Alkermes Stock: Nothing Stands Out As Interesting (NASDAQ:ALKS)

In the three years since I last covered Alkermes plc (NASDAQ:ALKS), the stock has stayed mostly stagnant (end-to-end, but with spikes in the middle). However, the company has made a major transition. Earlier, it mostly used to be a CNS focused company with multiple low value approved drugs. Now, it has added an oncology focus. There was an insignificant Alkermes oncology asset three years ago; today, their oncology pipeline is broader than the CNS one.

In August 2019, Alkermes had two approved drugs, ARISTADA (aripiprazole lauroxil) for the treatment of schizophrenia in adults, and VIVITROL (naltrexone for extended-release injectable suspension) for the treatment of alcohol dependence as well as for the prevention of relapse to opioid dependence, following opioid detoxification. In October 2019, Vumerity was approved for adult patients with relapsing remitting multiple sclerosis. In June 2021, a fourth drug, LYBALVI, got approved. Lybalvi is a combination of olanzapine and samidorphan:

“for the treatment of adults with schizophrenia and for the treatment of adults with bipolar I disorder, as a maintenance monotherapy or for the acute treatment of manic or mixed episodes, as monotherapy or an adjunct to lithium or valproate.”

Of these, Vumerity is licensed to Biogen (BIIB) while the other three are self-owned. Last quarter, the company made $276mn in total revenue. Of these, there were two components: sales revenue from 3 of its products, and royalty revenue from others. The first component was $190mn, which was nearly 70% of the total. Of these, net sales of VIVITROL and ARISTADA were $96mn and $74mn respectively, while the newly launched LYBALVI made $20mn. LYBALVI was launched in October 2021.

Manufacturing and royalty revenues stood at $85mn. INVEGA brand products had a royalty revenue of $26mn, while VUMERITY also had the same revenue, at around $26mn.

In terms of their oncology pipeline, the company recently retired one of their oncology assets, and also produced phase 1 data from another one, Nemvaleukin Alpha, an IL-2 molecule. The company presented data at ASCO from the ARTISTRY-1 study, here. Given the strong ORR in mucosal melanoma, the company plans to initially develop the molecule in this indication, and in platinum-resistant ovarian cancer. These are potential registration-enabling studies in two difficult-to-treat tumor types: ARTISTRY-6 evaluating nemvaleukin monotherapy in mucosal melanoma and ARTISTRY-7 evaluating nemvaleukin in combination with pembrolizumab in platinum-resistant ovarian cancer.

Coming back to their financials, what I am bothered by is the expense figures, especially the administrative expenses. ALKS has a market cap of $3.76bn and an annual revenue figure above $1bn, so that is good, right? However, their huge expense figure produces an operating loss, which messes up their numbers. Last quarter, the company spent $310mn, out of which $150mn was spent on SG&A. This seems too much, and perhaps it is the reason this company stock has not done well over the long term.

Recently, Sarissa Capital made some scathing comments about Alkermes management. Sarissa said, in late May, that Alkermes management is some of the worst they have ever seen – “Alkermes’s board appears to be manipulated by CEO who has destroyed shareholder value for years.” Interestingly, a statement Sarissa made reflects my thoughts, exactly, on the company’s loss-making endeavor even after making so much in revenue:

Pops [Alkermes CEO Richard Pops] has presided over tremendous shareholder value destruction since becoming CEO of Alkermes over thirty years ago. Notably, in the last five years (2017-2021), despite growing revenues and having revenues over $1 billion, Alkermes has consistently operated at a net loss. During the same period, Alkermes has underperformed the IBB by approximately 130%.

To present the other side of the matter, here’s what Alkermes said in a recent 8-K:

Alkermes’ Engagement with Sarissa The company’s preliminary proxy statement highlights the company’s extensive engagement with Sarissa since 2020, including more than 20 calls and virtual meetings as well as a recent in-person meeting, initiated by the company’s Chairman of the Board, at Sarissa’s offices in Greenwich, Conn. In early January 2022, approximately six weeks after the Board appointed a director designated by Sarissa, the company received a notice from Sarissa nominating another two Sarissa director candidates for election to the Board. Consistent with the Board’s nomination process, the Nominating and Corporate Governance Committee of the Board, which is composed of independent directors Drs. Dixon and Snyderman and, Sarissa designee, Dr. Laurencin, considered the qualifications of the Sarissa director nominees and, in this context, the attributes, qualifications and experience previously identified by the Board as important in order to support the long-term strategy of the company and create shareholder value. The Nominating and Corporate Governance Committee unanimously determined that the Sarissa nominees’ key attributes and experience were neither additive to the Board at this time nor consistent with those attributes and experience previously identified by the Board as important in a new director nominee, and therefore not in the best interests of all shareholders. The company repeatedly offered to work with Sarissa to identify a mutually agreeable director candidate, such as Dr. Wright, possessing these desired qualifications and experience; however, Sarissa declined. Throughout the engagement, Sarissa was complimentary of the company’s strategy, performance and management, including the Board’s appointment of Dr. Wright to the Board. Until yesterday, when Alex Denner, Ph.D., Founder and Chief Investment Officer of Sarissa Capital, objected to the Board’s director nomination process and, in particular, its decision not to recommend or appoint a Sarissa nominee as a director, Sarissa had never voiced any concerns regarding the company’s governance practices. Sarissa has not once presented a plan or new ideas for the business and has instead focused entirely on its belief that it deserves to have additional directors on the Board.

Sarissa has its own interests here, so my quoting their comment does not reflect my own judgment about the Alkermes CEO – I have none; however, even before I read these comments, I was stuck by two things; one, the company’s poor money management, and two, their lack of visibility in the market despite being a midcap concern with a long history.

Recently, Piper Sandler analyst David Amsellem also made broad comments that reflect similar criticisms. Amsellem called into question the company’s transition to oncology, saying that it has a questionable fit with the rest of the business. He also said that the company should focus on optimizing overall profitability, which is similar to what Alex Denner also seems to be saying, although for different reasons. However, the consensus seems to be that the company is managing money poorly, and transitioning to a new area is not the solution they should be looking at.

Financials

ALKS has a market cap of $3.76bn and a cash reserve of $760mn. The company’s net operating loss last quarter was around $30mn, and given their improving revenue channel, they are set for funds for the foreseeable future.

Bottom Line

ALKS is a strange company in some ways. The company was founded decades ago, and it has a stream of revenue generating candidates. Somehow, the company does not feel its CNS focus is good enough, so it is moving into oncology – but treading some pretty beaten paths there. It is producing losses despite being in business this long, and there’s very little coverage of the company, socially, on the web. I found nothing attractive enough in the company that merits an investment right now.