Like many others before it in recent months, Alkermes Inc. is raising money through the sale of convertible subordinated notes.
The Cambridge, Mass.-based company priced $100 million worth of the notes, due in 2023, in a private placement. The notes, which will bear interest at 2.5 percent per year and are subordinate to existing and future senior indebtedness, will be convertible into Alkermes' common stock at $13.85 per share, about a 10 percent premium to Monday's closing bid price of $12.64.
The company's shares (NASDAQ:ALKS) lost 10 percent of their value Tuesday, closing at $11.38, a $1.26 drop in heavier-than-average trading. But Jim Frates, Alkermes' chief financial officer, told BioWorld Today that the conversion price fell within a positive range relative to the convertible debt market.
"The nice thing about the convertible market is that it allowed us to do a deal overnight and understand the parameters of the impact on the stock, rather than raising money in other ways where it's unsure where you're going to price a deal," he added. "We liked the certitude of knowing the ultimate price that we would sell what we think is equity, ultimately."
Alkermes, which also granted the buyers an option to purchase up to an additional $25 million in notes, can convert the notes any time its common stock's closing price exceeds 150 percent of the conversion price for at least 20 trading days during any 30-day trading period. Alkermes may redeem some or all of the notes on or after Sept. 6, 2006.
The noteholders will have the right to require the company to repurchase some or all of their notes on Sept. 1 of 2008, 2013 and 2018 and upon certain events, including a change in control.
"This brings our cash position to more than $200 million," Frates said. "Our efforts have produced a lot of technologies that are working, and we have a lot of exciting products. We're looking to try to build a large, successful company, and I think this is a prudent step to take to continue down that road."
Alkermes reported $113.6 million in cash and investments for the quarterly period ended June 30, during which it recorded a $30.6 million net loss. He said the company would use a portion of the net proceeds to further internal research, development and clinical trial activities.
"This is more focused on our proprietary products, particularly Vivitrex," Frates said. "It allows us to have a lot more flexibility in negotiating a partnership, and what one might look like, whether it's ex-U.S. vs. just U.S."
The late-stage product, an injectable form of naltrexone, is being studied in a Phase III trial in alcoholism and opiate abuse. Patient dosing ended in March, and Frates said Alkermes expects to release data from the pivotal study in December or January.
He said the money also would be applied to further additional internal programs, including a pulmonary form of epinephrine in Phase I trials. Other undisclosed preclinical programs also will be accelerated toward human studies, courtesy of the latest funding.
"Now we can continue to invest in our proprietary pipeline, which we think is great because we have technologies that work," Frates said. "That's evidenced by approvals of two of our injectable technologies on the market, and later-stage products in development with [Eli Lilly and Co.] for pulmonary insulin. Now it's just a matter of getting as many things into the clinic as possible."
Alkermes has begun drawing manufacturing and royalty revenue related to Risperdal Consta, which is approved in 35 countries outside the U.S. The company attributed about a quarter of its $4.3 million in its quarterly revenues to the product, which is partnered with Janssen Pharmaceutica Products LP, a unit of Johnson & Johnson.
Alkermes continues to await U.S. marketing and launch of the long-acting formulation of risperidone for schizophrenia. That responsibility falls on the shoulders of the New Brunswick, N.J.-based partner, while Alkermes is charged with manufacturing responsibilities. Risperdal Consta is formulated with Medisorb, Alkermes' delivery technology that encapsulates risperidone in microspheres made of a biodegradable polymer.
In the spring, the partners filed for FDA approval for a second time and expect a response next quarter. The companies initially submitted a new drug application in August 2001 but received a non-approvable letter in June 2002.
Its other already-approved partnered product is Nutropin Depot, for pediatric growth hormone deficiency. Alkermes' partner, South San Francisco-based Genentech Inc., also is studying its use in a Phase III adult trial. Nutropin Depot is formulated using Alkermes' ProLease technology.
Alkermes added that it could use the latest funds to potentially acquire additional technologies and compounds, though it noted no such acquisitions are in the works, and for manufacturing facilities, equipment, working capital and other general corporate purposes.