Alkermes (ALKS) Stock Rips Higher On Phase III Data, Is The Surge Justified?


Alkermes Plc (NASDAQ: ALKS)

Alkermes plc is ripping higher after hours after the company announced positive results from its experimental antidepressant drug, ALKS 5461, a drug that had twice failed to meet its primary endpoints in two previous clinical trials.

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With the third time being the charm, ALKS stock is rallying hard, trading higher by over 40% from its regular session close, asking for a price of slightly over $62.00 per share as the market heads toward the final minutes in the after hours session. The stock traded as high as $66.00 dollars a share on volume of 2.3 million shares, which is over three times the average trading volume of the stock during a normal trading session.

Is Alkermes A Buy Based On These Results?

For Alkermes, the results breathe some fresh air into a drug that has been wilting on life support since January, when the company had announced that ALKS 5461 had failed in two separate clinical trials. However, the company failed to extinguish the hope that it saw in the drug, and, with the results published today, investors were eager to buy shares first and ask questions later.

Whether or not that strategy will work out is questionable. Although ALKS finally delivered some positive data related to the drug, it remains to be seen if the FDA is as similarly receptive to the news as are the traders who pushed the stock to a level that just about prices in approval. With the share price surging, investors might want to be cautious until more of the story plays out.

Alkernes CEO Richard Pop considers that the chances for approval are likely, but he further warns that the company still needs to meet with the FDA review team to discuss its options for the drug. A single phase III success, especially with drugs that can induce strong placebo effects, potentially raises the bar substantially higher to prove efficacy. With ALKS 5461 already failing to meet primary endpoints in two previous trials, the likelihood that the FDA will want to see additional data to support the most current trial is high.

The CEO has pointed to additional data from prior, smaller studies to bolster his case for approval and to generate investor confidence. However, even with the help from some moderately successful prior results from its phase II trial with the drug, history has shown that the FDA is more likely than not to require an additional study to replicate the success. Perhaps if the drug was meeting an unmet medical need, the possibilities would increase in their chances to win FDA expedited support, but when dealing with an antidepressant, even one that ALKS believes meets an unmet need for a small class of patients, the plethora of variables associated with determining the measurable effects and efficacy of a drug designed to treat mentally ill patients, requires a substantial and compelling set of data, not a preponderance of evidence, which is what ALKS is holding at this point in time.

The Company Will Always Be Positive, Thus The Need For Diligence

Assuredly, the ALKS medical and management team makes a confident case for expedited approval, citing that they met the primary endpoint in treating patients with MDD when compared to a placebo. The drug was generally well tolerated , with most side effects being minor, generally nausea, fatigue and dizziness. ALKS plans to request a meeting with the FDA’s Division of Psychiatric Products to advance the acceptance of a Fast Track Designation for the drug.

Granted, the Forward-5 study treated patients with MDD, Major Depressive Disorder, and collected data from over 1500 patients and claimed to “have established a strong foundation of evidence of ALKS 5461’s clinical utility in the adjunctive treatment of major depressive disorder.” The company has never been shy of delivering their opinion of ALKS 5461 to the market, who have repeatedly touted the drug’s promise in becoming a potential blockbuster treatment for MDD. Regardless of Alkermes opinion, the real test is going to be whether or not the FDA will be willing to buy into the case that the relevant clinical aspects were consistent enough between the phase II and III trial to merit some special consideration.

With Sarepta getting an unexpected nod from the FDA for its Duchennes treatment, many in the space are beginning to believe that the FDA has been more receptive to drugs that show signs of efficacy, so long as the drugs are safe and tolerable. Not to say that the FDA has abandoned its obligation to only approve drugs that actually treat a condition, some see a pattern developing where instances can be shown of a less strict FDA, especially when drugs come supported by advocacy groups, are related to pediatric care or meet an unmet medical need. I encourage the FDA to become more flexible in regard to approving novel therapies, however, for ALKS 5461, I believe that investors are reaching too far to expect a quick handshake from the FDA.

What To Expect Going Forward

In my opinion, the stock has overreacted to the positive news and has gotten ahead itself far too early. Although it will be important to read through the company’s entire data set before making an investment decision, the after hours trading plays more like a retail trap than it does an opportunity.

As an investor, I want drugs to be approved. And, while I have no position in Alkermes and do not intend to initiate a position until I can fully vet the data set, the opportunity to invest at these prices is seemingly too rich as I fully expect that the FDA will require additional testing. At the very least, ALKS is quite a ways from the finish line and with viable drugs on the market to treat depressive disorders, the pressure on the FDA to approve the drug is an entirely different scenario that what they did with Sarepta, so the comparison has little merit in my view.

With that said, I applaud the tenacity of Alkeres for sticking with the drug and finally producing a strong data set in its third trial. Is it enough to take the drug to FDA approval? I don’t think so.

For now, prudent investors should be patient and wait for additional data points specific to ALKS 5461. The headlines pushed the stock higher and the only supporting documentation was a cheerful quote from management. To maintain a 40% increase in share price, management is going to have to tell investors a whole lot more.

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