What happened

Shares of Alkermes (ALKS 1.71%) were sinking 14.3% as of 11 a.m. EST on Tuesday. The decline came after the company announced on Monday that it had received notices of partial termination from Johnson & Johnson's (JNJ 0.03%) Janssen subsidiary related to license agreements for Alkermes' NanoCrystal technology. 

So what

Partial termination of the two license agreements affects royalties that Alkermes receives from J&J for antipsychotic drugs Invega Sustenna and Invega Trinza. The biotech stock fell due to investors' worries about the financial impact to Alkermes.

A photo of two people shaking hands torn into two pieces.

Image source: Getty Images.

Alkermes' chief financial officer, Iain Brown, said that the company doesn't expect any financial impact this year. However, he added that it "will incorporate any necessary changes from these developments when we provide our financial expectations for the year in February."

Brown noted that Alkermes' planning assumed a tapering-off of the Janssen royalty payments. But he acknowledged that the "potential earlier loss of these royalty streams will adversely impact our cash flow over the next few years." Nonetheless, Brown maintained that Alkermes' "long-term outlook remains unchanged."

Now what

This story isn't over. Alkermes CEO Richard Pops pointed out that Janssen has consistently paid royalties for the use of the NanoCrystal technology in the Invega products in the past. He said, "We are not aware of any changes that have occurred to these products that would have altered their use of our intellectual property."

Alkermes plans to continue to try to reach a mutually agreeable solution with J&J. But if those efforts aren't successful, Pops said that the company "will consider all options to enforce our contractual and intellectual property rights."