Significant stock swings due to importance of pipeline
Numerous investors in Alkermes have noted that attention is now shifting from its marketed drugs, Aristada and Vivitrol, towards several controversial pipeline assets. These assets, ALKS5461, ALKS4230, and ALKS3831, all have significant catalysts in the back half of the year to monitor. A quick look at the stock chart demonstrates just how much is on the line, as news related to the pipeline have led to significant stock swings over the last several months.
ALKS 5461 Approval Appears Less Likely, but Risk/Reward Could be Favorable
One of the key debates on the street is the NDA for ALKS5461, which is an opioid modulator for the treatment of major depressive disorder. The FDA has a tentative advisory committee meeting on November 1, 2018 scheduled. The company and investors will get a view into how the FDA might rule on the drug at its PDUFA date in January 31, 2019. Overall, the consensus is that investors do not expect a positive outcome on November 1 and on January 31. However, a closer examination reveals a more complex situation.
Background
Treatment resistant depression is major depressive disorder that has not responded to at least two antidepressants. The market is large and growing, and the FDA takes a more flexible approach in approving drugs aimed at this indication given the lack of innovation in the space. 5461 is a combination of buprenorphine and samidorphan. Samidorphan was included to counter the high that was produced by buprenorphine, and as a result, the drug has largely shown high safety levels in clinical trials. However, efficacy results are more mixed.
Phase 2 data suggested a sizable clinical benefit with a 5 point improvement on the Montgomery Asberg Depression Rating Scale (MADRS). This result was met with skepticism, as a 5 point improvement is unprecedented, and there were some signs suggesting that the placebo results were an abnormality.
Phase 3 data was more mixed, somewhat supporting the skepticism around phase 2 results. In the first phase 3 trial, FORWARD 3, 5461 failed to show a statistically significant benefit from placebo, and failed its primary endpoint.
In the second phase 3 trial, FORWARD 4, 5461 again missed its primary endpoint, but did show positive results that almost met statistical significance. The effect in week 3, 4, and 6 all were statistically significant, while week 5 missed statistical significance. The results are positive enough to potentially be supportive in Alkermes' NDA filing.
In the third phase 3 trial, FORWARD 5, 5461 met its primary endpoint on MADRS 6 and 10, but in somewhat controversial fashion. The primary endpoint used an average over the weeks, as 5461 did not show statistical significance at the end of the trial or in all weeks.
With the NDA filing including all of these results for review, it is questionable whether there is enough here for the FDA to give approval. Investor skepticism was supported when the company received a Refusal to File from the NDA in early April (leading to a 22% drop in the stock) - a surprise to investors. Investors were skeptical of an approval, but they did believe there was enough positive data for a review of the NDA. While this was overturned weeks later, it revealed that there are some reviewers that have hesitations.
The Puts and Takes
So what are the puts and takes now for approval on first pass from the FDA? The positives in favor of an approval are:
The FDA has been historically lenient when it comes to depression, as numerous antidepressants have received approval despite multiple phase 3 failures. Major depression disorder has a serious unmet need and a lack of innovation, and as a result, the FDA gives some leeway to novel mechanisms of action.
While there are two positive trials and two negative trials, FORWARD 4 (one of the failures) actually was showing data trending in the right direction, even though it did not meet the bar for statistical significance
As mentioned previously, the safety profile of 5461 is very safe, especially compared to other options such as ketamine
The advisory committee, if it occurs on November 1, could potentially give Alkermes some time to address any deficiencies that come up ahead of the PDUFA date on January 31st
The negatives include:
Novel trial design that has not been used in a successful drug approval
Novel analytical methodology, with controversial conclusions given the numerous weeks that did not show a statistical significance
Mixed results from its clinical trials (even within its successful trials)
Refusal to File, while overturned, was not a sign of confidence from the FDA
Net of all considerations, most analysts do not appear to assign a probability greater than 40% for the drug approval. However, with low expectations, and a large market (500k+ patients means potentially $500M in revenue) for the drug, the stock could potentially present a positive risk/reward profile ahead of the announcement for 5461, even if it's not likely to receive approval.
Increased Visibility on Potential of ALKS 4230 Soon
ALKS 4230 recently received a significant amount of investor attention after BMY/Nektar announced a $1.9 billion collaboration deal on a similar drug for cancer, placing a significant value on the class of drugs.
That class is the IL-2 agonists, which bind to IL-2 receptors to activate the immune system and induce a durable regression in cancer patients. IL-2 agonists also tend to target IL-2 receptors that down-regulate the immune system, creating an imbalance of the two and leading to high toxicity. This is a major challenge that the class will need to overcome in order to get closer to approval.
With the attention from the BMY/Nektar deal, investors are now closely watching ALKS4230. ALKS4230 attempts to bypass toxicity by selectively targeting IL-2 receptors that activate the immune system. Alkermes is now in early phase 1 trials with initial tests on the drug. Investors are closely watching for dose escalation data expected in 2H18, which should give an initial sense of 4230's potential for success. Alkermes is also exploring subcutaneous dosing in phase 1 and results are expected some time in 2H18.
Debate on ALKS 3831 Continues
ALKS3831 is a polarizing pipeline drug for Alkermes. Critical phase 3 data will be presented in 4Q18 on its six month study on weight gain vs. olanzapine that should address whether the drug will receive approval and the commercial potential for the drug.
ALKS3831 is a combo product of olanzapine and ALKS33 (samidorphan). Olanzapine is a highly efficacious and widely prescribed drug used to treat schizophrenia. However, the drug is limited by 1) a weight gain side effect, with some users gaining a significant amount of weight (50+ pounds), and 2) metabolic side effects, which may or may not be related to the weight gain. ALKS3831 attempts to limit the weight gain and may show broader metabolic benefits as well.
The phase 2 study was fairly controversial among investors given its mixed results. On one hand, the mean benefit was not significant, showing just a 2.2 pound improvement vs. olanzapine. This led many investors to write off the drug, noting that even if the drug receives approval, it may not see significant uptake given the small clinical effect. Additionally, a separate phase 3 study examining the efficacy of 3831 vs. olanzapine (which was successful in showing a similar efficacy level) actually showed a weight gain in more patients on 3831 than with olanzapine alone. Admittedly, this study was not meant to show weight gain – it was designed specifically for efficacy – and it was short at just 4 weeks in length. However, the weight gain results did not trend in the right direction for investors to gain confidence.
There were several positive signs as well, though. In the phase 2 study, the curves (3831 vs. olanzapine) began to separate further beyond week 4 as 3831 flattened (with the potential benefits of the drug playing out more at that point). Additionally, outlier data showed a more meaningful benefit in weight gain. This is potentially more substantial given the higher medical need among that group of patients. However, the confidence intervals here were much higher, suggesting some uncertainty in whether this result will be replicated in the phase 3 study.
If the drug is able to receive approval, even with a modest mean benefit, the drug could potentially reach $500M in sales or so with an outlier benefit. Additionally, if the drug is able to show a metabolic benefit as well (which investors do not seem to have much of a readthrough on), the drug could potentially reach blockbuster status.
Ultimately, investors are fairly split on the results, with perhaps a slight negative leaning towards the phase 3 readout. I expect debate to heighten in the coming months ahead of the 4Q readout.
The Other Topics: BIIB098, Aristada, Vivitrol
While this article focused primarily on the three pipeline drugs, investors are also discussing BIIB098 (formerly ALKS8700) and Alkermes's two proprietary drugs, Aristada and Vivitrol.
BIIB098 will have an NDA filing in 4Q18 and head-to-head results vs. Tecfidera in 1H19. Primary debate here is whether the drug will have lower adverse events (investors appear skeptical), and commercialization opportunities (I have seen wide disagreement on market opportunity for the drug).
Investors appear to be excited by Vivitrol's expected growth going forward, although there have been ups and downs in recent quarters (with 2Q coming in above expectations, but prior quarters missing). The company continues to attempt to address limitations in patient access to the drug and is making notable progress in several states.
Aristada has been slower to gain traction, but is making progress as well. Discussion here is focused on its differentiation and ability to take share from competitor Otsuka's Abilify Maintena. Alkermes recently received FDA approval for an initiation dose of Aristada at the end of 2Q, differentiating the drug further. Investors believe this should provide a boost to sales and further drive adoption of the drug.
Watch Key Catalysts in the Coming Months
Investors see 2018 as the year of the pipeline with three key drug assets to watch: 5461, 4230, and 3831. The three drugs have key catalysts in the back half of the year that will be crucial in determining the value of the stock and could present trading opportunities to investors.
