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Edited Transcript of ALKS earnings conference call or presentation 25-Apr-19 12:30pm GMT

Q1 2019 Alkermes Plc Earnings Call

DUBLIN May 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Alkermes Plc earnings conference call or presentation Thursday, April 25, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Craig C. Hopkinson

Alkermes plc - Senior VP of Medicines Development & Medical Affairs and Chief Medical Officer

* James M. Frates

Alkermes plc - Senior VP & CFO

* Richard F. Pops

Alkermes plc - Chairman & CEO

* Sandra Coombs

Alkermes plc - Co-Head of IR

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Conference Call Participants

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* Benjamin Jay Burnett

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Biren N. Amin

Jefferies LLC, Research Division - MD and Senior Equity Research Analyst

* Brandon Richard Folkes

Cantor Fitzgerald & Co., Research Division - Analyst

* Chi Meng Fong

BofA Merrill Lynch, Research Division - Research Analyst

* Chris Shibutani

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Cory William Kasimov

JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst

* Kevin Mark Fischbeck

BofA Merrill Lynch, Research Division - MD in Equity Research

* Liav Abraham

Citigroup Inc, Research Division - Director

* Marc Harold Goodman

SVB Leerink LLC, Research Division - MD of Neuroscience & Senior Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Alkermes plc First Quarter 2019 Financial Results Conference Call. My name is Rob, and I'll be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I'll now turn the call over to Sandy Coombs, Vice President of Investor Relations. Sandy, you may begin.

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Sandra Coombs, Alkermes plc - Co-Head of IR [2]

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Thanks, Rob. Good morning. Welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter ended March 31, 2019.

With me today are Jim Frates, our CFO; Craig Hopkinson, our Chief Medical Officer; and Richard Pops, our CEO.

Before we begin, I encourage everyone to go to the Investors section of alkermes.com to find our press release and related financial tables, including a reconciliation of the GAAP to non-GAAP financial measures that we'll discuss today. We believe the non-GAAP financial results in conjunction with the GAAP results are useful in understanding the ongoing economics of our business.

Our discussions during this conference call will include forward-looking statements. Actual results could differ materially from these forward-looking statements.

Please see Slide 2 of the accompanying presentation and our most recent annual report 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 Jim for a review of our financial results.

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James M. Frates, Alkermes plc - Senior VP & CFO [3]

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Thank you, Sandy. Good morning, everyone. Overall, our first quarter results reflect the strength and diversity of our business as we generated total revenues of $223.1 million driven by net sales of our proprietary products.

Our first quarter results are typically affected by seasonal trends related to inventory fluctuation and commercial insurance plan resets. In particular this year, we saw a significant impact in ARISTADA inventory during Q1. I'll review the details in a moment but underlying demand growth remains solid and within our expectations. We're confident in our outlook for the year and today we are reiterating the 2019 guidance we provided in February.

I'll start with our key financial highlights. VIVITROL net sales in the first quarter increased 10% year-over-year to $69.2 million driven by an underlying unit growth of 8%. Sequentially, VIVITROL net sales declined due to the drawdown of year-end inventory build and the impact of commercial plan deductible resets as expected.

Gross-to-net adjustments of 49.4% during the first quarter increased sequentially but were slightly below the first quarter of 2018.

Looking ahead, we expect quarterly net sales growth to resume and gross-to-net adjustments to be approximately 50% for the remainder of 2019. So today we are reiterating our expectation of VIVITROL net sales in the range of $330 million to $350 million for 2019.

We continue to see positive activity with federal funding and state policy changes, which we believe will lead to increased access to medications for patients suffering from substance use disorder. VIVITROL net sales continue to be concentrated with our top 5 states representing 44% of volume in the first quarter. While new funding and initiatives to improve access to treatment continued to be rolled out across the country.

States like California, Texas, Pennsylvania, New Jersey and Kentucky are adopting more targeted policies in criminal justice and community settings, and have removed certain access barriers to medications via legislation.

We believe the progress being made in these areas will diversify VIVITROL's growth. VIVITROL operates in a fragmented system where each state is unique in how it activates to address the opioid crisis. And as we've seen in prior years individual states can have a significant impact on overall VIVITROL net sales.

Our annual guidance is based on current trends as a confluence of expected new funding, treatment guidelines and policies alter the states, the status quo treatment paradigm. We see potential for VIVITROL to become an increasingly utilized treatment option for patients.

Turning to the ARISTADA product family. Net sales in the first quarter declined sequentially to $30.million reflecting the impact of larger-than-expected seasonal inventory fluctuations. To put this into context more than 3 weeks' worth of total inventory was drawn down from the distribution channel during the quarter. And inventory levels at the end of March were at the lowest we've seen since the end of 2017.

In dollar terms, the impact of this inventory drawdown was approximately $10 million during the quarter. Q1 ARISTADA net sales were also impacted by higher gross-to-net adjustments of 49%, an increase from 44% in the fourth quarter of 2018. This reflects a higher proportion of government sales in the quarter and other typical quarterly fluctuations. Looking ahead, we expect gross-to-net adjustments to normalize to around 47% for the remainder of the year.

Importantly, this impact of inventory fluctuations in gross-to-net adjustments masked underlying growth in total ARISTADA prescriptions, which rose by 5% sequentially during the quarter surpassing the overall atypical LAI market which rose by 1%.

Looking ahead, there are number of potential new growth drivers that we expect to benefit ARISTADA as we move toward the second half of the year. Including the impact of our recently expanded commercial team, important new data from the ALPINE study and a recent national formulary addition.

Starting with our commercial organization. We recently expanded our ARISTADA commercial field and hospital organization by approximately 60 sales reps. Half of those were on boarded and trained in the fourth quarter of 2018 while the other half joined the company during Q1. We expect to see an impact from these additions starting in the second quarter. Second, we recently announced positive results from our Alpine study that evaluated the efficacy, safety and tolerability of ARISTADA and the current market leader INVEGA SUSTENNA. We believe the results of this study are an important addition to the body of data supporting the efficacy of these 2 medications and could help drive broader adoption of long acting injectables in the atypical antipsychotic market. The study also highlighted the unique attributes of the ARISTADA product family, in particular our ARISTADA INITIO and 2-month dose offerings. Craig will take you through this top line data shortly.

The last potential growth driver that I'll highlight today is the addition of ARISTADA to do important national formulary. The U.S. Department of Veterans Affairs recently voted to add the ARISTADA product family including ARISTADA INITIO to its national formulary at parity with INVEGA SUSTENNA. This addition facilitates access to an important and substantial pool of patients and we're excited to help address the unmet needs of veterans struggling with schizophrenia.

Over the long term we believe our expanded hospital and field commercial teams will help to drive ARISTADA's market share in the long-acting atypical market as the overall market continues to grow at double-digit rates year-over-year. And today we are reiterating our expectation of ARISTADA net sales in the range of $210 million to $230 million for the full year of 2019.

Moving on to our manufacturing royalty business. We saw revenues of $108.9 million in the first quarter compared to $114.6 million in the prior year. These results reflect a $17.9 million decline in revenues from AMPYRA following generic market entry near the end of 2018, which was partially offset by revenues from RISPERDAL CONSTA and INVEGA SUSTENNA and INVEGA TRINZA, which increased 10% to $75.6 million.

In the first quarter we also recognize R&D revenues from our collaboration with Biogen of $13.9 million related to the reimbursement of development expenses for diroximel fumarate. As a reminder the PDUFA date for diroximel fumarate is expected to occur in the fourth quarter of this year.

Turning to expenses. Overall, our expenses for the first quarter were in line with expectations. Our R&D expenses for the first quarter were $102.6 million compared to $108.3 million for the prior year driven by spend on our pivotal programs for ALKS 3831 and diroximel fumarate as well as the expansion of our ALKS 4230 program.

Our first quarter SG&A expenses of $141.2 million compared to $118.1 million in 2018 and reflects investments in our commercial organization in support of both ARISTADA and VIVITROL.

Looking ahead, we expect SG&A expenses to step up in the second quarter and then remain fairly stable for the remainder of the year. Of note, during the quarter we also recorded a noncash charge of $22.6 million related to IV Meloxicam, a product we sold to Recro Pharma in 2015. And for which we carry a contingent value on our balance sheet for expected future milestones and royalty payments from Recro.

A noncash charge we recorded was due to a decrease in the fair value of this contingent consideration as a result of Recro Pharma's receipt of a second complete response letter from the FDA in March related to the NDA for IV Meloxicam. While this noncash charge impacts our GAAP results it does not impact our non-GAAP results.

So for the quarter, we recorded a GAAP net loss of $96.4 million and a non-GAAP net loss of $26 million.

Turning to our balance sheet. We're in a healthy financial position and ended the first quarter with approximately $625 million in cash and total investments compared to approximately $620 million at the end of 2018.

The company's total debt outstanding was approximately $279 million at the end of the first quarter. Overall, we're well positioned as we enter the second quarter. Given the growth opportunities from our proprietary products and anticipated progress in our pipeline candidates we believe we have an important platform that drive long-term revenue growth, pipeline expansion and profitability. And I look forward to updating you as we deliver on our strategy throughout the rest of the year.

With that, I'll turn the call over to Craig for a closer look at our recently presented data and an update on our pipeline.

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Craig C. Hopkinson, Alkermes plc - Senior VP of Medicines Development & Medical Affairs and Chief Medical Officer [4]

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Thank you, Jim. This morning I'm going to focus primarily on important new data we recently presented for both ARISTADA and ALKS 3831 at the 2019 Congress of the Schizophrenia International Research Society, or SIRS.

Of note today, I'll be referring to slides as part of my prepared remarks. These slides are available on our website and in the webcast viewer.

So ALKS 3831 we presented new data from ENLIGHTEN-2, a pivotal 6-month study comparing weight gain for 3831 head-to-head versus olanzapine, a new data from interim analysis of the ongoing open-label extension study.

The full presentation of the data set is available on our website and I encourage you to take a look at it.

Today I will highlight a few of the key takeaways. As background, you all will recall that our scientific and clinical development goals for ALKS 3831 were to limit the serious weight gain associated with olanzapine while preserving its antipsychotic efficacy. The data from ENLIGHTEN-2 completed development program that suggests we've met these goals.

In ENLIGHTEN-2 ALKS 3831 met its co-primary weight-related endpoints with a high degree of statistical significance. The study also provided a wealth of data in addition to the primary assessments. For example, in addition to assessing the weight gain profiles of the patients that completed the 6-month study we also looked at the profiles of those who did not.

As you can see on Slide 13 the weight gain trajectories were different for the patients who discontinued olanzapine versus ALKS 3831. The majority of patients in the olanzapine group who discontinued prematurely gained a greater percentage of baseline weight than olanzapine completers. This pattern is consistent with historical data that projects that olanzapine associated weight gain is typically underrepresented in controlled settings.

In contrast, this pattern was not observed for ALKS 3831 suggesting that the observed weight difference between olanzapine and 3831, while significant, may have been underrepresented in the study. We also presented the metabolic parameters measured in the study. As seen on Slide 14, in ENLIGHTEN-2, we observed changes from baseline for both groups in lipid and glucose lab parameters were generally small and not clinically meaningful. This is not surprising to us given the duration of the study.

Data from previous olanzapine studies have shown variable metabolic parameter findings in studies of this duration depending on study design and patient population. We believe that olanzapine's significant metabolic liabilities derived from the significant and sustained accumulation of weight and central adiposity that patients experience over a longer period of time, which is why the plateauing of the weight curve for 3831 is so important.

Importantly, in the 52-week safety extension study all lab parameters remain stable with long-term treatment of ALKS 3831. And we saw the early elevation in triglyceride lab measurements observed during ENLIGHTEN-2 return to baseline.

Waist circumference data captured in ENLIGHTEN-2 provide more insight. Change in waist circumference is the measurement of central adiposity and is -- and a well-established prognostic variable that can be an indicator of metabolic risk. Data have shown that the mean changes on even a few centimeters can have significant impact on metabolic syndrome and other cardio metabolic risk factors.

As you can see on Slide 15, ALKS 3831 demonstrated a clinically meaningful and statistically significant difference from olanzapine in waist circumference very early in ENLIGHTEN-2 with continued separation for the entire 6-month period. Notably, this separation occurred earlier than the separation in weight curves.

Turning to the interim data from the ongoing open-label safety extension study on Slide 16. Importantly, for patients who continued on 3831, weight remained stable for the duration of the 52-week extension. And for patients who switched from olanzapine to 3831 the previously ascending weight curve stabilized and remained flat during the extension period. These data demonstrate 2 important findings. First, ALKS 3831's effect on weight was durable and sustained following the first 6 weeks of the study. This is in contrast to what we know about long-term olanzapine use where weight gain may continue for many months and years. Second, ALKS 3831 stabilized weight gain for patients that switched from olanzapine at 6 months but does not result in weight loss for these patients.

As the weight story becomes more clear, the most important attribute of ALKS 3831 will become its robust antipsychotic efficacy. Recall that each of ALKS 3831 and olanzapine demonstrated statistically significant improvements in Positive and Negative Syndrome Scale Scores, or PANSS, compared to baseline in ENLIGHTEN-1. In ENLIGHTEN-2 patients entered the study stabilized on oral medication, however, still moderately ill as based on the entry PANSS scores.

As you can see on Slide 17 by the end of ENLIGHTEN-2 both groups had experienced clinically meaningful improvements in PANSS scores with the patients considered to be mildly ill based on these scores. The continued and sustained improvement in symptoms in the stable population is important as it reinforces the potent efficacy of olanzapine and ALKS 3831 demonstrated in ENLIGHTEN-1. Collectively, these new data further underscore ALKS 3831's attributes and potential for ALKS 3831 to be a meaningful new treatment option for patients.

We are preparing a new drug application and plan to submit the file later this year. Our first presentation wasn't just about ALKS 3831. We also presented newly unblinded top line results from the ARISTADA ALPINE study, which we believe will have a higher clinical relevance for physicians.

ALPINE was the first of its kind 6-month study evaluating the efficacy, safety and tolerability of ARISTADA and the market-leading atypical LAI INVEGA SUSTENNA when used to initiate patients experiencing acute exacerbation of schizophrenia in the hospital and they maintain their treatment in the outpatient setting.

The ALPINE study follows positive data from an open-label study presented at Psych Congress in 2017, in which patients with inadequate response or intolerance to SUSTENNA were switched to treatment with ARISTADA for a period of 6 months.

The purpose of the ALPINE study was twofold. First, to provide real-world clinical evidence of the efficacy, safety and tolerability of the ARISTADA initiation regimen together with the ARISTADA 2-month dose in the context of a rigorous, randomized study as the regulatory approvals to both ARISTADA INITIO and the 2-month ARISTADA dose were based on the pharmacokinetic evidence.

Together, INITIO and the 2-month dose provide a compelling new option for patients initiating long-term treatment in the hospital and as they transition to an outpatient treatment setting.

The second objective was to provide clinicians with data that may help them make treatment decisions for their patients. To that end, ALPINE was designed to demonstrate robust antipsychotic efficacy of these 2 LAIs and to answer the question of whether ARISTADA INITIO together with the ARISTADA 2-month could demonstrate clinically meaningful reductions in PANSS total scores from baseline throughout the total treatment period? And whether these reductions would be similar to those seen with INVEGA SUSTENNA treatment group?

ALPINE was a multicenter randomized double-blind study in 200 subjects experiencing acute exacerbation of schizophrenia. The study included a 2-week inpatient phase during which all subjects were initiated on either ARISTADA or SUSTENNA followed by an outpatient phase for a total of 6 months.

Patients randomized to ARISTADA were initiated using the ARISTADA INITIO regimen followed by ARISTADA 2-month dosing for the duration of the 6 months. Patients randomized in INVEGA SUSTENNA received a loading dose of INVEGA SUSTENNA followed by monthly INVEGA SUSTENNA.

The study's prespecified primary endpoint was the change from baseline in PANSS total scores at week 4 within each treatment group. Prespecified secondary endpoints included the change from baseline and PANSS total scores at week 9 and week 25 within each treatment group as well as between treatment group comparisons at week 4, 9 and 25.

We also conducted exploratory analysis regarding treatment of retention as literature has shown us that adherence is critically important to both in preventing relapses and improving treatment outcomes for patients with schizophrenia.

As you can see on Slide 22 the study met its prespecified primary endpoint demonstrating that both ARISTADA and INVEGA SUSTENNA had statistically significant and clinically meaningful reductions in PANSS scores from baseline at week 4 both with a P value of less than 0.001.

PANSS total scores continue to improve for both groups at week 9 and week 25, the study's prespecified secondary endpoints.

As you can see, the results were similar and the confidence intervals overlap at each assessment point during the study.

As seen on Slide 23 we saw numerical differences in the overall retention rates between groups with 56.6% of patients in the ARISTADA treatment group completing the study and 42.6% of patients in the INVEGA SUSTENNA treatment group completing the study.

Slide 24 shows the most common AEs for each treatment group and the rates at which they were reported. These are different agents with different tolerability profiles.

These top line data underscore that ARISTADA INITIO along with the 2-month dose of ARISTADA together represent a noble approach to the treatment initiation and the compelling clinical option for patients and healthcare professionals. These data show that our product with ARISTADA safety and tolerability profile does not require a trade-off in terms of antipsychotic efficacy and we believe this will be important to physicians making treatment choices for their patients with schizophrenia.

We look forward to publishing the data from the ALPINE study and presenting full study results, including interesting additional findings on prolactin, sexual side effects, sedation and other safety and tolerability measures at upcoming scientific meetings.

Before I turn the call over to Rich, I'll provide a brief update on diroximel fumarate and ALKS 4230 and I'll be happy to take questions later.

For diroximel fumarate or BIIB098, are novel oral fumarate being developed in collaboration with Biogen for relapsing forms of multiple sclerosis. The FDAs review of our NDA is ongoing with regulatory action expected in the fourth quarter.

EVOLVE-MS-1, our open-label safety study of diroximel fumarate, has demonstrated low rates of gastrointestinal adverse events and discontinuations related to GI tolerability below 1%. We expect to complete our VOLT-2 study, which is evaluating the gastrointestinal tolerability profile of diroximel fumarate head-to-head against TECFIDERA later this year.

For ALKS 4230, our novel immuno-oncology candidate, clinical studies are progressing in 3 different domains. The first is monotherapy where our hypothesis is that given the cell expansions we're observing clinically they have the potential for monotherapy efficacy in tumor types where IL-2 has shown efficacy. The dose escalation stage of the study is ongoing and once we've identified the optimal dose we'll expand into the next stage of evaluating 4230 in patients with renal cell carcinoma or melanoma.

The second is evaluation of ALKS 4230 in combination with the checkpoint inhibitor, pembrolizumab, which is currently enrolling patients with a variety of tumor types.

And the third during the first quarter we initiated a new Phase I/II study to explore the safety, tolerability and efficacy of ALKS 4230 administered subcutaneously once weekly and once every 3 weeks. So the 4230 program is very active with the number of potential data read outs later this year.

With that, I'll turn the call over to Richard.

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Richard F. Pops, Alkermes plc - Chairman & CEO [5]

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That was great. Thank you, Craig. I will be brief. I'll just say these new data are important. They underscore Alkermes' growing scientific and clinical presence in schizophrenia. They also demonstrate our commitment to developing new treatment options for patients that provide both robust and antipsychotic activity and patient-focused safety and tolerability attributes. This is true for both ARISTADA and for 3831.

ENLIGHTEN-2 and ALPINE are not typical studies. Both test Alkermes' medicines alongside efficacious standards of care. This is an example of the type of innovative study designed to provide useful information to clinicians making treatment decisions for their patients.

Alkermes is focused on addiction and serious mental illness at a time when these are among the most important public health issues facing the country. Areas of significant unmet need driving enormous cost to the healthcare system and to society. They are real challenges to this business because these are areas of healthcare that are subject to intense price pressures, generic substitution, complex reimbursement and fragmented treatment systems. Those challenges, however, are balanced by the vast number of patients needing new medicines and the dearth of companies innovating in this area. We have assembled a collection of commercial capabilities and infrastructure designed specifically to navigate these complex treatment systems and to operate in an evolving healthcare environment. We are well-positioned to drive expanding utilization of VIVITROL and ARISTADA in this environment. As we look ahead ALKS 3831 in schizophrenia, if approved, could further build on and leverage the commercial infrastructure and capabilities that we've been putting in place.

Building on that point I am pleased to announce the appointment of Todd Nichols to the position of Senior Vice President of Sales and Marketing at Alkermes. Todd brings more than 20 years of biopharmaceutical industry experience across a variety of leadership roles in major commercial organizations. And he's been involved in the launch of 14 pharmaceutical products including multibillion-dollar franchises. So Todd joins us from Celgene where he was responsible for developing and managing all aspects of U.S. commercial planning, strategy development and launch execution for ozanimod for multiple sclerosis. Todd's commercial expertise, his leadership and insights will be assets to us as we continue to drive expanding the utilization of VIVITROL and ARISTADA and prepare for our next commercial opportunity with ALKS 3831.

So the basic hydraulics of the business are driven by the growth of VIVITROL and ARISTADA and we see ALKS 3831 as our next major potential revenue growth driver. We're focused on executing our business strategy both commercially and in our development pipeline. With the planned submission of the NDA for ALKS 3831 mid-year the PDUFA for VUMERITY in the fourth quarter and the first indication of 4230's antitumor activity expected this year, we have important catalysts ahead and we look forward to updating you on our progress.

So with that, I'll turn the call back to Sandy for Q&A.

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Sandra Coombs, Alkermes plc - Co-Head of IR [6]

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Thank you very much. Rob, we'll now open the call for Q&A please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Chris Shibutani with Cowen.

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Chris Shibutani, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2]

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Could I ask you, Bob, what you're thinking about in terms of investment, particularly from the standpoint of the pipeline? I think investors we speak with would appreciate more visibility on how you're prioritizing what you're doing particularly as you think about the portfolio going forward and realize that there's been a lot of work that you guys have done in very challenging areas and you've articulated this very clearly. But can you give us some perspective on sort of what are the targets in terms of is it more balanced towards -- shifting towards oncology? Are you still thinking about expanding in the addiction space? Or how you're thinking about internal work versus external B&D, business development? It's -- anything that you can help us. Is it thinking about novel compounds or sort of further iteration of the expertise that you have to improve existing compounds to validated markets? Just something about the shape of what we can think about when we think about all those R&D investment and investment more broadly speaking to shape your future?

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Richard F. Pops, Alkermes plc - Chairman & CEO [3]

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Morning, Chris. Sure. So you've actually proposed a number of different trade-offs and I'll address them holistically. One trade-off is between internal and external the other trade-off is between psychiatry, addiction and non-psychiatric addition. And the third is between novel compounds and derivations of old compounds. And I think that the way we see it is as follows: on the, internal/external, we have a very, very active internal R&D organization that's been operating relatively quietly from the external perspective for the last 2 or 3 years. And compounds are moving through that process, and bills -- those will more visible to you in the months ahead. We're quite excited about that. Work tend to occur in 2 domains and now I'll move to that answer about psychiatry versus non-psychiatry. We are definitely interested in pushing the edge of the scientific frontier in addiction as well as in schizophrenia and other mood disorders. So we have so much presence there and so many adjacencies with the work that we've done, I think we're going to be there for a while.

With that said, our cytokine work to begin with 4230 on the biologics has led to other programs that derive from that lineage both cytokine-driven biology as well as oncology. And so we're seeing more interesting oncology opportunities beginning to emerge in our own laboratories.

So on the external front we're looking at similarly both. The goal on the external front is to find things where we have scientific insights that provide an ability to do, to assess opportunities on the outside and in a way that other people cannot.

New and old, we're definitely are biased towards new. I mean I think in the world we are right now the threshold for innovation is so high in order to drive reimbursement and utilization in the clinic that I think that we and anybody who's playing and paying attention to this game has to move to highly differentiated new approaches.

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Chris Shibutani, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [4]

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Thanks for that commentary and just a quick follow-up with appointment of Todd Nichols. I couldn't help but notice that the wording explicitly and mentioned he's leading global commercial activities. Now if we think about tangible revenues it's mostly a domestic business for you guys. Can you elaborate about that global? How are you thinking about possible future opportunities expand outside the U.S. commercially?

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Richard F. Pops, Alkermes plc - Chairman & CEO [5]

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Well, as you know, Chris, the U.S. business has been really front and center for our current portfolio, VIVITROL and ARISTADA. There is 2 vectors that take us potentially into the European world. 3831 is one. And so we'll be seeking scientific advice in Europe based on the results of ENLIGHTEN-2 and ENLIGHTEN-1 and the strength of that package.

And the second is 4230. Because 4230 is clearly in the oncology world accessing OUS markets is much more straightforward. So we have a both of those thoughts that are in the planning stages.

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Operator [6]

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The next question is from the line of Cory Kasimov with JPMorgan.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [7]

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I guess first one is I'm curious how much ARISTADA volume growth is factored into your 2019 guidance? And are you modeling any sort of uptake in ARISTADA on the heels of the ALPINE study results for this year?

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James M. Frates, Alkermes plc - Senior VP & CFO [8]

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Hey, Cory, it's Jim. Good morning. So the volume growth that we included in our guidance, if you look at the midpoint it's about, I think, it's 48.9% or roughly 50%, which is very similar to volume growth that we saw in 2018 versus 2017. So we're kind of following that same practice even though ARISTADA is in the growth mode. We think that the new data that we're seeing and the full year of INITIO are really the drivers for the growth that we expect for ARISTADA through the rest of the year.

I think ALPINE data, obviously when we made our expectations we didn't know what those results would be. So those are the things that would actually help us on top of that. And we'll certainly, before we get out and educate the whole market on that, that's going to take some time. And that is a potential upside for us as we move forward.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [9]

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Okay. And then a follow up on ARISTADA both from the clinical side and with regards to that ALPINE study. Are you able to provide a little bit more color on the different withdrawal rates that were defined as by subject that were seen between the 2 arms? I think it was 20% for ARISTADA and 31% for SUSTENNA. Curious about the primary reasons for this as the adverse event dropouts were pretty similar between the groups?

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Craig C. Hopkinson, Alkermes plc - Senior VP of Medicines Development & Medical Affairs and Chief Medical Officer [10]

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Yes, I mean, you know Cory, as with any clinical trial a significant portion of the withdrawals by subjects is subject choice. So for a lot of those you don't end up having a clear reason as to why patients came off of the study. But often it relates to the differentiated safety profile as well. Because patients don't always give clear reasons for coming off of study. So invariably the 3 largest groups are always going to be adverse events, withdrawal by subject and lost to follow-up. And so we don't often add color on the lost to follow-up or the withdrawal by subject because there's often just personal reasons for subjects coming off a study.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [11]

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Okay. And then just to squeeze one more and follow-up on Chris' question regarding Todd's appointment. I guess I'm curious how do you see the commercial strategy evolving in the U.S.? I know he's asking internationally, but in the U.S., if at all?

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Richard F. Pops, Alkermes plc - Chairman & CEO [12]

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I think we have the basic architecture, the U.S. commercial strategy in place. And I think that as it relates to VIVITROL and ARISTADA, the structure, the sizing, the positioning and now with these new data for ARISTADA and just the basic things that are happening in the nation with respect to VIVITROL, we feel like there are some fundamental trends that are -- they're going to start to move our way with admonishment I always give that things happen slowly in both addiction and the psychiatry notwithstanding the amount of data that's mounting in support of use of medicines like ours. The change, the step function is with the approval of 3831, if that happens, because that does a couple of things for us. One, it provides another, I think, what you could argue which is leading medicine, in this case, give us an oral compound, which will expand the footprint of psychiatrist they will be calling on for schizophrenia medicine, which has positive feedback loop for ARISTADA as well.

And the other thing as you know, we're building hospital presence with ARISTADA because of the INITIO initiation regimen because so many patients are initiating in the hospital. So the ability to be in the hospital and many patients switch their medications oral or otherwise during that inpatient stay. So I think that we're going to start seeing it for the first time, real commercial synergies with the launch of 3831.

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Operator [13]

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The next question is from the line of Jason Gerberry with Bank of America.

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Chi Meng Fong, BofA Merrill Lynch, Research Division - Research Analyst [14]

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This is Chi Fong on for Jason. Two on VIVITROL. I'm just curious given recent DOJ indictment filed against the makeup of Suboxone. Do you see any positive commercial read across to VIVITROL? And secondly, related to your original guidance, thanks for providing color on reaffirming that VIVITROL guidance early in the remark. Wondering how is VIVITROL and the broader market shaping up against the original plan? Do you feel more or less confidence about your ability to come into high end of the guidance range? And just curious do you expect to see a similar second half weighing as you saw in 2018 in terms of VIVITROL revenue contributions?

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James M. Frates, Alkermes plc - Senior VP & CFO [15]

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Good morning. It's Jim, could you just repeat the third part of the question? I didn't hear that.

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Kevin Mark Fischbeck, BofA Merrill Lynch, Research Division - MD in Equity Research [16]

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Oh, VIVITROL, do you expect a similar second half waiting as revenues skew to second half as you saw in 2018?

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James M. Frates, Alkermes plc - Senior VP & CFO [17]

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Waiting. Okay. Sorry. Of course, yes. Well, I think VIVITROL is doing well. I think we are -- as you mentioned we reiterated guidance this year. And we're off to start as we expected in the first quarter. I think it's a little too early to give more color about where we're going to end up ultimately with those ranges. And I think that the overall we're starting to see -- as we're out there in more medical meetings et cetera, the idea that detoxification followed by medications like VIVITROL, they can protect against relapse and focused on relapse prevention are gaining more understanding and credence and discussion because they set a important niche for patients who want to lead a life without taking opioids any longer.

So I think, again, we're confident about the future of VIVITROL but we won't give anymore color on the perspectives. We do see generally that there tends to be a seasonal pattern with the second and third quarters being quite strong for VIVITROL. And those are patterns we expect through the course of the year but we'll continue to update you.

And then I guess the other thing I would say, as I mentioned in the call, we are seeing a broadening of the growth which is important. You know that concentration we used to talk about the top 5 states being over 50% of sales. That's slowly ticking down. And now they're 44% of sales. So as we're seeing over 20 states with growth rates over 20%. And that's an important breadth of the business that's going to be important for us to continue through the course of the year.

So I think we're optimistic about where VIVITROL is but we have our work cut out for us because there are still people who don't understand that there's an option for a non-opioid treatment for opioid dependence.

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Richard F. Pops, Alkermes plc - Chairman & CEO [18]

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And Chi, this is Rich. I'll just make a brief comment on that indictment. I don't think it has much of an impact in the short term certainly. But it does underscore just the enormous position the dominant position that buprenorphine occupies in the treatment landscape in the U.S. And I think to the extent that gives people pause to say "are there alternatives other than buprenorphine?" Of course, there are. And just last week at the prescription, drug and opioid summit, you saw the Assistant Secretary of Substance Abuse and Mental Health Services, Elinore McCance-Katz, get up and talked to a large audience and talked about how now it's established that patients undergoing detoxification should be put onto long-acting injectable naltrexone, i.e., VIVITROL without exception.

And you never would have heard her talk like that even a year or 2 ago. So we -- Jim and I always said on these calls, which, we maintain this very, very strong optimism but we temper it with our inability to translate it into the forecast that we can give you guys on calls like this. But the general feeling is that there's a tendency towards the use of more and more VIVITROL over time.

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Operator [19]

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The next question is from the line of Biren Amin with Jefferies.

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Biren N. Amin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [20]

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Rich, on the opioid addiction market, given DOJ's focus on SUBOXONE film do you expect any derivative benefits of VIVITROL sales as a result of increased focus on how SUBOXONE film has been marketed?

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Richard F. Pops, Alkermes plc - Chairman & CEO [21]

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I can't really add a whole lot more to it. I just answered, Biren, which is I think that if you to draw a diagram of the U.S. opioid use to sort of treatment market. You draw a giant circle that represents the SUBOXONE, buprenorphine, methadone world. And you draw a very little circle, which is VIVITROL. And the overlap between the 2 circles are doctors who prescribe both is very, very small. Yet the epidemic continues to rage out of control in the U.S. and policymakers and public health officials and criminal justice officials are mobilizing to make changes. So it seems to us that there is so much logic to the increased use of detoxification plus VIVITROL, not for all patients but certainly for much larger fraction of patients that are currently getting it. Then I think that the focus on the policy around buprenorphine and SUBOXONE, methadone and VIVITROL is only good for VIVITROL.

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Biren N. Amin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [22]

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Got it. And then just on ALKS 4230, can you just maybe go over what type of data sets we should expect later this year from that program?

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Craig C. Hopkinson, Alkermes plc - Senior VP of Medicines Development & Medical Affairs and Chief Medical Officer [23]

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Yes, sure. So in terms of our dose escalation's phase, we definitely expect to complete our dose escalation for monotherapy that's is in the IV study. And we'll be able to determine what our Phase II dose is going to be. And then in parallel, obviously we've got the combination on this enrolling actively at the moment with pembrolizumab and we expect that those arms will start maturing and we'll be able to have data read outs from that arm of the study towards the end of this year as well.

So you know I think the combination arms are really optimized. That's the patient population which is really good and it's really optimized to demonstrate responses but because they've made a prognostic patient's not as sick and so they've got a better chance of responding. And then obviously we also believe that we'll be able to initiate our monotherapy arm in renal cell carcinoma as well as melanoma as soon as we've got our established Phase II dose.

And then the other study is really looking at subQ. And we hope to establish our subQ regimen towards the end of this year as well.

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Biren N. Amin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [24]

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And for the subQ regimen you're hoping to go forward with the Q2 or Q3 week profile, is that correct?

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Craig C. Hopkinson, Alkermes plc - Senior VP of Medicines Development & Medical Affairs and Chief Medical Officer [25]

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Yes, it's 1 week and 3 weeks of the 2 regimens we're looking at.

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Biren N. Amin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [26]

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And how do you -- how you I guess come to Q week or Q3 weeks given the ivPK profile?

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Craig C. Hopkinson, Alkermes plc - Senior VP of Medicines Development & Medical Affairs and Chief Medical Officer [27]

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It was basically modeled off of a lot of our preclinical data as well as the profile of the compound. And we -- I think some of that data was presented last year at SITC. And based on that we modeled out our sort of 1-week and 3-week regimen.

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Operator [28]

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The next question is from the line of Liav Abraham with Citi.

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Liav Abraham, Citigroup Inc, Research Division - Director [29]

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Just a quick follow up on 3831. When will you start -- be starting to invest in the commercial infrastructure for the launch of that drug? Will that actually start in 2019? And can you put any numbers around that at this point?

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James M. Frates, Alkermes plc - Senior VP & CFO [30]

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Morning, Liav. Our 2019 plans do not include commercial or field people related to 3831. Some of the increase in the spend that we're expecting later in SG&A are for the market research and continuing education programs about the broader needs in schizophrenia, market preparation work is at work but we really don't have any major commercial spend in the plans in 2019. Given that the NDA will go in mid-year that launch will be more built into the 2020 plans.

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Liav Abraham, Citigroup Inc, Research Division - Director [31]

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And then a follow up on VIVITROL. Can you comment a little further on where you're seeing the greatest legislative and access activities outside of the states that represent the majority of revenues? And how do you anticipate that concentration of revenues on a state basis to evolve over 2019 and potentially beyond the extent that you have visibility?

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James M. Frates, Alkermes plc - Senior VP & CFO [32]

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Sure. I think the evolution to that will I think continue to remain steady. You know we've seen maybe a few percentage points as the states broadened out their usage. I think we have a lot of states, as I mentioned, over 20 that are growing at over 20%. But they are from a smaller level. So the major states of Ohio, Pennsylvania and Massachusetts still make up the bulk of the sales. And I think when it comes to -- so again as best we can predict I'd say that evolution would be steady. Although, as we saw in 2016 a single state like Ohio really changing drove much larger growth rates than we've seen in the last few years. So 1 state can have a major impact. And my point to work in California and Michigan as being areas where last year we saw some changes in reimbursement in California with the state Medicaid opening up easier access to VIVITROL. Now that doesn't change practice overnight but its access is improved. I think education improves, physicians begin to use the product and those both county, city and state level programs can then start to grow. And so we have high expectations for California as we move forward.

Last year, Michigan for instance created a program where folks with 2 instances of DUIs on the alcohol side would be referred to further medical treatment under a state base program. And we find that as an interesting opportunity for instance for VIVITROL. So there's also a number of states like Kentucky, West Virginia, New Jersey that are also involved in expanding drug court programs. So I think that broader group of states is poised to continue to grow. And as we see those accelerating we'll update you through the quarters if any of those warrant particular highlights that might be changing the growth trajectory that we've outlined for our plans for 2019 at this stage.

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Operator [33]

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The next question is from the line of Umer Raffat with Evercore.

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Unidentified Analyst [34]

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This is Alex [Bernar] on for Umer. Two questions for the quarter. So the first one is IMS is implying a sequential decline from Q4 to Q1 in VIVITROL, is that consistent with the data that you're seeing internally? And the second question is you're flagging these 5 new states California, Texas, et cetera, in your slides. Should we expect an acceleration in VIVITROL trends like we saw a few years ago sort of kind of following up on the last comment as well?

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James M. Frates, Alkermes plc - Senior VP & CFO [35]

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Yes. Well I think, again, the expectations that we have for VIVITROL are built into our guidance, which is consistent I think with what we saw last year. I think why we outlined those particular states given people's interest is as we just were discussing. Those I think are where we see the opportunities for growth to accelerate. So that broadening of the states needs to occur for us to hit our plans but I would say that no particular state expansion is included in our anticipated guidance for 2019. As we said numerous times and Rich reiterated as well today, what we do with VIVITROL is take our current growth trends, use those as our current expectations and seek to drive change in various states. And if that change takes hold, we'll probably see accelerations in growth trends.

As for the IMS decline quarter-to-quarter we're not really seeing that in our own broader trends in terms of unit, sales throughout the states. And that's generally related to the fact that the IMS is really in the retail channels and VIVITROL sales are so much to government programs and slightly broader distribution channel that IMS doesn't pick up. We tend to really see only kind of 70%-ish range of the cartons that are picked up by the IMS data. So that's always been a little spotty and I think you need to look at a broader trend than a single quarter to really understand what's happening with VIVITROL.

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Operator [36]

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The next question is from the line of Paul Matisse with Stifel.

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Benjamin Jay Burnett, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [37]

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This is Ben Burnett on for Paul. Just one question on ARISTADA. Could you provide a little color as to which types of physicians or hospitals have been early adopters of INITIO? And I guess were these practices in hospitals -- I guess specifically were they -- are they are converting from INVEGA SUSTENNA? Are you seeing utilization malpractices that are new to the long-acting market?

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Richard F. Pops, Alkermes plc - Chairman & CEO [38]

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Ben, this is Rich. I'll try to answer that. And I actually don't have all the answers to that. But I will say that the INITIO has provided more of I think an entree into hospitals. And I think in the last call we mentioned that there is 60, 70 or 80-or-so hospitals that already opened up for use than it's now. Jim tells me greater than 100 hospitals they might have been using only the other long-acting aripiprazole products but with the advent of INITIO in 2 months those hospitals are now opening up for the use of ARISTADA and the entire ARISTADA family. That's really encouraging. We don't really see that ARISTADA is a substitute for INVEGA SUSTENNA. We see -- and that's what's so important about the ALPINE data is that we really see these 2 medicines and recall that INVEGA SUSTENNA incorporates outreach technology as well. We think these should be the 2 leading, long-acting injectable atypicals and different patients had different needs. And the patient who might benefit from ARISTADA and aripiprazole might be a different patient that might benefit from paliperidone and INVEGA SUSTENNA.

So I think what we're emerging is now that there are 2 of the LIAs that have the features and the data that should drive long-term utilization in the hospital and in the community. I think those are ARISTADA and SUSTENNA.

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Operator [39]

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The next question is from the line of Brandon Folkes with Canter.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [40]

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Firstly, can you help us think about the size of the Veterans Affairs opportunity for ARISTADA? And why is this wasn't expected when you gave initial guidance on your 4Q call?

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James M. Frates, Alkermes plc - Senior VP & CFO [41]

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Yes. Thanks, Brandon, it's Jim. The size, it is a great question. There is roughly a thing 110,000 over the course of the year, 110,000 months of therapy as it were in the VA, which works out to about 6% of our overall market. And this is a market that we really haven't had any -- we've got a few hundred cartons in the VA so far for ARISTADA. So it's really quite a substantial opportunity for us. And we included growth in various markets and market growth is part of our guidance for 2019. But we didn't know exactly when the VA formulary change would occur. So I would say that, again, with everything with ARISTADA it's going to take some time. But this is really a new opportunity for us in the VA but it is going to take some time because we're on the formulary now as of this week. But each individual hospitals and each individual business is going to then have to go through the paperwork of adding ARISTADA to the formulary. So what it does really now is allow our team to get out there and get into the VA and we expect that we'll be able to bring the VA up to our overall market share, which is right now hovering around 7%. So there's a real opportunity for us to increase ARISTADA penetration there.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [42]

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Great, thanks for that. And maybe one follow-up if I may. Posters, is there any update you could give us on feedback that you've received regarding the use of ALKS 3831 from the pharmacoeconomic proposition perspective?

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Richard F. Pops, Alkermes plc - Chairman & CEO [43]

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Brandon, its Rich. I'll let Craig answer just because he was at SIRS and had got a lot of feedback from physicians and probably mentioned on the pharmacoeconomic side. Go ahead.

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Craig C. Hopkinson, Alkermes plc - Senior VP of Medicines Development & Medical Affairs and Chief Medical Officer [44]

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Yes. So on the clinician front there's a lot of excitement around the 3831 data where folks come up to us straight after the presentation asking when this would be available. How long they would have to wait? What the regulatory process would be? So I think we're getting a lot of traction. I think the next step is for us to really educate our investigators on the data and to present additional data at upcoming meetings. so we'll be presenting data at ASCP conference coming up as well. And ultimately the next step would be for us to publish our data. So it's all about education. So I think on the payer front as well once there's excitement within the clinical community the next step is to start educating payers over the course of the year as we go through the regulatory process as well. But I'll hand the rest of it over to Rich.

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Richard F. Pops, Alkermes plc - Chairman & CEO [45]

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Yes. The only thing I'll add is that I mean we all know that the challenge ahead of us which we've been prepared for from the outset is to introduce our branded product in the genericized marketplace that is the government-pay marketplace. Well, guess what, we've been doing that for quite a while with ARISTADA. ARISTADA is a branded medication with a significantly higher price point in a patient population that is forced to progress through multiple failed generics. So that's almost table stakes coming into schizophrenia. You know that your patients are not going to get access to branded medicines right away. But with that said, given the average length of therapy on any antipsychotic it's so brief that the churn is so significant and that I afraid that in business terms but in human terms it's really horrible. And there are better medicines that should be used earlier in these patient's journey and that's part of the policy aspect of it.

On the pharmacoeconomic side, these patients are extremely expensive. And they're expensive for 2 reasons: number one, is in the short term based on noncompliance relapse rehospitalization. And those are out-of-pocket costs that payers are dealing with all the time, they are within health treatment systems, they are also within the criminal justice system. The second is the long-term sequelae of nontreatment and/or treatment with weight gaining or our other agents with significant weight and metabolic sequelae. And those are quantifiable. And so as we put together the dossier now to support her interaction with payers these are all elements of that comprehensive work.

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Sandra Coombs, Alkermes plc - Co-Head of IR [46]

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Operator, I think we just have time for one more question this morning.

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Operator [47]

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The next question will come from the line of Marc Goodman with SVB Leerink.

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Marc Harold Goodman, SVB Leerink LLC, Research Division - MD of Neuroscience & Senior Research Analyst [48]

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You talked about SG&A a little bit for the rest of year. Can you talk about R&D which seem to be a little light in the quarter and why that was and how that's going to ramp-up throughout the year? And the 5461 is that still being moved forward? Where are we on that? Second question is on 3831. In the past you've given us a flavor for how many reps you're going to put on the ground. And just curious if you could just to reconfirm are we still thinking somewhere in that 250 kind of rep range? And from advertising and promotion spending I know you don't want to give us any type of numbers for when you start spending next year but should we be thinking that this is going to be a spend that's going to be like an ARISTADA, like a VIVITROL, more or less? Just give us a sense of just as much as you can just how relative the spend is going to be from that perspective? And have you started to have the conversations with the payers from 3831? You started to talk about that a little bit but I's just curious how much you've really gotten into that.

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James M. Frates, Alkermes plc - Senior VP & CFO [49]

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Mark, I'll start with some of the financial questions and then I'm sure Rich will provide some color. So from an R&D perspective, yes, we are going to ramp through the course of the year. I think generally that can be put on the addition of -- as we talked about on the annual call in February, roughly, a $75 million ballpark increase in spend on 4230 through the year. So Craig outlined really the 3 border initiatives that we have with the combo study, the monotherapy as well as the subQ program. And those are really good starts. They are started now but they'll be increasing in rate and spend through the course of the year. So I think a pretty steady increase in R&D spend through the rest of the year to put us into our guidance range is how I'd model it from an R&D perspective.

We still are enrolling and running study 217 for 5461 and until we figure out our long-term strategy with the agency we think that study is important and has important data for us. So we'll continue on through the course of 2019 and 2020 until we update otherwise with 5461.

And then in the 3831 area in terms of the number of reps, I don't think we really have an update now. I think as we are understanding our data we're doing the work in the background in terms of the sales force sizing and the overlap with high prescribers in the oral side and we'll make those decisions as we get through into next year. But from a launch perspective and spend, I think that -- I'm not sure ARISTADA or VIVITROL are the right analogies. This is an oral agent. This has, I think, blockbuster potential and we'll I think invest as the logic would dictate for an opportunity this size with olanzapine-related compound without the metabolic issues. I think there's some really exciting opportunities that await us as people get educated about that data and see that market opportunity and understand the value and the use of Zyprexa even with all its liabilities today. It's a compound that people use and find a lot of benefits from even with its liabilities that we think we've dealt with, with 3831 data. Rich, I don't know, anymore perspectives from you?

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Richard F. Pops, Alkermes plc - Chairman & CEO [50]

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Mark, all I would say is that on the payer side, we really wanted to get the ENLIGHTEN-2 data because that's actually gives us the information to go talk to payers. So we're just starting that work now. And we're looking forward. And I'm going to challenge you to really take a closer look at the 3831 data because I want to underscore something that Craig said on the call, which was there's so much focus on the weight data by necessity and incorrectly to establish that this agent has a different weight profile than olanzapine. Once that done, once that settled matter, the value proposition to patients with schizophrenia is the efficacy. And I think that tracing that you saw in the slide deck of patients who were stabilized on oral medications to go into ENLIGHTEN-2, they all improved on when both olanzapine and 3831. There is a differential efficacy benefit for this medicine. And when we talk to clinicians once they are satisfied that the weight differential is real than what drives the utilization is the efficacy and I think that's the hole we're filling in the marketplace and that's why we're so excited about it. So I think we'll leave it there.

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Sandra Coombs, Alkermes plc - Co-Head of IR [51]

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Great. All right. With that, we'll end our call this morning. But please don't hesitate to reach out to us at the company, if you have further questions that we can help you with. Thank you.

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Operator [52]

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Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.