Key Takeaways
- Alkermes' strategic sales force expansion and positive clinical trial results could enhance market penetration and drive revenue growth for key psychiatric products.
- Strong financial footing and US-based manufacturing shield Alkermes from regulatory risks, protecting margins and boosting shareholder value.
- Alkermes faces revenue risks from potential program delays, funding cuts, supplier issues, policy changes, and increased competition impacting financial stability.
Catalysts
About Alkermes- A biopharmaceutical company, researches, develops, and commercializes pharmaceutical products to address unmet medical needs of patients in therapeutic areas in the United States, Ireland, and internationally.
- The ALKS 2680 program is set to deliver pivotal Phase II results in narcolepsy type 1 and type 2 early in the third quarter and fall of 2025, which could significantly impact revenue growth if the data is positive, as it advances towards planned Phase III studies.
- The strategic expansion of Alkermes' psychiatry sales force is expected to enhance market penetration and drive revenue growth for products like LYBALVI and ARISTADA, with notable contributions anticipated within a few quarters.
- ALKS 2680 has the potential to extend into novel indications beyond sleep disorders, leveraging the orexin 2 receptor agonist's applicability, which could open new revenue streams and enhance long-term earnings growth.
- Alkermes demonstrates a strong financial footing with substantial cash reserves ($916.2 million) and a strategic share repurchase plan, which could drive shareholder value and positively impact earnings per share.
- The company’s US-based manufacturing operations and low reliance on foreign APIs position it favorably against potential regulatory changes, such as tariffs, which could preserve net margins and profitability.
Alkermes Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Alkermes's revenue will decrease by 2.7% annually over the next 3 years.
- Analysts assume that profit margins will shrink from 23.5% today to 11.2% in 3 years time.
- Analysts expect earnings to reach $156.3 million (and earnings per share of $0.82) by about May 2028, down from $355.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $245.5 million in earnings, and the most bearish expecting $58.6 million.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 46.9x on those 2028 earnings, up from 14.1x today. This future PE is greater than the current PE for the US Biotechs industry at 18.3x.
- Analysts expect the number of shares outstanding to decline by 2.55% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 6.85%, as per the Simply Wall St company report.
Alkermes Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The ALKS 2680 program is in its early stages, and any delays or negative results in the Phase II or planned Phase III studies could impact future revenue projections and earnings.
- Alkermes faces the challenge of potential government funding cuts to abuse programs, which could significantly affect VIVITROL sales, impacting their overall revenue and profitability.
- There is a reliance on certain non-domestic suppliers for active pharmaceutical ingredients, and any disruptions could impact the cost of goods sold and ultimately the net margins.
- Macroeconomic changes, such as Medicaid policy changes, could pose risks to net sales for their key commercial products, potentially affecting the financial stability and revenue projections.
- The competitive landscape for their proprietary products, including increased competition for LYBALVI in schizophrenia and bipolar disorder, could hinder market share growth affecting future revenues.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $39.571 for Alkermes based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $52.0, and the most bearish reporting a price target of just $30.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $156.3 million, and it would be trading on a PE ratio of 46.9x, assuming you use a discount rate of 6.9%.
- Given the current share price of $30.36, the analyst price target of $39.57 is 23.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.