Zacks_Analysts' Blog : Risk Reward Balances Alkermes - Analyst Blog

We are maintaining our Neutral recommendation on Alkermes, Inc. (ALKS). Alkermes is a drug delivery biotech company which uses its proprietary specialized drug delivery technologies to develop drugs for the treatment of central nervous system (CNS) disorders, alcoholism and diabetes.

In August 2011, Alkermes disclosed financial results for the first quarter of fiscal 2012. Alkermes suffered a net loss (excluding special items but including stock-based compensation expense) of $0.04 per share which compared favorably with the year-ago loss of $0.14 per share. The Zacks Consensus Estimate was a loss of $0.11 per share. The narrower year-over-year loss was attributable to higher revenues recorded in the reported quarter.

(Read our full coverage on the earnings report at Revenues Rise at Alkermes)

The lead product at Alkermes is Risperdal Consta for the treatment of schizophrenia and bipolar disorder. The drug is marketed worldwide by Johnson & Johnson (JNJ) and manufactured by Alkermes.

In October 2010, the FDA dealt a huge blow to Alkermes by issuing a second complete response letter (CRL) to its type II diabetes drug Bydureon. The first CRL was issued in March 2010.

Bydureon has been co-developed by Eli Lilly and Company (LLY), Alkermes and Amylin Pharmaceuticals, Inc. (AMLN). While issuing the second CRL, the US agency asked the co-developers to conduct a thorough QT study and submit data from the DURATION-5 study, which was conducted to compare the safety and efficacy of Bydureon versus Byetta.

The tQT study was completed in July 2011. The study evaluated the potential of exenatide to increase the QT interval across a wide range of plasma concentrations. A response to the CRL was submitted in July 2011, following which the FDA assigned a target date of January 28, 2012. We note that Bydureon has already been cleared in the European Union (EU). Following the approval in the EU, the diabetes drug was launched in the UK and is expected to be launched in other major European countries in the near future.

We note that even if Bydureon manages to clear the regulatory hurdles in the US, it will face tough competition. The drug will compete with Novo Nordisk’s (NVO) Victoza, a once-daily injection that was launched earlier in 2010. Other glucagon-like peptide-1 (GLP-1) molecules under development include GlaxoSmithKline’s (GSK) Syncria (albiglutide), also a once-weekly injection. 

Going forward, we expect investor focus to remain on the approval process for Bydureon in the US. We see limited upside potential for Alkermes prior to an FDA decision on the drug and retain our Neutral stance on the stock.