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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings, and welcome to the Alkermes Third Quarter 2020 Earnings Call. My name is Jim, and I will be your operator for today's session. Please note, that this conference is being recorded.
I'll now turn the floor over to Sandy Coombs, Vice President of Investor Relations. Welcome, Sandy.
Thank you. Welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter ended September 30, 2020. Thank you so much for joining us on short notice. We apologize for the technical difficulties with our earlier schedule call, but appreciate you all taking the time to join us at this time.
With me today are Richard Pops, our CEO; Jim Frates, our CFO; and Todd Nichols, our Chief Commercial Officer. During the Q&A section, we'll also be joined by Iain Brown, our SVP of Finance.
Before we begin, I encourage everyone to go to the Investors section of alkermes.com to find our press release and related financial tables, including a reconciliation of the GAAP to non-GAAP financial measures that we'll discuss today. We believe the non-GAAP financial results, in conjunction with the GAAP results, are useful in understanding the ongoing economics of our business.
Our discussions during this conference call will include forward-looking statements. Actual results could differ materially from these forward-looking statements. Please see slide two of the accompanying presentation, our press release issued this morning and our most recent annual and quarterly reports filed with the SEC for important risk factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements.
We undertake no obligation to update or revise the information provided on this call or in the accompanying presentation as a result of new information or future results or developments. After our prepared remarks, we'll open the call for Q&A.
And now, I'll turn the call over to Richard.
That's great. Thank you, Sandy and hello everybody. We've got a lot of important updates to get to today. So, I'd just like to start by noting our progress and some of the significant accomplishments we've achieved over the last several months.
We are positioning the company for what we expect will be our next major phase of growth. The foundational pillars of that growth are our distinctive commercial capabilities, our R&D engine, and our focus on the efficient management of our business.
Our third quarter results reflect strong commercial performance in a complex and dynamic environment and demonstrated the resilience of our business and execution of our commercial strategy. We also achieved critical milestones in our ALKS 3831 and ALKS 4230 clinical development programs, and I'll talk about that more, later in the call.
While advancing these key priorities, we continue to efficiently manage expenses and drive non-GAAP profitability. As a result, today we've improved our financial expectations for the year, and now expect to end the year with non-GAAP profitability back in line with our original expectations from February prior to the impact of COVID-19.
Jim and Todd will provide additional detail on the performance and the outlook for the remainder of the year, and I'll end with an update on our clinical development activities.
And with that, as a brief introduction, I'll hand the call over to Jim.
Thank you, Richard, and good morning, everyone. Our third quarter financial results reflect strong commercial execution and a continued focus on expense management as we advance our key business objectives. While the results reflect the continued impact of COVID-19-related disruptions on VIVITROL demand, growth trends were stronger than anticipated during the quarter.
Accordingly, we're raising our financial expectations for 2020, primarily driven by the strength of VIVITROL net sales. We now expect our bottom line non-GAAP net income for 2020 to be in the range of $50 million to $70 million, back in line with our expectations we provided in February, prior to the impact of COVID-19, reflecting our commitment to driving continued non-GAAP profitability.
I'll provide additional detail on our expectations for the remainder of the year in a moment, but first I'll start with an overview of our financial highlights for the quarter. In the third quarter of 2020, we generated $265 million in total revenues, reflecting a year-over-year increase of approximately 4%.
We recorded a GAAP net loss of $0.1 million, compared to a GAAP net loss of $52.9 million in the third quarter of 2019. Non-GAAP net income was $41.5 million for the quarter, improved from a non-GAAP net loss of $7 million in the same period last year, driven by higher revenues and lower operating expenses in the third quarter of 2020.
Starting with VIVITROL, net sales in the third quarter were $80.3 million, reflecting a 6% year-over-year decrease, primarily related to the impact of COVID-19 disruptions. Importantly, on a sequential basis, VIVITROL net sales increased 12% driven by underlying unit growth of 22%.
This was partially offset by an increase in gross-to-net adjustments from 46% in Q2 to 53% in Q3, which reflects a higher mix of Medicaid patients. At the beginning of the third quarter, wholesaler inventory levels were at their lowest point in several years.
During the quarter, those inventory levels rebounded to normal levels. We're raising our full year expectations for VIVITROL net sales to be in the range of $305 million to $315 million, from a previous range of $270 million to $300 million.
This new expectation assumes continued normalization of patient flows and access to health care providers. We expect gross-to-net adjustments to continue to increase in the fourth quarter to approximately 54%, driven by increased Medicaid utilization resulting from current elevated unemployment rates.
Turning to the ARISTADA product family, net sales in the third quarter increased 6% sequentially and 16% year-over-year to $62.4 million, driven primarily by unit growth. Underlying total prescription data for ARISTADA demonstrated solid growth of 22% year-over-year in terms of months of therapy.
During the third quarter gross-to-net adjustments for ARISTADA were 54%, as compared to 48% in Q3 2019, reflecting increased Medicaid utilization. Inventory levels increased slightly during the quarter, but were within normal levels at the end of September.
Based on our solid performance through the first three quarters and expectations for continued execution through year-end, today we're raising our expectation for ARISTADA net sales for the full year to a range of $230 million to $240 million, which is higher than the range we set out at the beginning of the year of $220 million to $235 million.
Moving on to our manufacturing and royalty business, we recorded revenues of $120.4 million in the third quarter, compared to $103.8 million in the same period last year. This increase was driven primarily by higher revenues from INVEGA SUSTENNA and RISPERDAL CONSTA.
Our results for the quarter were also positively impacted by a gain of $8.3 million that we earned on our investment in Fountain Healthcare Partners, which was recorded as other income.
Turning now to expenses, we continue to diligently prioritize the investments that support our business objectives to grow the top line, advance our pipeline of development candidates, and manufacture commercial supply of our proprietary and partnered products. As a result, our total operating expenses were $275.7 million for the third quarter, down from $308.9 million in the same period in the prior year.
R&D expenses for the third quarter were $95 million compared to $107.7 million for the same period in the prior year. The decrease was primarily driven by the restructuring that we implemented in late 2019 and the completion of the VUMERITY development program late last year, somewhat offset by increased activity and patient enrollment in the ALKS 4230 clinical program.
SG&A expenses for the third quarter were $127.7 million compared to $148.7 million in Q3 2019, reflecting lower expenses due to the 2019 restructuring as well as expense management measures in 2020. Looking ahead, we expect an incremental increase in SG&A expense in the fourth quarter, as we invest in pre-launch activities for ALKS 3831.
Turning to our balance sheet. We ended the third quarter with approximately $597 million in cash and total investments compared to approximately $540 million at the end of the second quarter, primarily reflecting our positive financial performance in the quarter and changes in working capital. The company's total debt outstanding was approximately $276 million at the end of the third quarter.
I'll shift now to our updated financial expectations for 2020, which are fully outlined in the press release we issued earlier this morning. Recent trends reflect both the changes that health care providers have implemented to provide continuity of care for patients and the productivity of our evolved commercial strategy.
Our expectation for the remainder of 2020 assumes continuation of these trends. However, new COVID-related restrictions may impact our ability to meet these expectations.
With that for the top line, we now expect total revenues to be in the range of $1.01 billion to $1.035 billion. We're also narrowing the ranges of our operating expenses. R&D expenses are now expected to be in the range of $375 million to $390 million. SG&A expenses are now expected to be in the range of $530 million to $545 million and reflect an anticipated sequential increase in the fourth quarter of 2020 related to the pre-launch activities for ALKS 3831.
We expect the strength of our top line and our expense management efforts to improve bottom line non-GAAP results by approximately $45 million for 2020 compared to the financial expectations we set forth in July, demonstrating the operating leverage of our business and our continuing commitment to non-GAAP profitability.
We now expect 2020 GAAP net loss to be in the range of $95 million to $115 million and we expect non-GAAP net income to be in the range of $50 million to $70 million. These non-GAAP expectations are now back in line with our original expectation from February 2020, reflecting the reduction in operating expenses implemented in response to the impact of COVID-19 on our top line.
Looking ahead, we're focused on driving the continued growth of our proprietary commercial portfolio while advancing our development programs and capturing operating leverage. The data presentation for ALKS 4230 at ESMO highlighted the potential of this pipeline candidate and the positive outcome of the advisory committee meeting for ALKS 3831 was another step toward the expansion of our commercial psychiatry portfolio.
We have important milestones ahead and believe we're financially well positioned to execute on our business strategy, drive profitability and support shareholder value creation in the years to come.
With that I'll hand the call over to Todd to review our Q3 commercial results.
Thanks, Jim and good morning, everyone. We are pleased with our strong commercial performance in the third quarter, which reflects a sequential increase in demand for VIVITROL and continued resilience in the ARISTADA product family, as we adapted our commercial strategy in response to the challenges that patients and health care providers are facing as a result of the pandemic.
We have developed new and effective ways of engaging with health care providers including investments in digital capabilities that we believe will provide an important foundation for the growth of our products and the potential launch of ALKS 3831.
I'll now provide a review of our Q3 results as well as our outlook for both products for the remainder of the year. Starting with VIVITROL. Net sales in the third quarter were $80.3 million reflecting sequential unit growth of 22%. The rapid response, adaptability and strong execution of our commercial team in the face of the COVID-19 environment was essential to this growth. And I want to acknowledge their commitment and resilience.
The growth in VIVITROL net sales reflects an increase in new patient starts as well as the return of certain patients, previously using VIVITROL, whose treatment had been interrupted earlier in the year. While many treatment providers have adapted their practices and patient access to injections has increased, overall VIVITROL volume was still below last year's pre-COVID Q3 levels with a 3% decline in units year-over-year.
We continue to see a healthy balance in the indication mix for VIVITROL with the contribution from alcohol dependence increasing over the last couple of years and growing at a faster pace than opioid dependence. With alcohol consumption on the rise across the country, as a secondary consequence of COVID-19, there may be increased need for treatment for alcohol dependence in the future.
Due to the strong performance of VIVITROL in the third quarter, we are raising our full year 2020 expectations for VIVITROL net sales by approximately $25 million to a range of $305 million to $315 million. While the challenges presented by COVID-19 in addiction treatment landscape are not behind us, we are encouraged by the recovery trends that emerged during the third quarter. We will continue to adapt our commercial activities to help meet the evolving needs of health care providers and support patient access to our medicines in this dynamic environment.
Turning to the ARISTADA product family. Net sales in the third quarter increased approximately 16% year-over-year and 6% sequentially to $62.4 million reflecting underlying demand growth. Total prescription data for ARISTADA demonstrated solid growth of 22% year-over-year in terms of months of therapy and outpaced the broader long-acting atypical antipsychotic market which grew at 5% in the same period. The two-month dose remained at its highest share brand at 37% in terms of months of therapy.
As a result of the pandemic, we have seen some impact prescribing patterns in the long-acting antipsychotic space. The year-over-year growth rate of the overall long-acting injectable market began to moderate from 13% in Q1 to 5% year-over-year in Q3, as market research showed that psychiatry health care providers made fewer treatment changes in the COVID environment. Our commercial organization is continuing to adapt to support providers and patients as we drive growth of ARISTADA in this environment.
Today, we are raising our full year 2020 expectations for ARISTADA net sales to a range of $230 million to $240 million and believe we are well positioned to exit the year with momentum. The commercial organization that we have built to support ARISTADA including capabilities tailored to the immediate commercial environment provides an important operational leverage as we prepare for the potential upcoming launch of ALKS 3831.
The positive outcome of the ALKS 3831 advisory meeting a few weeks ago was a critical milestone. The open public hearing highlighted the significant unmet need that still exists for patients living with schizophrenia bipolar one disorder, many of whom commonly cycle through multiple therapeutic options in pursuit of better outcomes, switching therapy on average five to seven times throughout their treatment journey. Prescribers of antipsychotics are often faced with a difficult trade-off between efficacy and tolerability for their patients. We believe, ALKS 3831 has the potential to be an important new treatment option for patients and providers.
As we approach our November 15 PDUFA date, prelaunch activities are ramping up. Our current expectation is that subject to approval and DEA descheduling, we will be positioned to launch ALKS 3831 towards the end of the first quarter of 2021. Our deep psychiatry market expertise and established commercial capabilities provide a strong platform for the planned commercialization of ALKS 3831.
We have a good understanding of the access environment and expect that at launch, there will be a range of access barriers in place, with some payers imposing more restrictive measures and other plans allowing more unencumbered access to ALKS 3831. For example, there are 11 states that have some form of mental health exemption policy to reduce or eliminate formulary restrictions on antipsychotic medications for Medicaid patients. We will engage with payers on a state-by-state and plan-by-plan basis and expect that access will improve throughout the first year of launch, as formulary decisions are made.
While that is happening, we plan to implement programs to help mitigate the impact of initial restrictions that may be in place in year one. We have also extensively mapped the prescriber landscape and have a well-defined target universe for launch. Our sales force planning is now complete, and our strategy reflects the shifting competitive landscape in a COVID environment.
We believe that a new hybrid promotional model that permanently incorporates both in-person and virtual engagements will allow us to officially target our broader footprint of prescribers for oral antipsychotics, with a smaller commercial field infrastructure than we initially planned for.
For competitive reasons, I won't provide specific numbers around the size of our commercial field organization or details on our deployment strategy at this time. I will share that at launch, we plan to target health care providers that represent approximately 70% of the oral antipsychotic market and about 80% of the branded oral antipsychotic market.
Our existing ARISTADA team will service the core of the commercial effort for ALKS 3831 and already calls upon roughly 60% of the providers included in our anticipated prescriber call universe for 3831. We are focused on leveraging our existing commercial organization. We'll make additional investments to maximize the launch of 3831. A portion of that investment will occur prior to launch. Post launch, we expect to add incremental headcount to our field organization as payer access for ALKS 3831 is established and as pandemic-related restrictions ease.
Overall, the planned build and our commercial team to expand our reach and support ALKS 3831 is less extensive than what we anticipated prior to the adoption of our hybrid promotional model. Leveraging our existing commercial infrastructure with this flexible approach will provide an important foundation for the potential launch of ALKS 3831 and the continued commercialization of ARISTADA and VIVITROL.
And with that, I'll turn the call back over to Rich.
That's great Todd. Thank you, very much. We have achieved a number of critical milestones in our development programs against this backdrop of strong commercial execution and disciplined management of our expenses. The positive outcome of the ALKS 3831 FDA advisory committee meeting and the presentation of accumulating antitumor activity and safety data for ALKS 4230, including in the monotherapy setting were important achievements that underscore the potential value of these investigational medicines.
I want to spend a minute on each of these two developments. First, ALKS 3831. This is our novel oral atypical antipsychotic candidate, designed to provide the established efficacy of olanzapine, while mitigating its associated weight gain. We submitted the 3831 NDA treatment of schizophrenia and bipolar I disorder last November, and the advisory committee meeting was held three weeks ago. This was a joint meeting of the Psychopharmacologic Drugs Advisory Committee and the Drug Safety and Risk Management Advisory Committee to discuss the clinical meaningfulness of ALKS 3831's weight mitigation and the safety profile of ALKS 3831. Three votes were taken and all three outcomes were positive.
More specifically, the nearly unanimous vote 16:1, supporting the clinical meaningfulness of ALKS 3831's weight mitigation was an important reflection of its intended clinical profile. The panel also voted that the safety profile of 3831 had been adequately characterized and that labeling would be sufficient to mitigate the risks related to the opioid antagonist action of samidorphan, while not binding the committee's recommendations will be considered by the FDA and we're looking forward to working with the agency to complete its review of 3831 NDA in advance of the PDUFA date on November 15.
I'd like to thank the thought leaders, the patient advocates and people living with schizophrenia or bipolar disease who participated in the open public hearing to share their clinical perspectives and lived experience. A guiding principle of our company has always been to make medicines to address real-life concern to patients suffering from chronic diseases. We believe it's critical to incorporate patients' perspective into the drug development process. I'm also extremely proud of the Alkermes team that represented 3831 at the meeting. I'd like to thank them for the month of preparation to help produce this positive outcome.
If approved, ALKS 3831 will be an important offering for patients struggling with schizophrenia and bipolar one disorder and will underscore our leadership position in the field of serious mental illness. As Todd commented, our current presence in the antipsychotic market with ARISTADA provides a valuable foundation for the anticipated commercialization of 3831. You've heard us say for some time, the commercial infrastructure required to bring these medicines to patients is substantial. Approval of 3831 will provide an opportunity to add a new revenue stream and drive topline growth while leveraging this infrastructure.
Turning to ALKS 4230 in oncology. 4230 was designed to retain the therapeutic benefits of recombinant human IL-2 by selectively activating antitumor effector cell, while mitigating the IL-2-associated expansion of immunosuppressive regulatory T-cells. From the outset, we've been rigorous in staging the advancement of this program, predicated on the accumulation step-by-step of data supporting and validating our design hypothesis.
The 4230 data presentation in September at ESMO was a defining moment in this development program. We present data from ARTISTRY-1, which is our multi-part study of intravenous 4230 as monotherapy and in combination with PD-1 pembrolizumab. The data showed evidence of antitumor activity for ALKS 4230, with durable and deepening responses as monotherapy and in combination with pembro in a diverse set of difficult-to-treat tumor types.
I'm going to briefly summarize some of the most important features of the data here. But for those of you wanting a deeper dive, I encourage you to view the ESMO presentation archived on the Investors section of our website and follow up with our peers at the company.
So let's start with the monotherapy arm of the study. We view the emerging signs of monotherapy efficacy as foundational to the program, with the potential to distinguish 4230 from other IL-2 variant programs in development. The partial responses observed with 4230 monotherapy that were described at ESMO were in patients with refractory mucosal melanoma, who had received prior PD-1 therapy.
Mucosal melanomas are a rare, highly lethal variant of melanoma that carry a poor prognosis and treatment options are very limited. With this early evidence of monotherapy efficacy in this tumor type, we're currently in the process of evaluating potential clinical development and regulatory strategies that may support expedited development.
The data presented at ESMO also provided new insights into the potential clinical value of 4230 use in combination, in this case with pembrolizumab. Durable and deepening responses have been observed with 4230 in combination with pembro in a number of tumor types for their limited treatment options. These include ovarian, triple-negative breast, esophageal and pancreatic cancer.
The complete and partial responses we've seen in the 4230 in combination with pembro in platinum-resistant ovarian cancer are particularly encouraging. This indication represents another potential registration pathway. Given the high unmet need and limited treatment options for patients with platinum-resistant ovarian cancer, we plan to meet with FDA to discuss clinical study and data requirements that could support potential registration in this indication.
Across the ARTISTRY-1 study, 4230 demonstrated a safety profile generally consistent with the anticipated effect of cytokine therapy. The transient fever and chills is the most frequently observed adverse events in both the monotherapy and combination cohorts. Importantly, there were no reports of vascular leak syndrome, which is the hallmark toxicity of high-dose IL-2 treatment.
Another distinctive feature of the 4230 clinical development program is the potential for subcutaneous dosing. ARTISTRY-2, our subcutaneous study is ongoing in its dose escalation phase for both once-weekly and once-every-three-week dosing regimen. We're narrowing in on the recommended Phase II dose and will share pharmacokinetic, pharmacodynamic, safety and tolerability data from the initial dose escalation cohort at SITC in November. We believe that we'll be positioned to declare the recommended Phase II dose around year-end. We'll then plan to begin dose expansion cohorts in dedicated tumor types in both monotherapy and in combination with pembro.
The accumulating data from the ARTISTRY development program provide a clearer picture of 4230s potential clinical value. Our focus is on maximizing the medical and economic value of 4230 for the benefit of patients and our shareholders. Strategic collaboration remains an important opportunity to fully elaborate the potential of 4230 across a variety of tumor types and in a combination with a variety of immunotherapies and other cancer treatments.
Looking ahead, we'll continue to focus on the three strategic imperatives that currently drive our management of the business: strong commercial execution, effective advancement of our development programs and efficient management of our operating structure. We have a significant amount to accomplish and I look forward to updating you on our progress in the days ahead. So with that, I'll finish it and I'll turn the call back to Sandy for the Q&A.
Great. Thanks, Rich. Can you open the call for Q&A now, please?
Thank you. [Operator Instructions] We'll hear first from Vamil Divan at Mizuho securities.
Great. Thanks so much for taking the question. So I just have a couple, if I could. One, I guess, your comments you made around the gross-to-net impact this quarter gone up a little bit. I'm just trying to understand how much of that do you think is sort of due to the pandemic and sort of maybe more one-time sort of adjustments, or how much of this is more of a steady-state? I guess, I'm sort of wondering about what you think gross-to-net might be for next year. I don't know, if you're ready to comment on that, but sort of what I'm hoping to get some color on sort of forward-looking gross-to-nets thoughts.
And then on 4230, I guess, for Richard. I appreciate the comments you just made. I know we'll get some more data on this again subcu at SITC. I'm just trying to get a sense maybe around some of the discussions you are having or plan to have with potential partners there. Do you think after SITC is maybe a reasonable time for us to expect more communications to pick up on that asset, or do you think you still need to do sort of additional work and maybe more, say, middle of next year or something along those lines? Thank you.
Thanks, Vamil. Jim, why don't you go ahead on the gross-to-net and I'll pick up the 4230.
Yes, of course. Thanks, Vamil. Yes, I think, we do see the gross-to-net changes this year, as related to COVID. I think we signaled that a little bit earlier in the year when the COVID crisis started to hit. The unemployment rates, as we know, across the country have gone up dramatically from where they were before the crisis. And those funnel through as Medicaid patients into the VIVITROL channel.
One of the benefits in this quarter was, I think, gross-to-nets came in a little bit lighter than we had anticipated in Q3 at 53% and I think we see them more in the 54% range in Q4. And at this stage, I think, that's probably the best thing to do is model that out consistently in 2021 until we get a sense of how the unemployment rates change in the country going forward and when they start to change. I think being conservative in that regard around the 54% range makes sense. Rich?
On the 4230, our view of this, and I think we've been consistent on this through the year, Vamil, has been, we wanted in 2020 to lay out and establish the data around three major areas in the program. One was monotherapy efficacy. Second is combo efficacy with pembro, particularly in pembro-unapproved tumor types. And the third is subcu, because it looks like we're at this point the only subcu presentation in development of an IL-2 variant.
So I think we're checking the boxes. The first two I think we're well along our way in terms of monotherapy efficacy, signal as well as pembro combos. Now the subcu and we'd like to get to that recommended Phase II dose and regimen, which we expect towards the end of the year.
With that, it will expand in the subcu way, the same way we did in ARTISRY-1, which is into the indicated tumor types as monotherapy and combo. And then I think the program is really, really on a solid foundation. That's the time that I think that we’ll be leaning into a collaboration discussion.
There is interest in the program already. I mean, obviously, people in the field are watching new developments in the field. And I think 4230 is beginning to distinguish itself, but we're in no rush at this moment, until we really check all the boxes necessary to really be sure that we have the profile that we designed.
Okay. Thank you.
Our next question comes from Brandon Folkes with Cantor Fitzgerald.
Hi. Thanks for taking my question and congratulations on the results, for this quarter. Maybe just, continuing along the VIVITROL line quickly. You talked about alcohol being a stronger growth driver this quarter.
Can you maybe just elaborate on, how much of that growth is being driven by patients not wanting to enter, an in-patient alcohol treatment center, during COVID, versus an enduring shift to using, maybe assisted treatment for alcohol, just given that that remains a very underpenetrated market.
And then, secondly, maybe ALKS 3831, you talked about reimbursement, over the first year. Can you just, set some expectations in terms of, how we should think about, the pace of those reimbursements, when -- and gain coverage and gaining a critical map of coverage in that first year. Do you expect some relatively quick wins, or how should we think about that pace? Thank you.
Yeah. Hi Brandon, this is Todd. I'll take the questions. In terms of VIVITROL for alcohol, to your point, it's a very large market and a growing area of opportunity, for the brand. 14.4 million, patients suffer from alcohol use disorder about 400,000 on treatment.
Our qualitative research and our discussions with HCPs, tell us right now, that a lot of the growth overall for VIVITROL is coming in the outpatient setting. We have seen some relaxed restrictions on the inpatient setting. But it's still a little too early to call. And to see what the impact of COVID is on those restrictions.
So right now we are seeing a little bit more of stronger growth, in the outpatient setting. To my earlier comment, we are seeing a little stronger growth for the alcohol indication versus the opioid indication. And it's something that we plan to maximize, moving forward as well.
In terms of reimbursement for 3831, I think the important point to, really think about with 3831 in this category is there really is no uniformed approach to market access. There are three very distinct channels, in Medicare Part D, commercial Medicaid.
Formulary decisions will be variable based upon the time lines, at the local level. And we're very in tune to that. To-date, we've had over 40 interactions with payers across the U.S. market that, control over 50% of the lives. And we're talking with them very closely about time lines.
We do expect that launch. There's always going to be a percentage of lives that will have open access and is variable at this point. And so we expect that the access profile will become more, clear throughout the first year.
To support the launch, we have various programs and tactics that we will be putting in place, such as patient reimbursement programs, patient access programs and so forth, that will help, mitigate any types of formulary restrictions at launch. But the key message is that, it will evolve over the first year launch.
Great. Thank you very much.
Thanks, Brandon.
Our next question will come from Cory Kasimov with JPMorgan.
Hey. Thank you for taking my questions. This is Turner on for Cory. Just coming away from the ad com for 3831, has your view on the product's potential changed at all? Is the commentary from the general physician community, differ from that of the panel? Any comment there would be helpful. Thank you.
Hi. This is Rich. Perhaps, I'll start. And I'll hand it over to Todd, who's on the front lines of this. No. In fact, we were really pleased with the clarity of the vote, with respect to the clinical significance of the weight mitigation that samidorphan provides.
That's a really important box to check, because that allows them the efficacy of olanzapine to come through. And what we find in our market research is, is that the acceptance and the belief and the efficacy of olanzapine is quite graceful and quite strong. But I'll let Todd, elaborate from there.
Yeah. That's right. Turner. I would say that our main takeaway is that, it supports all of our research and our position on the value proposition of ALKS 3831. And really the unmet need, just for context, I think it's important to remember that there's over 2.1 million patients is our, from schizophrenia, over 2.4 million patients that suffer from bipolar one disorder.
It's a very large market that is growing. It's a large branded market over $3.5 billion in branded sales. We believe that, the critical milestone of getting through the AdCom actually supports the value proposition of the brand. It actually supports the trusted power of olanzapine, without the potential long-term weight gain. So, we're very excited about that.
We'll move forward to Paul Matteis with Stifel.
Hey thanks. This is Alex, on for Paul. Just a quick follow-up question on your views on, the AdCom, curious if you could comment on the discussions surrounding bipolar, and if you still remain confident in, having that bipolar indication on the label upon approval? And then another follow-up on 3831, you talked a lot about disciplined expense management. Can you talk a little bit about, where you expect SG&A going forward with the 3831 launch? Great. Thank you.
So, I'll take the bipolar side. Yeah, we didn't really hear anything as yet that would undermine our belief, and the approval for both schizophrenia and bipolar one disorder. That's an agreement we've had with the review division, for quite some time.
It was based on, a PK bridging study and some drug-drug interaction studies, that we ran with valproic acid and lithium. So we'll stay the course on that. And we expect approval for both. On the expense side, I know, we're not going to guide for 2021, at this point. But I'll let Jim and Tom, to give you some qualitative sense of that.
Sure. Thanks Alex. So as we guided, for the remainder of 2020, we do see roughly a 10% increase at the midpoint for SG&A, as we move into beginning our educational programs. And post-PDUFA works in the fourth quarter, as we prepare for 3831.
I would expect that increase to continue moderately in 2021. We haven't prepared guidance yet obviously, but as we hire the complement of the sales force as Todd mentioned and begin education activities post launch, that will be a normal bolus, for a launch year for a product like 3831.
Importantly, though we're committed to non-GAAP net income profitability here. And we think we have the ability to invest strategically in the launch. But also maintain that discipline on profitability, as we move into 2021. And we'll give more guidance in February, as we typically do around the specific.
Yeah. I would just add Alex, to Jim's comment. We are committed to a very successful launch here, for ALKS 3831. We believe that, the brand has a unique value proposition. And a very large market with a significant unmet need. A couple of the areas that we are focused on right now is as Jim made -- commented earlier in his prepared remarks, we do have some investments in the fourth quarter. We have a very active, very productive disease state education program. We have learned a lot through the pandemic with our commercialization with ARISTADA and we have some proven success channels and our digital marketing capabilities that we plan to leverage as we launch 3831. So we're going to be ramping up those activities in 2021. And we're also going to have the build of our sales force again not as extensive as we had originally anticipated, but we will be adding on sales professionals to support the launch throughout next year.
Thank you so much.
[Operator Instructions] Next we'll hear from Marc Goodman at SVB Leerink.
Yes, hi. First, just on 3831, are you expecting any type of rents at all related to the conversation at the moment?
Second, of all manufacturing and royalty revenues. Can you just give us a sense of as we look into 2021, what are some of the push and pulls that you're expecting? Are there any new products that we should be expecting that will come in, that will add any major changes in products? That will be helpful.
And then just lastly on VIVITROL. So we look at revenues that you're expecting for the fourth quarter not as much of a balance as I guess we would have expected. Did you get -- was the balance sheet in third quarter, do you think taking away a little bit from the fourth quarter? I guess, I don't know it just seems a little more flattish than we would expect. Thanks.
Hi, Marc it's Richard. I'll take the 3831 and then Jim and Iain and Tom on the other two. We -- just to be clear, we've actually proposed in the labeling for 3831 probably the most restrictive aspect as it relates to the risk that was raised by the panel, which is the risk of the opioid antagonist present in the formulation by indication that we want this drug excluded or not indicated for patients who are currently using opioids.
So we don't expect the REMS, but we have proposed an education program that can't amount to an educational REMS. And we're very comfortable with that because it's in our best interest to make sure that physician's and patients are aware that 3831 contains samidorphan. So we've been -- this is something we've been prepared for the entire life of the development program and we're looking forward to doing. We do that with VIVITROL as well. We educate extensively about the role of the antagonist for patients and physicians.
Jim, do you want to take the VIVITROL?
Oh, yeah, sure. So, the other two on the manufacturing revenues and then on VIVITROL expectations for the remainder of the year, Marc. So next year really for the manufacturing revenues, obviously, VUMERITY given a dynamic year in that market this year and particularly COVID, I think we see potential upside there and view that as a real call option on the manufacturing and royalty side. That's probably the major -- the product with the most major impact in terms of a difference from this year into next year.
I think we see continued growth on SUSTENNA and CONSTA remaining in sort of in that flat to slightly down, but overall the LAI market with our J&J products continuing the growth that we've seen historically. So I think we feel very solid about that manufacturing and royalty revenue as a whole with that upside from VUMERITY potentially in 2021.
On the VIVITROL side we give a range of guidance because it's certainly hard to predict certainly with COVID. We saw -- as I said in this past quarter now roughly two-thirds of the growth really came from volume and then one-third came from adjustments in gross-to-net on the positive side from previous quarters, as well as the increase in inventory. So as we move into the fourth quarter we're not really anticipating or planning for a large change in inventory. Sometimes that happens in the fourth quarter but we don't want to bank on that.
And then being cautious around the rebound, it was a very strong rebound in Q3 and it's really just hard to predict. So that's why we give ranges for VIVITROL. And as we've done in the past, we try and take the previous growth rates and look at those moving forward from a demand perspective. And we certainly think that VIVITROL is building back to where we were last year in terms of growth rates in overall market and we continue to see that moving forward. Yeah. You're welcome
Our next question comes from Jason Gerberry at Bank of America.
Hi, thank you for taking my questions. So on ALKS 3831, there was some statistics in the AdCom briefing book about 20% to 25% of olanzapine patients getting concomitant opioid prescription. So curious is that ratio applicable more broadly across the entirety of the atypical antipsychotic world? Just wondering, how you think about the potential addressable or eligible patient population if this contraindication is in the labeling.
And then if you get REMS, is that commercially a major headwind in your view, or can you survive that? They'll have a commercially successful product?
And then lastly just, can you talk about what's going on at the ground level with VIVITROL in terms of the patient flow to the clinics versus the alternative distribution at places like Albertsons, which was talked about last quarter. Just kind of trying to get a sense thinking about fourth quarter next year depending upon how the pandemic evolves, how you're evolving to be able to make sure that patients are adherent to therapy? Thanks.
Yes. Hi, Jason this is Todd. I'll provide a couple of comments start off with that. The first question on patients consistent -- the percentage of patients that receive an opioid prescription as well too. Our viewpoint is yes that's consistent across the market place at approximately 25%.
I think it's important to remember when you look at this across patients that have serious mental illness and bipolar one disorder you're talking about total patients anywhere from about 5% to 8%. So it's actually a relatively small number of patients. And you'll see as well too that our belief what we've proposed is that those patients are contraindicated. So we think that's very manageable and the right thing to do.
In terms of the REMS program, we thought long and hard about that. We have proposed an educational program as well as a company that has experience with the REMS program. We actually have a REMS program for VIVITROL. We're very comfortable with that. We know how to execute a REMS program. And with a very small contraindicated patient population, we think that's going to be very manageable for us from a commercial standpoint.
And then in terms of patient flow, the thing that we're watching very closely with VIVITROL right now is that the addiction market is starting to recover, which is a very encouraging sign on many different fronts right now. The substantial majority of the recovery of what we're seeing is actually in the outpatient setting. We've had a very large commercial effort on expanding access to injections to alternative sites such as pharmacies, such as Albertsons. We're very encouraged by that.
In general, we've added about 2,000 additional locations to our provider locator for injections for ARISTADA and also for VIVITROL. And in all of our discussions with our pharmacy partners including, Albertsons, they are starting to see an increase in utilization. It's still a little bit early to give specific numbers for Albertsons, but I can tell you that the amount of injections that they're providing now and the growth they're seeing is starting to pick up, which we're very encouraged by.
Can I just ask a follow-up? Can you explain a little bit the – why it's 5% to 8% of patients who get concomitant opioids versus the 25% of TRx? Just understanding the difference of those two numbers?
Sorry, Jason, would you repeat the question?
Yeah. I believe it was only 5% to 8% of patients get concomitant on opioid, but it's 25% of TRx I think that concomitant on opioid. So I was just trying to understand the discrepancy between those two numbers.
The 5% to 8% Jason is really a med analysis that's done talking about the population that would have an opioid use disorder and also serious mental illness. So those are the patients that would be contraindicated in the ALKS 3831 label.
Okay.
All right. Thanks, Jason.
Our next question will come from Akash Tewari with Wolfe Research.
Hey. Thanks so much for taking my questions. I just wanted to confirm. On 3831, do you currently plan for there to be a REMS program, or do you not? And can you give some comment on what the trajectory will look like both in bipolar and schizophrenia given some of the comments you've made on reimbursement and your revised sales strategy? Additionally, on ARISTADA, how will the growth trajectory change after ABILIFY MAINTENA goes off patent in the mid 2020s? Any concerns on revenue growth being affected when you start getting generic competition from the J&J product? Thank you.
Hey, Akash it's Rich. Let me give a couple of points, and then I'll have Todd fill in the details. We don't currently plan REMS right now, but we'll see how we end up through the review. And the reason, we don't believe is because we actually proposed an educational program that is enhanced amounted to an educational REMS. And we think that will be more than sufficient to meet the needs in the market along with as Todd has mentioned multiple times the fact that the drug will not be indicated, the contra indicator for patients who are actively using opioids.
So we think that will be sufficient, but if when – educational REMS, we can deal with that as well. I think one of the most interesting things about ARISTADA right now is it's a product family. And the space between ARISTADA and other long-acting injectables growth as we introduce new features and new data namely the range of doses the range of durations, the presence of INITIO, as well as the two-month dose, coupled with data PAUSE like from our ALPINE study that shows real-world use in those dose regimens.
So we expect other entrants into the field although you have noted it's a very small number of competitors in such an important market, but we think the ARISTADA product family will continue to stand on its own based on data and the features and benefits of the family for a long time.
Yeah. Yeah, what I would add is I think the question too was around uptake 3031 for payers schizophrenia and bipolar. Again, I think the important point to remember with this is that the payers don't look at these as distinctive products. They don't manage the indication separately. So our expectation again is that ALKS 3831 from a payer standpoint is going to compete in the branded space. And we're not expecting to see any difference in uptake from a payer standpoint for schizophrenia versus bipolar.
In terms of the impact to – for ARISTADA with the potential of another product coming on to the market to Rich's point, I think the good thing to remember about ARISTADA is really our source of business. ARISTADA's source of business is not predicated on one or two products. It's very broad. We have a large source of business that comes from orals, and also a source of business that comes from LAIs. So one additional product coming on to the market, will not drive a major difference in how we look at the outlook for ARISTADA as a family.
Thanks so much.
Our next question comes from – and I hope I'm saying your name correctly from Biren Amin with Jefferies.
Yeah. Hey, everyone. This is Jeet on for Biren today. Maybe just one quick question from me, I think back in September you had updated us on an ongoing litigation with Teva regarding the 499 patent for VIVITROL. Just wanted to know, where things perhaps currently stand with that and if you foresee ultimately settling with Teva as you did in the previous annual lawsuit, and I guess theoretically if Teva does ultimately win would it be fair to assume Alkermes could launch after Teva's generic exclusivity period? Thanks.
Hi, Jeet, thanks for the question. Yeah, as we disclosed earlier in this quarter, we did file suit against Teva related to that end of filing. At this point, we'll not comment on ongoing patent litigation, but we'll certainly keep everyone in the loop as things unfold on that front.
Great. Thank you.
Our next question comes from Douglas Tsao at H.C. Wainwright.
Hi. Good morning. Thanks for taking the questions. Just Jim maybe as an initial one and maybe I missed it, can you just quantify in dollars the inventory adjustments that we saw for VIVITROL and ARISTADA in the quarter?
And then another question, on the VIVITROL franchise. Just given the adoption with alcohol dependence or sort of increased use there, is that concentrated still in the same top five states? And has that -- seems to be solidifying as a growth opportunity. Are you thinking about sort of reshaping the commercial organization to capitalize on that, or is that something that can basically be done with the sales force as it's presently configured? Thank you.
Hey, Doug, good morning. Maybe I'll start and then turn it over to Todd on the sales force side. So, yeah, on the inventory, inventory fluctuates in both products as you know quarter-to-quarter. In terms of VIVITROL, it was at the lowest level in many years when we started the quarter, and that was a bit of a -- I guess, a headwind that we saw in Q2. It bounced back to normal levels during the quarter. It was about $4 million of net sales that we saw. It could be associated with less than a week of inventory that we think moved into the channel, and it's back now the inventory level at about 2.5 weeks, which is where we would expect it to be.
So I think we're back to normal on VIVITROL really as opposed to in a state where there's too much inventory. And I think that's a natural decision I'm sure by the channel, as we saw COVID hitting in Q2 particularly hard.
On the ARISTADA side, same thing, we're back to really normal levels. It's a little bit higher to around the four-week range, but that's been typical for ARISTADA over the last few years. And the impact in the quarter was roughly around $1 million in Q3. So, again back to normal levels there and normal quarterly fluctuations I would say.
Yeah. Hi, Doug, it's Todd. In regards to VIVITROL and alcohol, right now are fact that the performance in the concentration of the VIVITROL business is somewhat consistent quarter-over-quarter. Our top 10 states represent approximately 58% of the volume for VIVITROL. Through Q3 we've seen the substantial majority of our states actually show recovery. Now they're not back to their pre-COVID levels, but we're seeing really solid growth through Q3.
The concentration for alcohol right now is an evolving landscape at this point. We see a little bit heavier utilization out West in California, for example. We've been doing a lot of extensive work over the last four months looking at our deployment for our commercial organization.
We are in the process of updating a deployment as well too to make sure that we're capturing the targets, the HCP targets that actually have the substantial majority of alcohol patients. That's an action that we took -- we've put in place in Q3, and we're going to continue to evolve that going into next year.
And is there any thought to expanding the list of targets? Just -- or how broad or much awareness is there on its availability as a treatment for alcohol dependence?
Yeah, that's the right question. Absolutely. Awareness level for MAT in general with alcohol is low. It's in the 30s. For VIVITROL, it's less than 10%. So we think there is an opportunity to actually expand awareness levels with patients and providers as well too.
We're going to be very thoughtful very strategic about where we play. It's a very important decision that we have to make. We think our sales force is the appropriate size, but we do think there's an opportunity to reevaluate the targeting, and that's what we've been doing over the last three months.
Okay. Great. Thank you.
And that does conclude our question-and-answer session for today. I'll turn it back to the management team and to Ms. Coombs for any additional or closing remarks.
Great. Thank you everyone for joining us on the call today. We appreciate the patience with our difficulties this morning, but please do reach out to us at the company if you have any follow-up questions that we can be helpful with. Thanks so much.
Ladies and gentlemen, this does conclude today's conference. We thank you all for your participation. You may now disconnect and we hope that you enjoy the rest of your day.