Alkermes: Operational Excellence, Raised Revenue, Earnings Targets

Alkermes (ALKS) raised its revenue and earnings targets for FY13 last week on the back of strong Q3 results, driving its shares to a new 52-week high. A strong operational performance underpinned the rise and with two major data readouts for late stage R&D programmes this year, the stock is poised for further gains in 2013.

Operational excellence
Q3 revenue grew 8% to $136m with the five key growth drivers (Consta, Sustenna, Bydureon, Ampyra and Vivitrol) up 33%, helping to offset expected lower revenue from the EDT legacy product portfolio. Vivitrol (100% owned) was a standout, with sales increasing 50% to $16m, and an improved outlook for this hitherto laggard product supports the raised FY13 revenue guidance. Lower R&D (timing of clinical trial spend) will also help profitability.

Broadening the pipeline
The long-acting atypical antipsychotic ALKS 3831, a new pipeline candidate, strengthens the pipeline. It combines olanzapine with ALKS 33, an opioid modulator that limits antipsychotic-associated weight gain. Encouraging Phase I data from a three-week trial showed subjects on ALKS 3831 gained only 2.5kg, while those on Zyprexa gained 3.4kg (p=0.014). A Phase II trial is expected to start mid-year, and if successful, ALKS 3831 could offer best-in-class efficacy with minimal weight gain.

Phase III data on aripiprazole lauroxil due late 2013
Results from a UPhase III trialU of aripiprazole lauroxil (ALKS 9070), a once-monthly pro-drug formulation of the antipsychotic Abilify, are expected in late 2013 and could serve as a basis for an NDA filing. The US PTO has also allowed a new patent, which when issued, would extend to 2030.

Valuation: $3bn EV is fair for now
Alkermes’ shares have traded off their recent high, as Elan completed the disposal of its remaining 7.7m shareholding. With an EV of c $3bn (market cap, adjusted for net debt of $152m), Edison views the valuation as being up with events for now, although further operational successes could still drive share price gains in 2013. The UPhase IIU data for ALKS 5461 (treatment-resistant depression), which are expected in the mid-year, provide a potential near-term price catalyst.

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