Alkermes: Irish Speculation

06/27/2014 7:00 am EST

Focus: STOCKS

Vivian Lewis

Editor and Publisher, Global Investing

We are seeing a rush by US pharmaceutical and medical device companies into low-tax Ireland by merging with local companies, observes international stock expert Vivian Lewis, editor of Global Investing.

To benefit from this trend, we are recommending Alkermes (ALKS), which is headquartered in Dublin.

Alkermes is a drug company with a serious product against schizophrenia, which was recently presented at the American Society for Clinical Psychopharmacology conference.

Its Aripiprazol lauroxil, ALKS 5461—injected monthly in two dose sizes—has just aced phase III clinical trials with statistically and clinically significant cuts in the marker for schizophrenia symptoms.

ALKS is also doing trials for ALKS 5461 to treat major depressive disorder. It also has about 20 low-margin commercial drugs it makes for other pharma companies. It also boasts a significant central nervous system drug pipeline.

ALKS loses money and trades at over five times book value and with a p/e of close to 35, which is double its historic p/e ratio. The share has gained 90.5% in the past 12 months and 10.54% in the last quarter.

One reason is its most recent quarterly report, with a positive surprise of higher earnings of 11 cents a share. It is expected to earn 14 cents in the current quarter. Sales rose 58% in the year to March.

Significantly, there has been some regular insider buying over and above the exercise of options. ALKS has modest debt for a drug company, which accounts for under 28% of its capital.

I hope a chemical cure for schizophrenia is in the offing, though I am not sure that ALKS can win this lottery. Indeed, there clearly is a lot of hype in this stock.

However, it clearly can win a shamrock prize, for being Irish. The reason to buy is primarily its merger appeal—for so-called inversions—whereby companies use Irish HQs to lower US taxes. To speculate on this possibility, I recommend buying up to $50 a share.

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