Friday, October 10, 2008

Alkermes shifts gears; plans own drug lines

By Stephen DeSantis

At nearly 20 years old, Alkermes Inc. is entering an era of “self discovery” — it is moving away from a long-held strategy of making drug delivery tools and is now developing and commercializing its own products in-house.

Finally reaching profitability three years ago, it has been a long, hard road for Alkermes. The Cambridge-based company now wants to take a new path, one coupled with the uncertainty of rearing potential new therapies.

Alkermes (Nasdaq: ALKS) has put together a proprietary pipeline and has bold plans to put eight drugs into human trials by March 2009. Seven of its drugs are based on known compounds, but one — called ALK33 — is an entirely new chemical entity.

 “Getting together a whole new R&D program, with the millions and millions of dollars needed to create one drug, is obviously risky. But this is a risk-reward game,” said Ben Dunn, managing director at the Boston-based investment firm Covington Associates Inc.

Internal obstacles will also have to be overcome to see this transformation work.

“A big challenge will be within the culture there itself. It has not been primarily a research-driven organization and you have to ask whether they will be able to adhere to the timelines and have the patience to see this thing play out,” Dunn said.

A business decision
What is making this transformation possible is the company’s healthy bottom line — a time for celebration after burning cash for two decades. In fiscal 2008, it netted $166 million on revenue of $240 million, up from a profit of $9.5 million on $239 million in revenue the year earlier.

All that extra cash could have been invested back into its partnering and manufacturing efforts, but Alkermes decided to use the profits to back its new drug development model. It was just sound financial logic, according to James Frates, chief financial officer for Alkermes.

“The drug delivery model only gets you so far. So once you’ve developed those delivery technologies, you can start to use those for your own. You can control your own fate much longer, and that just gives you greater growth opportunities,” he said.

Alkermes CEO David Broecker explained that the company wanted a development element to its business, but the much-publicized collapse of its inhaled-insulin device deal with Eli Lilly and Co. forced Alkermes to lay off 150 employees and close its 4-year-old manufacturing plant in Chelsea. It cost the firm about $30 million in restructuring charges and ultimately caused company management to rethink its future.

Eli Lilly decided to end the program because of a business decision, not a failure of the technology — and that lack of control over such a decision was the real catalyst for chasing a new strategy, Broeker said.
“Clearly the loss of the (Eli) Lilly program was disappointing to all of us ... and now we had this sense of urgency to really go after these proprietary products. That is when we put the stake in the ground,” said Broecker.

Armed with its new strategic focus, the company went on a mission to “win the hearts and minds” of its 600-plus employees, according to Broecker.

Scott Chizzo, CEO of the Waltham-based Maxiom Consulting Group Inc., said, “The concept is to take it from being a contract manufacturer of sorts, to a fully integrated pharmaceutical company. It is actually a very challenging strategy ... it involves a real change in mind-set,” said Chizzo, whose company lists Alkermes as a client.

Chizzo said the company’s achievement in bringing the drug Vivitrol to market gave it the confidence to pursue becoming a full-fledged R&D biotech.

Vivitrol is Alkermes’ alcohol and opioid dependency drug, a once-a-month injectable version of an approved drug called naltrexone, previously designed to be taken every day in pill form. Alkermes further developed naltrexone to be used with its injection technology. It wove polymer-based microparticles (or spheres) into the drug to control how the drug was released in the blood.

Despite the risks, one thing is certain: Alkermes now needs to add the words “drug developer” to its “drug delivery” job description.