Alkermes (NASDAQ:ALKS) is up big today on phase 2 data suggesting that its depression drug ALKS 5461 works.

The drug produced a statistically significant improvement in three different rating scales for depression compared to placebo. Alkermes didn't add any numbers to the top-line data; it's saving them for a medical meeting at the end of next month.

Clinical trials for depression are notoriously hard to run because of high placebo effect. It'll be interesting to see if ALKS 5461 was statistically significant because Alkermes was able to keep the placebo group in check or if the drug just blew away the typically high placebo.

A taming of the placebo effect would be good for the development of depression drugs, but we'll have to see if Alkermes can repeat it in a larger phase 3 trial. If ALKS 5461 is just super powerful, it's easier to see how the data could be reproduced in the next trial.

Alkermes is testing ALKS 5461 in patients who have already failed a selective serotonin reuptake inhibitor, such as Pfizer's (NYSE:PFE) Zoloft, or a serotonin-norepinephrine reuptake inhibitor, such as Eli Lilly's (NYSE:LLY) Cymbalta. In theory that makes it harder to prove efficacy, but it also makes it much easier to sell the drug because it won't be in direct competition with those drugs, especially considering the large number of generic drugs available.

The second-line market isn't quite as big as the market for new-to-treatment patients, but more than half of depressed patients don't respond to the first drug they're prescribed. Alkermes would be happy if it can grab a large fraction of the market; Cymbalta registered sales of $5 billion last year and Zoloft managed $3.3 billion in the last year before it went generic.

ALKS 5461 might even be able to be used in combination with current treatments because it works using a novel mechanism of action, blocking the kappa opioid receptor. While that could open it up to additional sales -- AstraZeneca's (NYSE:AZN) Seroquel XR, a $1.5 billion drug, is used in combination with other drugs to treat depression -- the new mechanism will also bring additional scrutiny over the side effects. Alkermes described the drug as "well tolerated" but didn't go into greater detail.

Without a doubt, the top-line data should have investors doing the happy dance, but be careful penciling in sales just yet. A failure at the phase 3 level will certainly depress the stock and investors alike.

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.