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Investors Are Missing An Opportunity With Alkermes


  • Alkermes has little to say about its recent meeting with the FDA regarding ALKS 5461.

  • We think the chances are good for ALKS 5461 approval without another trial.

  • We see good upside in Alkermes moving ahead in 2017 and beyond.

We remain bullish on Alkermes (NASDAQ: ALKS) because of their substantial and growing revenue and their healthy pipeline of valuable assets. Like many ALKS investors, we were hoping to see a good price jump this quarter with a positive announcement of ALKS' meeting with the FDA on one of its promising late-stage assets, ALKS 5461.

On its Q4 2016 investor call on February 15, 2017, Alkermes announced that the FDA meeting occurred. However, without a lot of definitive information coming from the FDA meeting, investors continued to have a "wait and see" attitude on the stock. We think investors are missing an opportunity with ALKS generally, and with ALKS 5461 specifically.

Alkermes is developing ALKS 5461 for the treatment of Major Depressive Disorder (NYSEARCA:MDD). MDD represents a large market, affecting ~14M people in the US alone. Treatment-resistant depression remains a major problem, affecting ~50% of the total depression population. Moreover, only 1 out of 3 of patients achieve remission after trying a single antidepressant. ALKS 5461 was designed specifically for treatment-resistant MDD. Its formulation includes opioid modulators that result in κ-opioid antagonism with minimal μ-opioid agonism. It effectively functions as an antidepressant therapy with reduced abuse liability.

Alkermes reported topline Ph3 results of ALKS 5461 in treatment-resistant MDD patients on October 20th 2016. In this study (FORWARD-5), ALKS 5461 met its primary endpoint of achieving a significant reduction in depression scores compared to placebo, p=0.018. At this time, Alkermes indicated that it planned to seek FDA approval using this data as well as data from a Ph2b trial and one of two other Ph3 trials. While it is noteworthy that Alkermes' two other Ph3 trials missed their primary endpoints, the results of one of those trials (FORWARD 4) showed significant effects at all time points evaluated except at 5 weeks post re-randomization of placebo non-responders. Furthermore, the FORWARD 3 trial appeared to miss due to a high placebo effect, a common problem in CNS indications.

Despite the success of the FORWARD-5 trial, and the generally positive data from FORWARD-4, these failed trials have reduced overall investor enthusiasm, as it could mean the FDA will require an additional registration trial for approval. ALKS investors like us, were hoping to get a positive announcement from ALKS following their highly anticipated meeting with the FDA about their ALKS 5461 trials. On the recent Q4 2016 investor call, Richard Pops, CEO of Alkermes, announced that a meeting with the FDA had taken place. However, he was very careful with his words about the FDA meeting, and did not give ALKS investors the clearly positive message that they were seeking. Mr. Pops indicated as follows:

"This [ALKS 5461] is a fast-track designated medicine, as we've done throughout the development process, earlier this week we met with FDA for a Type C scientific exchange to share with them the data from FORWARD-5. The meeting with FDA was productive, and we are on track with the planned submission of the NDA in the second half of the year.

Next steps will be to request the pre-NDA meeting in the coming weeks and we expect that meeting to occur later in the second quarter. So we have a lot to look forward to with ALKS 5461."

Analysts repeatedly asked Mr. Pops about the meeting, and he continued to be cautious in his responses, such as this one:

"Remember the purpose of this Type C meeting was focused on providing the analysis of FORWARD-5 and to pool the analysis of FORWARD-4 and FORWARD-5. So the purpose of the meeting wasn't to kind of go over the entire program, and we'll do that in the context of the review at the NDA. So the meeting as I said, was productive, we're quite clear that we're going to go ahead and file the NDA, and so we're on track. So, I think that that's the best summary of it I can give you."

Finally, after further questions, Mr. Pops offered this response:

"Good. So I think the FDA meeting went as we would have predicted in the sense that, we presented the data that we wanted to present. We know that we're going to go ahead and file the NDA and the strength of the submission is in the totality of the data. And I think - so I don't think I feel any more any less. I think we were in the same position than we were, when we finished the FORWARD program, where we've been really testing an agent really rigorously in multiple clinical trials in patients who are refractory to treatment with SSRIs and we're seeing consistent evidence of efficacy, as well as dose response and the impact of study design on outcome. So, to us, it all feels quite internally consistent. So we're looking forward to proceeding with the review."

It is possible that the upcoming ALKS 5461 pre-NDA meeting will provide an answer as to whether another Phase 3 trial will be necessary, although Mr. Pops did not give that indication in his comments:

"The pre-NDA meeting is not a meeting to adjudicate all the data, it's really to focus on what's going to be into the NDA itself. So that meeting, we will go ahead and request now in the next couple of weeks and we expect to have that meeting in Q2. Then, we'll submit the NDA that has the data presented across the entire program in the format that FDA and we have decided the best presentation of the data."

Therefore, it appears that investors may have to wait until the FDA reviews the NDA, which probably takes us into 2018, to know whether another ALKS 5461 trial will be necessary. In the meantime, the market reacted similarly to Mr. Pops' sentiment about the recent Type C FDA meeting: "so I don't think I feel any more or any less." Investors should take note that ALKS tends to play it safe in its comments and guidance, for example beating on revenue in 10 of the last 11 quarters. As ALKS continues to execute on its plan to conduct the pre-NDA meeting, to present detailed FORWARD 5 data in May, and to file the NDA, the investment community will likely feel more confident that the FDA has given ALKS positive signals that another trial is not necessary. This should be good for ALKS stock price as 2017 proceeds.

As of the beginning of the year, Alkermes had $619M in cash and cash equivalents and $280M in long-term debt. For the year ending Dec. 31st 2016, Alkermes earned $746M in revenues. As in past years, the bulk of these revenues came from partnered long-acting antipsychotics. However, revenue ramps from both Vivitrol and Aristada contributed significantly to this year seeing a record high in total revenues. See 10-K (here) for additional financial information.

As with most small-mid cap biotech companies, an investment in ALKS is not without risks. We see competitive threats from other CNS-focused companies and particularly those in the antipsychotics space as new therapies that better address negative symptoms come to market. Furthermore, should the FDA indicate that an additional trial for 5461 be necessary either at the pre-NDA meeting or in a Complete Response Letter, ALKS price could drop significantly.

Overall, we like ALKS as a stock right now because we are optimistic about ALKS' chances to get 5461 approved without an additional study. This is based in large by the fact that new therapies with novel mechanisms are desperately needed for patients with MDD. Furthermore, ALKS 5461 efficacy and safety is supported by two successful phase 3 trials (where placebo effect was controlled for more aggressively), and nearly 50% of currently prescribed MDD drugs were approved after a failed trial. The FDA is likely to hone in on safety data where ALKS 5461 has the advantage of being tested in over 1500 subjects, many of whom have been treated for over a year. ALKS 5461 is an abuse-deterrent formulation, providing an additional advantage over conventional opiates.

We are bullish on ALKS not only because of the potential of ALKS 5461, but because of its other assets as well, which include exciting, approved drugs and other clinical phase assets. You can read our entire report on ALKS here. We feel very good about ALKS in 2017 as it continues to see revenue growth and continues to make progress with its pipeline assets. This includes a positive year for ALKS 5461, with the pre-NDA meeting with the FDA next quarter, and NDA submission in the second half of the year. Eventually, we'll have our answer about whether another trial is necessary for ALKS 5461. We are on the side that it gets approved without another trial.

Disclosure: I am/we are long ALKS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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