Q3 2019 Earnings Call
Greetings and welcome to the Alchemy <unk> third quarter 2019 financial results Conference call. My name is Robyn I'll be your operator for today's call.
If anyone should the car operator assistance during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
I'll now turn the call over to Sandra Coombs, Vice President Investor Relations Sandy you may begin.
Good morning, welcome to the Alchemy plc conference call to discuss our financial results in business update for the quarter ended Septemberthirty 2019 with me today, our Richard Pops, our CEO and Jim freight eat our CFO .
Before we begin I encourage everyone to go to the Investor section at Alkermes Dotcom defined our press release and related financial tables, including a reconciliation of the GAAP to non-GAAP financial measures that will discuss today.
We believe the non-GAAP financial result in conjunction with our 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 for important risk factors that could cause our actual results to differ materially from those expressed or implied in the four.
We are looking statements, we undertake no obligation to update or revise the information provided on this call already accompanying presentation as a result of new information or future results or development. After our prepared remarks, we'll open the call for Q1 day and now I'll turn the call over to Richard.
Thanks, Denny good morning, everyone.
So as you can see from today's restructuring announcement, we're looking ahead and taking actions to position alkermes for sustainable long term growth.
Over the past year, we've gained increased clarity regarding the profile of our business revenues from Vivitrol and Aristada growing and we expect that growth to continue.
Did that remarried, which will add a new revenue stream from a strong partner in the market.
Next is oxforty at 31, we plan to submit the NDA for 30 31, this quarter and prepare for its potential launch in schizophrenia and bipolar one disorder.
In the pipeline Ox 40, 230 is building momentum is clinical development than we expect that momentum to continue as we move into 2020.
So greater clarity into the economic contributors to the business enhances our ability to manage costs and focus on long term growth.
Our priorities are to maximize the value of our commercial products under development candidates, while streamlining our cost structure in order to position the company for sustained profitability.
This morning, we announced the implementation of reorganization designed to support these priorities.
Scope with reorganization follows a comprehensive review of our topline growth cost structure and operations. We identified the key objectives for the business evaluated our organizational capabilities to ensure that we could meet those objectives and set a goal of $150 million in annual cost savings.
From an R&D perspective, we've now refined our focus to specific high potential programs within two core areas high value opportunities in CNS building on our longstanding presence there and oncology building on our scientific strength in science and excuse me in cytokine engineering.
And new research, we have underway in our labs.
Concentration in these focus areas, we'll complete the company's transition thats been underway for several years moving away from our legacy of drug delivery and precedented pharmacology to our new molecules and novel mechanisms of action.
In addition to the cost savings will capture through our more focused R&D strategy.
We also assessed our SGN a expenses.
For our general and administrative organization, we have significantly streamlined those functions to improve efficiency.
For our commercial organization Vivitrol and Aristada, our current drivers of growth and we will continue to invest in them.
We made certain refinements to the commercial organization and were Recalibrating, our marketing investments to focus on the initiatives are driving the most return on investment.
We believe that the investments, we're making it our specialized commercial capabilities for aerostar and Vivitrol will be highly leverageable as we plan for excluding 31 and beyond.
We also made certain refinements to our manufacturing organization, while preserving our ability to produce high quality products for patients and prepare for potential upcoming commercial launches.
Across the company the reorganization resulted in the elimination of approximately 160 existing positions.
This reduction in our workforce, coupled with a significant recalibration of our future hiring plans and the substantial decrease in external spending are expected to yield cost savings of $150 million.
This actually rebase volumes, our expense profile and is expected to deliver total cost savings of several hundred million dollars over the next several years.
This improved financial efficiency will help us achieve three important objectives, the first to sustain non-GAAP profitability.
The second is to increase our flexibility to pursue business development opportunities that complement our R&D and commercial capabilities.
And the third is to preserve our ability to invest appropriately in the clinical development program for 40, 230, and the Alcs 30 31 launch.
While the restructuring is necessary to enhance the strength the organization for the long term.
Our priorities to treat all of our impacted employees with highest level of respect and care and to facilitate a smooth transition.
We recognize that we would not be where we are today without the collective efforts of all the individuals that contributed to our mission.
So with that I'll turn the call over to Jim to provide an overview of our Q3 performance and a closer review with the financial impact of this reorganization, including our updated financial guidance for the remainder of the year.
Thank you rich.
With a billion dollar topline driven by the growth of our proprietary products and the upcoming addition of potential new revenue streams were accelerating toward profitability and positioning the business for long term growth.
Today I'll discuss our results for the third quarter 2019, the financial implications of our restructuring announced this morning and updates to our 2019 financial expectations.
With two months remaining in the year, we're adjusting our financial expectation for 2019 to reflect the restructuring and improved overall financial performance.
Ill detail these revisions more fully in a moment, but we'll start with an overview of our key financial and commercial highlights from the third quarter.
During the quarter, we generated $255 million in total revenues, reflecting solid year over year performance of our proprietary products driven by unit growth.
We recorded a GAAP net loss of $52.9 million and a non-GAAP net loss of $7 million.
During the quarter Vivitrol net sales increased 7% year over year to $85.2 million inline with the expectation of approximately $85 million that we provided on our Q2 earnings call.
These results were driven primarily by underlying unit growth of 11% that was partially offset by gross to net adjustments that increased to 48.7% in Q3 2019 compared to 46.6% in Q3 2018, reflecting an increase contribution from Medicaid units.
Consistent with the pattern that we've seen in the last two years Vivitrol units were flat from Q2 to Q3.
The sequential decrease in net sales of approximately 3% was driven primarily by fluctuations in gross to net adjustments due to Medicaid utilization data from various states that favourably impacted Q2, 2019 net sales by approximately $3 million as we highlighted last quarter.
Vivitrol net sales remain concentrated with our top five states, representing 43% of volume in the third quarter.
We've continued our efforts to diversify growth at the state level and more than 22 states have demonstrated greater than 25% year over year unit growth.
As we approach the ended the year today, we're narrowing our expectation of Vivitrol net sales for the full year to a range of $330 million to $340 million.
Turning to the Aristada product family today, we're updating our expectation for 2019, Aristada net sales to a range of $185 million to $190 million from a previous range of 200 to 210 million.
In 2019, we introduced a number of initiatives to drive ARISTOTLE growth and while we are beginning to see those efforts gain traction and continue to believe there'll be productive overtime growth. This year has been slower than we anticipated.
With that said for the third quarter net sales increased 48% year over year to $53.6 million.
Driven primarily by unit growth.
Underlying total prescription data for ARISTOTLE demonstrated solid growth of 42% year over year in terms of months of therapy.
Sequentially ARISTOTLE net sales increased 11% also driven by unit growth.
Gross to net adjustments for ARISTOTLE were 48.2% for Q3, consistent with the second quarter and our expectation for full year gross to nets.
Against the backdrop of a long acting a typical market that has continued to grow at double digit rates Aristotle's market share has also continued to increase.
Aerostat as market share for new prescriptions in terms of months of therapy in the long acting air Peppers all market.
As 31% in September 2019, compared to 28% in September 2018.
And the overall market for long acting a typical in a psychotics Aristotle's market share for new prescriptions also in terms of months of therapy was 9% in September 2019, compared to 7% in September 2018.
Moving onto our manufacturing and royalty business, we saw revenues of $103.8 million in the third quarter compared to $116.4 million in the prior year, reflecting a $13 million decline in revenues from our Ampyra fanfare a franchise following generic competition to ampyra entering the U.S market in 2018.
Revenues from Risperdal, Consta, Invega, Sustenna and Invega Trinza remained fairly flat year over year at $77.2 million.
As increased end market sales of Invega Sustenna Invega trinza were offset by fewer manufacturing batches for Risperdal consta during the quarter.
Notably overall growth in our Invega Sustenna and Invega Trinza royalties continued despite the expiration of our sustained a 1.5% patent royalty in the us in may of this year.
In the third quarter, we recognized R&D revenues of $12.7 million, primarily driven by the reimbursement of development expenses for Verity related to our collaboration with Biogen.
The FDA approval of America will trigger a $150 million milestone payment that we expect to recorded license revenue in our Q4 results.
Alchemy Alkermes will receive mid teens royalties on net sales of remarried and we look forward to working with Biogen as it prepares for commercial launch.
In terms of expenses, our total operating expenses for the third quarter were lower than expected following implementation of various cost saving initiatives.
Our R&D expense for the third quarter was $107.7 million compared to $101.3 million for the prior year as we increased investment in the clinical development of Alex 40 230.
SGN expenses for the third quarter were $148.7 million compared to $128.8 million for the prior year, reflecting investments in our commercial organization in support of both ARISTOTLE and Vivitrol.
Turning to our balance sheet, we ended the third quarter with approximately $609 million in cash and total investments compared to approximately $594 million at the end of the second quarter.
The company's total debt outstanding was approximately $278 million at the end of the third quarter.
Let me shift now to a broader financial update for our expectations for 2019.
Now there were three quarters of the way through the year, we're able to narrow the ranges of our previously provided expectations.
Our full financial expectations are outlined in the press release, we issued earlier this morning.
For the topline we continue to expect total revenues to be in the range of 1.1 for $1.19 billion has higher than expected Invega sustenna royalties offset the decrease in our expectation for ARISTOTLE net sales in 2019.
For our operating expense line items, we initiated the review of our cost structure early in the third quarter and began to implement cost savings measures across the organization.
Predominantly as a result of this we decreased our operating expenses by approximately $30 million in 2019.
In terms of our guidance for 2019. This is primarily reflected in the decrease in our expectation for R&D expense to a range of $430 million to $450 million for 2019.
From a previous expectation of 450% to $480 million.
We also narrowed our full year 2019 expectation for ESG today to a range of $590 million to $610 million.
And expect to record a restructuring charge of approximately $15 million in the fourth quarter that will impact our GAAP results.
As a result of the updated financial expectations that have highlighted in the call today and that are outlined in the earnings press release issued this morning, our expectation for GAAP net loss for 2019 is unchanged, but we're increasing our expectation for non-GAAP net income to be in the range of $70 million to $90 million from a previous range of 42.
To $70 million.
Turning to the restructuring as we evaluated our cost structure, we identified three key areas to improve financial efficiency.
Streamlining current head count across a number of functional areas within the organization.
Reducing the number of open positions, including re projecting our hiring plans for the next several years and reducing our external spend.
We expect this restructuring to deliver savings of approximately $150 million with roughly one third related to R&D and two thirds driven by SDMA.
We will provide more detailed financial expectations for 2020 on our yearend earnings call in February .
Over the next few years, we expect to capture total savings of several hundred million dollars, helping us to achieve sustained non-GAAP profitability on an ongoing basis.
The key objective for this restructuring was preserving our ability to invest appropriately and what will we believed to be our most high value opportunities like the ox 40, 230 development program and the potential launch of Alex three Athree one.
We believe that we're well positioned to do this with incremental investment now in a cost structure that has been recalibrated at significantly lower levels.
We've also increased our flexibility to pursue business development opportunities that may have the potential to expand our development pipeline.
We are actively managing the business and are well positioned to drive growth in our commercial portfolio advance our development pipeline candidates in both CNS and immuno oncology and achieved sustained non-GAAP profitability.
With that I'll turn the call back to Richard.
Thank you Jim So you can see we're changing the profile of alkermes.
Weve proven our ability to develop manufacturing market important medicines.
Over the past year, we've gained significant clarity on the profile of the company in the coming years, we're focused on continuing to build the company, while improving our financial performance.
The basic architecture of the company continues to be characterized by three foundation of pillars stream of royalty and manufacturing revenues revenues from our proprietary marketed products and in evolving pipeline of development candidates.
Our royalty and manufacturing revenues have allowed us to invest in our proprietary commercial products and our current clinical development pipeline.
And we continue to expect meaningful manufacturing and royalty revenues from our partnered long acting Injectables in mid 2000 Twentys.
Biogens expected launch of you may already will add to this portfolio revenue streams from the first sale of humanity will be accretive and has the potential to be a powerful financial driver for alkermes.
The company second foundational pillar continues to be our proprietary commercial portfolio to Vivitrol and Aristada.
Last year, we crossed $1 billion, an annual revenues, primarily driven by the growth of these proprietary products.
Vivitrol is an important element of our nation's response to do opioid crisis as a nation. We've made significant strides to address the vast scope and scale of the crisis, but the remains significant need to improve education and access to care and to provide patient centered treatment.
Our commitment to this challenging area is rooted in the potential to help patients struggling with opioid dependence and that is happening. This week approximately 10000 patients will receive as invitro injections 10000 patients and the people to care for them will be impacted by this medicine, we're very proud of that will keep going.
For ARISTOTLE year over year volume growth is solid and we expect this product will continue to grow for years with new data from the Alpine study this summer and the expansion of our commercial field organization earlier. This year, we've completed our major expected investments in the Aristada product family.
We're beginning to see the impact of these investments, albeit not as quickly as we had anticipated.
La market is growing and we believe ARISTOTLE has the features and supportive data of an important and differentiated product in this market.
Consistent long term commercial execution will be key to maximizing the potential this product family.
The third pillar of our advancing pipeline is our advancing pipeline of development candidate.
First is out 30, 31, which we expect will be the next commercial launch and our proprietary commercial psychiatry portfolio.
We're in the final stages of preparing the filing and plan to submit the 30 31, India for both schizophrenia and bipolar one disorder this quarter.
30, 31 is a particularly interesting opportunity because it's an ideal complement to our current commercial capability.
That can leverage the infrastructure in place for Eris Donna.
For proved out 30 31 represents another opportunity for revenue growth revenue growth as it builds into with potential over the coming years.
Turning to 40 230 in immuno oncology harnessing this potential anti tumor activity the aisle to pathway continues to be one of them most exciting opportunities in the development new immuno oncology candidates.
Up regulating the immune system through selective expansion of Cdeight positive and natural killer cells has the potential to be complementary with a variety of cancer treatment approaches, including other immunotherapies and treatment options like radiation <unk> chemotherapy and targeted therapies. The design and engineering of Ox 40, 230 have yielded a differentiated.
Potential new biologic.
Data from the Phase one program are beginning to demonstrate its potential utility and we're preparing for the presentation data from that program at the upcoming society for immunotherapy of Cancer Society annual meeting at the beginning of November .
We're committed to positioning this organization for promising future and we've taken other important steps recently to prepare for that.
In September we appointed two new directors to our board Dr., Richard Gainer in Andy Wilson.
We believe these two directors are ideally suited to provide valuable insights and thoughtful leadership at this stage of our evolution their respective expertise in oncology and strategic value creation and will be important assets as we focus on execution and prepare for our next phase of growth.
The reorganization and announced today puts us on a new path and growth trajectory, while managing the business requires difficult decisions that impacted our employees I'm confident in the future the organizations and our ability to continue to make meaningful difference in the lives of patients families and communities that we serve.
So with that I'll turn the call back to Sandy to run the acuity great. Thank you.
Brad will now open the call for acuity.
Thank you Sandy will now be conducting a question and answer session. If you like to ask a question. Please press star one from your telephone keypad and the confirmation total indicate your line is in the question Q.
The press star to accumulate to move your questions from the Q.
Participants are using speaker equipment, it may be necessary to pick up for handset before pressing the star Keith.
Thank you and our first question is from the line of Omar refine with Evercore. Please proceed with your question.
Hi, Good morning, Thank you for so much for taking my questions.
Ed suite today, if I may 1st.
We've been thinking about the proposed tell us settlement framework for Suboxone and.
What I'm trying to get at is in theory, if a large generics clear will supply all suboxone for free should that or should that not affect the 12 price points to the market. So just wanted to ask you that knowing that there's a lot of generics in the market already so curious how you think about that one.
Secondly on airs data Richard I know, there's obviously a lot of optimism on long term prospects, but I also noticed that the guidance has been taken down twice. This year on aerostat estimates, where do you think has it been falling short and why should or shouldn't that be a dynamic going forward and then finally is it realistic.
For us to expect at least at 20, 530% switch, perhaps even ahead of a district court decision on the humidity franchise. Thank you so much.
Good morning tumor thanks for the questions.
I'll take them in series I think thats the settlement activity that you see in the opioid crisis is going to continue obviously, there's going be a lot of money, it's going to be flowing into the into the opioid.
Quote unquote fixing the opioid problem by virtue of both appropriations from state and federal governments as well as settlement money.
I.
Recognize that suboxone for beef and orphan is 95% of the market. Most most everybody gets on suboxone.
So my view is that is that.
The first principle in right now in the.
Phenomenon that at the opioid crisis in that most patients don't get access to medication assisted treatment at all.
So with the impetus is to put more people into treatment on medicines.
Via suboxone, or methadone, or we're going with but thats a good thing.
Because as we put more and more people into treatment more and more patients and recognize the option of detoxification plus vivitrol. So I think that the other than just fine point on it.
It was and what we understand is that.
Free goods or the tablets rather film in the film is still something that's used widely in the community our AR.
Price point is essentially unrelated to switch products.
Point, because patients who seek to go on Vivitrol are really pursuing a completely different therapeutic option that requires detoxification and use it to control the pricing of vivitrol in the in the government systems in particular is incredibly ferrets and it's in between five and $600. A month. So we think the price point is exactly right for broader use.
More government program supporting its use.
The second question Harris data, you're right, we've taken that we've taken the guidance down eris data simply reflecting the realities in the marketplace as the year as the year progress.
As Jim noted in his comments and as importantly to establish it is growing quite well I mean is growing is growing 40% quarter on quarter year on year on year. It's.
A lot of people would would love to have a product growing at the rate of Aristada, we just for too optimistic it beginning in the year the impact of the expansion of our sales force in the and the alpine data that we expected. We do think that those are going to have an impact which is taking longer than we would've thought. So we'll guide next year, probably the more conservative way.
And just based on on the growth trends that we see in hand recognized in the la vie market look at a drug like Invega Sustenna, it's been growing for a decade, just eight digit takes a long time and things change slowly, but they do change and we think that aristada is incredibly well positioned in that market with very few here.
As competitive entrants.
And on the third question My view married I know, we've had this conversation before I.
I think the big Seachange for for US in terms of our expectations for Vim humidity are driven by our.
Interactions with Biogen, we were the commercial supplier of this of this drug we have a sense of what their view of it is particularly following the completion the involve emmis to study this summer, which was the head to head study showing numerical superiority of of the humidity over to exit area in Guy.
Events. So I'll direct you to them I think they were they were a little bit busy yesterday, but.
I think that that we're really excited about volume area I think it's interesting for for us.
We're not protecting a $5 billion franchise, we're starting from zero on this so at the point I made in the call from the first dollar of sales numerically becomes accretive to us and its trajectory can be can really exciting as you superimposed on RPM analysis as it's currently configured.
Thank you very much.
Our next question comes from the line of Chris Shibutani with Cowen. Please proceed with your question.
Great. Good morning. Thank you very much for the questions I have two I noticed that your discussion of where the company is.
Taking.
Priorities that oncology as mentioned first and is more in the forefront you also highlighted but the incremental additions to the board where members who have some oncology experience can you talk to what you feel are.
The underpinnings for this type of decision based upon either core competencies or the direction that you feel you can positioning yourself given how competitive oncology is the second question is more specifics relating to the 30 831 filing you had indicated that you were also filing for the bipolar one indication and there were some incremental steps and discussions you needed to.
Take with the FDA can you update us on what the progress is with regard to those and your confidence that you will have adequately met those in order to make that filing complete and give that a profitability of.
Of approval at the same time as for the original indication. Thanks.
Good morning, Chris It's Rachel I'll take on both the.
In the oncology focuses is a perfect example of.
How.
Scientific exploration takes you in directions, and if you're scientists are good and you give them the freedom to pursue.
There were the data are taking them in lead you into new places.
So that the on train to oncology was not a strategic quote unquote decision to get an oncology. It was driven by deciding on engineering work that we were doing that first yielded 40 230.
And that work on on protein engineering that led to this really elegant construct of the alpha chain fuse to the aisle too.
Molecule, leading to a very selective.
Held to fusion protein is not idiosyncratic just to that that embodiment. We have some other work going on in cytokine, putting engineering that we think is drilling potentially important in.
Immuno oncology space.
So a few years ago as we as we started putting more and more energy into that.
As you might imagine as you start developing more models more oncology presence more inbound calls behind other things derived from there and so we haven't been quite as clear on disclosing some of those things, but suffice to say that we have a lot of energy in the labs on areas that we think are proprietary where other people aren't playing that we think we can we can have an impact.
In the in the organization itself a number of the people in R&D organization have background in oncology.
Greg Hopkins, our Chief Medical Officer has as run multiple oncology development organization.
Programs as have other folks in our regulatory and clinical group. So it's not it wasn't a reach for us operationally.
With that said.
40, 230 continues to get the traction that we hope it does we do see collaborating with 40 230.
Sufficiently multi vale and is sufficiently promiscuous in terms of the potential combinations with iOS agents and other agents that it really argues for a more broad based collaboration loud, allowing you to go after multiple tumor types multiple combinations in multiple lines of therapy.
The 30 31, Thats actually no news there we had met with FDA over a year ago and proposed a PK bridging strategy for inclusion of the bipolar one indication on first approval. It stands to reason because the land soybeans used widely there and we knew that with an approval only in schizophrenia conditions.
With want to use it in bipolar and it would be better to have labeling in that indication and not asking agreed and suggested some Quinn farms studies that we did particularly looking at co administration without pro eight and in lithium just to look at the drug drug interaction potential those were done over a year ago and so in the pre NDA meeting in the May June .
Timeframe, we confirm that we would be submitting for both bipolar one in schizophrenia in the first application.
Thank you.
Our next questions from the line of Cory Kasimov with JP Morgan. Please proceed with your question.
Hi, this doesn't mean on Cory thanks for taking my question.
And just one question on the restructuring so keep that kind of structure and sales strategy in place SDMA side in order to maximize the commercial assets and then the second question is just around eight.
What exactly should we expect.
Formulation and what.
Presenting data from thanks.
Your mind you take two yes. Good morning. Thank you on the restructuring side with US you know, yes, I mean, we have looked very carefully now.
With the trajectory there were looking at for Aerostar, and importantly planning for the launch of three Athree, one and as that planning advanced with three Athree. One we were better able I think to streamline and and logically put together an organization that can support both products in the schizophrenia area and so we havent really we've made a slight adjustments to the outward facing sales.
Organization, but a lot of adjustments to streamlining the back office work on the SGN a side and as I mentioned.
Roughly one third of the savings are going to be next year in R&D and two thirds of the DNA side, but we do think we're positioned appropriately for both our stada and three it through one.
And I'll take the question on city were recall that there are two major.
Elements of 40 230 program right now one is called artistry, one which is the intravenous program that has multiple facets to a dose escalation phase and expansion phase and a combination with Pembro phase and then what's called artistry too which is the subcu dosing regimen. We're testing 40 230 administered both once.
Weekly and once every three weeks so we'll be presenting data on the program is sitting in our history, one and and trial in progress poster artistry too and I think to the the the expectation. The first efficacy data is coming from the element of development program that involves patients who have been enrolled.
Primarily in Pembro unapproved tumor types, but well given up to update across the whole monotherapy dose escalation phase as well.
Great. Thank you.
Our next question comes from the line of Jason Gerberry with Bank of America. Please proceed with your questions.
Thanks for taking my questions.
Just a couple from me just just on the cost restructuring so relative to 2019, where I think the implied cost.
For Opex is about a billion one should we are forecasting purposes, I assume that on a net basis that.
Up spend our opex spend is going to be down.
Directionally or proportionate with the amount of the restructuring plan and then a follow up on the.
Thats have proposed donation of addiction treatment.
Rich just Ken the Medicaid channel, specifically dictate that that patients have to move to a buprenorphine tablet based therapy, if they're getting supplied this donation just sort of curious how to think about the potential risks around the Medicaid channel. Thanks.
Jim when should we go ahead on the on the restriction on time, yeah. Thanks, Jason for clarifying that.
You know and so it's very important that the $150 million that we mentioned is based off our 2020 plans, which align roughly with the 2020 sell side consensus that we saw in early October in late September early October so, yes, our spending will be down compared to 2019, but the 150 million dollar.
As you should adjust off for 2020 numbers.
Certainly not because we also adjusted our 2019 numbers for the beginning of this restructuring with a $30 million that I mentioned as we improve guidance. So to base. It off 2020, I think you should be inline with our expectations and as I mentioned, we'll give more specific guidance when we guide.
With our full budgeted in February .
And Jason I don't know exactly how the program when work, it's actually quite difficult to give free goods to the government, particularly since the implementation of these treatment programs is generally the state.
Or county level.
I think the basic the basic structure is what I said before most.
The dominant form of treatment right now in the community is suboxone coupon orphan and or methadone.
And most patients don't get access to M- at all you've heard us say before there's something like 14000 treatment centers in America less than half of which use medicines.
The only 4% use all FDA approved medicines.
So there's a huge amount of white space, there and to start Shan channeling people from incarceration from just cycling through failing counseling type programs into medication is to treatment programs increasingly MSP programs across the country are learning how to use vivitrol as well and one provisions of the most recent opioid bills passed in the comp.
This is this idea of piloting comprehensive opioid recovery centers corks that provide by in order for that for that imprimatur to be granted.
They have to provide all the FDA approved medicines as well as the other determinants of health, including counseling and job placement housing all those other things. So so long answer to a simple question, but I think that just simply providing free b. Braun. Orphan is is is is is a small element of an overall treatment system that in need of revision.
Going to happen and I think more people in treatment means more people at the top of funnel for the potential uses of neutral.
Thanks, if I, if I can I squeeze a follow up and just want aristada up the.
Prescription trends would suggest that volumes grow around 40% ish in 2019, yet the midpoint of net sales growth is 27%. So what does can you just walk us through that disconnect of script growth in net sales growth and what those items are I know that first quarter you had the inventory fluctuations.
As you can give us a little bit of a bridge there that'd be helpful.
Yes, Jason I think that's exactly it if you look at the first quarter in the fourth quarter of last year and may be smooth that growth over time, you get to a number thats.
It's more in that 40% range, which we're seeing on the underlying script trends and I think thats, what rich emphasized earlier aristada is growing very nicely. We we were incorrect in our guidance at the beginning of the years, we thought our new programs, maybe would drive additional growth onto that.
We're focused on making sure that the education around alpine and additional hospital Salesforce does generate longer term growth, which we think it will and that's one of the reasons why though we also adjusted our cost base here in Q3, but I think if you if you look a little bit broader than this year into Q4 of last year.
And smooth that out over the quarters, you'll see that.
The underlying unit growth is real and we should continue to see that pull through in the market and we're just.
Becoming more conservative our guidance here.
Finishing up the year.
Okay. Thank you.
Our next question comes from the line of policies with Stifel. Please proceed with your questions.
Hi, This is Alex on for Paul just a couple of questions from last year first of which is do you have any visibility on contracting dynamics in the market trends in the next few years, where do you expect gross to net to grow to go over time and the second question is could you walk us through a little bit more this sort of recent tentative approval for the.
Marty where you see that path to approval in the eventual commercialization going.
Thanks.
Yeah, Alex good morning on the gross to net side I think we are we're well into the contracting dynamics now you know three four years into the market and I think weve expected gross to nets should hold pretty steady in the 50% range, which is what we're modeling long term.
Barring any major changes that we don't foresee at this point.
And.
On the majority we as you know we received tentative.
Approval, which is a formal designation we've completed the review the drug is the drug as approvable, we're waiting just on the resolution on that outstanding exclusivity issue, and we and Biogen or working with FDA right now to get an expeditious resolution that we're planning for approval this quarter.
Great. Thanks.
Our next question comes from the line of beer I mean with Jefferies. Please proceed with your question.
Hi, guys. Thanks for taking my questions a follow up on 40 230.
And with the data coming up at Sea would ours artistry won data in form on the next phase of studies or would you have to wait for the order Sri two data before moving the program forward and Richard I think you mentioned that investing in early oncology research and.
In terms of investing in and cytokine and when can we expect to learn more about these efforts in terms of new compounds and I'd filings.
More to Baron.
Artistry one is.
Really Ivy times, five regimen, which is not an optimal regimen, but its value to regimens and thats why we chose it gives us some type of apples to apples comparison in terms of the sale. The cellular expansion that we're seeing with the regimen compared to hydro sale too.
And it's that regimen that allowed us to.
Achieved what we call that recommended phase two dose in June , which which we thought at six micrograms per keurig Ivy daily tons, five is equivalent to high dose aisle to without the corresponding expansion regulatory T cells. So that establishes if you will have benchmark of baseline from what the Pharmacodynamic capacity is.
Of the molecule by the way, we don't think that the limit we're continuing to dose escalation monotherapy phase just to see what the with the and TD is but that and gives us a compare to because clearly a subcu form isn't isn't isn't more commercially attractive presentation for 40 230.
And based on the primate data in preclinical work, we didn't see any reason why we wouldn't be able to shift to an end to the subcu dose. So to answer your question I think that if we continue to see progress in our in artistry too we will ultimately shift over to most of our efficacy studies the run in the second.
Q format with that said, if we were moving very fast and we're not there yet if we if we did see in the expansion cohort in melanoma and renal cell patients who have failed pembro and are.
On their last treatment options, if we were seeing striking responses in that Ivy cohort in artistry, one we would certainly sit down with with FDA.
So is that something that we can expect in terms of Pembroke.
40, 230 responses and.
Pembro failures at sea should we expect some of that data there.
That expansion cohort in renal cell and melanoma opened recently, so you won't see any data probably from those patients. What you will see a data from the Pembroke combos in Pembro unimproved tumor types.
Got it thank you.
Okay.
In the second the second question was about the new things.
And I think you'll see in 2020, I think you'll see us introduce some of the new elements of the pipeline.
Thank you.
Our next question is coming from the line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your question.
Hi, Thanks for taking my questions, maybe just a follow up on Aristada, you talked about potentially being too optimistic and your assumptions. When you gave guidance this year and granted the difference in the products, which are starting today to anyone but are there any broader markets and earnings will read throughs.
To the city if anyone has launched that maybe Manny.
Change or assumptions Nick.
Well brennan's its rich there.
There are different in their similar or different insensitive in injectable was always going to be different and an oral.
In that category, because so many physicians either the number of prescriptions written or never prescribers, writing orals compared to the number of prescribers writing writing.
Injectables, it's probably a 10 x. difference in the two so the the concentrations of business for the eyes is using in the much smaller group of physicians they tend to be slow to change and data. It doesnt actually drive a whole lot of change. It just takes a lot of time to change behaviors and Thats why we felt like we had to keep adding straws to the.
Camels back through not just a range of doses range of durations, but then initio and then two months and then and then alpine we just keep building evidence base for the use of ARISTOTLE.
But I do think it's a fair warning for 30, 31, because things in psychiatry and schizophrenia, particularly when you have governor government payers.
These are not square wave launches people do not Russian warehouse patients to put them on new medicine, you fight your way through generics and so I think the launch is gradual.
Irrespective of the of the dosage form itself. So when we guide for the 30 31 launch.
I think we'll guide recognizing that often there are there a new drug blocks for the first six months.
There is often impediments to using using new drugs, but the countervailing force of course is there literally millions of patients and a lot of inadequate treatment out there. So I think we'll guide conservatively and we'll hope to build on the infrastructure that we've built.
Great. Thanks, and maybe one follow up if I may.
So granted you have the.
At the savings program and restructuring how should we think about capital allocation going forward in terms of priorities and is it M&A is it and R&D investments in these oncology compound you talked about share buybacks and how should we think about that allocation between the CNS and oncology business. Thank you.
Yes, I think it's hard to say at this moment, whether with the with the ratio will be what we've really done. It's his focus down we had a fairly broad approach to a lot of different things over the last few years as you saw R&D expenditures grow and we're really focusing down now where we're seeing the most where we're seeing the most value. So I would think of the things you said were.
Very interested in licensing M&A.
Typically to expand the development portfolio, we're very interested in licensing M&A to leverage the commercial infrastructure that we're building.
And we have internal R&D, that's beginning to bear fruit that we'll continue to fund so in the restructuring we wanted to be pretty severe in terms of getting rid of costs that we don't need but preserving our ability to spend aggressively to the things where we see that we're creating the most value.
Great. Thank you very much.
Our next question comes from the line of Marc Goodman with SVB Leerink. Please proceed with your question.
Good morning couple of questions first of all on 40 230, you told us before youre going to spend and the order $75 million. This year I was just curious if that's still the number and should we be expecting that number to be 100 plus million.
As we move into next year.
Second of all you're taking $50 million out of the R&D line.
Are those any programs that have been cut any programs that you were planning on doing or is this just all back office spending and if it is just give us an idea of what what exactly is going away I'm still little confused on that and then third and the yesterday side.
We had previously assumed that you would be adding.
Quite a few sales reps for the launch of 30 831.
Given your comments now I'm not sure if you're adding any I'm little confused over.
How you're thinking about that if this is just going to be a reallocation.
Of reps from ARISTOTLE over or will there be increasing reps and if so can you give us a sense of of how you're thinking about it now thanks.
Sure Mark good morning, Thank you.
Appreciate the questions.
I will try and take him each in turn and if I Miss one remind me of the specifics. Please on 40 230, you know you're right. We are we talked about spending that increase of roughly $75 million and I think plus or minus in 2019.
That's the order of magnitude I think you should expect us to continue to spend and 40 230.
That program can grow actually quite rapidly depending on how many once these early stage studies are complete depending on the next stages that beer and enrich we're talking about earlier.
Those can be expanded.
We're planning to be able to do that we're also looking obviously a partnerships both on the R&D side on the commercial side ultimately for 40 230, but yes. That's one of the things. We wanted to preserve was that investment both this year and into next year.
The the.
Adjustment in guidance that we made for this year I think is related to a few things one.
The head count separations that we're making this year, obviously a lot of that will play more into next year, rather than this year and it's offset by a restructuring charge this year.
Lot of it has to do with.
Ultimate expansion in terms of the number of expansion heads that we were.
Anticipating into.
Through 19 and into 20, and we're changing our plans there as we focus our R&D and we're also reallocating people now that means different skill sets and different different hiring pattern and unfortunately, the separation with some employees as we wind down some of the larger phase three programs like through Marty three Athree one.
Phase threes are winding down as we shift from that phase three development capability more into investment in the R&D earlier stage pipeline capability that we have so lot of those costs are shifting.
And we are tightening our focus on.
On on some of the newer programs and away from those late stage phase threes and also that the drug delivery unprecedented biology work that rich was talking about earlier, so that changes happening with focus and then on the SGN any side.
We are making adjustments now in the back office and our structure. There we will plan to add and expand our salesforce in three athree one.
We see that more happening in 2021 and beyond but that the savings in the back office and the focused work in SGN a.
We will help us with next year spend.
And then also that revised structure going forward will.
Save us from additional spend in the years to come as well, but we do expect to add salesforce, but.
But I think the majority of those costs will be in 2021, when you look at us filing the NDA for three Athree one here in the fourth quarter and then also having the 90 day review period of time, if you remember for Samidorphan and the D.A.. That's also going to be tacked on before we can launch.
So hopefully those specifics will answer your questions.
Okay.
Okay right 10 for one more question for you Oh, yes. Thank you that next question is coming from the line of cash to Orient with Wolfe research.
Hey, Thanks for taking my questions. So on the last call you had mentioned that long term margins for ARISTOTLE B trial would approach about 20% to 30%.
In light of today's restructuring program, where would those margins kind of look now can we could we.
Your internal expectations on topline revenues for both of those programs change it sounds like Aristotle's come down a bit.
It's kind of unclear on VB trough.
And on the Slide you had mentioned that your cost restructuring could lead to several hundred million dollars since savings in the long term.
So it sounds like the one safety is for 2020 and it's more it's not a net cost more than just.
Spending that you wouldn't do otherwise when could we expect to see though several hundred million dollars in cost savings. Thanks.
Sure.
Cash held maybe start with the with the last question and move.
Forwards.
No so.
We outlined earlier right. We're looking at our 2020 spend plan when we're talking about our $150 million of savings. We're looking at our original 2020 spend plant.
Which as I mentioned earlier, a lions roughly with 20 120 sell side consensus from earlier in the year.
And Thats, where the $150 million of savings are identified but as you can imagine you know the trajectory to spend with both external spend and a lower number of headcount and fewer additions to our infrastructure those savings you're going to yield over time, if you're looking at a five year.
Revenue model, plus a five year expense model and so that $150 million.
While not necessarily repeated every year, because we're going to have additional spend as we grow the business from this adjusted baseline, but we're adjusting the baseline of our costs and our cost growth.
To make sure that we can commit to long term profitability and importantly, I think expanding profitability as we look at adding to the topline with the likes of drew meriting create tree won an additional growth on aristada and Vivitrol.
Turning to our long range expectations for ARISTOTLE Vivitrol, and then I think obviously as we as we.
Look at where 2019 and where we exit 2019 will make adjustments there, but I think our our overall expectations for both products. We remain optimistic we'll guide in 2022 to a logical extension of our.
Existing growth rates, but long term I don't think we've lost star potential.
Joel.
You that both of these products can be very very important one.
Certainly with Vivitrol.
I mentioned earlier right now around average market penetration of 5% across the country and in certain states over 10%. We think is the treatment paradigm changes there is long term growth opportunities for vivitrol.
The can be.
You know that can change the trajectory that product really at any time, depending on state by state changes and then where there are starting to.
I don't think we've fully understood and.