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Alkermes: Bad News Biotech Buy?

05/16/2019 5:00 am EST


John McCamant

Editor, Medical Technology Stock Letter

Alkermes plc (ALKS) recently released its Q1:19 financial results that showed a big miss for Aristada coming in at $30 million after guiding for $40 million, notes biotechnology sector specialist John McCamant, editor of The Medical Technology Stock Letter.

While a disappointment, the company did not change overall FY guidance and stated that an inventory workdown was the primary cause. At current prices, we believe ALKS is getting zero credit for any pipeline potential. 

In our view, ALKS fumarate, branded “VUMERITY” by partner MS drug leading Biogen (BIIB), has been de-risked and represents an important asset for Biogen and importantly a significant potential royalty stream for ALKS beginning next year. Biogen's Tecfidera has very real IP risk and it is already planning a possible switch to Vumerity (ALKS fumarate).

ALKS expects POC data for ALKS-4230 (IL-2 for cancer) later this year. ‘4230 is very similar to NKTR’s ‘214 which also targets IL-2 selectively.

The company recently started the second ALK S-4230 trial (Phase I/II ARTISTRY-2), which will evaluate sub-q dosing (QW and Q3W) as monotherapy and in combination with Keytruda and expects to pick a dosing regimen for broad Phase II development by the end of this year.

The IV ALKS-4230 formulation continues to be evaluated in Phase I ARTISTRY-1 trial and once an MTD is achieved in the monotherapy dose-escalation cohort, ALKS plans to initiate monotherapy arm in RCC and melanoma.

On the earnings call, management commented that the patients in the combination study are likely to demonstrate responses as these patients have better prognoses. This arm is actively enrolling, and management anticipates data by YE19 which could be significant as most of Wall Street assigns little or no value to ALKS pipeline.

The Vumerity PDUFA is in the Q4 of this year. If BIIB loses in court the company will be highly motivated to start switching MS patients from Tecfidera to Vumerity. This would be great for ALKS, as 25% of the Tecfidera market is $750 million, or over $100 million in revenue for ALKS at a mid-teens royalty rate. 

In our view, the sell-off was overdone, particularly when factoring in the Aristada miss should be made up this year.  BIIB’s enthusiastic comments in its Q1 release regarding its launch plans for Vumerity also increase the odds that ALKS will receive a significant royalty stream that could begin as soon as next year. The stock is a buy under $55.

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