Q4 2021 Alkermes Plc Earnings Call

February 16, 2022

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[music] weekend.

Greetings and welcome to the Alkermes fourth quarter 2021 earnings call.

My name is Rob and I'll be your operator for today's call.

Anyone should require operator assistance during the conference. Please press star zero from your telephone keypad. Please.

Please note this conference is being recorded.

Now I'll turn the.

The conference call over to Sandra Coombs, Senior Vice President of Investor Relations and corporate Affairs Sandy.

Sandy you may now begin.

Thanks, Rob and good morning, welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter and year ended December 31, 2021 with me today are Richard Pops, our CEO , Ian Brown, our CFO and Todd Nichols, our Chief commercial officer before we begin I encourage everyone to go to the investors section at Alkermes Dot com.

To find our press release related financial tables, and reconciliations of the GAAP to non-GAAP financial measures that we'll discuss today.

We believe the non-GAAP financial results in conjunction with the GAAP results are useful in understanding the ongoing economics of our business our.

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 for.

Important risk factors that could cause our actual results to differ materially from those expressed or implied in the forward looking statements. We undertake no obligation to update or revise the information provided on this call or in the accompanying presentation. As a result of new information or future results or developments. After our prepared remarks, we will open the call for Q&A and now I'll turn the call over to Richard.

That's great. Thank you Sandy and good morning, everyone.

<unk> hundred 21 was a critical year in the development and evolution of Alkermes, we had three explicit overarching goals growing our commercial business, expanding and advancing our development pipeline and driving profitability.

And we were successful in all three of those domains.

Start first with the commercial business the year was highlighted by the FDA approval and launch of evolving our first oral medicine for the treatment of adults with schizophrenia and for the treatment of adults with bipolar one disorder.

The launch is off to a strong start and there are reasons why first is the nature of the medicine itself. The baldy is addressing an unmet need in the market. The second is the launch benefits from the commercial infrastructure, we built in psychiatry, and our presence and success with air Astana.

With these two medicines, we have an important and growing commercial franchise in psychiatry.

For <unk>, we redefined and began executing our new growth strategy focused on the alcohol dependence indication.

So these products the ball the era started individual together with the <unk> represent our four key growth drivers.

With respect to the pipeline, we're guided by a focused research and development strategy that prioritizes programs with the highest potential return on investment.

During the year, we initiated nimble Luke in clinical studies to support potential registration in two tumor types, where patients have limited treatment options and significant unmet need remains.

We also initiated a first in human study for our <unk> inhibitor, Alex 11 40.

We nominated and began IND, enabling activities for <unk> 2680 <unk>.

Orexin receptor two agonist.

Cheap preclinical proof of concept for our tumor targeted IL 12 program.

From a financial perspective, we executed the plan with respect to our 2021 objectives and we're on track to achieving our long term profitability targets.

Ian will outline shortly we manage the business to achieve the high end of our overall 2021 financial expectations.

We continued our focus on driving operational efficiencies and optimizing our cost structure focusing on our highest potential programs as we position the company for long term growth.

As Im sure Youre aware in November we received notice of a partial termination from Janssen, an affiliate of J&J that impacts out royalties related to the sales of long acting and Vega products in the U S. J.

J&J has made the surprising assertion that these products do not utilize alkermes nano crystal technology, Despite having paid us know how royalties for 12 years, we strongly disagree with J&J position since the receipt of this notice we've engaged with J&J and we will continue to explore whether a mutually agreeable resolution can be reached without the need for <unk>.

Arbitration or litigation, but that said, we're prepared to pursue all the options at our disposal to enforce our contractual rights and address any unauthorized use of our use of our intellectual property.

For the purposes of the 2022 guidance and the updated long term profitability.

Targets that we're going to provide today, we've removed from our models U S royalties from the long acting and Vega products, beginning this month and all royalties from outside the U S. Beginning in May of this year.

We have not received a notice of termination related to the ex U S. Territories. However, we believe excluding these ex U S revenues provides a conservative financial planning scenario.

To underscore that removing these cash flows from our guidance and profitability targets is for planning purposes, and does not in any way reflect our belief in the strength of our legal position on the matter.

This approach also has the beneficial effect of providing a clearer picture of the strength of the underlying business driven by our proprietary products and remarried and the operating leverage that we've engineered into the business.

<unk> of the outcome of the situation with J&J, we have been positioning the business over several years to shift away from royalties from the long acting and Vega products in the long term growth profile of the company remains unchanged.

Separate from the modeling from an operational perspective, following receipt of the notice from J&J, We went back and made cuts to our original 2022 budget recognizing that even if we are successful in our interactions with J&J that outcome could take some time.

Making adjustments now changes the cost structure and facilitates the bridge to our profitability targets.

The value enhancement plan that we established in 2020 continues to serve as a guide as we look to the future and we remain committed to the achievement of explicit profitability targets.

This formal commitment is beneficial for our shareholders and it's beneficial for the company and managing the business as we drive the competitive allocation of capital.

Today, we're announcing a revised long term profitability targets that reflect our current financial planning as well as feedback from our board and their.

Interactions with many of our institutional shareholders over the past few months.

With respect to the board we continued our ongoing board refreshment efforts in 2021 with the addition of two highly qualified new independent directors, one of whom was named to the board just last quarter as part of an agreement with <unk> capital.

This followed the retirement of two of our longest serving board members earlier in the year.

This evolution of our board has resulted in the appointment of six new independent directors. Since 2019. These new directors bring important financial strategic governance operational oncology medical and public health expertise that aligns with our business strategy of advancing and commercializing important medicines in neuroscience.

In oncology, we will continue to consider additional board refreshment that asics expertise and experience that may help us advance our strategy.

So with that as an introduction I'm going to turn the call over to <unk> to take us through the 2021 results and the outlook ahead, and then to Todd to provide an update on the launch of <unk> and the performance of ARISTOTLE and vitriol.

Thank you rich and Hello, everyone.

Our 2021 results reflect strong execution against our strategic priorities as we manage the business to the high end of our revenue expectations and exceeded expectations on the bottom line.

I'm pleased with these results, which reflect the company's progress over the last several years in fueling top line growth through our <unk> developed products, coupled with our continued focus on disciplined expense management and operational efficiencies.

In the next few minutes I'll take you through the details of our 2021 results.

Then turn to our 2022 financial expectations and underlying assumptions and then finish with our updated long term profitability targets.

So starting with our 2021 financial performance.

We generated total revenues of one $1 7 billion representing.

Representing a year over year increase of approximately 13%.

This increase was primarily driven by double digit year over year growth of both <unk> as well as growth in <unk> royalty and manufacturing revenues.

From a bottom line perspective, we recorded GAAP net loss of $48 2 million.

Compared to $110 9 million in the prior year.

Our non-GAAP net income of $129 1 million for the year compared to $68 6 million in 2020.

Turning to <unk> in 2021, we recorded net sales of $343 9 million up 11.

1% year over year, driven primarily by an increase in units of approximately 10%.

This increase reflects the execution of our strategy to increase awareness and drive adoption of <unk> as an important treatment option for alcohol dependence.

Year over year gross to net adjustments increased to 51, 5% from 49, 9% in 2020, primarily reflecting an increase in Medicaid utilization.

Now in the fourth quarter <unk> net sales were $92 million.

Reflecting 4% growth sequentially and 15% growth year over year.

Gross to net adjustments of 52% reflected favorable 80 in Medicaid utilization and a continued lower rate of returns.

Inventory levels increased by approximately $3 million in the fourth quarter, which we expect will be drawn down in the first quarter of 2022 as is typically the case.

It should be noted that in the latter half of the fourth quarter. We saw increased pandemic related disruptions in the U S with vitro due to the most recent surge in COVID-19 cases.

This resulted in a 1% decrease in units shipped in Q4 as compared to Q3.

Can imagine we're actively monitoring these trends as we enter 2022 and Todd will provide additional color in a few minutes.

Moving onto the <unk> product family.

For the year, our restart of net sales increased 14% to $275 4 million.

Primarily driven by 11% volume growth.

Gross to net adjustments were 53, 7% for the year relatively consistent with 2020.

For the fourth quarter <unk> net sales was $78 $7 million up 14%, both sequentially and year over year.

Gross to net adjustments decreased to 51, 8% in the fourth quarter from 54, 8% in the third quarter.

Primarily driven by a one time favorable adjustment of approximately $3 5 million.

So our Medicaid sales reserves.

In addition inventory levels increased by approximately $3 million at the end of the year.

Turning to <unk>, which we made commercially available in late October we were pleased to record $8 2 million of net sales in the quarter.

This included approximately $4 $5 million related to launch stocking and consistent with our expectations gross to net adjustments were approximately 35% during the quarter.

Moving on to our manufacturing and royalty business.

For the year, we recorded manufacturing and royalty revenues of $541 $8 million.

Compared to $484 million in the prior year.

This increase was driven primarily by the growth of <unk>, which contributed 87 $4 million of royalty and manufacturing revenues during the year compared to $22 $5 million in the prior year.

Royalties from the long acting and Vega products contributed $303 1 million during 2021 and.

And royalty and manufacturing revenues related to risk, but our constant contributed $50 9 million for the year.

Turning to expenses, excluding the $25 million development milestone paid to former shareholders of ROE down Therapeutics total operating expenses in 2020 oil increased by just 2% even as we invested in the preparation and execution of a commercial launch fully boldly and initiated potential.

Enabling studies and then <unk>.

Cost of goods sold for 2021 increased approximately $19 million year over year to $197 4 million.

Primarily driven by higher volumes of key manufactured products.

R&D expenses for 2021, with $406 5 million, reflecting an $11 $9 million increase over the prior year.

However, excluding the $25 million development milestone R&D expenses decreased compared to last year, reflecting data driven investments in our development candidates and strict adherence to internal stage gates in the development process.

SG&A expenses for 2021 at $561 million increased $22 2 million as compared to the prior year.

This included a $27 4 million increase in selling and marketing expenses in support of the launch of <unk>.

Partially offset by a $5 2 million decrease in G&A expenses year over year as we continue to manage the cost structure.

So taking a step back we've done significant work over the past few years to improve our operational efficiency optimize our cost structure and invest in the strategic priorities that we believe will position the company for future growth.

In 2021, we restructured our commercial organization to increase efficiencies for the launch of <unk>.

Implemented various other head count optimization and operational efficiency initiatives continue to prioritize our highest potential pipeline development programs and.

And discontinued programs that were not meeting our internal stage gate criteria.

This is going to be a continued focus for us as we go forward.

Turning to our balance sheet, we ended 2021 with approximately $766 million in cash and total investments.

Up from approximately $660 million at the end of 2020, primarily driven by cash flows from operating activities.

The Companys total debt outstanding was $295 million at the end of the year, resulting in a net cash position of approximately $478 million.

Alkermes is well positioned from a cash perspective, and we do not foresee needing to access the capital markets to fund our ongoing business.

I'll shift now to our financial guidance for 2022.

From an operational perspective, we adapted our budget for the year following receipt of a termination notice from J&J recognizing that resolution of the situation could take time.

We further focus spend on our key strategic priorities. The laboratory launch the number look in Registrational studies and advancing key early stage programs.

Spend in other areas of the business was prioritized to key business continuity initiatives, such as the supply of commercial products supporting patient access to our medicines and foundational G&A functions.

Investments outside of these core areas was scaled back eliminated or delayed.

Now, let me review some key assumptions underlying our financial guidance.

Our expectations assume a decrease in pandemic related disruptions.

If current disruptions do not decrease as anticipated always new COVID-19 related disruptions emerge the company's ability to meet these expectations could be negatively impacted.

As it relates to the long acting and Vega products for 2022, we are including one month of royalty revenue from sales in the U S and five months of royalty revenue from sales outside the U S.

Together this represents estimated royalty revenue in the range of $45 million to $50 million.

We're doing this to be conservative.

We have not received a notice of termination from J&J related to royalties from these products in any markets outside the U S.

And as you heard from rich, we strongly disagree with the termination of the license agreement in the U S.

That said we believe this is the most appropriate approach for financial planning purposes, as we work through the situation with J&J.

This approach has the added virtue of highlighting the expected long term growth of the underlying business driven by our proprietary products and <unk>.

So with all that in mind for the topline we expect total revenues for 2022 to be in the range of $1 billion to $109 billion.

For our proprietary products I'll start with <unk>.

While launches can be very dynamic. We currently expect <unk> net sales in the range of $55 million to $75 million for 2022.

And we expect the gross to net adjustments will be in the 40% range for the year.

For <unk>, we expect net sales in the range of 355% to $385 million and gross to net adjustments of approximately 52%.

For our starter we expect net sales in the range of $290 to $320 million and gross to net adjustments of approximately 55%.

In line with historical seasonal patterns, we expect our first quarter 2022 proprietary product net sales will decrease sequentially too.

The ranges of approximately 78% to 83 million for <unk>.

And approximately $68 million to $73 million for arris data with growth and expected to resume in the second quarter.

In addition, we expect <unk> net sales of approximately $8 million to $10 million in the first quarter as the remaining launch stocking is consumed.

In terms of our operating expenses for 2022 cost of goods sold is expected to increase to a range of $215 million to $225 million, primarily driven by increased volumes of key manufactured products.

R&D expenses are expected to be in the range of $385 million to $415 million, reflecting ongoing enrollment in a potential registration, enabling <unk> clinical studies.

Ongoing phase four commitments from <unk> and continued investment to support our early stage development assets, including IMD, enabling activities and the manufacture of clinical trial supply, but <unk> 26, 80, our orexin two receptor agonist.

SG&A expenses are expected to be in the range of $575 million to $605 million.

The year over year increase reflects a full year of investments to drive the launch of <unk>.

We expect a GAAP tax benefit in the range of $10 million to $15 million based on the new rules around the capitalization of R&D expenses for tax purposes, and the interplay with our foreign derived intangible income benefit.

Any change in tax legislation in this area during the year could impact these expectations.

We expect 2022, GAAP net loss to be in the range of $180 million to $210 million.

We expect non-GAAP net loss to be in the range of zero to $30 million.

Now I'll direct you to our press release issued this morning for a full outline of our financial guidance for the year.

So taking a step back we've been managing the business to achieve the long term profitability targets established in 2020, and we were well on track to do so.

Simply adding back a full year of long acting and Vega product royalties to our guidance would yield a non-GAAP net income margin of approximately 19% of total revenue in 2022.

Remember the 'twenty three targets was 25%.

Today, we announced revised profitability targets that factor and the removal of these J&J royalties.

The new targets demonstrates our continued commitment to driving long term profitability.

These additional expense management efforts.

We are now committed to achieving non-GAAP net income margins of 25% in 2025 and 30% in 2026.

And EBITDA margins of 20% in 2025 and 25% in 2026.

In order to provide a bridge to these margins. We also expect our non-GAAP net income margin in 2024 in the range of 15% to 20%.

Now should our interactions with J&J have a favorable outcome or should the license agreement and not be terminated outside the U S. We will be well positioned to accelerate the achievement of these targets.

Over the last several years, we've been positioning the business such that our top line performance will be fueled primarily by the growth of our proprietary products as we prepared for the anticipated exploration of royalties related to sales of the long acting and Vega products.

And while the reduction in royalty as impacts on net our near term profitability and cash flow. It does not impact the growth drivers underlying the long term valuation of the company.

But going forward, we expect our top line will be driven by growth of our diverse portfolio of commercial products vitro, our starter and labonte.

Along with <unk>.

At the same time, we remain committed to efficient management of our cost structure as we leverage our commercial infrastructure to drive the launch of <unk> and advanced our pipeline candidates in oncology neuroscience.

And with that I'll hand, the call over to Todd to review our commercial landscape.

Thanks, Ian and good morning, everyone.

The fourth quarter marked the beginning of a new chapter for alkermes within the commercial neuropsychiatry landscape.

Over several years, we have built a substantial and sophisticated set of capabilities necessary to commercialize medicines for patients with serious mental illness.

And the launch of <unk>, our second anti psychotic medication, we are leveraging our established commercial infrastructure as well as the market insights and relationships that we have built through our presence in the market with aerostar.

These capabilities and insights are valuable assets and we expect they will provide a strong platform for growth.

Overall I am encouraged with our performance in 2021 as our team delivered strong commercial execution.

Against the backdrop of dynamic market conditions vivid trough surpassed pre pandemic volumes.

Driven by our strategic focus on the alcohol dependence indication.

<unk> gained market share and remains the fastest growing long acting injectable and the LR market on a months of therapy basis and.

And we took steps steps to optimize our commercial field infrastructure to efficiently and effectively launch the Barbie, which we made commercially available in October .

So starting there with labonte.

<unk> addresses a compelling real world need of people suffering from schizophrenia, and bipolar one disorder, often proven efficacy, while being associated with less weight gain versus olanzapine in adults with schizophrenia and the pivotal enlightened two clinical trial in.

Im encouraged by the progress that we've made since launch with net sales in the fourth quarter of $8 $2 million driven by strong execution and broad health care provider awareness oddly baldy.

Early in the launch we are focused on two primary key performance indicators total prescriptions and prescriber breadth.

In the fourth quarter, we established a strong trajectory in terms of weekly total prescriptions of <unk>, Despite the holidays and a surge in COVID-19 cases.

Total prescriptions as measured by <unk> reached approximately 3800 in the fourth quarter.

Although it's early the initial feedback from health care providers and patients related to laboratory has been positive and adds to our confidence as we continue to execute on the launch.

Across indications data suggests similar utilization schizophrenia, and bipolar one disorder and.

And in terms of source of business patient switches have come from a broad range of therapies, including Olanzapine as well as other generic and branded agents.

The oral atypical antipsychotic market represents a substantial opportunity due to the size of the patient populations in schizophrenia, and bipolar one disorder and the significant unmet patient need evidenced by the fact that these patients often cycle through five to seven therapies during their treatment journey.

Turning to prescriber adoption, we are encouraged by the breadth of prescriber adoption and geographic diversity in the fourth quarter. Approximately 1100 60 providers wrote a prescription for the body and adoption has continued to grow in the early weeks of 2022.

Our health care provider targeting strategy is highly selective and we have seen strong conversion among health care providers that we anticipated would be early adopters.

Our market data demonstrated aided awareness suddenly baldy amongst survey prescribers of greater than 75% in December which we are pleased with at this early stage of the launch and which reflects an increase of more than 25 percentage points since September .

In terms of access and reimbursement initial payer coverage has been in line with our expectations. We continue to expect that Lee ball or it will be treated like other branded agents and at its access profile will be established gradually over the first 12 to 18 months of launch.

Timing for coverage decisions will vary among our three main payer channels Medicaid Medicare part D and commercial plans importantly, as we await coverage decisions. There is a pathway to access for patients in each of these three channels feedback from the field has indicated that our patient support programs have been effective in assisting.

Eligible patients to gain access to <unk>.

Yes.

As Ian outlined we expect La <unk>. The 2022 net sales in the range of $55 to $75 million based on initial trends observed in launch. We believe we are well positioned to achieve these expectations and look forward to providing further updates throughout the year.

For the <unk> product family net sales in the fourth quarter increased approximately 14% year over year to $78 7 million drill.

Driven by <unk> growth of 13% year over year on a months of therapy basis as <unk> continue to be the fastest growing long acting antipsychotic in the market.

Looking ahead, we believe that <unk> is well positioned and at its volume and market share will continue to grow driven by our once every two months dosing in our aerostat initiate initio treatment initiation regimen.

For 2022, we expect <unk> net sales in the range of $290 million to $320 million. This range reflects our continued emphasis on aerostar is differentiated value proposition and assumes a normalization new patient starts for the overall la class throughout the year.

Moving to <unk> net sales in the fourth quarter increased approximately 15% year over year to $92 million importantly in 2021, we've reestablished growth for <unk> as we surpassed our pre pandemic unit volume and net sales driven by growth in the alcohol dependence indication.

The increased adoption of <unk> in this indication in the overall increase in prescriber breadth in 2021 gives us confidence in the future growth potential of this important medicine.

As Ian mentioned during the fourth quarter pandemic related disruptions persisted in the addiction treatment system, while outpatient clinics have been more resilient residential treatment centers have reported they are still below full capacity, but this has impacted demand for <unk> on the opioid dependants indication to a greater degree due to detoxification.

<unk>, we have seen signs of stabilization since the height of the pandemic. We believe that <unk> is an important and differentiated treatment option for opioid dependence and are focused on driving awareness and supporting patient access.

For 2022, we expect <unk> net sales in the range of $355 million to $385 million as we advance our strategy to drive growth in the alcohol dependence indication.

Across both indications we remain committed to driving awareness. The vitriol is utility and believe it will continue to have an important role to play in the treatment paradigm.

Sure.

Before I turn the call over to rich I'd like to take a moment to acknowledge the collective commitment and agility of our commercial team.

Which have enabled us to adapt our commercial models to the changing dynamics of our business over the past several years growing sales of our products to new all time highs in 2021 and building momentum leading into the commercial launch of <unk>. In 2022, we remain focused on execution, increasing awareness and delivering growth at <unk>.

<unk>, <unk> and <unk> and with that I'll turn the call back over to rich.

Great. Thank you Todd so as you've just heard alkermes is establishing a distinctive commercial presence in the field of neuropsychiatry and addiction.

<unk> is an important new element early trends for the launch have been strong and feedback from providers indicate that the value proposition is simple clear and resonating. This is gratifying and it strengthens our belief that <unk> has significant potential to be important medicine in the treatment of schizophrenia and bipolar one disorder.

The data supporting the wheat mitigating properties of <unk> <unk> compared to Olanzapine continue to accumulate in the real world setting and in the clinic.

Last week, we announced positive topline results from the enlighten early study a phase III <unk> study evaluating the effect of laboratory compared to Olanzapine on body weight and patients with schizophrenia, schizophreniform disorder or bipolar one disorder, who are early in their illness. This study met its prespecified primary endpoint in patients treated with <unk>.

<unk> experienced significantly less weight gain than patients treat with olanzapine at week 12, consistent with the enlightened two pivotal study and numerical difference in average weight gain between treatment arms was observed early in treatment and continue to separate through studies.

Specified primary endpoint.

The safety profile of <unk> was consistent with previous studies and with this label. So we look forward to presenting additional results from enlighten early at upcoming scientific meetings.

<unk> is emerging as a differentiated IL two variant with accumulating clinical evidence of anti tumor activity both alone as monotherapy and in combination with the checkpoint inhibitor.

This week at the <unk> meeting, we will present additional data from the monotherapy expansion stage of artistry, one in patients with renal cell carcinoma.

The monotherapy antitumor activity has been a key differentiating feature of <unk> that distinguishes our clinical data from other IL two variance in development.

We have three key priorities for <unk> in 2022.

First we are focused on the enrollment of potential registration, enabling clinical studies and mucosal melanoma as monotherapy and in platinum resistant ovarian cancer in combination with <unk>.

Each has been granted fast track designation by FDA.

Based on the significant unmet need and the potential clinical utility of nimble lukens antitumor activity activity in these tumor types.

Second based on the anti tumor activity and Tolerability signals that have emerged from our initial IV program, we're evaluating multiple dosing options to support flexibility and the potential for broader clinical utility.

Towards the end of the first quarter, we plan to initiate clinical evaluation of less frequent IV dosing schedules.

Based on the results of predictive modeling we plan to set a once every three week or twice every three week dosing.

We're also accumulating data on antitumor activity and durability from our ongoing artistry two subcutaneous once weekly dosing study.

By the end of 2022, we expect to have a clearer picture of each of these administration routes and schedules.

The third priority is pursuit of strategic collaborations.

Currently.

In our hands. This is a focused program, but we believe the promise of effective well tolerated IL. Two varian is its potential range excuse me its potential use in a range of tumor types lines of therapies and combinations, we hope to expand the program in the future via collaboration with other oncology companies with complementary agents.

And capabilities.

Turning to our <unk> 11, 40, our <unk> inhibitor candidate we initiated the first in human single escalating dose study in the fourth quarter and with initial data already in hand, we're making some adjustments to the plan.

After three dose Escalations, we observed lower than predicted systemic exposures of the parent compound and higher level.

Of the major active metabolite.

Importantly, we didn't observe any safety signals and the completed dose escalation cohorts. So we expect to continue dose escalation, but we'll first positive properly characterized the safety profile of the metabolite and establish the necessary exposure safety margins pre clinically before we proceed to the higher doses.

We have set clear stage gates, and we're focused on asking the right questions early in the development program as we advance this novel program.

I'll end with an update on our on our most advanced preclinical programs in neuroscience and oncology in the fourth quarter. We formally nominated our Orexin two receptor agonist candidate now known as Alex 2680.

The orexin pathway and its central role in the sleep wake cycle are well characterized and designing 2600 <unk>. Our objective was to optimize the PK PD relationship to make a molecule that could mimic the efficacy of the natural orexin peptide to increase wakefulness.

With a convenient dosing schedule and a well tolerated profile.

IND, enabling activities for 2680 are underway and we're hoping to enter the clinic later this year or in early 2023.

Within our preclinical portfolio of engineered cytokines, we've made progress to advance our tumor targeted IL 12 oncology agents.

IL 12 is one of the most potent inflammatory cytokines and has strong biological potential as an anticancer agent. However.

However, the use of systemic IL 12 has been limited by severe toxicity.

We recently achieved an important milestone establishing preclinical proof of concept for our construct this.

This triggers progression to the next stage of the program and we expect to generate additional preclinical data to further validate our approach this year.

Our R&D programs represent potential future growth drivers in each program, we're focused on interrogating and addressing key critical questions early on and strictly adhering to our internal R&D stage gates.

So I will end there with a strong start for la <unk> and a clear path forward for our development programs. We entered 2022 with a lot of operational momentum and a continued focus on disciplined allocation of capital and driving profitable growth. We believe that we're well positioned to continue to create shareholder value and I'll look forward to updating you on our progress so with that I'll turn.

The call back to Sandy to run the Q&A. Thanks.

Thanks Richard.

Alright, Rob I think we are ready to pivot to the Q&A.

Thanks, Andrew.

To ask a question at this time, please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

Maybe first start to if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please pull for questions and once again Thats star one to ask a question. Thank you.

Yeah.

Okay.

And our first question comes from the line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your question.

Alright, Thanks for taking my questions congratulations on the progress and thank you for the color.

So maybe just two from me first in terms of <unk> gross to net what do you. What do you think that will stabilize at is it sort of closer to that 2022 guidance, maybe closer to either control or start a number how do you think about balancing script growth in 2022 and beyond.

And then maybe I'll ask my second one probably goes a little bit in line with that thank.

Thank you for the updated longer term profitability targets, but can it continue.

Continued to dig a little did you consider putting out revenue targets publicly do you think thats something you could put out in the future just to sort of shore up.

That you do have growth in the business. Thank you.

Okay.

I'll take a crack at those two.

So the question is Brandon.

<unk> gross to nets, what we said is we would expect that to settle out in the long term in the mid 40% range. So that would be slightly higher than the 40% range. We talked about for fiscal 'twenty, two it's going to be a little bit dynamic.

As <unk>, all the sort of works its way through the access situations.

Situations in each of the three different channels that we see.

And also the particular indication whether its schizophrenia or bipolar has an implication for gross to nets as well, but I think we said at launch we would expect midst <unk> initially go into mid Forty's steady state.

On the long term profitability targets I'll, just try and make a couple of comments.

I'll provide a little bit more color, so I think in our <unk>.

Restaging the targets really highlights the company's commitment to continued commitment to long term profitability.

I think that our margin targets revenue matches on expense management matters I think right now we're really focused on.

<unk> driving the profitability through driving the topline through the proprietary products Vishal I'll start on the <unk> as.

As I mentioned <unk> is going to be an important contributor to that as well and we're very much focused on managing cost structure. So we're not going to provide long term revenue targets at this point in time, but also say, we're really focused on managing the income statement should be able to achieve these targets in 2025 and 26.

Hey, Brian It's Richard I just wanted to.

Implicit in your in your in your question. The first question was the concept I want to make sure we address which is whether or not we're using gross to net in order to gain additional accessing the launch here and that has not been our strategy. Our strategy has been to drive demand for the product through physicians desire to use it with their patients and then.

We evolved into our contracting strategy as that demand grows over time.

Great. Thank you to both of you I appreciate all the color.

Thanks Brandon.

Our next question is from the line of <unk> Mill Javan with Mizuho Securities. Please proceed with your questions.

Great. Thanks for taking my question so maybe.

Also one around my building one around sort of forward guidance.

So that will be missed.

Curious if you could share a little bit more in terms of the initial <unk>.

<unk> youre seeing from that product in the market and also in the fourth quarter.

Number was there is there any inventory stocking for one of the we should sort of keep in mind.

Your guidance for this year, assuming it's higher than what we were expecting but just trying to get a sense of the underlying demand.

And then second.

Like how you are sort of.

Handling the royalty situation from a forward looking perspective.

Can you just give us a sense because we get this question a lot Sir.

Around timing and when we might hear more on the on the royalty front I know youre looking.

Looking at J&J and kind of.

Open to all options.

But I don't know if theres anything you can share around some of our long this process might take to play out and when we might hear more.

From all of you. Thank you.

Good morning involvement with rich I'll have Todd answer the first one and I'll pick up the second okay, great. Yes, I'll start with <unk>. So first off is we are really encouraged by the initial launch momentum as I said in the prepared remarks in Q4. According to <unk> approximately 3800 prescriptions broad health care adoption.

160 providers overall as well and the feedback so we're spending a lot of time doing market research with our customers and also talking to our field organization as well and our feedback from Hep's Payors and our team on the ground is really consistent throughout the research what we're hearing is that the clinical profile.

On the ball of the clinical data is being well received.

We're seeing very clearly that the broad indications and the utility for different patient types. So that's the switch market is schizophrenia bipolar across the board, we're seeing broad utilization across all four doses, which was a key strategic advantage for the product and physicians are telling us. They think that this is a.

Key differentiator so the value proposition, it's early but our belief is the value proposition is resonating right now and we really have an opportunity to capitalize on the efficacy of olanzapine with a low incidence of long term weight came from our our clinical programs. So we're encouraged right now the feedback from from Hep's is good the feedback from <unk>.

Patient is good right now and the driver again is that it's a positive response to the lands athene, but experienced that patients are experiencing less weight gain. So we're encouraged by the initial feedback.

That's great and then a formal just to add one thing specifically around the inventory I did mentioned in the earlier comments that we had about $4 $5 million of stocking inventory and that.

That would burn off in Q1, and Thats why I pointed you towards the 8% to $10 million worth of net sales in the first quarter of this year.

And with respect to J&J.

I can't really give you any precision around around timing, we have begun the engagement with J&J, which is which is encouraging in that sense I just wanted to say that our belief in the strength of our argument is stronger than ever.

It was always strong in is undiminished.

But.

It's interesting.

Virtue as Ian mentioned in his remarks, if you take out the J&J royalties even for the modeling purposes. As you know it does reveal the underlying strength and the growth in the base business and that actually is really useful I think for investors to take a look at what's not complicated if the J&J numbers come back in and recognize that we're planning for the exploration of those royalties over time.

Anyway 2024 in the U S 2026 ex U S. So they are going to go away and what is left is this growing business with its being effectively managed towards increasing profitability.

Okay. Thanks.

Thanks, Bill and Thanks also for club on the inventory, Okay, sorry, I missed that in the prepared remarks, particularly in a few different things. Thanks. So much okay no problem no problem.

The next question is from the line of a cash tomorrow with Jefferies. Please proceed with your questions.

Hey, guys.

So.

It's hard to fully back this out but would it be fair to say that your expectations on lowball. The performance between now and 2025, what has to be higher than that in consensus for you to hit your long term margin targets do you agree with that or not and then what's your new long term guidance what programs were.

Specifically discontinued and what was the cost savings associated with that both in 2022 and beyond thank you.

So I'll take a crack at that one with regard to the <unk> sales I think it's fair to say that the companys expectations are probably slightly more robust in the streets current level of consensus.

So.

Take that for what you will.

And then on the R&D side I'm not going to go into specific programs. I think we went back in and we've looked at some of the early stage programs that we were working on and we've either part of those to the side.

Or as I say, if they didnt meet the internal stage gate cancel those so all that really factored into the guidance.

We provided today.

The R&D expense number.

Thank you.

And it's rich I would just say first good morning second of all.

The question on the <unk> revenue is good one because it obviously.

We believe that there is great potential for <unk> going forward, but the purpose of his steadying. The splits at profitability targets is to say, we're going to drive the business from the from the management side to hit them irrespective of that trajectory. It gets it gets very easy.

<unk>.

Exceeds expectations, but <unk> always going to continue to grow over merit is growing aerostat individual our strong product. So we have we have a robust topline that we can manage to and that's the point.

Thank you.

The next question is from the line of Corey CASM of Jpmorgan. Please proceed with your questions.

Hi, This is Stephanie on for Cory Congrats on the quarter.

Wanted to ask how much of an impediment.

<unk>.

<unk> first quarter on the market obviously.

Looks pretty solid overall, but just wondering kind of COVID-19 headwinds and how they play into that and then also how much you are able to leverage your presence with arris.

Some of these obstacles.

Okay.

Yes, I'll take that one our original hypothesis.

Going into the launches that we had real leverage in the business and that is that is absolutely playing out right now we're hearing that consistently from our field team.

Also through physicians through our surveys as well to first and foremost as physicians don't believe that <unk> compete they think that they are synergistic together and we're seeing leverage in our business with our field infrastructure.

That's the reason why we didn't have to have such a dramatic increase in our SG&A expenses to actually launch the product because we have access and we have relationships with about 60%.

Of our targeted audience.

To the earlier comments, we made in our prepared remarks, we did see a slowdown.

And patient diagnosis overall in the market for addiction, but also for.

For psychiatry as well in the fourth quarter in fact that <unk> reported a.

A little bit of a slowdown and diagnose patients and also patients originating in person as well too.

We didn't quite see any headwinds there with four <unk> for the main reason why that physicians are targets are very comfortable with olanzapine and buying being being comfortable with olanzapine, regardless of the modality and person telehealth Orange Cove Theyre more comfortable prescribing our product like laboratory.

So that's an advantage for la <unk>. They are also more comfortable with their stock because of our presence in the market for so long. So when we have relationships that helps us from.

From a from a COVID-19 impact perspective, but we did see some delays in patient initiation in the fourth quarter. As we said, we believe that that's going to completely evolve and change throughout the year, we are well positioned to maximize our infrastructure.

Great. Thank you.

Our next question is coming from the line of Omar <unk> with Evercore ISI. Please proceed with your question.

Hi, guys. Thanks for taking my question.

I have two if I may 1st is it fair to assume based on the forward looking guidance you guys are putting out medium term.

Youre setting an EPS floor of at least 250 am I am I correct in doing that sort of math.

And then secondly, as it relates to specifically on liability number in that 2020 526 timeframe.

It's hard to get to that 30% net income margin unless I assume that <unk> would be closer to 5% to $600 million in that timeframe, rather than the $3 million to $400 million in consensus. So am I correct in that direction of at least $200 million in upside I'll, let dolby versus what.

What consensus has thank you very much.

Well I think on your last question on the evolving I think consensus continues to evolve with regard to that product. We're obviously in the launch phase I think 2020, so he's going to tell us a lot about the future trajectory.

Of the product as.

As we mentioned that initial gaining access is going to take a 12 to 18 month timeframe. So 2022 is going to reveal a lot.

And then with regards to the longer term profitability targets and we're really focused in on the non-GAAP net income and EBITDA measures that we've talked to today.

And again as we go through 'twenty, two and beyond will.

We will be able to focus on those measures.

<unk>.

So.

We haven't specifically talked about EPS at this point in time.

Just focused on managing the top line and managing the cost structure in order to be able to hit EBITDA non-GAAP net income measures.

Thank you.

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

Hi, This is Katie on for Paul just a quick question for Matt.

Wondering if you could clarify where $11 40 is in development.

And what you are looking to see in order to enter a phase one.

Any inclination on indication strategy would be helpful as well thank you.

Kt is rich you may not have heard the prepared remarks that we just gave an update on the 11 40, it's in the clinic right now so it's in its first human study and the single escalating dose and we're pausing right now after three dose escalations, because we have a higher than predicted.

<unk>.

The primary metabolite, which is metabolized at a higher level in humans and animals.

And we wanted to reestablish those exposure margins in animals before we continue the dose escalation, we see no safety signals.

We're encouraged to keep going but we just need to do a little bit more work pre clinically before we continue the escalation.

Yes.

Makes sense. Thanks.

Youre welcome.

The next question is from the line of Marc Goodman with <unk> Leerink. Please proceed with your questions.

Hi, Thanks, This is Michael on for Mark.

You mentioned that you currently have similar utilization.

Sure.

Schizophrenia and bipolar one.

The utilization may have an implication for gross to net.

So just wondering if you have if you expect to mine.

Utilization going forward or.

A modification of that thanks.

Yes, absolutely I'll take that it's a little early right now.

Once we get a little bit more time on our belt with utilization claims data, we will have a much better line of sight I would say in general the way to think about this is that <unk> is not being.

Niche in any one patient population, we're seeing broad utilization across schizophrenia, and bipolar as well typically the bipolar market you see a little bit higher concentration of reimbursement through commercial we would assume that that would play through for laboratory over time, but at this point right now it's a little early.

Thank you.

The next question is coming from the line of Doug Tsao with H C. Wainwright. Please proceed with your question.

Good morning, everyone. Our crispy Alex here answer Doug. So I just have a question about <unk> you know with Covid seem to ease how do you expect those to alter the alcohol versus opioid use disorder mix and I guess similarly for the.

The breakdown of the different products, how do you how do you expect the change in Covid landscape to impact us.

Thank you.

Yep.

I'll start with that with first thinking about about <unk> first is we're really encouraged that in 2021, and we actually reestablished growth for visit trial, we actually exceeded our pre pandemic volumes, which is.

Just a really strong indication of the strength of the team and the value proposition of the trial the way, we're thinking about <unk> now and the future is the dual indication vivek.

<unk> is.

Well regarded in the market and <unk> market overall is driving growth for the entire category.

If we take a step back and we look at <unk> in terms of months of therapy. If you look at Q4. The market grew approximately 12% Vitol continues to outpace that market <unk> grew approximately 19% in terms of months of therapy. We did see some headwinds as I said earlier within the Ot market. The <unk> market is relatively flat.

<unk> had a slight decline within the Ot market, we think that that will resolve itself overtime as pandemic related restrictions ease as patients get access to treatment mainly in the controlled setting category overall long term, we see the strongest market growth potential for the category being an hour.

Call dependence and Vitol as I said earlier is very well received additionally.

Additionally, when we talk to our customers through all of our market research.

Approximately 80% of surveyed Hcp's believed that the prevalence of <unk>, increasing over the past seven past year and about 70% of those hep's believe that that medication is an important part of the journey. So we think the vitol is very well positioned for sustained growth over time being mainly driven from the alcohol dependence.

Indication.

As I said earlier thinking a little bit about about aerostar.

<unk> continues to outpace the broader long acting market as well the market has seen a slowdown we saw a slowdown in 'twenty you slowdown in 'twenty, one and the market continues to grow but just not at the pace that we saw pre pandemic aerostar is growing three times faster than the market, we see that in terms of Trs.

<unk>, we also see that with new patient starts, which we define as as <unk> continues to outpace the market and it's really being driven by the value propositions.

Physicians are telling us at awareness levels are increasing they believe in $10 64, which is our two dose.

Option and also.

Our initio regimen as well too. So so we believe that <unk> will continue to grow and our assumptions are there data will continue to outpace the market.

Awesome, thanks for the detail.

Yes.

Thank you.

The next question is from the line of Jason <unk> with Bank of America. Please proceed with your question.

Hi, guys. Good morning, Thanks for taking my questions.

First one for me on nimble look in just as we think about IV.

Shorter infusion formats versus sub Q, what do you think is more important to driving.

High value partnership I would assume Ivy just given its physician administered in most of these combinations are IV anyway. So I'm just curious your views on that and then ultimately also how important do you think the egg melanoma phase III.

Later this year it seems like investors are focused on that as potentially a catalyst for driving more enthusiasm from large pharma partners and IL. Two is a mechanism and then just to summarize on the long term profitability. It sounds like if you see revenue scale upwards and beat consensus in a meaningful way you can maintain the curve.

Operating spend maybe even grow it but alternatively, if revenues are falling short in that 'twenty four 'twenty five timeframe you had the flexibility to flex down your operating spend levels to make the targets. So theres a bit of fluidity in it but it sounds like those would be the scenarios is that the right way to think about it. Thanks.

Morning, Jason I think just I'll quickly answer the last part which is yes, I think thats the right way to think of it he can give more color on that but that's exactly right. We haven't it's nice going into this with a $1 billion top line with these this growing revenue line of with new.

Products involved in and so it gives you a lot of flexibility as you model out ideally will.

We will continue to grow that revenue line, but we have a lot of flexibility in the whole P&L.

Nevertheless, it's interesting on the route of administration, there's biology, and there's commercial the in play here because the sub Q biology, and with the data we've shown so far has a differential.

Profile from the IV, which which may be good bad or indifferent interferon gamma levels are different and K levels are different via the <unk> route and so we're seeing responses sub Q, we want to see the test the durability of it versus the IV responses. So we think that's a really important route but depending on the physician you talked to.

Sub Q or less frequent IV or both.

Gordon.

What we're testing in the clinic on the on the IV side is maybe once every three week cycle or twice every three week cycle IV, which we think is really commercially attractive and the modeling exercise.

<unk> two <unk>.

Modelings IV to IV is probably much more predictable reliable then modeling IV to <unk> so well.

Chairman, both empirically, but I think resolution of both the route in the schedule are really important foundations for expanding the program via collaboration.

I do think the whole field is waiting with with some anticipation to <unk> phase III as we've always said that we think the correlation between the outcomes of nimble Luke and embed Peg is limited at best.

But with that said I think from an investor perspective people do want to see whether that cast a shadow or a halo around the Iot space.

Got it great. Thank you.

Thank you.

At this time, we've reached end of our question and answer session and I will hand, the floor back to management for closing remarks.

Great. Thanks, everyone for joining us on the call today and.

Here at the company.

Thanks, so much.

Thank you. This will conclude today's conference you may disconnect. Your lines at this time and we thank you for your participation and have a wonderful day.

[music].

Greetings and welcome to the Alkermes fourth quarter 2021 earnings call.

My name is Rob and I'll be your operator for today's call.

If anyone should require 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.

The conference call over to Sandra Coombs, Senior Vice President of Investor Relations and corporate Affairs San.

Sandy you may now begin.

Com to find our press release related financial tables, and reconciliations of the GAAP to non-GAAP financial measures that we'll discuss today, we believe the non-GAAP financial results in conjunction with the GAAP results are useful in understanding the ongoing economics of our business our.

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 at our most recent annual and quarterly reports filed with the SEC.

For important risk factors that could cause our actual results to differ materially from those expressed or implied in the forward looking statements. We undertake no obligation to update or revise the information provided on this call or in the accompanying presentation. As a result of new information or future results or developments. After our prepared remarks, we will open the call for Q&A and now I'll turn the call over to Richard.

That's great. Thank you Sandy and good morning, everyone.

2021 was a critical year in the development and evolution of Alkermes, we had three explicit overarching goals growing our commercial business, expanding and advancing our development pipeline and driving profitability and we were successful in all three of those domains.

Our launch is off to a strong start and there are reasons why first is the nature of the medicine itself. The baldy is addressing an unmet need in the market. The second is the launch benefits from the commercial infrastructure, we built in psychiatry, and our presence and success with aerostar.

With these two medicines, we have an important and growing commercial franchises in psychiatry.

For <unk>, we redefined and began executing our new growth strategy focused on the alcohol dependence indication.

So these products the <unk> era started individual together with the <unk> represent our four key growth drivers.

With respect to the pipeline, we're guided by a focused research and development strategy that prioritizes programs with the highest potential return on investment.

During the year, we initiated a number look in clinical studies to support potential registration in two tumor types, where patients have limited treatment options and significant unmet need remains.

We also initiated a first in human study for our <unk> inhibitor, Alex 11 40.

We nominated and began IND, enabling activities for <unk> 2680 <unk>.

Orexin receptor two agonist.

Cheap preclinical proof of concept for our tumor targeted IL 12 program.

From a financial perspective, we executed the plan with respect to our 2021 objectives and we are on track to achieving our long term profitability targets.

Ian will outline shortly we manage the business to achieve the high end of our overall 2021 financial expectations.

We continued our focus on driving operational efficiencies and optimizing our cost structure focusing on our highest potential programs as we position the company for long term growth.

As Im sure Youre aware in November we received notice of partial termination from Janssen, an affiliate of J&J that impacts our royalties related to the sales of long acting and Vega products in the U S. J.

Sanjay has made the surprising assertion that these products do not utilize alkermes nano crystal technology, Despite having paid us knowhow royalties for 12 years, we strongly disagree with J&J his position since the receipt of this notice we've engaged with J&J and we will continue to explore whether a mutually agreeable resolution can be reached without the need for <unk>.

For the purposes of the 2022 guidance and the updated long term profitability.

We have not received a notice of termination related to the ex U S. Territories. However, we believe excluding these ex U S revenues provides a conservative financial planning scenario.

Want to underscore that removing these cash flows from our guidance and profitability targets is for planning purposes, and does not in any way reflect our belief in the strength of our legal position on the matter.

Regardless of the outcome of the situation with J&J, we have been positioning the business over several years to shift away from royalties from the long acting and Vega products in the long term growth profile of the company remains unchanged.

Making adjustments now changes the cost structure and facilitate the bridge to our profitability targets.

The value enhancement plan that we established in 2020 continues to serve as a guide as we look to the future and we remain committed to the achievement of explicit profitability targets.

This formal commitment is beneficial for our shareholders and it's beneficial for the company and managing the business as we drive the competitive allocation of capital.

Today, we're announcing revised long term profitability targets that reflect our current financial planning as well as feedback from our board in it right.

Interactions with many of our institutional shareholders over the past few months.

This followed the retirement of two of our longest serving board members earlier in the year.

In oncology, we will continue to consider additional board refreshment that asics expertise and experience that may help us advance our strategy.

So with that as an introduction I'm going to turn the call over to Ian to take us through the 2021 results and the outlook ahead, and then to Todd to provide an update on the launch of the <unk> and the performance of Ers data and Fitzgerald.

Thank you rich and Hello, everyone.

Our 2021 results reflect strong execution against our strategic priorities as we manage the business to the high end of our revenue expectations and exceeded expectations on the bottom line.

Im pleased with these results, which reflect the company's progress over the last several years and fueling top line growth through alkermes developed products, coupled with a continued focus on disciplined expense management and operational efficiencies.

And the next few minutes I'll take you through the details of our 2021 results.

Then turn to our 2022 financial expectations and underlying assumptions and then finish with our updated long term profitability targets.

So starting with our 2021 financial performance.

We generated total revenues of $117 billion rep.

Representing a year over year increase of approximately 13%.

This increase was primarily driven by double digit year over year growth of both <unk> as well as growth in <unk> royalty and manufacturing revenues.

From a bottomline perspective, we recorded GAAP net loss of $48 2 million.

Compared to $110 9 million in the prior year.

Our non-GAAP net income of $129 1 million for the year compared to $68 6 million in 2020.

Turning to <unk> in 2021, we recorded net sales of $343 $9 million up 11% year over year, driven primarily by an increase in units of approximately 10%.

This increase reflects the execution of our strategy to increase awareness and drive adoption of <unk> as an important treatment option for alcohol dependence.

Year over year gross to net adjustments increased to 51, 5% from 49, 9% in 2020, primarily reflecting an increase in Medicaid utilization.

Now in the fourth quarter, <unk>, net sales were $92 million, reflecting 4% growth sequentially and 15% growth year over year.

Gross to net adjustments of 52% reflected favorable <unk> in Medicaid utilization and a continued lower rate of returns.

Inventory levels increased by approximately $3 million in the fourth quarter, which we expect will be drawn down in the first quarter of 2022 as is typically the case.

It should be noted that in the latter half of the fourth quarter. We saw increased pandemic related disruptions in the U S for vitro due to the most recent surge in COVID-19 cases.

This resulted in a 1% decrease in units shipped in Q4 as compared to Q3.

As you can imagine we're actively monitoring these trends as we enter 2022 and Todd will provide additional color in a few minutes.

Yes.

Moving onto the ARISTOTLE product family for.

For the year are restarting net sales increased 14% to $275 4 million.

Primarily driven by 11% volume growth.

Gross to net adjustments were 53, 7% for the year relatively consistent with 2020.

For the fourth quarter <unk> net sales was $78 $7 million up 14%, both sequentially and year over year.

Gross to net adjustments decreased to 51, 8% in the fourth quarter from 54, 8% in the third quarter.

Primarily driven by a onetime favorable adjustment of approximately $3 5 million.

So our Medicaid sales reserves.

In addition inventory levels increased by approximately $3 million at the end of the year.

Turning to <unk>, which we made commercially available in late October we were pleased to record $8 2 million of net sales in the quarter.

This included approximately $4 $5 million related to launch stocking and consistent with our expectations gross to net adjustments were approximately 35% during the quarter.

Moving on to our manufacturing and royalty business.

For the year, we recorded manufacturing and royalty revenues of $541 $8 million.

Compared to $484 million in the prior year.

This increase was driven primarily by the growth of <unk>, which contributed $87 $4 million of royalty and manufacturing revenues during the year compared to $22 5 million in the prior year.

Royalties from the long acting and Vega products contributed $303 1 million during 2021 and.

And royalty and manufacturing revenues related to risk, but our constant contributed $59 million for the year.

Turning to expenses, excluding the $25 million development milestone paid to former shareholders of ROE down Therapeutics total operating expenses in 2021 increased by just 2% even as we invested in the preparation and execution of a commercial launch fully boldly and initiated potential registration.

Enabling studies and then <unk>.

Cost of goods sold for 2021 increased approximately $19 million year over year to $197 4 million.

Primarily driven by higher volumes of key manufactured products.

R&D expenses for 2021, with $406 5 million, reflecting an $11 $9 million increase over the prior year.

Excluding the $25 million development milestone R&D expenses decreased compared to last year.

<unk> data driven investments in our development candidates and strict adherence to internal stage gates in the development process.

SG&A expenses for 2021 at $561 million increased $22 2 million as compared to the prior year.

This included a $27 4 million increase in selling and marketing expenses in support of the launch of <unk>.

Partially offset by a $5 2 million decrease in G&A expenses year over year as we continue to manage the cost structure.

In 2021, we restructured our commercial organization to increase efficiencies for the launch of <unk>.

Implemented various other head count optimization and operational efficiency initiatives continue to prioritize our highest potential pipeline development programs and discontinued programs that were not meeting our internal stage gate criteria.

There's going to be a continued focus for us as we go forward.

Turning to our balance sheet, we ended 2021 with approximately $766 million in cash and total investments.

From approximately $660 million at the end of 2020, primarily driven by cash flows from operating activities.

The Companys total debt outstanding was $295 million at the end of the year, resulting in a net cash position of approximately $478 million.

How can we use is well positioned from a cash perspective, and we do not foresee needing to access the capital markets to fund our ongoing business.

Shifting now to our financial guidance for 2022.

From an operational perspective, we adapted our budget for the year following receipt of a termination notice from J&J recognizing that resolution of the situation could take time.

We further focus spend on our key strategic priorities. The laboratory launch the number look in Registrational studies and advancing key early stage programs.

Investments outside of these core areas with scaled back eliminated or delayed.

Now, let me review some key assumptions underlying our financial guidance.

Our expectations assume a decrease in pandemic related disruptions.

Current disruptions do not decrease as anticipated always new COVID-19 related disruptions emerge the company's ability to meet these expectations could be negatively impacted.

As it relates to the long acting and Vega products for 2022, we are including one month of royalty revenue from sales in the U S and five months of royalty revenue from sales outside the U S.

Together this represents estimated royalty revenue in the range of $45 million to $50 million.

We're doing this to be conservative.

We have not received a notice of termination from J&J related to royalties from these products in any markets outside the U S.

And as you heard from rich, we strongly disagree with the termination of the license agreement in the U S.

That said we believe this is the most appropriate approach for financial planning purposes, as we work through the situation with J&J.

This approach has the added virtue of highlighting the expected long term growth of the underlying business driven by our proprietary products and Romero team.

So with all that in mind for the top line. We expect total revenues for 2022 to be in the range of $1 billion to $109 billion.

For our proprietary products I'll start with <unk>.

While launches can be very dynamic. We currently expect <unk> net sales in the range of $55 million to $75 million for 2022.

Can we expect the gross to net adjustments will be in the 40% range for the year.

For <unk>, we expect net sales in the range of $355 million to $385 million and gross to net adjustments of approximately 52%.

For a starter we expect net sales in the range of $290 to $320 million and gross to net adjustments of approximately 55%.

In line with historical seasonal patterns, we expect our first quarter 2022 proprietary product net sales will decrease sequentially to ranges of approximately 78% to $83 million for debit trial.

And approximately 68% to $73 million for Arris data with growth and expect it to resume in the second quarter.

In addition, we expect <unk> net sales of approximately $8 million to $10 million in the first quarter as the remaining launch stocking is consumed.

In terms of our operating expenses for 2022 cost of goods sold is expected to increase to a range of $215 million to $225 million, primarily driven by increased volumes of key manufactured products.

R&D expenses are expected to be in the range of $385 million to $415 million, reflecting ongoing enrollment in a potential registration enabling them to look in clinical studies.

Ongoing faithful commitments from <unk> and continued investment to support our early stage development assets, including IMD, enabling activities and the manufacture of clinical trial supply, but <unk> $26 80, our orexin two receptor agonist.