Alkermes plc (ALKS-NASDAQ) Analyst Note

Transcription

1 February 26, 2015 Alkermes plc (ALKS-NASDAQ) Analyst Note Current Recommendation SUMMARY DATA NEUTRAL Prior Recommendation Outperform Date of Last Change 04/16/2014 Current Price (02/25/15) $71.11 Target Price $ Week High $ Week Low $40.23 One-Year Return (%) Beta 1.11 Average Daily Volume (sh) 1,216,027 Shares Outstanding (mil) 146 Market Capitalization ($mil) $10,382 Short Interest Ratio (days) 3.92 Institutional Ownership (%) Insider Ownership (%) 4 Annual Cash Dividend $0.00 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 40.3 Earnings Per Share (%) Dividend (%) P/E using TTM EPS P/E using 2015 Estimate P/E using 2016 Estimate Zacks Rank *: Short Term 1 3 months outlook 4-Sell * Definition / Disclosure on last page SUMMARY Alkermes reported fourth-quarter 2014 earnings (including share-based compensation expense) of $0.02 per share, down substantially from year-ago earnings of $0.20 per share but better than the Zacks Consensus Estimate of a loss of $0.05. Total revenues in the quarter climbed 13.4% to $175.2 million, beating the Zacks Consensus Estimate of $158.9 million. Alkermes efforts to develop its pipeline are encouraging. The most advanced candidate in the company s pipeline is aripiprazole lauroxil (under FDA review for schizophrenia with a response expected by Aug 22, 2015). Management is highly bullish on this candidate. We maintain our Neutral recommendation on the stock. Risk Level * Above Avg., Type of Stock Large-Growth Industry Med-Biomed/Gene Zacks Industry Rank * 77 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) A 139 A 140 A 154 A 596 A A 153 A 160 A 175 A 618 A E 164 E 171 E 188 E 662 E E Note: Quarterly nos. may not add up to annual nos. due to rounding off. The co. has changed its FY to Jan-Dec. All figs have been adjusted accordingly. Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 $0.29 A $0.23 A -$0.05 A $0.20 A $0.73 A $0.05 A -$0.01 A -$0.25 A $0.02 A -$0.29 A $0.05 E -$0.01 E -$0.14 E $0.02 E -$0.18 E 2016 $0.34 E Note: Quarterly nos. may not add up to annual nos. due to rounding off. The co. has changed its FY to Jan-Dec. All figs have been adjusted accordingly. Projected EPS Growth - Next 5 Years % 2015 Zacks Investment Research, All Rights reserved S. Riverside Plaza, Chicago IL 60606

2 RECENT NEWS Alkermes Falls on Pipeline News; Q4 Earnings Plunge Y/Y- Feb 24 Alkermes reported fourth quarter 2014 earnings (including share-based compensation expense) of $0.02 per share, down substantially from year-ago earnings of $0.20 per share but better than the Zacks Consensus Estimate of a loss of $0.05. Alkermes reported revenues of $175.2 million for the fourth quarter of 2014, up 13.4% year over year. Revenues were boosted by strong sales of drugs like Invega Sustenna, Vivitrol and Ampyra. Moreover, revenues were above the Zacks Consensus Estimate of $158.9 million. Alkermes full-year loss (including share-based compensation expense) came in at $0.03 per share as compared to earnings of $0.90 per share in the prior year. The Zacks Consensus Estimate was at a loss of 14 cents revenues increased 3.8% to $618.8 million, beating the Zacks Consensus Estimate of $603 million. Quarter in Details Manufacturing and royalty revenues at Alkermes climbed 7.9% to $143.2 million in the reported quarter. Manufacturing and royalty revenues included $70.3 million (down 1.3%) from the company s long-acting atypical antipsychotic franchise, Risperdal Consta and Invega Sustenna. Alkermes recorded manufacturing and royalty revenues of $24.3 million (up 30.6%) on Ampyra (EU trade name: Fampyra). Alkermes earned royalty revenues of $9.8 million (up 27.3%) on Bydureon. The company has an agreement with AstraZeneca for Bydureon. Vivitrol sales increased 44.2% to $29.7 million in the reported quarter. Research & development (R&D) expenses for the fourth quarter increased 52.8% to $74.4 million. Selling, general and administrative (SG&A) spending shot up 24.1% from the year-ago quarter to $54.8 million. In a separate press release, Alkermes informed that its pain candidate, ALKS 7106, failed to meet the company s pre-specified criteria needed to advance the candidate into phase II studies. The randomized, double-blind, placebo-controlled phase I study was conducted to evaluate the safety, tolerability and pharmacokinetics of single escalating doses of ALKS 7106 in 64 healthy adults. Based on data from the study, Alkermes has decided to discontinue the development of ALKS Alkeremes shares were down 4.1%. Meanwhile, the company continues to progress with its other pipeline candidates, namely, ALKS 5461 (phase III major depressive disorder), ALKS 3831 (phase II schizophrenia) and ALKS 8700 (phase I multiple sclerosis) Outlook Alkermes expects loss per share in the range of $0.27 to $0.40. The pre-earnings Zacks Consensus Estimate currently stands at a loss of 19 cents per share. Equity Research ALKS Page 2

3 Alkermes expects total revenues in the range of $640 million to $670 million. The guidance includes Vivitrol net sales between $125 million and $135 million and net sales from the anticipated launch of aripiprazole lauroxil (under FDA review for schizophrenia with a response expected by Aug 22, 2015) between $5 million and $10 million. The pre-earnings Zacks Consensus Estimate stands at $675 million. The company expects R&D spend in the range of $345 million to $365 million R&D spend is expected to increase as the company continues to develop its pipeline. SG&A spend is expected at $310 $330 million. Costs associated with the marketing of Vivitrol and sales activity in anticipation of the potential launch of aripiprazole lauroxil are expected to push up SG&A expenses. Upon approval, Alkermes expects to launch aripiprazole lauroxil later this year. VALUATION Alkermes reported fourth-quarter 2014 earnings of $0.02 per share, down substantially from year-ago earnings of $0.20 per share but better than the Zacks Consensus Estimate of a loss of $0.05. Total revenues in the quarter climbed 13.4% to $175.2 million, beating the Zacks Consensus Estimate of $158.9 million. Alkermes expects loss per share in the range of $0.27 to $0.40 in Alkermes efforts to develop its pipeline are encouraging. The most advanced candidate in the company s pipeline is aripiprazole lauroxil for schizophrenia. Management is highly bullish on this candidate. We maintain our Neutral recommendation on the stock. Alkermes current trailing 12-month P/S multiple is 16.8, compared to the 19.3 average for its peer group. Based on forward estimates, the stock is trading at 15.7x our 2015 sales estimate, well above its peer group multiple of Our target price is $ It is based on 16.5x our 2015 sales estimate. Key Indicators P/S F1 P/S F2 Est. 5-Yr EPS Gr% P/CF P/S P/E 5-Yr High P/E 5-Yr Low Alkermes (ALKS) Peer Group Average BioMarin Pharmaceutical Inc. (BMRN) The Medicines Company (MDCO) PDL BioPharma, Inc. (PDLI) Vertex Pharmaceuticals Incorporated (VRTX) TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Alkermes (ALKS) Industry Average S&P Equity Research ALKS Page 3

4 Earnings Surprise and Estimate Revision History Equity Research ALKS Page 4

5 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of ALKS. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1123 companies covered: Outperform %, Neutral %, Underperform 5.7%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. NOTE: THIS IS A NEWS-ONLY UPDATE; THE REST OF THIS REPORT HAS NOT BEEN UPDATED YET. OVERVIEW Dublin, Ireland-based Alkermes plc was formed following the Sep 2011 merger of Waltham, MA-based Alkermes, Inc. and Elan Drug Technologies (EDT), the drug delivery unit of Elan Corporation. The combined entity is a fully integrated global biopharmaceutical company that possesses a diversified product portfolio (inclusive of more than 20 products) and a robust pipeline focusing on central nervous system disorders such as addiction, schizophrenia and depression. Elan was acquired by Perrigo in The key marketed products at Alkermes include Risperdal Consta (schizophrenia and bipolar disorder), Xeplion (schizophrenia), Vivitrol (opioid and alcohol dependence), Ampyra/Fampyra (improving walking ability in multiple sclerosis patients) and Bydureon (type II diabetes). In Apr 2013, Alkermes board of directors approved a restructuring plan related to its manufacturing facility at Athlone, Ireland. The company will stop manufacturing certain products, whose demand waned due to generic competition in the market. The company expects to continue generating revenues from the manufacturing of these products till Dec 31, Alkermes has a robust pipeline. The candidates under development at Alkermes include ALKS 5461 (major depressive disorder/mdd), aripiprazole lauroxil (formerly known as ALKS 9070) and ALKS 3831 for treating schizophrenia among others. Aripiprazole lauroxil is currently under FDA review with a response expected by Aug 22, In May 2013, Alkermes announced a change in its fiscal year-end from Mar 31 to Dec 31. For the ninemonth period (Apr 1- Dec 31, 2013), Alkermes recorded revenues of $433 million with the U.S., Ireland and the rest of the world contributing 62.1%, 1.3% and 36.6%, respectively. Alkermes fiscal year now coincides with the calendar year. Equity Research ALKS Page 5

6 Apart from its headquarters in Dublin, the company possesses a research and development center and corporate offices in Waltham, MA. Moreover, manufacturing facilities are located in places such as Athlone, Ireland; Gainesville, GA; and Wilmington, OH. REASONS TO BUY Promising Pipeline: Alkermes pipeline has expanded significantly following the acquisition of the EDT unit. Interesting candidates include aripiprazole lauroxil (schizophrenia once-monthly formulation under review in the U.S. with a response expected by Aug 22, 2015), ALKS 5461 (phase III MDD), ALKS 3831 (phase II schizophrenia) and a three-month formulation of Invega sustenna (under regulatory review in the U.S.). The successful development and commercialization of these candidates should boost the company s top line. Restructuring Initiative to Drive Cost Savings: In Apr 2013, Alkermes initiated a restructuring plan related to its manufacturing facility at Athlone, Ireland. As per the initiative, the company has stopped manufacturing certain older products whose demand has waned due to generic competition. Alkermes also decided to cut down on its employee headcount by roughly 130 employees. The restructuring initiative is expected to be completed by Dec 31, Apart from reducing costs, the company will also have the opportunity to eliminate some of the uneconomic products from its portfolio. Such cost-cutting initiatives are expected to drive the bottom line at Alkermes. Impressive Product Portfolio: Alkermes revenues are driven by Vivitrol and four partnered products including Risperdal Consta, Invega Sustenna, Ampyra and Bydureon. These products have been performing well in the past few quarters. We expect these products to contribute to the company s topline growth in the coming quarters as well. REASONS TO SELL Pipeline Setbacks: Alkermes has had its share of pipeline setbacks. Pipeline setbacks include discontinuation of the development of phase II candidates, samidorphan (formerly known as ALKS 33 binge eating disorder) and ALKS 37 (opioid induced constipation) in 2011 and 2012, respectively. Similar pipeline setbacks will weigh heavily on the stock. Competition in the Diabetes Market: Though impressed by the FDA approval and launch of type II diabetes drug Bydureon (glucagon-like peptide- 1 receptor agonist), we note that the diabetes market is highly crowded with the presence of big players like Merck and Novo Nordisk. Competition will intensify further as several companies are working on bringing their type II diabetes treatments to market. Alkermes drug has managed to generate modest revenues since its launch. Dependency on Partners: Alkermes is highly dependent on partners for most of the products in its portfolio. For example, Risperdal Consta is marketed by Johnson and Johnson, Ampyra/Fampyra is marketed by Acorda in the U.S. and Biogen in the ex-u.s. markets. Partnership related setbacks would weigh heavily on the company. Equity Research ALKS Page 6

7 Analyst: Copy Editor Content Editor QCA Lead Analyst Last Updated by Reason for Update Kanchan Khanna Pushpanjali Banerjee Lopamudra Bhattacharya Arpita Dutt Lopamudra Bhattacharya Kanchan Khanna Note Equity Research ALKS Page 7