Alkermes Writes New Prescription For Growth

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Alkermes ( ALKS ) has made an impressive comeback, thanks to the new products and expertise that came with last year's merger with Elan Drug Technologies

There's nothing like the launch of a blockbuster drug to fuel a biotech outfit's growth engine.

Add to that an emerging product pipeline and a transformational merger and you have the prescription that's helping to nurse Alkermes back to health.

The biopharma company has made an impressive comeback from its unprofitable years, thanks to the new products and expertise that came with last year's merger with Elan Drug Technologies, the drug formulation and manufacturing arm ofElan Corp ( ELN ).

After operating in the red the past three years, Alkermes kicked off fiscal 2013 with a blowout first quarter. Earnings soared 875% to 39 cents a share, smashing views. Sales climbed 146% to $152.2 million, reflecting the expansion of its product portfolio resulting from the merger.

Alkermes paid roughly $1 billion for Elan in a stock and cash deal that closed Sept. 16, 2011. The newly formed company is headquartered in Elan's home base in Dublin, Ireland, where it reaps a tax advantage. Its R&D center is in Alkermes' pre-merger base of Waltham, Mass.

The deal vaulted Alkermes' annual revenue from $180 million pre-merger to $500 million, estimates Cowen and Co. analyst Anant Padmanabhan.

Revenue Base

"It was a transformational deal," said Padmanabhan. "EDT diversifies Alkermes revenue base, adds broad drug formulation and technology manufacturing capabilities, brings tax benefits and catapults Alkermes to a midsize cash generating biopharma company."

Alkermes develops innovative treatments for major clinical conditions with a focus on central nervous system disorders, such as schizophrenia, addiction and depression. The combined company has a diversified portfolio of more than 20 commercial drug products and a large pipeline of candidates.

Alkermes expects near-term growth to be driven by five key products: Risperdal Consta, Invega Sustenna/Xeplion, Ampyra/Fampyra, Vivitrol and Bydureon. Almost all of these products are early in their commercial life with long patent protection, said CEO Richard Pops at the Morgan Stanley Global Healthcare Conference on Sept. 11.

Elan added two of the five key products, Invega Sustenna for the treatment of schizophrenia and Ampyra for the treatment of multiple sclerosis.

The addition of Invega Sustenna to Alkermes' portfolio was especially important, says Padmanabhan. Invega Sustenna is marketed by Johnson & Johnson's ( JNJ ) Janssen Pharmaceuticals. Janssen also markets Risperdal Consta for schizophrenia and bipolar 1 disorder, a key product made by Alkermes prior to the merger.

Padmanabhan says prior to the deal with Elan, there had been speculation as to whether Johnson & Johnson would move patients from Risperdal Consta to Invega Sustenna, which is a newer drug. If that happened, Alkermes'royalty revenue from Risperdal Consta would contract.

Padmanabhan says now that the two drugs are under the same corporate umbrella, that risk is gone.

"What's even better is that combined, these two long-acting drugs for schizophrenia are growing at double-digit rates," he adds. "Together, they're actually growing the market and more people are taking long-acting schizophrenia medication."

Risperdal Consta and Invega Sustenna are Alkermes' biggest top-line contributors. In the first quarter, Alkermes posted manufacturing and royalty revenue of $47.9 million from the two drugs. Their combined end-market sales were $550 million, up more than 14% from a year earlier.

Padmanabhan says Risperdal Consta and Invega Sustenna also generate the most profits for Alkermes and should continue to do so.

But Alkermes is not a one-trick pony. Soon after the merger closed, Alkermes' business got another lift with the launch of a potential blockbuster. In January, Bydureon, a drug Alkermes developed before the deal, was approved by the FDA. Bydureon, the only once-weekly treatment for type 2 diabetes, is marketed through an alliance betweenBristol-Myers Squibb's ( BMY ) Amylin Pharmaceuticals subsidiary andAstraZeneca ( AZN ).

"Bydureon will become very important in the next two or three years," said Padmanabhan.

His optimism comes a few weeks after Bristol-Myers paid $7 billion for Amylin.

"Now that Bristol-Meyers and AstraZeneca are marketing Bydureon, there's much more marketing muscle behind it," said Padmanabhan. "Bydureon has the potential to be much more than the $1 billion in peak sales Wall Street had anticipated. Given Bristol-Myers paid $7 billion for Amylin, and Bydureon is its most important product, they have to make it a success. And Alkermes is the silent beneficiary."

Alkermes gets an 8% royalty on Bydureon's end market sales.

Padmanabhan says Bristol-Myers' valuation of Amylin suggests Bristol-Myers believes that Bydureon could easily be over $1.5 billion in peak sales.

Alkermes officials are also upbeat about Bristol-Myers and AstraZeneca marketing Bydureon.

International Footprint

"Bristol-Myers and AstraZeneca will bring significant scale to Bydureon by deploying additional primary care resources and leveraging their international footprint and experience in markets outside the U.S.," said Pops on the first-quarter conference call.

Bydureon is still early in its commercial life, he adds, has a long patent life, and new dosage forms based on Alkermes' technology are under development.

In the last quarter, Alkermes' entire portfolio did well, says Padmanabhan.

That includes Vivitrol, developed, manufactured and marketed by Alkermes. Vivitrol was a part of Alkermes' portfolio before the merger.

Vivitrol's first quarter net sales were $12.4 million, up 28% from a year earlier. It was the product's 12th straight quarter of sales growth.

The buck doesn't start with Alkermes' current portfolio. It has a number of drugs in development. Among them is ALKS 9070, Alkermes' proprietary long-acting injectable drug for the treatment of schizophrenia. It's in a phase 3 clinical trial. Alkermes expects to see the results of the trial in 2013.

Padmanabhan says ALKS 9070 could be worth $500 million plus in peak sales.

Followers expect Alkermes to continue on the comeback trail. Analysts polled by Thomson Reuters see full-year fiscal 2013 earnings rising 231% to 76 cents a share. They forecast a 25% increase in 2014 and a 43% pop in 2015.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: ALKS , AZN , BMY , ELN , JNJ

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