What happened
After analysts at Morgan Stanley cut their rating on the company to underweight, shares of Alkermes (ALKS 2.05%) declined by 15% on Thursday.
So what
Alkermes has a good track record of successfully developing drugs for central nervous system disorders. But its past successes with the Food and Drug Administration apparently don't outweigh the risk of receiving disappointing news from the regulator in the coming year, according to Morgan Stanley. The investment bank reduced its price target on Alkermes to $42 today while also lowering its rating to underweight. That's effectively a sell rating.
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Their biggest concerns involve Vivitrol, ALKS-5461, and ALKS-3831.
Vivitrol sales were $63 million in the first quarter, up 7% from last year. However, some have expected much better growth for the treatment to prevent relapse to opioid dependence, especially given the significant need to treat opioid addiction.
In terms of ALKS-5461 and ALKS-3831, the concerns involve uncertainty associated with key catalysts that are fast approaching.
Earlier this year, investors were surprised by a Refuse-to-File (RTF) letter from the FDA on ALKS-5461, a depression drug that works differently than existing treatments. The FDA quickly reversed course on the drug, which is under consideration for use in patients who fail to respond to selective serotonin reuptake inhibitors (SSRI) or serotonin and norepinephrine inhibitors (SNRI). Nevertheless, the glitch was enough to raise investors' eyebrows. An official FDA decision on ALKS-5461 is expected in January 2019.
Alkermes is also approaching a key data readout on ALKS-3831 that could pave the way to an FDA filing. ALKS-3831 combines the active ingredient in the common schizophrenia treatment Zyprexa with an opioid modulator to overcome one of Zyprexa's biggest unwanted side effects: weight gain. Results from ALKS-3831 weight study are expected in the fourth quarter.
Now what
Alkermes has a steady flow of revenue coming in already from its own drugs and royalties on other drugs and that insulates it a bit against clinical-stage stumbles. However, there's a high clinical trial failure rate in CNS, and even with data in hand, there's no guarantee of an FDA OK.
Undeniably, investors shouldn't ignore these short-term risks, but they might be better off focusing on the market opportunity that could lie ahead if these drugs win approval. Most patients fail on their first SSRI/SNRI drug, and ALKS-5461 could therefore carve out important market share as a second-line option for use alongside SSRI/SNRIs. In schizophrenia, Zyprexa has a 19% market share in a multibillion-dollar market, and with nearly a third of patients gaining at least 15% of their body weight after 48 weeks, there would appear to be room for ALKS-3831 to steal away sales.
Overall, there's no telling what will happen with these drugs, but there's a big unmet need that these drugs could fill, and given this company's history of success, I'm giving it the benefit of the doubt that these drugs will cross the finish line.
