Expectations Deflated for Alkermes

Of course, near-term Vivitrol sales trends have the potential to cause further volatility for the stock, but I believe the risk/reward for this franchise looks much more favorable going forward. Importantly, the company's investment in Vivitrol is not a black hole, as start-up expenses for Alkermes are capped at the $120 million level through the end of '07.

Cephalon will reimburse Alkermes with all near-term expenses beyond that level, and the companies will equally share in the P&L in 2008 and beyond. The initial deal with Cephalon was very favorable for Alkermes, as the company has already received $270 million in milestones on Vivitrol, which eases near-term funding demands. In addition, Alkermes has already reached profitability and boasts a $321 million cash balance.

I'm glad to see management's optimistic expectations for the unproven Vivitrol franchise revert to more reasonable levels. Although there are no major near-term catalysts for Alkermes shares, I believe the disruption from the Vivitrol launch is likely to provide a good long-term opportunity for investors to gain exposure to both their attractive pipeline and their drug-delivery technologies.