Alkermes Knocks on Door of Biotech Big Leagues, Aims to Make Drugs of its Own

2/12/09Follow @xconomy

People in the life sciences business throw around the term “Big Biotech” as a way to distinguish the industry’s elites from the money-losing masses in the product-development stage. The “Big Biotechs” are the industry’s select few profitable companies with multi-billion dollar stock valuations, like Amgen, Genentech, Gilead Sciences, Celgene, and a duo from Cambridge, MA—Genzyme and Biogen Idec. Now another Cambridge neighbor, Alkermes, says it is pounding on the door of that club.

I gathered some of this insight into Alkermes’ thinking last month at an investor meeting in San Francisco, where I talked with chairman Richard Pops and chief financial officer Jim Frates. They were somewhat unnerved by the financial crisis, but said they took some comfort in being able to sell investors on that rarest of entities—a profitable biotech company with growth potential.

Alkermes (ALK-ur-meez) was founded in 1987, and like the usual biotech company, it lost money for its first 20 years. Alkermes’ calling card all those years was its expertise in making existing drugs more stable and longer-lasting in the bloodstream, allowing for less frequent dosing. It has sought help from partners along the way. That softened the R&D bills, lowered the company’s risk, and also limited its ability to reap the rewards from its work. But now that one of its partnered products with Johnson & Johnson, a long-acting version of the drug risperidone, marketed as Risperdal Consta for schizophrenia, has become a $1.3 billion-a-year hit, it has turned Alkermes into a consistently profitable company. That’s enabled the company to build all the capability it needs to develop drugs from start to finish, and market them on its own, just like the rest of the class in “Big Biotech.”

“Now we actually have an economic business,” Pops says. “As a biotech company, you spend the first decade or two as a science project. It’s not really a business. It’s funded by investors who are willing to take risk. Now we’re in a different place. The whole nature of the risk profile changes over time.”

The strategy, Pops says, was to build the company in a step-by-step manner. Alkermes never bet the company on a single drug, a strategy Pops calls “the classic biotech gamble.” Instead, Alkermes chose to hone its proprietary technology, he says. Despite a big setback last year when Eli Lilly pulled the plug on an inhaled insulin partnership, Alkermes steadily developed enough of a royalty stream off partners’ products to switch over into profitability from 2006 through 2008. It did this while building up enough in-house talent (610 employees as of last March) and proprietary resources (it has its own drug factory) to turn the company into an independent operation, rather than an R&D shop for big drugmakers. The company made an important strategic move in that direction in December by adding a 70-person sales and marketing staff, and acquiring 100 percent of the commercial rights from Frazer, PA-based Cephalon to naltrexone (Vivitrol) for alcohol dependence.

“We know how to develop drugs that get approved by FDA, we have a factory, we have proprietary technology, it’s patented, we have people who can do it. Why do it all for pharmaceutical companies anymore? Now we can do it ourselves,” Pops says.

Still, Alkermes’ business depends heavily on riding a wave of royalties from its big partner, Johnson & Johnson. The Alkermes technology was particularly useful for schizophrenia, as many schizophrenia patients struggle to take their pills every day, causing relapses. The Alkermes technology transformed a daily pill into an every-other-week injection. It also enables the medication to remain stable in the blood for a full two weeks, allowing patients to avoid the peaks and valleys of concentration in the bloodstream that can lead to spotty effectiveness, Pops says. (This week, the FDA delayed an application to expand the drug’s use to bipolar disorder.)

Since about 1.5 million people worldwide get diagnosed with schizophrenia each year, and patients depend on their medication, even in a downturn, this is not a bad pharmaceutical business to be in. … Next Page »

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