Expectations Deflated for Alkermes

This column was originally published on RealMoney on Dec. 1 at 10:29 a.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

After an extraordinary downshift in the outlook for specialty pharma player Alkermes (ALKS Quote), the stock is beginning to look more attractive now that a bit of reality has set in.

Earlier in the year, the company had been riding high on the prospects for its new alcoholism treatment, Vivitrol, and a generous co-promotion deal with Cephalon (CEPH Quote). This product reached the U.S. market in June, and in its first full quarter on the market, it missed just about all of the market's forecasts with only $1.1 million in sales. This prompted management to bring down its Vivitrol sales forecasts for the full year to a range of $5 million to $10 million, from $35 million to $40 million, previously. This performance also brought at least one high-profile analyst downgrade and more cautious investor sentiment overall.

Alkermes still faces an uncertain market outlook for Vivitrol based on its modest ramp-up and the difficulties of other treatments in this space. I'm now more comfortable with the stock, though, as there is a more balanced market perspective on Vivitrol going forward. In fact, the shares are off nearly 40% from their peak earlier this year and are down 16% year to date.

I suspect that Vivitrol may still cause further volatility for shareholders, but the main appeal of Alkermes rests in its differentiated drug-delivery technologies and solid late-stage diabetes pipeline. With Vivitrol expectations now deflated, I believe the shares will be better able to move forward on the strength of their core delivery capabilities and pipeline opportunities.

It's All in the Delivery

Alkermes' roots are in its three core drug-delivery technologies that provide extended release activity or the pulmonary administration of drugs. I believe these technologies are valuable for the enhancement of many currently marketed medications. In fact, the company's main cash cow is Risperdal Consta, which is the extended two-week injectible version of Johnson & Johnson's (JNJ Quote) schizophrenia treatment, Risperdal. This extended-release version has an important compliance advantage in the treatment of this severe patient population.