(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of ALKS.)
2018 may be a make-or-break year for biotech Alkermes plc (ALKS), with many critical milestones from drugs that have been in development for years. Positive outcomes for any of these drugs in the pipeline could meaningfully add to the company's revenue outlook, helping to boost the stock.
The technical trading pattern also suggests Alkermes shares could rise by nearly 13 percent to about $74, from its current price around $65.20, as a starting point.
Alkermes stock has struggled in recent years but came to life early in 2018, jumping by roughly 20 percent, as investors began focusing on its drugs in the early stages of development. Alkermes is developing ALKS '4230, an immuno-oncology treatment. Rival Nektar Therapeutics (NKTR) is developing a similar drug, and entered into a $1.85 billion collaboration with Bristol-Myers Squibb Co. (BMY), which helped send Alkermes shares soaring.
Alkermes' pipeline is very deep. It has other drugs that are far more advanced than ALKS '4230. The company could be on the verge of FDA approval for its lead depression drug candidate, ALKS '5461. Meanwhile, positive clinical study results for ALKS '3831 to treat schizophrenia, and a recent licensing deal with Biogen Inc (BIIB) for BIIB098, a multiple sclerosis drug, can all help drive Alkermes stock higher.
Alkermes recently submitted a New Drug Application to the FDA for ALKS '5461, and if that application is accepted, the depression drug may be on its way to FDA approval in 2018. On its fourth-quarter conference call, the company announced it plans to hire 200 sales representatives in mid-2018 to prepare for possible FDA approval.
Alkermes is also expecting to see topline clinical study results for its drug ALKS '3831 in the fall of 2018. It also plans to file an NDA for BIIB098, the drug it is collaborating with Biogen on.
Revenue Growth Opportunities
Analysts are looking for Alkermes revenue to grow substantially over the next couple of years to $1.417 billion in 2020, from $903 million in 2017 – a rise of nearly 57 percent.
The question is, how much of the revenue potential from the drug pipeline has already been baked into analyst estimates. The company already has two of its drugs on the market, with Vivitrol, for opioid dependence, and Aristada, for schizophrenia. The two drugs grew by a combined 42 percent in 2017, accounting for revenue of $362.8 million, which is about one-third of Alkermes' total revenue which comes from other licensing deals.
The technical trading patterns suggest that Alkermes could see its stock rise by about 13 percent to approximately $74, from its current price of roughly $65.50, with little to no resistance in the stock's path. (See also: 5 Biotechs That May Surge On Takeovers.)
A failure in these upcoming drug milestones could prove detrimental to Alkermes, as it has so much riding on the outcomes. But the opportunities, if positive, could be enormous.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.