Bank of America Expects Greater Earnings on Alkemes Inc. from Approval of Bydureon, Mantains Buy

Earlier this week, analysts from Bank of America Merrill Lynch published a report updating the estimates for Alkermes Inc. ALKS. The change is due to Eli Lilly, Amylin AMLN and Alkermes' announcement of the EU's approval of the drug Bydureon for treatment of type II diabetes. Analysts think that ALKS would be able to benefit more than AMLN due to a favorable royalty rate. Merrill Lynch continues the Buy rating with a High volatility risk, and a price target of $21.00. After the announcement, analysts added $0.50 to the NPV for ALKS and only $0.30 for AMLN. An 8% royalty rate is expected for ALKS compared to the low single digits for AMLN. Projected peak Bydureon sales of $900 million and $600 million in the US and EU in 2017/18, analysts made minor adjustments to the estimates. Alkermes' Medisorb technology has been utilizing Risperdal Consta and Vivitrol for opioid dependence. Phase 2 data for the anti-psychotic drug Abilify is expected in late June. The merger with Elan Drug Technologies (EDT) should expand this expertise as EDT's NanoCrystals technology was implemented in anti-psychotic drug Invenga Sustenna. The price target of $21 for ALKS includes a conservative forecast for EDT's portfolio, which will be reassessed on ALKS investor day July 18th. There's untapped value in Vivitrol in opioid dependence, along with strong earnings leverage from Bydureon in type II diabetes. There is also a loss of market share for Risperdal Consta, as more generics enter the market for schizophrenia. Upside risks include higher than expected earnings from Vivitrol and Bydureon, and downside includes weak uptake of Bydureon and Vivitrol and greater Consta market loss. At the time of posting, shares of Alkermes were trading at $17.57.