Alkermes Plc

NASDAQ:ALKS

Earnings Call Analysis

Robust Revenue Growth and Strategic Developments

In the third quarter, revenues saw a substantial increase to $380.9 million, a boost of about 51% compared to the prior year's $252.4 million, largely due to reinstated US royalties for INVEGA products and a 16% growth in the proprietary product portfolio. VIVITROL sales rose to $99.3 million, while ARISTADA's sales grew to $81.8 million, and LYBALVI net sales reached $50.7 million. The company managed a 3% reduction in R&D expenses but encountered a rise in SG&A expenses to $169.4 million due to investments in LYBALVI's launch and separation costs for the oncology business. Alkermes recorded GAAP net income at $47.8 million and non-GAAP net income at $109.5 million, reiterating its 2023 financial expectations with a projection of profitability and growth, and emphasizing disciplined management. The company plans to invest $275 million in Mural Oncology upon separation, ensuring Mural's funding through key data readouts. Alkermes showcases promise with its ALKS 2680 program, displaying significant efficacy and an acceptable safety profile in early trials, potentially expanding to treat various sleep-related disorders.

Dynamic Market and Product Growth

The market for treatments addressing serious mental illness and addiction is expected to remain dynamic. The company's team is focusing on emphasizing the unique value proposition of ARISTADA, including its once-every-two-month dosing option and initiation regimen with clinical backing from the ALPINE study.

Net Sales Increase and Strategic Settlement

Net sales have seen a moderate increase with a year-over-year growth of approximately 3% to $99.3 million in the third quarter. VIVITROL, particularly for its alcohol dependence indication, is a significant contributor to this growth, making up roughly two-thirds of its volume. There has also been an expansion in prescriber breadth for VIVITROL, driving new patient starts. A settlement with Teva has been reached regarding patent litigation, allowing Teva to market a generic version of VIVITROL in the United States starting January 2027 or potentially earlier under certain conditions. This settlement enables the company to continue its commercialization strategy for VIVITROL and maintain it as a critical component for growth and profitability for the coming years.

Advancements in Narcolepsy Treatment

ALKS 2680, with its potent and selective profile, has been validated preclinically and is now progressing through clinical development. This molecule is crafted to treat narcolepsy by substantially improving daytime wakefulness and cataplexy control, with a safety profile supportive of dosing flexibility. Encouraging Phase 1 results in narcolepsy type 1 (NT1) patients have shown significant mean sleep latency improvements. For narcolepsy type 2 (NT2) patients, the dosage is expected to be higher due to the physiology of the condition. A Phase 2 study of ALKS 2680 is planned for the first half of 2024, marking a promising advancement in the company's neuroscience portfolio.

Business Restructuring and Creation of Mural Oncology

A notable corporate shift looms with the planned spin-off of the oncology division into a separate publicly traded entity, Mural Oncology. Poised for a strong start with an experienced team, Mural Oncology will focus on pivotal studies in difficult-to-treat cancers like platinum-resistant ovarian cancer. This structural change is envisioned to unlock substantial value and foster success for both the parent company and the newly formed entity. After the split, Alkermes is expected to emerge as a more focused and profitable neuroscience company, with clear strategic goals and avenues for value creation.

A Year of Productivity and Transformation

The company has experienced a transformative year with several milestones, such as the launch of LYBALVI, successful clinical study advancements, and the impending separation of its oncology business. These developments collectively redefine the financial and growth profile of the company, underscoring a potential for appreciable shareholder value enhancement.

Earnings Call Transcript 2023-Q3

[Operator]

Greetings, and welcome to the Alkermes Third Quarter 2023 Financial Results Conference Call. My name is Donna, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I'll now turn the call over to Sandy Coombs, Senior Vice President of Investor Relations and Corporate Affairs. Thank you, Sandy. You may now begin.

[Sandra Coombs, executive]

Good morning. Welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter ended September 30, 2023, as well as initial clinical data related to ALKS 2680 presented during this week's world Week meeting. With me today are Richard Pops, our CEO; Ian Brown, our CFO; Todd Nichols, our Chief Commercial Officer; and Dr. Craig Hopkinson, our Chief Medical Officer. During today's call, we will be referencing slides which are available on the Investor Events section of our website. Additionally, I encourage everyone to go to the Investors section of the alkermes.com to find our press release, related financial tables and reconciliations of the GAAP to non-GAAP financial measures that we'll discuss today. We believe the non-GAAP financial results in conjunction with the GAAP results are useful in understanding the ongoing economics of our business. Our 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. Our prepared remarks today will include initial patient data from our Phase I clinical trial for ALKS 2680. These data may not be indicative of future data from this trial or future results of clinical trials. After our prepared remarks, we will open the call for Q&A. And now I'll turn the call over to Ian.

[Iain Brown, executive]

Thank you, Sandy, and hello, everyone. I'm pleased to report solid results for the third quarter that demonstrate the financial strength of the business. The quarter was highlighted by year-on-year growth across our proprietary commercial products, solid contributions from manufacturing and royalty revenue streams, disciplined expense management and strong GAAP and non-GAAP profitability. With the favorable outcome of the Janssen arbitration earlier this year, the successful settlement of the VIVITROL patent litigation and the expected completion of the separation of the oncology business in the coming weeks, the potential of the business to deliver enhanced profitability has come more clearly into focus. This has been our plan and it's gratifying to see it taking shape. For the third quarter, we generated total revenues of $380.9 million compared to $252.4 million in the same period in the prior year. This reflects the reinstatement of royalties on U.S. sales of the long-acting and INVEGA products and solid performance across our proprietary product portfolio, which grew 16% year-over-year. Starting with VIVITROL. Net sales in the quarter were $99.3 million, reflecting 3% growth year-over-year, driven by the alcohol dependence indication. Inventory in the channel was stable and growth to net deductions were consistent and within normal ranges for the quarter. Moving on to the ARISTADA product family. For the quarter, ARISTADA net sales increased 8% year-over-year to $81.8 million, primarily driven by underlying demand. Inventory in the channel was stable and gross to net adjustments were unchanged sequentially. LYBALVI net sales for the quarter were $50.7 million, up 8% sequentially. Underlying prescription growth was 10% on a month of therapy basis. During the quarter, inventory in the channel decreased by approximately $1.3 million and gross to net adjustments of 25.1% reflected the continuation of our contracting strategy in the commercial space and a onetime favorable Medicaid adjustment. Moving on to our manufacturing and royalty business. In the third quarter, we recorded manufacturing and royalty revenues of $149.1 million compared to $52.9 million in the same period in the prior year. Revenues from the long-acting INVEGA products were $76.1 million compared to $26.7 million in the same period in the prior year, reflecting the favorable resolution of the arbitration related to these products earlier this year. Revenues from VUMERITY were $34.6 million compared to $26.3 million in the same period in the prior year. Turning to expenses. Total operating expenses were $337.1 million for the third quarter compared to $313 million in the same period in the prior year. R&D expenses for the third quarter decreased to $97.1 million compared to $100.4 million for the same period in the prior year. This reflects lower spending across the nemvaleukin and LYBALVI clinical programs, partially offset by increased investment in the ALKS 2680 clinical program. SG&A expenses increased to $169.4 million from $152.8 million for the same period in the prior year, reflecting continued investment in the launch of LYBALVI, particularly the DTC campaign and certain nonrecurring expenses related to the separation of the oncology business. I'm pleased to report that our top line results, combined with our continued focus on disciplined operating expense management, delivered GAAP net income of $47.8 million and non-GAAP net income of $109.5 million for the quarter. Today, we are reiterating our financial expectations for 2023 that we provided in our press release on June 6, 2023. As a reminder, our financial expectations reflect the combined neuroscience and oncology business for the full year. Turning to our balance sheet. We're in a strong financial position as we ended the third quarter with approximately $996 million in cash and total investments and total debt outstanding of approximately $291 million. We currently expect that on separation, Alkermes will provide $275 million of cash to Mural Oncology, which we believe will enable Mural to fund its operations through top line data readouts for ARIST 36 and ARIST 37 and into the fourth quarter of 2025. In the coming weeks, we'll provide additional information regarding the separation and distribution of mural shares to our shareholders. Post separation, Alkermes will emerge as a pure-play neuroscience business with enhanced profitability and a strong balance sheet. Our focus will remain on the execution of our strategic priorities and disciplined management of our cost structure as we invest in those opportunities that we believe will drive future growth, including the ALKS 2680 development program and the continued launch of LYBALVI. And with that, I'll hand the call over to Todd for a review of the proprietary commercial products.

[C. Nichols, executive]

Thank you, Ian, and good morning, everyone. I'm pleased to share that we delivered solid year-over-year growth of 16% across our proprietary commercial portfolio in the third quarter. Our performance during the quarter reflects continued execution of our commercial strategy against the backdrop of some summer seasonality in the psychiatry and addiction treatment markets. We expect growth to accelerate in the fourth quarter and reiterated our expectations for our 2023 proprietary product revenues today. Starting with LYBALVI. Net sales increased 8% sequentially to $50.7 million. Prescriptions grew to approximately 42,000 TRxs for the third quarter, reflecting 10% sequential growth, which was ahead of other entrants in the branded oral antipsychotic market. We expect that growth will accelerate as we head into the fourth quarter, driven by a strong focus on execution, our direct-to-consumer campaign and underlying seasonal trends, and we are encouraged by prescription trends over the past several weeks. During the quarter, prescriber breadth continued to expand. In our recent market research, health care providers cited LYBALVI's efficacy, weight gain profile and patient outcomes as key drivers for their increased prescribing, which is encouraging feedback as we think about brand awareness and potential future prescribing patterns.In terms of market access in Medicare and Medicaid, there is a pathway to access for all patients. In the commercial channel, there were no changes to our commercial access profile during the quarter, and we expect the access profile to remain unchanged for the remainder of 2023. We have ongoing discussions with the commercial payers and have designed our commercial access strategy to best support the long-term growth of the brand, balancing volume growth and the profitability of each unit. As we advance our efforts to drive awareness, our direct-to-consumer campaign is ongoing with increased ad placement in the fall months, in line with TV viewership trends. While it will take time to see the full impact, leading indicators on the effectiveness of the DTC campaign are encouraging. Specifically, we are monitoring the impact of our DTC campaign on Internet search metrics, website visits, provider and patient awareness levels and patient requests. We are excited by the opportunity for LYBALVI and are laying the foundation for long-term growth. Turning to the ARISTADA product family. Net sales in the third quarter grew 8% year-over-year to $81.8 million, driven primarily by demand growth of approximately 8% on a month of therapy basis. We expect this market will continue to be dynamic, and our team will continue to focus on highlighting ARISTADA's differentiated value proposition, including its once every 2-month dosing option and the ARISTADA INITIO initiation regimen, both of which are supported by clinical data from our ALPINE study. Turning to VIVITROL. Net sales in the third quarter increased approximately 3% year-over-year to $99.3 million. The alcohol dependence indication was VIVITROL's primary growth driver and accounted for approximately 2/3 of the VIVITROL volume. Importantly, against the backdrop of growth in the alcohol appendance treatment market, prescriber breadth for VIVITROL has continued to expand in that indication, which has driven new patient starts over recent quarters. As we think about the long-term opportunity for the brand, during the quarter, we were pleased to come to a settlement agreement with Teva to resolve our patent litigation related to VIVITROL. Under the terms of the agreement, Teva will be able to market a generic version in the U.S. beginning in January 2027 or earlier under certain customary circumstances. With this agreement, we were able to appropriately plan for the continued commercialization of VIVITROL and believe that the product will continue to be an important element of our growth and profitability for the next several years. Taking a step back, we are focused on executing our brand strategies for all 3 products and on delivering our net sales expectations for 2023 across the portfolio. Serious mental illness and addiction are complex conditions with unique and often challenging treatment paradigms that require well-resourced and dynamic commercial efforts to support patient access and drive growth. Our commercial infrastructure is a strategic asset, one that can be leveraged in additional opportunities in these disease spaces as well as in other therapeutic categories, including those that may emerge from our development pipeline or future business development opportunities. With that, I'll pass the call to Craig to discuss our ALKS 2680 development program.

[Craig Hopkinson, executive]

Thank you, Todd. I'm pleased to be joining you this morning from the World Sleep meeting where earlier this week, we presented the first clinical data for ALKS 2680, our novel, investigational orexin 2 receptor agonist for the treatment of narcolepsy.The orexin pathway has been established to be closely linked to the pathology of narcolepsy. Orexins are neuropeptides that serve as important regulators of the sleep/wake cycle by promoting wakefulness and suppressing REM sleep. In particular, narcolepsy type 1, or N-T-1, is associated with an absence or significant deficiency in orexin concentrations and the presence of cataplexy. People living with narcolepsy who do not experience cataplexy have what is called narcolepsy type 2 or N-T-2.ALKS 2680 was designed to be an orally bioavailable orexin 2 receptor agonist with potency 10 times greater than the natural orexin A peptide, and greater than 5000-fold selectivity relative to the orexin 1 receptor. The molecule was designed to address the underlying pathology of narcolepsy and to deliver durable and quality of daytime wakefulness and cataplexy control, an acceptable safety and tolerability profile, and a wide therapeutic range that can accommodate the different doses potentially needed for NT1 and NT2. The molecule was also designed to exhibit a pharmacokinetic and dynamic profile that mirrors the natural sleep/wake cycle, with a low therapeutic dose and once-daily oral dosing.The clinical investigation of ALKS 2680 follows encouraging preclinical data. These preclinical data were also shared in an oral presentation this morning at the World Sleep meeting. Today, I will focus on a review of the phase 1 safety and tolerability data of ALKS 2680 in healthy volunteers and share initial safety and efficacy findings from patients with Narcolepsy Type 1.It is gratifying that, in our clinical experience to date, ALKS 2680 has behaved as we would have expected based on our extensive preclinical work. We are pleased with the clinical profile that is emerging, both in terms of safety and tolerability as well as therapeutic activity observed in patients.The study design is outlined on slide 15. The phase 1 study began with single and multiple ascending dose evaluations in 80 healthy volunteers to assess safety and tolerability as well as the pharmacokinetic and -dynamic profile of ALKS 2680. This study is double-blind and placebo-controlled. The single-ascending dose, or SAD, tested single doses of ALKS 2680 up to 50 mg. In the multiple-ascending dose, or MAD, subjects received 10 days of once-daily doses up to 25 mg.Moving on to slide 16. From a safety and tolerability perspective, I'm pleased with the profile that we observed for ALKS 2680 in healthy volunteers. ALKS 2680 was generally well tolerated across all doses tested and there were no serious or severe adverse events. Most adverse events were mild, occurred early, were transient and resolved without medical intervention or treatment interruption.In the SAD, the most common AEs deemed to be drug related were dizziness, pollakiuria, which means increased frequency and urge to urinate, nausea and visual disturbances, and most were observed at or above the 15mg dose. In the MAD, the most common AEs were insomnia, dizziness, pollakiuria and visual disturbances, and most were observed at or above the 8mg dose. The visual disturbances were described as blurred vision and increased light sensitivity. As I mentioned, these AEs were transient, resolved with continued dosing of ALKS 2680 in the multiple ascending dose study, and did not prevent continued dose escalation. There were no safety signals identified in vital signs, laboratory parameters or ECG. No hepatotoxicity signals were observed at any dose level. We will continue to accumulate safety data over the course of the development program. This will include continuing dose escalation in the SAD and the MAD in order to fully characterize the safety and tolerability profile of ALKS 2680, as a maximum tolerated dose has not yet been identified.In terms of the pharmacokinetic profile on slide 17, we achieved a key design objective supporting once-daily dosing of ALKS 2680 and a profile that mimics the natural sleep/wake cycle with a half-life of 8 to 10 hours. In the top panel you can see that systemic exposures increased proportionately with dose, however with a blunted cmax profile as depicted in the lower graph. Both of these features were explicit design intentions. The metabolic profile was also consistent with our design objectives. In the study, two metabolites were observed. These metabolites were consistent with those observed in preclinical studies. Neither contributed to pharmacologic activity nor were they reactive.Collectively, data from the SAD and MAD evaluations supported the dose levels selected to move forward into the phase 1b evaluations in patients. This part of the study is enrolling 12 patients with narcolepsy type 1, narcolepsy type 2 or idiopathic hypersomnia, with up to 8 patients per group. Earlier this week, we shared data from the first cohort of 4 narcolepsy type 1 patients which was specified and powered to detect any significant effects and dose responsesat this interim analysis.Starting with the study design on slide 18, following a 2-week washout period of existing medications, patients were randomized to a cross-over design where each received placebo, 1, 3, and 8 mg of ALKS 2680 with a 1-day washout period in between each dosing day.The primary endpoints were safety and tolerability. However, the phase 1b also offers the first opportunity to assess proof of concept efficacy of single doses of ALKS 2680, compared to placebo and baseline, within the same subjects, via the Maintenance of Wakefulness test. In terms of baseline characteristics outlined on slide 19, the patients studied demonstrated severenarcolepsy symptoms.Next on slide 20, ALKS 2680 was generally well tolerated across all doses tested in the NT1 patients. All AEs were mild, and only occurred at the 8 mg dose and were largely on target. Note that the most common AE was insomnia, which is directly related to the drug’s activity. This is what we were looking for. The occurrence of insomnia at the 8 mg dose was useful in helping us to narrow the planned dose range for future clinical development in NT1. Pollakiuria and salivary hypersecretion occurred in two of the subjects. These AEs are expected on-target effects for the orexin pathway. There were no serious adverse events, nor any AEs leading to discontinuation.Additionally, there were no clinically meaningful, treatment-emergent changes in laboratory parameters or ECG.Turning to slide 21 and the first assessments of ALKS 2680 in the maintenance of wakefulness test. The 40-minute maintenance of wakefulness test, or MWT, is administered every two hours post-dosing. The mean score is calculated by averaging the results of the tests conducted at hours 2, 4, 6 and 8 post-dose. Prior to dosing, patients demonstrated a mean MWT baseline score of three minutes, meaning that they fell asleep within three minutes. At all doses tested, and in all patients, ALKS 2680 significantly improved mean sleep latency, or the time these patients were able to remain awake, compared to baseline. There was a clear dose response, with mean MWT improvements compared to baseline of 18, 30, and 37 minutes at 1, 3 and 8 mg, respectively.Treatment with placebo was associated with a one-minute reduction in mean MWT scores compared to baseline. Due to the magnitude and consistency of effect, at each dose level of ALKS 2680, the improvement compared to placebo was highly statistically significant, despite the relatively small number of patients.Slide 22 shows the time course. ALKS 2680 showed clinically meaningful improvements in MWT from baseline at all doses tested and in all patients. At the 8 mg dose, patients maintained wakefulness for the full 40 min MWT duration up to 10 hours post-dose. MWT scores at 3 mg were comparable to 8 mg for the first 6 hours, and both 1 mg and 3 mg ALKS 2680 showed improved wakefulness for up to 8 hours post-dose.The tolerability and efficacy profile of ALKS 2680 shown to date in NT1 is encouraging and informs our approach around dose selection, and our expectations as to tolerability and efficacy in NT2. We’ve received some questions from investors regarding therapeutic index and potential dosing in NT2. Based on the pathology of NT2 in previous clinical data, we expect these patients to be less sensitive to orexin, requiring higher doses for efficacy and toleratinghigher doses before observing limiting side effects. Based on our observed activity to date in NT1 and our modeling, we now believe that NT2 patients may only require a 2 to 3 fold the ALKS 2680 NT1 dose. With a clear dose response and indication of therapeutic benefit at doses from 1 to 8 mg in NT1, and not having reached a maximum tolerated dose in patients or healthy volunteers, we are confident in our dosing flexibility and are currently enrolling NT2 patients in the study.Concluding on slide 23, I’m pleased with the initial data generated from this innovative and efficiently designed phase 1 study, which support the key design objectives of the molecule. In less than a year, we have been able to establish a preliminary safety and tolerability profile of ALKS 2680 in healthy volunteers, demonstrate target engagement through EEG evaluations,establish a PK profile that supports once-daily administration with a target dose well below 10 mg in NT1 patients, and demonstrate significant wakefulness throughout the day.We will continue to enroll the Phase 1b study in narcolepsy and IH patients and look forward to sharing those data. We are also in the process of finalizing the design of a phase 2 study which isplanned to begin in the first half of 2024.Now I will turn the call over to Rich.

[Richard F. Pops, executive]

Tha's great, thank you Craig. So Craig and his teams have accomplished a great deal in the last year to efficiently advance the ALKS 2680 program and generate the data presented this week at World Sleep. ALKS 2680 is an Alkermes designed and developed molecule. It is the product of expertise that Alkermes has accumulated in molecular design, medicinal chemistry, pharmacokinetic modeling, and neuroscience drug development.If the pharmacology of ALKS 2680 continues to be validated in the clinic, we believe it has the opportunity to be an important new mechanism in the treatment paradigm for patients with narcolepsy. And beyond that, it may provide the foundation to expand the biology of orexin agonism into additional potential disease areas. Some characterized by excessive daytime sleepiness, as well as others.The data Craig summarized advance the ALKS 2680 development program past two important stage-gates: first, establishment of an initial safety and tolerability profile that supports furtherclinical development, and, second, demonstration of proof-of-concept through initial evaluations of efficacy using validated measures.An important characteristic relating to both points is potency, expressed in the form of expected dose. Our modeling suggested, and the initial human data supported, a dose range for NT1 patients in between 1 and 8 mg. We believe that potency at these dose levels reduces the potential for off-target adverse events and, together with the tolerability profile observed to date provides a wide potential therapeutic index to accommodate dosing in NT1 and NT2.With this initial data set, we believe we have adequate information to complete the design of our phase 2 program. As we move into later-stage development, we will further establish the safety, tolerability and efficacy profile of ALKS 2680 through established regulatory endpoints as well as patient-reported outcomes, as we further explore the effects of modulating the orexin system.So that is the ALKS 2680 program. Shifting gears, we expect another transformational event to occur in the coming weeks with the planned separation of our oncology business into an independent, publicly-traded company called Mural Oncology. We are now in the final stages of implementing the separation, which has been a significant undertaking from an operational, logistical, legal and accounting perspective. As we prepare for the launch of Mural, it is paramount to us that Mural begins itsjourney as an independent company in a position of strength in terms of leadership, the ongoing clinical studies and financial resources.Dr. Caroline Loew, the CEO designate of Mural, has recruited a talented management team and Board of Directors, and I am confident that their leadership will be a strategic asset. Thepotential registration-enabling studies for nemvaleukin in platinum-resistant ovarian cancer and mucosal melanoma are well underway and we have continued to focus on study enrollment and execution as we prepare for the separation. We believe the separation provides an opportunity to unlock value for both companies, create more optionality for shareholders, and position both companies for success.Post-separation, Alkermes will emerge as a more profitable, pure-play neuroscience company with a clear strategy and well-defined opportunities for value-creation.Taking a look back, 2023 has been a very productive year highlighted by the ongoing launch of LYBALVI, including initiation of the DTC campaign, strong enrollment and execution of our ongoing clinical studies in oncology and neuroscience, completion of the many workstreams to support the separation of the oncology business, and the successful outcomes of the Janssen arbitration and VIVITROL settlement. Each of these represents an important accomplishment in its own right, but collectively they transform the financial and growth profile of the company.We believe we are in a position to drive significant value for shareholders and look forward to sharing our progress with you. With that I will turn the call back to Sandy to manage the Q&A.

[Operator]

[operator Instructions] Today's first question is coming from Akash Tewari of Jefferies.

[Akash Tewari, analyst]

This is Amy on for Kash. So a couple from us on the Orexin program. We've seen that with TAK-925 in NT1 that the 11 milligram dose also maxed out on MWT initially, but MWT dropped from 35 plus to 20s on day 7. On the other hand, we're seeing pretty durable effects on the 44-milligram dose at day 7. How do you plan to factor in this long-term durability aspect when selecting the go-forward dose from the 3 to 8 milligram dose range going forward? And then what dose do you expect in NT2 patient? Is it fair to say that your dose could be more in the range of 10 to 12 milligrams rather than 4 to 5x in NT1? And then finally, do you expect some of these on-target AEs to attenuate over time.

[C. Nichols, executive]

Good. Let me address that. Each component on its own. So in terms of our dose range for the NT1 population, obviously, we have very clear dose response exactly what we expected to see. And I think this puts us in a position to be able to model out appropriate doses for our Phase II study. We are also looking at the technical access that was observed with the TAC program. And obviously, this is something that we are going to be modeling into our doses for Phase 2 as well. In terms of the -- let me take the safety question there [indiscernible]. Discussions with investigators at the meeting this week is they really are impressed with the safety profile directives where we haven't shown side effects at the lower doses. And the side effects that we're seeing at the 8-milligram dose are largely on target side effects. These are mild. They resolved spontaneously. We saw no serious or severe adverse events and essentially, obviously, no discontinuations. And I think importantly, the insomnia is almost due to be a biomarker response by our potential investigators for Phase 2. Their belief is that with this mechanism that will attenuate over time as you've asked. And it will probably over the first couple of days normalize. So we're impressed with the safety -- the correspond factor profile to date and once again believe that, that really sets us up to choose the appropriate doses for Phase II. In terms of the NT2 question, we've seen data from the TAP program where the NT2 population is less sensitive to Aragon indicating that higher doses will be needed. At this point in time, given our dose response that we've seen at below 10 milligrams for NT1, we think that this sets us up to sort of narrow the range for NT2 to about 2 to threefold where previously we thought we may need up to 5 the dose. We're obviously collecting a separate cohort of patients for NT2 at a different dose range. And those data will obviously also be incredibly important to inform that dose range for the NT2 dose for Phase II.

[Operator]

The next question is coming from David Ansel of Piper Sandler.

[Unknown Analyst]

Just a couple. So first on idiopathic hypersomnia. Can you talk to dosing there? And what is your plan for IH regarding further development? Is that going to be a backup molecule so help us talk through your IH thinking? And then secondly, on a different topic, you talked about the commercial organization being a leverageable asset, makes sense. But does that mean that you're open to or prioritizing the addition of commercial stage or market-ready assets to the portfolio?

[Sandra Coombs, executive]

Do you want to take the first one and then Richard to take the second question?

[C. Nichols, executive]

Yes. So we are collecting data on IH patients. We've got a separate cohort in our Phase Ib program. That cohort of patients is currently enrolling. And then based on those data, that once again will inform appropriate doses for IH in our Phase II program. We haven't disclosed the dose for our NT2 dose range in the current 1b study and nor have we disclosed the dose range that we are exploring for IH at this point in time.

[Richard F. Pops, executive]

And with respect to the question about commercial, yes, I think that the point Todd has made and we've lived through is the building of the commercial presence in order to be to sell products like all being ARISTADA and VIVITROL requires far more than just a field force. So it requires a lot of infrastructure. And now that we've built that and demonstrated its efficacy through the larger evolve, we do think that that's an asset that we can leverage with additional products for the outside.

[Sandra Coombs, executive]

All right. Thanks David.

[Operator]

The next question is coming from Umer Raffat of Evercore ISI.

[Umer Raffat, analyst]

[Audio Gap] and not showing full safety table for the multi-ascending dose at the conference. So that's one. And then also, as we think about the narcolepsy Type 1 and the declaration of dose being somewhere between 3 and 8 milligrams, are we fully confident that we can make that determination based on single dose data? Or because there's been data from other recon suggesting a fading in efficacy beyond the first dose effect. I'd be curious how you think about that. And finally, if you could just elaborate on [indiscernible] trends into next year, especially as it relates to where some of the consensus estimates stand versus how you're thinking about it in LitaTC.

[Sandra Coombs, executive]

We missed the beginning part of your first question on the pad table.

[Umer Raffat, analyst]

I was just asking thought process and how you have the safety table for single dose, not type 1 patients, but not for the multi-ascending dose.

[C. Nichols, executive]

Yes. So as we were designing our presentation for the World Sleep Conference, it was really just an economy of trying to pack a lot of information into a short presentation. In terms of the single ascending dose table, obviously, we explored 6 separate doses there and 4 separate doses in terms of the math. And so it just didn't make sense to really sort of try and compress that into the presentation, but rather just focus on the most common adverse events greater than 5%. As you saw, these were largely sort of mild to moderate adverse events. They were all -- they were largely sort of self-resolving and we only had the one treatment discontinuation. So the summary is really reflective of our experience across the sad.

[Sandra Coombs, executive]

The single of the confidence around the trainer Phase II based on single enclosures.

[C. Nichols, executive]

Yes. So this is one of those indications where translatability is extremely high. One of the aspect is around confidence in is the potency of this compound where we have greater than sort of tenfold potency to Orexin A. We also are cognizant and as I said previously, of the tachyphylaxis that Takeda has seen. As such, we believe, given the clear dose response as well as the durability of response that we've seen with single dosing in a Ib study. This really sets us up well to embark upon our Phase II program, which obviously will explore doses in Phase II for each of these indications.

[Sandra Coombs, executive]

And then, Todd, did you want to comment on the LYBALVI trends for next year and expection around that?

[Richard F. Pops, executive]

Absolutely. I'll take that one. So in Q3, the broader category, the branded oral antipsychotic category did experience some seasonality. We saw that. We believe this is going to rebound in Q4. And as I said earlier, we are actually already seeing that. We started seeing an uptick in TRx prescriptions and NBRx new patient starts at the end of Q3, and that's continuing into Q4, which is encouraging. Going into next year, we are extremely confident about the growth prospects and outlook for LYBALVI for several reasons. Breadth of prescribing continues to expand. Our market research, when we talk to HCPs, they tell us their intent to prescribe continues to expand. We are investing, as you know, in a very broad direct-to-consumer campaign. It's still early, but the trends and the metrics are encouraging there. And also, we always come back to LYBALVI has a very broad differentiated label and is considered one of the most effective agents in the category. So we have a lot of confidence that we're going to see growth into Q4 and into next year.

[Operator]

Next question is coming from Paul Matteis of Stifel.

[Paul Matteis, analyst]

I appreciate it. I had one orexin and then just one business question. On Orexin, can you talk about the multi-dose pharmacokinetic data that you generated? And I guess, when you look at the exposure levels over time, in the evening, how low do drug levels get? And are you comfortable that they get low enough where you're going to avoid an insomnia or sleep latency signal? And then second, just on business development, it was interesting to kind of hear a comment there slipped in. I know it's something you've probably said before, but what's your current thinking on BD? And if you think about a deal, what's your scope right now on deal size? And also whether it would or wouldn't be important for a deal to be accretive or dilutive?

[C. Nichols, executive]

So I'll take the PK question first. Obviously, for competitive reasons, we haven't disclosed too much in terms of our profile. But the profile that we set out to achieve was achieved in our Phase I study. It's a probe that obviously supports once daily dose. And importantly, one of the most important aspects that we were focused on was really a profile that mimics the natural sleep/wake cycle. We achieved that. We've got a half-life of 8 to 10 hours, which I think is ideal for one then dosing and to achieve that sort of natural step went cycle. And essentially, this has been borne out in our Phase Ib, as you can see with our dose response as well as the durability as you've seen at the 3- and 8-milligram doses.

[Richard F. Pops, executive]

And Paul, it's Rich, on the deal side, I think that if you think of deals in terms of pure pipeline expanders on the R&D side, our long-range forecast with our profitability target to accommodate expansion of R&D spend to some extent heroically, but we could pick up something in development stage and feather it into our existing R&D activities and still hit our profitability targets, which are critical for us. On the commercial side, to the extent that we acquire something on the leverage and commercial side, we would want and expect that very quickly in a pre transaction.

[Operator]

The next question is coming from Chris Shibutani of Goldman Sachs.

[Chris Shibutani, analyst]

Two questions on the orexin and just thinking about the difference between NT Type 1 patients NT Type-2. Would you expect that the perhaps lesser sensitivity that's requiring higher doses to also manifest on the safety side as well in terms of lesser likelihood of being exposed to some of the AE aspects that we're seeing? Are they correlated in other words? And then secondly, with NT type-1, can you comment about your thinking about Cataplexy, in particular, what do you perceive as the potential there to influence that profile as we think about differentiating the different treatment options going forward? Any learnings you've had thus far would be helpful.

[Richard F. Pops, executive]

Thanks, Chris. So in terms of the read-through on doses for NT2, patients obviously are far less sensitive to Orexin with NT2. I think that's based off of some of the scale data already published. Our expectation originally was that they may be up to 3 to fivefold increase in those needed to cover that population. I think given the potency that we now have established with a compound that are very clear dose response, we believe we can narrow that down to 2 to threefold increase in dose in that population to see the required efficacy. Our read-through on the safety side is exactly as you stated, and that is basically that because of the decreased sensitivity, you will probably only see sort of dose-limiting side effects at much higher exposures as well in that population. So I think they will be pulled through there as well in terms of the dose. In terms of your question on cataplexy, while we didn't collect data or analyze data on cataplexy in our Phase Ib, we did collect 3 diaries. The sleep diares were really intended to help us inform our powering for Phase II as well as eventually for Phase III. And essentially, what I can tell you there is that anecdotally, patients that see a trend towards a decrease in cataplexy in terms of single dosing, some anecdotal information from our investigators was that in some of the patients that were able to watch a 2-hour comedy movie without seeing sort of an event. So we believe it's encouraging. And once again, we will be fully evaluating cataplexy in the design of our Phase II study, but this was not analyzed as an endpoint. It's just more just for planning purposes for the sort of like with 1b.

[Operator]

The next question is coming from Jason Gerberry of Bank of America.

[Jason Gerberry, analyst]

Just wanted to follow up on Umer's question. So can you share the rate of 8 milligram healthy-volunteer MAD, especially for visual disturbance and insomnia, it seems like a potentially relevant dose in all these settings that you study ROX 2R. And given an NT1, I think the insomnirate on a small end is 75% visual disturbance is an AE of interest. I would think this is important and if you can't share with that, I imagine you have all 8 patients of NT1 data in-house, any observation that the AE profile is consistent with what's been shared so far. And then lastly, just a competitor Wakix missed in IH, wondering how you think about IH now. I guess I wonder, Wakix is more of an alerting agent, orexin deficiency is not an issue in IH. Is this this disease more druggable with something that helps us with consolidation like Xywav. So just wondering how you're thinking about IH mechanistically in lieu of the Wakix update.

[Richard F. Pops, executive]

Yes. In terms of our experience in the SAD and MAD, we only sold the 4 visual disturbances, 2 in the SAD 2 in the MAD. These were sort of largely sort of mild events were transient, self-resolving all patients that welll healthy volunteers had normal urologic exams. And so I wouldn't read too much through into the actual doses of the Med. We've got an acceptable safety profile and Maximo dose has not been recs why we're moving to even higher exposures in both the SAD and the MAD program. Bear in mind that these are not sleep deprived healthy volunteers. So they are not sensitive to Oraxol. In terms of our actual patient experience to date, we haven't seen any virtual disturbances in our NT1 cohort today. In terms of your question around Wakix and IH, obviously, we're in the very early stages of collecting data in idiopathic hapasomnia. And I think the profile that emerges from RIB will inform us as to where 2680 falls in terms of addressing that particular indication. I think once again, mechanistically, we're pretty excited about the potential for Orexiagonist in IH, but it will need to be informed by the data as those data come in.

[Operator]

The next question is coming from Marc Goodman of Leerink SVB.

[Marc Goodman, analyst]

Can you comment on the orexin the blood pressure increase that we saw in that patient? How much increase in blood pressure did we see? And is this something that we should be watching for? And are you planning to do a blood pressure monitoring study? And then secondly, just on LYBALVI, can you just comment on gross to nets going forward and whether this is the thought process that you had last quarter?

[Richard F. Pops, executive]

So I think it's supposed to be important to note that we did hourly blood pressure measurements throughout our SAD, MAD and NT1 patient experience. So we were measuring blood pressure read frequently. We only saw one increase in diastolic blood pressure in the NT1 cohort. This was an increase to 96 diastolic and normalized within 2 hours of the blood pressure increasing. So once again, it was a very transient increase in 1 or 2 reads. Similarly, we saw a single blood pressure increase in the single ascending dose. And once again, within a couple of measurements that have returned back to baseline as well. So really not seeing any signals there at this point in time. These are just to individuals with 1 or 2 individual readings that were in the elevated range.

[Iain Brown, executive]

And then let me take a crack at the gross to net question. So I think for LYBALVI gross to net, as I said in the prepared remarks, slightly lower in Q3, 25.1%, really driven by a onetime favorable Medicaid adjustment of about $800,000. I think gross to net has been really consistent over the last few quarters. I think the second half of 2022, we were around 26%, first half of '23, 26%, and that's the expectation through the remainder of the year. We're not providing guidance specifically for 2024 today. But I think the one thing that would potentially change gross to nets would be more on the commercial contracting side to this, up to now, we've been very much focused on profitability of LYBALVI units. And we've had a pretty disciplined approach to the contracting strategy. So that's maintained growth in eat relatively consistent 26% level. I think ultimately, gross and nets all trend towards that 35% to 40%. It's just a question of timing. So for the remainder of the year, we would expect to continue around the 26% level. And then we'll provide more information specifically to 2024 on our year-end earnings call in February.

[Operator]

The next question is coming from Uy Ear of Mizuho.

[Uy Ear, analyst]

So could you share what the dose was in the MAD study where you saw insomnia. And slide's not listed. Insomnia is not listed for -- as part of the SAT study. I'm just wondering like why is that the case? That's my first question. And I guess my second question is, so we often get this question over and over. With the current script trends for liability and like what other avenues would allow you essentially to hit your 2024 profitability guidance?

[C. Nichols, executive]

So in terms of our SAT and MAD experience, essentially, the most common adverse event we saw as more hypervigilance that was equally distributed across placebo and active. So to a piece there that was more denoted as increased alertness in these patients. But once again, equally matched active versus placebo. And I think the single case of insomnia was seen in the one discontinuation patient of the 25 million grams dose.

[Richard F. Pops, executive]

Yes, let me start with just the seasonal or the trends in general with LYBALVI, which coming through Q3 are solid relative to the seasonal dip. Again, TRxs grew quarter-over-quarter by 10% year-over-year by over 80%. So we're really encouraged by that. And that's really being driven by all 3 parts of our marketing mix, which is our sales force promotion, which is driving intent to prescribe increases. Secondly, our disciplined market access strategy, as Ian mentioned earlier, and we're seeing utilization across all 3 channels within market access. And again, we're at the very beginning of our DTC campaign and all of the metrics are heading in the right direction. So we have a lot of confidence in our strategy. Execution is improving quarter-over-quarter and utilization and the perception of the brand is improving quarter-over-quarter. So we have a lot of confidence in what the long-term outlook looks like for LYBALVI.

[C. Nichols, executive]

And then just to add to that, in other aspects of the business, LYBALVI is a key growth driver for us. We anticipate continued growth of VIVITROL, ARISTADA, VUMERITY should continue to grow as well. I think with the spin-off of the oncology business, that's going to take a significant amount of spend out of the R&D line. Our gross margin should improve as the volumes of all our proprietary products continue to grow. And as you saw, we delivered GAAP and non-GAAP profitability this quarter. So hopefully, that gives you a path to us being able to achieve the profitability targets next year.

[Operator]

The next question is coming from Douglas Tsao of H.C. Wainright.

[Douglas Tsao, analyst]

Just really quickly on the area. I was just curious if you were seeing any evidence of impact on sleep quality. Obviously, you saw some insomnia. But were there other any other impact on sort of consolidation?

[C. Nichols, executive]

Yes. Essentially sleep quality is going to be a really important endpoint for us moving forward. This wasn't specifically measured given the nature of the design of a single dose for our crosssolver study. And anecdotally, the patients experience was positive. But obviously, this will be built into our polysomography assessments in our Phase II program as we move forward.

[Douglas Tsao, analyst]

And from a tolerability standpoint, would you anticipate this being used in conjunction with one of the 2 promoting agents? You get in conjunction with the promoting agencies.

[C. Nichols, executive]

Yes. At this point in time, we're studying 260 as a monotherapy and our entire program is the sides as such. So I think what will be really important is to really assess sleep quality of 680 as we get those polysomography assessments done in the Phase II. We're also building a number of PROs into our Phase II program, and that we'll get a better handle on that as well.

[Douglas Tsao, analyst]

Congrats on the data.

[Operator]

The next question is coming from Ash Verma of UBS.

[Ashwani Verma, analyst]

So for LYBALVI commercial discussions are they aggressive contracting by Latuda over the years or some inching up on gross to net for this category, in general, broadly changed the expectations for payers on how much volume they're willing to give in return for a wider gross to net? And then second, on the orexin, so I just wanted to get your initial reaction on competitor contestants. We just saw the preclinical data or X750 showing significant activity at lower doses. Granted this is preclinical, but just seems to be getting crowded on our orexin. So any thoughts there would be helpful.

[Richard F. Pops, executive]

Yes, I'll start with the -- es, I'll start with the market access question. So I think the key elements to keep in mind here is there's 3 channels: Medicaid, Medicare and Commercial. There's relatively an equal split across the category, depending upon what the indications are for these brands. We have a pathway of access and really clear line of sight across Medicaid and Medicare, and we see good utilization. Within the commercial space, we do have agreements in place with commercial payers where we are constantly in ongoing discussions. But we know from our history, specifically with ARISTADA that we launched several years ago that once you start going into contracts with large rebates, it's very difficult or virtually impossible to pull those rebates back. So our plan right now is to continue to drive volume through intent of prescribing, which is increasing through patient activation, again, which we're seeing good activation levels with our consumer campaign. And then over time, our belief and our plan is to expand access within the commercial space. But we're doing that in a very measured approach to make sure that we're maximizing the profitability of each unit.

[C. Nichols, executive]

And then with regard to the question on the [indiscernible] data, I think those data were being presented in parallel with this meeting. So we haven't actually seen those data for the time yet at this point in time and I can't really comment on margins.

[Operator]

The last question for today is coming from Charles Duncan of Cantor Fitzgerald.

[Charles Duncan, analyst]

So I have just a couple of quick ones. For 2680 for -- if you think about the future for NDA-enabling purposes and given the potential safety and rating activity of another agent in the class, what is the length of exposure that you are expecting to be a minimum? Is it 3, 6 or 12 months or some other period to rule out safety and rule and durable efficacy.

[C. Nichols, executive]

Yes. Obviously, as we move forward and plan our Phase II program, we'll be meeting with the agency to discuss those plans. And our belief is that those discussions will inform the length of both our Phase II as well as our Phase I program as me.

[Charles Duncan, analyst]

That makes sense. Last question. Regarding visual disturbances in the human volunteers, and I know it's a very small sample. But I guess I'm wondering if you would speculate on there being a pharmacological target? Or is that just really a sporadic observation and how normal humans could be different than NT1 patients if there is a target or some reason to wonder about that.

[C. Nichols, executive]

Yes. Interesting, we've only seen the visual disturbances in healthy volunteers. Once again, we've only seen before out of a denominator of 80 healthy volunteers. These were sort of mild adverse events of transient, largely just third vision and increased life sensitivity. In terms of mechanism, I think at this point in time, it's obviously something that we're evaluating and monitoring for and we haven't seen any visual disturbances in patients to date.

[Operator]

At this time, I'd like to turn the floor back over to Ms. Coombs for closing comments.

[Sandra Coombs, executive]

Thanks, Donna. Thanks, everyone, for joining us on the call today. A copy of the prepared remarks is now posted on our website in case any portions were inaudible and you'd like to reference that it's on the Events section of the website. And please don't hesitate to reach us to put the company if we could be helpful. Thank you very much.

[Operator]

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast and enjoy the rest of your day.