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Alkermes Plc (ALKS), Eli Lilly & Co. (LLY), AstraZeneca plc (ADR) (AZN): Tackling Pain and Addiction

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Alkermes Plc (NASDAQ:ALKS) is primarily known for its schizophrenia and multiple sclerosis drug treatments. Schizophrenia treatments Risperdal Consta and Invega Sustenna collectively delivered $56.2 million in royalty payments from $627 million in sales, while MS drugs Ampyra and Fampyra generated $19.9 million last quarter. Collectively, these drugs amount to 55% of quarterly revenue. Bristol Myers Squibb Co. (NYSE:BMY) Otsuka Pharmaceuticals‘ schizophrenia treatment, Abilify, is the No. 1 selling drug in America with quarterly sales of $1.6 billion . However, Alkermes’ own schizophrenia treatments have managed to outpace Abilify’s single-digit sales growth and flat unit growth, gaining market share as a result.  In addition, generic competition for the three most prescribed schizophrenia treatments will have a substantial impact on sales through to 2016; for example, Eli Lilly & Co. (NYSE:LLY)‘s Zyprexa went generic in 2011 and the sales rights sold on, while sales of AstraZeneca plc (ADR) (NYSE:AZN)‘s Seroquel dropped 85% in Q2 of 2012.

Alkermes Plc (NASDAQ:ALKS)

But schizophrenia isn’t Alkermes Plc (NASDAQ:ALKS)’ only opportunity.

Tackling addiction

The company’s foray into addiction treatment may offer better compensation than its schizophrenia offerings in the long term. Alkermes Plc (NASDAQ:ALKS)’ Vivitrol treats heroin addicts and alcoholics by blocking receptors in the brain, reducing the user’s desire for heroin or alcohol. The drug mechanism is different to methadone, which competes for receptors in the brain. Vivitrol is currently in use by the justice system in 21 states, and in the most recent quarter it added $17.4 million in sales, accounting for a 40% jump from last year.

The company was “very conservative” on forecasts for the drug, in part because its success is anecdotal given the circumstances of its use. However, Vivitrol on track to generate $80 million in revenue for the year. Mention of a possible price increase was rebuffed with Alkermes Plc (NASDAQ:ALKS) stating “we think we’ve priced the drug correctly,” although the possibility of a future price hike was not denied. The company did hike prices in 2011 when Vivitrol sales were slower than expected, although often the alternative is prison, which cost multiples more than the typical $15,000+ annual cost of Vivitrol treatment.

Drug alternatives are few. The pill form, Naltrexone, was developed 30 years ago, but required a daily regiment which was difficult to maintain. Research for an injectable form for the drug was conducted during the ’90s, from which Vivitrol emerged. As an injectable, Vivitrol only required a single shot a month which made addiction management considerably more effective. However, approval for use of Vivitrol came relatively late in the game: It was only in 2006 that the FDA approved its treatment for alcoholics, and 2010 for opiate addiction.

Alkermes Plc (NASDAQ:ALKS) has secured a large share of this market. Alkermes closest rival is Forest Laboratories, Inc. (NYSE:FRX). It manufactures Campral, used for to reduce alcohol consumption. Campral enjoyed worldwide sales of $80 million in 2011, but with Vivitrol to compete against sales, of Campral dropped to $4.7 million for the most recent quarter.

Treating pain

More than 15,000 people in the U.S. are killed every year from overdosing on painkillers, half a million visits to emergency departments are the result of overdoses, and 12 million American teens and adults abuse painkillers. The total cost in health care from painkiller abuse is $72.5 billion.

Why are these figures so high?

Because the largest percentage of the $27 billion painkiller market (29%) is from sales in “strong opioid” drugs, of which top dog is Purdue Pharma’s OxyContin, with annual sales of $2.5 billion.  Here is a huge market in crisis need of viable alternatives.

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