Biotech Alkermes Poised To Swell On Pipeline Wins

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Chief Executive Richard Pops likes to make it very clear about the company he leads:Alkermes ( ALKS ) is not your run-of-the mill biotech firm.

For one thing, it has a thriving commercial business from drugs that have already been approved and that will be generating revenue "for the next decade," he says.

And it has promising new drugs in the pipeline that are late in their development.

"Most biotech companies have only (pipeline products)," he said. "The two together represent a very dynamic combination."

Alkermes specializes in central nervous system disorders using proprietary technology to create injectable drugs and other therapies.

"The company is particularly good at developing long-acting versions of drugs," said Cowen and Co. analyst Anant Padmanabhan.

Two of its fastest-growing key products, Invega Sustenna for schizophrenia and multiple sclerosis drug Ampyra, came through the firm's 2011 acquisition ofElan Corp. 's (ELAN) drug formulation and manufacturing unit, Elan Drug Technologies.

Revenue Boost

The deal, valued at $1 billion, helped boost fiscal 2012 revenue 109% to $390 million.

Revenue in the fiscal year ended this past March is expected to hit $539 million while earnings are seen rising 288% to $1.09 a share. Results will be reported in May.

Alkermes used the acquisition to move its headquarters to Elan's base in Dublin, Ireland, saving on taxes. Alkermes' R&D center remains in Waltham, Mass.

The closest pipeline drug to market is an injectable, long-lasting version of Abilify, the oral drug used to treat schizophrenia and bipolar disorder. Abilify generated $4.5 billion in worldwide sales last year, Padmanabhan says. Its U.S. patent expires in 2015.

Padmanabhan estimates Alkermes' injectable version for treating schizophrenia, aripiprazole lauroxil or ALKS 9070 for short, could generate more than $500 million in peak sales worldwide.

If phase three data due out late this year go as expected, Alkermes will file for approval next year and likely go to market with it in 2015. "This is important for patients and important for investors," CEO Pops said.

There's already competition. Abilify's developer, Tokyo-based Otsuka Holdings, launched a once-monthly injectable version in mid-March with Copenhagen-based partner H. Lundbeck.

The reformulated drug is "still in early days," says Padmanabhan. But he says its success would validate the need for such a long-acting drug.

Pops says Alkermes' version of Abilify was "designed to be a generational advance" over Otsuka's latest version.

Alkermes plans to market the drug in the U.S. on its own, but will probably seek a partner to commercialize it outside the U.S., Pops says.

The company's second most promising pipeline drug is a new kind of therapy for treating depression. Phase two trial data are expected out shortly.

"If it confirms what we saw in the first study, we will have a very important new treatment for depression," Pops said.

Dubbed ALKS 5461, the oral drug doesn't target the usual neurochemical pathways as do selective serotonin reuptake inhibitors (SSRIs) and serotonin norepinephrine reuptake inhibitors (SNRIs).

Rather, it targets opioid receptors. The drug uses the anti-depressive properties of buprenorphine while neutralizing a key drawback, its addictive properties.

About 60% of the 10 million depression patients in the U.S need another drug because one doesn't work well enough, industry experts say. ALKS 5461 would target those patients.

"What the (depression) community has wanted is alterative routes to address the same problem," Pops said. "There are other mechanisms (such as bupropion) but very few."

Morgan Stanley analysts have noted that if phase two data on ALKS 5461 are positive, "investors may start to value it as a $500 million-plus commercial opportunity."

Meanwhile, Alkermes' thriving commercial business is driven by five products, which together logged revenue growth of 33% in the third fiscal quarter ended Dec. 31 over the earlier year, to $92 million. Overall revenue in the quarter grew 8.2% to $135.9 million.

Royalty Payments

Alkermes receives royalties from partners on all but one of those five drugs, Vivitrol, a once-monthly drug to treat alcohol and opioid dependence.

Alkermes markets Vivitrol itself. The product generated $15.9 million in Q3 revenue, up from $10.6 million a year earlier.

Management expected Vivitrol to take in $55 million to $60 million in fiscal 2013, which ended in March.

"We have a profitable underlying commercial business that generates revenue to fund our pipeline," Pops said. "Most other biotechs need to raise equity or find financing."

As for its other key commercial drugs, Alkermes gets royalties fromJohnson & Johnson 's ( JNJ ) Janssen Pharmaceuticals for its long-acting antipsychotic drugs Invega Sustenna and Risperdal Consta.

And for its MS drug Ampyra (marketed as Fampyra in Europe and sold there byBiogen Idec ( BIIB ), it receives royalties fromAcorda Therapeutics ( ACOR ).

Bydureon, a once-weekly treatment for Type 2 diabetes, is marketed byBristol-Myers Squibb ( BMY ) andAstraZeneca (AZN).

But analysts see revenue growth slowing to just 1% in the current year ending next March. While most of the company's five key products are early in their patent life, others are at a much later stage and won't grow as much.

For example, it will get sharply reduced royalties from a trio of products from the Elan portfolio due to generic competition, Padmanabhan says. Those products include Tricor, Ritalin LA and Focalin XR.

Tricor and Ritalin LA recently went off-patent and Focalin will do so soon. The three drugs generated around $60 million in royalties for Alkermes, Padmanabhan says.

Longer term, however, new royalty revenue from Bydureon could make up for at least some of that falloff and also boost earnings, he said.

Bydureon royalties in Q3 grew to $5.3 million from just $300,000 in the prior year's same quarter.

And then there are those pipeline drugs in the wings, waiting for their debut.



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: ACOR , ALKS , BIIB , BMY , JNJ

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