Alkermes (NASDAQ:ALKS) Q3 2020 Earnings Call

0:00 greetings and welcome to the alchemy's third quarter 2020 earnings call my name is jim and i will be your operator for today's session please note that this conference is being recorded i'll now turn the floor over to sandy coombs vice president of investor relations welcome sandy thank you welcome to the alchemy plc conference call to discuss our financial results and business update for the quarter ended september 30 2020. thank you so much for joining us on on short notice we apologize for the technical difficulties

0:31 with our earlier scheduled call, but appreciate you all taking the time to join us at this time. With me today are Richard Pops, our CEO, Jim Fradies, our CFO, and Todd Nichols, our Chief Commercial Officer. During the Q&A section, we'll also be joined by Ian Brown, our FBP of Finance. Before we begin, I encourage everyone to go to the investor section at alchermes.com to find our press release and related financial tables, including a reconciliation of the gap to non-gap 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 two of the accompanying presentation, our press release issued this morning, and our most recent annual and quarterly reports filed with the SEC.

1:22 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.

1:43 That's great. Thank you, Sandy, and hello, everybody. We've got a lot of important updates to get to today, so I'd just like to start by noting our progress and some of the significant accomplishments we've achieved over the last several months. We are positioning the company for what we expect will be our next major phase of growth. The foundational pillars of that growth are our distinctive commercial capabilities, our R&D engine, and our focus on the efficient management of our business. Our third quarter results reflect strong commercial performance in a complex and dynamic environment and demonstrated resilience of our business and execution of our commercial strategy. We also achieved critical milestones in our ALCS 3831 and ALCS 4230 clinical development programs, and I'll talk about that more later in the call. While advancing these key priorities, we continue to efficiently manage expenses and drive non-GAAP profitability.

2:43 As a result, today we've improved our financial expectations for the year and now expect to end the year with non-GAAP profitability back in line with our original expectations from February prior to the impact of COVID-19. Jim and Todd will provide additional detail on the performance and the outlook for the remainder of the year. And I'll end with an update on our clinical development activities. And with that, as a brief introduction, I'll hand the call over to Jim.

3:10 Thank you, Richard, and good morning, everyone. Our third quarter financial results reflect strong commercial execution and a continued focus on expense management. as we advance our key business objectives. While the results reflect the continued impact of COVID-19 related disruptions on Vivitrol demand, growth trends were stronger than anticipated during the quarter. Accordingly, we're raising our financial expectations for 2020, primarily driven by the strength of Vivitrol net sales. We now expect our bottom line non-GAAP net income for 2020 to be in the range of $50 to $70 million, back in line with our expectations we provided in February, prior to the impact of COVID-19, reflecting our commitment to driving continued non-GAAP profitability.

3:56 I'll provide additional detail on our expectations for the remainder of the year in a moment, but first I'll start with an overview of our financial highlights for the quarter. In the third quarter of 2020, we generated $265 million in total revenues, reflecting a year-over-year increase of approximately 4%. We recorded a GAAP net loss of $0.1 million compared to a GAAP net loss of $52.9 million in the third quarter of 2019. Non-GAAP net income was $41.5 million for the quarter, improved from a non-GAAP net loss of $7 million in the same period last year, driven by higher revenues and lower operating expenses in the third quarter of 2020. Starting with Vivitrol, net sales in the third quarter were $80.3 million reflecting a 6% year-over-year decrease, primarily related to the impact of COVID-19 disruptions.

4:53 Importantly, on a sequential basis, Vivitrol net sales increased 12%, driven by underlying unit growth of 22%. This was partially offset by an increase in gross to net adjustments from 46% in Q2 to 53% in Q3, which reflects a higher mix of Medicaid patients. At the beginning of the third quarter, Wholesaler inventory levels were at their lowest point in several years. During the quarter, those inventory levels rebounded to normal levels. We're raising our full year expectations for Vivitrol net sales to be in the range of $305 to $315 million, from a previous range of $270 to $300 million.

5:39 This new expectation assumes continued normalization of patient flows and access to healthcare providers. We expect growth to net adjustments to continue to increase in the fourth quarter to approximately 54%, driven by increased Medicaid utilization resulting from current elevated unemployment rates. Turning to the Aristotle product family, net sales in the third quarter increased 6% sequentially and 16% year-over-year to $62.4 million, driven primarily by unit growth. Underlying total prescription data for Arastata demonstrated solid growth of 22% year-over-year in terms of months of therapy. During the third quarter, gross CNET adjustments for Arastata were 54%, as compared to 48% in Q3 2019, reflecting increased Medicaid utilization.

6:32 Inventory levels increased slightly during the quarter, but were within normal levels at the end of September. Based on our solid performance through the first three quarters and expectations for continued execution through year end, today we're raising our expectation for Aristotle net sales for the full year to a range of $230 to $240 million, which is higher than the range we set out at the beginning of the year of $220 to $235 million. Moving on to our manufacturing and royalty business, we recorded revenues of $120.4 million in the third quarter compared to $103.8 million in the same period last year. This increase was driven primarily by higher revenues from Envegas Astena and Risperdal Consta.

7:19 Our results for the quarter were also positively impacted by a gain of $8.3 million that we earned on our investment in Fountain Healthcare Partners, which was recorded as other income. Turning now to expenses, we continue to diligently prioritize the investments that support our business objectives to grow the top line, advance our pipeline of development candidates, and manufacture commercial supply of our proprietary and partner products. As a result, our total operating expenses were $275.7 million for the third quarter, down from $308.9 million in the same period in the prior year. R&D expenses for the third quarter were $95 million, compared to $107.7 million for the same period in the prior year, The decrease was primarily driven by the restructuring that we implemented in late 2019 and the completion of the Vumerity Development Program late last year, somewhat offset by increased activity and patient enrollment in the ALCS 4230 clinical program.

8:23 SG&A expenses for the third quarter were $127.7 million compared to $148.7 million in Q3 2019, reflecting lower expenses due to the 2019 restructuring as well as expense management measures in 2020. Looking ahead, we expect an incremental increase in SG&A expense in the fourth quarter as we invest in prelaunch activities for Alex 3831. Turning to our balance sheet, we ended the third quarter with approximately $597 million in cash and total investment compared to approximately $540 million at the end of the second quarter. primarily reflecting our positive financial performance in the quarter and changes in working capital.

9:09 The company's total debt outstanding was approximately $276 million at the end of the third quarter. I'll shift now to our updated financial expectations for 2020, which are fully outlined in the press release we issued earlier this morning. Recent trends reflect both the changes that healthcare providers have implemented to provide continuity of care for patients and the productivity of our evolved commercial strategy. Our expectation for the remainder of 2020 assumes continuation of these trends. However, new COVID related restrictions may impact our ability to meet these expectations. With that, for the top line, we now expect total revenues to be in the range of $1.01 billion to $1.035 billion.

9:58 We're also narrowing the ranges of our operating expenses. R&D expenses are now expected to be in the range of $375 to $390 million. SG&A expenses are now expected to be in the range of $530 to $545 million and reflect an anticipated sequential increase in the fourth quarter of 2020 related to the prelaunch activities for ALPS 3831. We expect the strength of our top line in our expense management efforts. to improve bottom line non-GAAP results by approximately $45 million for 2020 compared to the financial expectations we set forth in July, demonstrating the operating leverage of our business and our continuing commitment to non-GAAP profitability.

10:43 We now expect 2020 GAAP net loss to be in the range of $95 to $115 million, and we expect non-GAAP net income to be in the range of $50 to $70 million. These non-GAAP expectations are now back in line with our original expectation from February 2020, reflecting the reduction in operating expenses implemented in response to the impact of COVID-19 on our top line. Looking ahead, we're focused on driving the continued growth of our proprietary commercial portfolio while advancing our development programs and capturing operating leverage. The data presentation for ALCS 4230 at ESMO highlighted the potential of this pipeline candidate and the positive outcome of the advisory committee meeting for Alex 3831 was another step toward the expansion of our commercial psychiatry portfolio.

11:33 We have important milestones ahead and believe we're financially well positioned to execute on our business strategy, drive profitability and support shareholder value creation in the years to come. With that, I'll hand the call over to Todd to review our Q3 commercial results.

11:51 Thanks, Jim, and good morning, everyone. We are pleased with our strong commercial performance in the third quarter, which reflects a sequential increase in demand for Vivitrol and continued resilience in the Aristotle product family as we adapted our commercial strategy in response to the challenges that patients and healthcare providers are facing as a result of the pandemic. We have developed new and effective ways of engaging with healthcare providers, including investments in digital capabilities that we believe will provide an important foundation for the growth of our products and a potential launch of ALEKS 3831. I'll now provide a review of our Q3 results as well as our outlook for both products for the remainder of the year. Starting with Vivitrol, net sales in the third quarter were $80.3 million, reflecting sequential unit growth of 22%. The rapid response Adaptability and strong execution of our commercial team in the face of the COVID-19 environment was essential to this growth and I want to acknowledge their commitment and resilience.

12:59 The growth in Vivitrol net sales reflects an increase in new patient starts as well as the return of certain patients previously using Vivitrol whose treatment had been interrupted earlier in the year. While many treatment providers have adapted their practices and patient access to injections has increased, overall Vivitrol volume was still below last year's pre-COVID Q3 levels with a 3% decline in units year over year. We continue to see a healthy balance and indication mix for Vivitrol with the contribution from alcohol dependence increasing over the last couple of years and growing at a faster pace than opioid dependence. With alcohol consumption on the rise across the country as a secondary consequence of COVID-19, there may be increased need for treatment for alcohol dependence in the future.

13:50 Due to the strong performance of Vivitrol in the third quarter, we are raising our full year 2020 expectations for Vivitrol net sales by approximately $25 million to a range of $305 million to $315 million. By the challenges presented by COVID-19 in the addiction treatment landscape are not behind us, we are encouraged by the recovery trends that emerged during the third quarter. We will continue to adapt our commercial activities to help meet the evolving needs of healthcare providers and support patient access to our medicines in this dynamic environment. Turning to the Aristotle product family, net sales in the third quarter increased approximately 16% year-over-year and 6% sequentially to $62.4 million, reflecting underlying demand growth.

14:40 Total prescription data for Aristata demonstrated solid growth of 22% year-over-year in terms of months of therapy and outpaced the broader long-acting atypical antipsychotic market, which grew at 5% in the same period. The two-month dose remained at its highest share of brand at 37% in terms of months of therapy. As a result of the pandemic, we have seen some impact to 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% year-over-year in Q3, as market research showed that psychiatry healthcare providers made fewer treatment changes in the COVID environment.

15:27 Our commercial organization is continuing to adapt to support providers and patients as we drive growth of Aristata in this environment. Today, we are raising our full year 2020 expectations for Aristata net sales to a range of $230 to $240 million and believe we are well positioned to exit the year with momentum. The commercial organization that we have built to support Aristata, including capabilities tailored to the immediate commercial environment, provides an important operational leverage as we prepare for the potential upcoming launch of ALEKS 3831. The positive outcome of the ALEKS 3831 Advisory Committee meeting a few weeks ago was a critical milestone. The open public hearing highlighted the significant unmet need that still exists for patients living with schizophrenia and bipolar I disorder, many of whom commonly cycle through multiple therapeutic options in pursuit of better outcomes. Switching therapy on average five to seven times throughout their treatment journey. Prescribers of antipsychotics are often faced with a difficult trade-off between efficacy and tolerability for their patients.

16:38 We believe ALEKS 3831 has the potential to be an important new treatment option for patients and providers. As we approach our November 15 FDUFA date, prelaunch activities are ramping up. Our current expectation is that subject to approval and DEA descheduling, we will be positioned to launch Alex 3831 towards the end of the first quarter of 2021. Our deep psychiatry market expertise and established commercial capabilities provide a strong platform for the planned commercialization of Alex 3831. We have a good understanding of the access environment and expect that at launch there will be a range of access barriers in place. with some payers imposing more restrictive measures and other plans allowing more unencumbered access to ALEKS 331.

17:31 For example, there are 11 states that have some form of mental health exemption policy to reduce or eliminate formulary restrictions on antipsychotic medications for Medicaid patients. We will engage with payers on a state by state and plan by plan basis and expect that access will improve throughout the first year of launch as formulary decisions are made. While that is happening, we plan to implement programs to help mitigate the impact of initial restrictions that may be in place in year one. We have also extensively mapped the prescriber landscape and have a well-defined target universe for launch. Our Salesforce planning is now complete and our strategy reflects the shifting competitive landscape in a COVID environment.

18:17 We believe that a new hybrid promotional model that permanently incorporates both in-person and virtual engagements will allow us to officially target our broader footprint of prescribers for oral antipsychotics with a smaller commercial field infrastructure than we initially planned for. For competitive reasons, I won't provide specific numbers around the size of our commercial field organization or details on our deployment strategy at this time. I will share that at launch we plan to target healthcare providers that represent approximately 70% of the oral antipsychotic market and about 80% of the branded oral antipsychotic market. Our existing Aristotle team will serve as the core of the commercial effort for Alex 3831 and already calls upon roughly 60% of the providers included in our anticipated prescriber call universe for 3831.

19:14 We are focused on leveraging our existing commercial organization. We'll make additional investments to maximize the launch of 3831. A portion of that investment will occur prior to the launch. Post-launch, we expect to add incremental headcount to our field organization as payer access for Alex 3831 is established and as pandemic-related restrictions ease. Overall, the plan build and our commercial team to expand our reach and support Alex 3831 is less extensive and what we anticipated prior to the adoption of our hybrid promotional model. Leveraging our existing commercial infrastructure with this flexible approach will provide an important foundation for the potential launch of Alex 3831 and the continued commercialization of Aristot and Vivitrol.

20:02 And with that, I'll turn the call back over to Rich.

20:07 That's great, Todd. Thank you very much. We have achieved a number of critical milestones in our development programs against this backdrop of strong commercial execution and discipline management of our expenses. The positive outcome of the ALCS 3831 FDA Advisory Committee meeting and the presentation of accumulating anti-tumor activity and safety data for ALCS 4230, including in the monotherapy setting, were important achievements that underscore the potential value of these investigational medicines. I want to spend a minute on each of these two developments. First, ALCS 3831. This is our novel oral atypical antipsychotic candidate designed to provide the established efficacy of olanzapine while mitigating its associated weight gain. We submitted the 3831 NDA treatment of schizophrenia and bipolar 1 disorder last November and the advisory committee meeting was held three weeks ago. This was a joint meeting of the Psychopharmacologic Drugs Advisory Committee and the Drug Safety and Risk Management Advisory Committee to discuss the clinical meaningfulness of ALKS 3831's weight mitigation and the safety profile of ALKS 3831. Three votes were taken and all three outcomes were positive.

21:23 More specifically, the nearly unanimous vote, 16 to 1, supporting the clinical meaningfulness of ALKS 3831's weight mitigation was an important reflection of its intended clinical profile. The panel also voted that the safety profile of 3831 had been adequately characterized and that labeling would be sufficient to mitigate the risks related to the opioid antagonist action of samidorphine. While not binding, the committee's recommendations will be considered by the FDA and we're looking forward to working with the agency to complete this review of 3831 NDA in advance of the PDUFA date on November 15th. I'd like to thank the thought leaders, the patient advocates, and people living with schizophrenia or bipolar disease who participated in the open public hearing to share their clinical perspectives and lived experience.

22:16 A guiding principle of our company has always been to make medicines to address real life concerns of patients suffering from chronic diseases. We believe it's critical to incorporate patient perspectives into the drug development process. I'm also extremely proud of the Alkermes team that represented 3831 at the meeting. I'd like to thank them for the month of preparation that helped produce this positive outcome. Approved, Alkermes 3831 will be an important offering for patients struggling with schizophrenia and bipolar 1 disorder. And it will underscore our leadership position in the field of serious mental illness. As Todd commented, our current presence in the antipsychotic market with Aristata provides a valuable foundation for the anticipated commercialization of 3831. You've heard us say for some time the commercial infrastructure required to bring these medicines to patients is substantial.

23:08 Approval of 3831 will provide an opportunity to add a new revenue stream and drive top line growth while leveraging this infrastructure. Turning to ALCS 4230 in oncology. 4230 was designed to retain the therapeutic benefits of recombinant human IL-2 by selectively activating anti-tumor effector cells while mitigating the IL-2 associated expansion of immunosuppressive regulatory T cells. From the outset, we've been rigorous in staging the advancement of this program predicated on the accumulation, step by step, of data supporting and validating our design hypothesis. The 4230 data presentation in September at ESMO was a defining moment in this development program. We present data from Artistry 1, which is our multi-part study of intravenous 4230 as monotherapy and in combination with PD-1 inhibitor Pembrolizumab.

24:07 The data showed evidence of anti-tumor activity for ALKS4230 with durable and deepening responses as monotherapy and in combination with Pembro in a diverse set of difficult to treat tumor types. I'm going to briefly summarize some of the most important features of the data here but for those of you wanting a deeper dive I encourage you to view the ESMO presentation archived on the investor section of our website and follow up with us here at the company. So let's start with the monotherapy arm of the study. We view the emerging signs of monotherapy efficacy as foundational to the program with the potential to distinguish 4230 from other IL-2 variant programs in development. The partial responses observed with 4230 monotherapy that were described with ESMO were in patients with refractory mucosal melanomas who had received prior PD-1 therapy.

24:59 Mucosal melanomas are a rare, highly lethal variant of melanoma that carry a poor prognosis and treatment options are very limited. With this early evidence of monotherapy efficacy in this tumor type, we're currently in the process of evaluating potential clinical development and regulatory strategies that may support expedited development. The data presented ESMO also provided new insights into the potential clinical value of 4230 used in combination, in this case with Pembrolizumab. Durable and deepening responses have been observed with 4230 in combination with Pembro in a number of tumor types where there are limited treatment options. These include ovarian, triple negative breast, esophageal, and pancreatic cancers.

25:45 The complete and partial responses we've seen with 4230 in combination with PEMBRO in platinum resistant ovarian cancer are particularly encouraging. This indication represents another potential registration pathway. Given the high unmet need and limited treatment options for patients with platinum resistant ovarian cancer, we plan to meet with FDA to discuss clinical study and data requirements that could support potential registration in this indication. Across the Artistry 1 study, 4230 demonstrated a safety profile generally consistent with the anticipated effect of cytokine therapy. The transient fever and chills is the most frequently observed adverse event in both the monotherapy and combination cohorts. Importantly, there were no reports of vascular leak syndrome, which is the hallmark toxicity of high-dose IL-2 treatment.

26:35 Another distinctive feature of the 4230 clinical development program is the potential for subcutaneous dosing. Artistry 2, our subcutaneous study, is ongoing in its dose escalation phase for both once weekly and once every three-week dosing regimen. We're narrowing in on the recommended phase 2 dose and will share pharmacokinetic, pharmacodynamic, safety, and tolerability data from the initial dose escalation cohort at CITC in November. We believe that we'll be positioned to declare the recommended phase 2 dose around year-end. will then plan to begin dose expansion cohorts in dedicated tumor types in both monotherapy and in combination with PEMBRO. The accumulating data from the artistry development program provide a clearer picture of 4230's potential clinical value. Our focus is on maximizing the medical and economic value of 4230 for the benefit of patients and our shareholders.

27:30 Strategic collaboration remains an important opportunity to fully elaborate the potential of 4230. across a variety of tumor types and in a combination with a variety of immunotherapies and other cancer treatments. Looking ahead, we'll continue to focus on the three strategic imperatives that currently drive our management of the business. Strong commercial execution, effective advancement of our development programs, and efficient management of our operating structure. We have a significant amount to accomplish and I look forward to updating you on our progress in the days ahead. So with that, I'll finish it, and I'll turn the card back to Sandy for the Q&A.

28:08 Great, thanks, Rich. Okay, we'll open the call for Q&A now, please. Thank you. Ladies and gentlemen, if you would like to ask a question, simply press star and 1 on your telephone keypad. Pressing star and 1 will place your line into a queue, and I will open the lines one at a time. A friendly reminder that if you're joining us today on a speakerphone, please return to your handset prior to pressing star and 1 to be certain that your signal does reach our equipment. Once again, ladies and gentlemen, that is star and one if you'd like to ask a question. We'll hear first from Vamil Devon at Mizuho Securities.

28:39 Great. Thanks so much for taking the question. So just a couple if I could. One, I got the comments you made around the gross net impact this quarter and how it's gone up a little bit. I'm just trying to understand how much of that do you think is due to the pandemic and maybe more one-time sort of adjustments or how much of this is more of a steady state? I guess I'm sort of wondering about what What do you think gross-to-net might be for next year? I don't know if you're ready to comment on that, but that's sort of what I'm hoping to get some color out there for looking gross-to-net thoughts. And then on 4230, I guess for Richard, I appreciate the comments you just made. I know we'll get some more data on this, especially on the sub-Q at 50. I'm just trying to get a sense maybe around some of the discussions you are having or plan to have with potential partners there.

29:24 Do you think after 50 is maybe a reasonable time for us to expect more Communications to pick up on that aspect, or do you think you still need to do sort of additional work and maybe it's more, say, you know, middle of next year or something along those lines? Thank you.

29:40 Thanks, Amal. Jim, why don't you go ahead on the gross net, and I'll pick up at 4230.

29:44 Yeah, of course. Thanks, Amal. Yes, I think we do see the gross net changes this year as related to COVID. You know, I think we signaled that a little bit earlier in the year when the COVID crisis started to hit. The unemployment rates, as we know, across the country have gone up dramatically from where they were before the crisis. And those funnel through as Medicaid patients into the Vivitrol channel. You know, one of the benefits in this quarter was I think gross to net came in a little bit lighter than we had anticipated in Q3 at 53%. and I think we see them more in the 54% range in Q4. And at this stage, I think that's probably the best thing to do is model that out consistently in 21 until we get a sense of how the unemployment rates change in the country going forward and when they start to change.

30:35 I think being conservative in that regard around the 54% range makes sense.

30:44 On the 4230, Our view of this, and I think we've been consistent on this through the year, we've wanted in 2020 to lay out and establish the data around three major areas in the program. One was monotherapy efficacy. The second is combo efficacy with PEMBRO, particularly in PEMBRO-unapproved tumor size. And the third is sub-Q, because it looks like we're, at this point, the only sub-Q presentation in development of IL-2 variants. So I think we're checking the boxes. The first two, I think we're well along our way in terms of monotherapy efficacy signal as well as PEMBRO combos. Now the sub two, we'd like to get to that recommended phase two dose and regimen, which we expect toward the end of the year. With that, we'll expand in the sub two way, the same way we did in Artistry 1, which is into the indicated tumor types of monotherapy and combos. And then I think the program is really, really on solid foundation.

31:43 that's the time that I think that we will be leaning into collaboration to discussion there is interest in the program already I mean obviously people in the field are watching new developments in the field and I think 4230 is beginning to distinguish itself but we're in no rush at this moment until we really check all the boxes necessary to really be sure that we have the profile that we designed okay thank you Our next question comes from Brandon Polk to Cantor Fitzgerald.

32:18 Hi, thanks for taking my questions and congratulations on the results this quarter. Maybe just continuing along the VIVITO line quickly, you talked about alcohol being a stronger growth driver this quarter. Can you maybe just elaborate on how much of that growth is being driven by patients not wanting to enter an inpatient alcohol treatment center during COVID versus an enduring shift to using medically assisted treatment for alcohol, just given that remains a very undependent, penetrated market. And then secondly, maybe on ELK 38-31, you talked about reimbursement over the first year. Can you just set some expectations in terms of how we should think about the pace of those reimbursement wins and gaining coverage and gaining a critical map of coverage in that first year?

33:07 Do you expect some relatively quick wins or how should we think about that pace? Thank you.

33:13 Hi Brandon, this is Todd. I'll take the questions. In terms of Vivitrol for alcohol, to your point, it's a very large market and a growing area of opportunity. For the brand, 14.4 million patients suffer from alcohol use disorder, about 400,000 on treatment. Our qualitative research and our discussions with HCPs tell us right now that a lot of the growth overall for Vivitrol is coming in the outpatient setting. We have seen some relaxed restrictions on the inpatient setting, but it's still a little too early to call and to see what the impact of COVID is on those restrictions. So right now we are seeing a little bit more stronger growth in the outpatient setting.

34:00 To my earlier comment, we are seeing a little stronger growth for the alcohol indication versus the opioid indication and it's something that we plan to maximize moving forward as well. In terms of reimbursement for 3831, I think the important point to really think about with 3831 in this category is there really is no uniformed approach to market access. There are three very distinct channels in Medicare Part D, commercial, Medicaid. Formulary decisions will be variable based upon the timelines at the local level, and we're very in tune to that. To date, we've had over 40 interactions with payers across the US market that control over 50% of the lives, and we're talking with them very closely about timelines.

34:50 we do expect at launch there's always going to be a percentage of lives that will have open access and it's variable at this point and so we expect that the access profile will become more clear throughout the first year to support the launch we have various programs and tactics that we will be putting in place such as patient reimbursement programs patient access programs and so forth that will help mitigate any types of formulary restrictions at launch. But the key message is that it will evolve over the first year of launch.

35:29 Great. Thank you very much.

35:31 Thanks, Brandon. Our next question will come from Corey Casamoth at JPMorgan. Hey, thank you for taking my question. This is Turner on for Corey. Just coming away from the ad comp for 3831, has your view on the product's potential changed at all? This is a commentary from the general physician community, different from that of the panel. Any comment there would be helpful.

36:03 Thanks. This is Rich. Perhaps I'll start and I'll hand it over to Todd who's on the front lines of this. No, in fact, we were really pleased with the clarity of the vote with respect to the clinical significance of the weight mitigation that samidorphin provides. That's a really important box to check because that allows the efficacy of olanzapine to come through. And what we find in our market research is the acceptance and the belief in the efficacy of olanzapine is quite pervasive and quite strong. But I'll let Todd elaborate from there.

36:38 Yeah, that's right, Turner. I would say that our, you know, our main takeaway is that it supports all of our research and our position on the value proposition of ALEKS331 and really the unmet need. Just for context, I think it's important to remember that there's over 2.1 million patients that suffer from schizophrenia, over 2.4 billion million patients that suffer from bipolar 1 disorder, It's a very large market that is growing. It's a large branded market, over 3.5 billion in branded sales. We believe that the critical milestone of getting through the outcome actually supports the value proposition of the brand. It actually supports the trusted power of Lanzapine without the potential long-term weight gain, so we're very excited about that.

37:31 We'll move forward to Paul Matias with Stifel. Hey, thanks. This is Alexandra Paul. Just a quick follow-up question on your views on the adcom. Curious if you could comment on the discussion surrounding bipolar and if you still remain confident in having that bipolar indication on the label upon approval. And then another follow-up on 3831. You talked a lot about disciplined expense management. Can you talk a little bit about where you expect SG&A going forward with the 3831 launch? Great. Thank you.

38:06 I'll take the bipolar side. Yeah, we didn't really hear anything that would undermine our belief in the approval for both schizophrenia and bipolar 1 disorder. That's an agreement we've had with the reviewing division for quite some time. It was based on a PK bridging study and some drug-drug interaction studies that we ran with valproic acid and lithium. So we'll stay the course on that and expect approval for both.

38:35 on the expense side I know we're not going to we're not going to guide for 2021 at this point but I'll let Jim and Todd give you some qualitative sense of that sure thanks Alex so you know as we guided for the remainder of 2020 we do see a roughly a 10 percent increase at the midpoint for SG&A as we move into you know beginning our educational programs and you know post-PEDUFA work in the fourth quarter as we prepare for 3831. I would expect that increase to continue you know moderately in 2021. You know we haven't prepared guidance yet obviously but as we hire the complement of the sales force as Todd mentioned and begin education activities post-launch that'll be a normal bolus for a launch year for a product like 3831.

39:28 Importantly, though, we're committed to non-GAAP net income profitability here, and we think we have the ability to invest strategically in a launch, but also maintain that discipline on profitability as we move into 21. We'll give more guidance in February as we typically do around the specifics.

39:46 Yeah, I would just add, Alex, to Jim's comment. We are committed to a very successful launch here for LAX 3831. We believe that the brand... has a unique value proposition in a very large market with a significant unmet need. A couple of the areas that we are focused on right now, as Jim commented earlier in his prepared remarks, we do have some investments in the fourth quarter. We have a very active, very productive disease state education program. We have learned a lot through the pandemic with our commercialization with Aristata and we have some proven success channels in our digital marketing capabilities that we plan to leverage as we launch 3031 so we're going to be ramping up those activities in 2021 and we're also going to have the build of our sales force again not as extensive as we had originally anticipated but we will be adding on sales professionals to support the launch throughout next year.

40:53 Thank you so much. And once again, ladies and gentlemen, that is star and one if you would like to ask a question. Next, we'll hear from Mark Goodman at SBB Lyric.

41:07 Yes, hi. First, just on 3831, are you expecting any type of REMS at all related to the conversation? Second of all, manufacturing and royalty revenues can you just give us a sense of as we look into 2021 water some of the push and pulls that you're expecting you know are there any new products that we should be expecting that'll come in that'll add any major changes and then just lastly on vivitrols we look at revenues that you're expecting the fourth quarter um not as much of a bounce as i guess we would have expected did you get you know with the bounce in third quarter you think taking away a little bit from the fourth quarter i guess i don't know it just seems a little more flattish than we would expect thanks hey marcus richard i'll take the 38 31 and then jim and uh and ian and todd on the other two um we just be clear uh

42:13 We've actually proposed in the labeling for 3831 probably the most restrictive aspect as it relates to the risk that was raised by the panel which is the risk of the opioid antagonist present in the formulation by indication that we want this drug excluded or not indicated for patients who are currently using opioids. So we don't expect a REM, but we have proposed an education program that can't amount to an educational REM. And we're very comfortable with that because it's in our best interest to make sure that physicians and patients are aware that 3831 contains Sanadorphin. So this is something we've been prepared for for the entire life of the development program, and we're looking forward to doing it.

43:02 We do that with Vivitrol as well. We educate extensively about the role of the antagonist. for patients and physicians.

43:14 Tim, do you want to take the other two?

43:16 Oh, yeah, sure. So the other two on the manufacturing revenues and then on Vivitrol expectations for the remainder of the year, Mark. So next year, really, for the manufacturing revenues, obviously, Vumeri, given a dynamic year in that market this year, and particularly COVID, I think we see potential upside there and view that as a real call option on the manufacturing and royalty side. That's probably the major, the product with the most major impact in terms of a difference from this year into next year. I think we see continued growth on Sustana and, you know, Consta remaining sort of in that flat to slightly down, but overall the LAI market with our J&J products, you know, continuing the growth that we've seen historically.

44:02 so I think we feel very solid about that manufacturing and royalty revenue you know as a whole with that upside from Brumerity potentially in 2021. You know on the Vivitrol side you know we give a range of guidance because it's certainly hard to predict certainly with COVID you know we saw as I said in this past quarter now roughly two-thirds of the growth really came from volume and then a third came from you know adjustments in gross to net on the positive side from previous quarters as well as an increase in inventory so as we move into the fourth quarter we're not really anticipating or planning for a large change in inventory you know sometimes that happens in the fourth quarter but we don't want to bank on that and then you know being cautious around the rebound it was a very strong rebound in Q3 and it's really just hard to predict so that's why we give ranges for Vivitrol and we as we've done in the past we try and take the previous growth rates and look at those moving forward from a demand perspective. And we certainly think that the patrol is building back to where we were last year in terms of growth rates and overall market and we continue to see that moving forward.

45:17 Yeah, you're welcome. Our next question comes from Jason Gerbery at Bank of America. Thank you for taking my questions. So on ALK3831, there was some statistics in the adcom briefing book about 20 to 25% of olanzapine patients getting concomitant opioid prescriptions. So I'm curious, is that ratio applicable more broadly across the entirety of the atypical antipsychotic world? just just wondering you know how you think about the potential addressable or eligible patient population if this contraindication is in the labeling and then if you get a REMS is that commercially a major headwind in your view or can you survive that they'll have a commercially successful product and then lastly just can you talk about what's going on at the ground level with Vivitrol in terms of the patient flow to the clinics versus the alternative distribution at places like Albertsons, which was talked about last quarter.

46:23 Just kind of trying to get a sense, you know, thinking about fourth quarter next year, depending upon how the pandemic evolves, how you're evolving to be able to make sure that patients are adherent to therapy. Thanks.

46:37 Yeah. Hi, Jason. This is Todd. I'll provide a couple comments to start off with that. The first question on on the percentage of patients that receive an opioid prescription as well, too. Our viewpoint is, yeah, that's consistent across the marketplace at approximately 25%. I think it's important to remember when you look at this across patients that have serious mental illness and bipolar I disorder, you're talking about a total of patients anywhere from about 5% to 8%. so it's actually a relatively small number of patients and you'll see as well too that our belief what we've proposed is that those patients are contraindicated so we think that's very manageable and the right thing to do in terms of the REMS program we've thought long and hard about that we have proposed an educational program as well as a company that has experience with a REMS program we actually have a REMS program for Vivitrol we're very comfortable with that we know how to execute a REMS program and with a very small contraindicated patient population we think that's going to be very manageable for us from a commercial standpoint and then in terms of patient flow you know the thing that we're watching very closely with Vivitra right now is that the addiction market is starting to recover which is a very encouraging sign on many different fronts right now the substantial majority of the recovery of what we're seeing

48:07 is actually in the outpatient setting We've had a very large commercial effort on expanding access to injections to alternative sites such as pharmacies, such as Albertsons. We're very encouraged by that. In general, we've added about 2,000 additional locations to our provider locator for injections for Aristata and also for Vivitrol. And in all of our discussions with our pharmacy partners, including Albertsons, they are starting to see an increase in utilization. It's still a little bit early to give specific numbers for Albertsons, but I can tell you that the amount of injections that they're providing now and the growth they're seeing is starting to pick up, which we're very encouraged by. Can I just ask a follow-up? Can you explain a little bit why it's 5-8% of patients who get concomitant opioids versus the 25% of TRX, just understanding the difference of those two numbers?

49:11 Sorry, Jason, would you repeat the question? Yeah, I believe it was only 5% to 8% of patients get concomitant opioid, but it's 25% of TRX, I think. There's concomitant opioid. So I was just trying to understand the discrepancy between those two numbers.

49:29 The 5% to 8%, Jason, is really a meta-analysis that's done talking about the population that would have an opioid use disorder and also serious mental illness. so those are the patients that would be contraindicated in the Alexaria 3-1 label.

49:50 All right, thanks Jason. Okay. Our next question will come from Akash Tiwari with Wolf Research. Hey, thanks so much for taking my questions. I just wanted to confirm on 3831, do you currently plan for there to be a REMS program or do you not and uh can you give some comment on what the trajectory will look like both in bipolar and schizophrenia given some of the comments you've made on reimbursement and your revised sales strategy uh additionally on aristata how will the growth trajectory change after a billified main map goes off patent in the mid-2020s Any concerns on revenue growth being affected when you start getting generic competition from the J&J product?

50:36 Thank you.

50:39 Okay, Kosh, it's Rich. Let me give a couple points and then I'll have Todd fill in the details. We don't currently plan a REMS right now, but we'll see how we end up through the review. And the reason we don't believe it is because we actually proposed an educational program that is tantamount to an educational REMS. when we think that that'll be more than sufficient to meet the needs in the market along with, as Todd has mentioned multiple times, the fact that the drug will not be contraindicated for patients who are actively using opioids. So we think that'll be sufficient, but if it were in educational realms, we can deal with that as well. I think one of the most interesting things about Aristata right now is that it's a product family.

51:26 the space between aristata and other of the long-acting injectables grows as we introduce new features and new data namely the range of doses the range of duration the presence of initio as well as the two-month dose coupled with data like from our alpine study that show its real world use in those dosing regimens so we expect other entrants into the field although you have noted it's It's a very small number of competitors in such an important market. So we think the Aristotle product family will continue to stand on its own based on data and the features and benefits of the family for a long time.

52:06 Yeah, what I would add is I think the question too was around uptake 331 for payer schizophrenia and bipolar. Again, I think the important point to remember with this is that the payers don't look at these as distinctive products they don't manage the indication separately so our expectation again is that Alex 3031 from a payer standpoint is going to compete in the branded space and we're not expecting to see any difference in uptake from a payer standpoint for schizophrenia versus bipolar in terms of the impact for Aristata with a potential another product coming onto the market to Richard's point.

52:51 I think the good thing to remember about Aristata is really our source of business. Aristata's source of business is not predicated on one or two products. It's very broad. We have a large source of business that comes from Orals and also a source of business that comes from LAIs. So one additional product coming onto the market will not drive a major difference in how we look at the outlook for Aristata as a family.

53:17 Thanks so much. Our next question comes from, and I hope I'm saying your name correctly, from Biren Amin with Jefferies. Yeah. Hey, everyone. This is Ajit on for Biren today. Maybe just one quick question from me. I think back in September you had updated us on an ongoing litigation with Teva regarding the 499 patent for Vivitrol. Just wanted to know where things perhaps currently stand with that and if you foresee ultimately settling with Teva as you did in the previous AMUIL lawsuit. And I guess theoretically if Teva does ultimately win, would it be fair to assume AMUIL could launch after Teva's generic exclusivity period? Thanks.

54:00 Hi, Jeet. Thanks for the question. Yeah, as we disclosed earlier in the quarter, we did file suit against Teva related to that end of filing. At this point, we'll not comment on ongoing patent litigation, but we'll certainly keep everyone in the loop as things unfold on that front. Great. Thank you. Our next question comes from Douglas Tao at HC Wainwright.

54:32 Hi. Good morning. Thanks for taking the questions. Just, Jim, maybe the initial one, and maybe I missed it, can you just quantify in dollars the inventory adjustments that we saw for Vivitrol and Aristata in the quarter. And then another question on the Vivitrol franchise, just given the adoption with alcohol dependence or sort of increased use there, is that concentrated still in the same top five states? And as that seems to be solidifying as a growth opportunity, are you thinking about sort of reshaping the commercial organization to capitalize on that, or is that something that can basically be done with the Salesforce as it's presently configured? Thank you.

55:20 Hey, Doug. Good morning. Maybe I'll start and then turn it over to Todd on the Salesforce side. So, yeah, you know, in the inventory, inventory fluctuates in both products, you know, as you know, quarter to quarter. In terms of Vivitrol, it was at the lowest level in many years when we started the quarter, and that was a bit of a – I guess a headwind that we saw in Q2. It bounced back to normal levels during the quarter. It was about $4 million of the net sales that we saw. It could be associated with less than a week of inventory that we think moved into the channel. And it's back now the inventory level at about two and a half weeks, which is where we would expect it to be. So I think we're back to normal on Vivitrol really as opposed to in a state where there's too much inventory.

56:11 And I think that's a natural decision, I'm sure, by the channel as we saw COVID hitting in Q2 particularly hard. On the Aristotle side, same thing. We're back to really normal levels. It's a little bit higher to about in the four-week range, but that's been typical for Aristotle over the last few years. And the impact in the quarter was roughly around a million dollars in Q3. So again, back to normal levels there and Normal quarterly fluctuations, I would say.

56:42 Yeah. Hi, Doug. It's Todd. In regards to Vivitrol and alcohol, right now, the performance and the concentration of the Vivitrol business is somewhat consistent quarter over quarter. Our top 10 states represent approximately 58% of the volume for Vivitrol. Through Q3, we've seen the substantial majority of our states actually show recovery. now they're not back to their pre-COVID levels but we're seeing really solid growth through Q3 the concentration for alcohol right now is an evolving landscape at this point we see a little bit heavier of utilization out west in California for example we've been doing a lot of extensive work over the last four months looking at our deployment for our commercial organization We are in the process of updating our deployment as well, too, to make sure that we're capturing the targets, the HCP targets that actually have the substantial majority of alcohol patients.

57:49 That's an action that we put in place in Q3, and we're going to continue to evolve that going into next year.

57:56 And is there any thought to expanding the list of targets, or how broad much awareness is there on its availability as a treatment for alcohol dependency?

58:06 Yeah, that's the right question. Absolutely. Awareness level for MAT in general with alcohol is low. It's in the 30s. For Vivitrol, it's less than 10%. So we think there is an opportunity to actually expand awareness levels with patients and providers as well, too. We're going to be very thoughtful, very strategic about where we play. It's a very important decision that we have to make. We think our sales force is the appropriate size, but we do think there's an opportunity to reevaluate the targeting, and that's what we've been doing over the last three months. Okay, great. Thank you. And that does conclude our question and answer session for today. I'll turn it back to the management team and to Ms.

58:53 Coombs for any additional or closing remarks.

58:57 Thank you everyone for joining us on the call today. We appreciate the patience with our difficulties this morning, but please do reach out to us at the company if you have any follow-up questions that we can be helpful with. Thanks so much. Ladies and gentlemen, this does conclude today's conference. We thank you all for your participation. You may now disconnect and we hope that you enjoy the rest of your day.