As part of the deal, Cephalon will pay Alkermes $160 million up front, with an additional $110 million if Vivitrex receives regulatory clearance. However, that cash comes with strings attached. Alkermes will have to cover losses from the product up to $120 million until either Dec. 31, 2007, or 18 months after FDA approval, whichever comes later. Cephalon will cover losses in excess of $120 million during this period. Afterward, the two firms will share profits and losses equally, although Alkermes is entitled to an additional $220 million if certain sales milestones are hit.
The deal is a good one for Cephalon, given its proven ability to market specialty drugs effectively. The company plans to field a 100-member sales force to support Vivitrex. Cephalon will initially zero in on a select set of physicians prescribing medication for alcoholism and gradually expand the sales effort to more doctors. Cephalon has followed a similar formula for its drug Provigil, and the results have been commendable. Last year, sales of that medication, which is indicated to treat narcolepsy and excessive sleepiness, climbed 54% to $406 million.
Of course, Alkermes will reap the financial benefits from Cephalon's efforts. Equally important, though, is the fact that Alkermes will gain insight into the sales process from a proven winner. Alkermes has primarily made its way in the world by lending its drug-delivery technology to companies like Johnson & Johnson
As part of the new alliance, Alkermes will jointly develop the commercialization strategy with Cephalon. In addition, Alkermes will have the option of fielding its own sales force for Vivitrex in the future. As Alkermes continues to develop its own proprietary products, this experience should serve it well.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.