How do you build a biotech? Ask ten CEOs and you’ll likely get a hundred answers, but for Richard Pops, CEO of Waltham, MA- and Dublin, Ireland-based Alkermes, it arguably boils down to this: deliberately.
Pops took over Alkermes (NASDAQ: [[ticker:ALKS]]) in 1991 when he was just 28. At the time, the company had been around for about a decade, and like most biotechs starting out, was bleeding cash. But Alkermes wasn’t your typical high-risk, high-reward, one-drug hopeful. It had a foundation to grow on: a proprietary technology that could make drugs last longer in the bloodstream.
It’s well known at this point what Alkermes has done with that technology in the years since. It has methodically built up a war chest by lending its expertise to others, inking deals like the seminal one it signed in 1996 with Johnson & Johnson that led to a long-lasting injectable version of the schizophrenia drug risperidone, producing the blockbuster Risperdal Consta. It bought Elan Drug Technologies in 2009, which both added more royalty-generating products to its revenue stream—J&J’s paliperidone (Ingeva Sustanna) and Acorda Therapeutics’ dalfampridine (Ampyra), for instance—and enabled Alkermes to incorporate in Dublin and cut its tax bill. The various development deals have all added up to more than $500 million in yearly revenue as of fiscal 2013.
Of course, that’s peanuts compared to biotech’s big boys, and not all of the deals Alkermes cut have worked out the way it envisioned. Sales of the once-weekly form of diabetes drug exenatide (Bydureon) have fallen far short of the once sky-high expectations for the product, which was originally developed by Eli Lilly and Amylin Pharmaceuticals. And Alkermes has had its brushes with disaster pursuing the partnership strategy, like when the FDA initially rejected J&J’s Risperdal Consta application in 2002. As Pops told Xconomy earlier this year, the notification blindsided Alkermes because it didn’t have “great visibility” into the application filing process, which was handled by J&J. The decision triggered a 70 percent sell-off in Alkermes stock and massive layoffs.
But by staying the course and spreading its bets around, Alkermes was able to steadily increase its value, cover its internal R&D costs with its own cash flow, and try to take that next step and become a drugmaker.
“We knew we had very good science,” Pops says looking back. “In contrast to certain biotech companies that had a eureka moment where a drug worked, and therefore they were on their way to a very significant enterprise, we built this company deliberately through a series of scientific moves, collaborative moves, capital raising moves, [and] M&A moves, always kind of thinking about it as a business as well as a science project.”
Whether those moves will take Alkermes all the way into the ranks of the Biogens and Celgenes of the world remains to be seen, of course. But Alkermes reached an important milestone last week, when a drug that it developed in-house, owns solely, and is ticketed for a big market—aripiprazole lauroxil, a long-lasting injectable version of the antipsychotic aripiprazole (Abilify)—hit its mark in Phase 3 trials. Alkermes expects to file a new drug application with the FDA in the third quarter, and analysts have speculated that the drug could generate up to $1 billion in peak sales down the road.
Behind aripiprazole in Alkermes’ pipeline is a suite of antidepressants, antipsychotics, and other drug candidates that the company has developed from scratch—an important departure from its strategy to date of applying its sustained-release technology to molecules created by others. The next development to watch for on that front will be a big Phase 3 test of ALKS-5461, a drug for major depressive disorder. Alkermes just began enrolling patients in that study in March.
With Alkermes potentially on the brink of moving from a supporting role in drug development to center stage, I recently sat down with Pops. We talked about his strategy in building Alkermes, the give and take of relying on pharma partnerships, and the lessons he’s learned along the way. Here are a few excerpts from that conversation.
Xconomy: When you first took over Alkermes, it was a completely different type of company. Is this what you thought it would eventually look like?
Richard Pops: This will sound bizarre, but yes. Not the fine level of detail, the individual elements, but we knew many years ago that the model conceptually was Alza. Alza was the preeminent drug delivery company of its time. And once they had built a profitable company with recurring cash flows from a series of products that they’d developed for Big Pharma, they started applying those technologies to products for their own account, and they built their own proprietary business. And that’s the stepwise way of building the biopharmaceutical company that’s not dependent on just getting it right, right out of the blocks, with your first proprietary molecule, which is so often the business plan of biotech companies. [Editor’s note: Alza was acquired for around $12 billion in 2001 by Johnson & Johnson.]
X: What are the positives and negatives of pursuing that strategy?
RP: The strength of that [strategy] is you get millions of dollars of collaborative payments that help drive the technology forward, and the covariance between the various programs is very limited. The weakness of that approach is that if you’re successful, you only end up with the royalty. But, when you start as a money-losing biotech company, when you end up with a few hundred million dollars in ongoing revenues from royalties, that funds your R&D. Then you’re no longer dependent on the public capital markets.
X: So then why did Alkermes raise $250 million in January?
RP: It was the recognition that we’re going to build a big company. And there’s opportunities that present themselves. We’ve bought multiple companies over the years. We’re not one of those companies that
