What Price Sobriety?

Analysts wonder if Alkermes' new drug is too costly for mass adoption.
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Alkermes

(ALKS) - Get Report

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.

Alkermes executives defend their decision. The drug is "appropriately priced," said Richard F. Pops, the CEO, in a telephone conference call last Thursday with analysts. He said the price reflects the convenience of monthly dosing; the fact that the drug must be administered in a medical professional's office; and the effort to inject personal counseling into the total treatment.

Based on his marketing partner's discussions with insurers, "payors recognize the benefits," Pops said. Alkermes and Cephalon have received "a lot of positive feedback from leaders in the

alcoholism treatment field," he added.

Executives also say they are trying to reduce the bureaucratic hurdles and delays for insurance coverage. Last week, Rebecca Peterson, Alkermes' vice president for corporate communications, told analysts that "we think a majority of

insurance plans are unlikely to require prior authorization" for Vivitrol. That means patients wanting to take Vivitrol won't have to prove that they first tried other drugs.

Earlier this month, Cephalon executives told analysts that they worked for many months on a plan to make compliance easier. They created a one-stop shopping system, complete with a toll-free telephone number, "to eliminate the hassles of administration and payment," said Robert P. Roche Jr., executive vice president of worldwide pharmaceutical operations.

Roche told analysts on May 2 that patients and doctors can call a single number to get information about reimbursement, counseling, administration, drug availability and other matters. When it comes to alcoholism treatment, "you need more than a drug that works," he said.

Despite the companies' comments, Wall Street remains uncertain about the speed and depth of Vivitrol's acceptance by doctors and patients.

The Vivitrol price was triple what David Windley was expecting, so the Jefferies & Co. analyst cut his prediction on how many people would use it initially. His near-term Vivitrol sales forecast is unchanged, but Windley says his fiscal-2007 prediction of patients treated has been cut by two-thirds.

"As physicians gain experience with the product and reimbursement improves, market share should gather momentum," says Windley, who has a hold rating on Alkermes. He owns shares; his firm is a market maker.

Paul Keough, of Susquehanna Financial Group, had predicted a monthly Vivitrol price of $200 to $600. Keough, who has a positive rating on Alkermes, says a recent study from the National Institute of Alcoholism and Alcohol Abuse bodes well for Vivitrol, which is a long-acting version of generic naltrexone. The study says naltrexone pills are more effective than Forest Laboratories' Campral. The study was recently published in the

Journal of the American Medical Association

.

"We believe this advantage will ultimately translate into pricing power," says Keough in a Friday report to clients. "We continue to forecast steady growing demand, even at a premium." He doesn't own shares. His firm is a market maker.

Campral was approved by the FDA in July 2004 and was touted as the first new prescription alcoholism treatment in nine years. The recommended dosage is two tablets taken three times a day. Forest Laboratories licenses Campral for U.S. marketing from the German chemical and pharmaceutical conglomerate

Merck KGaA.

Campral hasn't produced much revenue for Forest, and the company didn't even mention it in its recent guidance for the fiscal year that started April 1. For the nine months ended Dec. 31, Campral recorded sales of $15.75 million, or less than 1% of corporate revenue.

Safety & Effectiveness

Alkermes and Cephalon executives believe their drug can not only improve compliance, but also expand the number of people seeking treatment. Alkermes cites research showing that of 18 million Americans who abuse or are dependent on alcohol, only 12% seek treatment. Of those who seek treatment, 75% relapse within 12 months. Treating alcoholism is far more complex than just taking medicine, and all purveyors of prescription alcoholism treatments say counseling is an important component of treatment.

The companies also must deal with safety concerns. Both Vivitrol and naltrexone carry black box warnings -- the strongest alert by the FDA -- saying they can cause liver damage. However, the Vivitrol label says the drug "does not appear to be

toxic to the liver at recommended doses."

Analyst Reddoch notes that although labels for naltrexone pills recommend liver-monitoring every three months, the label for Vivitrol doesn't require such monitoring.

Like other analysts, Reddoch didn't change his opinion of Alkermes -- he has an outperform rating -- due to the Vivitrol price announcements. That's because followers of Alkermes like the Cambridge, Mass.-based company's portfolio of products and research. Thomson First Call says there are 10 buy ratings and seven hold ratings.

Alkermes' technology enables

Johnson & Johnson

(JNJ) - Get Report

to sell a long-acting version of its schizophrenia drug Risperdal. Alkermes gets royalty payments for Risperdal Consta, which is injected once every two weeks. Risperdal pills must be taken daily.

Alkermes is working with

Eli Lilly

(LLY) - Get Report

to create an inhaled form of insulin. It also is working with Lilly and

Amylin Pharmaceuticals

(AMLN)

to create an extended-release version of Byetta to control blood sugar. Byetta must be injected twice a day; Alkermes is trying to create a once-a-week injectable drug.

"While we believe the premium pricing for Vivitrol adds some risk to the product's upcoming launch," says Andrew Forman of market maker WR Hambrecht, who doesn't own the stock and has a his buy rating, "Alkermes continues to have significant long-term earnings potential with multiple product growth drivers."