Alkermes (ALKS) Q2 2022 Earnings Call Transcript

Alkermes (ALKS 0.98%)
Q2 2022 Earnings Call
Jul 27, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Alkermes second quarter 2022 earnings call. My name is Melissa, and I will be your operator for today's call. All participant lines will be placed on mute to prevent any background noise. [Operator instructions] Please note that this conference is being recorded.

I'll now turn the call over to Sandra Coombs, senior vice president of investor relations and corporate affairs. Sandy, you may begin.

Sandra Coombs -- Senior Vice President, Investor Relations

Thank you. Good morning and welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter ended June 30, 2022. We -- 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 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 Iain.

Iain Brown -- Chief Financial Officer

Thank you, Sandy. Hello, everyone, and thank you for joining our call today. We delivered strong results during the second quarter, driven by the performance of our proprietary commercial products and our disciplined management of our cost structure. The launch of LYBALVI continued to perform well during the quarter and we're pleased to raise our financial expectations for the year based on this performance and updated assumptions related to our royalties from sales of the long-acting INVEGA products outside the United States.

These top-line improvements are expected to flow through to our bottom line results for the year, and I'll provide additional detail on these expectations in a moment. But first, I'll start with an overview of our second quarter financial highlights. We generated total revenues of $276.2 million, driven by strength in our proprietary commercial product portfolio, which increased net sales by approximately 19% year over year. Starting with VIVITROL, net sales in the second quarter were $96.1 million, reflecting 9% growth year over year.

Gross to net adjustments in the second quarter of 51.1% reflected continued favorability with respect to previously booked Medicaid reserves. In Q2, inventory in the channel decreased by approximately $1 million, consistent with typical seasonal and shipping patterns. Today, we are narrowing our expectation for VIVITROL net sales for the full year from a range of $355 million to $385 million to a range of $365 million to $385 million. We now expect gross to net adjustments to be approximately 51% for the full year, revised from our previous expectation of 52%.

The ARISTADA product family generated net sales of $74.6 million, a 3% increase year over year. Gross to net adjustments were 54.2% in the second quarter, and inventory levels decreased by approximately $2 million. Today, we're narrowing our ARISTADA net sales range for the full year from a range of $290 million to $320 million to a range of $295 million to $315 million. We continue to expect gross to net adjustments of approximately 54% for the full year.

Looking ahead to the third quarter, we expect growth of these two products to moderate consistent with typical seasonal patterns with more robust growth expected to resume in the fourth quarter. LYBALVI net sales in the second quarter increased 44% sequentially to $20.1 million, driven primarily by demand growth. In Q2, inventory levels increased by approximately $1.8 million in line with demand and gross to net adjustments in the quarter were 26%, primarily reflecting a continuation of less restrictive initial commercial payer coverage that reduced the cost associated with our Patient Copay Assistance Program. While final payer coverage decisions will continue to be made through this year and into 2023, gross to nets in the first half of the year have been better than anticipated.

Based on these trends and our expectations regarding payer coverage in the second half of the year, we are updating our expectations for gross to net adjustments for the full year to approximately 30%. Overall, we are increasing our full year 2022 expectation for LYBALVI net sales from a range of $55 million to $75 million to a range of $75 million to $90 million. Moving on to our manufacturing and royalty business. In the second quarter, our manufacturing and royalty revenues were $85.3 million, compared to $142.3 million in the prior year.

The decrease was driven primarily by the previously disclosed J&J partial termination of the license agreement related to royalties from sales of the long-acting INVEGA products in the U.S. We continue to disagree with J&J's actions, and in April we initiated arbitration proceedings related to this matter. We continue to recognize royalty revenues from sales of the long-acting INVEGA products outside of the U.S. through the second quarter as J&J has not terminated the agreement in these markets.

And lastly, revenues from VUMERITY increased approximately 29% year over year to $26.2 million in the quarter. Turning now to expenses. Total operating expenses were $310.7 million for the second quarter, compared to $299.3 million in the same period in the prior year. This modest increase during a launch year reflects the operating leverage in the business and our continued focus on efficient allocation of capital.

For the second quarter, cost of goods sold increased approximately $5 million year over year to $58.4 million, driven primarily by higher volumes of key manufactured products. We continued to prioritize our investments in R&D as we advance opportunities that may offer the highest potential return on investment. R&D expenses for the second quarter were $92.9 million, compared to 97.5 million for the same period in the prior year, reflecting focused investments as we advance nemvaleukin and our early stage neuroscience and oncology development programs and as the required pediatric study for LYBALVI gets underway. SG&A expenses were $150.4 million, compared to $139.2 million for the prior year, driven primarily by investments in the launch of LYBALVI.

Our top-line results, combined with our continued focus on disciplined operating expense management, resulted in a GAAP net loss of $30.1 million and a non-GAAP net income of $10.5 million for the quarter. Turning to our balance sheet, we ended the second quarter in a strong financial position with approximately $760 million in cash and total investments and total debt outstanding of approximately $295 million, resulting in a positive net cash position of close to $465 million. I'll shift now to our financial expectations for 2022, which reflects strong operational performance in the first half of the year. Notably with respect to the LYBALVI launch and updated assumptions around royalty revenues from ex U.S.

sales of the long-acting INVEGA products. Our full expectations are outlined in the press release we issued earlier this morning. For the top line, we now expect higher total revenues in the range of $1.05 million to $1.12 billion, a net increase of $40 million at the midpoint due to improved expectations for the LYBALVI launch and our updated assumption that we will continue to receive royalty revenues on ex U.S. sales of the long-acting INVEGA products through at least October 2022, reflecting the three-months notice that Janssen would need to provide in order to terminate the license agreement in respect of these markets.

We continue to believe that this is the most appropriate approach for financial planning purposes as we work through the arbitration process. We expect these increases to be partially offset primarily by lower anticipated VUMERITY manufacturing revenues, driven by fewer commercial batches as we work with Biogen and one of its suppliers to address the potential supply constraints disclosed on Biogen's recent earnings call. Even as our top line has increased, we continue to actively manage our cost structure. Based on the anticipated timing of our investments and savings related to certain early stage programs, we are reducing and narrowing our expectation for R&D expenses by approximately $10 million at the midpoint to a range of $380 million to $400 million.

Our expectations for cost of goods sold and SG&A expenses remain unchanged. The strength of our top line and our continued disciplined expense management have driven improvements in our bottom line. Our expectation for GAAP net loss has improved by $35 million at the midpoint, and our expectation for non-GAAP net income has improved by $45 million at the midpoint to a new range of $15 million to $45 million. Taking a step back, despite the current environment of inflationary pressures, constrained capital markets, and ongoing pandemic-related disruptions, we remain well-resourced and well-positioned to drive growth and execute against our strategic priorities.

Even with a growing revenue base, efficient allocation of capital and management of our cost structure continue to be priorities for us and a virtue in the current volatile macroeconomic environment as we focus on driving shareholder value and long-term profitability. And with that, I'll hand the call over to Todd to provide more detail on our commercial performance.

Todd Nichols -- Chief Commercial Officer

Thanks, Iain, and good morning, everyone. In the second quarter, total product revenue from our proprietary commercial portfolio grew approximately 19% year over year to $190.8 million. This portfolio is the engine behind our company's top-line performance. VIVITROL and ARISTADA performed well and LYBALVI's strong launch uptake continue to validate the value proposition of this important medicine and to underscore the significant unmet need in the schizophrenia and bipolar I markets.

I'll start with LYBALVI's performance during the quarter. Net sales were $20.1 million, reflecting robust unit growth. Total prescriptions in the second quarter were approximately 17,000, representing growth of approximately 64% quarter over quarter, driven by LYBALVI's differentiated product profile and our commercial execution. This strong demand was due in large part to increased prescriber breadth.

As of the end of the second quarter, approximately 4,260 prescribers had written a prescription for LYBALVI since its launch, which represents a 62% increase since the end of Q1. Based on our market research and anecdotal feedback from prescribers interest in and experience with LYBALVI has grown within the treatment community. In a recent survey of 80 targeted healthcare providers, respondents cited both LYBALVI's overall efficacy and its weight gain profile compared to olanzapine schizophrenia is a key driver of prescribing the product. And majority of the providers reported they intended to prescribe LYBALVI in the next 12 months.

LYBALVI's utilization of source of business in Q2 were consistent with the first quarter. Prescriptions were split evenly between schizophrenia and bipolar I patients. And patients switched to LYBALVI from olanzapine and other branded and generic agents. This data underscores that prescribers considered LYBALVI as an appropriate option for a broad range of patients.

LYBALVI's market access position continues to evolve as we engage in payer discussions and plans, move through their formulary decision timelines. While this is underway, eligible patients have a pathway to access LYBALVI, supported by our patient and copay assistance programs. Broadly, as we expected, payer coverage decisions have been in line with other branded oral agents. We expect additional coverage decisions throughout the remainder of 2022 and into 2023.

Taking a step back, with the year halfway complete and strong launch momentum, we are pleased to be raising our LYBALVI revenue expectations for 2022 based on strong underlying demand and prescriber adoption. We remain focused on executing our launch strategy and driving awareness of this important treatment option. Turning to ARISTADA. For the ARISTADA product family, net sales in the second quarter increased to $74.6 million, driven primarily by TRX growth of 11% year over year on a month of therapy basis, outpacing the aLAI market, which grew 7% year over year.

We continue to focus on driving growth of this product family based on its differentiated profile and value proposition. We recently launched new digital marketing initiatives to drive awareness of ARISTADA and believe this will play an important role in expanding utilization going forward. VIVITROL net sales in the second quarter increased approximately 9% year over year to $96.1 million, driven primarily by the alcohol dependance indication. This indication accounted for approximately 60% of the VIVITROL business and has been the primary growth driver for the brand during the pandemic.

We expect this growth to continue as utilization for medication assistance treatment increases in alcohol dependance market. We also plan to continue to deploy resources to support awareness of VIVITROL as an important treatment option for opioid dependance. Our commercial results for the first half of the year are a reflection of the leverage in our commercial infrastructure, our sophisticated set of capabilities, and our unwavering commitment to execution. LYBALVI represents a significant opportunity for the company to drive shareholder value and have a meaningful impact on patients.

LYBALVI, ARISTADA, and VIVITROL are distinctive products in their markets, and we are extremely proud to provide treatment options for people affected by serious mental illness and addiction. I look forward to updating you on our progress to the back half of the year. Now we'll turn the call over to Rich.

Rich Pops

That's great. Thank you, Todd. We are managing the company based on three clear priorities. The first is our commercial business, growing revenues from our proprietary products with a focus on execution of the launch of LYBALVI.

The second is executing our development plans for our oncology and neuroscience pipeline candidates to get to key decision points. And the third is operating the business efficiently with a goal of driving long-term profitability. Midway through the year is a good time for us to assess our progress against these priorities. First on the commercial business.

As you've just heard from Todd, we continue to execute our commercial strategy across our psychiatry and addiction portfolio. VIVITROL and ARISTADA continue to grow and are important treatment options in their respective markets. With these two products, we operate in some of the most challenging disease areas and treatment systems in the pharmaceutical landscape. Through our successes and challenges with these products, we sharpened our commercial capabilities and established Alkermes as a trusted partner in serious mental illness and addiction.

This is a strong foundation for LYBALVI. We've begun to establish a compelling launch trajectory and expect LYBALVI to be important commercial asset for the long term. Our confidence is reinforced by the feedback we've received from physicians and patients using LYBALVI in the real world setting. To see our design intention for LYBALVI realized in patients with schizophrenia and bipolar I is gratifying for everyone associated with this development and its launch.

Our launch strategy and the investments we're making are reflective of and commensurate with the long-term opportunity, and we believe we're well-positioned to deliver on the potential value of this important new medicine. Next, our R&D pipeline, starting with nemvaleukin alfa. Nemvaleukin is now the most advanced IL-2 immunotherapy in the clinic. It is distinguished by its unique molecular design and the resulting pharmacology, the clinical responses we've seen both as monotherapy and in combination, and the focused development strategy that we're pursuing.

During the quarter, we presented data to ASCO from the ARTISTRY-1 study. As part of the presentation, we hosted oncology thought leaders who provided valuable clinical perspectives on the data on nemvaleukin's differentiated attributes and its potential clinical utility, and on the importance of the IL-2 pathway in oncology. A replay of that discussion remains available on the Investors section of our website. The data from ARTISTRY-1 established nemvaleukin's profile and our belief in its clinical potential, both as monotherapy and in combination with pembrolizumab in heavily pretreated patients across multiple tumor types.

The findings from ARTISTRY-1 informed our clinical development strategy, including the initiation of potential registration enabling studies in two difficult to treat tumor types. ARTISTRY-6, evaluating nemvaleukin monotherapy in mucosal melanoma; and ARTISTRY-7, evaluating nemvaleukin in combination with pembrolizumab in platinum-resistant ovarian cancer. As we enter the second half of the year, we're focused on enrollment of these two studies. We'll also continue to enroll ARTISTRY-2 and ARTISTRY-3 to evaluate various dosing regimens, including once weekly subcu dosing and less frequent IV dosing in a range of tumor types.

Next is our Orexin 2 receptor agonist program, ALKS 2680. In the first half of 2022, our priority was conducting IND-enabling activities as we prepared to enter our first-in-human study later this year. That work has progressed well and we're on track to commence a single ascending dose study in the fourth quarter. In the clinic, our goal is to answer critical questions early to enable data-driven decisions, and we plan to move quickly to conduct a proof of concept study in patients with narcolepsy next year.

Turning to ALKS 1140, our selective HDAC inhibitor candidate. Consistent with our rigorous, data-driven decision making, we've decided to terminate 1140 clinical development program. As we disclosed earlier this year, initial data from the Phase I dose escalation study demonstrated higher than predicted levels of the major metabolite. Over the last several months, our team worked rapidly to generate additional data to establish the necessary exposure safety margins preclinically and characterized the profile of the metabolite to determine whether we should proceed to higher doses.

The results of these efforts were clear and not supportive of a viable clinical candidate. We're currently evaluating the pharmaceutical properties of a number of backup molecules from the HDAC platform. However, the threshold for advancing a new compound in the clinic will remain high. I'll end with our focus on managing the business efficiently, with an emphasis on long-term profitability.

The work we do as a developer of novel medicines is ambitious and can be extremely rewarding, but it's also inherently difficult and complex. Our focus on profitability and financial discipline provides a framework for making challenging and timely decisions. It requires that we continuously prioritize programs so that we invest in those that we believe offer the highest likelihood of success and return on investment. This rigorous allocation of capital is essential to running a biopharmaceutical company.

Our portfolio of proprietary products drives our growth and profitability. As we execute the launch of LYBALVI, the operating leverage we've engineered into the business is becoming evident. With the first half of the year now behind us, we're improving our financial expectations for both the top and bottom line for 2022. This is a result of our growth trajectory coupled with our cost management initiatives.

So to finish up, we are managing a dynamic business in a rapidly evolving macroeconomic landscape, and we're pleased with our execution year to date. We'll remain nimble as we execute on our strategic priorities in order to drive long-term profitability and deliver on our commitment to create value for our shareholders. So with that, I'll turn the call to Sandy to manage the Q&A.

Sandra Coombs -- Senior Vice President, Investor Relations

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

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your question.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Hi. Thanks for taking my questions and congratulations on a strong quarter. Two questions from me both for LYBALVI. Pretty broad prescriber base to date.

Can you just talk about what is perhaps needed to go deeper in this prescribing base of physician? Is it really just time to experience with the product? Is it sort of rolling out coverage or just waiting for other patients to start cycling switch or some other medications? Just any color there would be helpful. And then I'll ask my second question because it may go together. Are you seeing LYBALVI move up in the treatment paradigm as yet, just either ahead of other brands or earlier on when maybe a patient may have one or two generics granted that always we'll have to sell generics. Thank you.

Todd Nichols -- Chief Commercial Officer

Yeah, I'll take both those questions. The first one around the breath of prescribing, which we're really pleased with month over month, quarter over quarter as well. What we've learned from our research and anecdotal feedback, we talked to a lot of our targeted physicians, non-targeted. And what we've learned is that clinical experience with LYBALVI leads to growing efficacy perceptions.

And so prescribers consistently report to us that the majority of their LYBALVI patients are doing well and that they're expected to continue. So our belief right now is that the more experience that our targeted prescribers get with LYBALVI, they're seeing the value proposition play out, the efficacy of olanzapine, the weight mitigating benefits, very similar that was in our ENLIGHTEN-2 study. So our belief is that more clinical experience will drive growth. And we just think that's based just on timing.

So our expectation, Q3 and beyond, is that prescriber breadth will continue to grow. In terms of positioning within lines of therapy, as you know, there are multiple, multiple lines of therapy. At this point, it's just too soon to tell. Our data is somewhat limited based on claims data regarding if LYBALVI has moved up.

Our expectation again is that LYBALVI will be treated like a branded agent, which most branded agents are really utilized within the switch market. So that's the place that LYBALVI will live.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Great. Thank you very much.

Operator

Thank you. Our next question comes from the line of Chris Shibutani with Goldman Sachs. Please proceed with your question.

Chris Shibutani -- Goldman Sachs -- Analyst

Thank you very much and congratulations on the LYBALVI trends and the raised guidance there. You commented that the utilization seems to be, so far, balanced between the schizophrenia and bipolar indications. Can you comment about whether you expect this to continue to be the case and how that's threaded into the balance of the year guidance? And also, maybe talk about acute versus maintenance settings for each of those and what we might expect from a trend standpoint. Thank you.

Todd Nichols -- Chief Commercial Officer

Absolutely. Yeah. About half of LYBALVI patients thus far, at this point in launch, are schizophrenia patients and approximately half are bipolar patients. We're also seeing that a fair amount are switches from olanzapine, which we did expect.

Olanzapine is a meaningful product in the category. There are more olanzapine prescriptions written on an annual basis than the entire branded category. So we know that's a very large switch opportunity. We know that physicians consistently report to us that two-thirds of olanzapine patients will will gain weight, and that weight will happen within the first eight weeks.

So we think there's a transition period that's very appropriate, an opportunity for LYBALVI. Our expectation is that LYBALVI will be treated like other branded agent. We're seeing, again, a meaningful split between schizophrenia and bipolar. I think it's important to remember that olanzapine currently holds approximately a 20% share in schizophrenia and about a 13% share in bipolar.

So they're both very large markets with meaningful opportunities. So our expectation is that that split will continue. It could evolve a little bit over time, but we don't expect that will be in a meaningful way. At this point right now when we look at that utilization, especially between acute and maintenance, we don't have data that actually speaks to because it's relatively early between acute and maintenance settings.

I think I think it's important to remember that LYBALVI is a very broad indication schizophrenia, mixed episodes, maintenance episodes, monotherapy and bipolar, and also adjunctive therapy. So we really believe in the data starting to play out in anecdotal feedback that it's going to be used in a broad utility of settings, in a broad utility of patients.

Operator

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

Umer Raffat -- Evercore ISI -- Analyst

Hi, guys. Thanks for taking my question. Just a couple, if I may. One, if the gross in that -- on LYBALVI is sort of stable quarter over quarter as per your disclosures and the prescription data you report is around 17,000, which is about a 65% volume increase, that sort of implies at least off of the 1Q run rate, a reported sales of closer to '22 to '23 versus the '20 reported.

I was just curious if there was any inventory or any other one-offs on the reported number you could speak to? And I guess the other one is and again, there's lack of clarity on it, but I did notice you lowered the gross unit expectations from 40% to 30% for the full year, which does imply that the second half track at sort of low to mid 30s on gross to net. But Rich, I remember you made some comments at a recent broker conference suggesting you don't necessarily want to give up on grossing that early in the launch. So I'm just trying to square those two. Thank you very much.

Richard Pops -- Chief Executive Officer

Yes, Umer, I think in the prepared remarks earlier on when we talked about the gross to net for LYBALVI and sort of underlying demand is really what's driving the product at this point in time. The inventory level did increase during the quarter by around $1.8 million, which is what we were expecting. As demand increases, you would expect that inventory in the channel would continue to increase as well. So I wouldn't say there were anything unusual there.

I think inventory is just tracking with the increase in demand. And then more from a full year perspective as we take the gross to net from 40 down to 30, I think pre-launch, you made a number of assumptions around various dynamics, things like channel mix, access, commercial contracting and how much of the commercial business would be subject to NDC blocks. And in reality, what we've seen is favorability on a number of fronts there, including lower rebating across all the channels and less full NDC block, with the latter in particular driving a lower cost associated with our copay assistance program. So you're right that the the gross to net average for the first half is around 26.5%.

To get to the 30%, you'd see a tick up in the second half. And I think that would be more driven by sort of copay assistance utilization than anything else, but certainly not expecting that big step up in the second half of the year to get to anywhere near to 40%, which we had originally talked to.

Umer Raffat -- Evercore ISI -- Analyst

Thank you.

Sandra Coombs -- Senior Vice President, Investor Relations

Thanks so much.

Operator

Thank you. Our next question comes from the line of Akash Tewari with Jefferies. Please proceed with your question.

Unknown speaker

Hi. This is Amy on for Akash. Just two quick questions. The first one is what -- for the OX2, what type of healthy volunteer studies are you running? And could these studies be longer than what Takeda ran in order to properly tease out the liver tox signal? And then on the VIVITROL IP, what's the impact of Teva's generic on the market? And would a potential entry force ALKS to revisit its 2025 guidance? Thanks so much.

Richard Pops -- Chief Executive Officer

Hi, Amy. It's Richard. I'll take those. The first study that we're going to run for the Orexin program will be a single sending dose in healthy volunteers.

We'll probably run that outside the U.S. And that study will be a traditional design of a stepwise progression through ascending doses to get to what we expect to be either an MTD or a target engaging dose. From there, the only additional cover we're going to get today is that we're going to move as quickly as we can into a proof of concept study in patients with narcolepsy as we as we clear those doses and move into the multiple dose study. The Teva -- Teva does not have a generic on the market yet.

We're in a potential litigation with Teva now. The latest update on that is that we expect a court date sometime in the fourth quarter. And obviously following that, we'll see how the business discussions or the legal process proceeds but they're not on the market now. So we're going to -- we've guided for 2022.

We'll guide for 2023 and 2023, but we're -- we've always been optimistic about our IP position on VIVITROL and even superseding all that is it's a very, very complicated market as you've heard over many years. It doesn't lend itself to a simple generic switching strategy.

Operator

Thank you. Our next question comes from the line of Cory Kasimov with J.P. Morgan. Please proceed with your question.

Unknown speaker

Hi. This is Tiffany on for Cory. I'll add my congrats to the quarter. On LYBALVI, any changes in thinking about steady-state gross to net, given the better-than-expected payer coverage to date and then the lowered full year expectation? And then any commentary on how you're thinking at this juncture about potential label expansion and their respective market opportunity for LYBALVI? Thanks.

Iain Brown -- Chief Financial Officer

So let me let me address the first one on the LYBALVI steady state gross to net. And I think we're -- obviously, we're pleased to be able to reduce the 2022 average rate from the 40 down to the 30. I think as we go forward it's going to continue to be dynamic, that initial 12 to 18 months post-launch as we are achieving access across all the channels. And I think steady state is going to be dependent largely upon what happens on the commercial contracting side of things.

So we're not going to comment specifically around our contracting strategy there, but that's going to be a key determinant as to what the gross to net looks like longer term. There'll be more color on that as we proceed with the launch and into 2023.

Todd Nichols -- Chief Commercial Officer

Yeah. In regard to -- in regards to lifecycle management, our focus right now is fulfilling our post-marketing commitments with the FDA. Iain mentioned in his prepared remarks the pediatric study, which is a requirement. So we're focused on delivering against that as well.

Outside of that, I think it's just important to remember that LYBALVI is in a very unique position right now. The brand actually launched with a very broad indication, schizophrenia and bipolar I disorder as well, and that's a very unique position. Most most products don't launch with such a broad indication. So our focus right now is maximizing those two indications, learning from our advisors in the field.

And then over time, we'll make some decisions on what does the lifecycle management look like, but that's into the future. But right now, it's about -- it's really around maximizing the current indications that we have.

Unknown speaker

Thank you.

Operator

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

Paul Matteis -- Stifel Financial Corp. -- Analyst

Great. Thanks so much and congrats on the quarter and guidance rates. On LYBALVI, I wanted to just kind of understand a couple of the moving parts this quarter and the degree to which they were unexpected or not. So the 1.8 million, the inventory build and the better-than-expected net price, was this embedded in your 18 million to 20 million guidance for the quarter, given that both of those aspects seem to be key and driving you, reaching the top end of it? And then more broadly, on the clinical context, I was curious, what are you seeing in terms of patients switching from olanzapine in terms of how long they've been on olanzapine previously? Are these patients who had been experiencing significant weight gain? I understand every situation is different, but I'd be interested in some of the qualitative context as it just relates to when clinically patients are switching drugs onto LYBALVI.

Thanks so much.

Iain Brown -- Chief Financial Officer

So on the LYBALVI net sales dynamics, Paul. I'd say in the quarter, the increase in inventory was expected. We've always thought that inventory levels would increase in line with demand. So that was included into the 18 to 20.

I would say the 26% gross to net, we did have favorability there as compared to what we originally thought. It's still a little bit of lower small numbers in so far as gross sales. We're $27 million in the quarter. So one percentage point of gross to net, effectively $270,000.

But there was a little bit of upside there on the gross to net side as compared to what we originally thought when we set the 18 to 20.

Todd Nichols -- Chief Commercial Officer

Yeah. And in regards to the olanzapine dynamics as well, the context is important. There's 7,000 patients that switch olanzapine treatment every single month. So it's a very broad amount of patients that switch.

The data has been pretty consistent over the years in terms of the frequency. Claims data and physicians continue to report to us that the major driver of switching therapy is typically based upon tolerability with weight. We see that that there's less tolerability for weight gain, especially for bipolar patients as well. So it's something that we're watching pretty closely at this point.

But the switching opportunity at large is very big. There's approximately 13,000 patients in a generic setting that switch to a branded agent. And again, there's about 7,000 olanzapine patients that switch over time. We're watching those dynamics very, very closely.

So what we hear consistently and what we see at this early junction right now is that the major drivers of switching is really around efficacy. And if physicians and patients have current or prior experience and a positive response to olanzapine, that's a good thing for LYBALVI. But if they're experiencing weight issues or there's a lack of efficacy within the broader context of other generics, other branded agents, they will consider LYBALVI as well, too. So it's early days at this point, but we think that the switching dynamic, not only for olanzapine is strong, but also for the broader category is very large as well.

Paul Matteis -- Stifel Financial Corp. -- Analyst

Great. Thank you for the color.

Sandra Coombs -- Senior Vice President, Investor Relations

Thanks, Paul.

Operator

Thank you. Our next question comes from the line of Marc Goodman with SVB Leerink. Please proceed with your question.

Marc Goodman -- SVB Leerink Partners -- Analyst

Yes, hi. Just on LYBALVI gross to net, I understand that you don't really want to comment on kind of maintenance going forward. But I mean, if we started out thinking 40%, should we be thinking now 30 to 35 kind of maintenance? I mean, can you at least give us some sense of -- I mean, obviously, the numbers have come down. So maybe you can just help us a little bit there.

And I may have missed this, but did you comment on for assistance at all for LYBALVI or -- I just don't remember what you said. I'd be curious there. And on VUMERITY, is there anything else that you can tell us about where we are? We understand there's a supply issue with the API, but I mean, is this something that's a major problem that you think is going to last all year or is this something that you're fixing pretty quickly? Just curious on that. And then on the HDAC, I know you said that you're going to look at backup compounds.

Are those far along? I'm just trying to remember, I think this just came from an acquisition that you made and there was a lead asset. I just don't remember what was behind it and whether this is something that we're going to be waiting on for several years or if you feel like you'll be back in the clinic kind of next year with the new one. Thanks.

Iain Brown -- Chief Financial Officer

So, Marc, let me take the first one around the LYBALVI gross to net. So I think originally we talked about steady state in that 35 to 45. The key driver is really going to be what happens on the commercial contracting front as we go through the remainder of this year and into 2023. Now, we don't want to comment too specifically around what the contracting strategy is going to be from that perspective, but I think that range of 35 to 45 is still valid.

It's just where we're going to end up within within that range.

Todd Nichols -- Chief Commercial Officer

And hi, Marc. It's Todd. I'll take persistency questions as well. The the category at large is about five months.

Our view right now is it's still a little early to really see what persistency would look like for LYBALVI. So no, I didn't -- we didn't comment on that. Over time, we'll be able to do that. We've got approximately 9,100 patients that have been on therapy.

That number needs to grow for us to do the right type of analysis to really look at the persistency level. The best leading indicator that we have right now is what we hear from the marketplace, from physicians, through our research as well. And prescribers report that the majority of their LYBALVI patients are doing well and they they are expecting them to continue on LYBALVI. So we think that's a good leading indicator.

Richard Pops -- Chief Executive Officer

And Marc, it's Rich. I'll take the last couple. On the VUMERITY side, I'll leave it to Biogen to give most of the updates on that. I'll just say to the extent that we're involved, our technical teams are highly involved and we see a pathway to resolution of the manufacturing issues.

So hopefully that will be resolved relatively quickly. On the HDAC, you're right. The original chemistry derived from the acquisition of Rodin a couple of years ago. So we have backups that come from that original chemistry that are quite well along the way.

And then there might be some that are more remote because they're different structures, but we're focused on the ones that are derived from the original chemistry. So we would -- I would say that we will move quickly on those over the next few months and make the call.

Marc Goodman -- SVB Leerink Partners -- Analyst

Thanks.

Operator

Thank you. Our next question comes from the line of Douglas Tsao with H.C. Wainwright. Please proceed with your question.

Douglas Tsao -- H.C. Wainwright and Company -- Analyst

Good morning and congrats on the progress. Just, Rich, given the fact that it seems like profitability is coming in a little ahead of plans with the recent guidance. How are you thinking about the balance between potentially hitting some of the long term financial targets in terms of margins versus perhaps investing a little bit more in some of the early stage programs?

Richard Pops -- Chief Executive Officer

Yeah, I think we're deeply committed to hitting our long term targets. That's probably priority number one, just to show the financial discipline and reveal the growth and the leverage in the P&L. If we had additional capital to spend at this moment, I would probably emphasize it less on the early stage compound and more on LYBALVI right now as we see the momentum build for LYBALVI. So it's best to drill for oil in the fields that are already proven.

And I think ARISTADA, VIVITROL, and LYBALVI are growing nicely and they have a lot of potential left in them with an emphasis there on LYBALVI. LYBALVI is our first real blockbuster potential drug as an oral compound in a large category. And the launch trajectory is just being established now, and that's what we want to affect as much as we can in the near term.

Douglas Tsao -- H.C. Wainwright and Company -- Analyst

And Richard, a follow up what specific investments would you make to drive some faster growth from LYBALVI.

Richard Pops -- Chief Executive Officer

DTC, that would be the focus in 2023 and beyond. So that's the spend we'll probably titrate as we see access build over the next several months as well as physician breadth. You really don't want to turn on your DTC campaign if there are access restrictions or if a large number of physicians are unaware of your product. That's why you tend to wait a little bit later into the launch.

So it's all tracking to plan now, which is encouraging so that -- those are the triggers we'll pull as we move into 2023 and 2024.

Douglas Tsao -- H.C. Wainwright and Company -- Analyst

OK. Great. And I know people were asked earlier in terms of LYBALVI in sort of lines of treatment. But I'm just curious, do you know how quickly from other drugs people are switching sort of the weeks of therapy before making a switch to LYBALVI?

Todd Nichols -- Chief Commercial Officer

Yes, I'll take that one. The data that we watch very closely is just the dynamic on switching. So patients in schizophrenia and bipolar switch treatments on average about five to seven times. Bipolar patients switch much more quickly.

So directionally, you're looking at a period of time of about 18 to 24 months. You'll see a bipolar patient switch pretty, pretty dramatically, a little bit longer for schizophrenia. Main reason for that is that bipolar patients don't tolerate issues with tolerability and/or efficacy as well, too. That's why we think that laboratory has a really unique value proposition within that patient profile.

Douglas Tsao -- H.C. Wainwright and Company -- Analyst

OK. Great. Thank you.

Sandra Coombs -- Senior Vice President, Investor Relations

Thanks, Dough.

Operator

Thank you. Our next question comes from the line of Jason Gerberry, Bank of America. Please go ahead with your question.

Unknown speaker

Hi. Good morning, everyone. This is Chi on for Jason. Thanks for taking our question.

I guess I just have one the IL-2 of nemvaleukin. When can we expect an update on the alternative dosing with less frequent IP and some cuts? Should we expand an update by year end 2022? And with the update, the go, no-go decision, would there be clinical data accompanying that update? And I guess a follow up to that would be now that sort of people have time to digest sort of the competitive update in the IL-2 front, specifically with the pent-up update, I'm curious, how has the strategic interest in this category has changed since then? Do you think what level of data do you think Alkermes would need to generate to sort of have that strategic interest? Is it update from the alternative dosing or do you think you need more clinical data to talk about efficacy of IL-2 in different tumor types? Thanks.

Richard Pops -- Chief Executive Officer

So, Chi, I'll take that. So we're making good progress in both ARTISTRY-2 and ARTISTRY-3. ARTISTRY-2 being the once-weekly subcu, ARTISTRY-3 being the less frequent IV. On less frequent IV, it's actually a phasing design.

We'll be looking at different doses and different regimens in order to -- we're quite confident that we'll come up with a less frequent IV dose. And the subcu has been underway for some time. We're seeing responses in the subcu. The question we're focused on subcu is durability and want to make sure that we have the same durability that characterizes IV IL-2.

I would expect by the end of the year we'll have more insights. I'm not ready to make a call right now whether we'll make a go, no-go, or whether we'll just have additional data. Let's see how enrollment and durability persists over the year but we're well on our way in both of those. And I do think that's an important component of assessing the commercial potential of IL-2 across multiple tumor types, understanding what the ultimate commercial dose might be.

So I think for a number of potential strategic partners, that's an important question. But I think the most important part of the discussions with folks is exactly what you referenced, letting the dust settle post-ASCO, which forces people to look at the IL-2s on an individual basis. And also in the case of nemvaleukin, thinking of it less as one of many IL-2 variants and more as a late-stage oncology product with its own data that support its value proposition. And so I think that's what's happening post-ASCO.

That's why ASCO was so important for us to present all of the ARTISTRY-1 data so people could get a sense of this as an oncology agent, whether or not it's an IL-2 version at all. And as I mentioned in the prepared remarks, nemvaleukin is now the most advanced IL-2 in development. And it's supported by a lot of not just efficacy data as monotherapy and in combination with pembro, but importantly the design intention of this is to recapitulate the efficacy of high dose IL-2 without the hallmark toxicities. And so the data set is also augmented by a lot of safety data from a lot of patients that helped confirm the design hypothesis.

So we'll keep going with ARTISTRY-6 and ARTISTRY-7, and we'll keep receptor 2 to collaboration. And we'll collaborate when the time is right and the deal structure is appropriate for our shareholders.

Unknown speaker

Awesome. Great. Thanks.

Operator

Thank you. Ladies and gentlemen, there are no further questions at this time. I'll turn the floor back to the company for any final comments.

Sandra Coombs -- Senior Vice President, Investor Relations

Thank you. 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 or if we can be otherwise helpful. Thanks so much.

Have a great day.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Sandra Coombs -- Senior Vice President, Investor Relations

Iain Brown -- Chief Financial Officer

Todd Nichols -- Chief Commercial Officer

Rich Pops

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Chris Shibutani -- Goldman Sachs -- Analyst

Umer Raffat -- Evercore ISI -- Analyst

Richard Pops -- Chief Executive Officer

Unknown speaker

Paul Matteis -- Stifel Financial Corp. -- Analyst

Marc Goodman -- SVB Leerink Partners -- Analyst

Douglas Tsao -- H.C. Wainwright and Company -- Analyst

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