Alkermes Plc

NASDAQ:ALKS

Earnings Call Transcript 2021-Q1

[Operator]

Greetings, and welcome to the Alkermes First Quarter 2021 Earnings Call. My name is Rob, and I'll be your operator for today's call. [Operator Instructions].

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

[Sandra Coombs, Co-Head, IR]

Thank you. Good morning. Welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter ended March 31, 2021.

With me today are Richard Pops, our CEO; Iain Brown, our CFO; and Todd Nichols, our Chief Commercial Officer.

Before we begin, I encourage everyone to go to the Investors section of alkermes.com to find our press release and related financial tables, including a reconciliation of the GAAP to non-GAAP financial measures that we'll discuss today.

We believe the non-GAAP financial results in conjunction with the GAAP results are useful in understanding the ongoing economics of our business. Our discussions during this conference call will include forward-looking statements. Actual results could differ materially from these forward-looking statements. Please see Slide 2 of the accompanying presentation, our press release issued this morning and our most recent annual and quarterly reports filed with the SEC for important risk factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise the information provided on this call or in the accompanying presentation as a result of new information or future results or developments.

After our prepared remarks, we'll open the call for Q&A. Now I'll turn the call over to Richard.

[Richard Pops, Chairman & CEO]

That's great. Thank you, Sandy. Good morning, everybody. The first quarter's solid results were driven by our focus on commercial execution and disciplined management of our cost structure. Iain and Todd will take you through the Q1 performance in detail. But at the highest level, we're on track to deliver on our financial objectives for the year and over the longer term, consistent with our value enhancement plan.

The way we create value in biopharmaceutical companies is by making important medicines, medicines that address unmet needs of patients. Alkermes is an exciting point in our evolution. We've achieved $1 billion top line driven by a portfolio of marketed drugs. We've developed specialized commercial capabilities, and we've identified new revenue growth opportunities with the expected launch of LYBALVI, which will be a second antipsychotic in our portfolio and the anticipated growth of VUMERITY, a drug for the treatment of MS that we developed, but being sold by Biogen.

Coming next, we're focused on new neuroscience and oncology development candidates. Our objective is to develop truly innovative medicines with a clear value proposition relative to current and anticipated future standards of care. We do this through developing new molecular entities based on strong biologic rationale and leveraging our established strength in molecular design, both small and large molecule.

At our recent Investor Day, we announced new development programs that reflect this approach. In neuroscience, our CoREST-selective HDAC inhibitors have the potential for broad utility in neurodegenerative and neurodevelopmental diseases and are advancing toward first-in-human studies later this year.

Our orexin two receptor agonist program leverages our core competencies in small molecule medicinal chemistry and pharmacokinetic and formulation expertise with candidate nomination planned for later this year.

In oncology, we have developed a cytokine engineering capability that is yielding innovative new approaches to some of the most challenging and high potential immune modulation pathways in addition to nemvaleukin, our most advanced oncology clinical candidate. We also highlighted our preclinical work engineering a tumor-targeted split IL-12 fusion protein and unveiled our IL-18 program.

These presentations are archived on our website. Each of these programs is designed to address a specific unmet need in neuroscience and oncology and are designed to have clear competitive advantages. We test those assumptions throughout the development process. If a candidate doesn't meet these prespecified criteria, we stop investment. If we create value through new medicines, the way we can enhance that value and make it rewarding to shareholders, is through an equivalent focus on structure, efficiencies and profitability.

The value enhancement plan we introduced in December of last year furthers our focus on business excellence and makes explicit our intention to increase efficiency and profitability. It also provides a framework for allocating capital and prioritizing investments in our major cost areas of commercial and R&D and drives a clear focus on programs with the highest expected return on investment. The combination of scientific excellence and business excellence is a powerful concept that we've incorporated into all the aspects of the way that Alkermes operates. And it's what will drive our ability to grow value in the future.

So now with that as introduction, I'll turn the call over to Iain to review the first quarter results.

[Iain Brown, Senior VP & CFO]

Thank you, Rich, and hello, everyone. This morning, we announced solid financial results for the first quarter we derived from our 2 principal areas of focus: driving top line growth and disciplined expense management. Based on these results and our expectations with respect to the ongoing recovery from the COVID-19 pandemic, today, we are reiterating our financial expectations for full year 2021, which were fully outlined in our press release and 8-K filed back on February 11.

For the first quarter of 2021, we generated total revenues of $251.4 million, driven by the solid performance of our proprietary commercial products and our diverse portfolio of manufacturing and royalty revenues, including notably the continued acceleration in the uptake of VUMERITY. With operating expenses lower than the first quarter of 2020 across all line items, we achieved a GAAP net loss of $22.4 million and a non-GAAP net income of $17.8 million.

VIVITROL net sales in the first quarter was $74.5 million. These results reflect a 5% decrease in units year-over-year due to continued pandemic-related disruptions in the treatment system. Despite this, Q1 net sales were ahead of our expectations for the quarter, driven by higher unit volume and some favorable gross to net adjustments related to Medicaid and lower product returns. Gross-to-nets were 51.5% in the first quarter as compared to an average of 49.9% in 2020. And in Q1, inventory levels decreased by approximately $2.3 million to a more normalized level as is consistent with typical seasonal patterns.

Turning to the ARISTADA product family. Net sales in the first quarter increased 9% year-over-year to $55.4 million, primarily driven by underlying unit growth. As we anticipated on our year-end earnings call in February, ARISTADA net sales declined sequentially due to a decrease in inventory levels in the first quarter. This inventory fluctuation represented approximately $8 million, and we ended Q1 with more normalized inventory levels. Gross-to-net adjustments of 53.3% in the first quarter were consistent with 2020. Now while ARISTADA demand has been resilient throughout the pandemic, we have seen an impact on overall market growth, particularly related to new patient starts, and Todd will provide more detail on that shortly.

Moving on to our manufacturing and royalty business. In the first quarter, our manufacturing and royalty revenues were $119.8 million compared to $116.3 million in the prior year. This increase was driven primarily by accelerated uptake of VUMERITY, which contributed $13.4 million in the quarter and growth of royalty revenues from INVEGA SUSTENNA and TRINZA partially offset by lower year-over-year RISPERDAL CONSTA revenues, driven primarily by lower manufacturing volumes.

Total operating expenses were $267.9 million for the first quarter, down from $283.6 million in the same period in the prior year, reflecting our continued focus on disciplined expense management, and our ongoing investment in programs, we believe, will drive long-term shareholder value. R&D expenses for the first quarter were $92.3 million compared to $93.3 million for the prior year, reflecting investment in nemvaleukin and the earlier stage HDAC and orexin platforms. SG&A expenses for the first quarter were $125.2 million compared to $133.4 million for the prior year, primarily reflecting savings across the commercial organization.

Turning to our balance sheet. We ended the first quarter well capitalized with approximately $627 million in cash and total investments and total debt outstanding was $298 million. We continue to focus our capital allocation on the highest return on investment opportunities that are consistent with our long-term growth strategy.

Our priorities are clear: support our commercial portfolio to drive top line growth, invest in the potential launch of LYBALVI, advance the nemvaleukin development program and seek partnership opportunities, develop the newest pipeline programs emerging from our neuroscience and oncology platforms as we unveiled at our recent Investor Day and explore other strategic opportunities around noncore assets, including early stage R&D programs and royalty streams.

We believe that we enter the second quarter with a solid foundation for long-term value creation and are well positioned financially to execute on our strategy, and I look forward to updating you on our progress.

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

[Todd Nichols, SVP & Chief Commercial Officer]

Thanks, Iain, and good morning, everyone. I'm pleased with our commercial team's execution in the first quarter, with both ARISTADA and VIVITROL Q1 net sales slightly ahead of expectations. Our first quarter results reflect solid underlying unit demand and typical seasonal inventory fluctuations. Based on our Q1 results and current trends in the treatment landscape, we believe we are well positioned to achieve sales within our full year guidance ranges for both ARISTADA and VIVITROL.

Now taking a step back. COVID-related disruptions continued to impact patient access to treatment of both addiction and serious mental illness in Q1 as we anticipated. We continue to believe that patient access to care will improve as we approach the second half of 2021 as vaccinations continue to roll out across the country and capacity restrictions ease and settings of care. We have also seen encouraging trends in leading indicators such as new-to-brand prescriptions for both VIVITROL and ARISTADA in the first quarter compared to Q4.

We continue to execute on our hybrid promotional model that incorporates both in-person and virtual engagements. This model was implemented in response to the COVID-19 pandemic last year, and it has allowed us to quickly adapt in this highly dynamic market environment. While virtual engagements have been critical to maintaining continuity, we look forward to increasing in-person engagements. We have seen these engagements pick up through the first quarter. With our sales force expanding the percentage of their in-person costs to approximately 50% in March, up from 40% in early January.

Now starting with VIVITROL. Net sales in the first quarter were $74.5 million, consistent with seasonal patterns. VIVITROL net sales declined sequentially, due primarily to the drawdown of Q4 inventory build as well as slightly higher gross-to-net adjustments, as Iain outlined. COVID-19 disruptions to the addiction treatment systems continued to negatively impact VIVITROL in Q1. And we are still working back up towards pre-pandemic unit demand levels.

Pandemic-related restrictions broadly impacted patient's ability to access the health care system for treatment and impacted utilization of VIVITROL in particular, due to the requirement for injections, the need to be opioid-free before receiving treatment, which often requires detoxification in the medical setting and the nature of substance abuse treatment settings of care generally.

Now we have seen stabilization within the opioid dependence since the pandemic lows, but continue to see restrictions in settings of care that have yet to fully increase their patient capacity, most notably, residential treatment centers, correctional facilities and other government treatment locations. However, in our recent market research, about 50% of health care providers that we survey reported a slight to substantial increase in AUD and OUD patient volume in March compared to the prior month.

In alcohol dependence, we have seen a resumption of growth in the market. During Q1, SAMHSA issued a new treatment advisory for prescribing pharmacotherapies for patients with alcohol use disorder, encouraging providers to consider FDA-approved medications when treating patients. Now part of our focus in 2021 is on driving awareness of VIVITROL as a treatment option for alcohol dependence among providers, caregivers and patients.

As the country begins to emerge from the isolation of the pandemic, public health organizations and experts have expressed increasing concern about the rise in heavy drinking and adverse alcohol-related health conditions. April is alcohol awareness month, and we have been focused on launching campaigns designed to drive education around the disease of alcohol dependence and increased awareness of treatment options, including VIVITROL. Now the prevalence of alcohol dependence, and the indication mix for VIVITROL continues its upward trend, driven by growth of the category and new patient starts. Based on our results in the fourth quarter, today, we are reiterating our expectation of VIVITROL net sales in the range of $315 million to $345 million for 2021.

Turning now to the ARISTADA product family. Net sales in the first quarter increased approximately 9% year-over-year to $55.4 million, driven by strong TRx months of therapy growth of 11% year-over-year that outpaced the broader long-acting atypical antipsychotic market, which grew at 3%. As anticipated, net sales were down sequentially from the fourth quarter driven by seasonal inventory fluctuations. As Iain outlined, inventory had returned to normal levels at the end of the first quarter.

As a result of the pandemic, we have seen some impact to prescribing patterns in the long-acting antipsychotic space, particularly to new prescriptions as psychiatry health care providers made fewer treatment changes in the COVID environment, particularly within the context of telehealth visits. As a result, new-to-brand prescription growth flattened in the second half of 2020. We are encouraged that in the first quarter of 2021, ARISTADA NBRx growth was 11% on a sequential basis, the highest in the LAI antipsychotic market. Further, our market research shows that health care providers experienced steady or increasing patient volumes in the quarter.

Our recent market research also indicated that the value proposition of the ARISTADA 2-month dose plus ARISTADA INITIO continues to resonate with health care providers, as evidenced by 21% year-over-year TRx growth for the 2-month dose on a month of therapy basis. Based on our Q1 results and these leading indicators, we are reiterating our expectation for ARISTADA net sales within the range of $260 million to $290 million in 2021.

Moving to LYBALVI. Our oral investigational antipsychotic candidate designed to offer the efficacy of olanzapine while mitigating its associated weight gain is under review with the FDA with the PDUFA date of June 1. As we prepare for a potential commercial launch in the second half of 2021, our team is focused on finalizing our payer strategy, driving disease state awareness and engaging in scientific exchange. We believe LYBALVI, if approved, will represent an important new medicine for the treatment community.

Olanzapine is widely recognized as being highly efficacious, but physicians and patients often avoid prolonged utilization due to concerns about its propensity for weight gain. Interestingly, olanzapine was the fastest-growing oral atypical in 2020, with a 15% increase in NBRxs in December 2020 as compared to December 2019, suggesting that providers are increasingly seeking olanzapine's antipsychotic efficacy for patients.

The oral atypical antipsychotic market is highly dynamic, with over 70,000 treatment switches occurring each month as patients look for the right medication to fit their needs. We believe this reflects persistent unmet need in the market and a potential opportunity for a new entrant with a profile like LYBALVI. If approved, LYBALVI has the potential to serve 2 markets: the treatment of adults with schizophrenia and the treatment of adults with bipolar 1 disorder, while leveraging our existing psychiatry infrastructure.

LYBALVI, if approved, will join ARISTADA in our psychiatry franchise, adding a product with a differentiated value proposition and suited for a different patient profile. Our ARISTADA field force already calls in about 60% of LYBALVI's targeted provider universe. And we plan to add approximately 50 additional sales representatives in a staged fashion throughout the first year of launch based on payer access.

Looking ahead, we are focused on execution as we prepare for the potential launch of LYBALVI, work to achieve our expectations for VIVITROL and ARISTADA and continue to drive awareness of the value proposition of these important medicines. Now I'll turn the call back over to Rich.

[Richard Pops, Chairman & CEO]

Good. Thank you, Todd. So commercial and financial execution remain top priorities for the company. But the value of the pipeline and our R&D investment is beginning to emerge. So I'm going to spend a few minutes on that. The most prominent later stage elements are, of course, LYBALVI at the NDA stage and our immuno-oncology agent, nemvaleukin.

I'm going to start with nemvaleukin as that program is advancing rapidly now. Nemvaleukin is emerging as a differentiated late-stage IL-2 variant in a field that's garnering more and more attention because of the promise of the biology. Nemvaleukin has moved well beyond the conceptual phase and is accumulating clinical results to support its potential therapeutic benefit and value proposition. It's differentiated in terms of its design, potential dosing flexibility, antitumor activity, both as monotherapy and in combination and our clinical development strategy focused on patients for whom current therapies are inadequate or have failed.

We presented select data recently at our Investor Day, and we have another data presentation upcoming at ASCO. So today, I'm going to focus on important operational developments recently. First, we've achieved an important milestone on the program with the completion of enrollment in parts B and C of ARTISTRY-1. ARTISTRY-1 is the primary signal seeking study for intravenous nemvaleukin, where we began to reveal for the first time the dosing, tolerability and preliminary efficacy of this new molecule. It was designed as a Phase I/II study with 3 parts.

Part A was dose escalation designed to establish the pharmacokinetic and pharmacodynamic profile of IV nemvaleukin, evaluate safety and tolerability and identify the recommended Phase II dose. Part B started after we identified the recommended Phase II dose and was intended to confirm monotherapy activity in melanoma and renal cell carcinoma. Tumor types for recombinant human IL-2 has proven single agent efficacy. From our perspective, monotherapy antitumor activity is essential to validating the therapeutic potential of nemvaleukin. We checked that box late last year. We've observed partial responses in both melanoma and RCC, and data from that stage of the study continued to mature.

Part C was designed to seek signals of antitumor activity in combination with the anti-PD-1 pembrolizumab in both PD-1 approved and PD-1 unapproved tumor types. This has also been successful. Data from Part C has revealed activity across a wide range of tumor types supporting the broad potential utility of nemvaleukin in combination with pembro. While the part C data set's still maturing, we've observed a clear signal of durable and deepening responses in platinum-resistant ovarian cancer, and I'll talk more about our plans in that area in just a moment.

ARTISTRY-1 will continue to provide a stream of data throughout the remainder of the year. The next data update will occur at ASCO where the ARTISTRY-1 data set was accepted for a poster presentation. Also accepted at ASCO was a poster on ARTISTRY-2, which is our Phase I/II study evaluating subcutaneous dosing of nemvaleukin. Subcu dosing could open up a broad range of clinical opportunities. And to our knowledge, nemvaleukin is the only IL-2 variant with a subcu administration option currently in clinical development.

As for ARTISTRY-2, it's also progressing well. At the end of last year, we identified the recommended Phase II dose of 3 mg once-weekly and initiated the dose expansion phase. At ASCO, we'll present safety, tolerability, PK and PD data from those dose escalation cohorts. We presented the first partial response from that study in a patient with platinum-resistant ovarian cancer at our recent Investor Day, and we look forward to sharing additional data from the study as it matures. Showing subcutaneous antitumor activity is an important milestone in the program, and we're focused on further developing that data set as we advance toward broader opportunities for strategic collaboration. The positive signals that we've seen of antitumor activity in ARTISTRY-1 and 2 triggered our advancing the development program to the next stage. We're focusing our next efficacy studies on monotherapy in mucosal melanoma and combination therapy with pembro in platinum-resistant ovarian cancer.

So let's take those in turn. Mucosal melanoma is a rare and particularly aggressive form of melanoma with limited treatment options. In ARTISTRY-1, we've seen an initial signal of antitumor activity for nemvaleukin monotherapy in patients with this severe disease. Last month, nemvaleukin was granted orphan drug designation in this indication. And we also recently met with FDA to align on a clinical study design and initiated what we call ARTISTRY-6. This single-arm Phase II study will evaluate IV nemvaleukin monotherapy in checkpoint inhibitor experienced patients with mucosal melanoma. The study is designed to support potential registration.

Obviously, depending on its results, including the magnitude and durability of responses and the observed safety profile. To leverage the trial infrastructure being put in place for ARTISTRY-6, this study will also enroll a cohort of patients with advanced cutaneous melanoma, who will receive subcu administered nemvaleukin. This cohort is intended to establish proof-of-concept of antitumor activity with subcu nemvaleukin as monotherapy. We anticipate dosing the first patient in ARTISTRY-6 in the coming weeks.

The second focus area is platinum-resistant ovarian cancer, known by the acronym, PROC. We observed a clear signal of antitumor activity in ARTISTRY-1 last year with a combination of nemvaleukin and pembro in PROC patients. And we plan to initiate a Phase III study in the second half of this year. This is an indication where pembro is not approved and has shown only very limited activity.

To support that study, we recently entered into a clinical supply and trial collaboration with Merck. We're still finalizing study design with Merck and FDA, but we've agreed that the primary analysis will be nemvaleukin in combination with pembro compared to investigator choice of chemotherapy. We're pleased to be partnering with Merck on the study. And we believe that their participation is an important validation of the signal that we've observed. Importantly, the collaboration does not impede our ability to -- or intention to pursue broader strategic collaboration for the nemvaleukin program, which remains an important strategic priority for the company.

There are a number of IL-2 variant programs in development. This is because of the compelling logic of the proven IL-2 pathway as a complement to a range of tumor-killing approaches. The various hypotheses underlying these programs will need to be confirmed through the process of developing human clinical data relating to response and duration in various tumor types. This is the path we followed with nemvaleukin. And the accumulating human clinical data relating to response and duration in various tumor types in the ARTISTRY program is the reason why the program is accelerating. The acknowledgment of investigators and thought leaders and the clinical trial momentum are important validations of the program, and we look forward to sharing incremental updates throughout the year.

I'll finish with a brief update on LYBALVI. Currently, we're working with FDA toward our June 1 PDUFA date. In parallel to our review, the prelaunch activities are advancing. And we're laying the foundation for commercial half -- commercial launch in the second half. Across the business, the priorities are clear, and we're intensely focused on execution. We've taken great care to reenvision Alkermes' approach to new drug development and establish a strong complementary focus on efficiency and driving value. While some of these efforts will bear out over time, we believe we have significant opportunity to drive real value in 2021.

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

[Sandra Coombs, Co-Head, IR]

Thank you, Richard. We'll now open the call for Q&A, please.

[Operator]

[Operator Instructions]. Our first question today comes from the line of Brandon Folkes with Cantor Fitzgerald.

[Brandon Folkes, Cantor Fitzgerald & Co.]

Congratulations on all the updates year-to-date. So I just want to actually focus on ARISTADA and VIVITROL. You talked about the COVID restrictions and sort of the headwinds and -- those -- these have been going on for a long time. So as we kind of open up, how much do you think there's been a bit of a permanent change in treatment paradigms in the addiction space as well as the atypical long-acting injectable market? How should we think about sort of this ramp back to pre-COVID levels? Is this something that's going to take a lot of work from the commercial side? Just any color there would be great in terms of sort of the ramp we should expect back to pre-COVID levels?

[Richard Pops, Chairman & CEO]

Yes, absolutely. And thank you. We are very pleased with the commercial performance for both products in Q1. We do assume a normalization of patient volumes in the second half of the year, which also includes moderate market growth, which really is going to be driven by improved patient access to treatment providers. All of our qualitative research supports that. One of the key metrics that we continue to watch is telemedicine utilization. And I think the interesting fact from our surveyed physicians showed that right when the pandemic happened, you saw a huge percentage of HCPs in both therapeutic areas switched to telemedicine.

And we're starting to see a gradual shift back to in-person engagements and access to treatment providers opening up. So we are expecting that to normalize in the second half of the year. When that normalizes, we believe that we'll start to see an increase in the switching market. That really drives both of these products, that drives LAIs, but also drives the ejection treatment landscape for VIVITROL as well too. So that's how we're thinking about it. It's more of a normalization in the second half of the year.

[Operator]

The next question comes from the line of Vamil Divan with Mizuho Securities.

[Vamil Divan, Mizuho Securities]

Great. So two, if I could. So one on LYBALVI. It sounds like you're -- things sound to be on track towards this June 1 date. I guess my question that we've been getting to from investors, before your prior PDUFA date in November, it sounds like you already finished all the labeling discussions and then the manufacturing question sort of came up at the end. So I'm just curious if that's the right way to interpret things? And is there anything around restrictions to which patients should potentially get the product or any sort of risk mitigation strategies? Any of those kind of things? Would those already be sort of well known to you at this point? Or is that still sort of being discussed with the FDA?

And then the second question I have is on VUMERITY. And just given the sort of really dramatic change we've seen in prescription trends there. I think you've talked about royalty streams potentially being one of the things you look at as part of your value enhancement plan. I'm just curious how you think about a product like that. That's still pretty early life cycle, maybe a little tough to kind of figure out exactly what the long-term value is. Is that something you could sort of monetize in the near term? Or do you sort of need to wait for a little while before you can really see what the value is for that product? Because you given some of the outstanding questions around the TECFIDERA patent as well. So any comments there would be helpful.

[Richard Pops, Chairman & CEO]

Vamil, it's Rich. I'll start and then if Iain has some color, he can -- he will chime in. Yes, LYBALVI, we seem to be on track for the 6/1 date. You're right. In our previous iteration, we had had some label discussions and the manufacturing stuff came up at the last minute. We've continued to have label discussions with FDA now in this cycle, which is why we think we're on track. But label negotiations are never over until they're over. But so far, there's not been anything that has been unexpected in those discussions. So we're optimistic that we can get this finished off. But these days with FDA, I think caution is always warranted, but we have no indication of it so far.

I think you answered the question yourself on VUMERITY. VUMERITY is really beginning a certain nonlinear part of its growth phase. So it's very difficult to project what the actual shape of the curve will be, that would be the basis of a monetization at this moment. With that said, it's something that we're interested in, and we'll pay attention to. Iain, any other further color on that?

[Iain Brown, Senior VP & CFO]

Not much to add there. Obviously, I think we're just very encouraged with the revenue trends that we've seen in the fourth quarter and then into the first quarter. I think as Rich says, it looks like it's on a new trajectory. We do manufacture the products. So we get a little bit more of an insight into what's happening into the future in those manufacturing trends. And the order patterns are very encouraging as well. But as Rich said, it's early. And in order for us to establish value, I think we need to see a few more consecutive strong quarters from VUMERITY.

[Operator]

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

[Thor Nagel, Stifel]

This is Thor on for Paul. One question on VIVITROL and then one on nemvaleukin. In VIVITROL, how much growth in alcohol dependence is assumed in your guidance? And then on nemvaleukin, what does the path look like for ARTISTRY-6 that leads to registration?

[Todd Nichols, SVP & Chief Commercial Officer]

Yes. I'll start off with the question on alcohol. We continue to make really good progress in our strategy to maximize the opportunity for alcohol. It's a significant unmet need in the marketplace. Last year, we saw about a 4% growth year-over-year. We're expecting that to continue, so somewhat to be linear. And we expect to continue to gain market share within the category. So we're expecting overall on a months of therapy basis. Overall, we think that, that growth is somewhere going to be within that probably close to 2% to 4% is the range that we're looking at.

[Richard Pops, Chairman & CEO]

And this is Rich. I'll answer the question about ARTISTRY-6. Mucosal melanoma is a disease with serious unmet needs. And the patients that we're looking at are people who've progressed beyond checkpoint inhibitors. So they have very limited treatment options. I think the clinical profile that is so exciting about an IL-2 variant like nemvaleukin is a combination of 3 things. One is overall response rate; number two is durability of those responses. And number three is tolerability. So that will be the profile we'll be looking at as ARTISTRY-6 evolves.

[Operator]

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

[Cory Kasimov, JPMorgan Chase & Co.]

Two for me, both on nemvaleukin. First one is following up on ARTISTRY-6. Can you talk about the rationale for evaluating both the IV and subcu formulations there? I mean I know you've talked about subcu ultimately being more of a contingent factor for future partnerships. So if you can talk a little bit more about that strategy. And then for the upcoming posters at ASCO, how much should we be expecting in terms of follow-up for ARTISTRY-2? And for the abstracts themselves, are those going to be essentially placeholders relative to what you've disclosed already? Or should we be expecting meaningful updates there?

[Richard Pops, Chairman & CEO]

Cory, good to hear your voice. I'll take the first part, and Sandy is more expert on the second part. Throughout the program for nemvaleukin, we think of the IV as the leading edge of the wedge followed then by the subcu with the hope and expectation that subcu could recapitulate essentially the activity and the efficacy that we see with IV. And that's exactly what we're doing in ARTISTRY-6. While we have great investigator thought leader interest in treatment for patients with mucosal melanoma at that stage. There's really very little for them. So moving ahead with the IV could be life-sparing, lifesaving, life-changing therapy for these patients.

But introducing the subcu into that clinical setting as well would give us an option if we see that type of efficacy as well of advancing the subcu dose within the context of the same protocol. So when we're putting in this clinical network to do mucosal melanoma around various countries and various sites, it's a great asset to leverage to feather in the subcu piece as well, and we'll see how those subcu data evolve.

[Sandra Coombs, Co-Head, IR]

And Cory, your question on the ASCO posters. Recall that we did just give an update on the nemvaleukin program at our Investor Day. So we'll refresh that data, but there'll be probably a month worth of additional follow-up data in that poster. But as that data set evolves, we'll try to keep investors as updated as possible.

[Operator]

Our next question is from the line of Jeet Mukherjee with Jefferies.

[Suranjit Mukherjee, Jefferies]

Two for me. Back to ARTISTRY-6, perhaps. Just wanted to get a sense of perhaps how many cutaneous melanoma patients you plan to enroll? And what do you believe are perhaps the respective bars for efficacy to meet in mucosal and cutaneous melanoma? And the second question was, at your Investor Day, you had highlighted perhaps several steps to facilitate that expense management. Could you perhaps elaborate on what steps will continue to be implemented throughout the year and hopefully be reflected on the bottom line?

[Sandra Coombs, Co-Head, IR]

Sure. Jeet, this is Sandy. I'll take the question on the patient enrollment number. So overall, in ARTISTRY-6, we expect to enroll approximately 110 patients. Of that, approximately 40 will be in the cutaneous melanoma arm using the subcu and 70 will be in the mucosal arm. Rich, do you want to comment on the response?

[Richard Pops, Chairman & CEO]

Yes. I think that our biostatistical approach to this is that we want to see response rates in the 20-plus percent level. But it's also with the additional feature that I mentioned before of durability. I think durability is really important. It's striking with the first response we had, the partial response, we talked about previously that patient has been on therapy for, I believe, over a year now. And that's really encouraging aspect of nemvaleukin in this setting. Iain, you want to comment on the expense side?

[Iain Brown, Senior VP & CFO]

And then on the expense management side, yes, I mean, we're really looking across the business at everything, both internally and we also brought in external consulting organization at the beginning of the year. So a number of initiatives came out of that, some of which we factored into our 2021 guidance. But as we go forward, that the focus is going to continue. And we're actively managing on the headcount side of things as people leave the organization. We're just making sure that we have the right resources focused on the right programs.

On a program basis, both within commercial and within R&D, we're ensuring that we're really focusing that investment on the opportunities that are going to maximize return on investment. And we're looking at other opportunities as well, like with example, our real estate footprint as well. So it's a pretty thorough process, and we're very focused on it in order to be able to achieve the longer-term profitability targets that we've laid out in the value enhancement plan.

[Operator]

Our next question is coming from the line of Marc Goodman with SVB Leerink.

[Marc Goodman, SVB Leerink]

Yes. Just a continuation there. On the value enhancement plan, you've talked about monetizing noncore assets. I'm just kind of curious what your thoughts are back there. And additionally, on -- in the oncology area, you were talking about partnering, but just curious, we're just still thinking about maturing this data throughout the year before you start those types of discussions or certainly signing anything. I'm just kind of curious about your thought process there.

And maybe you could just lay out, secondly, just completely separate topic just on spending, obviously, very light in the quarter. Just give us a sense of how the spending goes throughout the year just in the SG&A line.

[Iain Brown, Senior VP & CFO]

If I kick off on that, I think, with the monetization of the noncore assets. We've identified a number of areas that we're not continuing to focus on, necessarily internally. We've talked about some of the noncore R&D programs, earlier stage R&D programs. And with regard to the royalty monetization, we sort of covered that a little bit earlier with regard to -- it's really a value proposition. We want to make sure that we get sufficient value. I think VUMERITY for us is our most valuable royalty stream at this point in time. And we just want to see that maturity of this new trajectory in order for us to be able to establish value there.

From a spending perspective, I think we were very pleased with where Q1 came in. Expenses across the board were lower than both Q1 of last year and Q4 of last year. And I think as we look out through the remainder of the year, from a cost of goods perspective, we'd anticipate that would increase with increasing volumes, specifically of our proprietary products.

On the R&D side, I think expenses will tick up a little bit as the nemvaleukin program continues, and we saw launch into ARTISTRY-6 and then the PROC program. And we also have the $25 million milestone in the second half of the year as well related to the kickoff of the HDAC 1140 program. And then specifically with regard to SG&A, as Todd mentioned, I think, will augment the sales force, and there will be some incremental spend. That will be on a staged basis, though. It will be closer to the PDUFA time line around June. And then maybe a little bit of incremental investment as we gain access for LYBALVI as well. So I think that's really the profile that we're looking at. But all in all, we're very comfortable with the guidance we went out with in the February time frame, and hence, we reiterated that guidance today.

[Richard Pops, Chairman & CEO]

And Marc, it's Rich. I want to take on your question about the partnering because I think what's so interesting in this IL-2 space right now is how the various programs are segregating into their own lanes. They are clearly not interchangeable. And I think that nemvaleukin, in particular, is emerging as a really important entrant in this field.

The existence of monotherapy efficacy and the durability of the subcu dose are 2 highly differentiating features of it. We really do want to elaborate that subcu efficacy. It's just beginning to emerge now. We would recommend the Phase II dose in ARTISTRY-2 being achieved at the end of last year. We just opened up the expansion cohort. We were fortunate that right on the threshold of the Investor Day we saw with our first patient, our first response in PROC. But we expect that, that subcu profile will continue to elaborate. And you'll see at ASCO some of the actual pharmacodynamic features of the subcu presentation that are slightly different than the IV that we're encouraged by.

So I've said before, we really don't want to spend any time in a partnering discussion trying to adjudicate whether or not the subcu dose works, whether or not the drug is efficacious. We can do that all on our own. When we move into the partnering discussions, it's about how -- what indications should we go after. How do we expand this program. How do we create the most medical and economic value for nemvaleukin. So I think that data set will continue to mature this year, but I think it's -- we can hear the drumbeat in the distance now.

[Operator]

The next question is from the line of Akash Tewari with Wolfe Research.

[Amy Li, Wolfe Research]

This is Amy on for Akash. I just have a couple on your orexin program. So as you think about the design of your lead candidate and the competitive space, what specific proximities are you optimizing for? Is it half-life, blood-brain barrier penetration or selectivity? Just looking at your early data in DTA mice. It looks like you're leading to more potent drops in cataplexy and benefit on wakefulness at lower doses compared to Takeda. And although we'll acknowledge it's early data, but just wanted to kind of think about how you're looking at the design of your molecule? And then another one in terms of the blood pressure increases and polyuria indicated orexin trial, do you think this is an on-target OX2R related effect or an off-target OX1R related effect. And any color you can add here would be super helpful.

[Richard Pops, Chairman & CEO]

Well, this sounds like you're ready for a conversation with some of the folks on the research team, but I'll give you our perspective on this. Things like PK profile, PK trough, partition coefficient, half life -- those -- thee technical aspects are all part of the design, but they translate actually into something -- the way we view it is from the patient perspective, which is what we're looking for is a once daily, well-tolerated, low side effect profile agent to address the clinical condition.

And we see white space compared to what other companies are doing and it also leverages our -- something that we've spent a lot of time focused on over many years, which is the relationship between pharmacokinetics, pharmacodynamics, blood-brain penetration, CNS exposure versus peripheral exposure and mitigating or accentuating pharmacodynamic effects of various molecules based on the wave form of presentation to the periphery or the brain. So I won't bore everybody with all the specifics of the questions that you asked, and I will recommend that we have a follow-up conversation with you because there's a lot of science here. There's a lot of data, and we're happy to talk about it.

[Operator]

Our next question is coming from the line of Douglas Tsao with H.C. Wainwright.

[Richard Pops, Chairman & CEO]

You might be muted, Doug.

[Operator]

Mr. Tsao your line is open for questions.

[Sandra Coombs, Co-Head, IR]

Why don't we move on and we can certainly go back if Doug can reestablish his line.

[Operator]

Our next question will be coming from Jason Gerberry of Bank of America.

[Chi Meng Fong, Bank of America Merrill Lynch]

This is Chi on for Jason. Two from us. First one on VUMERITY. Partner Biogen declined to comment on the impact of TECFIDERA patent rulings, possibly removing generics as a backdrop from the market. But I'm curious if you can comment how big of a positive from VUMERITY if generic TECFIDERA came off the market. I guess, a follow-up on nemvaleukin. Are you able to confirm the couple of unconfirmed responses that you showed at Investor Day? Or is this something an update that we can look forward to at ASCO?

[Richard Pops, Chairman & CEO]

I'll take the first one and maybe Sandy can take the second one. Look, the experts on the interaction between VUMERITY and TEC are Biogen, and you should really focus. From our perspective, I can tell you, VUMERITY was designed as a next-generation fumarate with benefits for patients, namely in the form of preserving the proven efficacy of monomethyl fumarate in a dosage form in a molecule that's more GI tolerant. And that's what we're seeing in the real world. So my -- our view is if VUMERITY represents a generational advance for the benefit of patients. And that's what should drive its increased utilization in the clinic. On the nemvaleukin side, Sandy, you want to answer that one?

[Sandra Coombs, Co-Head, IR]

On the nemvaleukin side, sorry, repeat your question, Chi?

[Chi Meng Fong, Bank of America Merrill Lynch]

Yes, the couple of unconfirmed responses. Are you able to confirm them?

[Sandra Coombs, Co-Head, IR]

Yes. We won't comment on that on this call. You can look forward to ASCO for an update on any additional confirmation.

[Operator]

Our next question is from the line of Terence Flynn with Goldman Sachs.

[Terence Flynn, Goldman Sachs Group]

Great. Was just wondering if you can provide us with your latest expectations for how the weight data for LYBALVI might be incorporated into the label? What the potential outcomes are there? And then I know you mentioned adding an additional 50 sales reps here. How much additional coverage would that give you of your targeted provider universe? I know you said 60%. So would that go to 70%, 80%? Maybe just help us think about how much extra expansion you get from those additions?

[Todd Nichols, SVP & Chief Commercial Officer]

Yes, absolutely. I'll take both of those. You're referring first to the weight efficacy trial, which is ENLIGHTEN-2. That was a pivotal Phase III trial, which showed the benefit of LYBALVI versus olanzapine. So we still, to Rich's earlier point, we're still in communications with the FDA. So we're not going to really comment on what the label is and actually until we have approval. But we are very encouraged and discussions have been consistent with our expectations.

In terms of the footprint coverage, that's something we're really excited about, and it's actually a key leverage point for us as we launch into this new category with an oral product. Currently, our sales force covers about 60% of the targeted audience. That's going to significantly ramp up once we add in a staged fashion, the additional sales professionals. Our expectation is when we get to launch, that we're going to cover approximately 80% of the branded oral marketplace, which, as you can imagine, is a substantial amount of coverage, which is going to allow us to have a very strong share of voice in the marketplace.

[Operator]

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

[Umer Raffat, Evercore ISI]

I had a few, if I may. Maybe just one follow-up to a prior comment. Can we just level set, Richard, how we should expect the setup going into ASCO? I realize there's a lot of companies reporting a lot of things. And I know you guys emphasized safety and tolerability. So maybe if you could level set us on if we should or should not expect any further meaningful updates on efficacy? That's one.

On subcu, I guess my question is, we know there hasn't been monotherapy responses so far. And so we'll see how that shakes out. But meanwhile, we also know the PK profile is quite different from IV. And I almost wonder why not perhaps try out a subcu regimen where it's given 5 days in a row and then no further for the rest of the cycle. Could that create an opportunity for subcu, assuming there hasn't already been some sort of monotherapy activity.

And the last one, there's a lot of buzz on -- from the new administration on new funding for Suboxone. And I wonder if there's anything unusual in the works, which could truly move the needle on with the trial?

[Richard Pops, Chairman & CEO]

Umer, I wonder where you were in the queue this morning. If you got...

[Umer Raffat, Evercore ISI]

I was in the Israeli call.

[Richard Pops, Chairman & CEO]

Okay. Okay. And I was incredibly impressed by all the questions you guys are asking about the orexin 2 as well. So Sandy is really the expert on what we're going to be showing at ASCO. But as it relates to ARTISTRY-2, there's actually quite a bit of interesting data with respect to the PK/PD relationship and the tolerability on the subcu side. And I think that it's -- we've not presented all of that, so we had some for ASCO, but I think it's really important, the biology of the different presentation as well.

With respect to monotherapy subcu, we actually think the regimen q. weekly at 3 mg is going to drive monotherapy efficacy. We're not worried about that. But your question is a good one because it opens up a broader question, which is for example, are there other more clinically tolerable IV regimens rather than daily IV times 5? We actually believe there are. Are there combinations of IV induction plus subcu maintenance? We believe there are. There are just infinite permutations. And where we are now in the program of focusing the spend down, coring it down on its first approval pathways, is what's focus of the program.

On the subcu side, though, if we felt like there were other regimens that would improve our probability of seeing that thing, we would change, but we're quite pleased with the q. weekly. And recall that we also have a q. 3-weekly regimen that we think also has appropriate pharmacodynamic response, but we think that the q. weekly is actually the first place to start.

On the Suboxone, it's interesting. There's a couple of things going on with Suboxone. Liberalization of Suboxone prescribing is anticipated. Suboxone, as you know, is 95% of the market. So things that happen in Suboxone market really don't affect the VIVITROL market that much because VIVITROL is a different patient. VIVITROL patient is the patient who wants to undergo detoxification and receive monthly antagonist therapy. So the other big tectonic plate moving in the Suboxone world, of course, is the opioid settlements where Teva and others are suggesting that part of the consideration and settlement is provision of free Suboxone to states, which we don't think is going to change the dynamic vis-à-vis VIVITROL at all. But Todd, can you -- feel free to comment on that.

[Todd Nichols, SVP & Chief Commercial Officer]

Yes. I totally agree, Rich. The way that we think about this in terms of Suboxone is they're completely different. The indication for these products is different. The clinical use is different and the patient journey is different. We are very well aware of the changes in administration, with the elimination of the waivers. We watch that very closely. But we really believe and we talk very -- we follow the patient journey, we talk to our customers, and we know that these products are used differently.

I think the way to think about the opportunity for VIVITROL really is based upon the evidence-based standards that are available to label the broad clinical use and the opportunity with an alcohol as we've talked up for the last couple of months. It's an enormous opportunity, 14 of -- 14 million Americans suffer from AUD, only 400,000 around therapy, and we're seeing nice growth with TRxs. Actually, TRxs are growing on about a 3% basis year-over-year. And we think the VIVITROL has an opportunity to offer a nice value proposition for those patients. So that's something that we are extremely focused on right now.

[Sandra Coombs, Co-Head, IR]

And I'll just close the loop on ASCO. We're going to use the opportunity to provide a comprehensive update on the nemvaleukin program. Recall that at our recent Investor Day, we did just provide a data update related more narrowly to mucosal melanoma and platinum-resistant ovarian cancer for the IV program. We'll plan to provide -- we plan to refresh that data and also provide a broader update across other tumor types in that study.

Then on the ARTISTRY-2 subcu side, the focus of the presentation will really be a broader analysis of the PK/PD and safety from that study, and we'll provide an update on any signals that we're seeing in the early enrollment of the efficacy expansion stage.

Rob, we have time for one more question, please.

[Operator]

The next question will be coming from the line of Douglas Tsao with H.C. Wainwright.

[Douglas Tsao, H.C. Wainwright & Co.]

Sorry about that earlier. Just as a follow-up to the question in terms of the LYBALVI sales force expansion. I know you sort of gave a characterization in terms of how much more of the universe you'll be able to cover. Just curious if you could characterize the types of physicians that you'll now be targeting that aren't currently targeted by the ARISTADA sales force?

[Todd Nichols, SVP & Chief Commercial Officer]

Yes. Absolutely, Doug. I'll take that. This is Todd as well. So we're going to cover north of approximately 20,000 physicians overall, which will include about 80% of all branded prescribers, which encompasses approximately 9% of the total marketplace. Currently within the ARISTADA marketplace, LAIs as well, our focus there really is on LAI prescribers. So you're looking at a universe there of approximately about 10,000. So the universe is much larger.

Obviously, when you go into the oral, as Iain said, we made some adjustments to our commercial organization late last year and into this year to increase our share of voice. We're very pleased with that share of voice. And we're looking forward to expanding coverage. It's going to be psychiatrist. It will be nurse practitioners. It will be in the health system market with IDNs and institutions as well.

We're going to have a very broad footprint across the U.S. that will be very HCP focused and we're very confident that we're going to have a strong share of voice to compete in the branded space.

[Sandra Coombs, Co-Head, IR]

Okay. Thanks, everyone, for joining us on the call this morning. We appreciate the questions. If there are any follow-ups, please don't hesitate to reach out to us at the company. Have a great day.

[Operator]

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