following a decline in volume in the spring due to disruptions to the treatment system related to COVID-19. While many treatment providers have adapted their practices and patient access to injections has improved, overall VIVITROL volume remained below last year's Q4 levels, with a 14% decline in units year-over-year. In particular, new patient starts in opioid dependence were lower, primarily due to reduced access to detoxification services. While this trend persisted in the fourth quarter, the environment had improved compared to the height of the pandemic-related disruptions in the second quarter, as 19 of the top 20 states reflected higher volumes in the fourth quarter as compared to Q2. In 2021, we are focused on driving adoption of VIVITROL as a treatment option for alcohol dependence among providers, caregivers, and patients. The contribution from alcohol dependence and the indication mix for VIVITROL has been on an upward trend, driven by both increased market share and growth of the category. The increased prescribing of medications for the treatment of alcohol dependence is indicative of the growing adoption of evidence-based standards recommended by entities such as SAMHSA, the VA, and American Psychiatric Association. This shift comes at an important time, as the incidence of heavy drinking, which may be a sign of alcohol dependence, increased during the pandemic and as policymakers begin to call for flexibility to use existing funds to treat AUD and educate at-risk populations on the treatment of AUD. In 2021, we plan to increase our focus on driving awareness of VIVITROL as a treatment option for alcohol dependence and launch programs to maximize the impact we can have in this area of significant unmet need. We expect 2021 VIVITROL net sales in the range of $315 million to $345 million, reflecting our strategy to drive growth in the alcohol dependence indication, somewhat offset by continued pressure on new patient starts, particularly in opioid dependence through mid-year. We remain committed to driving awareness of VIVITROL's utility and believe that it will continue to have an important role to play in the treatment paradigm. Let me now turn to the ARISTADA product family. Net sales in the fourth quarter increased approximately 21% year-over-year and 10% sequentially to $68.9 million, reflecting underlying demand growth and the inventory build Iain mentioned. Total prescription data for ARISTADA in the fourth quarter demonstrated strong growth of 16% year-over-year in terms of months of therapy and outpaced the broader long-acting atypical antipsychotic market. As a result of the pandemic, we have seen some impact on prescribing patterns in the long-acting antipsychotic space. The year-over-year growth rate of the overall long-acting injectable market began to moderate from 13% in Q1 to 5% in Q3 and Q4, as market research showed that psychiatry health care providers made fewer treatment changes in the COVID environment. In this challenging year, we executed against our ARISTADA growth strategy with encouraging results. Patient volume grew four times faster than the LAI market in 2020, and we made strides with increasing our prescriber breadth and depth of utilization. Our recent market research also indicates that the value proposition of the ARISTADA two-month dose plus ARISTADA INITIO is resonating with health care providers, as evidenced by 50% year-over-year TRx growth for the two-month dose on a months of therapy basis. We expect ARISTADA 2021 net sales in the range of $260 million to $290 million. This range reflects our continued emphasis on ARISTADA's differentiated value proposition and assumes a normalization and growth of new patient starts for the overall LAI class in the second half of the year. LYBALVI, our oral investigational antipsychotic designed to offer the efficacy of olanzapine, while mitigating its associated weight gain is under review with the FDA with the PDUFA date of June 1, 2021. Pending approval and DEA de-scheduling, we are planning for a launch in the second half of 2021. Upon approval of LYBALVI, we'll be launching into a largely generic oral market but one where branded agents can still be successful due to the serious unmet needs that remain. Schizophrenia and bipolar disorder patients commonly cycle through five to seven treatment options on average and there are approximately 70,000 treatment switches every month. The commercial organization that we have built to support ARISTADA is also the foundation for the potential upcoming launch of LYBALVI. Our psychiatry infrastructure will serve as a platform to drive growth, operational leverage, and profitability. Late last year we implemented a reorganization of the commercial infrastructure to streamline the organization and improve efficiencies with approximately 80 full-time physicians reallocated to support the anticipated launch. As a result of this reorganization and the hybrid promotional model developed in response to the pandemic, we have reduced the additional resources required to launch LYBALVI compared to our prior expectations. To maximize the launch opportunity, we plan to make additional staged investments, adding modest incremental headcount in advance of launch and as payer access for LYBALVI established in the launch year. With this commercial organization, we expect to be competitive in the landscape in terms of both reach and share of voice. In conclusion, in 2021, we are focused on commercial execution, increasing awareness and delivering growth of VIVITROL and ARISTADA. Each of our products plays an important role in the treatment paradigm and we have an opportunity to drive increased utilization, particularly against the backdrop of the growing need for serious mental illness and addiction treatments. And with that, I'll turn the call back over to Rich.
Richard Pops, CEO
Thank you, Todd. As you've heard, we entered 2021 focused on executing our strategy in three key areas: growing and diversifying our revenues, demonstrating the value of our R&D investments, and managing the company for growth and long-term profitability. Each area presents a significant opportunity for creating value. Our R&D efforts are aimed at developing high-value candidates in neuroscience and oncology. To start with neuroscience, LYBALVI, or ALKS 3831, we received a complete response letter in November, which included a request for additional information regarding LYBALVI's manufacturing. Due to the pandemic, the FDA's capacity for pre-approval inspections has been limited, leading them to rely more on remote record requests to complete their reviews. We submitted our response to the FDA in December, which was classified as a complete Class II response. They assigned a PDUFA date of June 1st and requested more extensive records related to the manufacturing of LYBALVI. The Class II designation aligns with the FDA's recent guidance. The CRL and following record requests are solely focused on manufacturing aspects, with no concerns raised related to clinical efficacy or safety, and no further clinical studies requested. We will continue to collaborate closely with the FDA as it reviews the NDA, and we look forward to delivering LYBALVI to patients as soon as possible. As Todd mentioned, we believe this is a crucial medicine that meets a significant need in the schizophrenia and bipolar one markets and strengthens our psychiatry franchise. Our second neuroscience pipeline development is ALKS 1140, our newly nominated candidate from our selective HDAC inhibitor platform. This novel approach aims to enhance functional synaptic connections and integrity in the brain, applicable across various clinical settings from rare neurodegenerative and developmental conditions to common psychiatric disorders. ALKS 1140 is an orally bioavailable small molecule designed to selectively modulate the CoREST HDAC complex, which regulates synapse formation and function in the brain, with synapses being essential for neuron communication. We established clear goals for selecting this clinical candidate, emphasizing selectivity, brain permeability, and evidence of increased synaptic density in preclinical studies, while avoiding known potential hematopoietic side effects. We achieved these pre-clinical goals with ALKS 1140 and plan to start first-in-human studies this year. Moving to oncology, we have made strong progress with nemvaleukin, our novel investigational drug that utilizes the known anti-tumor effects of the interleukin-2 pathway. We have adopted a disciplined, stepwise approach in its development. Our initial objective was to confirm the validity of the molecular design through a clinical pharmacodynamic response, showing a dose-dependent, selective expansion of NK and CD8+ T cells, while maintaining minimal changes in peripheral regulatory T cells. This was accomplished in our intravenous protocol called ARTISTRY-1, leading to the launch of our subcutaneous protocol, ARTISTRY-2. Our next goal was to determine if the observed immunological response translated into anti-tumor activity, which we accomplished in 2020. In ARTISTRY-1, we saw single-agent activity in melanoma and more recently in renal cell carcinoma, which represent the two indications currently treated with recombinant human IL-2. Demonstrating this single-agent activity is a vital milestone for the program. We also observed durable responses when using nemvaleukin in combination with pembrolizumab across multiple tumor types, including types where PD-1 PD-L1 is not approved. Throughout the ARTISTRY-1 study, nemvaleukin demonstrated a safety profile consistent with the expected effects of cytokine therapy, with transient fever and chills as the most common adverse events in both monotherapy and combination cohorts. We are now concentrating on initial registration pathways. In monotherapy, we are focusing on mucosal melanoma, recognized as an aggressive form of melanoma with limited treatment options often diagnosed at an advanced stage. In combination with pembrolizumab, we will explore platinum-resistant ovarian cancer, another area with significant unmet need. We intend to consult with the FDA to move our registration plans forward and begin studies this year. Ultimately, we aim to broaden the program to maximize the medical and economic potential of the product, identifying and selecting additional tumor types and combinations for collaboration. As our data set expands, we envision nemvaleukin as an asset for collaboration and value creation. We are enthusiastic about the candidates emerging from our R&D platform. The criteria for nominating new candidates have heightened as the healthcare system requires genuine innovation, prioritizing both economic and medical value in new medicines that offer advancements over existing treatments. Later this quarter, we will hold an Investor Day to provide more information about our development programs, including our discovery and preclinical endeavors in recent years. The science is compelling, and we are eager to introduce some of the scientists involved in this work and share their progress. Looking at the bigger picture, Alkermes is evolving. The company has committed to driving profitability in the coming years and has refined its focus on creating value. We are disciplined with our investments and committed to our execution across all aspects of our business. The strategic initiatives within our value-enhancement plan build upon prior efforts to optimize costs while centering the business on high-value opportunities. This new commitment integrates all aspects of our business. Alkermes is a multifaceted and dynamic company, and our dedication to value creation will serve as a guiding principle as we continue to evolve. Now, I’ll hand the call back to Sandy to facilitate the Q&A.
Sandra Coombs, Vice President of Investor Relations
Thanks, Richard. Rob, we'll now open the call for Q&A, please.
Operator, Operator
Thank you, Sandy. We’ll now be conducting the question-and-answer session. Our first question comes from the line of Vamil Divan with Mizuho. Please proceed with your questions.
Vamil Divan, Analyst
Thank you for taking the questions. First, regarding your guidance, I appreciate the overall product level guidance you've provided. It seems we may not have to wait too much longer. However, the ranges for total sales and for VIVITROL and ARISTADA this year appear to be somewhat broader than what you've typically offered in the past. Could you explain the reason for these wider ranges and elaborate on your assumptions concerning them? This is particularly important as we consider recovery from the pandemic and how it affects patients’ access to these products. Additionally, about 4230, I believe you mentioned discussions with the FDA, and that you hope to initiate registrational trials this year. Can you confirm that, and is this already factored into your R&D guidance for when these trials will begin? Thank you.
Richard Pops, CEO
Hey, Vamil, it's Rich. I'll let Iain handle the guidance stuff. I'll just take the last question first, which is, yes, we do plan to start the registration studies in both PROC and in melanoma this year.
Iain Brown, CFO
Yes. Hi, Vamil. So just on your question around guidance. I think, as you know, we went with wider ranges and I think you answered the question really. It's really just around that COVID uncertainty. Certainly, in the first half of the year, we did say that one of our key assumptions as we put the guidance together was that we did see things turning back to a little bit more of a normal state in the second half of the year. So just to provide a little bit of leeway, we widened the guidance ranges. We did talk obviously about a slightly lower Q1, which we've seen in the last couple of years for both VIVITROL and ARISTADA. So that's a typical seasonal pattern. But we expect continued growth in Q2 and beyond. So that's really what drove the wider ranges, just the uncertainty around COVID certainly in the first half of the year.
Operator, Operator
Thank you. The next question is from the line of Paul Matteis with Stifel. Please proceed with your question.
Thor Nagel, Analyst
Yes. Hey. This is Thor on for Paul. Thanks so much for taking the question. Can you talk a little bit about on the 3831, how you expect the cadence of reimbursement to go in the second half post-launch?
Todd Nichols, Chief Commercial Officer
Yes, absolutely. I'll take that as well. So the first thing I would say is, we're really excited about this. As you heard in my prepared remarks and then also from what Rich said as well, there's a significant unmet need in this category. To date, we've had approximately 50 interactions with payers. Getting prepared for an eventual launch, and the feedback has been very consistent from what you've heard from us in the past that they believe that we'll continue to compete in a branded space. There's three categories with this: Medicaid, Medicare, and Commercial. And typically in a launch market access will evolve over the first 12 months to 18 months. And that's our planning scenario. So we do know that there's going to be some restrictions at launch. Every product in this category has restrictions. So we do know that there's going to be some restrictions in the form of PAIs and step edits and we're preparing for that. So as we get closer to launch it will start to be a little bit more clear. And specifically in the launch year in the first 18 months, it will be a lot more clear on what our launch profiles in terms of access looks like.
Operator, Operator
Great. Thanks so much.
Brandon Folkes, Analyst
Hi. Thanks for taking my question. Maybe just, sort of, on VIVITROL on that NIH study VIVITROL and bupropion for methamphetamine use disorder, I found that very interesting. So can you maybe help us just think about the potential for the commercial opportunity around this? Given that there's no current approved FDA treatment is this something you think if it was approved or you go to market would get fast uptake? Or do you think that it's probably going to be a little bit like alcohol where you're changing sort of the whole treatment paradigm and takes a little bit of time? Yes. Thank you very much.
Richard Pops, CEO
Good morning. It's Rich, and I'm happy to answer that question. I'm genuinely excited about the data. The study, known as ADAPT-2, was published last month in the New England Journal and followed ADAPT-1, which was the first indication that combining VIVITROL and bupropion could potentially help in treating methamphetamine use disorder. As you mentioned, there are currently no treatments for stimulant use disorders. We see this issue across the country, where methamphetamine has overtaken opioids as the main addiction risk in many communities. While the treatments available are not a universal solution and may not work for everyone, they offer a therapeutic approach using two established FDA-approved drugs and a new regimen for VIVITROL administered once every three weeks alongside bupropion. The investigators we've spoken with are quite enthusiastic about the findings. However, from a commercial perspective, the challenge is that this treatment is not yet on the label. We plan to engage with the FDA to discuss this and advocate for the ability to communicate about its safety, efficacy, and dosimetry since we are providing the medication on the front lines. I'm not sure if we will be successful, and it's not factored into our expectations for 2021 or beyond. I view this as a potential upside, but I recognize there is an unmet need. It will require a shift in how patients enter treatment and are managed in regard to methamphetamine use disorder. Nonetheless, I think this highlights the broad potential that VIVITROL has for treating opioids, alcohol, and possibly other conditions. Todd, if you have any further comments, please feel free to share.
Todd Nichols, Chief Commercial Officer
Yes, absolutely, Rich. The only thing that I would add to that is if you look at the data that's produced through SAMHSA they estimate about two million patients suffer from methamphetamine use disorder. So it is a significant unmet need in the marketplace.
Operator, Operator
Thank you. The next question is from the line of Cory Kasimov with JPMorgan. Please proceed with your question.
Cory Kasimov, Analyst
Hey. Good morning, guys. Thanks for taking the questions. Two of them for you. So first just wanted to get more clarity on LYBALVI and the comments around the launch in 2H. If the product is in fact approved by the June one PDUFA should we assume launching in July? Or is it going to be later than that? And then secondly in oncology and nemvaleukin and specifically on the subcu formulation, how close do you think you are to the recommended Phase II dose there? And should we be expecting like a data update in terms of efficacy results at your upcoming Investor Day? Thank you.
Richard Pops, CEO
Good morning, Cory. Good to hear your voice. It's two good questions. We're planning right now to launch sometime after the PDUFA date in the second half. There's a lot of logistical issues that go into launch itself. We want to get through the FDA approval process and then we'll give you more precision as we do that. Nemvaleukin, we have moved into the expansion cohort on the weekly. We're starting the expansion at the once-weekly dose. We feel like we've qualified both the once-weekly and the once every three-week dose. And we will indeed give you more update on those data as the year goes on. Possibly around ASCO, possibly around our Investor Day we haven't really decided yet, but that program is moving full steam ahead.
Operator, Operator
Thank you. The next question is from the line of Marc Goodman with SVB Leerink. Proceed with your question.
Marc Goodman, Analyst
Hi, Rich. Can you talk a little bit about monetizing non-core assets? You talked about potentially acquiring an asset to leverage your infrastructure. You talked about partnership discussions for the oncology product business as part of this whole restructuring plan and commitment to targets. So I was wondering, if you could just give us an indication of what's happened so far maybe the timing of all this. Should we be expecting anything to be announced in the next six months or whatever? And then just secondly can you tell us what are you all assuming for the LAI market growth for this year? We know what you're thinking about for ARISTADA? Thanks.
Richard Pops, CEO
Yes, we are considering all the aspects you've mentioned. Our goal is to identify the core essential elements of the business moving forward and determine if there are market prices that exceed our expectations, or a fair market value that we could leverage. It’s important to note that we are not looking to out-license nemvaleukin; it remains a strong asset for us that can help reduce R&D expenses, and we see significant economic potential in it. There are also other parts of our R&D portfolio that could provide opportunities for out-licensing or partnerships, but I won’t specify a timeline for that. Regarding royalty monetization, VUMERITY likely represents our most valuable royalty stream, although its trajectory is still uncertain. It began slowly in 2020, but the re-subscriptions have improved significantly. As we progress through 2021, we'll gain a clearer understanding of VUMERITY's potential value. Its key advantages as a monetization stream are a high royalty rate and a long patent life. Iain can provide any additional details, but we are essentially reviewing all aspects of our business strategy.
Iain Brown, CFO
Yes. I think that was very comprehensive Rich. As you say, we're actively looking at opportunities across the business. And we'll obviously announce those as they come to fruition. We wouldn't sort of pre-announce anything that we're currently working on.
Todd Nichols, Chief Commercial Officer
Yes. In terms of the LAI category, we're assuming this year that it will be approximately 7% market growth and that's really driven, of course, by COVID-related restrictions and also the normalization of patient flow which we're assuming will start in the second half of the year.
Operator, Operator
Our next question comes from the line of Biren Amin with Jefferies. Please proceed with your question.
Biren Amin, Analyst
Thank you for answering my question. Based on your market research, what do you consider the main obstacle to the adoption of LYBALVI in the U.S.? Additionally, what do you see as an untapped opportunity for LYBALVI's launch in the U.S.? Lastly, are there any opportunities outside the U.S. that you could leverage for LYBALVI, either by yourselves or through partnerships?
Todd Nichols, Chief Commercial Officer
I appreciate the question. There is a significant market opportunity that excites us. You're looking at a category exceeding $3.5 billion in sales for schizophrenia and bipolar disorders. The main opportunity lies in the patient population turnover. Our consistent research shows that patients cycle through five to seven treatment options, indicating the need for individualized treatments. We observe around 70,000 treatment switches every month, highlighting the churn driven by doctors and patients making trade-off decisions regarding efficacy, tolerability, and safety. The potential for LYBALVI is substantial, particularly due to the strong efficacy of olanzapine, which commands a 20% share in schizophrenia and 11% in bipolar in the US. This indicates a significant unmet need and a great opportunity for LYBALVI. We're preparing for a commercial launch to fully capitalize on this potential, aiming for a sales force that covers 80% of the branded market. Currently, we reach about 60% of prescribers, and we are ready. Our primary focus is the US market, which represents the largest opportunity and the highest price point, making it the best place for us to concentrate our efforts for now.
Operator, Operator
Our next question comes from the line of Akash Tewari with Wolfe Research. Please proceed with your questions.
Akash Tewari, Analyst
Hey. Thanks so much. Can you remind us of what the current profitability for VIVITROL and ARISTADA are separately? And in a situation where let's say sales for these products kind of flatten out over the next 3 to 5 years, what's kind of the low-hanging fruit on the SG&A side that could be cut that would allow you to hit your longer-term margin targets? And then on your 2021 R&D spend, can you roughly go over what's your product-by-product spend particularly for your IL-2 program and then also for your other undisclosed projects? Thank you.
Iain Brown, CFO
Let me address those questions in order. Regarding the profitability of our proprietary products, we haven’t shared detailed profit and loss statements for each product, but I can tell you that VIVITROL remains a highly profitable product for us. This year, ARISTADA has achieved profitability. Looking ahead to 2021, as we introduce LYBALVI, we anticipate significant operating leverage reflected in our profit and loss statements. Some of the costs previously attributed to both VIVITROL and, more crucially, ARISTADA, are now covered by LYBALVI. Consequently, ARISTADA is expected to be more profitable in 2021 compared to 2020. We believe it will take a couple of years for LYBALVI to reach profitability, depending on its revenue growth. As sales stabilize, we are focused on keeping general and administrative expenses flat and improving operational efficiencies in that area of the business. For sales and marketing, we have initiatives supporting all our proprietary products, and we can adjust that spending based on the revenue performance of these products. Regarding research and development expenditures in 2021, our primary focus will be on nemvaleukin, with an expected increase in external R&D spending in this area of about $100 million. The other significant areas of investment will be the LYBALVI program, which includes a study involving young adults and a pediatric study mandated by the FDA. Additionally, we are advancing our HDAC platform, which includes a $25 million milestone payment factored into our current guidance. These will be our main focus areas for the R&D organization in 2021.
Operator, Operator
The next question is from the line of Douglas Tsao with H.C. Wainwright. Please proceed with your question.
Douglas Tsao, Analyst
Hi, good morning. Thanks for taking the questions. Just quickly I think you mentioned that you would had subsequent to the resubmission of the NDA and LYBALVI some interactions with the FDA. Can you just provide some sort of color on what those were? Were those related to the same issues? And then on the HDAC program, I know that there is potential across a number of different indications. Just maybe walk through quickly sort of the selection process and how you anticipate choosing and narrowing down the focus? Thank you.
Richard Pops, CEO
Hey Doug, it's Rich. Yes, we and several other companies in the industry have experienced similar situations with LYBALVI. Since the FDA can't conduct pre-approval inspections, they're relying on 704 records requests. When we received the Complete Response Letter, they asked us a question regarding some development batches, which we fully addressed in our December submission. Now we've received another set of questions, similar to what they would ask during an on-site pre-approval inspection. The positive aspect is that the FDA seems to be managing this process without needing an on-site inspection, which is encouraging. We will continue to respond to their inquiries and aim to do so within the June 1st PDUFA date. As previously mentioned, the FDA issued a guidance in December or early January stating that these resubmissions would be classified as Class II, which isn’t ideal for us or the broader industry, but the FDA is trying to ensure safety by limiting inspections during COVID. We'll navigate this situation. The HDAC program is intriguing from a translational medicine perspective, particularly regarding synaptogenesis and synaptic function across multiple diseases. Our plan, which is still being developed, is to approach the clinic by examining various disease states simultaneously in a basket approach, using advanced biomarkers to assess brain activity. These will include tools like C2A PET and traditional EEGs among other biomarkers. Our objective is to identify signals. We anticipate working with multiple compounds in the clinic. As you know, we've also been focusing on the HDAC progranulin and oncology sectors. We aim to build a foundation of translational medicine as we progress. So, while this is a long response to a straightforward question, we believe we'll gain significant insights from this first compound. That's why it was crucial for us to advance 1140, our first well-characterized molecule, so we can start exploring its potential further.
Operator, Operator
Our next question comes from the line of Jason Gerberry with Bank of America. Please proceed with your question.
Jason Gerberry, Analyst
Good morning, and thank you for taking my question. Rich, regarding 4230 and the search for a partner to help share the costs and risks of development across various tumors, is it safe to say that Nektar's Phase 3 data expected later this year or early next year, along with developments in some of the larger IL markets, could be a crucial factor in securing a deal and obtaining firm R&D funding commitments? Do you and your partners need to see the relevance of IL-2 in these contexts before increasing your investments? Also, just to clarify, is your guidance for LYBALVI based on the assumption of a DEA controlled or uncontrolled product? Thank you.
Richard Pops, CEO
Good morning, Jason. Regarding the last point, we anticipate the removal of controls, which we have been looking forward to. Samidorphan is an antagonist and has been recommended as such, so it's currently going through the process of descheduling. We expect LYBALVI will be classified as a descheduled drug. About the question on nemvaleukin, I don't believe the Nektar data will ultimately influence whether we pursue a partnership for a few reasons. Firstly, as more data comes to light, there are only a few entities developing these IL-2 mutants, and they are clearly differentiating themselves. Our drug is distinct from Nektar's, Roche's, and others. Notably, ours displays clear efficacy as a standalone treatment and is also being developed in a subcutaneous format. Additionally, it shows evidence of activity in tumor types that are currently unapproved for pembrolizumab or PD-L1 checkpoint inhibitors, while also functioning as a monotherapy. In the oncology space, there are companies that highly value cytokines and recognize the proven efficacy of IL-2. The ongoing concern has been whether the efficacy of IL-2 can be isolated from its principal side effects, and I believe we now possess enough data to address that issue. Thus, I am confident that we can engage in discussions and collaborations regardless of the outcomes from Nektar or others.
Operator, Operator
Thank you. At this time, there are no additional questions. I will turn the call back to Sandy Coombs for closing remarks.
Sandra Coombs, Vice President of Investor Relations
Great. Thanks, Richard. Thanks everybody for joining us on the call today. Please don't hesitate to reach out to us at the company if you have any follow-up questions. Thank you.
Operator, Operator
Thank you. This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.