Recently on Mad Money Jim Cramer started talking about what a great investment opportunity Alkermes (NASDAQ:ALKS) is, specifically its drug Vivitrol, which is used to treat opioid dependence. This piqued my interest, which led me to do some research on the company and its potential.
Alkermes isn't really a drug company per se; they specialize in taking other companies' drugs and developing extended release versions of the compounds, then collecting royalties on these drugs. Their partners include all the big pharma names, including Merck (Emend), Pfizer (Avinza, Rapamune), and Novartis (Focalin XR). Cramer claimed the company trades at 17 times earnings, but when checking Google, Yahoo, Morningstar, and Alkermes' own website, they all reported a negative EPS.
Last fiscal year Risperdal Consta was by far the leading revenue generator for Alkermes. Royalties from Janssen brought in almost 170 million in revenue, an 8% increase from the year before. Risperdal is a atypical antipsychotic that is used to treat Schizophrenia and Bipolar disorder. Usually the drug is taken once or twice daily as a tablet, but Alkermes extended release version is given as a shot every two weeks. This is a advantage in schizophrenia patients because medication adherence can be difficult for them. Sales of Risperdal Consta should steadily increase over the next few years.
GLP-1 agonists are one of the newest treatments in the fight against diabetes. First to the market was Byetta, which was given as an injection twice daily. Then Novo Nordisk (NYSE:NVO) entered the market with Victoza and started conquering market share from Byetta rather quickly. Currently Victoza is the best selling GLP-1 agonist, and it only has to be given once a day. Bydureon, which is an extended release version of Byetta, only has to be given once a week, which should give it a huge advantage over Victoza. Unfortunately Bydureon hasn't conquered market share as fast as Victoza did, for a number of reasons. First, in the DURATION-6 trial, Bydureon failed to show non-inferiority to Victoza. Also, severe side effects such as thyroid cancer and pancreatitis have probably been a drag on sales as well. Lastly, Bydureon isn't as easy to administer as Victoza. Things are looking positive in the long run, though. Amylin was bought out by Bristol Myers Squibb (NYSE:BMY) and GSK, so Bydureon will now have a huge sales force presence that it didn't have when it was being marketed by Amylin alone. Later this year a pen version is supposed to be entering the market, which will make administration easier. Alkermes will collect 8% of Bydureon sales. If sales ever surpass 40 million units in a year, Alkermes will collect 5.5% of all sales on units past 40 million. With sales expected to eventually reach 1.5 billion, Bydureon royalties could become a cash cow for a small company like Alkermes.
A article in The New York Times about pill addiction is what prompted Cramer to bring up Vivitrol and Alkermes. Vivitrol is an extended release version of Naltrexone that lasts for a month at a time. By developing an extended release version of the drug, Alkermes hoped to treat alcoholics and opioid addicts. It essentially denies the patient the drunk or high feeling they get when using alcohol or opioids.
There is a lot to like about this drug. The noted earlier pill addiction is a growing problem, and the treatment for addiction is big business. Suboxone, which is also used to treat opioid dependence, had over 1 billion in sales in 2011. Sales of Vivitrol are small but growing fast; last fiscal year Alkermes reported 57 million in sales, compared to 40 million the year before. Also, Alkermes recently initiated a study that will study the re-incarceration rate of offenders with opioid dependence while on Vivitrol. This could help show its cost effectiveness in the long run. A
lso it is important to note that unlike all of Alkermes other drugs Vivitrol is manufactured, marketed, and sold directly by Alkermes, so they collect on all of the sales. However, despite these positives, I'm not sure why Cramer is so high on this drug all of a sudden. Vivitrol has been available since 2006 and has had poor sales since the very beginning, despite its effectiveness. It is extremely expensive and patients have had difficulty getting insurance to pay for the drug, which has hurt sales. Showing its cost effectiveness over drugs like Suboxone could go a long way in helping sales grow. On the bright side, Alkermes' patent doesn't run out till 2029, so they have time on their side.
Alkermes has a few interesting products in its pipeline. The most likely to be successful is ALKS-9070. This is a long acting form of the extremely popular drug Abilify. It is currently undergoing phase III trials and could enter the market in late 2013.
The most interesting drug in their pipeline has to be Zohydro. Zohydro is an extended release version of hydrocodone, which is the main ingredient in Vicodin. Unlike Vicodin, Zohydro does not contain acetaminophen and it is dosed less often than Vicodin. It is essentially a hydrocodone version of OxyContin, the very successful and very controversial oxycodone-based medication.
A few other interesting pipeline products include a once monthly version of Byetta, and ALKS-5461, which recently reported positive data for the treatment of depression.
I always hesitate investing in a company that isn't profitable, so buyer beware with this stock. Alkermes does have a huge financial advantage because they don't have to invest the massive amounts of R & D to develop new drugs. However, because they lack a sizable sales force, they have to "lease" their drugs out to other companies, so they only receive a small percentage of the total sales. I do think, with its solid pipeline and the potential sales growth of its products, it is an interesting investment. Alkermes is worth a look for people who want more growth potential than the current big pharmas, but not as much risk as the biotech stocks.
Disclosure: I am long PFE.