Q3 2022 Alkermes Plc Earnings Call
Greetings and welcome to the Alkermes third quarter 2022 financial results Conference call. My name is Melissa and I will be your operator for today's call.
All participant lines will be placed on mute to prevent any background noise.
If you should require operator assistance during the call. Please press star zero on your telephone keypad. Please note that this conference is being recorded I'll now turn the call over to Sandra Coombs Senior Vice President of Investor Relations and corporate Affairs Sandy you may begin.
Good morning, welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter ended September 32022, and the proposed separation of alkermes neuroscience and oncology businesses.
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 of Alkermes Dot com to find our press release related financial tables, and reconciliation of the GAAP to non-GAAP financial measures that we'll discuss today, we believe the non-GAAP financial results in conjunction with the GAAP results are useful in understanding the ongoing economics that 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 releases issued this morning, and our most recent annual and quarterly reports filed with the SEC for important risk factors that could cause our actual results to differ materially from those expressed or implied in the forward looking statements. We undertake no obligation to update or revise the information provided on this call or in the accompanying.
Presentation as a result of new information or future results or developments. After our prepared remarks, we'll open the call for Q&A now I'll turn the call over to Richard Thank you Sandy and good morning, everyone.
So we had a strong third quarter financially and operationally on the neuroscience side, our commercial portfolio performed well highlighted by live boldly and.
And we took an important step forward for our next pipeline candidate with our Orexin two receptor agonist now entering the clinic.
After a year in the market were confident that <unk> has attributes of an important new psychiatric medicine.
On the oncology side nimble Luca has advanced in potential registration, enabling studies and our other engineered cytokines IL 12, and IL 18 are progressing behind it all.
Also during the during the quarter the inflation reduction Act became law fundamentally shifting the relative economic value of biologic medicines in cancer.
So together.
These developments catalyze new opportunities for the company. This morning, we announced that with the unanimous support of the board, we have decided to explore separating our oncology and neuroscience businesses, including a potential spin off of the oncology business into an independent publicly traded company.
The proposed separation is timely and is consistent with feedback we've collected throughout our extensive shareholder and investor engagement efforts and we believe it's in the best interest of both businesses will discuss that separation in more detail in a moment, but first I'd like to provide a little context.
For decades, Alkermes focus and foundation have been in neuroscience, and we have successfully developed a number of important treatments for neurological and psychiatric.
Disorders, including pivotal, Arizona evolving and remarried and we've enabled many other products with our technologies.
<unk> has opened a significant new door for us as our first oral product and a major psychiatric market.
It's real world profile is being established and it deserves the commensurate focus and investment to achieve its maximum medical and commercial potential.
Altogether. These medicines have been used to treat millions of people living with serious and complex diseases and they are expected to drive topline revenues in excess of $1 billion.
For Alkermes again this year.
Along the way, though we develop new technical capabilities and identified opportunities for capturing additional value from our R&D efforts over the past 10 years, our expertise in molecular design and protein engineering led us to the development of <unk> and into the oncology therapeutics space.
We have proceeded with discipline and adhering to a series of pre defined development stage gates, along the way for nimble looking to confirm the design hypothesis and increase the evidence supporting its further development.
Our protein engineering capabilities have also yielded additional engineered cytokines that are based on established biology and designed to address key challenges.
As we look towards the future with the early traction of the <unk> launch and progress in the nimble Lucan development program the respective value propositions for each of the neuroscience and oncology businesses have come more clearly into focus.
The neuroscience business represents an established commercial enterprise with multiple growing products and a distinctive place in a complex market.
And in early stage pipeline that we expect will serve as the next phase of growth.
The oncology business includes a differentiated late stage clinical candidate in our pipeline of preclinical biologics each has its own compelling investment thesis.
So for these reasons, we believe the separation could unlock value for shareholders and yield number of benefits for both businesses.
Firstly, it would drive a start a sharper strategic focus for each led by separate and distinct management teams with therapeutic expertise relevant to each businesses unique strategic priorities and opportunities.
Second it would simplify kellock capital allocation decision, making at a time when both the launch of <unk> and the late stage development of nimble Lucan, a worthy investments that we believe will drive a high return on investment.
Through this lens, we believe operating separately will increase each business has flexibility to pursue growth and investment strategies that more directly aligned with their respective goals.
And third it will allow the capital markets to better assess the value performance and potential of each business and attract an appropriately suited shareholder base.
Following the planned separation, we expect alkermes to become a profitable pure play neuroscience company.
Alkermes will continue to build on our heritage of innovation and excellence in this therapeutic space focusing on significant unmet needs within neuroscience and driving growth of our proprietary commercial products <unk> <unk> and <unk> this portfolio of commercial products drives our growth and profitability.
As we execute on the launch of evolving the operating leverage we've engineered into the business is becoming evident and offers the potential to be transformative for the company.
We will also continue to advance <unk> thousand 680, our Orexin two receptor agonist for the treatment of narcolepsy, which is poised to enter first in human studies imminently in.
In the clinic our goal is to answer critical questions early to enable data driven decisions and we plan to move quickly to conduct a proof of concept study in patients with narcolepsy next year. This candidate is grounded in a strong biological rationale and represents an exciting opportunity neuroscience that builds on alkermes expertise in molecular design and.
Kinetic optimization.
So with a strong top line driven by the growth of proprietary products are specialized commercial infrastructure in neuropsychiatry and addiction and proven drug development capabilities. This standalone neuroscience business would represent a significant opportunity to capture operating leverage drive growth and profitability and advanced new potential medicines for neurological disorders.
The oncology side of the business also has a compelling stand alone investment thesis anchored by the potential medical and economic value of number Luca our novel Investigational engineered IL two variant that is a potential first in class cancer immunotherapy.
The data from our artistry, one clinical study established Nimbler lukens profile, and our belief and its clinical potential both as monotherapy and in combination with pepper Elysium Mab in heavily pretreated patients across multiple tumor types. Our current development efforts are focused on two difficult to treat tumor types artistry two six.
Is evaluating <unk> monotherapy in mucosal melanoma and artistry seven is evaluating nimble look at it in combination with pepper, Lizzie Mab in platinum resistant ovarian cancer.
However, we believe the full promise of an effective well tolerated IL two varian derives from the potential to be used in a wider range of combinations and tumor types by selectively targeting the IL two pathway number Luca has broad potential clinical utility and offers an opportunity for significant value creation as the development program advances in expense.
Along with number Lucan the oncology business is comprised of sophisticated protein engineering platform capabilities and our portfolio of novel preclinical and you're excited.
Including our tumor targeted split IL 12 program and our IL 18 program each of which has continued to achieve its predefined development stage gates to date.
College team we've assembled over the last few years is comprised of highly experienced individuals with the scientific pedigree and clinical trials expertise to efficiently and strategically advance. These oncology assets. The progress we've made to date as things to their knowledge hard work and dedication.
As I mentioned at the outset.
The impact of the recently passed inflation reduction act further reinforced our decision to separate the oncology business at this time.
In the past drug developers, we're essentially indifferent as to whether to interrogate a target with a biologic or a small molecule.
The inflation reduction made biologic medicines more valuable but in order to realize that value drug developers must adapt our development programs to accommodate the finite window of exclusivity imposed by the legislation and.
And invest in populations of interest earlier in the development lifecycle in order to yield greater economic returns to that end, we believe separating the oncology business. At this time, we will best supported positioning <unk> for success.
In terms of next steps, we expect to complete the separation in the second half of 'twenty three we.
We plan to provide additional details regarding the contemplated standalone oncology business as well as additional financial details for the two contemplated companies at a later date.
Completion of the separation would be subject to customary closing conditions, including final approval from our board of directors. So we will look forward to updating you on our progress.
So with that I'll turn it over to Ian for his perspectives and a review of our third quarter results.
Great. Thank you Richard Hello, everyone.
So picking up where Rick left off we believe a separation of the neuroscience and oncology businesses offers an opportunity to enhance the performance of both businesses and unlock significant shareholder value.
From an operational perspective, it should allow for simplified capital allocation decision, making and increased flexibility to pursue growth and investment strategies more aligned with the goals of each respective business.
The strong performance of Nabavi brings into focus the operating leverage in the neuroscience business.
And while we're not providing any financial expectations beyond 2022 today as a pure play commercial stage neuroscience company, we expect alkermes will be positioned to deliver enhanced profitability.
As we work towards the potential separation there is a lot of moving parts and we'll provide more details on our progress on the financial implications when we guide in February .
Now, let me turn to our third quarter financial results.
We delivered solid results in Q3, driven by the performance of our proprietary commercial products and disciplined management of our cost structure.
<unk> continued to perform well during the quarter.
We are pleased to raise our financial expectations for the full year based on this performance.
I will provide additional detail on these expectations in a moment.
First I'll start with an overview of our third quarter financial highlights.
So we generated total revenues of $252 $4 million, driven primarily by strength in our proprietary commercial product portfolio.
Starting with vitro net sales in the third quarter were $96 $5 million, reflecting 9% growth year over year.
Gross to net adjustments in the third quarter of 61, 2% were consistent with the second quarter and our guidance for the full year.
Today, we are refining our expectation for <unk> net sales for the full year to a range of $370 million to $380 million and we continue to expect gross to net adjustments of approximately 51% for the year.
The our startup product family generated net sales of $75 7 million at.
A 10% increase year over year.
Gross to net adjustments were 54, 6% in the third quarter consistent with Q2 and.
And today, we are refining our expectation for <unk> net sales for the full year to a range of $300 million to $310 million.
And we continue to expect gross to net adjustments of approximately 54% for the year.
<unk> net sales in the third quarter increased 35% sequentially to $27 $1 million.
Driven primarily by strong underlying demand growth of 36%.
In Q3 inventory levels increased in line with this demand by approximately $2 million and gross to net adjustments in the quarter were unchanged at 26%.
Today, we are increasing our full year 2022 expectations for <unk> net sales from a range of $75 million to $90 million to a range of $88 million to $95 million, including anticipated.
<unk> anticipated gross to net adjustments of 27% for the full year.
Moving on to our manufacturing and royalty business.
In the third quarter, our manufacturing and royalty revenues were $52 9 million compared.
Compared to $136 3 million in the prior year.
The decrease was driven primarily by J&J is termination of royalties from sales of the long acting and Vega products in the U S and as you know arbitration proceedings are ongoing in this respect.
We continue to recognize royalty revenues from sales of the long acting and very good products outside of the U S.
Revenues from <unk> were $26 $3 million.
During the quarter, we made good progress to address potential supply constraints and we expect to resume full commercial production in the coming weeks.
Lastly, our third quarter results reflect a reversal to royalty revenue of approximately $21 5 million.
Following the outcome of arbitration proceedings for the quarter therapeutics related to <unk>.
Turning now to expenses total operating expenses were $313 million for the third quarter compared to $313 8 million in the same period in the prior year.
For the third quarter cost of goods sold was $50 6 million.
Slightly lower than Q2, due primarily to the timing of manufacturing across various partnered products.
R&D expenses for the third quarter were $104 million, reflecting focused investments in the <unk> clinical program.
Our earliest stage neuroscience and oncology development programs, including preparations for the first in human study of <unk> 2680.
This compared to $118 4 million for the same period in the prior year, which included a $25 million development milestone related to our <unk> inhibitor platform.
SG&A expenses were $152 8 million compared to $136 2 million for the prior year, driven primarily by investments in the launch of <unk>.
Our top line results combined with our continued focus on disciplined operating expense management resulted in a GAAP net loss for the quarter of $64 million and a non-GAAP net income of $3 5 million.
Turning to our balance sheet, we ended the third quarter in a strong financial position with approximately $747 million in cash and total investments and total debt outstanding of approximately $294 million, resulting in positive net cash position of close to 453 million.
<unk>.
Yes.
I'll shift now to our financial expectations for 2022, which primarily reflect the strong performance of <unk> update.
Updated assumptions around royalty revenues from ex U S sales of the long acting and Vega products and the impact of the repayment of royalties related to <unk>.
Our full 2022 expectations are outlined in the press release, we issued earlier this morning.
So the top line, we now expect higher total revenues in the range of 1.07 to 112 billion.
A net increase of $10 million at the midpoint due primarily to improved expectations for <unk>.
This also reflects our updated assumption that we will receive royalty revenues on ex U S sales of the long acting and Vega products through the end of the year.
And the reversal of them paid a royalty revenue that I referred to earlier.
With respect to operating expenses, we have increased our expectation for cost of goods sold by $5 million at the midpoint, primarily to reflect higher volumes of the proprietary products and.
And as we are in the last quarter of the year, we're narrowing our expectations for R&D and SG&A expenses each within the previous guidance ranges.
These updated expectations increased GAAP net loss by $10 million at the midpoint, but as we just out the non operating and the one time items, our expectation for non-GAAP net income improved by $10 million at the midpoint to a new range of $25 million to $55 million.
So taking a step back we've continued to focus on operating efficiencies and on realizing the operating leverage we've built into the commercial infrastructure.
We believe this will become even more evident with the planned separation of the oncology business.
As we advance this process will continue to focus on unlocking shareholder value and positioning both for neuroscience and oncology businesses for growth and success.
And with that I'll hand, the call over to Todd to provide more details on our commercial performance during the quarter.
Thanks, Ian and good morning, everyone as we approach the end of 2022.
I'm proud of what our commercial organization has achieved during the year, we continue to navigate the ebbs and flows of the pandemic.
Further implemented our alcohol dependent strategy for <unk> drove growth for Aerostar and launch what we believe will be a significant product in the oral atypical market with LIBOR.
In the third quarter total product revenue from our proprietary commercial portfolio grew approximately 26% year over year to $199 4 million.
<unk> has now been in the market for one year and this time, we have established important market experience.
Collective feedback from providers patients and payers and gained confidence in our real world value proposition that <unk> offers.
As you've heard from Ian we've raised our expectations to be in the range of 88% to $95 million for 2022 based on strong underlying demand and prescriber adoption.
This represents a strong first year in the market and puts laboratory on an exciting growth trajectory.
In the quarter <unk> net sales increased 35% sequentially to $27 $1 million, reflecting robust unit growth.
Total prescriptions approached 23000 during the quarter representing growth of approximately 36% sequentially.
Driven by <unk> differentiated product profile and our commercial execution.
This strong demand was largely due to increased prescriber breadth, which is an important indicator of interest in the product at.
At the end of the third quarter approximately 6000 prescribers have written a prescription for <unk> since its launch.
Which represents a 41% increase since the end of Q2.
At this stage in the launch driving prescriber breadth continues to be a key priority as we work to position <unk> for long term growth.
As we attain certain thresholds that provide a breath direct to consumer advertising also will play an important role to further drive patient and caregiver awareness I believe all of it.
As we have seen DTC activities had driven growth of brands in this market.
Based on our progress we are finalizing our plans and expect to commence this important investment to support growth of the brand next year.
Hey, Bob as utilization source of business in Q3 continued to be encouraging and were consistent with the second quarter prescriptions continued to be evenly split between schizophrenia and bipolar one patients.
And approximately half of patients switched to <unk> from Olanzapine with the remainder coming from other branded and generic agents, which we believe underscores the broad utility of this treatment option.
The market access profile for La <unk> continues to be establishing initial payer decisions have been made across health plans in general <unk> is being treated similar to other branded agents.
And Medicare and Medicaid, we continue to have a pathway to access for all patients on the commercial side is payer coverage continues to be established more broadly eligible patients have a pathway to access supported by a patient co pay assistance programs.
With the first 12 months of launch behind US we are gratified that more than 14000 patients have now been treated with la <unk>. We remained focus on executing our launch strategy and driving awareness of this important treatment option.
Turning to aerostar for the <unk> product family net sales in the third quarter were $75 $7 million, driven primarily by <unk> growth of 7% year over year on a months of therapy basis and growth in prescriber breadth.
As expected sequential growth from Q2 was flat, reflecting typical seasonal patterns and the lingering effects of frontline worker staffing shortages.
We continue to focus on driving growth of this important product family based on its differentiated profile and value proposition.
Together lowball, the in aerostar to position us as a leader in treatment for serious mental illness, and represent a significant opportunity to drive efficiencies and value creation for our shareholders.
<unk> net sales in third quarter increased approximately 9% year over year to $96 5 million driven primarily by the alcohol dependence indication.
This indication accounted for approximately 60% of the <unk> business in the quarter.
While some aspects of the COVID-19 pandemic are now behind US we saw an inverse correlation between COVID-19 cases, and vishal prescription trends during the quarter.
We believe this impact is driven by decreased patient volume and by critical staffing shortages at addiction treatment provider offices. Despite these challenges vishal continues to represent an important treatment option for people with alcohol and opioid dependence.
Taking a step back <unk> is a complex product in a complex treatment environment. It has taken us many years to establish our bespoke capabilities for this product through.
There are more than decade long efforts in this space Alkermes has established itself as a trusted partner and resource for patients and health care providers committed to the treatment of addiction, we look forward to continuing to serve patients on their recovery journey.
I am proud of what we have accomplished the first three quarters of the year as.
As we approach year end, our commercial teams have clear goals and retained a sharp focus on execution and driving the growth of our proprietary medicines.
Our commercial stage neuroscience product portfolio represents an important opportunity to drive value both for patients and for our shareholders. We have established a specialized commercial capabilities designed to navigate the complex treatment systems in psychiatry and addiction that will be an important asset as we further sharpened our focus on neuroscience due to proposed.
Separation.
Now I'll turn the call back over to rich.
Thank you Todd.
So as you can see we are driving the evolution of the business. We have delivered on two major strategic imperatives over the past year to successful launch of the <unk> elevates the profile of our neuroscience business and the continuing progress of nimble Luca and the cytokines pipeline underscores the potential value of our biologic oncology assets set another way.
<unk> propositions for both the neuroscience and oncology businesses have come more sharply into focus with the planned separation. We believe both will be well positioned for growth and that their unique needs will be well served by focused management simplified capital allocation decisions and tailored operating structures.
We expected each standalone business will offer a compelling investment opportunity for shareholders. In the meantime, we will continue to work to drive value across all aspects of the business as we progress towards the separation.
So in closing it's important to note that the work of our committed employees over the last several years has positioned both elements of the business for success I want to thank them for that even as the two businesses find their own paths I am confident that each will continue alkermes commitment to great science deep compassion and real impact and with that I'll turn the call to sandy.
To run the Q&A.
Thanks, Chad.
I will now open the call for Q&A. Please.
Thank you if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd 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 in the interest of time we.
Yes.
To one question and one follow up thank you.
Our first question comes from the line of Omar <unk> with Evercore ISI. Please proceed with your question.
Morning, guys. Thanks for taking my questions I have two here if I may 1st Richard to what extent can we read into the spin announcement and.
Where your confidence stands on my Bobby do you think you can track above our street expectations are in 'twenty, three but not perhaps getting into specific guidance and then secondly, and I feel like this will be so important to the valuation of spin when should we be expecting a DSM be look into artistry six and seven in 2023 and do you guys intend to put out for.
<unk> announcements I got to believe investor's that'll be getting equity will be very curious about what's there to learn from the monotherapy and the combo trials. Thank you.
Good morning. Thanks.
So the first question.
I think that our decision at the board level to spin was was largely predicated on our growing confidence in the long term value of evolving which supports the CNS side of the business. The CNS side of the businesses. So clearly now maturing to the point, where it has this bespoke commercial capability that Todd talked about it has three.
<unk> products in the market and now with our first major market oral product in the in the in the bipolar and schizophrenia space. We wanted a year under our belt to see with the product profile was in the real World. We're really gratified Todd mentioned at 14000 people have been on this drug now that gives you a real nice denominator to start understanding the profile of the medicine six.
Prescribers now.
Not guessing anymore, we know and so we're feeling from a capital allocation perspective, allocating capital to the growth of evolving it makes all the sense in the world and decoupling. It from the oncology business just allows investors to focus on that so to answer the simple answer to your question is yes, it really does.
It is really based on our emerging view of it is evolving.
For the spin oncology company.
It's the timing of that is also really fortunate because as I mentioned to spin probably won't be complete until the second half of next year. So we will be able to enroll and hardest three six excuse me and artistry seven all up until that point by the time, we spin we will have very precise understandings about about readouts interim looks if any and other data.
That will augment the value proposition for the spin.
Thank you.
Yes.
Thank you. Our next question comes from the line of Christian <unk> with Goldman Sachs. Please proceed with your question.
Thank you good morning.
Certainly Apple pro or the thoughtful process that you and your team and the board have undergone and making what we consider to be really compelling and transformational decision did not go unrecognized that you selected Fleetwood Mac's you can go your own way on the conference call hold music NRG.
It is quite clear.
Richard the timing you referenced the IRR is an element that helps define some of the environment here.
You also mentioned about the confidence in the body.
Further that would help us understand that timing and then when we think about the Standalone neuroscience business I know that youre going to provide us with more details clearly directionally, we're going to get more profitability, but how do you envision what that profile could look like thinking about the P&L here is it more to be.
The level of R&D spending in particular characteristic of more of a specialty pharma company with an emphasis on business development and later stage development help us understand with the portfolio of neuroscience at that profile could look like further down the road. Thank you.
Good morning, Chris and thank you for acknowledging that.
<unk>.
The Dci frame the introductory music, which is always carefully considered by sandy and the team.
Starting with the oncology side of it.
I'm not quite sure that people have fully clock the implications of the inflation reduction act on capital allocation and Biopharma writ large.
Beginning to hear some of the larger cap companies talk about it and it's not a matter of waiting for price controls that are will be imposed in a matter of time capital allocations have changed today.
In favor of biologic molecules over small molecules given the longer period of exclusivity that's been it.
It's been reckon that the difference between 13 and nine years is about 50% of the total cash on cash from a revenue perspective. So if you can interrogate a biological target with a biologic now you have to do that and compared to a small molecule. So it's interesting because when you look at our engineered cytokines portfolio, it's always been biologic based and.
The virtue of cytokines of course as these are these are natures molecules and they have well established biological activity. So we think that a standalone oncology unit based on biologics with a late stage asset.
Don't have to think about it as one of many IL two variance you can look at nimble Luca based on the data that have been presented in the tumor types that we're developing and we think it has a really interesting and compelling investment thesis.
On the CNS side.
We view it right now is the CNS side will have enhanced profitability driven by the synergies that we have from the multiple products and the growth of an evolving.
On the R&D side of the CNS side, we have the Orexin program moving into the clinic within a matter of days and so that will be the principal R&D spend on the identified late stage pipeline. There are some earlier things in lab that we're working on but on a standalone basis, you would say that that pipeline would probably want to be augmented over time.
<unk> through business development activities.
And so that's why when Ian mentioned, we'll provide more guidance on both halves of the business as we get into 2023 guidance. We're working out those those models right now, but we're excited about the way we can get a lift on the CNS side and we can also then have the oncology side to have the ability to track its own capital to expand its program as warranted.
Thank you we're excited about the decision and look forward to learning more about the past thanks Richard.
Thanks, Chris.
Thank you. Our next question comes from the line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your question.
Hi, Thanks for taking my question and congratulations on the results and the spin.
Maybe just two from me on <unk>.
Can you just talk a little bit about the longer term gross to nets. How we should think about this I know in the past we've kind of thought about this cost labor leveling out around 40%.
The range as we get more mature and maybe we sort of head towards the peak sales.
Yes coming years, how do we think about gross to net.
Could level off.
Yeah, Brandon Thanks for the question I'll take that one so from a gross to net perspective, I think what <unk> seen over the last few quarters is for this year, it's been relatively stable around that 26% to 27% that was.
Better than we originally anticipated for all the reasons, we've talked about in the past primarily access within the commercial space and the utilization of the co pay assistance program.
So we're able to we know we're happy obviously to be raising guidance for the second time. This.
This year on the bovey.
And we brought the gross to net down from the 30% that we had in July to 27% for this year I think beyond that.
The long term gross to net is really going to be driven by <unk>.
Now the remaining contracting goes on the commercial side.
Going to be working on that over the next six to nine months.
And we will be able to provide more details around that when we guide to 2020 through on our yearend earnings call in February .
Great. Thanks, and maybe just one follow up.
Yes, you did a great job at adding breadth of prescribers on Lai boldly during the quarter and I know you touched on this but.
How should we think about the opportunity going deeper into the current describe as base versus Brent any color on active subscribers in the quarter versus the second quarter and then along those lines how.
How do you think about the commercial footprint.
Sort of going into 2023.
Do you think it benefits you to add any.
Salespeople just to kind of stay in front of US describe is until you have that brand recognition. Thank you.
Yes, Brendan this is Todd I'll take the first part and actually both parts, but starting with what the prescriber breadth.
As I said in the prepared remarks.
Launch to date, we have 6000 prescribers that have written a prescription for <unk>, which we think is really encouraging when we look at the quarter. Just for Q3, we had approximately 3600 prescribers that actually wrote a prescription for <unk> and that continues to grow.
We see that month over month and week over week. So our penetration rate continues to expand we have a target audience that we approach of approximately 23000 providers.
And that represents north of about 70% of all the branded prescription. So we continue to penetrate that prescriber audience.
And we're encouraged by that and what we hear consistently from the prescriber base is that they're using the product.
For schizophrenia patients and also seeing the benefit for bipolar patients as well. So we are the leading indicator for US right now and we've said since the launch the best leading indicator of the success of this brand as prescriber adoption and so we're very encouraged by the trends that we're seeing in <unk>.
Terms of the.
In terms of the commercial footprint.
We've been working on the commercial footprint for a number of years and we've built in a lot of synergy across our entire commercial enterprise across vivid trial labov in aerostar and we're now starting to see the benefits of this so we believe that our sales force sizing our placement is that a good place right now we will always make some slight.
<unk> around the margins, but nothing significant at this point, so we're not expecting to add a significant.
Amount of new sales professionals as I said earlier, we are planning for eventually sometime next year to launch a broader DTC campaign, which we believe will drive further new patient starts and awareness among providers and patients.
Very helpful. Thank you very much.
Thank you. Our next question comes from the line of Tom <unk> with Stifel. Please proceed with your question.
Hi, This is James on for Paul Thanks for taking our question and maybe just another one on <unk>.
In terms of kind of in different patient.
<unk> segments, I guess, where are you seeing the utilization.
So far as it is.
That reflects a switches and those who have already experienced significant weight gain and I guess kind of just looking ahead. How do you think about kind of these different patient segments, and where you may see the most kind of durable growth in kind of utilization going forward. Thanks, so much.
Yes, absolutely so about half of all the patients right now are olanzapine switches.
Which that was what we had anticipated through all of our market research prior to launch and going through the launch right now the rest are coming from the rest of the switches are coming from a variety of products generic and branded which we find very encouraging because <unk> is not dependent on one source of switch which is a very important strategic.
Approach for us as well this tells us and we validate this through our research our HCP research.
Once they get experience Hep's tell us once they get experience with <unk>, which is specifically dependent upon the efficacy. So they see the value of the efficacy of the landscape once they get experience with <unk>. They start to expand the profile of the patient that they're looking for so as you know this is a very dynamic market the total market.
There's about almost 60000 switches on a monthly basis about 13000.
Patients are switching from generic agents to branded agents. So thats the space that <unk> really led Zen is that branded switch right now.
And there is millions of patients over 5 million patients for bipolar over 2 million patients for schizophrenia, and we're right at the very beginning of this so we see this as not only an option for patients that are switching from Atlanta pain, but also are not getting the efficacy from other generic agents and our branded agents as well.
Thanks, so much.
Thank you. Our next question comes from the line of Elliot.
With Mizuho. Please proceed with your question.
Hey, guys. Thanks for taking my question.
Congrats on a good quarter.
Just some on the recall could you sort of.
Dissect plus what is.
How you see the products.
Sure.
How do you see the product growing going forward like what could drive growth whether it come more from the the opioid side or the alcohol side and what must you do either.
In terms of.
Essentially driving growth going forward.
Yes, yes, absolutely <unk>, we've said is a very important product to us and we're pleased with the results that we achieved in Q3, 9% year over year growth. This was really driven by our alcohol dependence indication and also expanding provider breadth of utilization. So that it's a really important point that we're watching very closely.
Mostly as even at this period of the lifecycle of <unk>, we continue to see adoption by providers.
We believe that the long term opportunity for Vishal really is grounded and the <unk> opportunity.
The data is very convincing externally there's over 27 million people that have <unk> with only 400000 that are on therapy right now and.
And we see the growth for Vishal.
Long term really being driven by this this adoption within with an alcohol dependence. It represents approximately 60% of the mix right now for <unk> about 35% for opioid theres still some some headwinds in the opioid market right now as relation to COVID-19 staffing shortages in controlled settings of care.
Long term, we think theres enormous opportunity to grow that are trying to penetrate the alcohol dependence market.
Particularly in the outpatient setting and vical by growing prescriber breadth of utilization over 60% of our new prescribers are coming onboard writing prescriptions for alcohol dependence. So we think the value proposition is starting to resonate with those providers.
Thanks, and can I pass.
As a housekeeping question going forward will you be booking any MPR.
Royalties.
No going forward, we will not be booking any more unpaid royalties.
I am Peter wasn't really particularly material part of our business at this point it was maybe $10 million of royalty revenue.
Year.
Yes.
Alright, thank you.
Thank you. Our next question comes from the line of David <unk> with Piper Sandler. Please proceed with your question.
Hey, Thanks, So just a couple.
First on <unk> any comments on the upcoming trial with Teva and just more broadly can you talk about how youre thinking about exclusivity runway here not a crowded generic filing but.
What's your thinking around <unk>.
<unk> market formation.
So although it comes to market early it's turned up to do so.
And then secondly.
Yes.
Yes.
Louis.
Talk a bit.
What kind of political.
He will need and ultimately what the what the structure will be in Minnesota.
And R&D based business, so how should we think about.
Initial funding requirements, and what youre going to need to.
So ultimately.
Brent nimble look into a commercialization. Thank you.
You broke up a bit but I think we heard I think we heard your question.
Take them, both I think on.
On the <unk>.
We're preparing for a.
Trial.
With Teva later in November .
You've been confident in our IP position from the get go.
So we're preparing for that trial, and we will see where that ends.
Theres always the opportunity for discussing whether settlements are appropriate, but we feel strong about our IP position with respect to the drug with that said as we've said for many many years, we don't really see this as a classic generic loss of exclusivity setting primarily because of the the interesting dynamics within this market.
This business is.
Relatively low cost of the product to Medicaid, where a lot of the businesses the relatively high cost of production of these of these ACI, particularly produce microspheres.
And the fact that the distribution network is outside the classic.
Pharmaceutical.
Distribution chain of retail pharmacy, this is largely a regional or national specialty pharma.
Cold chain injectable product. So there are very.
The generic activity has been very light.
<unk> has filed and we don't believe we actually have an approval for a drug yet, but our expectation is that the normal curve.
Curve that you would see when a generic enters into this market will not be the classic curve.
You would have experienced otherwise.
We will see how this all plays out over time, but as Todd mentioned in the earlier remarks, we've built our presence in this quote unquote market over the last several years. This is not reps calling on doctors. These are treatment system. These are public health systems is a criminal justice. This is.
This is federal and state government. So it's a slightly different settings. So we're hopeful that if other people come into the market. It can help actually build awareness of medical education history.
Treatment actually in alcohol in particular, but.
We will wait to see what the what the impacts are.
On the oncology funding side.
The way that we see it playing out as we will be funding within the context of the combined companies up until the second half of next year and that will that will yield additional insights into into the funding requirements would be necessary had spin we have certainly not foreclose the idea of ongoing collaboration or other type of third party investments in the.
Graham our goal when we spin will flow to have enough capital within the spin co that it will have the ability to reach its major vials value changing milestones, but the actual size of that of that commitment we will make the call later in the year.
And is that a fair way.
Okay. That's helpful. Thank you.
Okay.
Thank you. Our next question comes from the line of Marc Goodman with SBB Securities. Please proceed with your question.
Good morning first on the pipeline can you give us an update on the <unk> inhibitor program second on Orexin, two what have you done.
To give you confidence that the molecule doesn't have the side effect issues.
<unk> has.
And then third question is just on the split so can you give us a sense of how much R&D spend on the oncology business I don't know if you said that at the beginning I missed the beginning of the call you may have said it and I apologize.
And then also on the spin do.
Do we take your.
Our internal R&D.
Functioning and people and stuff and just kind of carve it up into two was that what's going to happen because youre going to use the same facilities on the same.
Same areas and stuff just trying to understand just the logistics of how you carve This institute.
Good morning, Mark I'll answer a couple and then Ian can give me some more of a sense of the details on the <unk>, we stopped development of $11 40, which was the first one we put in the clinic because of the metabolic profile.
We have backups, we have gone to the backups now we're seeing some encouraging things and the backups, but it's too early to say, whether we're going to have another candidate that emerges because.
The the threshold for nomination is quite high we understand that both the chemistry and biology that we want to.
We want to achieve and if we hit it then we'll put another one into the clinic, but too early to call that right now.
We're quite excited about 2680, the Orexin program going into the clinic, we will start that clinics that we'll start that study here in the next couple of weeks.
And I think by our assessment and I think everybody in the skills assessment, including Takeda is there their first setback was really driven by what they think is idiosyncratic to the molecule that they were taking to the clinic.
With respect to deliver findings.
We've seen no we've seen no preclinical evidence of any such thing with this month, we have a different structure and as you know subtle changes in structure can have big impacts on these types of things. So we will know when we know, but the necessary prerequisite to knowing is getting into the clinic and so we'll start that single ascending dose study imminently and I think that's going to be very informative.
For the reasons that you have.
Can derive from watching other people move into the clinic whats interesting about the program, though as you know Mark is once you get past your single ascending doses you cleared doses.
<unk> deemed to be.
Pharmaceutical irrelevant.
And you move into the multi dose studies in there the EEG readouts, becoming quite informative early on.
Moving forward on that.
I'll, let Ian answer the questions on the dollars around the oncology.
So from an R&D mechanics perspective, as you can see from the SEC filings, we've been averaging around $80 million eight zero million of external spend on member Lucan, specifically over the last couple of years and we are trending towards that this year as well.
You can anticipate that that number would likely increase over coming years as the Registrational studies, obviously six out of seven MRO and those earlier stage assets advancing the pipeline.
On top of that we've got a dedicated group of employees, who work on the program, who will move over to oncology co and we're working through all that at the moment.
I think as you think about 2023 is a couple of important things to think about one is timing. So the potential timing of the separation is ultimately going to be sort of informing what the P&L for both our <unk> and <unk>.
Oncology company look like.
And then we will need to build out a little bit of infrastructure on the oncology side as well so it's able to operate successfully on a standalone basis.
As you can imagine there's a number of moving parts and we will be able to provide a lot more clarity around that on our own.
So year end earnings call in February .
Thanks.
Yes.
Thank you. Our next question comes from the line of Jason <unk> with Bank of America. Please proceed with your question.
Hey, guys. Thanks for taking my questions.
One just on the <unk>.
Legal situation I appreciate the comments regarding settlement and the fact that most settlements happen closer to litigation or and I'm. Just curious it seems like there is some unique factors with the Teva. They actually have an end product I believe and Neil did not have an anda products. So they are probably first to file.
So just curious if there are impediments to a deal because of that or does this allow you to offer them a better deal or does the <unk> deal have restrictions in terms of you being able to offer them a better deal than what the email represented just sort of curious how.
I'm, sorry, if I don't want to get too much into revealing your cards here, but just curious if you think there are any unique factors that could be an impediment to.
So a deal and then just on the 2026 profit targets.
Given <unk> melanoma, probably would've been wound down by 2026 I'm just curious if that has any impact on the 'twenty 'twenty six targets I apologize if I missed that I just jumped over.
Good morning JJ.
Talking about the turbine side of it I would say that Theres no impediments to is a clean slate. We can do we would enter into any type of settlement agreement based on the facts and circumstances of the interaction. They have an NDA filed they don't have any and improved.
What we found with with a number of would be generic players in this space or branded players in this space, making these these these aseptate microspheres at scale with a highly water soluble compound like naltrexone is very challenging and then having to match a PK profile for <unk> and <unk>.
Substitutable product is challenging stuff. So we've always felt very comfortable about not just the IP protection, but the actual operational and market impediments to coming in and trying to just do the classic undercutting winning on a 180 days and then supply at a low price I, just don't think that model here.
So I think that I think will go into the into the Teva situation.
Unconstrained by what we've done with amnio or anybody else.
And then Jason just on the profitability targets as we talked about earlier on the call would not updating financial expectations beyond 2022 today.
One of the key messages.
Hopefully came across is that we do anticipate there is going to be enhanced profitability.
For the neuroscience company going forward.
But obviously, we've got a lot to work through and we will provide more information and financial details on the February year end earnings call.
Thanks.
Yes.
Thank you ladies and gentlemen, there are no further questions at this time I will turn the floor back to Mr. Holmes for any final comments.
Thank you everyone for joining us on the call today. If you have any follow up questions. Please don't hesitate to reach out to us at the company. Thank you. So much have a great day.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.