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Alkermes Inc. (NASDAQ:ALKS) is all set to announce its third quarter fiscal 2011 results on February 3, 2011 after the close of market. The Zacks Consensus Estimate for the third quarter of fiscal 2011 hints at a loss of $0.15 per share, as against a loss of $0.03 incurred in the year ago quarter.

Second quarter fiscal 2011 recap

Alkermes’ second quarter fiscal 2011 net loss (excluding special items) of $0.06 per share compared unfavorably with the year-ago loss of $0.05 per share. The Zacks Consensus Estimate was a loss of $0.15 per share. The narrower-than-expected loss was attributable to the higher revenues recorded in the quarter.

Total revenues for the reported quarter climbed 2% to $49.2 million. The increase was primarily attributable to higher manufacturing, royalty and sales revenues. Revenues for the reported quarter surpassed the Zacks Consensus Estimate of $43 million.

Alkermes generated $32.6 million from manufacturing the drug in the reported quarter as against $31.9 million in the comparable period of fiscal 2010. Moreover, the company derived $0.6 million in manufacturing revenues from diabetes candidate Bydureon as against $0.4 million in the year-ago quarter.

Alkermes generated $9.5 million in royalty revenues during the quarter on global sales of $378 million for schizophrenia drug Risperdal Consta, which is marketed worldwide by Johnson & Johnson (NYSE:JNJ), as opposed to $8.8 million on global sales of $352.6 million of the drug in the second quarter of fiscal 2010.

(Read our full earnings report at Revenues Rise at ALKS, View Lowered )

Agreement of Estimate Revisions

Estimate revisions for Alkermes have been scarce over the past month. Over the past thirty days, estimates have been revised upward by only 1 analyst covering Alkermes, with no downward movement. The fact that most analysts have left their earnings estimates untouched is reflective of the fact that they prefer to remain on the sidelines till more visibility is obtained on the pipeline development at Alkermes.

The most eagerly awaited is the course of action regarding type II diabetes drug, Bydureon (exenatide once weekly). Bydureon, an injectable formulation of Amylin Pharmaceuticals’ (AMLN) Byetta (exenatide), is co-developed by Alkermes, Eli Lilly and Company (NYSE:LLY) and Amylin. In October 2010, the US Food and Drug Administration (FDA) issued a complete response letter (CRL) regarding Bydureon. In its CRL, the FDA had asked the companies to conduct a thorough QT (tQT) study. We believe the FDA may have asked for this study based on the concerns regarding the cardiovascular safety profile of diabetes drugs.

The agency also asked the partners to submit data from the DURATION-5 study, which was conducted to compare the safety and efficacy of Bydureon versus Byetta. Recently, the FDA approved the design for the tQT study. The study is expected to commence in February 2011. A response to the CRL will be submitted in the second half of the year. We note that Bydureon is currently under review in Europe with a decision expected during the course of the year.

Magnitude of Estimate Revisions

Estimates for the third quarter of fiscal 2011 have witnessed a marginal change over the last 30 days due to a lack of significant estimate revisions by the analysts following the stock. The magnitude of loss expected in third quarter fiscal 2011 has gone down by $0.01 to $0.15 over the time period.

Our Recommendation

Currently we have a long-term ‘Neutral’ stance on Alkermes which is supported by the Zacks #3 Rank (short-term ‘Hold’ rating) carried by the company.

Source: Alkermes Earnings Preview

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