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: 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 has to buy things in order to continue to grow—there are certain companies that do that for a living, the classic specialty pharmaceutical company has to acquire its next product because they don’t have their own innate R&D capabilities. We’re not that kind of company, we have all kinds of innovation that’s being generated within the four walls here. But that said, from time to time, particularly when the market gets volatile and conditions shift around, assets become available. And you want to have the financial resources to [capitalize].
X: What’s the biggest lesson you’ve learned in partnering with pharmaceutical companies?
RP: Big Pharma’s value-add is very, very limited other than their capital. We can build these companies, we can hire, attract experienced drug professionals, and we can build cultures here that are more amenable to moving quickly, with a patient-centric point of view, rather than relying on large structures that exist within large pharmaceutical companies. And that’s not a disparaging comment on the part of large pharmaceutical companies, they do what they do as global commercial engines and regulatory engines, but as innovators, we can innovate much more quickly in companies of our own creation rather than relying on large pharmaceutical companies as collaborative partners.
X: Given that, would you go back and change some of your strategic decisions and early partnerships if you could?
RP: I would really do it the same way. We really benefited from the enormous amounts of capital and infrastructure that we were able to leverage when we were building our company up. Remember, our company was also at the same time building significant manufacturing capabilities, which isn’t always a biotech thing. We actually benefited from those interactions.
X: What about for other young biotechs without a drug delivery platform, but in need of pharma’s help?
RP: I think for a younger company today, the problem with large collaborations around your key assets is, if you have limited key assets, then it’s a one-way valve. If you pick the wrong partner, you’re going to be saddled with that as your partner for developing, potentially, a really important medicine. It’s difficult to make that judgment early on as a young company.
X: What’s the most common mistake you see those types of companies make?
RP: The classic mindset of young companies is the belief that their product is going to work. And that leads sometimes to less diversification than might be appropriate. You need to have a backup program. You need something that’s not covariant with your lead program in order to be sure you’re going to succeed. If your lead drug makes it, then that’s easy right? That makes life very simple. But the planning case is that it doesn’t. So what are you going to do when your most important asset fails? Because what we’ve learned over the years here is, virtually everything that the universe can throw at you, they’ve thrown at us. What’s allowed us to survive and thrive is our diversification across technology platforms and partnerships, and drug development categories, and individual assets.
X: As opposed to being caught dead to rights when your lead drug flops.
RP: You shouldn’t be surprised when your drugs fail. I mean we always say ok, what are we going to do when this fails? And that’s not being mean, or being a pessimist, that’s just a clear-eyed assessment of what you’re up against generally. Often, there’s a mismatch between the street expectations and the scientific expectations. Obviously we operate on a very long wavelength as a company. Wall Street operates on a very short wavelength. And when you superimpose those two, that’s the magic of why people invest in biotech, because they can create short-term events around long-term projects. But sometimes you see biotech management teams that interpret data in kind of a self-serving way that’s not truth-seeking. Other times it’s entirely truth-seeking.
X: So how do you survive with one drug prospect then?
RP: You have to be sensitive to the environment that you’re in. So when capital is abundant, as it is on a reliably periodic basis, capitalize. Raise money. Build your financial resources. When the markets are bad, when assets are undervalued, acquire them. Diversify. Following the trend is actually something we’ve done since the early 90s, believe it or not. There was a big biotech bubble in the early 90s, we went public on that wave, we got hypercapitalized at that time, and then the inevitable crash came and we ended up buying two or three companies over the next several years. And then finance again, and buy other things. That’s viewing the business as a business as well as a project management exercise of a complex scientific project.