Alkermes, Inc. (ALKS) is an emerging pharmaceutical company engaged in the development and commercialization of therapeutic products that utilize its Proprietary Drug Delivery Technologies. The company uses its ProLease and Medisorb delivery systems to develop controlled and extended release versions of injectable drugs. It also utilizes its proprietary AIR pulmonary delivery system for the development of inhalers. Its lead commercial product, Risperdal Consta (or simply Consta), was developed using the Medisorb delivery system for the treatment of schizophrenia and is marketed worldwide by Johnson & Johnson. In April, 2006, the company received FDA approval of Vivitrol for the treatment of alcohol dependence. Vivitrol was launched in June 2006 and is marketed by Cephalon. The company is also developing AIR Insulin for type I diabetes, and Byetta (formerly Exenatide) LAR for type II diabetes.
Alkermes is headquartered in Cambridge, MA.
Risperdal Consta continues to grow
Risperdal Consta was approved for the treatment of schizophrenia in the U.S. in 2003. Risperdal Consta is the longer-lasting injectable version of Johnson & Johnson's schizophrenia drug Risperdal (Risperidone), currently approved for sale in more than 70 countries worldwide. It is superior to the first-generation Risperdal in terms of efficacy, tolerability, and frequency of dosage (one injection every two weeks). Given its improved profile, Consta is a major player in the schizophrenia market with incremental sales potential of about $1 billion. The company receives payments of approximately 10.5% (2.5% royalty plus roughly 8% manufacturing) from sales of the drug. We expect Consta to make a significant contribution as it picks up sales momentum. It is the current growth driver of both ALKS top-line and J&J's schizophrenia franchise.
Alkermes generated $81.4 million revenue from sales of Consta in fiscal year 2006. Total payments consisted of $64.9 million manufacturing revenue and $16.5 million royalty on worldwide Consta sales of about $660 million by J&J. In fiscal 2007 ended March 31, 2007, Alkermes generated $118 million in manufacturing and royalty revenue from Risperdal Consta, which consisted of $88.6 million manufacturing revenue and $23.2 million royalty revenue. In fiscal 2007, end user sales of Consta reached $924.2 million, up 40% over $660 million in fiscal 2006. In the first quarter of fiscal 2008, Alkermes generated $37.2 million ($30.2 million for manufacturing and $7 million for royalty) in revenue from Consta sales of $279 million. The $37.2 million was also well above our estimated $30.5 million. In the second quarter of 2008, the company generated $30.2 million ($22.9 million for manufacturing and $7.3 million for royalty) in revenue from Consta sales of $293.6 million. We estimate Consta end user sales will cross $1 billion mark in fiscal 2008 reaching $1,112 million. Inventory reduction by J&J during the third quarter of 2007 will have a minor negative impact on the fiscal 2008 sales of Consta.
In April 2007, the FDA approved a 12.5 mg dose of Risperdal Consta for the treatment of schizophrenia within specific patient populations, including those with renal and hepatic impairment. The new dose of Risperdal Consta will provide physicians with more options to individualize treatment approaches and adjust therapies when clinical factors warrant dose changes. The new dose of Risperdal Consta is the lowest formulation of the long-acting injection. Risperdal Consta is also available in 25 mg, 37.5 mg and 50 mg dose units. The FDA approval of the 12.5 mg dose was based on pharmacokinetic data in schizophrenia patients that demonstrated an expected profile for the lower dosage strength. We believe the approval of new dose will boost the sales of Risperdal Consta going forward.
On December 20, 2006, Janssen Pharmaceutica K.K, Alkermes' partner Janssen-Cilag's Japan subsidiary, submitted a new drug application (NDA) to the Pharmaceuticals and Medical Devices Agency (PMDA) for marketing approval in Japan of Risperdal Consta. If approved, we believe the entrance of Risperdal Consta into Japan market can make a meaningful contribution to total Consta sales.
Vivitrol sales may pick up momentum in fiscal 2008
Vivitrol (naltrexone for extended-release injectable suspension), the first and only once-monthly injectable medication for alcohol dependence, received final approval from the FDA in April 2006. Vivitrol is indicated for alcohol dependent patients who are able to abstain from drinking in an outpatient setting and are not actively drinking when initiating treatment. Vivitrol hit the market in June 2006 and is marketed by Cephalon. During an 18-month (6 month main and 12 month extension) phase III trial, Alkermes demonstrated that a once-monthly dose of Vivitrol reduced heavy drinking days in alcohol-dependent patients from 19 days per month to 3 days per month. Vivitrol was also well tolerated in patients for the stated period. Alcohol dependency impacts 18 million Americans, leading us to believe that Vivitrol could be a multi-hundred million-dollar product. We believe growth in this market, along with the additional 12-month data, enabled the company to attract Cephalon, Inc. for a marketing deal. The deal expanded the scope of sales and marketing. The two companies are now marketing Vivitrol with a total of 150 (120 belong to Cephalon) sales people. To ensure that physicians and patients can obtain product and treatment with ease, the companies have developed a comprehensive support program called VIP3 (Vivitrol Information for Patients, Physicians and Providers). VIP3 will integrate support services to address each step in distribution, reimbursement and administration of Vivitrol. By calling the VIP3 support line, patients and physicians will receive necessary support from trained coordinators to help them obtain Vivitrol in a timely, convenient manner. VIP3 is designed to protect the privacy of patients and to comply with federal privacy regulations, including the Code of Federal Regulation (42 CFR) and Health Insurance Portability and Accountability Act (HIPAA).
Although early market penetration was not as much as expected, we believe sales of Vivitrol will pick up momentum in the coming quarters. Historically, alcohol dependence has been a tough market to develop as patients usually enter treatment voluntarily and have been reluctant to remain on prior medication regime. As we expected, early market penetration for Vivitrol has been difficult. Vivitrol sales in fiscal 2007 were only $6.6 million, far below the companies' original guidance of $35 million - $45 million. The $6.6 million was also below our estimate of $8.5 million in fiscal 2007. We believe the convenience of once-a-month Vivitrol will improve patient compliance and the measures Cephalon has taken will take effect gradually. We are please to see the sales growth of Vivitrol in the first quarter of 2008 with quarterly sales of $4.5 million compared to $2.9 million in the fourth quarter of 2007. The second quarter sales also showed a marginal improvement sequentially, coming in at $4.7 million. We expect Vivitrol sales will pick up momentum in fiscal year 2008 and beyond. We estimate total sales of $19.0 million in fiscal 2008.
Cephalon will have the primary responsibility of marketing and selling the drug and Alkermes will be responsible for manufacturing.
In early April 2007, Alkermes submitted a Marketing Authorization Application (MAA) for Vivitrol to regulatory authorities in the U.K. (Medicines and Healthcare Products Regulatory Agency, or MHRA) and Germany (Bundesinstitut fur Arzneimittel und Medizinprodukte, or BfArM). The MAA for Vivitrol was submitted under a decentralized procedure, in which the U.K. will act as the Reference Member State and Germany will act as the Concerned Member State for the application. If successful, a filing under the decentralized procedure would result in a simultaneous approval of Vivitrol in these two countries. The MAA for Vivitrol is based on the safety and efficacy data from a six-month, multi-center, double-blind, randomized, placebo-controlled phase III study in 624 alcohol dependent patients, more than 90% of whom were actively drinking at study enrollment. Alcohol dependency affects approximately 23 million individuals in Europe. With FDA approving the drug, we believe that the MAA will be approved in the first half of 2008. Therefore, sales of Vivitrol will be boosted in 2008 and beyond.
With strong marketing partners for Consta and Vivitrol and an expanded reach, the company achieved profitability in fiscal year 2007 with adjusted EPS of $0.10 per share including share based expenses. We expect the company to post EPS of $0.13 and $0.62 for fiscal 2008 and 2009, respectively. The company is also pursuing a label expansion program for Vivitrol. Alkermes has submitted a protocol with the FDA for use of Vivitrol as a treatment for opiate-dependence and expects to initiate clinical trials in this indication during the first half of 2008. Approval of Vivitrol for additional indications will further aid the company in posting strong sales growth going forward.
Pipeline is robust
The Diabetes Program: The company is also working on pipeline candidates, AIR-Insulin and exenatide LAR (both partnered with Eli Lilly), for type I and type II diabetes. Lilly recently presented detailed phase II results of the inhaled AIR-Insulin candidate at the annual meeting of the European Association for the Study of Diabetes. The results showed that inhaled insulin was as effective in controlling blood sugar levels as injected insulin. Patients using AIR-insulin achieved a blood sugar level of 7.9, compared to 8.0 of those taking injected insulin. The American Diabetes Association recommends a blood sugar level of less than 7 using the standard measure of glucose control, known as A1C. Alkermes and Eli Lilly are now focusing on two phase III trials, started in July 2005, to further demonstrate safety and efficacy of the AIR-Insulin candidate. One safety and efficacy trial with 400 patients has completed the enrollment in early June 2006. This is a 24-month study in type I diabetics. Another is a 600 person, 12-month study in both type I and type II diabetics. This study will go on for two years after which we believe the duo will look for a NDA filing.
Meanwhile, Alkermes reported positive results from the 30-week open-label, non-inferiority phase II study of Exenatide LAR in October 2007. The study assessed whether once-weekly exenatide LAR is at least as effective in improving glucose control as twice-daily Byetta. The trial was designed to generate the type of safety and efficacy data that could form the basis of a New Drug Application (NDA). Preliminary results from the ongoing phase II multi-dose study presented earlier demonstrated improvement in blood sugar level. Further, Exenatide LAR also demonstrated improvement in weight loss. Since obesity is a major risk factor for type II diabetic patients, we believe improvement in weight loss in clinical trials is a major achievement. The full results were reported at the 66th Annual Scientific Sessions of the American Diabetes Association (ADA) in June 2006. Patients treated with the drug candidate achieved dose-dependent improvements in A1C and weight loss. Blood glucose level was also reduced in the exenatide LAR arm. No severe side effects were observed with the drug candidate. Exenatide, sold as Byetta at Amylin Pharmaceuticals and Eli Lilly, is currently approved for combination use in patients with type II diabetes. Amylin and Alkermes recently restructured the manufacturing agreement for Exenatide LAR. Alkermes will be responsible for the design, construction, and validation of the facility. Amylin will front the costs and own the facility. Once approved, Exenatide LAR will be co-promoted between Amylin and Eli Lilly. Alkermes will receive a royalty on worldwide sales.
The CNS Program: In order to further expand its addiction drug franchise, Alkermes is conducting a phase I/II clinical trial for a new drug candidate ALKS 29. ALKS 29 is an oral combination of two agents with distinct pharmacologic properties designed to provide advantages over current oral medications for the treatment of alcohol dependence. The phase I/II study is a multi-centre, randomized, double-blind, placebo-controlled study, designed to assess the efficacy and safety of ALKS 29 in alcohol dependent patients. Alkermes commenced enrollment on October 3, 2006 and completed the enrollment of 150 patients in early March 2007. Alkermes reported top-line results from this study in July 2007.
In the study, patients treated with ALKS 29 demonstrated statistically significant improvement compared to placebo in terms of percent of days abstinent, percent of heavy drinking days, and average number of drinks per day. ALKS 29 was generally well tolerated during the study. Based on these results, the company plans to move forward with its development program for oral product candidates to treat alcohol dependence. A phase II trial for the drug candidate is expected to commence in 2008.
In October 2006, Alkermes entered into a licensing agreement with Rensselaer Polytechnic Institute (RPI) for a family of novel opioid receptor compounds discovered at RPI. The agreement granted Alkermes exclusive rights to those compounds which have the potential to treat a broad range of diseases and medical conditions, including addiction, pain and other central nervous system (CNS) disorders. Alkermes will screen this library of compounds and plans to pursue preclinical work on an undisclosed, lead oral compound that has already been identified. Alkermes will be responsible for the continued research and development of any resulting product candidates. Rensselaer will receive from Alkermes an upfront payment, certain milestone payments relating to clinical development activities, and royalties on products resulting from the agreement.
The Respiratory System Program: On January 4, 2007, Alkermes and Indevus Pharmaceuticals, Inc. entered into a joint collaboration for the development of ALKS 27, an inhaled formulation of trospium chloride for the treatment of chronic obstructive pulmonary disease (COPD). Under the joint collaboration, Alkermes and Indevus have shared and continue to share equally all costs of development and commercial returns on a worldwide basis. Alkermes will perform all formulation work and manufacturing. Indevus will conduct the clinical development program. Additional terms of the agreement were not disclosed. The announcement of this collaboration follows the completion of extensive feasibility work, preclinical studies and a phase I study in healthy volunteers. Preliminary results from the phase I study showed that ALKS 27 was well tolerated over a wide dose range, with no dose-limiting effects observed. ALKS 27 combines Alkermes' proprietary AIR technology with Indevus' trospium chloride, a molecule with a known safety profile and proven efficacy in certain spasmodic indications. Alkermes and Indevus initiated a phase IIa clinical study in late April 2007 and reported positive preliminary results in September 2007.
The phase IIa randomized, double-blind, placebo-controlled crossover study was designed to assess the safety, tolerability, pharmacokinetics and efficacy of ALKS 27 in 24 patients with moderate to severe COPD. During the study, patients received a single administration of two different dose levels of ALKS 27 and placebo, with each dose separated by a wash out period. The primary objective of the study was to assess the effect of ALKS 27 as measured by the area under the curve (AUC) of FEV1 over a 24-hour time period. In the study, patients treated with a single dose of ALKS 27 showed a statistically significant improvement in lung function (p<0.0001) compared to placebo. The onset of action of ALKS 27 was rapid and observed as early as 15 minutes post-treatment. ALKS 27 was well tolerated, and all 24 enrolled patients completed the study. No treatment-related adverse events were reported in this study.
The two companies plan to engage a partner for future development and commercialization of ALKS 27.
The Osteoporosis Program: In January 2006, Alkermes and Lilly announced that they signed an agreement to develop and commercialize inhaled formulations of parathyroid hormone for osteoporosis utilizing Alkermes' AIR technology. In early June 2007, Alkermes initiated a phase I clinical study of AIR parathyroid hormone (AIR PTH [1-34]) in healthy volunteers. AIR PTH is an inhaled formulation of Lilly's recombinant parathyroid hormone, FORTEO (teriparatide (rDNA origin) injection), based on Alkermes' proprietary AIR pulmonary technology. Data from the recently concluded phase I study indicated that additional feasibility and formulation work is required. The phase I study assessed the safety, tolerability and pharmacokinetics of AIR PTH in approximately 60 healthy postmenopausal women. On the second quarter conference call, the company stated that work on AIR PTH has been halted for the time being to allow Alkermes to focus its resources on other products.
In the U.S., osteoporosis is a major public health threat, affecting approximately 10 million people, eighty percent of whom are women. In addition, an estimated 34 million Americans have low bone mass, placing them at increased risk for osteoporosis. Lilly and Alkermes expect to report top-line results from the study by early 2008. The initiation of the phase I clinical study follows extensive feasibility testing and preclinical development. Under the terms of the agreement, Alkermes will receive funding for product and process development activities and upfront and milestone payments. Lilly will have exclusive worldwide rights to products resulting from the collaboration and will pay Alkermes royalties based on product sales. Alkermes and Lilly will form a joint development team and will share responsibility for executing the overall development strategy for inhaled PTH. Alkermes will have responsibility for non-clinical development activities, primarily formulation testing and device development. Lilly will have responsibility for all other non-clinical development activities as well as all clinical development and regulatory activities.
Financial position is very strong
Alkermes has two products on the market: Risperdal Consta and Vivitrol which are marketed by partners J&J and Cephalon, respectively. Alkermes receives manufacturing revenue and royalties from its partners. Another source of revenue is R&D collaborations. At September 30, 2007, Alkermes had $363 million in cash, cash equivalents and marketable investments. The company also has a $158 million long term debt as of September 30, 2007. Cash burn is not a concern for us at this point considering the fact that the company is generating positive cash flows from operations and will continue doing so in the years to come. Additionally, sale of the company's 5 million shares in Reliant Pharmaceuticals to GlaxoSmithKline will result in proceeds of $174 million in cash to Alkermes. Reliant had initially filed for an Initial Public Offering (IPO) with the SEC and we had expected the IPO listing to result in cash flow of $25 million - $27 million to Alkermes. However, on November 21, 2007, GSK announced the acquisition of Reliant for $1.65 billion in cash. The deal is expected to close by year-end. Upon closure of the deal, Alkermes will receive $166.3 million and up to an additional $7.7 million subject to the terms and conditions of an escrow arrangement that will remain in effect for a 15-month period following the closure of the transaction. Alkermes plans to use the proceeds from the Reliant acquisition and its cash reserves to repurchase up to $175 million of its common stock.