What happened

Shares of Alkermes (NASDAQ:ALKS)-- a global pharmaceutical company -- are up 12% at 2:25 p.m. EST after announcing a truce with activist investor Elliott Advisors (UK) Ltd. and a plan to improve its financial performance in the years ahead.

So what

After talks with Elliott, Alkermes management has committed to implementing a plan "designed to drive growth, improve operational and financial performance and enhance shareholder value."

You know, what every company is supposed to be doing anyway.

Pills of different colors and sizes arranged on $100 bills.

Image source: Getty Images.

Management's goal is to improve margins over the next few years so its adjusted net income is 25% of 2023 revenue, with an earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 20% of 2023 revenue. The following year, the company is looking to up the margins more with net income making up 30% of 2024 revenue and an EBITDA margin of 25% of 2024 revenue.

Part of the improvement will come from cutting costs, but Alkermes' financial situation should also improve once the biotech launches its schizophrenia and bipolar I disorder drug, ALKS 3831. The drug was recently rejected by the Food and Drug Administration for a manufacturing issue, but the company has already fixed the issue, so it should be able to gain approval next year.

Management also plans to license or sell its non-core assets, including ALKS 4230, an immuno-oncology drug, which will cut its costs further.

Finally, Alkermes has committed to refreshing its board of directors, a process that's already started with the appointment of four new independent directors. The board plans to add at least one additional director in the first half of next year.

Now what

The plan will certainly drive Alkermes' valuation higher if management can implement the changes to increase its profit margins. While the cost cuts and the disposal of non-core assets will be relatively easy to implement, investors should keep an eye on the launch of ALKS 3831 because increasing revenue will be necessary to hit management's targets.

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