What Price Sobriety?

Alkermes(ALKS) and Cephalon (CEPH) investors are about to participate in a high-stakes experiment in drug pricing.

Next month, a new alcoholism drug developed by Alkermes and comarketed with Cephalon will hit the market. The product is fortified by favorable clinical trials and a potential marketing advantage because it offers a once-a-month injection rather than daily pills.

But the drug, Vivitrol, also will carry a price that surprised many analysts. At nearly seven times the price of current prescription pills for treating alcoholism, Vivitrol has set off a Wall Street debate about how many people might use the drug, given its cost.

"Does Vivitrol cost too much?" asks Rachel L. McMinn, of Piper Jaffray, in a recent research report. "Based on our recent discussions with addiction specialists, we are concerned this price may hinder Vivitrol adoption."

Still, McMinn maintains an outperform rating. She doesn't own shares; her firm was involved in an Alkermes public offering within the last three years.

Even if doctors believe in Vivitrol, will insurers and pharmacy-benefit managers pay for the drug? Or will they tell doctors and patients that generic or brand-name pills are good enough considering the price?

"We are assuming the discussions with payors must have gone well," says Jim Reddoch, of Friedman Billings Ramsey, in a report to clients Friday. Reddoch raised his annual Vivitrol sales predictions for the next five fiscal years based on the higher price. Reddoch doesn't own shares. His firm is a market maker.

Is The Price Right?

Last week, Alkermes revealed that Vivitrol will cost $695 for a monthly injection vs. around $100 per month for a generic pill, naltrexone, or for the brand-name tablet, Campral, from Forest Laboratories(FRX). The Vivitrol price is the medical equivalent of a sticker price, called wholesale acquisition cost, or WAC. This is the list price charged by drugmakers to wholesalers or direct purchasers; it excludes discounts or rebates.