Alkermes Plc

NASDAQ:ALKS

Earnings Call Analysis

Quarterly Performance Snapshot

In the third quarter of 2024, Alkermes reported an impressive aggregate net sales figure of $273 million, marking an 18% increase year-over-year. This strong performance positions the company on track to meet its expectation of surpassing $1 billion in proprietary net sales for the year.

Key Product Sales

VIVITROL continues to lead with net sales of $113.7 million, reflecting a growth rate of 14%, largely attributed to increased demand for alcohol dependence treatment. The company anticipates full-year sales in the range of $410 million to $430 million. Conversely, the ARISTADA product family reported net sales of $84.7 million, experiencing some softness due to a declining long-acting antipsychotic market. The sales guidance for ARISTADA has been adjusted to the lower end of the initial estimate, now projected between $340 million and $360 million. LYBALVI showed strong growth, with sales reaching $74.7 million and a significant 37% increase in prescriptions year-over-year.

Financial Guidance and Strategic Focus

As Alkermes looks toward 2025, they expect some structural shifts that will impact revenues. Primarily, they anticipate a decrease in royalty and manufacturing revenues of approximately $200 million due to the conclusion of royalties on U.S. net sales of INVEGA SUSTENNA and the transition of VUMERITY manufacturing to Biogen. Despite these downward pressures, the overall operating costs are expected to increase modestly as the company invests more in the research and development of ALKS 2680, their promising orexin receptor agonist therapy.

Profitability Outlook

For 2025, Alkermes is guiding for an EBITDA of over $200 million. The strategy revolves around enhancing their proprietary product portfolio while maintaining efficient operations. The projected growth is expected to come from a focused investment in existing successful product lines and expanding their R&D efforts.

Operational Efficiency and Share Repurchase Program

The company focused on maintaining robust cash-flow generation while also repurchasing shares. During the third quarter, Alkermes repurchased 4.4 million shares, spending approximately $116 million. They still have $200 million left in their authorized repurchase program, which they plan to utilize opportunistically based on market conditions.

Market Dynamics and Competition

Looking ahead, Alkermes continues to face competition in the antipsychotic space, particularly for LYBALVI and ARISTADA. Positive treatment dynamics for LYBALVI, which has become a standard olanzapine-based therapy, suggest resilience against emerging competition, including the recent approval of long-acting injectable olanzapine. Management remains confident that the characteristics of LYBALVI's profile will retain its market share.

Future Research Potential

The development pipeline shows promise, particularly with ALKS 2680, which is moving into critical Phase 2 trials for narcolepsy and idiopathic hypersomnia. Positive Phase 1b data has paved the way for expansion into more complex clinical environments. Alkermes is positioning its R&D efforts towards conditions that might experience significant patient needs, aiming for a breakthrough in CNS therapeutics.

Conclusion: Watchful Optimism

While Alkermes faces headwinds from transitioning revenue streams and competitive pressures, there remain several positive indicators. This includes robust sales from key products and a well-aligned growth strategy focused on profitability and investment in research. Investors should stay alert to how these dynamic shifts play out in the forthcoming quarters, particularly around the new data expected from the ALKS 2680 pipeline.

Earnings Call Transcript 2024-Q3

[Operator]

Greetings, and welcome to the Alkermes' Third Quarter 2024 Financial Results Conference Call. My name is Maria, and I'll be your operator for today's call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the call over to Sandra Coombs, Senior Vice President of Investor Relations and Corporate Affairs. 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, 2024. With me today are Richard Pops, our CEO; Todd Nichols, our Chief Commercial Officer; and Blair Jackson, our Chief Operating Officer.

During today's call, we will be referencing slides. These slides, along with our press release, related financial tables, and reconciliations of the GAAP to non-GAAP financial measures that we'll discuss today are available on the Investors section of alkermes.com. We believe the non-GAAP financial measures 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 report 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.

And now I'd like to turn the call over to Todd for a review of the commercial portfolio.

[C. Nichols, executive]

Thank you, Sandy, and good morning, everyone. We generated strong growth of our proprietary product portfolio in the third quarter. During the quarter, our team drove aggregate net sales of $273 million, reflecting 18% year-over-year growth. With 3 quarters now complete, we are on track to achieve our previously announced financial expectations of proprietary net sales in excess of $1 billion in 2024.

Starting with VIVITROL. Net sales in the third quarter were $113.7 million, representing strong year-over-year growth of 14%, driven by underlying demand and growth in the alcohol dependence indication. For the full year, we expect VIVITROL net sales towards the high end of our previously announced range of $410 million to $430 million.

Turning to the ARISTADA product family. Net sales in the third quarter were $84.7 million. During the quarter, we continue to see some softness in the overall schizophrenia long-acting antipsychotic market, which we expect will persist through the end of the year. With that in mind, we expect ARISTADA net sales to be toward the lower end of our previously announced range of $340 million to $360 million for the full year.

For LYBALVI, during the quarter, we generated net sales of $74.7 million. Total prescriptions of LYBALVI grew 5% sequentially and 37% year-over-year to approximately 57,500 during the quarter, reflecting strong underlying demand and continued expansion of prescriber breadth and depth. For the full year, we continue to expect LYBALVI net sales in the range of $275 million to $295 million.

LYBALVI is an important treatment option in the schizophrenia and bipolar I disorder space, differentiated by its efficacy and safety profile and long-term data. To support the long-term growth of LYBALVI, we are focused on executing our strategy to optimize its access profile and maximize net sales and profitability.

We are pleased with our progress this year. This past quarter, another important commercial payer enhanced access effective October 1 and discussions with other key payers are ongoing. As we have previously discussed, as we expand commercial access, we expect both higher unit volume and fulfillment rates as well as higher gross to nets. Over the course of next year, we expect gross to net adjustments will move into the mid-30s.

As we enter 2025, we will be focused on competitive dynamics in the antipsychotic space. As we work to maximize the opportunities for both LYBALVI and ARISTADA, our most effective investment is personal promotion via our field force, and we plan to increase our investment there to preserve a competitive share of voice.

We are maintaining a sharp focus on executing our commercial strategy and believe we are well positioned to drive growth across our portfolio. We look forward to sharing our progress with you.

With that, I will pass the call to Blair.

[Blair Jackson, executive]

Thank you, Todd. The third quarter marks an important inflection point for the company as we have worked over the last several years to transition the business to a financial profile driven by the performance of our proprietary commercial products and an efficient operating structure that has been realigned to support the needs of the business and drive profitability.

Q3 was another productive quarter for Alkermes, highlighted by the strong performance of VIVITROL and LYBALVI and our continued focus on operating efficiency. With 3 quarters of solid results behind us, we are reiterating our financial expectations for 2024.

For the third quarter, we generated total revenues of $378.1 million, driven by our proprietary product portfolio, which grew 18% year-over-year.

Starting with VIVITROL, net sales in the quarter were $113.7 million compared to $99.3 million in the same period last year. For the ARISTADA product family, net sales were $84.7 million compared to $81.8 million in Q3 last year. And for LYBALVI, net sales were $74.7 million compared to $50.7 million for the same period last year. Across our proprietary commercial products, inventory remained stable on a month-on-hand basis.

Moving on to our manufacturing and royalty business. In the third quarter, we recorded manufacturing and royalty revenues of $105.1 million. Revenues from the long-acting INVEGA products were $58.4 million compared to $76.1 million for Q3 last year.

As previously disclosed and reflected in our financial expectations, our royalties on net sales of INVEGA SUSTENNA in the U.S. ended in mid-August of this year. We will continue to receive royalties on net sales of INVEGA TRINZA and INVEGA HAFYERA in the U.S. and on the long-acting INVEGA products outside of the U.S.

Revenues from VUMERITY were $32.6 million compared to $34.6 million for Q3 last year. Due to the timing of manufacturing activities, we did not record any manufacturing revenues related to FAMPYRA during the quarter, but we expect FAMPYRA revenues of approximately $25 million in Q4. This will represent the conclusion of our manufacturing obligations and associated revenues related to FAMPYRA.

Now I'll turn to our operating expenses and our financial results from continuing operations following the separation of our oncology business late last year. Cost of goods sold were $63.1 million compared to $61.5 million for Q3 last year. R&D expenses were $59.9 million compared to $64.9 million for Q3 last year. This consisted of focused investments in our neuroscience development programs, primarily related to the ALKS 2680 clinical program and support activities for our proprietary commercial products. We expect R&D expense to remain in this range through the end of the year.

SG&A expenses were $150.4 million compared to $156.4 million for Q3 last year. Looking ahead, we expect SG&A expenses to decrease in the fourth quarter, primarily reflecting the timing and mix of commercial promotional activities.

We continue to focus on driving profitability. And during the third quarter, we delivered GAAP net income from continuing operations of $92.8 million, non-GAAP net income from continuing operations of $121.4 million and EBITDA from continuing operations of $112.3 million.

Turning to our balance sheet. We ended the third quarter in a strong financial position with $927.8 million in cash and total investments. During the quarter, we deployed approximately $116 million to repurchase 4.4 million shares as part of the $400 million share repurchase program authorized earlier this year. With $200 million of remaining authorization, going forward, we may opportunistically repurchase shares dependent on market conditions and the capital needs of the business. We are in a strong financial position and have made solid progress across the business as we execute against our strategic, operational and financial priorities for 2024.

Switching gears, I'm going to spend a minute on our plans for next year. In 2025, we plan to manage the business to deliver significant profitability and cash flow while increasing our investment in the growth opportunities that we believe will be the key drivers of shareholder value. We will provide detailed expectations in February. But today, I will highlight a few considerations to keep in mind.

In 2025, we expect our top line will be driven primarily by the growth of our proprietary commercial portfolio, reflecting the expected dynamics within our royalty and manufacturing revenue streams, namely the previously announced conclusion of royalties on U.S. net sales of INVEGA SUSTENNA and FAMPYRA manufacturing revenues in 2024 and the planned transition of VUMERITY manufacturing to Biogen in 2025. Collectively, we expect these factors will impact royalty and manufacturing revenues by approximately $200 million in 2025.

Primarily driven by our early success in the clinic with ALKS 2680, we expect our overall operating costs will increase modestly as we advance the ongoing ALKS 2680 Phase 2 studies and expand into idiopathic hypersomnia and as we increase our investment in psychiatry commercial footprint to support the growth of LYBALVI and ARISTADA.

Taken together, we're committed to maintaining a robust cash-generating business and expect to deliver profitability of more than $200 million in EBITDA next year. Our 2025 financial profile will demonstrate the significant transformation of the company over the last several years and serve as a strong foundation for our future growth and financial performance.

With that, I'll now hand the call to Rich.

[Richard F. Pops, executive]

That's great. Thank you, Blair. 2024 has been a key transition year for the company. We entered the year as a pure-play neuroscience company with a strong top line and a streamlined cost structure and planning for our final year of cash flow from royalties related to INVEGA SUSTENNA.

Our focus in 2024 has been to manage the business to generate a substantial amount of cash and demonstrate the profitability inherent in the business, while we advance the ALKS 2680 clinical program to get a sense of its potential.

We now have positive Phase 1b data in hand for 2680 in patients with narcolepsy type 1, narcolepsy type 2 and idiopathic hypersomnia. These data underscore the differentiated profile of 2680 in the orexin 2 receptor agonist therapeutic category. And based on the successful outcome of the Phase 1b, we've advanced quickly into a Phase 2 program.

As we prepare to enter 2025, as you heard from Blair, we plan to manage the business to generate significant cash and profitability. That's an important priority for us. We believe that the way to create significant shareholder value is through deploying capital toward development candidates with significant potential and a favorable benefit risk profile, new medicines.

We have clinical proof-of-concept data supporting the potential of ALKS 2680 in narcolepsy and IH and preclinical data suggesting the potential applicability of orexin 2 receptor agonist in other disease categories. So our focus is on aggressively moving forward R&D initiatives that can drive meaningful shareholder value.

Two weeks ago, we provided a comprehensive update on the 2680 program and other orexin candidates advancing in our development portfolio. The replay and materials from that portfolio strategy review are still available on our website. I recommend you take a look at them if you haven't, so I'll be brief today.

Our 2680 Phase 2 studies in NT1 and NT2 are underway with sites actively screening and enrolling patients. As we announced earlier this month, we expect data from both studies in the second half of 2025. We're continuing to activate additional clinical trial sites to further support enrollment and to provide a strong operational foundation for potential Phase 3 studies. We're preparing for success with the goal of moving as swiftly as possible from Phase 2 into registrational studies.

The scientific foundation supporting this class of investigational medicines is growing. Orexin-based therapies have the potential to transform how narcolepsy and IH are treated. With many molecular design parameters requiring optimization, we believe that different molecules, ours and others, will demonstrate different pharmaceutical properties in the clinic.

To date, we're just 1 of 2 companies that have presented data in patients with hypersomnolence disorders. We like our positioning in this competitive landscape. ALKS 2680 is the only entrant advancing to Phase 2 in NT1, NT2, and IH based on data in patients. The Phase 2 data we expect next year has the potential to be transformative catalyst in this development space and for the company.

The implications of this biology and pathway may extend beyond hypersomnolence disorders. The orexin system is associated with the activation of multiple downstream neurotransmitters and neurocircuitry. Our preclinical data suggests that orexin-based pharmacology has the potential to extend to multiple CNS disease settings where sleepiness, fatigue, cognition, and mood are prominent clinical features.

We are leveraging this understanding, pursuing a multifaceted research program designed to identify the most promising lanes for development. We recently shared a selection of our preclinical data that demonstrated benefit with orexin 2 receptor agonist in highly translatable models in symptomatic domains related to mood, attention, and impulsivity. We're continuing these efforts to map and prioritize the disorders where we see the greatest opportunity to drive benefit for patients and for the company.

In parallel, we're planning to advance 2 additional orexin 2 receptor agonist candidates into first-in-human studies next year. These candidates share certain features of ALKS 2680 in terms of required potency and selectivity, but we believe they have distinct pharmaceutical properties. We'll characterize these properties in our early clinical experience, and this will inform our development strategy for the portfolio.

We will exit 2024 with a clear strategy to create value for shareholders, and we're carrying great sense of momentum as we go into 2025.

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

[Sandra Coombs, executive]

Great. Thank you, Rich. Maria will now open the call for Q&A, please.

[Operator]

[Operator Instructions] Our first question is from Joseph Thome with TD Cowen.

[Joseph Thome, analyst]

Congrats on all the progress. Maybe just to talk a little bit on VIVITROL, actually, there's been a little bit more uptick in sort of the questioning around the impact of GLP-1 drugs on sort of impulse control and refraining from alcohol. Obviously, it seems like these companies aren't going after specific alcohol indications. But do you foresee any competitive threat from GLP-1s on the VIVITROL business? Or do you see these as sort of distinct patient populations that might not bleed into each other?

[C. Nichols, executive]

Yes. Yes, I'll take that. We've been watching the market pretty closely with that. There have been some publications that we're monitoring and watching. We don't see that really as an impact to VIVITROL at this point. In the quarter, we saw strong demand, approximately 7%, which is really being driven by the alcohol dependence indication. And so our expectation is that we will continue to grow. We'll be monitoring the uptake of GLP-1s in general. But at this point right now, we don't see that impacting VIVITROL and alcohol dependence.

[Joseph Thome, analyst]

And maybe just a follow-up on the pipeline. For the orexins, I guess, do you anticipate that this class will need sort of abuse potential studies or either preclinically or clinically before formal FDA approval? And are you anticipating that as part of the clinical development program?

[Richard F. Pops, executive]

Yes. This is Rich. I think as a matter of course, for CNS active compounds, we'll be looking at the preclinical and clinical abuse potential studies.

[Operator]

Our next question comes from Umer Raffat with Evercore.

[Umer Raffat, analyst]

I have 2 here, if I may. First, Rich, I know you mentioned distinct pharmaceutical properties for your next-gen orexins, and we'll stay patient and look forward to that when that's ready. But the only thing I do want to clarify is, are you guys aiming for lower Cmax with one of your development candidates, the new ones coming up? I'm thinking about possible implications from a tolerability profile.

And secondly, Blair, you mentioned something which confused me a bit. I think you guys are tracking at about $400 million in EBITDA this year. Did you say $200 million EBITDA for next year, so cut into half on EBITDA for next year?

[Richard F. Pops, executive]

Yes. So, I'll start. Yes, we actually -- we think that the PK profile for 2680 is quite good right now. So no, an explicit design objective is not to lower Cmax, but it is to focus on the PK properties as we've done in the past.

[Blair Jackson, executive]

And then, Umer, this is Blair. Thanks for the question. Yes, look, as we move into next year, I mean, one of the reasons we wanted to provide some guidance into '25 for next year is that it is such a transformational year for the company as we move forward. And we want to make sure everybody has their models in order as we move into such a busy year.

We have a couple of dynamics going on overall with the business as we put into the prepared remarks. The first and foremost is on the revenue side associated with our manufacturing and royalty revenue, where we see a transition now away from the INVEGA SUSTENNA revenue as well as we transition some of our manufacturing and revenue out of the Athlone facility. So this relates to VUMERITY moving to Biogen and then that being moved into the margin side of the business overall. So we see a net impact of that of about $200 million next year on the revenue side.

Separately, as we move into 2025, one of the things that we need to do is invest in the growth of our business as we have some really exciting things happening on our research programs and on the commercial side. On the research side, it's really about ALKS 2680 and the rapid growth of that program. We're going to be continuing to support the ALKS 2680 NT1 and NT2 enrollment. And we've also now added idiopathic hypersomnia to the program. So that will add -- our typical program for that size is about $40 million or so. So that will increase the R&D revenue or cost there.

On the commercial side, as Todd mentioned, we will be expanding our sales force to meet some of the competitive dynamics of the space. But that's really where we're focusing our investment next year. We're going to have strong cost discipline across the rest of the spend items, and that will then lead to about -- to something north of $200 million in EBITDA next year. We'll put a finer point on it as we get to February and we guide as we have more line of sight to the year.

[Operator]

Our next question comes from Paul Matteis with Stifel.

[Paul Matteis, analyst]

On the EBITDA guidance, I wanted to just follow up there. And maybe if you could give us a little bit more color, what do you think as you look at Street models for 2025 is the biggest mismatch? Blair, I know you mentioned the manufacturing and royalty revenues, but it doesn't feel like that could really explain the delta here versus consensus. Is there something also on the product side when we think about the run rate of LYBALVI or ARISTADA, where you think maybe some folks have been overly optimistic as competition increases in that market?

And then on NT2 and IH for 2680, if you just take a step back, I mean, what does Alkermes view as the biggest risk from the translatability of the early data to succeeding in those Phase 2 studies? And I guess, what gets you comfortable with that risk?

[Richard F. Pops, executive]

Blair, you go ahead and then I'll take the second one.

[Blair Jackson, executive]

Sure. Hello, Paul, thanks for the question. No, actually, I think actually, if you look at the biggest mismatch, it is really on the manufacturing and royalty revenue. I think the dynamic that we're looking at through next year, just a lot of folks just didn't understand the, a, how the INVEGA revenue was going to transition; and then b, how we're handling the transition of the manufacturing activity in…

[Sandra Coombs, executive]

Affluent.

[Blair Jackson, executive]

…in affluent. I think as we look at the business moving forward, we've been planning for this for a really long time and how we were going to do this transition. And I think we've been trying to explain it, and we just wanted to lay it out a little more clearly today. The other piece, I think, that some folks are missing in their models for next year is that we are increasing our R&D spend associated with 2680 as it progresses deeper into the development program. And so those were really the 2 areas of mismatch in Street models.

[Sandra Coombs, executive]

Rich?

[Richard F. Pops, executive]

Yes. So Paul, I'll take the -- I think from our perspective, as you contrast NT1, NT2, and IH, you're sort of moving outward in concentric circles of biological certainty. NT1, of course, being a deficiency of orexin, so replacement makes a lot of sense. NT2, variable orexin tone in patients and IH even further out. And so the variability in those patient populations increases as you move from one to the other.

So I think the biggest risk in NT2 is just the variability of the patient population. But the primary endpoint in those studies is going to be the maintenance of wakefulness test. And we've already shown against the backdrop of a lot of variability that we can meaningfully change in a dose-dependent way the MWT.

Interestingly, in IH, though, the primary endpoint is not what we tested in Phase 1b, the maintenance of wakefulness test. The approvable endpoint in IH is probably it's more one of the idiopathic hypersomnia scores. We don't have experience with that yet. So as we design the Phase 2 program for IH, we're actually introducing new endpoints that capture that disease more accurately. So I think the simple answer to the question, probably the biggest risk is the variability of the patient populations.

[Operator]

Our next question comes from Charles Duncan with Cantor Fitzgerald.

[Charles Duncan, analyst]

Congratulations on the progress in the quarter. I had a question on commercial and then one on the pipeline. With regard to commercial, perhaps a follow-up to the last one. When you think about LYBALVI and the market dynamics there, could you give us a little more color on where you're picking up scripts and how you think that dynamic may or may not be impacted by increased competition due to muscarinics?

And then secondarily, with regard to the pipeline, very quickly, in terms of the next-gen compounds, I know you're still mapping this, but could you give us a sense as to the type of indications you're looking to pursue? Would it be rare orphan neuro, or would it be more highly more -- highly prevalent diseases?

[C. Nichols, executive]

This is Todd. I'll take the first one on LYBALVI market dynamics. So the addressable market for LYBALVI is bipolar 1 disorder and schizophrenia, which is 2 large markets. And we're seeing really healthy growth across both, but the strongest new patient start growth is really coming through bipolar 1 disorder. Approximately 55% to 57% of our new patient starts now are coming through bipolar, which is a really encouraging sign. That's been part of our strategy since day 1 is to maximize the full indication.

So we don't really see that dynamic changing with the muscarinics coming to the market, especially the one that was recently approved. As you probably know, the one that was just recently approved is going to play in the schizophrenia space. That's a market that we know very well. It's a switch dynamic market. And from all of our research, HCPs continue to tell us that they will not switch stable patients. So LYBALVI is really well established there.

The second aspect that we look at with any type of competition coming into the marketplace is really our product profile and the attributes. The product profile for LYBALVI and attributes continue to pay off. We hear that consistently in the market. HCPs tell us that they use the product based upon the well-established efficacy, tolerability. And over the last 3 years, we've been able to generate some very meaningful real-world evidence. And so we think real-world evidence in the marketplace is going to be a key determinant for LYBALVI in the future and also for the competition when new competitive entrants come into the market.

[Richard F. Pops, executive]

Charles, it's Rich. Good to hear your voice. Just a little color on what Todd said as well, which is that LYBALVI has a really strong position in the market based on its efficacy and the track record of both olanzapine and LYBALVI now in the marketplace. And I think what a lot of folks don't realize is what Todd said, it's a switch market. Patients are switching constantly. Unfortunately, the average length of therapy on an oral antipsychotic is 6 months or so. And that will probably be true for any entrant in the category. So the churn of the patients is what drives the market, and that's why a number of these brands can become large, large products.

On the pipeline, it's interesting. We were deliberately a bit coy about where we're going because we feel like we have some competitive insights on mapping the pharmacology onto certain disease conditions. But general categories would say, it extends from psychiatry, where we have a lot of experience, both commercially and in development-wise, through neurology and even into the rare and the ultra-rare as well. And so probably different price points with different molecules with different features. And step 1, as I mentioned in the earlier remarks, is take these next-generation agents into the clinic in the single ascending and multiple ascending dose studies to characterize the orexin piece of it and then be a little bit more clear about where we're going to map those on to particular diseases.

[Operator]

Our next question comes from David Amsellem with Piper Sandler.

[David Amsellem, analyst]

So can you remind us what portion of your LYBALVI business comes from schizophrenia these days? And looking at the competitive landscape, do you think that the availability of an LAI form of olanzapine could impact your ability to drive switches from legacy oral olanzapine to LYBALVI? How do you think an LAI olanzapine product could impact your business, if at all?

And then I'll just sneak in a quick question on business development. How are you thinking about in-licensing and acquisitions and specifically ways to bolster the pipeline beyond orexin?

[C. Nichols, executive]

Yes, absolutely. This is Todd. In terms of the mix, the TRx mix still approximately is about 50-50 between schizophrenia and bipolar. The last several quarters, though, again, when we look at new patient starts, we're starting to see a really encouraging trend with growth within the bipolar 1 disorder space, which, as you know, is a much larger market and the propensity to switch is much stronger for bipolar patients. So we're encouraged with that trend.

In terms of an olanzapine LAI, that's still a few years out. It's something that we do watch closely. The rate-limiting step for any type of olanzapine-based therapy regardless of delivery is really the weight gain, the metabolic disturbance. We hear that consistently from HCPs. So our belief continues to be regardless of the delivery, you have to solve that issue. LYBALVI is becoming the standard of care within an olanzapine-based therapy. So we don't see that any type of LAI coming into the market that would impact LYBALVI.

[Richard F. Pops, executive]

And I think on -- David, on the business development and licensing, you'll hear the same response you've heard pretty consistently over the last year or so, which is as a pure-play stand-alone neuroscience company with this robust orexin pipeline, we would love to add something non-covariant to that pipeline. Where we love to play is in places where the biology is fairly well credentialed and the molecular design is complicated. And so our BD efforts are often looking in those types of places. So I think it's a space that we expect to stay in for quite a while. And I'd be surprised if we don't add something to the portfolio, not in the immediate future, but over time.

[Operator]

Our next question comes from Akash Tewari with Jefferies.

[Katherine Wang, analyst]

This is Kathy on for Akash. So for orexin-2, TAK-861's efficacy waned between week 4 and 8 in NT2, showing a 9-minute placebo-adjusted MWT response at week 4, then dropping to 1 minute at week 8. So what do you think led to this waning efficacy at the 7-milligram dose? And are you concerned about 2680's efficacy in NT2 or IH patients with a longer follow-up time?

[Richard F. Pops, executive]

Kathy, it's Rich. So I don't want to overinvest in describing their program because I think the simple answer to the longer question is that they don't have the right dose for NT2. And until you have the right dose, you're not able to really interrogate the efficacy effect. And so I don't really pay a lot of attention to the shape of their efficacy curve because they're not on the dose response curve where they need to be.

We contrast that with 2680, where we've shown we can be effective across a range of doses in NT1, NT2, and IH, all within a well-tolerated bandwidth. So I think that flexibility of dosing, the ability to pursue up and down the dose response curve is going to be a major competitive advantage for us.

[Operator]

Our next question comes from Joel Beatty with Baird.

[Joel Beatty, analyst]

For LYBALVI contracting, I know you've added some of the recent quarters. How much further is there to go there?

[C. Nichols, executive]

Yes. This is Todd. I'll take that as well. We're really pleased with the progress this year. We think the access profile is in a really, really good position right now. We're continuing to talk to commercial payers, and we're going to continue those discussions and negotiations. It all depends upon the volume growth opportunity and comparing that to net sales. Our primary focus is really profitability and net sales. So we'll make some additional decisions going into next year. But to expand access, we would really be clear that, that has to impact volume and it has to be profitable back to the brand.

[Joel Beatty, analyst]

And as a follow-up also on LYBALVI, tell us more about the DTC program. It seems like spending for that is ramping down this quarter in Q4. It was more front-loaded this year. Do you anticipate ramping that up again next year?

[C. Nichols, executive]

Yes, absolutely. So DTC is a really important part of the marketing mix, and we've seen it as a very productive investment this year. You will see a little fluctuations quarter-to-quarter based upon our strategy. So going into Q4, we continue to optimize the program, and we're seeing really healthy returns. Going into next year, we're going to continue to invest. We'll provide more color, obviously, when we get to February, but you'll see it a little bit more streamlined will be more consistent quarter-to-quarter. We've got a really good handle and good view on the channels that are the most productive. And so that's where we're going to be making those investments.

[Operator]

Our next question comes from Uy Ear with Mizuho Securities.

[Uy Ear, analyst]

So on the EBITDA guidance for 2025, I just wanted to make sure that we understand it correctly. I think you indicated that you're expecting operating expenses to go up modestly. So are you kind of saying that primarily the cut is due to the manufacturing and the consensus mismodeling essentially the INVEGA SUSTENNA going -- royalty going away? Is that the case?

And the second question is, could you also maybe just sort of help us understand the trend for EBITDA going forward beyond 2025 before the orexin product comes potentially is commercialized? Do you expect it to expand from the $200 million level?

[C. Nichols, executive]

Yes. Thanks for the question. No, you're exactly right. I think as you look at the EBITDA for 2025, we really are focused on transitioning the business towards the proprietary revenue. And I think that's what a lot of folks have missed moving forward. So it's primarily driven by the transition of the manufacturing and royalty revenue. We expect to see continuous growth on our proprietary products moving forward.

I think the -- one of the pieces, the key pieces that folks have missed on the manufacturing and royalty revenue side is the VUMERITY shift of revenue. One of the things -- just to put it in context, we manufacture for Biogen on a cost-plus basis. And we've done that for a number of years. As we transition the product out of Athlone and out and into the Biogen's hands, that manufacturing and royalty revenue line actually gets converted into a 1% increase in royalty. So you'll see a decrease in revenue and -- but it will be margin neutral as we transition the activities through the end of next year. And you're exactly right on the expense side. We have modest increases on expenses, mostly related to investment on LYBALVI and ARISTADA in the psych franchise and growth of the sales force as well as the R&D increase associated with ALKS 2680.

With regards to trends for EBITDA, your second question, our plan is to continue to run the business at a profitable rate moving forward. And how we do that will depend on the research investments and commercial investments that we need to make. But we see this as a profitable business for the foreseeable future.

[Operator]

Our next question comes from Jessica Fye with JPMorgan.

[Jessica Fye, analyst]

I had just a couple on the products. Can you elaborate on what the improved commercial access you negotiated starting October 1 for LYBALVI is? Like how specifically was that enhanced? And when you talk about gross to nets heading towards the mid-30s over the next year, should we think of that as linear? Does it have any kind of step-up, say, starting January 1?

And then just on the ARISTADA guide, it seems like the low end of the range implies a 7% sequential growth, if my arithmetic is right. But you said you expect the softness in that category to continue. Just trying to reconcile that. And then lastly, to the extent there's a negative stock reaction on the back of the '25 EBITDA commentary, how do you think about the share repo in that context?

[C. Nichols, executive]

Yes, absolutely. I'll start with the questions on market access for LYBALVI. So yes, as I said in my prepared remarks, there was another major commercial payer that in Q4 enhanced access that impacted approximately 11 million lives. And so that's -- we've had 4 significant changes this year, 3 in the commercial space and in the Medicare Part D space, which is very encouraging, which is part of our disciplined contracting strategy. That will lead next year. You'll see the reaction of that will be full year gross to net impact. And so our expectations is that the gross to net will move into the mid-30s, and that will be over time throughout the year. So we're not expecting big step-ups from quarter-to-quarter, but for the full year, it should be in the mid-30s.

In terms of ARISTADA, the key factor to really watch and look at with ARISTADA is really market growth. Right now, we're seeing very marginal market growth in the schizophrenia LAI market. We believe part of that is related to seasonality as we came through Q3, but we're also seeing lower schizophrenia patient visits. So we think there is an impact with that.

In terms of the brand for Q4, we continue to see growth in prescriber breadth. So that's an encouraging sign, and we believe that will persist. And we also see encouraging growth within our non-retail part of the business, which represents about 25% of the business. So our belief is that, that non-retail will continue to play through and also breadth of prescribing, which allows us to meet the guidance that we've set forth.

[Blair Jackson, executive]

And then Jessica, this is Blair. With regards to share repurchase, as you know, we have about $400 million of share repurchase authorized. That was earlier this year. We've executed about half of that now. So we've done about $200 million of that share repurchase. We're going to be opportunistic on how we deploy that moving forward. To be clear, we think our stock is undervalued at this level, which is evidenced by the share repurchase that we've done to date. That being said, we also need to assess the needs of the cash for the business and also for business development opportunities that may be -- may come our way.

[Operator]

Our next question comes from Jason Gerberry with Bank of America.

[Jason Gerberry, analyst]

Most of them have been asked already, but just wanted to get your general sense of the overall health of the LAI market. When we see kind of the volume trends and hear the cautionary language, we see companies like Indivior just pull an LAI launch off the market cautioning around Part D redesign tailwinds next year. I guess it seems like it's a challenging space overall. So your general outlook that volumes can ever grow again on this business. Just wanted to get a general sense on that front beyond this year.

[C. Nichols, executive]

Yes, absolutely. This is Todd. I'll take that, Jason. So overall, we're not seeing a change in kind of the treatment algorithm with LAIs. They're typically reserved for later line use, third and fourth line. So that hasn't been changing. And that's something we obviously watch very closely of how HCPs and patients react to the brands. The biggest change in the dynamic that we're really seeing is just lower growth overall in the schizophrenia space, as I said earlier. Again, we think part of that is seasonality.

There are a couple of new brands that have launched in the last year that are showing some growth. And we did expect that. That's typical when you launch a brand and you're early in your launch phase, you will see some growth. The key dynamic we're watching there is neither of those brands are growing the market. You're just seeing a transition from the base molecule to longer durations. So we really don't see that impacting the market overall. And obviously, we're in constant contact with payers overall.

And we don't see that as a big risk for ARISTADA moving into next year. That will be part of our guidance, our gross to net. But we're in constant contact with payers, and there is some pressure, especially with the Part D redesign, and that's something that we're in discussions with them about as well.

[Operator]

Our next question comes from Marc Goodman with Leerink Partners.

[Marc Goodman, analyst]

Can you help us how to think about VIVITROL once we have LOE, the competition coming in, the settlements? And just how should we model that? Because I can't imagine this is going to be a normal post-LOE market.

[Richard F. Pops, executive]

Marc, it's Richard. It's a really good question. And we have a number of different models. And I think that the punch one is we'll adapt. But the most important thing to realize is even the parlance of LOE, what we foresee is a single additional entrant coming into the market in the form of Teva. And their capacity to enter the market and the extent to which they are entering it is unknown at this point.

VIVITROL is growing, as you saw. It was unusual for a drug so late in its life to be growing at the rates that it is, particularly in this alcohol indication, which is really untapped. So with our promotional activity in the field, we see that market continuing to grow. And so if there's a single additional entrant in the marketplace, I don't really see the compelling logic for why you'd see a typical LOE erosion. There's no real reason for it. But we don't know yet. So we have a range of different models of -- but all of them indicate a shoulder past the 2027 date.

[Marc Goodman, analyst]

Yes. So the spending will be generally the same because you're not expecting much of a change. I mean Teva comes in, they lower the price a little bit, maybe like a typical situation where you're the only other player and you're going to continue to support the brand?

[Richard F. Pops, executive]

That's our base case for sure. And if anything other than that happened, we could flex our spend in order to drive profitability because that's obviously the key benchmark for this brand will be maintaining robust profitability. But I think the case you just articulated would be what I would consider to be the base case.

[Marc Goodman, analyst]

Yes. And the commentary around, I guess, it was in the questioning of the numbers coming down a little bit for next year. And I think there was a comment about, well, we will remain profitable. But I guess the question was really like, okay, we have one set a reset next year, what happens the year after the year after? I think the question was like, should we expect growth again in EBITDA? Or how should we think about that just given the level of spend that you're going to need to support all the indications that you're working on for the orexin?

[Richard F. Pops, executive]

I guess we'll make the call on an annual basis, but we have substantial top line and we can drive profitability. The cost structure we've worked on the last several years to drive profitability. So we're going to be inherently able to manage the business to profitability. But as we see pipeline things evolve, as we see the competitive dynamic in the market, as we just talked about change, '26 will be different than '27, '28 will be different than '27 as 2680 starts coming to market.

So it's not to avoid the question. It's just to tell you, from the Board level on down, we've been managing the business and building it to be able to run a highly profitable business. while investing in the pipeline and returning capital when we see excess capital in the plan. So that's the way we'll continue to approach it on a year-by-year basis.

[Marc Goodman, analyst]

Yes. And is the share buyback basically telling us you can't find anything in business development you want to spend on?

[Richard F. Pops, executive]

I know you're smiling when you asked that question because it's all part of an overall plan. We have $1 billion of cash. So we have plenty of firepower to do the BD deals that we're looking for. We just -- we're burdened with a lot of experience in this space. And the diligence often results in issues on the licensing side that you need to walk away from, whether they're regulatory or their IP or reimbursement or whatever. But we have a pretty fine mesh here, and it's a sophisticated team, but we're out there looking at all times.

[Operator]

Our next question comes from Chris Shibutani with Goldman Sachs.

[Karishma Raghuram, analyst]

This is Karishma on for Chris. Regarding the implementation of IRA, which was previously not a factor in pursuing IH, you've since decided to move forward, what does this say about what you assume for how IRA will be implemented going forward? And can you talk to the push-pull factors and how compelling an opportunity IH needs to be commercially in order to support this decision?

[Richard F. Pops, executive]

Karishma, it's Rich. It's an excellent question. And you're right. I think at the outset, one would have said with a single orphan exclusivity or exclusion from negotiation in 9 years' time, you'd say, well, why would you add additional orphan indication to that and open up the potential for negotiation. And as we thought more about it and ran the numbers, a couple of things became clear.

First of all, what's the probability of IRA looking exactly the same 9 years from now. It's probably extremely low. And I also think this particular provision, which is hurting patients with rare diseases is of the various things you'd love to change in IRA. I think this particular provision is one that could be changed by the Congress going forward because it hurts patients.

With that said, putting that aside, if there are 100,000 diagnosed and treated patients with narcolepsy in the U.S., there are at least 40,000 with IH. And so because the distinction between NT2 and IH is so blurring, as we talk to patients and clinicians and show them the data from the 1b, which was so compelling to them, it became clear to us that we needed to develop this drug in Phase 2 in IH as well because the adjacency is so clear, the price point will be the same and the market expands significantly for 9 years. So that all went into our decision to say we're going to go full bore into IH.

[Operator]

Our next question comes from Ash Verma with UBS.

[Ashwani Verma, analyst]

I wanted to just go back to -- you were asking about -- you were mentioning about the inventory movement that you're not seeing any kind of impact on that. But are you carrying some inventory quarter-over-quarter? I'm seeing that the sales that you're reporting not really in line with what we are seeing on the script level growth side. So if you can comment on either for LYBALVI or ARISTADA or VIVITROL, is there any inventory that you are carrying?

[C. Nichols, executive]

Yes, absolutely, Ash. This is Todd. Inventory dynamics for the quarter were consistent with our expectations. We continue to see some growth with inventory for LYBALVI, but that's consistent with demand. So our expectation is that it would continue to grow modestly to support the TRx demand we're seeing, which is consistent. And at this point, for ARISTADA and LYBALVI, inventory is stable.

[Sandra Coombs, executive]

We'll take the next question, please.

[Operator]

Our next question is from Douglas Tsao with H.C. Wainwright.

[Douglas Tsao, analyst]

Just first, Rich, in terms of '26 or the orexin program and the second generation of molecules, I know you've talked about several different potential uses at the analyst meeting. I'm just curious how much -- what indications you initially go in to pinch on the Phase 1 data or the Phase 1 studies that you'll be running next year? Or do you have a pretty good idea of what you want to go -- where you want to go, yet obviously, we just need to get the healthy human volunteer data?

[Richard F. Pops, executive]

Doug, it's more of the latter. I think we have a pretty good sense, although we're still running a number of preclinical assays, and we don't just have to pick one, obviously. But I think that we don't have to formally commit to that until we've completed the necessary prerequisites in the SAD and the MAD.

[Douglas Tsao, analyst]

And then just somebody asked about the potential introduction of olanzapine long-acting injectable, and I think you indicated that you did not see an impact. Is that because you don't see sort of the 2 sort of long-acting injectable being in the same market as LYBALVI, which is in the oral market? Or is it that you think that LYBALVI's sort of weight gain profile just should make it sort of immune to any competitive pressure?

[C. Nichols, executive]

Yes, that's absolutely right. So when you think about just the entire -- the LAI market, the molecules typically stay within the base class. So you'll see a patient transition from oral to a long-acting version. Our research continues to tell us that patients prefer orals. So the first step is an oral. When you think about olanzapine, HCPs consistently tell us that the rate-limiting step is weight gain. And 80% of patients will gain more than 7% of the body weight within the first 4 to 6 weeks. That's the whole reason why we developed LYBALVI. And so LYBALVI has now become the standard of care for an olanzapine-based therapy. So we've solved that issue. At this point right now, we don't see an olanzapine-based LAI solving that issue. So the core issue, again, is going to be weight mitigation.

[Operator]

Our last question today comes from Umer Raffat with Evercore.

[Umer Raffat, analyst]

I just wanted to make sure I had a full handle on a couple of these numbers. So the move from sort of $400 million EBITDA down to $200 million, is it fair to say 75% of that is on OpEx and 25% of that is on the royalty line? That's sort of what I'm seeing, but I just want to make sure I'm not mistaken.

[Blair Jackson, executive]

Yes. I think it's more on the royalty line than on the OpEx side. So I think we'll give more guidance, obviously, in February. But the major impact that we see is associated with manufacturing and royalty revenue. We do have some impact from the expanded expense associated with investments in our business, but it's not as much as the royalty impact.

[Umer Raffat, analyst]

So Blair, just to be clear, $800 million SG&A plus R&D this year, that's not going to $1 billion. It's more like $800 million going to $900 million. Is that reasonable?

[Blair Jackson, executive]

Yes, I'm not going to put any numbers out there yet until February. So we're definitely going to see a small increase on SG&A associated with the sales force expansion. We're not blowing up that line. We're going to be very disciplined on our expense line.

[Operator]

Okay. We have reached the end of our question-and-answer session. And I would now like to turn the floor back over to the company for closing comments.

[Sandra Coombs, executive]

All right. Thank you, everyone, for joining us on the call this morning. We will be available for any follow-up questions. So please don't hesitate to reach out. Thank you.

[Operator]

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