Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Contrary to every romantic comedy and sports underdog movie, completely remaking oneself takes more than a montage and an uplifting theme song. 

Take Alkermes. The Irish biopharmaceutical company was riding high in 2015, its stock gaining 36 percent in an ugly year for many in specialty pharmaceuticals, thanks to FDA approval of a long-acting schizophrenia drug in October. Investors were convinced Alkermes was transforming from a relatively unglamorous research firm into a leading maker of neurological drugs. The company ended 2015 with a nearly $12 billion market cap.

On Thursday, the story took an ugly turn: Alkermes' stock cratered after it said a late-stage depression drug, meant for patients with major depressive disorder who don't respond well to other treatments, had failed in two clinical trials. The company's market value tumbled from $9 billion to $5 billion, back to where it was in 2013, with a long and uncertain road back. 

Off a Cliff
Alkermes shares plunged on the news of a failed clinical trial for a potential blockbuster depression drug
Source: Bloomberg
Intraday times are displayed in ET.

Just last week, at JPMorgan's health care conference, Alkermes was confidently talking up the possibility these same two trials could let it rapidly file for FDA approval for the depression drug, known as ALKS 5461. The company still has a third, ongoing trial for the drug, with data expected later this quarter; it could still go to the FDA if that goes well. But after two failures, the path to approval looks tough.  

Alkermes still has a steady steam of manufacturing and royalty revenue from partnerships with companies such as Johnson & Johnson, AstraZeneca and Biogen. That's generating around $400 million a year in sales, a number likely to grow for many years to come -- nice, but not enough to justify one of those stratospheric specialty pharma valuations. 

That money does help it fund the research to chase such a valuation. Alkermes had about $800 million in cash and no debt as of its last filing. So far, its research efforts have yielded Vivitrol -- already a growing, $150 million-a-year drug for opioid and alcohol dependence -- and Aristada, the recently launched schizophrenia drug, which could have peak sales over $1 billion. Now it's getting ready for Phase 3 trials for another schizophrenia drug and a multiple sclerosis drug.

Solid Base
Manufacturing, royalties, and now new drugs have funded Alkermes' research efforts
Source: bloomberg

Alkermes' market cap had been inflated by high hopes for its pipeline. Reaction to Thursday's news reveals how much of those hopes rode on ALKS 5461, however. The second schizophrenia drug lacks a clear path to blockbuster status, and the MS drug is still too far from approval. Along with Thursday's stock punishment, analysts from JPMorgan, Morgan Stanley, Cowen, and more cut their ratings or price targets on Alkermes on the bad data report.

In ALKS 5461, Alkermes risks losing a potential best-seller that could appeal to a large, underserved patient population. Consensus estimates had peak sales near $800 million a year, and that may have been conservative. 

Worse, the potential failure of ALKS 5461 weakens Alkermes' narrative about its pipeline and its ability to run clinical trials -- which are always more complicated for neurology drugs -- and to navigate a tough approval process without a Big Pharma partner. 

At the JPMorgan conference, Alkermes CEO Richard Pops reiterated his intention to "build one of the great biopharmaceutical companies." He may want to tone down the rhetoric a bit. He'll have a tough task convincing the market again that Alkermes is ready to enter the drug-development big leagues.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net