e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-14131
ALKERMES, INC.
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA
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23-2472830 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
852 Winter Street, Waltham, MA 02451
(781) 609-6000
(Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes þ No
o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files): Yes þ No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act.): Yes o No þ
The number of shares outstanding of each of the issuers classes of common stock was:
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Class |
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As of November 1, 2010 |
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Common Stock, $0.01 par value |
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95,233,058 |
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Non-Voting Common Stock, $0.01 par value |
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382,632 |
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ALKERMES, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements :
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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September 30, |
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March 31, |
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2010 |
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2010 |
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(In thousands, except share and per share amounts) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
37,256 |
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$ |
79,324 |
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Investments short-term |
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193,222 |
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202,053 |
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Receivables |
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35,770 |
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25,316 |
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Inventory |
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18,257 |
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20,653 |
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Prepaid expenses and other current assets |
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14,696 |
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10,936 |
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Total current assets |
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299,201 |
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338,282 |
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PROPERTY, PLANT AND EQUIPMENT, NET |
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97,184 |
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96,905 |
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INVESTMENTS LONG-TERM |
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43,087 |
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68,816 |
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OTHER ASSETS |
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9,660 |
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11,597 |
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TOTAL ASSETS |
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$ |
449,132 |
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$ |
515,600 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
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$ |
31,123 |
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$ |
37,881 |
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Deferred revenue current |
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3,894 |
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2,220 |
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Non-Recourse RISPERDAL® CONSTA® Secured 7% Notes Current |
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51,043 |
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Total current liabilities |
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35,017 |
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91,144 |
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DEFERRED REVENUE LONG-TERM |
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5,123 |
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5,105 |
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OTHER LONG-TERM LIABILITIES |
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6,901 |
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6,735 |
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Total liabilities |
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47,041 |
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102,984 |
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COMMITMENTS AND CONTINGENCIES (Note 13) |
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SHAREHOLDERS EQUITY: |
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Common stock, par value, $0.01 per share; 160,000,000 shares authorized;
105,248,764 and 104,815,328 shares issued; 95,206,971 and 94,870,063 shares
outstanding at September 30, 2010 and March 31, 2010, respectively |
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1,050 |
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1,047 |
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Non-voting common stock, par value, $0.01 per share; 450,000 shares authorized;
382,632 shares issued and outstanding at September 30, 2010 and March 31, 2010 |
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4 |
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4 |
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Treasury stock, at cost (10,041,793 and 9,945,265 shares at September 30, 2010 and
March 31, 2010, respectively) |
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(130,779 |
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(129,681 |
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Additional paid-in capital |
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921,024 |
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910,326 |
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Accumulated other comprehensive loss |
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(2,445 |
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(3,392 |
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Accumulated deficit |
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(386,763 |
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(365,688 |
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Total shareholders equity |
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402,091 |
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412,616 |
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
449,132 |
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$ |
515,600 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three Months Ended |
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Six Months Ended |
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September 30, |
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September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(In thousands, except per share amounts) |
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REVENUES: |
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Manufacturing revenues |
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$ |
33,163 |
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$ |
32,835 |
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$ |
60,054 |
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$ |
61,639 |
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Royalty revenues |
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9,460 |
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8,818 |
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18,377 |
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17,519 |
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Product sales, net |
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6,469 |
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4,643 |
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12,673 |
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8,869 |
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Research and development revenue under
collaborative arrangements |
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155 |
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1,174 |
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423 |
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2,624 |
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Net collaborative profit |
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687 |
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5,002 |
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Total revenues |
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49,247 |
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48,157 |
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91,527 |
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95,653 |
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EXPENSES: |
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Cost of goods manufactured and sold |
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13,911 |
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15,092 |
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26,576 |
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27,758 |
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Research and development |
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23,932 |
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20,664 |
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46,909 |
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46,250 |
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Selling, general and administrative |
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18,436 |
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20,625 |
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38,162 |
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39,893 |
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Total expenses |
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56,279 |
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56,381 |
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111,647 |
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113,901 |
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OPERATING LOSS |
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(7,032 |
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(8,224 |
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(20,120 |
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(18,248 |
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OTHER EXPENSE, NET: |
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Interest income |
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673 |
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1,088 |
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1,525 |
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2,649 |
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Interest expense |
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(2,168 |
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(1,566 |
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(3,298 |
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(3,275 |
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Other expense, net |
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(82 |
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(67 |
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(183 |
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(130 |
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Total other expense, net |
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(1,577 |
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(545 |
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(1,956 |
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(756 |
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LOSS BEFORE INCOME TAXES |
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(8,609 |
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(8,769 |
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(22,076 |
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(19,004 |
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INCOME TAX BENEFIT |
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(943 |
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(60 |
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(1,001 |
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(130 |
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NET LOSS |
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$ |
(7,666 |
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$ |
(8,709 |
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$ |
(21,075 |
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$ |
(18,874 |
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LOSS PER COMMON SHARE: |
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Basic and diluted |
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$ |
(0.08 |
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$ |
(0.09 |
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$ |
(0.22 |
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$ |
(0.20 |
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES |
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OUTSTANDING: |
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Basic and diluted |
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95,511 |
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94,886 |
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95,419 |
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94,830 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Six Months Ended |
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September 30, |
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2010 |
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2009 |
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(In thousands) |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
(21,075 |
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$ |
(18,874 |
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Adjustments to reconcile net loss to cash flows from operating activities: |
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Depreciation |
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4,062 |
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15,482 |
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Share-based compensation expense |
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9,404 |
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7,438 |
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Other non-cash charges |
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1,899 |
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2,093 |
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Changes in assets and liabilities: |
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Receivables |
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(10,454 |
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(9,111 |
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Inventory, prepaid expenses and other assets |
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1,791 |
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10 |
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Accounts payable and accrued expenses |
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(7,710 |
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(8,702 |
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Deferred revenue |
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1,692 |
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(5,083 |
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Other long-term liabilities |
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(75 |
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(920 |
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Payment of
non-recourse RISPERDAL CONSTA secured 7% notes principal attributable to original issue discount |
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(6,611 |
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(1,009 |
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Cash flows used in operating activities |
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(27,077 |
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(18,676 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property, plant and equipment |
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(6,719 |
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(3,885 |
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Sales of property, plant and equipment |
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206 |
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169 |
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Investment in Acceleron Pharmaceuticals, Inc. |
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(501) |
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Purchases of investments |
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(240,371 |
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(295,318 |
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Sales and maturities of investments |
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276,437 |
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298,134 |
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Cash flows provided by (used in) investing activities |
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29,052 |
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(900 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from the issuance of common stock for share-based compensation
arrangements |
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1,354 |
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183 |
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Payment of non-recourse RISPERDAL CONSTA secured 7% notes principal |
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(45,397 |
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(11,824 |
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Purchase of common stock for treasury |
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(2,684 |
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Cash flows used in financing activities |
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(44,043 |
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(14,325 |
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NET DECREASE IN CASH AND CASH EQUIVALENTS |
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(42,068 |
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(33,901 |
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CASH AND CASH EQUIVALENTS Beginning of period |
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79,324 |
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86,893 |
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CASH AND CASH EQUIVALENTS End of period |
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$ |
37,256 |
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$ |
52,992 |
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SUPPLEMENTAL CASH FLOW DISCLOSURE: |
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Cash paid for interest |
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$ |
1,684 |
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$ |
2,784 |
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Cash paid for taxes |
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$ |
31 |
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$ |
53 |
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Non-cash investing and financing activities: |
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Purchased capital expenditures included in accounts payable and accrued expenses |
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$ |
578 |
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$ |
1,967 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Alkermes, Inc. (the Company or Alkermes) is a fully integrated biotechnology
company committed to developing innovative medicines to improve patients lives. The
Company developed, manufactures and commercializes VIVITROL® for alcohol
dependence and for the prevention of relapse to opioid dependence, following opioid
detoxification. The Company also manufactures RISPERDAL® CONSTA® for
schizophrenia and bipolar I disorder. The Companys pipeline includes extended-release
injectable and oral products for the treatment of prevalent, chronic diseases, such as
central nervous system (CNS) disorders, reward disorders, addiction, diabetes and
autoimmune disorders. The Company is headquartered in Waltham, Massachusetts and has a
research facility in Massachusetts and a commercial manufacturing facility in Ohio.
The accompanying condensed consolidated financial statements of Alkermes for the
three and six months ended September 30, 2010 and 2009 are unaudited and have been
prepared on a basis substantially consistent with the audited financial statements for the
year ended March 31, 2010. The year-end condensed consolidated balance sheet data was
derived from audited financial statements, but does not include all disclosures required
by accounting principles generally accepted in the United States of America (U.S.)
(commonly referred to as GAAP). In the opinion of management, the condensed consolidated
financial statements include all adjustments, which are of a normal recurring nature, that
are necessary to present fairly the results of operations for the reported periods.
These financial statements should be read in conjunction with the Companys audited
consolidated financial statements and notes thereto which are contained in the Companys
Annual Report on Form 10-K for the year ended March 31, 2010, filed with the Securities
and Exchange Commission (SEC). The results of the Companys operations for any interim
period are not necessarily indicative of the results of the Companys operations for any
other interim period or for a full fiscal year.
Principles of Consolidation The condensed consolidated financial statements
include the accounts of Alkermes, Inc. and its wholly-owned subsidiaries: Alkermes
Controlled Therapeutics, Inc.; Alkermes Europe, Ltd.; and RC Royalty Sub LLC (Royalty
Sub). Intercompany accounts and transactions have been eliminated.
Use of Estimates The preparation of the Companys condensed consolidated financial
statements in conformity with GAAP necessarily requires management to make estimates and
assumptions that affect the following: (1) reported amounts of assets and liabilities; (2)
disclosure of contingent assets and liabilities at the date of the condensed consolidated
financial statements; and (3) the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Segment Information The Company operates as one business segment, which is the
business of developing, manufacturing and commercializing innovative medicines designed to
yield better therapeutic outcomes and improve the lives of patients with serious diseases.
The Companys chief decision maker, the Chairman, President and Chief Executive Officer,
reviews the Companys operating results on an aggregate basis and manages the Companys
operations as a single operating unit.
New Accounting Pronouncements
In September 2009, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) issued accounting guidance related to revenue
recognition that amends the previous guidance on arrangements with multiple deliverables.
The new guidance provides accounting principles and application guidance on whether
multiple deliverables exist, how the arrangement should be separated, and provides for
separate revenue recognition based upon managements estimate of the selling price for an
undelivered item when there is no other means to determine the fair value of that
undelivered item. Accounting guidance previously required that the fair value of the
undelivered item be the price of the item either sold in a separate transaction between
unrelated third parties or the price charged for each item when the item is sold
separately by the vendor. This was difficult to determine when the product was not
individually sold because of its unique features. Under the previous guidance, if the fair
value of all of the elements in the arrangement was not determinable, then revenue was
deferred until all of the items were delivered or fair value was determined. This guidance
is effective prospectively for revenue arrangements entered into or materially modified in
the Companys fiscal year beginning April 1, 2011, and the Company is currently evaluating
the potential impact of this standard on its consolidated financial statements. Early
adoption is permitted, however, adoption of this guidance as of a date other than April 1,
2011 will require the Company to apply this guidance retrospectively effective as of April
1, 2010, and will require disclosure of the effect of this guidance as applied to all
previously reported interim periods in the fiscal year of adoption.
6
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 2010, the FASB issued accounting guidance related to fair value
measurements that requires additional disclosure related to transfers in and out of Levels
1 and 2 of the fair value hierarchy. The guidance also requires additional disclosure for
activity within Level 3 of the fair value hierarchy. The guidance requires a reporting
entity to disclose separately the amounts of significant transfers in and out of Level 1
and Level 2 and describe the reasons for the transfers. In addition, this guidance
requires a reporting entity to present information separately about purchases, sales
issuances and settlements in the reconciliation for fair value measurements using
significant unobservable inputs, or Level 3. This accounting standard was effective for
interim and annual reporting periods beginning after December 31, 2009, other than for
disclosures about purchases, sales, issuances and settlements in the roll forward of
activity in Level 3 fair value measurements. Those disclosures are effective for fiscal
years beginning after December 31, 2010 and for interim periods within those fiscal years.
The Company adopted all provisions of this pronouncement, except for those related to the
disclosure of disaggregated Level 3 activity, on January 1, 2010, and as this guidance
only amends required disclosures in the Companys condensed consolidated financial
statements, it did not have an effect upon the Companys financial position or results of
operations. The Company does not expect the adoption of the remaining provisions of this
amendment to have a significant impact on its consolidated financial statements.
In April 2010, the FASB issued accounting guidance related to the milestone method of
revenue recognition for research and development arrangements. Under this guidance, the
Company may recognize revenue contingent upon the achievement of a milestone in its
entirety, in the period in which the milestone is achieved, only if the milestone meets
all the criteria within the guidance to be considered substantive. This guidance is
effective on a prospective basis for research and development milestones achieved in the
Companys fiscal year beginning April 1, 2011. Early adoption is permitted, however,
adoption of this guidance as of a date other than April 1, 2011 will require the Company
to apply this guidance retrospectively effective as of April 1, 2010, and will require
disclosure of the effect of this guidance as applied to all previously reported interim
periods in the fiscal year of adoption. The Company plans to implement this guidance
prospectively and the effect of this guidance will be limited to future transactions. The
Company does not expect adoption of this standard to have a material impact on its
financial position or results of operations.
2. COMPREHENSIVE LOSS
Comprehensive loss is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss |
|
$ |
(7,666 |
) |
|
$ |
(8,709 |
) |
|
$ |
(21,075 |
) |
|
$ |
(18,874 |
) |
Unrealized gains on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding gains (losses), net of tax |
|
|
453 |
|
|
|
(228 |
) |
|
|
947 |
|
|
|
1,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities |
|
|
453 |
|
|
|
(228 |
) |
|
|
947 |
|
|
|
1,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(7,213 |
) |
|
$ |
(8,937 |
) |
|
$ |
(20,128 |
) |
|
$ |
(17,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
3. LOSS PER SHARE
Basic loss per common share is calculated based upon net loss available to holders of
common shares divided by the weighted average number of common shares outstanding. For the
three and six months ended September 30, 2010 and 2009, as the Company was in a net loss
position, the diluted loss per share does not assume conversion or exercise of stock
options and awards as they would have an anti-dilutive effect on loss per share.
Therefore, the weighted average number of basic and diluted voting shares of common stock
outstanding for the three and six months ended September 30, 2010 and 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Weighted average number of common shares outstanding |
|
|
95,511 |
|
|
|
94,886 |
|
|
|
95,419 |
|
|
|
94,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following amounts are not included in the calculation of diluted loss per common
share because their effects are anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Stock options |
|
|
13,898 |
|
|
|
17,821 |
|
|
|
13,736 |
|
|
|
17,920 |
|
Restricted stock units |
|
|
909 |
|
|
|
407 |
|
|
|
850 |
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
14,807 |
|
|
|
18,228 |
|
|
|
14,586 |
|
|
|
18,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. INVESTMENTS
Investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses |
|
|
|
|
|
|
Amortized |
|
|
|
|
|
|
Less than |
|
|
Greater than |
|
|
Estimated |
|
|
|
Cost |
|
|
Gains |
|
|
One Year |
|
|
One Year |
|
|
Fair Value |
|
|
|
(In thousands) |
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency debt securities |
|
$ |
164,185 |
|
|
$ |
402 |
|
|
$ |
(1 |
) |
|
$ |
|
|
|
$ |
164,586 |
|
International government agency debt securities |
|
|
18,078 |
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
18,343 |
|
Corporate debt securities |
|
|
9,029 |
|
|
|
78 |
|
|
|
|
|
|
|
(15 |
) |
|
|
9,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,292 |
|
|
|
745 |
|
|
|
(1 |
) |
|
|
(15 |
) |
|
|
192,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
1,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments |
|
|
192,493 |
|
|
|
745 |
|
|
|
(1 |
) |
|
|
(15 |
) |
|
|
193,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
|
25,238 |
|
|
|
|
|
|
|
|
|
|
|
(664 |
) |
|
|
24,574 |
|
Auction rate securities |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
(571 |
) |
|
|
4,429 |
|
International government agency debt securities |
|
|
4,994 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
4,993 |
|
U.S. government and agency debt securities |
|
|
1,997 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
1,996 |
|
Strategic equity investments |
|
|
644 |
|
|
|
594 |
|
|
|
|
|
|
|
|
|
|
|
1,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,873 |
|
|
|
594 |
|
|
|
(2 |
) |
|
|
(1,235 |
) |
|
|
37,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
5,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,440 |
|
U.S. government debt securities |
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments |
|
|
43,730 |
|
|
|
594 |
|
|
|
(2 |
) |
|
|
(1,235 |
) |
|
|
43,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
236,223 |
|
|
$ |
1,339 |
|
|
$ |
(3 |
) |
|
$ |
(1,250 |
) |
|
$ |
236,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency debt securities |
|
$ |
160,876 |
|
|
$ |
204 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
161,080 |
|
International government agency debt securities |
|
|
23,441 |
|
|
|
136 |
|
|
|
|
|
|
|
(1 |
) |
|
|
23,576 |
|
Corporate debt securities |
|
|
15,225 |
|
|
|
14 |
|
|
|
|
|
|
|
(2 |
) |
|
|
15,237 |
|
Asset backed debt securities |
|
|
983 |
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,525 |
|
|
|
354 |
|
|
|
|
|
|
|
(27 |
) |
|
|
200,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
1,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments |
|
|
201,726 |
|
|
|
354 |
|
|
|
|
|
|
|
(27 |
) |
|
|
202,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
|
26,109 |
|
|
|
|
|
|
|
|
|
|
|
(942 |
) |
|
|
25,167 |
|
U.S. government and agency debt securities |
|
|
24,727 |
|
|
|
|
|
|
|
(39 |
) |
|
|
|
|
|
|
24,688 |
|
Auction rate securities |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
(1,454 |
) |
|
|
8,546 |
|
International government agency debt securities |
|
|
3,225 |
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
3,223 |
|
Strategic equity investments |
|
|
644 |
|
|
|
691 |
|
|
|
|
|
|
|
|
|
|
|
1,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,705 |
|
|
|
691 |
|
|
|
(41 |
) |
|
|
(2,396 |
) |
|
|
62,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
5,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,440 |
|
U.S. government debt securities |
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments |
|
|
70,562 |
|
|
|
691 |
|
|
|
(41 |
) |
|
|
(2,396 |
) |
|
|
68,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
272,288 |
|
|
$ |
1,045 |
|
|
$ |
(41 |
) |
|
$ |
(2,423 |
) |
|
$ |
270,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Proceeds from the sales and maturities of marketable securities, excluding strategic
equity investments, which were primarily reinvested and resulted in realized gains and
losses, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
Proceeds from the sales and maturities of marketable securities |
|
$ |
276,437 |
|
|
$ |
298,134 |
|
Realized gains |
|
$ |
63 |
|
|
$ |
186 |
|
Realized losses |
|
$ |
20 |
|
|
$ |
1 |
|
The Companys available-for-sale and held-to-maturity securities at September 30,
2010 have contractual maturities in the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
Held-to-Maturity |
|
|
|
Amortized |
|
|
Estimated |
|
|
Amortized |
|
|
Estimated |
|
(In thousands) |
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
Within 1 year |
|
$ |
72,430 |
|
|
$ |
72,527 |
|
|
$ |
5,857 |
|
|
$ |
5,857 |
|
After 1 year through 5 years (1) |
|
|
123,024 |
|
|
|
123,408 |
|
|
|
|
|
|
|
|
|
After 5 years through 10 years (1) |
|
|
28,067 |
|
|
|
27,649 |
|
|
|
|
|
|
|
|
|
After 10 years |
|
|
5,000 |
|
|
|
4,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
228,521 |
|
|
$ |
228,013 |
|
|
$ |
5,857 |
|
|
$ |
5,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Investments in available-for-sale securities within these categories, with an amortized cost of $49.1 million and an estimated fair value of $48.6 million, have issuer call dates prior to May 2011. |
At September 30, 2010, the Company believes that the unrealized losses on its
available-for-sale investments are temporary. The investments with unrealized losses
consist of corporate debt securities and an auction rate security. In making the
determination that the decline in fair value of these securities was temporary, the
Company considered various factors, including but not limited to: the length of time each
security was in an unrealized loss position; the extent to which fair value was less than
cost; financial condition and near term prospects of the issuers; and the Companys intent
not to sell these securities and the assessment that it is more likely than not that the
Company would not be required to sell these securities before the recovery of their
amortized cost basis.
The Companys strategic equity investments include common stock in public companies
with which the Company has or had a collaborative arrangement. In addition, in December
2009, the Company entered into a collaborative arrangement with, and made an investment
in, Acceleron Pharma, Inc. (Acceleron). The Companys Chairman, President and Chief
Executive Officer is one of nine members of Accelerons board of directors. The Companys
December 2009 investment in Acceleron consisted of an $8.0 million purchase of shares of
Series D-1 convertible, redeemable preferred stock. In July 2010, the Company invested an
additional $0.5 million in exchange for shares of Series E convertible, redeemable preferred stock
and common stock warrants. The Company accounts for its investment in Acceleron under the
cost method as Acceleron is a privately-held company over which the Company does not
exercise significant influence. The Company will continue to monitor this investment to
evaluate whether any decline in its value has occurred that would be other-than-temporary,
based on the implied value from any recent rounds of financing completed by Acceleron,
specific events at Acceleron, market prices of comparable public companies and general
market conditions. The Companys investment balance of $8.5 million and $8.0 million at
September 30, 2010 and March 31, 2010, respectively, is recorded within Other assets in
the accompanying condensed consolidated balance sheets.
9
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE MEASUREMENTS
The following table presents information about the Companys assets that are measured
at fair value on a recurring basis and indicates the fair value hierarchy of the valuation
techniques the Company utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2010 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Cash equivalents and money market funds |
|
$ |
1,303 |
|
|
$ |
1,303 |
|
|
$ |
|
|
|
$ |
|
|
U.S. government and agency debt securities |
|
|
166,582 |
|
|
|
166,582 |
|
|
|
|
|
|
|
|
|
International government agency debt securities |
|
|
23,336 |
|
|
|
23,336 |
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
|
33,666 |
|
|
|
|
|
|
|
31,912 |
|
|
|
1,754 |
|
Auction rate securities |
|
|
4,429 |
|
|
|
|
|
|
|
|
|
|
|
4,429 |
|
Strategic equity investments |
|
|
1,238 |
|
|
|
1,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
230,554 |
|
|
$ |
192,459 |
|
|
$ |
31,912 |
|
|
$ |
6,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Cash equivalents and money market funds |
|
$ |
1,289 |
|
|
$ |
1,289 |
|
|
$ |
|
|
|
$ |
|
|
U.S. government and agency debt securities |
|
|
185,768 |
|
|
|
185,768 |
|
|
|
|
|
|
|
|
|
International government agency debt securities |
|
|
26,799 |
|
|
|
26,799 |
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
|
40,404 |
|
|
|
|
|
|
|
38,668 |
|
|
|
1,736 |
|
Auction rate securities |
|
|
8,546 |
|
|
|
|
|
|
|
|
|
|
|
8,546 |
|
Asset backed debt securities |
|
|
959 |
|
|
|
|
|
|
|
|
|
|
|
959 |
|
Strategic equity investments |
|
|
1,335 |
|
|
|
1,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
265,100 |
|
|
$ |
215,191 |
|
|
$ |
38,668 |
|
|
$ |
11,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers or reclassifications of any securities between Level 1 and
Level 2 during the six months ended September 30, 2010. The following table illustrates
the rollforward of the fair value of the Companys investments whose fair value is
determined using Level 3 inputs:
|
|
|
|
|
|
|
Fair |
|
(In thousands) |
|
Value |
|
Balance, March 31, 2010 |
|
$ |
11,241 |
|
Total unrealized gains included in comprehensive loss |
|
|
925 |
|
Sales and redemptions, at par value |
|
|
(5,983 |
) |
|
|
|
|
Balance, September 30, 2010 |
|
$ |
6,183 |
|
|
|
|
|
Substantially all of the Companys investments in corporate debt securities have been
classified as Level 2 investments. These securities have been initially valued at the
transaction price and subsequently valued, at the end of each reporting period, utilizing
market observable data. The market observable data includes reportable trades, benchmark
yields, credit spreads, broker/dealer quotes, bids, offers and other industry and economic
events. The Company validates the prices developed using the market observable data by
obtaining market values from other pricing sources, analyzing pricing data in certain
instances and confirming that the relevant markets are active.
The Company used a discounted cash flow model to determine the estimated fair value
of its Level 3 investments. The Companys most significant Level 3 investment at September
30, 2010 consists of its investment in a student loan backed auction rate security, with
an amortized cost of $5.0 million, which was not trading at September 30, 2010. The
assumptions used in the discounted cash flow model include estimates for interest rates,
timing of cash flows, expected holding periods and risk adjusted discount rates, which
include provisions for default and liquidity risk, which the Company believes to be the
most critical assumptions utilized within the analysis. The valuation analysis considers,
among other items, assumptions that market participants would use in their estimates of
fair value, such as the collateral underlying the security, the creditworthiness of the
issuer and any associated guarantees, the timing of expected future cash flows, the timing
of, and the likelihood that the security will have a successful auction or when
callability features may be exercised by the issuer. The securities were also compared,
where possible, to other observable market data with similar characteristics to the
securities held by the Company.
10
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The carrying amounts reflected in the condensed consolidated balance sheets for cash
and cash equivalents, accounts receivable, other current assets, accounts payable and
accrued expenses approximate fair value due to their short-term nature. The Companys
non-recourse RISPERDAL CONSTA secured 7% notes (the non-recourse 7% Notes) were fully
redeemed on July 1, 2010 and had a carrying value of $51.0 million and a fair value of
$48.7 million at March 31, 2010. The estimated fair value of the non-recourse 7% Notes at
March 31, 2010 was based on a discounted cash flow model.
6. INVENTORY
Inventory is stated at the lower of cost or market value. Cost is determined using
the first-in, first-out method. Inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
(In thousands) |
|
2010 |
|
|
2010 |
|
Raw materials |
|
$ |
3,822 |
|
|
$ |
4,130 |
|
Work in process |
|
|
6,306 |
|
|
|
7,788 |
|
Finished goods (1) |
|
|
7,505 |
|
|
|
8,501 |
|
Consigned-out inventory (2) |
|
|
624 |
|
|
|
234 |
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
18,257 |
|
|
$ |
20,653 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At September 30, 2010 and March 31, 2010, the Company had $0.8 million and $0.7 million of finished goods inventory located at its third party warehouse and shipping service provider. |
|
(2) |
|
At September 30, 2010 and March 31, 2010, consigned-out inventory relates to VIVITROL inventory in the distribution channel for which the Company has not recognized revenue. |
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
(In thousands) |
|
2010 |
|
|
2010 |
|
Land |
|
$ |
301 |
|
|
$ |
301 |
|
Building and improvements |
|
|
36,766 |
|
|
|
36,759 |
|
Furniture, fixture and equipment |
|
|
65,276 |
|
|
|
62,501 |
|
Leasehold improvements |
|
|
44,488 |
|
|
|
42,660 |
|
Construction in progress |
|
|
42,165 |
|
|
|
43,695 |
|
|
|
|
|
|
|
|
Subtotal |
|
|
188,996 |
|
|
|
185,916 |
|
Less: accumulated depreciation |
|
|
(91,812 |
) |
|
|
(89,011 |
) |
|
|
|
|
|
|
|
Total property, plant and equipment, net |
|
$ |
97,184 |
|
|
$ |
96,905 |
|
|
|
|
|
|
|
|
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
(In thousands) |
|
2010 |
|
|
2010 |
|
Accounts payable |
|
$ |
7,903 |
|
|
$ |
8,197 |
|
Accrued compensation |
|
|
10,880 |
|
|
|
15,276 |
|
Accrued other |
|
|
12,340 |
|
|
|
14,408 |
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses |
|
$ |
31,123 |
|
|
$ |
37,881 |
|
|
|
|
|
|
|
|
11
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2010 |
|
|
2010 |
|
Non-recourse 7% Notes |
|
$ |
|
|
|
$ |
51,043 |
|
Less: current portion |
|
|
|
|
|
|
(51,043 |
) |
|
|
|
|
|
|
|
Long-term debt |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
On July 1, 2010, in addition to the scheduled principal payment of $6.4 million, the
Company fully redeemed the balance of the non-recourse 7% Notes for $39.2 million,
representing 101.75% of the outstanding principal balance in accordance with the terms of
the Indenture for the non-recourse 7% Notes. The non-recourse 7% Notes were previously
scheduled to mature on January 1, 2012.
10. SHARE-BASED COMPENSATION
Share-based compensation expense consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Cost of goods manufactured and sold |
|
$ |
525 |
|
|
$ |
519 |
|
|
$ |
886 |
|
|
$ |
829 |
|
Research and development |
|
|
1,637 |
|
|
|
919 |
|
|
|
3,152 |
|
|
|
1,726 |
|
Selling, general and administrative |
|
|
2,786 |
|
|
|
2,770 |
|
|
|
5,366 |
|
|
|
4,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
4,948 |
|
|
$ |
4,208 |
|
|
$ |
9,404 |
|
|
$ |
7,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010 and March 31, 2010, $0.5 million, respectively, of share-based
compensation cost was capitalized and recorded as Inventory in the condensed consolidated
balance sheets.
11. RESTRUCTURING
In connection with the 2008 restructuring program, in which the Company and Eli Lilly
and Company announced the decision to discontinue the AIR® Insulin development
program (the 2008 Restructuring), the Company recorded net restructuring charges of
approximately $6.9 million in the year ended March 31, 2008. Activity related to the 2008
Restructuring in the six months ended September 30, 2010 was as follows:
|
|
|
|
|
(In thousands) |
|
Balance |
|
Accrued restructuring, March 31, 2010 |
|
$ |
3,596 |
|
Payments for facility closure costs |
|
|
(451 |
) |
Other adjustments |
|
|
340 |
|
|
|
|
|
Accrued restructuring, September 30, 2010 |
|
$ |
3,485 |
|
|
|
|
|
At September 30, 2010 and March 31, 2010, the restructuring liability related to the
2008 Restructuring consists of $0.7 million classified as current and $2.8 million
classified as long-term, respectively, in the accompanying condensed consolidated balance
sheets. As of September 30, 2010, the Company had paid in cash, written off, recovered and
made restructuring charge adjustments that totaled approximately $0.4 million in facility
closure costs, $2.9 million in employee separation costs and $0.2 million in other
contract termination costs in connection with the 2008 Restructuring. The $3.5 million
remaining in the restructuring accrual at September 30, 2010 is expected to be paid out
through fiscal 2016 and relates primarily to future lease costs associated with an exited
facility.
12
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. INCOME TAXES
The Company records a deferred tax asset or liability based on the difference between
the financial statement and tax bases of assets and liabilities, as measured by enacted
tax rates assumed to be in effect when these differences reverse. At September 30, 2010,
the Company determined that it is more likely than not that the deferred tax assets may
not be realized and a full valuation allowance continues to be recorded.
The Company recorded an income tax benefit of $0.9 million and $1.0 million for the
three and six months ended September 30, 2010, respectively, primarily related to a $0.8
million tax benefit for bonus depreciation pursuant to the Small Business Jobs Act of 2010
(Act). Bonus depreciation increases the Companys 2010 alternative minimum tax (AMT)
net operating loss (NOL) carryback and will allow the Company to recover AMT paid in the
carryback period. The tax benefit was recorded as a discrete item during the three months
ended September 30, 2010, the period in which the Act was enacted. The income tax benefit
of less than $0.1 million and $0.1 million for the three and six months ended September
30, 2009, represented the amount the Company estimated it would benefit from the Housing
and Economic Recovery Act of 2008.
13. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be subject to legal proceedings and claims in the
ordinary course of business. The Company does not believe that it is currently party to
any such proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on its business, financial condition or results of
operations.
13
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with our condensed
consolidated financial statements and related notes beginning on page
6 of this Quarterly
Report on Form 10-Q, and the audited financial statements and notes thereto, and
Managements Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K, which has been filed with the Securities and
Exchange Commission (SEC).
Forward-Looking Statements
This document contains and incorporates by reference forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. In some cases, these statements can be identified by the
use of forward-looking terminology such as may, will, could, should, would,
expect, anticipate, continue or other similar words. These statements discuss future
expectations; contain projections of results of operations or of financial condition, or
state trends and known uncertainties or other forward looking information. Forward-looking
statements in this Quarterly Report on Form 10-Q include, without limitation, statements
regarding:
|
|
our expectations regarding our financial performance, including, but not limited
to revenues, expenses, gross margins, liquidity, capital expenditures and income
taxes; |
|
|
our expectations regarding the commercialization of RISPERDAL CONSTA and VIVITROL
including the sales and marketing efforts of our partners Ortho-McNeil-Janssen
Pharmaceuticals, Inc. and Janssen Pharmaceutica International, a division of Cilag
International AG (Janssen), and our ability to establish and maintain successful
sales and marketing, reimbursement and distribution arrangements for VIVITROL; |
|
|
our expectation and timeline for regulatory approval of the New Drug Application
(NDA) submission for BYDUREONTM (exenatide for extended-release
injectable suspension) and, if approved, the commercialization of BYDUREON by Amylin
Pharmaceuticals, Inc. (Amylin), and Eli Lilly & Co. (Lilly); |
|
|
our expectations regarding our product candidates, including the development,
regulatory review and commercial potential of such product candidates and the costs
and expenses related thereto; |
|
|
our expectations regarding the successful manufacture of our products and product
candidates, including RISPERDAL CONSTA and VIVITROL, by us at a commercial scale, and
our expectations regarding the successful manufacture of BYDUREON by our partner
Amylin; |
|
|
the continuation of our collaborations and other significant agreements and our
ability to establish and maintain successful development collaborations; |
|
|
the impact of new accounting pronouncements; |
|
|
our expectations concerning the status, intended use and financial impact of our
properties, including manufacturing facilities; and |
|
|
our future capital requirements and capital expenditures and our ability to
finance our operations and capital requirements. |
You are cautioned that forward-looking statements are based on current expectations
and are inherently uncertain. Actual performance and results of operations may differ
materially from those projected or suggested in the forward-looking statements due to
various risks and uncertainties, including:
|
|
manufacturing and royalty revenues from RISPERDAL CONSTA may not continue to grow,
particularly because we rely on our partner, Janssen, to forecast and market and sell
this product; |
|
|
we may be unable to manufacture RISPERDAL CONSTA, VIVITROL and our product
candidates in sufficient quantities and with sufficient yields to meet our and our
partners requirements; |
|
|
Amylin may not be able to successfully operate the manufacturing facility for
BYDUREON; |
|
|
we may be unable to develop the commercial capabilities, and/or infrastructure,
necessary to successfully commercialize VIVITROL; |
|
|
the United States (U.S.) Food and Drug Administration (FDA) and foreign
regulatory agencies may not approve BYDUREON and, even if approved, such product may
not be successfully commercialized; |
|
|
we rely solely on our collaborative partners to determine and implement, and to
inform us in a timely manner of any developments concerning, the regulatory and
marketing strategies for RISPERDAL CONSTA and BYDUREON, including the four-week
formulation of exenatide once weekly currently being developed by us, and our
collaborators could elect to terminate or delay programs at any time and disputes
with collaborators or failure to negotiate acceptable collaborative arrangements for
our technologies could occur; |
|
|
RISPERDAL CONSTA, VIVITROL and BYDUREON, if and when approved, experience and will
continue to experience competition, including from competing products marketed by our
collaborative partners, such as INVEGA® SUSTENNATM
(paliperidone palmitate), and from marketing approvals for new products; |
|
|
third party payors may not cover or reimburse our products;
|
14
|
|
the impact of recently enacted, and any future, health reform legislation may be
greater than initially expected; |
|
|
our product candidates could be ineffective or unsafe during preclinical studies
and clinical trials, and we and our collaborators may not be permitted by regulatory
authorities to undertake new or additional clinical trials for product candidates
incorporating our technologies, or clinical trials could be delayed or terminated; |
|
|
RISPERDAL CONSTA, VIVITROL, BYDUREON, if and when approved, and our product
candidates in commercial use may have unintended side effects, adverse reactions or
incidents of misuse and the FDA or other health authorities could require post
approval studies or require removal of our products from the market; |
|
|
clinical trials may take more time or consume more resources than initially
envisioned and the results of earlier clinical trials may not necessarily be
predictive of the safety and efficacy results of larger clinical trials; |
|
|
U.S. and foreign regulatory agencies may refuse to accept applications for
marketing authorization for our product candidates, may request additional
preclinical or clinical studies be conducted or request a safety monitoring program,
any of which could result in significant delays or the failure of such products to
receive marketing approval or acceptance in the marketplace; |
|
|
difficulties in obtaining and enforcing our patents and difficulties with the
patent rights of others could occur; |
|
|
we may suffer potential costs resulting from product liability or other third
party claims; |
|
|
we may incur losses in the future; |
|
|
we may not be able to liquidate or otherwise recoup our investments in corporate
debt securities and auction rate securities; |
|
|
exchange rate valuations and fluctuations may negatively impact our revenues,
results of operations and financial condition; and |
|
|
the other risks and uncertainties described or discussed in Part 1, Item 1A, Risk
Factors of our Annual Report on Form 10-K for the year ended March 31, 2010. |
The forward-looking statements contained and incorporated herein represent our
judgment as of the date of this Quarterly Report, and we caution readers not to place
undue reliance on such statements. The information contained in this Quarterly Report is
provided by us as of the date of this Quarterly Report, and, except as required by law, we
do not undertake any obligation to update any forward-looking statements contained in this
document as a result of new information, future events or otherwise.
Unless otherwise indicated, information contained in this Quarterly Report concerning
the disorders targeted by our products and product candidates and the markets in which we
operate is based on information from various sources (including industry publications,
medical and clinical journals and studies, surveys and forecasts and our internal
research), on assumptions that we have made, which we believe are reasonable, based on
those data and other similar sources and on our knowledge of the markets for our products
and development programs. Our internal research has not been verified by any independent
source and we have not independently verified any third-party information. These
projections, assumptions and estimates are necessarily subject to a high degree of
uncertainty and risk due to a variety of factors, including those described in Part 1,
Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended March 31,
2010. These and other factors could cause results to differ materially from those
expressed in the estimates included in this prospectus.
Overview
Alkermes, Inc. (as used in this section, together with our subsidiaries, us, we,
our or the Company) is a fully integrated biotechnology company committed to
developing innovative medicines to improve patients lives. We developed, manufacture and
commercialize VIVITROL® (naltrexone for extended-release injectable suspension)
for alcohol dependence and for the prevention of relapse to opioid
dependence, following
opioid detoxification. We also manufacture RISPERDAL® CONSTA®
((risperidone) long-acting injection) for schizophrenia and bipolar I disorder. Our robust
pipeline includes extended-release injectable and oral products for the treatment of
prevalent, chronic diseases, such as central nervous system (CNS) disorders, reward
disorders, addiction, diabetes and autoimmune disorders. We are headquartered in Waltham,
Massachusetts and have a research facility in Massachusetts and a commercial manufacturing
facility in Ohio.
We leverage our formulation expertise and proprietary product platforms to develop,
both with partners and on our own, innovative and competitively advantaged medications
that can enhance patient outcomes in major therapeutic areas. We enter into select
collaborations with pharmaceutical and biotechnology companies to develop significant new
product candidates, based on existing drugs and incorporating our proprietary product
platforms. In addition, we apply our innovative formulation expertise and drug development
capabilities to create our own new, proprietary pharmaceutical products.
15
Financial Highlights
Net loss for the three months ended September 30, 2010 was $7.7 million, or $0.08 per
common share, basic and diluted, as compared to a net loss of $8.7 million, or $0.09 per
common share, basic and diluted, for the three months ended September 30, 2009. Net loss
for the six months ended September 30, 2010 was $21.1 million, or $0.22 per common share,
basic and diluted, as compared to a net loss of $18.9 million,
or $0.20 per common share,
basic and diluted, for the six months ended September 30, 2009. Revenues for the three
and six months ended September 30, 2010 were driven by strong manufacturing and royalty
revenues from RISPERDAL CONSTA. Worldwide sales of RISPERDAL CONSTA by Janssen were $377.7
million and $733.4 million for the three and six months ended September 30, 2010,
respectively, an increase of 7.1% and 4.7% from the three and six months ended September
30, 2009, respectively.
On July 1, 2010, we redeemed the remaining non-recourse RISPERDAL CONSTA secured 7%
notes (the non-recourse 7% Notes) for $45.6 million. As a result of this transaction, we
recorded charges of $1.4 million relating to the write-off of the unamortized portion of
deferred financing costs and $0.8 million primarily related to the premium paid on the
redemption of the non-recourse 7% Notes. We expect to save $3.2 million in interest and
accretion expense through the previously scheduled maturity date of
January 1, 2012 as a result of redeeming
the non-recourse 7% Notes.
Products and Development Programs
RISPERDAL CONSTA
RISPERDAL CONSTA is a long-acting formulation of risperidone, a product of Janssen,
and is the first and only long-acting, atypical antipsychotic approved by the FDA for the
treatment of schizophrenia and for the treatment of bipolar I disorder. The medication
uses our proprietary Medisorb® injectable extended-release technology to
deliver and maintain therapeutic medication levels in the body through just one injection
every two weeks. RISPERDAL CONSTA is marketed by Janssen and is exclusively manufactured
by us. RISPERDAL CONSTA was first approved for the treatment of schizophrenia by
regulatory authorities in the United Kingdom and Germany in August 2002 and by the FDA in
October 2003. The Pharmaceuticals and Medical Devices Agency in Japan approved RISPERDAL
CONSTA for the treatment of schizophrenia in April 2009. RISPERDAL CONSTA is the first
long-acting atypical antipsychotic to be available in Japan. RISPERDAL CONSTA is approved
for the treatment of schizophrenia in approximately 85 countries and marketed in
approximately 70 countries, and Janssen continues to launch the product around the world.
Schizophrenia is a chronic, severe and disabling brain disorder. The disease is
marked by positive symptoms (hallucinations and delusions) and negative symptoms
(depression, blunted emotions and social withdrawal), as well as by disorganized thinking.
An estimated 2.4 million Americans have schizophrenia, with men and women affected
equally. Worldwide, it is estimated that one person in every 100 develops schizophrenia,
one of the most serious types of mental illness. Studies have demonstrated that as many as
75% of patients with schizophrenia have difficulty taking their oral medication on a
regular basis, which can lead to worsening of symptoms. Clinical data have shown that
treatment with RISPERDAL CONSTA may lead to improvements in symptoms, sustained remission
and decreases in hospitalization in patients with schizophrenia.
In May 2009, the FDA approved RISPERDAL CONSTA as both monotherapy and adjunctive
therapy to lithium or valproate in the maintenance treatment of bipolar I disorder.
RISPERDAL CONSTA is also approved for the maintenance treatment of bipolar I disorder in
Canada, Australia and Saudi Arabia.
Bipolar disorder is a brain disorder that causes unusual shifts in a persons mood,
energy and ability to function. It is often characterized by debilitating mood swings,
from extreme highs (mania) to extreme lows (depression). Bipolar I disorder is
characterized based on the occurrence of at least one manic episode, with or without the
occurrence of a major depressive episode. Bipolar disorder is believed to affect
approximately 5.7 million American adults, or about 2.6% of the U.S. population age 18 and
older, in a given year. The median age of onset for bipolar disorders is 25 years.
Clinical data have shown that RISPERDAL CONSTA significantly delayed the time to relapse
compared to placebo treatment in patients with bipolar I disorder.
VIVITROL
We developed VIVITROL, an extended-release Medisorb formulation of naltrexone, as the
first and only once-monthly, non-narcotic, non-addictive injectable medication for the
treatment of alcohol dependence and for the prevention of relapse to opioid dependence
following opioid detoxification.
16
Alcohol dependence is a serious and chronic brain disease characterized by cravings
for alcohol, loss of control over drinking, withdrawal symptoms and an increased tolerance
for alcohol. According to the National Institute on Alcohol Abuse and Alcoholisms
20012002 National Epidemiologic Survey on Alcohol and Related Conditions, it is
estimated that more than 18 million Americans suffer from alcohol dependence. Adherence to
medication is particularly challenging with this patient population. In clinical trials,
when used in combination with psychosocial support, VIVITROL was shown to reduce the
number of drinking days and heavy drinking days and to prolong abstinence in patients who
abstained from alcohol the week prior to starting treatment. VIVITROL was approved by the
FDA in April 2006 for the treatment of alcohol dependence and was launched in the U.S. in
June 2006 with our then partner, Cephalon, Inc. (Cephalon). In December 2008, we assumed
responsibility for the commercialization of VIVITROL in the U.S. from Cephalon. In
December 2007, we exclusively licensed the right to commercialize VIVITROL for the
treatment of alcohol dependence and opioid dependence in Russia and other countries in the
Commonwealth of Independent States (CIS) to Cilag GmbH international (Cilag). In
August 2008, the Russian regulatory authorities approved VIVITROL for the treatment of
alcohol dependence. Cilag launched VIVITROL in Russia in March 2009. In March 2010, the
FDA approved a Risk Evaluation and Mitigation Strategy (REMS), for VIVITROL that
consists of a Medication Guide and other customary REMS assessment requirements.
Opioid dependence is a chronic brain disease characterized by cognitive, behavioral
and physiological symptoms in which an individual continues to use opioids despite
significant harm to oneself and others. In addition to the use of heroin, an illegal
opioid drug, opioid dependence includes the non-medical use of opioid analgesics,
including prescription pain relievers, and represents a growing public health problem in
the U.S. According to the 2009 U.S. National Survey on Drug Use and Health, an estimated
1.6 million people aged 18 or older were dependent on pain relievers or heroin. In October
2010, the FDA approved VIVITROL for the prevention of relapse to opioid dependence,
following opioid detoxification. The FDA approval of VIVITROL for the prevention of
relapse to opioid dependence, following opioid detoxification was based on data from a six-month phase 3 study in which
patients treated with VIVITROL in combination with psychosocial support sustained complete
abstinence (opioid-free urine screens and negative self-report of opioid use) during the
study period at a rate significantly greater than those patients treated with placebo in
combination with psychosocial support.
BYDUREON
We are collaborating with Amylin on the development of a once weekly formulation of
exenatide, called BYDUREON, for the treatment of type 2 diabetes. BYDUREON is an
injectable formulation of Amylins BYETTA® (exenatide) and is being developed
with the goal of providing patients with an effective and more patient-friendly treatment
option. BYETTA is an injection administered twice daily. Diabetes is a disease in which
the body does not produce or properly use insulin. Diabetes can result in serious health
complications, including cardiovascular, kidney and nerve disease. Diabetes is believed to
affect more than 24 million people in the U.S. and an estimated 285 million adults
worldwide. Approximately 90 95% of those affected have type 2 diabetes.
According to the Centers for Disease Control and Preventions National Health and
Nutrition Examination Survey, approximately 60% of people with diabetes do not achieve
their target blood sugar levels with their current treatment regimen. In addition, 85% of
type 2 diabetes patients are overweight and 55% are considered obese. BYETTA was approved
by the FDA in April 2005 as adjunctive therapy to improve blood sugar control in patients
with type 2 diabetes who have not achieved adequate control on metformin and/or a
sulfonylurea, which are commonly used oral diabetes medications. In December 2006, the FDA
approved BYETTA as an add-on therapy for people with type 2 diabetes unable to achieve
adequate glucose control on thiazolidinediones, a class of diabetes medications. In
October 2009, the FDA approved BYETTA as a stand-alone medication (monotherapy) along with
diet and exercise to improve glycemic control in adults with type 2 diabetes. Amylin has
an agreement with Lilly for the development and commercialization of exenatide, including
BYDUREON.
In March 2010, Amylin received a complete response letter in reference to the NDA for
BYDUREON submitted in May 2009. The complete response letter did not include requests for
new pre-clinical or clinical trials. Requests raised in the letter primarily related to
the finalization of the product labeling with accompanying REMS and clarification of
existing manufacturing processes. In April 2010, Amylin announced that it had submitted a
response to the FDAs complete response letter. In May 2010, the FDA accepted the response
and issued a PDUFA action date of October 22, 2010 for the NDA.
In April 2010, Lilly announced that the EMA had accepted the Marketing Authorization
Application filing for BYDUREON for the treatment of type 2 diabetes.
In October 2010, Amylin, Lilly and we announced that the FDA issued a complete
response letter regarding the NDA for BYDUREON. In the complete response letter, the FDA
requested a thorough QT (tQT) study and the submission of the results of the DURATION-5 study to evaluate the efficacy, and the labeling of the
safety and effectiveness, of the commercial formulation of BYDUREON.
17
ALKS 33
ALKS 33, one of our proprietary candidates, is an oral opioid modulator that we are
developing for the potential treatment of addiction and other CNS disorders. In November
2009, we initiated a phase 2 clinical study to assess the safety and efficacy of multiple
doses of ALKS 33 in patients with alcohol dependence and to further define the clinical
profile of ALKS 33.
In April 2010, we announced plans for the development of ALKS 33 for the treatment of
binge-eating disorder and as a combination therapy with buprenorphine, an existing
medication for the treatment of opioid addiction, for the treatment of addiction and mood
disorders. Binge-eating disorder is characterized by recurrent binge eating episodes
during which a person feels a loss of control over his or her eating. Unlike bulimia,
binge eating episodes are not followed by purging, excessive exercise or fasting. As a
result, people with binge-eating disorder often are overweight or obese. It is estimated
that approximately 1% to 2% of Americans suffer from binge-eating disorder. We expect to
receive data from a phase 2 study of ALKS 33 in binge eating disorder in the first half of
calendar 2011.
In October 2010, we announced positive topline results from a randomized,
double-blind, multi-dose, placebo-controlled phase 1 clinical study that assessed the
safety, tolerability and pharmacodynamic effects of the combination of ALKS 33 and
buprenorphine when administered alone and in combination to 12 opioid-experienced users.
Data from the study showed that the combination therapy was generally well tolerated and
sublingual administration of ALKS 33 effectively blocked the agonist effects of
buprenorphine. Based on these positive results, we expect to initiate a phase 2a
study of the combination therapy for the treatment of cocaine addiction in the first half
of calendar year 2011. The phase 2a study is expected to be funded through a grant from
the National Institute on Drug Abuse (NIDA). NIDA has
granted us up to $2.4
million to accelerate the clinical development of the ALKS 33 and buprenorphine
combination therapy. Currently, there are no medications approved for the treatment of
cocaine addiction.
ALKS 37
We are developing ALKS 37, an orally active, peripherally-restricted opioid
antagonist for the treatment of opioid-induced constipation (OIC). According to IMS
Health, over 243 million prescriptions were written for opioids in 2009 in the U.S. Many
studies indicate that a high percentage of patients receiving opioids are likely to
experience side effects affecting gastrointestinal motility. There are currently no
available oral treatments for this condition, which has severe quality of life
implications. ALKS 37 is a component of ALKS 36, which is discussed below.
In April 2010, we commenced a multicenter, randomized, double-blind,
placebo-controlled, multidose study designed to evaluate the efficacy, safety and
tolerability of ALKS 37 in approximately 60 patients with OIC. We expect to report
preliminary results from the phase 2 study of ALKS 37 in the first quarter of calendar
2011.
ALKS 36
In October 2009, we announced our intention to develop ALKS 36, which is expected to
consist of a co-formulation of an opioid analgesic and ALKS 37, for the treatment of pain
without the side effects of constipation. Research indicates that a high percentage of
patients receiving opioids are likely to experience side effects affecting
gastrointestinal motility. A pain medication that does not inhibit gastrointestinal
motility, such as ALKS 36, could provide an advantage over current therapies. The
preliminary results from the phase 2 study of ALKS 37, which are expected in the first
quarter of calendar 2011, will inform further development of ALKS 36.
ALKS 9070
ALKS 9070 is a once-monthly, injectable, sustained-release version of aripiprazole
for the treatment of schizophrenia. ALKS 9070 is our first candidate to leverage our
proprietary LinkeRxTM product platform. Aripiprazole is commercially available
under the name ABILIFY® for the treatment of a number of CNS disorders. We
recently initiated a phase 1 clinical study of ALKS 9070, and we expect to report topline
data from this study in the first half of calendar 2011.
ALKS 6931
ALKS 6931 is a long-acting form of a TNF receptor-FC fusion protein for the treatment
of rheumatoid arthritis and related autoimmune diseases. ALKS 6931 is our first candidate
being developed using the MedifusionTM technology licensed from Acceleron
Pharma, Inc. ALKS 6931 is structurally similar to etanercept, commercially available under
the name ENBREL®. We continue to conduct preclinical studies of ALKS 6931 and
intend to wait to file an IND until such preclinical work is complete and we are convinced
that we have the most optimized clinical candidate.
18
ALKS 7921
ALKS 7921, the second candidate from the LinkeRx platform, is a once-monthly,
injectable, extended-release version of olanzapine for the treatment of schizophrenia.
Olanzapine is commercially available under the trade name ZYPREXA®
(olanzapine). We are engineering ALKS 7921 to seek to prevent early, inadvertent release
of free olanzapine into systemic circulation and, in so doing, to provide another valuable
option for patients and physicians to manage schizophrenia.
Results of Operations
Manufacturing Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Manufacturing revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RISPERDAL CONSTA |
|
$ |
32.6 |
|
|
$ |
31.9 |
|
|
$ |
0.7 |
|
|
$ |
59.0 |
|
|
$ |
59.8 |
|
|
$ |
(0.8 |
) |
Polymer |
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
1.1 |
|
|
|
1.4 |
|
|
|
(0.3 |
) |
VIVITROL |
|
|
|
|
|
|
0.5 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
0.4 |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing revenues |
|
$ |
33.2 |
|
|
$ |
32.8 |
|
|
$ |
0.4 |
|
|
$ |
60.1 |
|
|
$ |
61.6 |
|
|
$ |
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in RISPERDAL CONSTA manufacturing revenues for the three months ended
September 30, 2010, as compared to the three months ended September 30, 2009, was
primarily due to a 9% increase in the number of units shipped to Janssen, partially offset
by a decrease in the unit net sales price of 2%. The decrease in RISPERDAL CONSTA
manufacturing revenues for the six months ended September 30, 2010, as compared to the six
months ended September 30, 2009, was primarily due to a 2% decrease in the unit net sales
price, partially offset by an increase in the number of units shipped to Janssen of 5%.
The decrease in the net unit sales price for both the three and six month period is
primarily due to increased sales deductions recorded by Janssen on RISPERDAL CONSTA sales
as a result of healthcare reform in the U.S., as further described in Product Sales, net,
below; and the strengthening of the U.S. dollar in relation to the foreign currencies in
which the product was sold. See Part I, Item 3. Quantitative and Qualitative Disclosures
about Market Risk for information on foreign currency exchange rate risk related to
RISPERDAL CONSTA revenues.
Under our manufacturing and supply agreement with Janssen, we earn manufacturing
revenues when product is shipped to Janssen, based on a percentage of Janssens estimated
unit net sales price. Revenues include a quarterly adjustment from Janssens estimated
unit net sales price to Janssens actual unit net sales price for product shipped. In the
three and six months ended September 30, 2010 and 2009, our RISPERDAL CONSTA manufacturing
revenues were based on an average of 7.5% of Janssens unit net sales price. We anticipate
that we will continue to earn manufacturing revenues at 7.5% of Janssens unit net sales
price of RISPERDAL CONSTA for product shipped in the fiscal year ending March 31, 2011 and
beyond.
The increase in polymer manufacturing revenues for the three months ended September
30, 2010, as compared to the three months ended September 30, 2009, was primarily due to a
30% increase in the amount of polymer shipped to Amylin. The decrease in polymer
manufacturing revenues for the six months ended September 30, 2010, as compared to the six
months ended September 30, 2009, was primarily due to a 13% decrease in the amount of
polymer shipped to Amylin. We record manufacturing revenues under our arrangement with
Amylin for polymer sales at an agreed upon price when product is shipped to them. The
polymer is used in the formulation of BYDUREON.
Royalty Revenues
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Royalty revenues |
|
$ |
9.5 |
|
|
$ |
8.8 |
|
|
$ |
0.7 |
|
|
$ |
18.4 |
|
|
$ |
17.5 |
|
|
$ |
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all of our royalty revenues for the three and six months ended
September 30, 2010 and 2009 were related to sales of RISPERDAL CONSTA. Under our license
agreements with Janssen, we record royalty revenues equal to 2.5% of Janssens net sales
of RISPERDAL CONSTA in the period that the product is sold by Janssen. RISPERDAL CONSTA
royalty revenues for the three and six months ended September 30, 2010 were based on
RISPERDAL CONSTA sales of $377.7 million and $733.4 million, respectively. RISPERDAL
CONSTA royalty revenues for the three and six months ended September 30, 2009 were based
on RISPERDAL CONSTA sales of $352.6 million and $700.3 million, respectively. See Part
I, Item 3. Quantitative and Qualitative Disclosures about Market Risk for
information on foreign currency exchange rate risk related to RISPERDAL CONSTA revenues.
19
Product Sales, net
Our product sales consist of sales of VIVITROL in the U.S. to wholesalers, specialty
distributors and specialty pharmacies. The following table presents the adjustments
deducted from VIVITROL product sales, gross to arrive at VIVITROL product sales, net
during the three and six months ended September 30, 2010 and 2009:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
%
of Sales |
|
|
2009 |
|
|
%
of Sales |
|
|
2010 |
|
|
%
of Sales |
|
|
2009 |
|
|
%
of Sales |
|
Product sales, gross |
|
$ |
10.8 |
|
|
|
100.0 |
% |
|
$ |
5.2 |
|
|
|
100.0 |
% |
|
$ |
18.2 |
|
|
|
100.0 |
% |
|
$ |
10.5 |
|
|
|
100.0 |
% |
Adjustments to product sales, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for
inventory in the distribution channel (1) |
|
|
(2.1 |
) |
|
|
(19.4 |
)% |
|
|
0.1 |
|
|
|
1.9 |
% |
|
|
(1.7 |
) |
|
|
(9.3) |
% |
|
|
(0.1 |
) |
|
|
(1.0) |
% |
Chargebacks |
|
|
(0.5 |
) |
|
|
(4.6 |
)% |
|
|
(0.2 |
) |
|
|
(3.9) |
% |
|
|
(0.9 |
) |
|
|
(5.0) |
% |
|
|
(0.3 |
) |
|
|
(2.7) |
% |
Medicaid rebates |
|
|
(0.3 |
) |
|
|
(2.8 |
)% |
|
|
(0.1 |
) |
|
|
(1.9) |
% |
|
|
(0.8 |
) |
|
|
(4.4) |
% |
|
|
(0.3 |
) |
|
|
(2.7) |
% |
Wholesaler fees |
|
|
(0.3 |
) |
|
|
(2.8 |
)% |
|
|
(0.2 |
) |
|
|
(3.8) |
% |
|
|
(0.6 |
) |
|
|
(3.3) |
% |
|
|
(0.4 |
) |
|
|
(3.9) |
% |
Other |
|
|
(1.1 |
) |
|
|
(10.2 |
)% |
|
|
(0.2 |
) |
|
|
(3.8) |
% |
|
|
(1.5 |
) |
|
|
(8.2) |
% |
|
|
(0.5 |
) |
|
|
(4.9) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
(4.3 |
) |
|
|
(39.8 |
)% |
|
|
(0.6 |
) |
|
|
(11.5) |
% |
|
|
(5.5 |
) |
|
|
(30.2) |
% |
|
|
(1.6 |
) |
|
|
(15.2) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net |
|
$ |
6.5 |
|
|
|
60.2 |
% |
|
$ |
4.6 |
|
|
|
88.5 |
% |
|
$ |
12.7 |
|
|
|
69.8 |
% |
|
$ |
8.9 |
|
|
|
84.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our reserve for inventory in the distribution channel is an estimate that reflects
the deferral of the recognition of revenue on shipments of VIVITROL to
our customers until the product has left the distribution channel, as
we do not yet have the history to reasonably estimate returns related
to these shipments. We estimate the product shipments out of the
distribution channel based on data provided by external sources,
including information on inventory levels provided by our customers as
well as prescription information. |
The increase in product sales, gross for the three and six months ended September 30,
2010, as compared to the three and six months ended September 30, 2009, was primarily due
to an 81% and 50% increase in the number of units sold into the distribution channel,
respectively, and a 15% increase in price. The adjustments to product sales, gross to
arrive at product sales, net, increased during the three and six months ended September
30, 2010, as compared to the three and six months ended September 30, 2009, primarily as a
result of the increase in product shipped into the distribution
channel during these periods.
Our product sales may fluctuate from period to period as a result of factors such as
end user demand, which can create uneven purchasing patterns by our customers. Our product
sales may also fluctuate as the result of changes or adjustments to our reserves or
changes in government or customer rebates. For example, in March 2010, U.S. healthcare
reform legislation was enacted which contains several provisions that impact our business.
Although many provisions of the new legislation did not take effect immediately, several
provisions became effective in the first quarter of calendar 2010, including the
following:
|
|
an increase in the minimum statutory Medicaid rebate to states participating in
the Medicaid program from 15.1% to 23.1%; |
|
|
|
an extension of the Medicaid rebate to drugs dispensed to Medicaid beneficiaries
enrolled with managed care organizations; and |
|
|
|
an expansion of the 340(B)/Public Health Services (PHS) drug pricing program,
which provides drugs at reduced rates, to include additional hospitals, clinics, and
healthcare centers in an outpatient setting. |
In addition, beginning in calendar 2011, we may incur our share of a new fee assessed
on all branded prescription drug manufacturers and importers. This fee will be calculated
based upon VIVITROLs percentage share of total branded prescription drug sales to U.S.
government programs (such as Medicare, Medicaid and Veterans Administration and PHS
discount programs) made during the previous year. The aggregated industry-wide fee is
expected to total $28 billion through 2019, ranging from $2.5 billion to $4.1 billion
annually. Presently, uncertainty exists as many of the specific determinations necessary
to implement this new legislation have yet to be decided and communicated to industry
participants. For example, determinations as to how the annual fee on branded prescription
drugs will be calculated and allocated remain to be clarified, though, as noted above,
this provision will not be effective until calendar 2011.
We expect that during the remainder of fiscal year 2011 and into the future, our net
sales as a percentage of gross sales will be negatively affected as a result of certain
aspects of the recently enacted healthcare legislation, specifically, the increase in the
minimum Medicaid rebates, the expansion of those entities entitled to receive Medicaid
rebates based on use of our product and the expansion of those entities entitled
to purchase our products at a discounted basis under the 340(B)/PHS drug pricing program.
It is possible that the effect of this legislation could further adversely impact our
future revenues. We are still assessing the full extent of this legislations future
impact on our business.
20
Research and Development Revenue Under Collaborative Arrangements
|
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|
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Research and
development revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under collaborative arrangements |
|
$ |
0.2 |
|
|
$ |
1.2 |
|
|
$ |
(1.0 |
) |
|
$ |
0.4 |
|
|
$ |
2.6 |
|
|
$ |
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in research and development (R&D) revenue under collaborative
arrangements for the three and six months ended September 30, 2010, as compared to the
three and six months ended September 30, 2009, was primarily due to the decision made by
our collaborative partner, Johnson & Johnson Pharmaceutical Research and Development,
L.L.C. (J&JPRD) in August 2009 not to pursue further development of a four week
formulation of RISPERDAL CONSTA. The four week RISPERDAL CONSTA program contributed $0.9
million and $1.9 million of revenue during the three and six months ended September 30,
2009, respectively.
Net Collaborative Profit
Net collaborative profit for the three and six months ended September 30, 2009 of
$0.7 million and $5.0 million, respectively, consisted of revenue earned as a result of
the $11.0 million payment we received from Cephalon to fund their share of estimated
VIVITROL losses during the one-year period following the termination of the VIVITROL
collaboration in December 2008. We recorded the $11.0 million as deferred revenue and
recognized it as revenue through the application of a proportional performance model based
on VIVITROL losses. The $11.0 million payment was fully recognized as revenue during the
six months ended September 30, 2009.
Cost of Goods Manufactured and Sold
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|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Cost of goods manufactured and sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
RISPERDAL CONSTA |
|
$ |
11.3 |
|
|
$ |
12.1 |
|
|
$ |
0.8 |
|
|
$ |
21.8 |
|
|
$ |
21.8 |
|
|
$ |
|
|
VIVITROL |
|
|
2.4 |
|
|
|
2.6 |
|
|
|
0.2 |
|
|
|
4.0 |
|
|
|
4.6 |
|
|
|
0.6 |
|
Polymer |
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
0.8 |
|
|
|
1.4 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods manufactured and sold |
|
$ |
13.9 |
|
|
$ |
15.1 |
|
|
$ |
1.2 |
|
|
$ |
26.6 |
|
|
$ |
27.8 |
|
|
$ |
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in cost of goods manufactured for RISPERDAL CONSTA in the three months
ended September 30, 2010, as compared to the three months ended September 30, 2009, was
primarily due to a 14% decrease in the unit cost of RISPERDAL CONSTA, partially offset by
a 9% increase in the number of units shipped to Janssen. Cost of goods manufactured for
RISPERDAL CONSTA for the six months ended September 30, 2010 was unchanged as compared to
the six months ended September 30, 2009, due to a 5% decrease in the unit cost of
RISPERDAL CONSTA, offset by an increase in the number of units shipped to Janssen of 5%.
The decrease in the unit cost of RISPERDAL CONSTA in the three and six months ended
September 30, 2010, as compared to the three and six months ended September 30, 2009, was
partially due to a decrease in costs incurred for scrap of $0.8 million and $1.1 million,
respectively.
The decrease in cost of goods manufactured and sold for VIVITROL in the three and six
months ended September 30, 2010, as compared to the three and six months ended September
30, 2009, was primarily due to an $0.8 million and $1.8 million reduction in costs
incurred for failed batches and costs related to the restart of the manufacturing line,
respectively, partially offset by a 31% increase in the number of units sold out of the
distribution channel. Included in cost of goods sold for VIVITROL
during the three and six months ended September 30, 2010 were idle capacity charges of
$0.9 million and $1.4 million, respectively, which was the result of managing VIVITROL
inventory levels and reducing manufacturing output.
The decrease in the cost of goods manufactured for polymer in the three months ended
September 30, 2010, as compared to the three months ended September 30, 2009, was due to a
$0.2 million reduction in costs incurred for scrap, partially offset by a 30% increase in
the amount of polymer shipped to Amylin. The decrease in the cost of goods manufactured
for polymer in the six months ended September 30, 2010, as compared to the six months
ended September 30, 2009, was due to a $0.4 million reduction in costs incurred for scrap
and a 13% decrease in the amount of polymer shipped to Amylin.
21
Research and Development Expense
|
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|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Research and development |
|
$ |
23.9 |
|
|
$ |
20.7 |
|
|
$ |
(3.2 |
) |
|
$ |
46.9 |
|
|
$ |
46.3 |
|
|
$ |
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in R&D expenses in the three months ended September 30, 2010, as
compared to the three months ended September 30, 2009, was primarily due to a $5.8 million
increase in internal clinical and preclinical study, laboratory and license and
collaboration expenses due to an increase in the number of ongoing studies and clinical
trials and a $2.4 million increase in professional services, primarily for activities related
to the approval of VIVITROL for opioid dependence. These
increased expenses were partially offset by a decrease in relocation and occupancy related
expenses of $5.2 million as a result of the relocation of our corporate headquarters from
Cambridge, Massachusetts, to Waltham, Massachusetts which was substantially completed
during the fourth quarter of fiscal 2010.
The increase in R&D expenses in the six months ended September 30, 2010, as compared
to the six months ended September 30, 2009, was primarily due to a $11.1 million increase
in internal clinical and preclinical study, laboratory and license and collaboration
expenses due to an increase in the number of ongoing studies and
clinical trials and a $3.3
million increase in professional services, primarily for activities related to the
approval of VIVITROL for opioid dependence. These increased
expenses were partially offset by a decrease in relocation and occupancy related expenses
of $15.3 million as a result of the relocation of our corporate headquarters.
A significant portion of our research and development expenses (including laboratory
supplies, travel, dues and subscriptions, recruiting costs, temporary help costs,
consulting costs and allocable costs such as occupancy and depreciation) are not tracked
by project as they benefit multiple projects or our technologies in general. Expenses
incurred to purchase specific services from third parties to support our collaborative
research and development activities are tracked by project and may be reimbursed to us by
our partners. We account for our research and development expenses on a departmental and
functional basis in accordance with our budget and management practices.
Selling, General and Administrative Expense
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|
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|
|
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Selling, general and administrative |
|
$ |
18.4 |
|
|
$ |
20.6 |
|
|
$ |
2.2 |
|
|
$ |
38.2 |
|
|
$ |
39.9 |
|
|
$ |
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in selling, general and administrative (SG&A) expense for the three
and six months ended September 30, 2010, as compared to the three and six months ended
September 30, 2009, was primarily due to a reduction in professional services of $2.1
million and $3.3 million, respectively, partially offset by an increase in marketing
expenses of $1.2 million and $0.8 million, respectively. The decrease in professional
services is primarily due to start-up costs related to the commercialization of VIVITROL
in fiscal year 2010 that were not incurred during fiscal year 2011. The increase in
marketing expenses is primarily due to costs incurred leading up to the launch of VIVITROL
for opioid dependence.
Other Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Interest income |
|
$ |
0.7 |
|
|
$ |
1.1 |
|
|
$ |
(0.4 |
) |
|
$ |
1.5 |
|
|
$ |
2.6 |
|
|
$ |
(1.1 |
) |
Interest expense |
|
|
(2.2 |
) |
|
|
(1.6 |
) |
|
|
(0.6 |
) |
|
|
(3.3 |
) |
|
|
(3.3 |
) |
|
|
|
|
Other expense, net |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
$ |
(1.6 |
) |
|
$ |
(0.6 |
) |
|
$ |
(1.0 |
) |
|
$ |
(2.0 |
) |
|
$ |
(0.8 |
) |
|
$ |
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in interest income for the three and six months ended September 30,
2010, as compared to the three and six months ended September 30, 2009, was due to a lower
average balance of cash and investments. Interest expense increased in the three months
ended September 30, 2010, as compared to the three months ended September 30, 2009, due to
the early redemption of the non-recourse 7% Notes on July 1, 2010. As a result of this
transaction, we recorded charges of $1.4 million relating to the write-off of the
unamortized portion of deferred financing costs and $0.8 million primarily related to the
premium paid on the redemption of the non-recourse 7% Notes. The
amount of interest expense in the six months ended September 30, 2010
was unchanged as compared to the six months ended September 30, 2009.
It should be noted that interest expense in the six
months ended September 30, 2010 consisted of $2.2 million of charges associated with the
redemption of the non-recourse 7% Notes, as previously discussed, and
22
$1.2 million
of interest and accretion expense, as compared to $3.3 million of
interest and accretion expense in the six months ended September 30, 2009. We expect to
save $3.2 million in interest and accretion expense through the previously scheduled
maturity date of January 1, 2012 as a result of redeeming the non-recourse 7% Notes on July 1, 2010.
Income Tax Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Income tax benefit |
|
$ |
(0.9 |
) |
|
$ |
(0.1 |
) |
|
$ |
0.8 |
|
|
$ |
(1.0 |
) |
|
$ |
(0.1 |
) |
|
$ |
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded an income tax benefit of $0.9 million and $1.0 million for the three and
six months ended September 30, 2010, respectively, primarily related to a $0.8 million tax
benefit for bonus depreciation pursuant to the Small Business Jobs Act of 2010 (Act).
Bonus depreciation increases our 2010 alternative minimum tax (AMT) net operating loss
(NOL) carryback and will allow us to recover AMT paid in the carryback period. The tax
benefit was recorded as a discrete item during the three months ended September 30, 2010,
the period in which the Act was enacted. The income tax benefit of less than $0.1 million
and $0.1 million for the three and six months ended September 30, 2009 represented the
amount we estimated we would benefit from the Housing and Economic Recovery Act of 2008.
Liquidity and Capital Resources
Our financial condition is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
(In millions) |
|
2010 |
|
|
2010 |
|
Cash and cash equivalents |
|
$ |
37.3 |
|
|
$ |
79.3 |
|
Investments short-term |
|
|
193.2 |
|
|
|
202.1 |
|
Investments long-term |
|
|
43.1 |
|
|
|
68.8 |
|
|
|
|
|
|
|
|
Total cash, cash equivalents and investments |
|
$ |
273.6 |
|
|
$ |
350.2 |
|
|
|
|
|
|
|
|
Working capital |
|
$ |
264.2 |
|
|
$ |
247.1 |
|
Outstanding borrowings current and long-term |
|
$ |
|
|
|
$ |
51.0 |
|
|
Our cash flows for the six months ended September 30, 2010 and 2009 were as follows: |
|
|
|
Six Months Ended |
|
|
|
September 30, |
|
(In millions) |
|
2010 |
|
|
2009 |
|
Cash and cash equivalents, beginning of period |
|
$ |
79.3 |
|
|
$ |
86.9 |
|
Cash (used in) operating activities |
|
|
(27.1 |
) |
|
|
(18.7 |
) |
Cash provided by (used in) investing activities |
|
|
29.1 |
|
|
|
(0.9 |
) |
Cash (used in) financing activities |
|
|
(44.0 |
) |
|
|
(14.3 |
) |
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
37.3 |
|
|
$ |
53.0 |
|
|
|
|
|
|
|
|
Our primary source of liquidity is cash provided by our operating activities. The
increase in cash used in operating activities during the six months ended September 30,
2010, as compared to the six months ended September 30, 2009, is primarily due to the
redemption of our non-recourse 7% Notes on July 1, 2010 and an increase in amounts paid to
our suppliers of $2.4 million. On July 1, 2010, in addition to a scheduled principal
payment of $6.4 million, we redeemed the balance of our non-recourse 7% Notes in full in
exchange for $39.2 million, representing 101.75% of the outstanding principal balance in
accordance with the terms of the Indenture for the non-recourse 7% Notes. We allocated
$6.6 million of the principal payments made during the six months ended September 30, 2010
to operating activities to account for the original issue discount on the non-recourse 7%
Notes, and the remaining $45.4 million of principal payments was allocated to financing activities in the condensed consolidated statement of cash flows.
The increase in cash flows provided by investing activities during the six months
ended September 30, 2010, as compared to the six months ended September 30, 2009, is
primarily due to the net conversion of $36.1 million of our investments to cash during the
six months ended September 30, 2010, as compared to $2.8 million during the six months
ended September 30, 2009.
The increase in cash flows used in financing activities during the six months ended
September 30, 2010, as compared to the six months ended September 30, 2009, is primarily
due to the redemption of our non-recourse 7% Notes on July 1, 2010,
23
partially offset by the purchase of $2.7 million of treasury stock during the six
months ended September 30, 2009. During the six months ended September 30, 2010, we did
not make any purchases of treasury stock.
Our investments at September 30, 2010 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Gross Unrealized |
|
|
Estimated |
|
(in millions) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
Investments short-term |
|
$ |
192.4 |
|
|
$ |
0.8 |
|
|
$ |
|
|
|
$ |
193.2 |
|
Investments long-term available-for-sale |
|
|
37.9 |
|
|
|
0.5 |
|
|
|
(1.2 |
) |
|
|
37.2 |
|
Investments long-term held-to-maturity |
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
236.2 |
|
|
$ |
1.3 |
|
|
$ |
(1.2 |
) |
|
$ |
236.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our investment objectives are, first, to preserve liquidity and conserve capital and,
second, to generate investment income. We mitigate credit risk in our cash reserves by
maintaining a well diversified portfolio that limits the amount of investment exposure as
to institution, maturity and investment type. However, the value of these securities may
be adversely affected by the instability of the global financial markets which could, in
turn, adversely impact our financial position and our overall liquidity. Our
available-for-sale investments consist primarily of short and long-term U.S. government
and agency debt securities, debt securities issued by foreign agencies and backed by
foreign governments and corporate debt securities. Our held-to-maturity investments
consist of investments that are restricted and held as collateral under certain letters of
credit related to certain of our lease agreements.
We classify available-for-sale investments in an unrealized loss position, which do
not mature within 12 months, as long-term investments. We have the intent and ability to
hold these investments until recovery, which may be at maturity, and it is more likely
than not that we would not be required to sell these securities before recovery of their
amortized cost. At September 30, 2010, we performed an analysis of our investments with
unrealized losses for impairment and determined that they are temporarily impaired.
At September 30, 2010 and March 31, 2010, 3% and 4%, respectively, of our investments
are valued using unobservable, or Level 3, inputs to determine fair value as they are not
actively trading and fair values could not be derived from quoted market prices. These
investments consist primarily of a student loan backed auction rate security. During the
six months ended September 30, 2010, $6.0 million of our Level 3 investments were redeemed
at par by the issuers.
Borrowings
We did not have any outstanding borrowings at September 30, 2010. On July 1, 2010, in
addition to a scheduled principal payment of $6.4 million, we redeemed the balance of our
non-recourse 7% Notes in full in exchange for $39.2 million, representing 101.75% of the
outstanding principal balance in accordance with the terms of the Indenture for the
non-recourse 7% Notes. We expect to save $3.2 million in interest and accretion expense
through the previously scheduled maturity date of January 1, 2012 as a result of redeeming
these notes on July 1, 2010.
Contractual Obligations
Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended March
31, 2010 in the Contractual Obligations section for a discussion of our contractual
obligations. Our contractual obligations as of September 30, 2010 were not materially
changed from the date of that report with the exception of the non-recourse 7% Notes
which, as noted in the Borrowings section above, were redeemed in full on July 1, 2010.
Off-Balance Sheet Arrangements
At September 30, 2010, we were not a party to any off-balance sheet arrangements that
have, or are reasonably likely to have, a current or future effect on our financial
condition, changes in financial condition, revenue or expenses, results of operations,
liquidity, capital expenditures or capital resources material to investors.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is
based on our financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). The preparation of
these financial statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of our financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results may differ from these estimates under different
24
assumptions or conditions. Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended March 31, 2010 in the Critical
Accounting Estimates section for a discussion of our critical accounting estimates.
New Accounting Standards
Refer to New Accounting Pronouncements included in Note 1, Summary of Significant
Accounting Policies in the accompanying Notes to Condensed Consolidated Financial
Statements for a discussion of new accounting standards.
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures about Market Risk |
Our market risks, and the ways we manage them, are summarized in Part II, Item 7A,
Quantitative and Qualitative Disclosures About Market Risk of our Annual Report on Form
10-K for the year ended March 31, 2010. We regularly review our marketable securities
holdings and shift our investment holdings to those that best meet our investment
objectives, which are, first, to preserve liquidity and conserve capital and, second, to
generate investment income. Apart from such adjustments to our investment portfolio, there
have been no material changes to our market risks in the first six months of fiscal year
2011, and we do not anticipate any near-term changes in the nature of our market risk
exposures or in our managements objectives and strategies with respect to managing such
exposures.
We are exposed to foreign currency exchange risk related to manufacturing and royalty
revenues that we receive on RISPERDAL CONSTA as summarized in Part II, Item 7A,
Quantitative and Qualitative Disclosures About Market Risk of our Annual Report on Form
10-K for the year ended March 31, 2010. There has been no material change in our
assessment of our sensitivity to foreign currency exchange rate risk during the first six
months of fiscal year 2011.
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Item 4. |
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Controls and Procedures |
a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended, (the Exchange Act)) at September 30, 2010. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were effective as of September 30, 2010 to provide
reasonable assurance that the information required to be disclosed by us in the reports
that we file under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures, our
management recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
b) Change in Internal Control over Financial Reporting
During the period covered by this report, there have been no changes in our internal control
over financial reporting that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
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Item 1. |
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Legal Proceedings |
From time to time, we may be subject to legal proceedings and claims in the ordinary course of
business. We do not believe that we are currently party to any such proceedings or claims that we
believe will have, individually or in the aggregate, a material adverse effect on our business,
results of operations and financial condition.
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
On November 21, 2007, our board of directors authorized a program to repurchase up to $175.0
million of our common stock to be repurchased at the discretion of management from time to time in
the open market or through privately negotiated transactions. On June 16, 2008, the board of
directors authorized the expansion of this program to $215.0 million. We did not purchase any
shares under this program during the quarter ended September 30, 2010. As of September 30, 2010, we
have purchased a total of 8,866,342 shares under this program at a cost of $114.0 million.
During the three months ended September 30, 2010, we acquired, by means of net share
settlements, 80 shares of Alkermes common stock at an average price of $12.62 per share related to
the vesting of employee stock awards to satisfy employee withholding tax obligations.
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Item 5. |
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Other Information |
The Companys policy governing transactions in its securities by its directors, officers and
employees permits its officers, directors and employees to enter into trading plans in accordance
with Rule 10b5-1 under the Exchange Act. During the quarter ended September 30, 2010, Mr. Robert A.
Breyer and Mr. Michael A. Wall, each a director of the Company, and Dr. Elliot W. Ehrich and Mr.
Gordon G. Pugh, each an executive officer of the Company, entered into trading plans in accordance
with Rule 10b5-1, and the Companys policy governing transactions in its securities by its
directors, officers and employees. The Company undertakes no obligation to update or revise the
information provided herein, including for revision or termination of an established trading plan.
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Exhibit |
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No. |
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31.1
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Rule 13a-14(a)/15d-14(a) Certification (furnished herewith). |
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31.2
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Rule 13a-14(a)/15d-14(a) Certification (furnished herewith). |
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32.1
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Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith). |
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101
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The following materials from Alkermes, Inc.s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2010, formatted in
XBRL (Extensible Business Reporting Language): (i) the Condensed
Consolidated Balance Sheets, (ii) the Condensed Consolidated
Statements of Operations, (iii) the Condensed Consolidated
Statements of Cash Flows, and (iv) the Notes to the Condensed
Consolidated Financial Statements, tagged as blocks of text
(furnished herewith). |
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ALKERMES, INC.
(Registrant)
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By: |
/s/ Richard F. Pops
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Chairman, President and Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ James M. Frates
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Senior Vice President,
Chief Financial Officer and Treasurer |
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(Principal Financial and Accounting Officer) |
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Date: November 4, 2010
27
EXHIBIT INDEX
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Exhibit |
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No. |
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31.1
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Rule 13a-14(a)/15d-14(a) Certification (furnished herewith). |
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31.2
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Rule 13a-14(a)/15d-14(a) Certification (furnished herewith). |
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32.1
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Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith). |
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101
|
|
The following materials from Alkermes, Inc.s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2010, formatted in
XBRL (Extensible Business Reporting Language): (i) the Condensed
Consolidated Balance Sheets, (ii) the Condensed Consolidated
Statements of Operations, (iii) the Condensed Consolidated
Statements of Cash Flows, and (iv) the Notes to the Condensed
Consolidated Financial Statements, tagged as blocks of text
(furnished herewith). |
28