The facelift orchestrated by Alkermes (NASDAQ: ALKS) CEO Richard Pops has investors clamoring for the biotechnology company this year.
Alkermes shares are up about 55% for the year to date to about $19 and trend-follower Roberto Pedone thinks the stock could make a run at its next resistance level of $25. Kudos go to CEO Pops for making good on his promise to turn Alkermes into a bigger, more stable company, but some questions still remain.
The company’s biggest and boldest move occurred in May when Alkermes announced plans to merge with the drug technologies division of Irish drug maker Elan (NYSE: ELN). The newly merged firm, which will be based in Ireland, will have immediate profitability on a cash earnings basis, according to Alkermes.
The move also gives the company diversified, growing revenue from 25 commercial products, including five high-growth commercial products that have long patent lives and substantial growth potential in large therapeutic areas. The firm also will have a strong, neurology pipeline of proprietary and partnered product candidates in clinical development, including several late-stage proprietary product candidates.
Another big benefit: the new Alkermes will be incorporated in a country where corporate income taxes are 12.5%, compared to a 38% combined federal and state tax rate in the U.S.
CEO Pops said Wall Street now understands the Elan merger was financially transformative. “You go from a money-losing biotech company to one that’s growing revenues, growing margins, growing cash flows for a long time,” he said.
More good news could be in the offing. The company appears to be moving closer to getting Food and Drug Administration approval of its diabetes drug Bydureon. The drug is a once-weekly injectable formulation of a medicine from partner Amylin (NASDAQ: AMLN). It is being developed with the goal of providing an effective and more patient-friendly treatment option.
The drug was rejected by the FDA last year over safety concerns. Subsequently, Alkermes and Amylin, along with development partner Lilly (NYSE: LLY), completed a study showing Bydureon doesn’t pose any cardiovascular risk. The drug is approved in Europe, and the companies expect to get the FDA’s okay sometime next year.
But even if and when it gets approved for U.S. use, Bydureon might have to fight an uphill battle against the Novo Nordisk (NYSE: NVO) drug Victoza, which is already approved for use in this country. Even though Victoza has to be taken daily, it proved to control glucose levels better in a head-to-head study with Bydureon.
Another cautionary flag for Alkermes is the $450 million the company borrowed from Morgan Stanley and HSBC to help finance the Elan deal.
CEO Pops isn’t concerned. He noted that Alkermes didn’t borrow as much as it could have, interest rates are low and cash flow from the products should enable the company to pay back the entire loan over the next four to five years, even sooner if Alkermes generates more cash through partnerships.
