Greetings, and welcome to the Alkermes First Quarter 2022 Financial Results Conference Call. My name is Rob, and I will be your operator for today's call. [Operator Instructions]. Please note this conference is being recorded. At this time, I will now turn the call over to Sandra Coombs, Senior Vice President, Investor Relations and Corporate Affairs.

Sandy, you may now begin..

Thank you. Good morning. Welcome to the Alkermes Plc's conference call to discuss our financial results and business update for the quarter ended March 31, 2022. With me today are Richard Pops, our CEO; Iain Brown, our CFO, and Todd Nichols, our Chief Commercial Officer.

Before we begin, I encourage everyone to go to the Investors section of alkermes.com to find our press release, 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 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 I'll turn the call over to Iain..

Great. Thank you, Sandy, and hello everyone.

I'm pleased to report our first quarter 2022 results that demonstrate ongoing momentum across the company, the strength of our proprietary commercial product portfolio, our continued focus on operating efficiency, and the commercial leverage we have built into the business that's becoming more evidence with the launch of LYBALVI.

We are in a strong financial position to execute our strategic priorities and achieve our long-term profitability targets. Based on these first quarter results, today we are reiterating our financial guidance for full-year 2022, which was detailed in our press release and 8-K filed earlier this year on February the 16th.

For the first quarter of 2022, we generated total revenues of $278.5 million, driven by strong year-over-year growth of VIVITROL and ARISTADA, the launch of LYBALVI, and growing revenues from VUMERITY. Taken together net sales from our proprietary commercial product portfolio and revenues from VUMERITY increased 41% year-over-year.

So, starting with VIVITROL. Net sales in the first quarter were $84.9 million, reflecting 14% growth year-over-year, driven primarily by an increase in units sold of approximately 7%.

Gross to net adjustments in the first quarter was slightly lower at 49.4%, reflecting favorable adjustments of approximately $4 million related to lower Medicaid utilization. In Q1, inventory in the channel decreased by approximately $4 million consistent with typical seasonal patterns.

And for the full-year we continue to expect VIVITROL net sales in the range of $365 million to $385 million. The ARISTADA product family generated net sales of $72.5 million, a 31% increase year-over-year, driven primarily by 27% volume growth. Gross to net adjustments were 53.4% in the first quarter, consistent with what we saw in 2021.

In Q1, inventory levels were flat sequentially as expected. And for the full-year, we continue to expect ARISTADA net sales in the range of $290 million to $320 million. Now, for LYBALVI, in the first full quarter of launch, we recorded net sales of $13.9 million.

These results exceeded our initial expectations of $8 million to $10 million, driven primarily by higher volumes and favorable gross to net adjustments. Volume growth in the quarter was driven primarily by a significant increase in underlying demand.

The remainder of the initial launch stocking was consumed in the quarter, and the absolute loot inventory level increased in line with demand. During the quarter gross to net adjustments were 27% reflecting less restrictive initial commercial payer coverage, which reduced the cost associated with our Patient Copay Assistance Program.

As we look ahead, we expect the gross to net adjustments will continue to be dynamic during the first year of launch and heavily dependent on the payer mix across Medicaid, Medicare Part D, and Commercial.

With those factors in mind, we currently expect to achieve LYBALVI net sales in the range of $18 million to $20 million in the second quarter, which would put us on track to achieve the higher end of our expectations of $55 million to $75 million for the year.

We're encouraged by what we've seen from the launch to-date and look forward to updating you on our progress as we move into the second half of the year. Moving on to our manufacturing and royalty business. In the first quarter, our manufacturing and royalty revenues were $105.2 million compared to $119.8 million in the prior year.

The decrease was driven primarily by J&J's partial termination of the license agreement related to Royalties from long-acting INVEGA products in the U.S. which took effect starting in February of this year. We continue to disagree with J&J's actions and last week initiated binding arbitration proceedings related to this matter.

In the first quarter, we recognized $37.1 million of total worldwide royalty revenue from these products, down from $61.6 million in the first quarter of last year. Meanwhile, revenues from VUMERITY in the quarter increased 128% year-over-year to $30.6 million.

Turning now to expenses, total operating expenses were $305.1 million for the first quarter, compared to $267.9 million in the same period in the prior year.

This increase was primarily driven by higher sales and marketing expenses in support of the launch of LYBALVI and higher cost of goods sold related to growing sales of our proprietary products and VUMERITY.

For the first quarter, cost of goods sold increased approximately $14 million year-over-year to $55.2 million driven by higher volumes of these key products. Blended gross margins of our proprietary products were over 85% in the quarter and we would expect this to improve over time as the products continue to grow.

R&D expenses for the first quarter were $96 million, compared to $92.3 million for the prior year reflecting focused investment in Nemvaleukin and our earlier stage neuroscience and oncology development programs. SG&A expenses were $145.1 million, compared to $125.2 million for the prior year.

We are investing in the launch of LYBALVI but at doing so we're heavily leveraging our existing commercial infrastructure in order to drive efficient growth from the launch.

Our non-operating expenses in the quarter included a non-cash reduction in the fair value of contingent consideration of $19.1 million related to increased risk of non-payment of milestone payments, by Baudax Bio. However, this did not impact our non-GAAP results for the quarter.

All told during the quarter we generated a GAAP net loss of $35.9 million and a non-GAAP net income of $19.6 million.

Turning to our balance sheet, we ended the first quarter with approximately $759 million in cash and total investments, and total debt outstanding of approximately $295 million, resulting in a net cash position of close to $464 million. We are in a strong financial position to execute our strategic priorities.

At a time when many companies in the biotech space rely on the public markets for capital, Alkermes is well capitalized with a diversified portfolio of revenue generating products that serve as our financial engine.

We remain committed to the efficient management of our cost structure and achievement of our long-term profitability targets as we leverage our commercial infrastructure to launch LYBALVI and efficiently advanced our oncology and neuroscience pipeline candidates.

And with that, I'll hand the call over to Todd to provide more detail on the commercial performance..

Great. Thanks, Iain, and good morning, everyone. I'm excited to share that we achieved strong growth across our commercial portfolio this quarter, highlighted by LYBALVI's uptick in the oral anti-psychotic market. Our launch execution is a testament to our team's knowledge of the neuropsychiatry space and our well-established commercial capabilities.

With the launch of LYBALVI, we are harnessing the full abilities and infrastructure of our commercial organization and driving leverage across our commercial P&L.

Our sharp focus on execution has also driven year-over-year growth of ARISTADA and VIVITROL in the quarter which remain key growth drivers for the business and represent important medicines for the treatment of schizophrenia and opioid dependence and alcohol dependence respectively each characterized by large patient populations and high unmet need.

Based on our Q1 results, current trends in the treatment landscape and our differentiated portfolio, we believe we are well positioned to continue building momentum throughout the remainder of the year. So let's start first with LYBALVI.

Net sales during the quarter were $13.9 million driven by LYBALVI's differentiated product profile and strong execution. We exited the first quarter with significant momentum with our two primary performance indicators, total prescriptions and prescriber breadth growing nicely. Total prescriptions during the quarter were approximately 10,400.

This is driven by broad prescriber adoption. As of the end of the quarter approximately 2,600 prescribers have written a prescription for LYBALVI since launch.

We are now six months into the launch and encouraged by the initial feedback we have received from the schizophrenia and bipolar 1 disorder treatment communities about LYBALVI, its product characteristics, and the value proposition of this important medicine.

Our utilization and source of business data have continued to show that LYBALVI is being prescribed to schizophrenia and bipolar 1 patients in equal measure. And patients have been switching to LYBALVI from olanzapine as well as other branded and generic agents.

These data suggest that early prescribers viewed LYBALVI is having utility on patients switching from a variety of therapies. This is encouraging due to the high unmet need that exists in large number of people living with schizophrenia and bipolar 1 disorder. So let's spend a moment on the bipolar 1 disorder indication.

LYBALVI's label covers acute treatment of manic episodes and mixed episodes as well as maintenance treatment. This is a broad label that can capture treatment initiations, which often occur during manic or mixed episodes.

Olanzapine has been a frequently used treatment option for bipolar 1 patients, with 12% market share in indication or an estimated 1.5 million prescription despite olanzapine's associated weight and metabolic side effects.

We expect that LYBALVI will play an important role in the treatment paradigm for bipolar 1 disorder as new prescribers gain experience with LYBALVI's profile. The payer reimbursement profile for LYBALVI is progressing, and we continue to expect access to be established gradually over the next year.

Importantly, there is currently a pathway to access regardless of whether patients are on Medicaid, Medicare Part D, or Commercial plans. Payers have made initial access decisions and thus far those access decisions are in line with other branded oral agents. Launch years are dynamic, and we will continue to update you on the trends that we see.

Overall momentum is building and prescribers have begun to see the differentiated attributes of LYBALVI within the context of their own practices and patients.

LYBALVI's uptake and traction in the treatment community is encouraging and we will continue to be laser-focused on execution of our launch strategy in order to maximize the opportunity to make a meaningful difference for patients and drive growth for the company.

We have established the foundation for a significant product opportunity and the operating leverage in our psychiatry portfolio is an important element driving the efficiency of the LYBALVI launch. LYBALVI's launch is rooted in our established capabilities and years of experience in the U.S. psychiatry market with ARISTADA.

For the ARISTADA product family net sales in the first quarter increased approximately 31% year-over-year to $72.5 million, driven primarily by TRX growth of 13% year-over-year on a month of therapy basis outpacing the aLAI market, which grew 7% year-over-year.

This performance is driven by ARISTADA's differentiated value proposition including once every two month dosing option in the ARISTADA INITIO treatment initiation regimen. VIVITROL net sales in the first quarter increased approximately 14% year-over-year to $84.9 million.

This growth was driven primarily by the alcohol dependence indication, which accounted for approximately 60% of the VIVITROL business and is an important element of our commercial strategy.

We expect this growth to continue due to increasing patient need, rising prescriber awareness of medication assisted therapies for the treatment of alcohol dependence, and our investment in driving growth in this indication. Taking a step back, our Q1 results are notable demonstration of our focus on executional excellence.

We have three distinctive products driving our commercial performance and operating leverage. Our commercial team has energized and acutely focused on launching LYBALVI, increasing ARISTADA prescriber breadth, and expanding awareness and use of VIVITROL as a treatment option, particularly for alcohol dependence.

We are committed to executing our commercial strategy across these three brands, and building on our current momentum. And now, I'll turn the call over to Rich..

Great. Thank you, Todd. Good morning, everyone. So we're proud of another strong quarter, which was driven by a sharp focus on our strategic priorities. I'm going to start with LYBALVI, because it represents a number of things. It's an example of our R&D innovation, and our focus on specific needs of people suffering from chronic disease.

Its launch demonstrates the power of the commercial infrastructure that we've been developing for the past several years. A set of diverse capabilities, necessary to operate in complex markets, and it's revealing the financial leverage we've been anticipating, as we add additional proprietary product revenue into or onto our commercial foundation.

The strong early uptake of LYBALVI is encouraging. The interest in LYBALVI makes sense, given the extensive use of olanzapine in both schizophrenia and bipolar 1 disorder.

But what's most encouraging is the feedback from healthcare providers about their real world experience with the differentiated features of LYBALVI and the impact that LYBALVI has had on their patients. Even at this early stage of the launch, it's becoming clear that LYBALVI has the potential to be a transformative product for Alkermes.

So we have what we need, a differentiated product, a significant market opportunity, and an experienced team with sophisticated commercial capabilities. For this reason, we say 2022 is focused on execution as we build on this momentum, and seek to maximize our impact for patients and our opportunity for shareholders.

LYBALVI is an important element of our strategy. It joins VIVITROL, ARISTADA and VUMERITY as the key drivers of our financial performance, profitability, and shareholder value creation. This commercial portfolio is in a strong position. With the growth of this portfolio, we've diversified the business away from our legacy royalty products.

With that said, we're serious about enforcing our contractual rights and addressing unauthorized use of our intellectual property.

To that end, last week, we commenced binding arbitration proceedings with Janssen, a subsidiary of J&J, related to its partial termination of two license agreements, and its obligations under those agreements to pay royalties on U.S.

net sales of products enabled by our nanocrystal technology, including INVEGA SUSTENNA, INVEGA TRINZA, INVEGA HAFYERA and CABENUVA. We've partnered with J&J for more than 25 years, and J&J paid royalties related to U.S. net sales of a long-acting INVEGA products for more than 12 years.

Following the receipt of notices of partial termination, we triggered the dispute resolution provisions in the agreement, in an attempt to reach a resolution that has not been achieved to-date. In parallel, we built our legal case for the arbitration.

As we advance through the arbitration process, we remain open to a mutually agreeable settlement, should that provide a more expeditious resolution, and be in the best interest of our shareholders.

For the purposes of guidance, and management of our business, we'll continue with what we started at the beginning of the year, removing J&J royalties related to these products, in order to provide a conservative financial planning scenario, a clearer picture of the strength of the underlying business and the operating leverage that we anticipate.

That said, the removal does not in any way reflect our conviction and the strength of our legal position on the matter. So shifting gears from that. I'm going to spend the last couple minutes on a few pipeline updates. Starting with Nemvaleukin, our novel IL-2 cytokine.

So the recent failure of bempegaldesleukin has driven a fresh look at the unique properties and clinical development strategy for Nemvaleukin. These two molecules are very different, and they are testing different pharmacological hypotheses. The scientific foundation for Nemvaleukin is high dose IL-2.

The IL-2 pathway remains an important target in oncology for simple reason. High dose IL-2 has proven monotherapy efficacy, and is characterized by the durability of patient responses. And this mechanism has potential for broader use, if its serious toxicity profile can be attenuated.

Nemvaleukin was designed to capture the therapeutic potential of high dose IL-2, by preserving its beneficial functional attributes, while attenuating its hallmark limiting toxicities.

So Nemvaleukin stands alone among IL-2 variants being studied, it's differentiated by its unique molecular design and the resulting pharmacology, observed monotherapy anti-tumor activity and the clinical development strategy that we're pursuing.

Nemvaleukin is a single polypeptide designed for selectivity for the intermediate affinity IL-2 receptor, it is inherently active, does not require any metabolic or pre lytic conversion, and does not degrade into naïve IL-2. The validity of the design has been borne out in its pharmacodynamic profile.

Nemvaleukin activates anti-tumor CD8-positive T cells and natural killer cells with minimal expansion of immunosuppressive regulatory T cells. With that profile, Nemvaleukin has demonstrated monotherapy anti-tumor activity in renal cell carcinoma and melanoma, including in patients previously treated with checkpoint inhibitors.

This single agent activity is an important differentiating feature in the IL-2 space and gives us confidence that Nemvaleukin may contribute clinical benefit when it's used in combination regiments with other cancer treatments.

Beyond monotherapy, Nemvaleukin had demonstrated durable and deepening responses in a range of tumor types in combination with pembrolizumab. Including in pembro unapproved tumor types in patients who have progressed following treatments, checkpoint inhibitors, and in checkpoint naive patients.

Importantly, as intended, the observed safety and tolerability profile is differentiated from high dose IL-2. Our clinical development strategy is tailored to address key unmet needs.

As we focus on difficult to treat tumors where checkpoint inhibitors are not approved, or where patients progress following CPI treatment, we've initiated potentially registration enabling studies in mucosal melanoma as monotherapy, and then platinum resistant ovarian cancer in combination with Pembro and we're focused on enrolling those studies.

We believe in the IL-2 pathway and the potential utility of Nemvaleukin. We now have the opportunity to advance a first-in-class IL-2 variants and remain committed to executing our focused clinical development programs. So quickly on the earlier stage development pipeline.

We continue to make progress with IND enabling activities for ALKS 2680, our orexin 2 receptor agonist. We're on track to enter the clinic toward the end of this year or early next year.

For our ALKS 1140 HDAC inhibitor program, we're continuing our work to establish the necessary exposure safety margins pre-clinically in order to proceed to higher doses in our single ascending dose Phase 1 study. In our preclinical oncology portfolio, we continue to advance and make progress with our portfolio of engineered cytokines.

I will end there. We're executing on our strategic priorities. We're building significant momentum across the business and maintaining our focus on driving growth and long-term shareholder value creation. We'll look forward to sharing our progress with you as we work to build on this strong Q1 performance.

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

Great, thank you. We will now open the call for Q&A, please..

Thank you, Sandy. We will now be conducting a question-and-answer session. [Operator Instructions]. Thank you. Our first question comes from the line of Chris Shibutani with Goldman Sachs. Please proceed with your questions..

Thank you very much. Good morning, everybody. And congratulations on a strong full quarter for LYBALVI, I want to center my question there, fascinated by the dynamics that are playing out in terms of patients switching, and in particular, the commentary that you included in Slide 10 that talks about less payer pushback.

Can you talk about how that is playing out in the real world, how we should expect that to evolve, we're still early days, and clearly would be interested in understanding what the switching dynamic is like?.

Good morning. Yes, Chris, this is Todd. I'll take that question as well. And, yes, we're really encouraged by the early feedback that we're hearing not only from the treatment community, but from HCPs. What's encouraging is we have since launch approximately 2,600 physicians that have written a prescription for LYBALVI.

And what we're hearing is broad utility. When you think about the market, the addressable market for LYBALVI, we think about it this way, the addressable market is really the dynamic portion of the market.

Those are patients that are seeking treatment options, they're looking for efficacious treatment options, they're looking for tolerability options as well. That represents about 11,000 patients on a monthly basis, which is broken up between schizophrenia and Bipolar 1 patients as well, too.

So the addressable market, really for LYBALVI is that switch market as well. The early data for us right now is showing that about 50% of the switches are coming from olanzapine, but then the remainder of the switches are coming from other agents, we're actually getting switches from branded agents and other generic agents as well too.

And that also we're seeing about an equal distribution between bipolar 1 disorder and schizophrenia, which is meaningful. As you know, these are two very, very large markets. Feedback from payers thus far has been consistent with our launch assumptions.

And that is that LYBALVI will compete in the branded space and payers are starting to make these initial coverage decisions. Over the next 12 months, our expectation is that more final decisions will be made.

But even with initial access decisions, there is a pathway to access across the three different channels and we're seeing that claims are being adjudicated across Medicare Part D, Medicaid and Commercial. So it's a positive dynamic for us at this point..

Our next question comes from the line of Vamil Divan with Mizuho. Please shoot your question..

Great, thanks for taking my question. So maybe one if I could up just following up on the LYBALVI commentary and then one other one if I can. So just in terms of you mentioned LYBALVI had $13 million in this quarter, you mentioned $18 million to $20 million, is your expectation for next quarter.

I'm just trying to get a sense of how you're thinking may be about the rest of the year, you said you kind of get the higher range but it is sort of stays even just flat from the second quarter, you're already ranking at the very top of your range.

So I'm just curious kind of maybe just some conservatism early in the launch, is there anything on the payer side expecting or otherwise in the second half that may sort of almost keep the number flat or down even to not sort of get you over the top end of your range that you have right now? And then my second question is, I guess a little broader than just LYBALVI but all three products inventory or startup, your gross to net in the first quarter was actually lower.

I think what you're expecting for the full-year, which just seemed a little unusual, I think we always think the first quarter, having a little bit more in terms of gross to net, so maybe you can just sort of comment obviously LYBALVI little bit more volatile, early in the launch, but for the other twos, what dynamics maybe are impacting the first quarter to keep that lower than what you're expecting for the full-year in gross to net.

Thank you..

Okay, Vamil. Good morning and thank you for the questions. So I'll take a stab, which we'll get down to the LYBALVI net sales, we're clearly encouraged by the net sales growth in the first quarter. I mean, this does still represent the first full quarter post launch, we have a big Q2 ahead of us.

And it's really going to set the trajectory for the remainder of the year. We did talk today about trending towards the higher end of the current guidance range for the year that $55 million to $75 million that we have out there. But let's see how Q2 goes.

And I think we'll be in a better position to update guidance as necessary, on the July earnings call. And then with regards to gross to net, I think every product is different. We saw favorability across the portfolio. VIVITROL would be really a Medicaid story. So we saw favorability on Medicaid utilization.

And that was really driven by the COVID pandemic. During the course of 2020 and 2021; we had anticipated an increase in Medicaid utilization. We have seen that, but not to the extent that we'd originally been booking too.

So as the states provide the invoices to us, we're able to sort of lock in those earlier quarters, and we're able to release some of the favorability. And we said that was about a $4 million impact in the first quarter.

ARISTADA was pretty much in line with expectations at this point in the year; it was very consistent with what we saw over the course of 2021. So I don't think there's much to talk about there.

And then from a LYBALVI perspective, we did come in at 27% in the quarter; we saw less restrictive payer access across the commercial business as compared to what we've modeled. And while these are initial payer decisions it is encouraging.

The primary impact of this from a gross to net perspective was lower cost associated with our copay assistance program in the quarter. And I think as Todd mentioned going forward, that gross to net picture is going to be somewhat dynamic for the next 12 months, and very much dependent on the payer mix.

So again as things evolve, if we feel like we need to update guidance, we would look to potentially do that on the Q2 earnings call..

Our next question comes from the line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your questions..

Hi, thanks for taking my questions and congratulations on the quarter. Wanted to go with same thing again. But I just want to ask Vamil's point -- pointedly on the LYBALVI gross to net, hearing what you said understanding could be lumpy.

Even though you reiterated that guidance of 40% for the year on gross to net, maybe how do we think about gross to net exiting the year, I mean could this be above 40% because it's substantive guidance? Is that just still conservative and kind of echoing what you've just said there that you may revisit it.

Just how do we think about the scenario of exiting the year where you think you could be on gross to net maybe on 4Q and sort of longer-term? Thank you..

I think for the full-year, we talked about a gross to net of around 40% when we provided guidance back in the February timeframe. We haven't moved off that today. But again, it's going to be a dynamic evolution during the course of the year.

As we mentioned, it's going to really depend on that payer mix, and some of the coverage decisions that come out of the payers. So we were very happy to see that favorability in Q1 let's get Q2 under our belt, and then I think we'll have a better sense as to where the full-year is going to end up..

Fair enough. And one more if I may. Just any update on the timing of data presentations on Nemvaleukin Alfa for the less frequent IV dosing and SubQ dosing, any update there? Thank you..

Hi, Brandon, this is Sandy. Yes, we're still in the process of enrolling those studies and accumulating data. We're looking more towards year-end or early 2023 for data from that program to be presented. But we'll obviously be getting that data internally in the meantime..

Great. Thank you very much, and congrats on a good quarter..

Thank you..

Our next question is from the line of Akash Tiwari with Jefferies. Please proceed with your question..

Hi, this is Amy on for Akash. Thanks so much for taking our question. So we just had two. The first one on the LYBALVI launch early script trajectory looks comparable versus Caplyta even after Caplyta's approval for bipolar.

Do you think we could continue to see this type of Caplyta like script trajectory going forward? And what could this mean for LYBALVI VP sales which consensus currently has that around $600 million? And then another one on ALKS 2680? Why do you think cicadas ALKS didn't show liver safety signals in healthy volunteers, but did in narcolepsy patients? How could you de-risk safety in your trials and what could be learned from the safety and efficacy perspective from healthy volunteers studies? Thanks so much..

Yes, hi, this is Todd; I'll take the first part of that with the prescription trends. In the first quarter, we achieved approximately 10,600, which was a meaningful increase from the fourth quarter of last year. Our expectation is that LYBALVI is going to continue to grow.

In this, we have two primary performance indicators TRX's and then breadth of prescribing. The TRX trends we're seeing is really based upon this broad adoption that we're seeing right now. It's approximately 2,600 prescribers for Q1, which is a meaningful number. This is a very big market, as you know. And so the opportunity is very large.

And we're encouraged by the initial feedback. What we're hearing from the community from HCPs and from patients is that really the key insight is that there's a really a vast comfort level of olanzapine and olanzapine is considered one of the most effective oral agents, and that is driving the value proposition for LYBALVI right now.

And as Rich said, it's a pretty simple story. The efficacy of olanzapine with weight mitigation properties in schizophrenia patients as well. So our expectation is that prescriber adoption is going to continue to grow. And thus the TRX trends will follow that..

And with respect to 2680, let me just say that we're not commenting too much on other companies product. There's a highly prescribed method of developing new small molecule drugs.

And we begin with single escalating doses in healthy volunteers in order to identify any cold toxicities that might present themselves that didn't appear in the animal studies. We send those doses until we get two doses that we think are relevant therapeutic concentrations.

And then move to multiple ascending dose studies to establish steady-state concentrations. Again, looking for toxicity all along the way and target engagement. And then when we've established that profile, we expand the program into more signal seeking studies in patients.

So it's a routine that all companies follow when responsibly developing new drugs and that's what we'll do with 2680..

Thank you. Our next question is from the line of Umer Raffat with Evercore. Please proceed with your questions..

Hi, guys, thanks for taking my questions. I have a few if I may, maybe the first one just briefly on the IL-2. I know the ARTISTRY-6 trial in melanoma has been recruiting for about a year now. And we also know that your Phase 1 trial was stepped down from like 350 patients to 240 patients last fall. So that should help the recruiting further.

And I guess my question really is this open-label ARTISTRY-6, is it at least halfway enrolled? And do you see a path for monotherapy filing or not? I just thought it would be very interesting to know. And on LYBALVI, maybe a couple of clarifying questions.

One, is it fair to assume the inventory was about $4 million like last quarter? Two, if a large part of the beat today is really just gross to net tracking at 27% and not 40%.

And then I guess, am I hearing it right that it's tracking ahead and you would have raised the guidance, but since it's tracking ahead primarily in part because of the gross to net activity and you kind of want to see the dynamic play out, that's why you're holding off on that because the current momentum plus the current gross to net implies north of $90 million for LYBALVI for the full-year?.

Good morning. It's Richard. I'll start with the IL-2 and let Todd and Iain comment on the trajectory of LYBALVI. Yes, the ARTISTRY-6 study is a monotherapy efficacy study in mucosal melanoma, which is potentially registration-enabling based on the results. We haven't commented on the enrollment rate, but it is enrolling. It is enrolling.

And we do believe absolutely that it's the basis for a monotherapy filing. In fact, the reason we're doing ARTISTRY-6 is not that mucosal melanoma in and of itself is an enormous opportunity commercially. It's a really important unmet medical need, but it's also an explicit demonstration of the monotherapy activity of Nemvaleukin.

That study, despite the fact it's open-label, is indeed blinded to us. So we will not be looking at data along the way in order to preserve its regulatory status..

And then Umer, I'll take a crack at the LYBALVI question. So from an inventory perspective, I mean, the Q1 results really were not driven by inventory. Any initial launch stocking that we had in the channel at the end of the year was burned off and replaced.

And now inventory really is tracking in line with demand, and we would expect that to continue as we go through the year. So Q1 is really a demand story, not an inventory story. On the gross to net, as you mentioned, 27% in Q1.

If we had a gross to net of 40% based on gross sales of around $19 million that will be a 2.6% favorable impact on the quarter. So some of the favorability in the quarter is driven by gross to net, but the other portion of the favorability is really driven by higher demand.

And then just from a full-year perspective, we're obviously pleased with the way Q1 is going. It is the first quarter of post launch. So it's still early. There's going to be a lot of dynamic -- dynamics around the gross to net as we go through the remainder of the year. So we just felt it was very early. We're encouraged by what we're seeing.

But we feel like with another quarter under our belt, the Q2 earnings call, we may be able to make any changes to guidance that we deem appropriate at that time..

Our next question comes from the line of Cory Kasimov with JPMorgan. Please proceed with your question..

Hey, good morning guys. Two questions from me. First on LYBALVI.

So based on feedback from the field, how do docs think about LYBALVI -- LYBALVI-associated weight gain versus other non-olanzapine agents? Is this an impediment at all or even a key point of discussion with prescribers because it doesn't seem to be having much of an impact in terms of uptake.

And then second question on the Nemvaleukin side, understanding the differences between nemva and bempeg.

I'm just curious if you still see any sort of impact to the value proposition of nemva based on what happened and maybe more importantly, has this situation impacted the level of outside interest in the asset in any way? Or is it too soon to say on that front? Thanks guys..

Scott, I'll take the LYBALVI question as well. What we're hearing we're staying really close to the market level to our research and also to our sales organization to what's happening with HCPs, early adopters, key opinion leaders and so forth. And what we're learning is that awareness levels are building which is helping to drive adoption.

But really what's driving adoption is there is a positive perception for LYBALVI at this point. In general, the feedback that we're hearing is that LYBALVI is delivering against the expectations in terms of efficacy and weight mitigation as well. So we think that's really encouraging..

Yes, Cory, it's Richard. Good morning. I'm just building what Todd was saying. I've been personally really interested in hearing that qualitative feedback from the marketplace.

What's the weight impression? And what's so gratifying that physicians are seeing in the real world, the weight impacts or the differential weight impacts of LYBALVI versus what they're experienced with olanzapine. And the experience in the market is vast and people are using olanzapine to routinely figure the doctors who are prescribing.

LYBALVI have great familiarity with the profile of olanzapine. So that's to us that was the real important qualitative feedback we wanted to really launch do you see a difference and that answer has been coming through very clearly to the point where a lot of the conversation there was more about efficacy.

The efficacy they're able to bring back to their patients, now that they can use olanzapine in this more maintenance phase.

Nemvaleukin, the reason I spend a bit of time on the prepared remarks on that was to really reinforce the point that we've been making for years now, which is the correlation between BEMPEG and Nemvaleukin has always been highly limited. They're both "I know IL-2 variants".

But they were very, very different molecules, BEMPEG being a pegylated form of IL-2 whereas Nemvaleukin is a new polypeptide that's focused really on that intermediate affinity receptor interaction. And you see that translate into the way that drugs behave in patients. And our clinical data has always been differentiated from theirs.

And as I said, in my prepared remarks, the intellectual foundation, the scientific foundation for Nemvaleukin is high dose IL-2 which was not the hypothesis that BEMPEG was testing. So the value proposition for our molecule is unchanged. It's actually nice to have the air cleared a little bit.

So people are forced to look at differences between the programs. And I don't think it's impacted the outside potential interest in the product..

Our next question comes from the line of Paul Matteis with Stifel. Please proceed with your question..

Great, thanks so much. I wanted to ask one more follow-up on LYBALVI and uptake and physician perspective, excuse me and expectations. One of the things that I think is interesting is that half of the use is coming from Zyprexa switches.

Do you know how long these patients have been on Zyprexa? Are these patients who've already gained a lot of weight and it gets to physicians in that subset, how do you manage expectations with this drug that the patients still might gain weight and they definitely won't lose weight? I'm really wondering if you think that that durably is going to be a big pocket of the market, these Zyprexa switches where LYBALVI has prescribed.

And then just one question on VIVITROL, I'm wanting to give me color on kind of what you're seeing now that the impact of COVID may have sort of weigh [ph] mostly on the business as it relates to uptake in the opioid segment versus the alcohol segment. Any color there would be great? Thank you..

Yes, absolutely. Let me -- I'll start first with LYBALVI. The perceptions from HCPs that are adopting is encouraging right now. We did expect that the significant opportunity at the beginning of the launch would be with olanzapine switches as well.

And that's a key part of how we've been thinking about the market is just for context, I think it's important to remember, there's actually eight million prescriptions written for olanzapine in the market overall on a 12-month basis.

So it's a significant contributor overall in the oral category, and that's across schizophrenia and bipolar 1 disorder as well, too. And what we're hearing what we believe that is driving this is, physicians are hearing positive responses back from their patients.

They're hearing things such as reductions and hostility or impulse behavior, they're hearing improved sleep. And one of the key indicators that we're watching closely is they're actually getting fewer callbacks. So that supports the hypothesis that there's a positive driver here as well.

One of the areas, obviously to what we're watching very closely is the experience with weight mitigation. And thus far, it was the intent. It's only the first full quarter post launch. Thus far we're hearing encouraging results with that.

So we believe that over time that that as more experience is gained through physicians, as more patients get access to the medicine as well, too we believe that that positive perception will actually continue to grow. In terms of VIVITROL, we are encouraged by the results that we achieved in Q1.

VIVITROL was impacted and the entire substance use disorder market was impacted by the pandemic, we saw it more so for the opioid indication than the alcohol indication as well. And in general, the way to think about this is within the opioid market, it's relatively flat right now.

Over the year-over-year over the quarter for alcohol dependence, we continue to see growth. In fact, VIVITROL is outpacing the growth of the alcohol dependence market.

So we're encouraged by that, it's contributing about 60% of their overall business and we're seeing recovery the reason why we're seeing actually recovery more so in the outpatient clinic side which represents a significant part of the -- of the AD opportunity for VIVITROL.

The OD opportunity has been more specifically in the control settings of care, we started to see things improved towards the end of Q1. But we're going to be watching that very closely but we believe that VIVITROL has a significant growth opportunity with an alcohol dependence for the remainder of this year..

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

Yes, good morning. Couple of questions.

First of all, what's the normal timeline for arbitration, so we have a sense of when we can expect something there? Second, Rich, I was just curious with Nektar problem has this increased the talks, kind of behind the scenes is it increased the interest level in your product or not, just with respect to the discussions that you've been having over the past year or so with the partnerships and stuff.

And then third, just on the backup work that you're doing on Nemva, the SubQ, the dosing changes and things just curious what you know where that is, in the progress. Thanks..

Good morning, Marc. It's Rich. Yes, I laughed when you said normal timeline for arbitration, there's a contractually provided window for arbitration. But we've seen in previous examples, where it can be effectively irrelevant. We don't think that anything is going to materialize before six months.

But it really is up to the arbitration panel for how long it takes. So we've had more specificity on that for you. This, the Nektar failure has actually given us an opportunity. It's not like we've not been talking about Nemvaleukin with potential strategic selling, that's almost an ongoing dialog as people watch the data emerge.

What it's allowed us to do is have the kind of conversation we're having today, which is to focus teams back on the differentiating features, which you would think that people had already highly identified.

But no, it's amazing how many companies as well as investors have lumped all the IL-2s into one into one basket and said, well, if one works, and they're all going to be good, if one's bad, they're all going to be poor. Now it's forcing a real distinction.

And looking at the different who remains, what products remain, where are they in development? And what are their particular features and one of the real virtues of Nemvaleukin is not just only as molecular design as pharmacology, is the fact that we've been in the clinic long enough where we have durability data, you can actually see one of the hallmark features of IL-2 which is durability for those who respond that those responses can be long-lived.

And that's exactly what we're seeing through our program. That's why we continue to present data even from our ARTISTRY-1. So -- what -- when you call the backups, I really don't think of a backup, I think that the alternative dosing regimens will end up being fundamental, foundational for the broader clinical use of the drug.

As you mentioned, we're testing both SubQ once weekly. And we're generating responses SubQ once weekly. The question on the SubQ once weekly is do we mimic the same durability that we see with the IV.

And on the IV, we have a less frequent IV regimen that we're testing now in Bayesian design, because we're quite confident that daily IV times five, the original proleukin regimen is not necessary in order to drive the right pharmacodynamic response. So we're testing a range of less frequent doses.

And our hunch is that -- is that one or more of those are going to prove to be the ultimate, most commonly used commercial dose. And we're enrolling in those studies. And as Sandy said, we'll expect maturation summit data toward the end of this year, early next year..

Thank you. Our next question is from the line of Jason Gerberry with Bank of America. Please proceed with your question..

Hey, guys, thanks for taking my questions.

So just two follow-ups, first on one of Marc's questions, so appreciate the commentary on arbitration and that everything's sort of case specific but curious if you have a sense when you might get through some sort of fact discovery because that would seem like an important juncture to reach some sort of resolution.

So not sure if like the J&J Genmab arbitration provides you with some sort of analog to sort of map this out.

And then as a follow-up to Paul's question, just thinking about olanzapine adherence, typically when do patients drop off due to the weight gain that would seem like an important juncture to get a sense whether LYBALVI has a differentiated profile in terms of adherence and that weight attenuation sort of resonating or I guess translating to better drug adherence? Thanks..

Good morning, Jason. Switch on the arbitration; it'll remain fairly confidential, entirely confidential from this point forward although as I mentioned earlier, since the time of receipt of those notifications in November, we have been compiling a massive amount of legal evidence on the technology transfer between the two companies.

So we will brief that and the arbitration wills, we'll submit written briefs, and I'm sure J&J will submit some type of written brief as well. And then it's in the arbitrators hands, and we'll go through that process. And that will remain confidential until such time as it's not.

The -- let me just say one thing that's responsive both to Paul's question and to your question, and I'll turn it over to Todd, it's important that the construct you should have in your mind is not that there's a stable market here, people in olanzapine or any other drug, and they're switching to LYBALVI because we're now launching and presenting to the doctors.

That to extent that happens that's a smaller part of the market. What's happening as Todd mentioned, this is a churning market, there are switches occurring every, every month, because there's so much unsatisfied need in the marketplace. It's in that churn that the profile of your drug becomes -- becomes so important.

So capturing the efficacy of olanzapine in the form of LYBALVI with the weight profile that we have, allows physicians to try this drug and see in their own hands, how it compares to their experience with olanzapine. And that's where we're getting such positive feedback.

So Todd?.

Yes, absolutely. I'll just build on that. So the way to think about this, too, is schizophrenia patients and bipolar patients make treatment changes on average of about 5x to 7x over a period of time. So the churn is relatively large. So it's a very dynamic market, and that's really where LYBALVI is going to live.

We stay really close to the olanzapine dynamic and the discontinuation. Our research has been consistent over time. About a third of patients across schizophrenia and bipolar on olanzapine discontinued due to weight gain. That typically happens within the first four to eight weeks. So we see that pretty consistent through all of our research.

So that's something we're watching very closely, and it's supportive of how we're thinking about the dynamic part of the market and where LYBALVI will play..

Thank you. We have reached the end of time allotted for today's question-and-answer session. I'll now turn the call over to Sandy Coombs for closing remarks..

Great. Thanks, Rob. Thanks, everyone for joining us on the call this morning. Please don't hesitate to reach out to us at the company if you have any follow-up questions. Thank you..

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